Oral Answers to Questions

Baroness Morgan of Cotes Excerpts

Tuesday 2nd July 2019 Commons Chamber

[Mr Hammond]

I have consistently made the case and explained to this House that there is fiscal headroom within the current fiscal rules. If we have a smooth exit from the European Union through a transition that will remove the economic uncertainty that is hanging over our economy, it will then be safe to release that headroom and make it available for additional public spending or, at the choice of the next Government, to reduce taxation. Either way, we have the headroom available once we have removed the Brexit uncertainty.

[Nicky Morgan (Loughborough) (Con)]

Is it not the case that Scotland, like everybody else, will know the plans for future public spending, for fiscal headroom and for the economic effects overall if the comprehensive spending review were to be started sooner rather than later? Is the Chancellor able to tell the people of Scotland, the people in this House and the people beyond when the comprehensive spending review will be starting?

[Mr Hammond]

I announced at the spring statement that it is the Government’s intention to conduct a three-year spending review concluding this autumn, subject to a deal with the EU being completed. Departments are already commissioned to carry out the work necessary for such a spending review, but it will be for the new Government to decide whether the circumstances make it appropriate to conduct a full three-year spending review or a single-year exercise.

Consumer Access: Financial Services

Baroness Morgan of Cotes Excerpts

Thursday 6th June 2019 Westminster Hall

[Nicky Morgan (Loughborough) (Con)]

I beg to move,

That this House has considered the Twenty-ninth Report of the Treasury Committee, Consumers’ access to financial services, HC 1642.

It is a pleasure to serve under your chairmanship, Mr Walker. The Treasury Committee’s report “Consumers’ access to financial services” was published last month, its conclusions having been agreed by the Committee unanimously. The inquiry was launched in November 2018 to assess whether certain groups of consumers were excluded from getting a basic level of service from financial services providers, whether the regulatory landscape provided sufficient enforcement to ensure that customers could access financial services, and, if not, which remedies were needed.

Our report covered a lot of ground, so I will focus on four of its main conclusions. First, financial exclusion or vulnerability can affect us all at some point in our lives. Secondly, the Post Office alone is not a solution to banks closing their branches. Thirdly, a legal duty of care for financial services providers towards their customers is needed if the Financial Conduct Authority cannot make firms act in their customers’ interests at all times. Fourthly, at present the Equalities and Human Rights Commission does not have the resources to enforce financial services firms’ compliance with the Equality Act 2010, and therefore the Financial Conduct Authority should be given the power to do so.

Before I go into more detail on those four main conclusions, I will give a brief outline of the inquiry’s scope. We received almost 80 written evidence submissions, and we held five oral evidence sessions and two outreach events with members of the public and local charities—one in Waterloo, London, and one in Newcastle. I put on record the Committee’s thanks to everybody who sent us evidence and took part in those events. When I was elected by the House as Chair of the Treasury Committee, I was determined that our inquiries would not just talk about things that affect the City of London and our large financial institutions, but would concentrate on issues that make a real difference to consumers’, and our constituents’, lives. I hope that we have been able to do that in this inquiry.

The oral evidence sessions were held with advice groups and charities representing different groups in society, Members of the House of Lords who had previously carried out work on financial exclusion, representatives from banks and the Post Office, and the regulators with the power to make the changes needed—the Financial Conduct Authority, the Equalities and Human Rights Commission, and the Equality Advisory Support Service, which offers support to individuals with a disability dispute.

It is worth stopping to think about why financial inclusion matters. It is something that many of us will take for granted, perhaps until a time in our lives when we are excluded or suffering, or until we come across a constituency case of somebody struggling. Eleanor Southwood, the chair of the Royal National Institute of Blind People, said in her evidence:

“People experience enormous frustration. But it is also about financial literacy. It is about financial independence. It is about not being more vulnerable to any kind of financial abuse, because you are entirely on top of and aware of your own financial arrangements and situations.”

She went on to say that it

“comes back to the fundamental issues about confidence, the loss of confidence, the loss of confidence in yourself to understand the information.”

I remember the oral evidence that I heard from one of the charities at our roundtable in Waterloo, not very far from here. In this Chamber, we probably take financial inclusion for granted, but an inability to be in charge of one’s finances is sometimes a precursor to an inability to participate fully in society. That is something that we should all be concerned about.

There are many different elements to how consumers access financial services and, as the Committee heard, there are many ways in which people can be excluded. We started by trying to establish which customers we were most concerned about, but the reality is that access to financial services or financial exclusion is not limited to those we might naturally associate with being vulnerable, because vulnerability can happen to any of us at any stage of our lives. The FCA told us that its definition of vulnerability as

“someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”

could include up to half the population at any one time.

[Jim Shannon (Strangford) (DUP)]

I commend the right hon. Lady, who came into this House at the same time as I did; indeed, she made her maiden speech just before I made mine, so we have had that relationship in Parliament for a long time. She is aware of my constituents the Armstrongs. I have written to her, the Minister and the Department about them. They ended up in company insolvency and then personal bankruptcy, despite repeatedly advising their bank and lawyers that Mr Armstrong was very unwell over a sustained period.

The right hon. Lady referred to vulnerability, and paragraph 179 of the Treasury Committee’s report refers to it very clearly, stating:

“We therefore support the FCA’s intention to do so through a more balanced definition of ‘vulnerability’”.

Will that new recommendation ensure that we have the chance to protect people such as those I mentioned, whom she is aware of through her position as Chair of the Committee? Also, does she agree that not only the UK financial services industry but regulators at the FCA and the Financial Ombudsman Service must be part of any future work—

--- Later in debate ---

[Mr Charles Walker (in the Chair)]

Order. That is enough questions.

[Nicky Morgan]

I thank the hon. Gentleman. He is a legend for speaking in so many debates in this House, and I would feel rather excluded if he were not here today. I am grateful to him for raising those issues. He is a passionate advocate for his constituents, and has raised a number of cases with me as Chair of the Treasury Committee. He is right that a broad definition of vulnerability is important. People will be vulnerable at different times of their lives. He knows that in a separate inquiry we have been looking at the finances of small and medium-sized enterprises, many of which are almost no bigger than retail customers, and may be exposed to the same vulnerabilities.

My understanding on the definition is that the FCA has published its consultation and is asking about vulnerability. In the inquiry, we wanted to ensure that when we talk about vulnerability, we are not limited to a narrow definition, and that when those working in financial services think about vulnerability, they do so in the broadest possible sense, realising that people come in and out of being vulnerable.

In the case of the hon. Gentleman’s constituents, it is worth re-asking the question about how customers appear to those who advise them. We must also recognise that some people will not identify themselves as vulnerable. That is another thing that we heard during the roundtable. People do not want to tell their bank that they are vulnerable because they are concerned that it might lead to higher charges, or even losing an account or not being offered insurance.

[Jim Shannon]

With your permission, Mr Walker—

[Jim Shannon]

This intervention will be brief, unlike the last one—apologies for that. Regulators at the FCA and the FOS need to do more to ensure that the most vulnerable in our society are afforded the appropriate response and interactions. Does the right hon. Lady agree that those regulators must do better?

[Nicky Morgan]

I do. I think the FCA is very aware of that, and wants to do better. That is why it has published the consultation on the definition of vulnerability. The hon. Gentleman and I have had previous conversations about the Financial Ombudsman Service, and I have had correspondence with other Members of this House. We all know that the FOS can sometimes struggle to offer the remedies and the speedy service that people are looking for. The FOS performs an important function, and its new leadership is very aware of the challenges. In particular, more and more of us are aware of the ability to go to the Financial Ombudsman Service, which puts pressure on it. However, the basic conclusion of our report is that everybody involved in financial services could do more.

Financial exclusion is a broad issue that can and does affect us all in many different ways. The key areas that the Committee chose to look at were why financial inclusion matters, which I hope I have already captured in my earlier remarks; the many issues that vulnerable consumers face, such as being able to understand their bank statements and communicate with their service providers in the way that they want to; and the closure of local bank branches and the use of post offices as a replacement.

[Colin Clark (Gordon) (Con)]

As a member of the Treasury Committee, I was glad to get into what is a vital issue in Scotland and rural parts of the country, which are being left with no banks because they are closing. One of our recommendations is that post offices should be properly funded and have proper facilities, so that people can use them as banking hubs, but the banks—not the taxpayer or the Post Office—should pay for that, because they are saving a fortune in closing branches and they must take responsibility for customers. Post Office banking hubs cannot be an afterthought at the back of a corner shop; they must be proper facilities that people have confidence in.

[Nicky Morgan]

My hon. Friend is a new but valuable addition to the Treasury Committee and we enjoy having him as a member. He is absolutely right. From the evidence we heard, we concluded that many banks are ushering customers towards the Post Office, which is providing basic banking services to customers of many high street banks at a loss. He is right to say that taxpayers should not subsidise the big six banks’ lack of branches. The Post Office must receive adequate funding from banks for the services it provides on their behalf. I will come on to say that post offices are not always the optimum place for customers, particularly those with vulnerabilities, to receive personal or confidential advice. I hope that that recommendation will be taken on board and that the Minister will respond accordingly.

