Consumer Access: Financial Services

Charles Walker Excerpts

Thursday 6th June 2019 Westminster Hall

[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—

[Mr Charles Walker (in the Chair)]

You can make as many interventions as you like, Mr Shannon—make 10 —but brevity is the key. The Floor is yours.

[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?

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[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.

[Marion Fellows (Motherwell and Wishaw) (SNP)]

Thank you for calling me, Mr Walker, in spite of my tardiness. I apologise to everyone present—I ran as fast as I could.

[Mr Charles Walker (in the Chair)]

You were 15 seconds late. I think anybody can forgive that.

[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.

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[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.

[Mr Charles Walker (in the Chair)]

Minister, if you are inclined to speak until 3 o’clock, please do not, and allow two minutes for the right hon. Member for Loughborough (Nicky Morgan) to respond.

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[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.

Loan Charge

Charles Walker Excerpts

Thursday 11th April 2019 Commons Chamber

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

Thank you for calling me so early in this resumed debate, Mr Speaker. I have to say that I had never imagined that I was going to speak in it, seeing as rain stopped play at about this time last week. I am by no means an expert on the 2019 loan charge, but I, like many others who expressed an opinion last week, have been contacted by numerous constituents who have set out in clear terms how they believe it would impact on them. They are being asked to pay back thousands, tens of thousands, and in some cases even hundreds of thousands of pounds that they never believed would be due.

Do not get me wrong: I believe that everyone should pay their fair share of tax. We know that that is what funds our public services, and we should clamp down on tax evasion at every possible opportunity. However, minimising tax exposure has always been a legitimate part of our tax system.

When looking at this issue, I have been on a journey. Initially I was in two minds about the validity of the arguments presented. Obviously, I had great sympathy for my constituents on both a personal and an individual level, but I felt that the old adage, “If something looks too good to be true, it is too good to be true,” applied. I have now, however, come to a different conclusion. I have looked at the individual cases presented and at the wider issues. To demonstrate why I have come to that conclusion, I want to use the words and sentiments that one particular constituent has sent me. He wants me to do this anonymously, as he does not want to prejudice himself or his case. As an aside, I am not sure that it is a healthy state of affairs when constituents are scared to speak out against a Government agency.

My constituent is a freelance IT professional who was advised to enter one of these schemes. When he entered the scheme, to give himself confidence that it was legally compliant and that what he was being told by his professional adviser was true, he contacted Her Majesty’s Revenue and Customs. The correspondence my constituent has from HMRC shows that in 2012, when he was checking for compliance under disclosure of tax avoidance schemes legislation, he asked HMRC to review the particular arrangements he had joined. I am informed that the HMRC anti-avoidance group concluded that no hallmarks of tax avoidance were in evidence and so HMRC did not assign a DOTAS number to that arrangement.

If that is true, which I obviously believe it is, I think it is fair to say that, under HMRC’s duty of care and due diligence, it had plenty of opportunity to inform my constituent that things had changed and that the particular arrangement that he had entered into would be liable to taxation. HMRC completely failed to notify my constituent that anything was amiss, so for years he relied on the initial HMRC advice he had received and continued as a customer of the arrangement.

[Mr Charles Walker (Broxbourne) (Con)]

That retrospective and disproportionate approach being taken by HMRC are what concern a number of my constituents. The people I represent are very reasonable, and they would be happy to come to an arrangement with HMRC, but HMRC seems to want to bankrupt its debtors, as opposed to getting some return from them.

[Stephen Metcalfe]

My hon. Friend makes an excellent point. All the correspondence I have had has been phrased in very reasonable terms. People want to do the right thing, but they feel under a huge amount of pressure