Other issues that we talked about included insurance companies discriminating against consumers with pre-existing conditions that need not increase their premiums, and how poorly designed physical financial services infrastructure may not be noticed by all, but could have a profound impact on specific groups, such as touch screen ATMs and payment terminals that were rendered useless to the visually impaired. Again, we heard evidence from Eleanor Southwood, who talked about having to hand over her debit card to a taxi driver after a recent journey because she could not use the PIN terminal due to her visual impairment. As it turned out, the taxi driver was a thoroughly honest, decent person, as most taxi drivers are, who respected her need to pay just the bill, but that is another vulnerability that many of us who do not suffer it will not think about. It is not uncommon, however, and our big financial services providers should think about it in the design of their infrastructure.

The inquiry looked at various initiatives to address specific forms of financial exclusion, such as basic bank accounts and powers of attorney. On powers of attorney, as a constituency Member of Parliament, I see more and more older constituents who are appointing people with powers of attorney—other hon. Members may agree. The number of powers of attorney is growing enormously: in 2018-19, 749,000 lasting powers of attorney were registered with the Office of the Public Guardian, which is a 63% increase from 2016-17, and as of May, there were 3,998,000 lasting powers of attorney registered in total. That provides challenges for the carer who has power of attorney, in terms of accessing advice on behalf of the person they are looking after, and for the financial services institution, because it has to judge how much security it wants everyone to go through before it talks to them about account details, while at the same time not making its consumers’ or their carers’ lives more challenging than they already are.

We looked at whether changes to financial services regulation were necessary, such as the introduction of a duty of care to customers, similar to that which exists in legal services. We also investigated whether vulnerable customers were more likely to pay a so-called loyalty penalty for staying with their providers, and the ways in which consumers could be provided with greater access to low-cost credit.

Let me turn to our headline conclusions. I have already set out why financial inclusion is important and why it is a basic right when it comes to being part of our society. It is vital that all financial services providers do what they can to empower consumers to maintain their personal finances and mental health. The Committee heard that firms can do that by incorporating a universal design approach in all their interactions with every customer, which means that all customers, no matter what their individual needs, will be catered for. That can be done by having compassionate, well-trained staff, who ask their customers how they would like to be communicated with, and by making sure that every communication channel is available to them.

On bank closures, which I have already touched on, large sections of society still rely on bank branches and face-to-face conversations with trained staff who understand financial services to carry out their banking needs, which can range from making transactions to taking out mortgages, credit cards or insurance policies. As I am sure hon. Members present can testify, sadly, for many communities, a local bank branch and, increasingly, free-to-use ATMs are becoming a thing of the past.

As we have heard, in many cases banks are redirecting their customers to local post offices to carry out their day-to-day banking, but that has its limits. The Post Office cannot help customers to set up basic banking transactions such as direct debits, nor does it sell mortgages or credit cards in-branch. Even if it did, the layout of many post offices is simply not conducive to giving customers the privacy required to discuss their personal finances.

The Post Office is not a replacement for a rapidly declining branch network, as was apparent during the TSB IT meltdown last year, when customers were told that the best way to make contact with the bank was through their local branch. The TSB branch network actually helped the bank out of its difficulty, because branch staff were by and large very impressive and wanted to help their customers—I think the TSB head office appreciates that. If branch networks are closed, such a workaround will not be possible. The Committee heard that banks have begun to share floor space with other banks or other organisations on the high street to share costs. That is to be encouraged, although it has to be done deliberately and planned properly, and we look forward to more innovation.

The Committee considered the need for a duty of care. Financial services providers should always act in their customers’ best interests, but they are not required to. If the FCA is unable to enforce such behaviour from firms under its current rule book and principles, the Committee supports a legal duty of care, analogous to that in the legal industry, which would create a legal obligation for firms to act in their customers’ best interests. Although a legal duty of care might still mean that customers have to take their provider to court themselves to seek redress, the existence of such a duty would sharpen providers’ minds as to how they treat their customers at all times. The Committee received arguments that a duty of care was not necessary and that financial providers already have to treat their customers fairly under the FCA’s rules, but clearly firms have not always done so.

We also considered the enforcement of the Equality Act 2010, which enshrines in law the obligation for service providers to make reasonable adjustments to assist customers with disabilities. The Committee heard numerous examples, however, where providers were not providing such adjustments. We heard that firms were not always providing interpreters for customers in branches, British Sign Language interpreters for those with hearing loss, or instructions on written correspondence to explain to a customer how to obtain an accessible-format version. Those do not appear to be instances of providers treating customers fairly or complying with the Equality Act.

If consumers want to seek redress, however, they have to take their provider to court as an individual because there is no regulatory body to enforce compliance with the Equality Act on their behalf. The Committee concluded that it would be absurd to expect an individual, particularly a vulnerable individual, to do that themselves, as it would be prohibitively expensive and far too daunting a task. Under existing legislation, the Equality and Human Rights Commission is the statutory body for enforcing the Equality Act, but it confirmed to the Committee that it does not have the relevant resources or expertise to investigate each individual case where a financial services provider is potentially in breach of the Equality Act or is failing to provide reasonable adjustments.

At present, no other statutory body has that power. The FCA told the Committee that it has the expertise and resources, but not the power to act. Therefore, the Committee concluded that the Government should give the FCA the power to take on the enforcement of individual cases relating to financial firms’ compliance with the Equality Act, in addition to the Equality and Human Rights Commission.

There are many other interesting and important aspects of our report that I could talk about, but I will not detain hon. Members for much longer. I urge all hon. Members present to read the Committee’s recommendations in full. The Committee looks forward to hearing the Government’s and the regulator’s responses in due course. I welcome the opportunity to have the debate and for the Minister to respond.

Before I conclude, I want to give one final example that captures it all. You and I, Mr Walker, have worked on mental health issues in this House a lot. We led the first big general debate on mental health in 2012—a groundbreaking experience. Much of the stigma of mental health has been tackled, but there are still cases where people are reluctant to tell others, be they friends or family or financial services providers or anybody else, about their mental health.

We also know that one of the behaviours of certain mental health conditions can be rather exuberant behaviour, sometimes typified by spending. We have one of the most sophisticated financial centres in the world. We have pretty well every major bank represented in the City of London. It struck me, listening to the evidence from Katie Evans, the head of research and policy at the Money and Mental Health Policy Institute, that we can do better, because she said:

“At best, I have heard of people literally putting their credit cards in a Tupperware full of water and putting it in the freezer, which is fantastic: how clever for someone to come up with that system for themselves, to try to put in place the friction they need when they are unwell.”

We should not need people to freeze their credit cards to stop them spending if they have a vulnerability through a mental health condition, or a breakdown, or a crisis. We can do better. Our financial services providers can do better. We will hear today from the shadow Front-Bench spokespeople, and from the Minister, and I hope that we can all make sure that financial inclusion is something that we are championing from here on in.

[Mr Charles Walker (in the Chair)]

I think I am going to call Marion Fellows, the Front-Bench spokesperson for the SNP.

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[Marion Fellows]

To be fair, I thought it was more.

It is a real pleasure to serve under your chairmanship, Mr Walker. I commend the right hon. Member for Loughborough (Nicky Morgan) and her Committee for this really valuable report, on which I think most of us are agreed. As always, I want to give the Scottish perspective—I think I have got it down to a fine art now.

According to Which?, Scotland has lost more than a third of its bank and building society branches in just eight years. Some 610 branches closed down between 2010 and 2018. Santander’s recent decision to close 15 branches in Scotland will have a devastating impact on staff, customers and local firms. Branches will be lost right across central Scotland, in Alloa, St Andrews, Troon, Forfar and other places. It is of deep regret that the decision was made without the bank undertaking a full consultation with staff and local communities, which will be devastated by the closure of local services, and it is unacceptable that they will be shut so rapidly; all the branches will close by the end of the year.

The Treasury Committee is right when it says:

“there are still large sections of society who rely on bank branches to carry out their banking needs.”

That includes elderly people—although not all of them; we cannot all be lumped together—and small businesses, especially in rural areas that rely on tourism, where people are using cash. Those businesses need to be able to bank that money locally; otherwise, they will lose even more business when they are not on their premises but 20 or 30 miles away, trying to get to the nearest bank branch.

A bank branch network, or at least a face-to-face banking solution, is still a vital component of the financial services sector. The right hon. Lady referred to how important that was in the case of TSB. A branch network must be preserved. The UK Government must step in and act; they can no longer argue that they cannot intervene. They made a similar argument on RBS closing branches, but we now know the Treasury thought it was all right to force RBS to pull finance from customers through the asset protection scheme. The effect on consumers of the closures must be factored into the Government’s decisions.

We support the Committee view that, if necessary,

“the Government should make changes to competition law to allow banks to share facilities in order to maintain a sustainable branch network”.

As the hon. Member for Gordon (Colin Clark) said, that cost should fall to the banks, not the customers. We also agree that

“intervention by Government or the FCA may be necessary to force banks to provide a physical network for consumers.”

We agree with the Committee that

“the Lending Standards Board—through its oversight of the Access to Banking Standard—should publish the examples of non-compliance by providers within its annual report on the Standard, to increase transparency and the potential for external scrutiny over branch closures.”

The SNP continues to lead the campaign at Westminster to protect our post office network. I have spoken in so many debates on post offices, and I sometimes feel I am in danger of repeating myself, but these things are worth saying over and over. We agree with the Committee that post offices

“should not be seen as a replacement for a branch network, but a complementary proposition where available.”

Following our campaigning, the SNP has welcomed news that from October 2019, Post Office Ltd will raise the rates of payment that sub-postmasters receive for taking personal and business banking deposits. That will represent a near threefold increase on current rates. In my time as an MP, I have been consistently lobbied by sub-postmasters, because they are subsidising banking services to their own detriment. The impact of the closure of a post office following the closure of a bank branch is devastating, and not just in rural areas. In urban areas, too, there are vulnerable people who cannot move distances and who are only happy carrying out financial transactions with people they know and trust. That is extremely important.

The announcement of the increase in payments comes just weeks after my colleague and hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands) secured a House of Commons debate on the sustainability of community and sub-post offices, in which he reiterated SNP calls to give sub-postmasters a fairer settlement. In recent months, as the SNP spokesperson for small business, I have written to the UK Government calling for changes to strengthen the post office network. Sub-postmasters have continually raised concerns about not receiving adequate financial remuneration. The National Federation of SubPostmasters found in a recent survey of its members that one in five post offices risks closing in the next year as the result of poor remuneration from Post Office Ltd; many postmasters are paid less than minimum wage for running their shops. That cannot go on. We need sustainable post offices, not as a substitute for the banks, but as a complement.

The UK Government must go further and commit to a full and independent review of sub-postmaster pay. I know the Minister is from the Treasury, but it would be good if he could have a chat with the Minister for small business on our behalf. In addition, plans to close Crown branches at the centre of our communities must be reversed to ensure the full range of services people have enjoyed are still available.

We agree with the Committee that

“The Post Office should not be subsidising the big six banks’ lack of a branch network...If a renegotiation of the current arrangements is necessary to make the scheme profitable, the Post Office should do so, with the full support of the Government.”

We should not measure the success of Post Office Ltd on profit alone, which seems to be the prevalent measure at the moment.

We agree with the Committee that when post offices are left as the only way for customers to carry out basic banking practices,

“the banks should be required to make provision for ‘banking hubs’ within the local Post Office. The ‘hub’ should be properly funded, with an agreed private and business banking provision set by the Department for Business, Energy, and Industrial Strategy (BEIS) and the Treasury. Postmasters must be trained, equipped and compensated to make the hubs viable. BEIS should make an immediate assessment of what the banking provision should be, the indicative cost per hub, and propose how the banks should fund it.”

The UK Government must act before a fifth of Scotland’s free ATMs start charging over the next year. That is another huge problem, especially for vulnerable people and those in isolated communities. They are having to travel further and further to access their own money, and are being charged more and more to do so. It is almost impossible to spend money in London during the week, and I frequently arrive back in my constituency with no cash. We are used to that in this place, but it is not like that everywhere across the UK, or for everyone.

[Nicky Morgan]

The hon. Lady is making an excellent speech, and she makes an excellent point on access to cash. Does she agree that cash is very important for people who are on a very tight budget? We heard evidence that once it’s gone, it’s gone. Somebody who needs to watch every penny they spend will not have a contactless card that they just keep using; they need to be able to see how much cash they have left in their purse.

[Marion Fellows]

The right hon. Lady is absolutely correct. The fact that somebody’s very constrained budget can be further constrained by their having to pay to extract their own money from their bank is absolutely ridiculous in this day and age. People are living hand to mouth, and the loss of £2.50 or more every time they take their money out of their bank via an ATM is absolutely unforgivable.

A cross-party group of MPs found that more than 3,000 ATMs have closed in the last 18 months. According to the Treasury Committee, unless the UK Government step in to protect free-to-access ATMs, the UK is at risk of

“inadvertently becoming a cashless society. For a large portion of society, including some of the most vulnerable, this would have stark consequences.”

The latest figures from LINK, the UK’s largest cash machine network, revealed that 1,300 ATMs were lost between the end of January and the beginning of July last year.

The consumer organisation Which? predicted that free cash machines would become a thing of the past, after it emerged that 1,700 ATMs in the UK switched to charging in the first three months of this year alone. Cash machines in Scotland have disappeared at a rate of 32 a month in the 11 months to April. According to Which?, Scotland lost 204 free-to-use cash machines, which is 4% of the network. That is unsustainable.

The ATM Industry Association has warned that a fifth of Scotland’s free ATMs will start charging customers in the next year. The association—its members include banks such as HSBC, independent ATM operators and payment systems such as Visa—says the problem revolves around a 10%, or 2p, cut in the fee that banks pay cash machine operators every time money is withdrawn. Banks are saving money by closing branches, then giving money to ATM providers. They warn that the move to charging cash machines will increase if LINK moves to cut the fee even further as part of a review that is due to be completed by the end of 2020.

Given the recent closures of bank branches and the lack of support provided to the post office network, the SNP is concerned that a lack of cash facilities will hurt families and small businesses across Scotland. For people in rural areas, and for the most vulnerable members of our communities who might have less access to transport and online support, often the only option is their local cash machine. It is totally inequitable that they effectively pay a tax on cash withdrawals.

The right hon. Lady talked about insurance companies and the difficulty in insuring when there are pre-existing conditions, something I recently had difficulty with. I totally empathise. Vulnerable people—especially people with mental health conditions, whom the right hon. Lady mentioned—need people on the other side of the table or desk who can help them overcome their fear, allay their suspicions, and help them to become fully working members of our society. Someone can be vulnerable one day and not vulnerable the next, and systems have to take account of that.

The right hon. Lady also talked about the difficulties with powers of attorney and the duty of care, which perhaps should be regulated. The SNP would not go against any of the recommendations on those subjects. It is absolutely inexcusable that Tory Ministers are refusing to lift a finger as communities face mass closures of local ATMs and bank branches; as we have heard, it is often the most vulnerable who use them. The consumer group Which? is calling on the UK Government to appoint a regulator to oversee cash infrastructure in the UK. It is vital that they consider the proposal and introduce practical solutions before the cash crisis loses Scotland a fifth of its ATMs.

The SNP echoes the Committee’s conclusion that the independent Access to Cash review’s recommendations should be accepted. They include recommendations to

“guarantee consumer access to cash—ensuring that consumers can get cash wherever they live or work…take steps to keep cash accepted, whether by a local coffee shop or a large utility provider…call for radical change to the wholesale cash infrastructure, moving from a commercial model to more of a ‘utility’ approach, which will keep cash sustainable for longer…government, regulators and the industry should make digital inclusion in payments a priority…a clear government policy on cash, supported by a joined-up regulatory approach which treats cash as a system.”

We cannot go on leaving our most vulnerable communities and people behind. It is all right for people like us to do without cash, but it is not all right for huge swathes of our communities. I hope the Minister can agree to some of the Treasury Committee’s recommendations and help move forward the debate about post offices, bank hubs and so on.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to take part in this debate with you in the Chair, Mr Walker. I thank the right hon. Member for Loughborough (Nicky Morgan) for securing the debate and for the important work she undertakes as Chair of the Treasury Committee. I am particularly pleased that the Committee emphasised the importance of access to financial services and financial inclusion. As we have shown in this relatively short debate, it is an issue that potentially touches us all, because we can all become vulnerable, and access and inclusion are crucial elements of a functioning economy.

The beginning of the report features a quote from Sian Williams, the director of the Financial Health Exchange at Toynbee Hall, that stood out when I was preparing for the debate:

“We are in an environment where you have to be able to transact to survive.”

The statistics provide a very worrying picture, because many people are struggling. The Financial Conduct Authority estimates that 3% of UK adults cannot transact in that way because they have no current account and no alternative e-money account. That is a significant minority, and it includes some of the most vulnerable people. That indicates that much stronger action is needed.

I will focus my remarks on vulnerability, poverty, the availability of credit—particularly low-cost credit—post office banking, bank branch closures and the policy process in this area, particularly as it applies to basic bank accounts. The report quite rightly considers the relationship between financial exclusion and different types of vulnerability. Obviously, a consultation is going on at the moment on whether current definitions of vulnerability are appropriate. There is a very welcome focus on mental illness in the report.

I was struck by the right hon. Lady’s remarks and the case study she mentioned. Actually, we were promised that we would have so-called jam-jarring available within financial services by now. It is not standard, and nor is it standard in relation to how people are paid their social security. Often people request that kind of approach so that they can manage their money properly. They are doing the right thing in acknowledging that they might have issues, but they are not being aided by the technology. As the hon. Member for Motherwell and Wishaw (Marion Fellows) said, it is often the most technologically literate who have the greatest resources and can make use of technological innovations. That needs to be accelerated, but we also need to acknowledge that although technology can empower, it can discriminate as well.

I have had discussions with people involved with the Money and Mental Health Policy Institute, who have pointed out that although it is possible to use people’s financial transactions to pinpoint and identify vulnerability, such information could be used to ration services and access, as well as to facilitate them. If it is used, for example, to take people to a pop-up chat with an adviser, who can say, “Are you sure this is what you want to be doing? Can I help you?”, that is fine, but if it makes it harder for people with mental illness to access services that we benefit from, that is inappropriate.

The report rightly focuses on access for vulnerable groups, such as elderly and disabled people, and on a number of risks that technology can embed, which result in people being unable to access the most basic financial services. In many cases, that is getting worse because of issues such as the use of touch-screen technology, which was mentioned earlier, and the speed at which high street banks are closing. I will come back to that point later.

The report contains useful recommendations about vulnerable people’s access to financial services. I support the recommendation that the Financial Conduct Authority should consult on how power of attorney works in relation to financial services. If that is done properly with appropriate safeguards, it could improve the situation for many carers and those they care for. The discussion in the report about that is very helpful.

The discussion in the report about the Equality Act 2010 is very useful. The Labour party is committed to strengthening the Act and other anti-discrimination law. There is clear evidence, which is repeated in the report, that it is not being complied with in a number of areas, and that is simply unacceptable. The exchange between the hon. Member for Strangford (Jim Shannon), who is no longer in his place, and the right hon. Member for Loughborough was very instructive in that regard. I am sure that every Member in this Chamber has a whole bag of cases involving people with various vulnerabilities who have not been treated in the way that we would expect. That has to end, because it is discrimination.

The report touches on issues relating to low-income households at various points. The discussion of the loyalty penalty was very interesting. Citizens Advice’s work shows that the average consumer pays up to £1,000 per year more because of the loyalty penalty. That is clearly totally unacceptable. The Competition and Markets Authority noted that people on low incomes are much more at risk of paying the loyalty penalty. For people in the bottom 10% of income, it could account for up to 8% of their spending.

The CMA’s recommendation about transparency is welcome. There should be more accountability. Regulators should publish the size of the loyalty penalty in key markets and for different firms annually, but as the report states, just informing the public about the loyalty penalty for each firm is not enough. It is clear that regulators currently have little ability to protect customer interests in that respect, so we need to focus on that much more strongly. The time is right to reform the regulatory system in that respect and for many other areas of financial services. The Labour party commissioned a review by Prem Sikka, the academic, to look into some ideas for reform, and it has now been published.

The points that the hon. Member for Motherwell and Wishaw made about access to cash were very relevant. Even with the current standards, we all know from our constituencies and elsewhere that there are pockets where access to cash is not available. It tends to be in areas where people have low spending power and are incredibly reliant on cash that there is not the provision that we expect.

The report did not examine the relationship between poverty and financial exclusion, as the 2017 report by the Financial Exclusion Committee in the other place did. I completely understand that the Treasury Committee had a slightly different focus. It would be useful to look at that issue in more detail, because in the Financial Exclusion Committee report, Gingerbread reported that single parents and low-income households often find that they are disproportionately excluded from financial services. Lower-income people often pay much more for financial services, compared with those with greater incomes. The Child Poverty Action Group said that that is the case, despite the fact that most low-income households manage their limited resources well. We are often told that the answer for people with few resources is to manage their money better. Well, many of them are extremely good at doing that already, and I was very pleased that the right hon. Member for Loughborough confirmed that. The Lords report also looked at the so-called poverty premium and how it exacerbates the effects of financial exclusion. It is important that we bear that in mind and continue to look at it.

Problems in accessing lower-cost credit primarily affect low-income households, and it is good that the report looked at that in detail. It praised the Government for their proposed pilot of a no-interest loan scheme in the 2018 Budget, but that arguably does not go far enough in tackling consumer debt. We still do not have a clear timetable for when that measure will be implemented. The Labour party and I believe that it is essential to go further. For example, we should cap the total amount that a person can pay in bank overdraft fees and interest payments on credit card debt. People who get caught by overdraft fees often use other forms of credit to pay it off because it is such an expensive debt and is extremely bad for them.

It is unfortunate that the Government have not really grasped the issues relating to debt enforcement. That is becoming more of an issue in many parts of the country, particularly given changes to the withdrawal of funds for council tax relief. Individuals are now being pursued for small amounts of money in many parts of the country. This report and the Justice Committee’s recent report show that we need much stronger action against poor practice in the debt enforcement industry. We should implement many of the measures recommended in the Treasury Committee report and, for example, introduce tougher regulations on debt enforcement firms, such as changes to terminology in payment letters. We must ensure that the language is understandable to people with varying literacy levels, and that information about how to seek help with debt is given equal prominence to demands for payment.

The report also examines the issue of those who are unable to access affordable credit because they lack a credit history. We believe that the Government’s approach so far has been inadequate. Obviously, there has been the pilot, and they have tried to get the private sector to take this forward. We need to have more of a discussion about how to ensure that people can build up a credit history. I hope the Treasury Committee will continue to do that, but the discussion in the report was useful.

Let me move on to the post bank and bank branch closures. The Labour party is looking at research that we commissioned on how the post bank approach can be revitalised and how we can ensure that it provides good quality services that are good for both the Post Office and local communities. We think it could be possible to do that on the basis of the research that we commissioned. There could be 3,600 additional post bank branches, compared with what we have currently. That would help communities that are currently struggling with access to banking facilities, and in many cases would also help high streets. We think that using and building on the existing infrastructure is probably the most sensible way forward. This is not about tweaking; it must be more fundamental. We cannot just load more activities on to already pressed postmasters. The comments of the hon. Member for Gordon (Colin Clark) were useful in that regard. This is not just about the post office network; we need other reforms elsewhere in the financial ecosystem, and we must also focus on the behaviour of the big banks. I concur with many of the comments of the hon. Member for Motherwell and Wishaw in that regard.

I want to talk a bit about the policy process in this area—in particular, the perils of not having a strong focus on implementation, and the initial legislation. The basic bank account legislation initially arose out of the EU payment accounts directive. Research conducted by Citizens Advice shows that, in practice, basic accounts are often still not very visible to consumers who might want to use them. Banks’ processes for determining what kind of account to give people rely too much on credit checks, and applying for a basic account is still too difficult for many people. The Committee recommended that the FCA should mandate banks to relax the restrictions on basic bank accounts and make them available to all—that is very sensible—and that it should require financial services to report how many basic current account openings they have rejected. That would be very helpful.

One particular problem that I have come across is that many of the most vulnerable and most excluded customers are informed that they cannot have a basic bank account because there has previously been some indication of fraud related to their financial activity, but no evidence of that has to be provided. In many cases, that fraud could be due to manipulation by others—for example, if people have been subject to domestic violence—or it could be because people had been addicted to substances and previously led chaotic lifestyles that are now behind them. Christians Against Poverty is concerned about that; it needs to be looked into and I hope the Government will do so.

We need a much stronger focus on the issue of access to financial services. We have mainly talked about access to basic banking—the Committee has a lot on its plate, so I do not want to suggest that it should deal with even more—but the savings infrastructure is another area in which there have been some worrying developments. Some 57% of UK adults do not have savings beyond £5,000. Help to Save was an interesting idea but it has not yet had the traction that many of us would have hoped. We still urge the Government to try to incorporate the credit union sector more closely with that initiative, and I hope that in future, the Government will view credit unions much more as part of the solution to many of the problems than they have in the past.

[Nicky Morgan]

I thank the hon. Lady for the many points that she is making. Did she, too, pick up Scope’s briefing for the debate, which makes the point that disabled people have an average of £108,000 less in savings and assets than non-disabled people? That is quite a staggering amount of money.

The Committee looked at household savings and debt last year. We might have a little issue with our agenda at the moment, but I take her invitation to perhaps return to that at some point.

[Anneliese Dodds]

I am very grateful to the right hon. Lady for raising that point. That is a staggering statistic, which is due to a whole range of factors: the support that people receive, their ability to participate in the labour market, and the savings infrastructure. She raises an important point: people living with a disability are very often at much greater risk of needing to tap into savings at different points, particularly when, sadly, many sources of support for doing things such as home alterations have dried up. It is really important that we listen to Scope about that.

We must also acknowledge that the ride has been bumpy and we are not moving forward in every area as we would want to. Research from the Friends Provident Foundation and the University of Birmingham suggests that in 2006-07 there were just over 1 million people with no household bank account access, and although that number fell to 660,000 in 2012-13, the trend was reversed in 2013-14 when the number rose again to 730,000. We need to understand what is not right here, and we need much stronger action.

I commend the Treasury Committee for its focus on the issue, particularly on the impact on the lives of vulnerable and low-income people. The Opposition will continue to campaign for reform of the financial services sector to ensure greater access to financial services and, as a result, a stronger economy for everyone.

--- Later in debate ---

[Nicky Morgan]

I thank all the Members who attended the debate, including those who only intervened, and I thank the Minister for his thoughtful response. When a Treasury Committee report is described by the relevant Department as “interesting”, I hope that means that we have struck a chord somewhere along the way.

Members generously shared examples of financial exclusion and the importance of financial inclusion. I say to the Minister that, at a time when the House sometimes appears to struggle to find enough business to fill its day, this may well be an area in which there can be good cross-party agreement and working. If there is a need for changes to regulations or legislation, or for the House to show regulators and others that this issue is of great concern to us, this may be a good time to take advantage of that.

I will not go through everything the Minister said. He is absolutely right that the Financial Conduct Authority is very important in this area. We recognise that. On access to cash, the other issue is the cash infrastructure—the way that cash moves around the country. Sweden in particular has found that once that infrastructure has gone, it is difficult and expensive to bring it back. The Minister also talked about ATMs and post offices. He is right that FinTech offers opportunities for innovation in things such as budgeting. That is fantastic, but we want those things to be used by our large banks, many of which have millions of customer accounts, not just our small, innovative challenger banks and FinTech companies.

We wait to hear the Government’s response about the duty of care and the enforcement of the Equality and Human Rights Commission’s powers in relation to the Equality Act, and I am sure we all look forward to seeing the breathing space regulations. The hon. Member for Oxford East (Anneliese Dodds) mentioned the wording of consumer credit letters where debts are being chased. That has already been raised in this Chamber, and it is another area where I think there is general agreement.

Of course, Ministers can always speak directly to financial services providers. Yes, there is the raised eyebrow of the Governor of the Bank of England, but there is nothing like the raised eyebrow of Ministers. I am delighted to hear that the Minister visited a bank in his constituency to hear about the training it offers to protect customers with dementia.

[Mr Charles Walker (in the Chair)]

Let me conclude by saying to the hon. Member for Motherwell and Wishaw (Marion Fellows) that she was actually in the room, if not in her seat, at the start of the debate, and she knows full well that in this place it is being in the room that counts.

Question put and agreed to.

Resolved,

That this House has considered the Twenty-ninth Report of the Treasury Committee, Consumers’ access to financial services, HC 1642.

Spring Statement

Baroness Morgan of Cotes Excerpts

Wednesday 13th March 2019 Commons Chamber

[Mr Hammond]

I am sure it was a momentary oversight by the hon. Lady that she did not say anything about the decommissioning measures that will be so important to her local industry in Aberdeen and that are listed in the written ministerial statement. She says that no deal will be bad for the economy, and I absolutely agree, but if she understands that, why did she not vote for the deal? I have a great deal of respect for her, but I am afraid she is creeping towards the practices of those on the Labour Front Bench when she quotes the fourth quarter growth figure of 0.2% without mentioning the more recently published growth figure of 0.5% for the first quarter of this year. [Interruption.] If she does the maths, she will find that is okay.

The hon. Lady talked about the downgrade that the OBR has applied to the 2019 growth figure. We would of course like it to be higher, but she has to see the figure in the global context. I know she understands this. Germany’s economy has slowed down and France’s economy has slowed down. Across the G7, we are exactly in the middle of the pack. We will grow faster than Germany, Japan and Italy this year. We will grow exactly the same as France and slower than Canada and the US. That is a perfectly creditable performance. Would I like to do better? Of course I would. If she is going to be honest with the House, she needs to put what she says in the context of what is happening across the global economy.

The hon. Lady asked about PhD-level roles. They will be completely exempt from the visa cap. She asked about assets being moved abroad. Of course I am concerned about that, and £35 billion of insurance company assets moved abroad is £35 billion more than I would like, but she needs to understand that that is in the context of the many trillions of pounds of assets that the companies are managing in London and, increasingly, in Edinburgh. Edinburgh’s ranking in the global asset management league table has once again risen, which we are extremely pleased about.

The hon. Lady talked about pay for the lowest paid. Those on the national minimum wage and the national living wage have seen their incomes increase by an average of £2,750 a year since 2016. She asked about universal credit. Universal credit delivers. People on universal credit are more likely to be in work than those trapped on legacy benefits. I have put billions of pounds into the system over successive fiscal events to smooth the transition to ensure that the movement of people from legacy benefits on to universal credit operates smoothly.

Finally, Scotland gets its share of the increased spending on capital and resource, but precious little thanks do we ever hear from those on the SNP Benches in exchange for it.

[Nicky Morgan (Loughborough) (Con)]

Building on the question asked by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), the OBR has made it clear today that it has not been able to update its forecast to reflect the current Brexit situation, saying that

“we still have no meaningful basis for predicting the post-Brexit trading relationship beyond the near term.”

I sense the Chancellor’s frustration with the House’s inability to approve the withdrawal agreement, but does he agree that this means that many of the forecasts are obviously going to have to be revisited as the Brexit scenario plays itself out over the next few months?

The Chancellor mentioned the forthcoming CSR and education spending. May I urge him also to think very clearly and closely about spending on further education colleges, which is another critical part of improving productivity in our country?

The Budget report recently produced by the Treasury Committee said that the Chancellor was effectively disregarding the fiscal objective to run a balanced budget in the mid-2020s, and the OBR has said today that the target will not be met again. So does he intend, by the next Budget, to ensure that the existing fiscal charter will be updated for this Parliament?

[Mr Hammond]

My right hon. Friend is right, of course, about the OBR’s Brexit assumption—I said so earlier and the OBR has said so clearly. It has to make an assumption, and until there is a new policy, that is unfortunately the way it is mandated to work. On the forecast, I have addressed this in this House many times before. The forecast is based on those assumptions. We are either going to have a no-deal exit, in which case I would expect a significantly worse outturn, or we are going to lift this cloud from above our economy, in which case I would expect a significantly better outcome. A number of important commentators, including the Governor of the Bank of England, have suggested over the past couple of weeks that there is more juice in the economy if we can just lift this cloud.

I have noted my right hon. Friend’s early bid for further education in the spending review. There will be lots to discuss as we go into the spending review, and we will ensure that there are proper, structured arrangements for Members of this House to make their views known. My right hon. Friend the Chief Secretary will be happy to engage across the House.

My right hon. Friend asked about the target for the mid-2020s. I simply do not accept that the figures published today show that it is impossible to reach a balanced budget in the mid-2020s. In 2023-24, the deficit will be 0.5% of GDP, but whether we choose to get the deficit down to zero or choose to do other things is a choice, and we are lucky to have it.

Oral Answers to Questions

Baroness Morgan of Cotes Excerpts

Tuesday 5th March 2019 Commons Chamber

[Elizabeth Truss]

We are currently working on this with the Department of Health and Social Care.

[Nicky Morgan (Loughborough) (Con)]

The Treasury Committee will today publish the Economic Secretary’s letter to me of 30 January on the current solution to problems faced by mortgage prisoners. This solution requires the private sector to be receptive to providing new mortgages to mortgage prisoners currently trapped with inactive lenders. What update can Ministers provide on the promised Treasury officials’ work with those lenders?

[The Economic Secretary to the Treasury (John Glen)]

I can tell my right hon. Friend that I am in conversation with the Financial Conduct Authority about its move to a relative rather than an absolute test. I note that there are a range of views out there about how this problem can be dealt with. The FCA has said that it will come back later this spring with its response, and I am happy to meet my right hon. Friend to discuss her concerns further.

Tax Avoidance, Evasion and Compliance

Baroness Morgan of Cotes Excerpts

Monday 4th March 2019 Commons Chamber

[Mel Stride]

I thank the hon. Gentleman for his reply. He spent some time focusing on the legislation that was due to come before the House this evening. Some amendments have been tabled, particularly the second one to which he referred, that could have significant constitutional ramifications for our Crown dependencies and overseas territories. For that reason, and given that the amendments were tabled only last Thursday, it is only right that we should have time to consider these important matters. They are not directly Treasury matters; they are more a matter for the Foreign and Commonwealth Office and the Ministry of Justice.

The hon. Gentleman refers to wanting to see public registers of beneficial ownership of companies, but he neglected to mention that we have already introduced these in respect of UK companies. That came in in 2016, and that database has been accessed in excess of 2 billion times. He mentioned that we have already made commitments to work with the overseas territories to bring in those measures by 2023. He asked me specifically what the meaning was, in the context of IR35, of focusing particularly on future compliance rather than on the history of the businesses that would be in scope of this measure. This is simply a clear indication that this is not about trawling through previous activities. It is about looking to the future and ensuring that we take a fair, proportionate and reasonable approach to IR35 as it goes into the private sector.

The hon. Gentleman asks me whether there were any implications for the loan charge. I know that people often conflate IR35 and the loan charge in relation to disguised remuneration, but as he will appreciate, they are entirely different things. There is no implication in any element of my statement on any change in respect of the loan charge.

The hon. Gentleman makes an important point, in relation to our national security, about the importance of general transparency in business and tax affairs internationally. I remind him that this Government and this country have been at the forefront of the base erosion and profit-shifting project with the OECD and that it is this country that has helped to drive our common reporting standards, which provide information across hundreds of overseas tax jurisdictions. With that, I will conclude, because I think that I have addressed the points that the hon. Gentleman has raised.

[Nicky Morgan (Loughborough) (Con)]

The Minister, whom I respect greatly, has been handed an enormous hospital pass today, although perhaps not as great as the one handed to the Secretary of State for Health earlier, when he had to justify the conduct of one of his Cabinet colleagues. I should like to ask the Minister to build on what the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), the shadow Minister, was saying. The Minister said in his statement that

“the Government’s focus will be on supporting organisations and businesses to apply the rules, rather than enforcing historical cases.”

Have the Government learned from the 2019 loan charge cases, where people are very concerned about the importance of historic cases rather than looking forward? Is the Minister saying that these changes will be done differently from what we see happening under the loan charge?

[Mel Stride]

I thank my right hon. Friend for her questions. To reiterate, there is no connection between the loan charge and IR35; they are two distinctly different aspects of Government taxation policy. The purpose of my statement, in making it clear that we will not be actively or aggressively looking at previous activities in this area, was to show that we recognise that we need to get this right and that we need to support employers and contractors as we go through this process. That is the approach that we will take.

Exiting the EU (Financial Services)

Baroness Morgan of Cotes Excerpts

Monday 25th February 2019 Commons Chamber

[Nicky Morgan (Loughborough) (Con)]

It is a pleasure to speak in this debate. I thank the Minister for coming to the Treasury Committee to give evidence at the end of January, and the chief executives of the Prudential Regulation Authority and the Financial Conduct Authority, who sat alongside him and also gave evidence.

I am grateful that, as the shadow Minister said, the Leader of the House listened to the Committee’s request that this SI should be debated on the Floor of the House, because it offers unprecedented powers, for understandable reasons. That is why I and Committee members understand and will support the powers sought in this SI, but it is right that they should be scrutinised. Continuity of business is important for our financial services sector. The impact assessments for this and similar statutory instruments make clear the enormous contribution that the financial services sector makes to this country and the huge amount that it pays in tax revenue, which is important for funding our public services, but our financial services sector also puts the UK very much on the global map.

The Minister, who was perhaps left with no choice, and the chief executives have generously said that they are willing to come back to the Committee, should the powers be needed and we have further questions about how they are used in future. However, we all hope that this SI will not be needed, because it is for a no-deal scenario, and we all hope very much that the Prime Minister is successful in negotiating a withdrawal agreement with the European Union.

I want to concentrate on two areas this afternoon. The first is the duration of the new powers. The shadow Minister rightly said that, because of the timescales and the complexity, what is being created feels like a patchwork of legislation, some of which will be needed in one scenario and some in another. That might be challenging for Members of Parliament and for Ministers and shadow Ministers, but the people we should really be thinking about are the businesses that will have to try to follow the new legislation, which sets out the new powers. The Committee has noted that the no-deal statutory instruments relating to financial services seem to have different durations, creating cliff edges at different times. Would it not be easier for the businesses—those that will have to rely on this secondary legislation—and other interested parties if the Government provided the regulators with additional powers in a no-deal scenario that had a consistent duration, to minimise multiple cliff edges throughout the negotiations that will take place in the coming years?

Let me turn to the impact assessments for regulations such as this, which I think have been subject to some debate upstairs in various Committee Rooms. The Treasury has provided impact assessments, and there seem to be two types of costs: familiarisation costs for most businesses, which have to read the regulations and understand them, and implementation costs for business that have to modify their business practices. The assessment calculates that this statutory instrument will cost each firm £1,900. That calculation appears to be based on the number of words used in the instrument, with a cost across the industry of £110 million, which suggests that 57,000 to 58,000 firms—the shadow Minister mentioned 59,000—will be affected.

I speak as a former lawyer. Words were important and often, it would be fair to say, we tried to use as many as possible. The number of words used is an interesting way of measuring the impact of regulations made through secondary legislation. I do not know whether the Minister wants to say something about that now—it has been covered in debate elsewhere—but I would ask him whether that is the right way to proceed.

Secondly, the Government have been unable to put a monetary value on the cost to businesses of complying with the statutory instrument. The Minister rightly said that he has worked with industry to ensure that the new powers are what the industry needs to provide continuity—I know he has done that, because I have had feedback from different financial services firms—but has he asked the affected firms of different sizes what they estimate their compliance costs will be? Would that not be a pragmatic approach to calculating the costs of compliance—the cost of advice that firms will need to take and the amount that they might have to spend to change their internal rulebooks and guidance and the guidance provided to clients?

We live in extraordinary times. This is an unprecedented situation, where all sorts of hyperbole can be used. As I have said, granting these powers to the regulators makes enormous sense for the continuity of a very important part of our business sector. I wish that the Government had produced a proper White Paper about their plans for financial services, as I asked them to well over a year ago. Right hon. and hon. Members in all parts of the House will understand why the Government are asking for these powers. However, while I have no reason to think that this Minister does not welcome scrutiny—I think he has appeared before our Committee more than any of his colleagues—he and other Ministers should expect continued rigorous scrutiny by the Treasury Committee and other interested Members of how the powers are exercised and of whether and when they can be done away because we have moved to a new system of financial services regulation.

Making Tax Digital

Baroness Morgan of Cotes Excerpts

Tuesday 19th February 2019 Commons Chamber

[Mel Stride]

I thank the hon. Gentleman for his response to my statement. I am pleased that he, like me, recognises the value of the digital processing of tax returns. Indeed, he made a specific and welcome reference to its productivity advantages. However, he also referred to what I think he suggested were serious failings in our approach, suggesting that it was not the right approach. I could not disagree more. In my statement, I was at pains to emphasise the proportionate and measured way in which we had approached these matters. I said that when I first became Financial Secretary to the Treasury, I decided to delay the roll-out of MTD so that it related only to VAT-registered businesses by 2019, and carved out the very smallest businesses and individuals from these measures. Indeed, I gave reassurances to the House and the business community that nothing will be introduced in terms of income tax and corporation tax any earlier than 2020 and that we would see how the roll-out of the VAT MTD went before we took any further decisions in that respect.

The hon. Gentleman raised several specific questions, which I will address in turn. He asked whether there will be any additional costs as a result of today’s announcements to those businesses in scope of MTD, and the answer to that is most certainly not. He might be familiar with the estimates already produced that suggest that on average a business in the UK that is in the scope of these measures will face additional costs of some 60p per week, and that does not take into account the efficiency gains that can be expected or indeed the fact that in many cases those costs will be able to be written off against taxation.

The hon. Gentleman referred to the continuing estate transformation work and asked whether there was any link between that and MTD. I think there is in the sense that we have a clear drive to make sure that HMRC is a lean and efficient organisation itself in the 21st century and that its estate is not scattered across the country in numerous offices, some employing fewer than 10 staff, but is in state-of-the-art hubs where digital and IT approaches can be maximised.

The hon. Gentleman asked whether we had considered developing in-house software for MTD, and I think he might have been urging us to do so. I know that it is a passion of the Labour party to centralise and have monolithic organisations that do all the organising at the centre, but that is not the way of us on this side of the House; we believe that the market generally knows best, which is why I was delighted to have been able to announce that we have no fewer than 160 different competing products, and that number is growing by the month.

The hon. Gentleman asked whether the Government were confident that we would be signing up the right number of companies in time, and I would make a few important points on that. First, there is no cliff edge on 1 April; that is the date at which companies and individuals will be required to keep digital records, but for most companies the first time they will have to submit a VAT return under MTD will be for the first tranche around 6 August and for subsequent tranches in the months following that date. There is plenty of time for companies to sign up and get involved. Secondly, as I have already elaborated, we will take a proportionate, light-touch approach to penalties, working with companies and businesses to make sure that MTD roll-out is a success.

[Nicky Morgan (Loughborough) (Con)]

I think we can all agree that the digitisation of tax is to be welcomed, as is companies paying the correct amounts and the tax gap being reduced, but I want to pick up where the Financial Secretary left off and ask what happens for smaller companies if this goes wrong or if they make errors in their filings. The shadow Front Bencher is correct in the sense that many businesses and business organisations are very unconvinced by this roll-out. The Financial Secretary said in his statement that penalties will not be issued for late filing in the first year, only for late payments, but of course for many businesses it is all very well giving HMRC the money but getting it out of HMRC and getting HMRC to deal with queries can be very difficult. Does the Financial Secretary agree that overall a system of generous forbearance would be very welcome if he wants to continue with this system?

[Mel Stride]

I thank my right hon. Friend for her questions and also for her work: she and her Committee have focused on this important matter. I can reassure her that we have no intention of being heavy-handed in any way in terms of businesses that might not quite be ready perhaps through no fault of their own or because they are not used to the new requirements. But there is an important point to make here: some 98% of businesses, including the small and medium-sized enterprises to which my right hon. Friend referred, are already filing their VAT digitally. I can reassure her that I will make sure, as the Minister responsible, that we take a proportionate and light-touch approach to the penalty regime in this matter.

Financial Services (Implementation of Legislation) Bill [Lords]

Baroness Morgan of Cotes Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 11th February 2019 Commons Chamber

[Robert Neill (Bromley and Chislehurst) (Con)]

Will my right hon. Friend give way?

[Nicky Morgan (Loughborough) (Con)]

Will my right hon. Friend give way?

[Mel Stride]

I will give way first to my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), but wait with great anticipation for the intervention of my right hon. Friend the Member for Loughborough (Nicky Morgan).

[Mel Stride]

I thank my hon. Friend for his question. He is quite right, although the reference to the Securities Financing Transactions Regulation is, I think from memory, in clause 1(12), line 35 or thereabouts—the fourth file although the fifth measure in the list, the earlier two being combined. As to the main point on which he seeks clarification, the Bill will bring into effect those measures, as amended or otherwise, by affirmative statutory instrument at the time they are brought in. It will then be a case of the way in which those measures are dealt with in terms of the delegated powers to which he refers.

[Nicky Morgan]

I thank the Minister for giving way. In his letter to colleagues last week, the Economic Secretary stated that the Bill will allow for the Government to choose to implement only those EU files or part of those files which they deem beneficial for the United Kingdom. The Minister talks about whole or parts of legislation. Is he able to set out which of the files or parts of legislation the UK does not intend to implement, and how they will make the decision about what is or is not beneficial to the United Kingdom?

[Mel Stride]

I would make two points. First, where we will end up with the various files that are the subject of the Bill will, to some degree, be determined by where we end up shortly after or after any no-deal exit. I would imagine that at that point the EU would also wish to be negotiating with us on those measures. Secondly, the files themselves, under the schedule as opposed to clause 1, are being negotiated at the moment. We therefore do not have clarity on the exact form they will take.

The second category of files, as I explained, are those that are still in negotiation. These are files that the UK has, in many cases, played a leading role in shaping, and that could bring significant benefits to UK consumers and businesses. The Bill also allows the Government to domesticate these files, in whole or in part, via affirmative statutory instrument. Given that the UK will not be at the negotiating table when the files are finalised, we will be unable to advocate for the interests of the UK’s financial services sector during those negotiations. The Bill therefore provides the Government with the ability to make adjustments to the files that go beyond the deficiency fixing powers for the agreed files. These powers are clearly defined and proportionate.

Oral Answers to Questions

Baroness Morgan of Cotes Excerpts

Tuesday 29th January 2019 Commons Chamber

[Mr Speaker]

Order. The hon. Gentleman is a cerebral denizen of the House. I know he is arguing the toss about what he thinks is the inapplicability of the personal views or the professional opinion of the Chancellor, but he should not offer a lecture from a sedentary position. We are accustomed to hearing this eloquence when he is on his feet. We do not need to hear him when he is in his seat.

[Nicky Morgan (Loughborough) (Con)]

The next most important update on the deficit will be the Office for Budget Responsibility’s statement around the time of the spring statement, but the OBR has been clear that it can only make a forecast once it knows the Government’s plans for Brexit, so could the Chancellor give the House an update on when he thinks the OBR will be able to produce that work for the spring statement in relation to the Brexit timetable?

[Mr Hammond]

Yes I can. My understanding is that the OBR is basing its forecasting work on the same assumptions it used at Budget 2018, but, as my right hon. Friend has asked me, I can inform the House that the spring statement will be made on Wednesday 13 March. I remind the House that it is not a fiscal event but that, as I have said before, if the economic or fiscal outlook changes materially, it is always open to us to turn it into one.

Finance (No. 3) Bill

Baroness Morgan of Cotes Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 8th January 2019 Commons Chamber

[Nicky Morgan (Loughborough) (Con)]

I realise that time is short and that many hon. and right hon. Members want to speak on this group, which shows the appetite of Members on both sides of the House to have their say on this critical issue. There is a deep frustration that debate was curtailed last month before we got to the meaningful vote on the Prime Minister’s draft withdrawal agreement.

I rise to support amendment 7, which was tabled by the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) and to which I have added my name, and amendment 8.

--- Later in debate ---

[Mr Baron]

My right hon. Friend is very gracious in giving way. Does she accept that the UK trades profitably with the majority of the world’s GDP on World Trade Organisation terms? Therefore, this is not the cliff edge or crashing out that many people paint.

[Nicky Morgan]

I have great respect for my hon. Friend, but I think that it would have been better to have had this debate in 2016 rather in 2019, because the honest truth is that the Brexit that some Members on these Benches and some people out in the country say that they want was not outlined in any way, shape or form in the 2016 referendum. I refer to one Member, who said at the time, “Only a madman would leave the single market.” Yet now, that is exactly what he is proposing should happen.

I do not agree with my hon. Friend the Member for Basildon and Billericay (Mr Baron) about the advantages of WTO, and I will tell him why: if it was so good, Members who are backing the WTO option—a no-deal option—would not be so keen to get into negotiating free trade agreements so quickly with countries around the world. I do not know whether it was my hon. Friend, but one Member just now talked about trading with America and China, yet free trade agreements with America and China are touted all the time by those in favour of Brexit as agreements that need to be negotiated as quickly as possible.

The honest truth is that to make trade work around the world, all countries will seek to enter into agreements with countries they want to trade with in order to lift or to lower tariffs and non-tariff barriers. That is what we have done, very successfully, in our relationship with the European Union since we joined over 40 years ago.

[Mr Baron]

May I intervene?

[Nicky Morgan]

Very briefly.

[Mr Baron]

My right hon. Friend is being very gracious and I very much appreciate that.

Many of us in this place—I would like to think the majority of us—would prefer a good trade deal to WTO. That is not inconsistent, but I think what my right hon. Friend misses is that on a bad deal versus WTO we have got to get the balance right, because the EU has had such a bad track record on negotiating trade deals. We trade with the rest of the world on WTO terms very profitably and very successfully, even though many of us would prefer a good trade deal.

[Nicky Morgan]

Trade deals are immensely complicated. While Members know how I voted in 2016, I accept that this country will be leaving the European Union on 29 March—with regret, I have to say, but I do accept it—but one of the debates that we have not even started to have is how the House is going to approach the approval of trade deals. I can tell my hon. Friend that this is a real worry to those who are going to be negotiating those agreements. We saw with the Transatlantic Trade and Investment Partnership just how politically contentious that agreement was, even though it did not even reach the House as an agreement. We are going to spend the next few decades in the House negotiating and approving trade deals, which everybody, for various constituency reasons, will have problems with.

[Sir Nicholas Soames (Mid Sussex) (Con)]

My right hon. Friend is making an extremely powerful argument. Does she recall that the trade deal between America and Canada, which was a “willing buyer, willing seller” trade deal, took many, many years? The idea that this is some wonderfully easy, smooth, simple process is, frankly, rubbish.

[Nicky Morgan]

I have great respect for my right hon. Friend, and on this issue he speaks much good sense, as always. I hope that right hon. and hon. Members will listen to what he has to say. I am conscious of the time, so shall move on.

Over the past two years, we have heard it said in the House that no deal is better than a bad deal. I have to say that no deal is a terrible deal and it would be a gross dereliction of the responsibility of Members of this House to inflict no-deal on our constituents.

[Sir Bernard Jenkin (Harwich and North Essex) (Con)]

rose—

[Nicky Morgan]

I am afraid I am going to make some progress. My hon. Friend will be able to intervene on other Members.

Those who wanted Brexit talked often about the taking back of control. I have not had time to watch the film broadcast on Channel 4 last night, but I understand that that was a key part of it. As I have said before, it is right that control should come back to this Parliament, and it is right and it is time for Members of Parliament on all sides to make it clear to the Government that a no-deal Brexit outcome is absolutely unacceptable.

It will have been noticed that many of those who have put their names to amendment 7 are Chairs of Select Committees. The Treasury Committee took evidence in December—I am grateful to all Committee members, who have varying views on Brexit—and we produced a unanimous report. One thing that was made very clear is that, compared with today’s trading arrangements, and assuming no change to migration arrangements, our GDP would take a 7.7% hit on a modelled no-deal scenario. That is greater than the impact of the 2008 financial crisis. Members who have been in the House since 2010, and perhaps just before, will know the impact of the financial crisis on our constituents.

Finally, as a wise general said to me a few weeks ago, Britain is renowned for its confidence and competence. Currently, we are demonstrating neither. A no-deal Brexit will completely destroy any reputation we have for confidence and competence. The Government decided to put off the meaningful vote, although hopefully we will get it either this week or next. It is time for Members of Parliament on all sides to start ruling out options that would be deeply damaging to our country. That is what amendment 7 and 8 are about, and I will be delighted to support them both, should they be voted on.

[Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)]

It is a pleasure to follow the right hon. Member for Loughborough (Nicky Morgan), because although we represent different parties and disagree on many issues, and although we will take different positions on the Prime Minister’s deal when it comes to a vote, on this issue we agree. I rise to speak to amendment 7 and to support amendment 8.

We agree on the dangers of no deal to the country. I tabled amendment 7 because I am really worried that delays, drift or brinkmanship mean that there is now a serious risk that we will end up crashing out of the EU with no deal in just 80 days’ time. I am worried that we could come to the crunch and Parliament would not have the powers to stop it happening. We have a responsibility not just to stand by. I believe that the Government should rule out no deal but, if they will not, Parliament must make sure that it has the powers to do so if it comes to the crunch.

Amendment 7 has support from across the House. It has been signed by Chairs of cross-party Committees—it has the support of the Chairs of the Treasury Committee, the Exiting the European Union Committee, the Liaison Committee and the Business, Energy and Industrial Strategy Committee and others, too—and it is supported by those with a wide range of views on the best way forward. It is supported by those who support the Prime Minister’s deal and those, like me, who do not, and it shows that those who take a wide range of views on the best way forward have come together to say that we should rule out the worst way forward.

--- Later in debate ---

[Anneliese Dodds]

I do not believe I can, as I have been told that I have to proceed quickly.

For many years, the Government failed to take action, before clamping down purely on taxpayers and doing little to nothing to the enablers of this form of tax avoidance. I hope the Minister will be clear about this. He has talked about the promotion of defective schemes. When taxpayers are described as having done something illegal, which is what HMRC has said about the behaviour of those subject to the loan charge, why will the Government not say that those who promoted those schemes also promoted something illegal? They use this language about defective systems. I am sorry, but that is pusillanimous. Those who were unwittingly led into schemes that are now described as illegal must themselves be able to take action against those who wrongly advised them.

I hope that the Minister will look at that very carefully and accept the new clause. If he does not, I hope that he will accept my backstop, to coin a phrase, and have a meeting with me. I am glad he has intimated that he may be willing to do so to talk about how we can better help people who have ended up in a very difficult situation—some of them with their eyes wide open, but many of them not realising the impact of these schemes.

[Nicky Morgan]

I rise to speak briefly—I know time is short in this debate—about new clause 26. For the avoidance of doubt among those on the Treasury Bench, I will not be supporting the new clause, but, as Chair of the Treasury Committee, I want to put on the record some concerns about the loan charge on behalf of the many individuals who have contacted the Committee and of the Committee members who have expressed concerns about it. I hope that Ministers will listen and engage with MPs across the House on this issue.

The Committee has raised concerns about the loan charge in evidence sessions with my right hon. Friend the Chancellor, and with HMRC and the Chartered Institute of Taxation. As the hon. Member for Oxford East (Anneliese Dodds) said, it is right that people should pay their fair share of tax on their earnings, and we do not support anything that seeks to get around that. It is right that HMRC should act swiftly and firmly to close down such avoidance schemes.

However, tax law sets out time limits within which HMRC can open inquiries and make tax assessments. Normally, those time limits take account of whether a taxpayer has taken reasonable care to comply with their tax obligations, has been careless or has deliberately decided not to comply. They are seen as valuable taxpayer protections, giving a degree of certainty that takes appropriate account of taxpayer behaviour.

It is certainly concerning to me—I am not sure I can speak on behalf of the whole Committee, but I think it is fair to say that I speak on behalf of many of its members—that HMRC’s contractor loan settlement opportunity requires people who want to put their affairs straight to waive those protections, with the threat of the loan charge looming over them. It is not clear why it is necessary for that settlement opportunity to pressure people into paying tax for years that HMRC calls “not protected”—years where HMRC is out of time—even though it may have had the information it needed to open inquiries or raise assessments at the proper time.

[Dame Cheryl Gillan (Chesham and Amersham) (Con)]

I support the way in which my right hon. Friend is addressing new clause 26, on which I find myself in a similar position to her. Although we want people to pay the correct taxes, I have constituents who may face losing their homes over this, after entering into what they thought were perfectly legal and allowable arrangements. Does she agree that the Treasury must address that?

[Nicky Morgan]

I very much agree with my right hon. Friend. It will probably turn out that most of us have constituents who are affected in that way. There are some who perhaps did know what they were doing when they entered into these tax arrangements, and some who clearly did not. It is absolutely right that the correct tax is applied, but, equally, it cannot be right that people are facing serious situations that will undermine their financial security and also their mental health.

[John Redwood]

Is my right hon. Friend aware that not only did quite a few people take advice, but they notified the Revenue of what they were doing and no objections were made at the time?

[Nicky Morgan]

Yes, I absolutely agree with my right hon. Friend. That was raised in the Westminster Hall debate led by my fellow Committee member, my hon. Friend the Member for Wycombe (Mr Baker).

I say to the Minister that it is troubling to hear that tens of thousands of people who want to settle with HMRC before the 5 April deadline have yet to receive calculations from HMRC. It is impossible for them— I think it would be for most of us—to settle large bills within a matter of months if they do not know what they will be asked to pay, let alone if they cannot start to make arrangements for how to pay them. These individuals need to know how much they have to pay, and I ask Treasury Ministers to step in and make clear what will happen to those people if they do not hear from HMRC by 5 April.

I will leave that with Ministers. I hope they can tell that there are MPs on both sides of the House who are concerned about this. By working together, we can make sure that the right tax is paid, but also that people are treated fairly.

[Kirsty Blackman]

I am aware that we are fairly short of time, so I will not rerun many of the things I said in Committee—I am sure the Minister and those on the Opposition Front Bench will be delighted to hear that.

I want to highlight a few of the SNP amendments and new clauses in this group. We have a couple of new clauses asking once again whether the Government’s provisions will do what they intend. For example, we want them to review the changes to entrepreneurs’ relief. We also want them to look at the changes in relation to emergency vehicles, because we are particularly concerned about the potential rural impact. Those who have emergency vehicles in rural areas may have more cause to use them outside work time than people who use them in cities. We felt that that issue was not drawn out enough in Committee or in the information the Government provided previously.

New clause 17 is about Brexit analysis. It is important to note that, since the Brexit vote in June 2016, over $1 trillion has been pulled from UK equity funds, which is obviously a really large number. In any changes or preparations the Government carry out in relation to Brexit, therefore, they should note the impact on the economy, which, according to the Bank of England, has cost individual families £900 each so far, and there is also the impact on financial services, for example, which have historically been very strong in the UK.

New clauses 15, 11 and 14 again ask the Government to provide information through consultation reports. It is important that the Government tell us the consultation they did on the draft clauses they brought forward. On the ones they did not bring forward, why did they not do so?

On that point, I should mention that the Government have included a new schedule in this group. That is a relatively unusual thing for the Government to do at this stage, given that they could have included the schedule in the original Bill or brought it forward in Committee. Because the new schedule was not brought forward in the initial stages, the explanatory memorandum provided by the Government does not include details about it. It would have been helpful if it had been considered at an earlier stage or if the Members who sat through the Bill Committee had been notified that it was likely to come forward. Presumably, the Government knew about it before the Christmas recess, and it did not just appear out of the ether. That process could be improved.

The main thrust of my contribution in the short time I have remaining is about the removal of the link between the personal allowance and the minimum wage. I understand that the Government have removed it on the basis that the personal allowance has now reached £12,500 and that they therefore believe they do not need to keep the link. I understand why they are making that case, but if that link had been kept, with the Government required to do a review if the personal allowance threshold was set at less than £12,500, future Governments would have continued to be bound by it. That would have meant that the protection the Government felt was necessary for people on the lowest incomes would still be there in the future. I understand that the Government do not intend to reduce the personal allowance, but that protection could have been left in place without the law causing any problems. That is something I am concerned about.

It is particularly concerning when the living wage the Government have put in place is not a real living wage, but a pretend living wage. It also does not apply to anyone under 25, which is an issue the SNP has raised over and over again. Just because someone is 24 does not mean that their living costs are less than they would be if they were 26—they could have the same number of children and live in exactly the same accommodation. However, the Government believe that it is okay to pay them less just because they are under that age threshold. That is exacerbated by the fact that the minimum wage increases the Government have introduced this year increase by a higher percentage—not just a higher monetary value—the minimum wage received by those who are over 25. The gap is widening: those who are over 25 are getting a bigger increase in the minimum wage, while there is a smaller increase for the younger age groups. The Government need to take seriously the fact that they are saying apprentices are worth pennies, frankly, and that 16 and 17-year-olds are worth far less than people under the age of 25. We raised our concerns in Committee in relation to the removal of the number. I do not think it would have cost the Government anything to leave in the link to protect future generations.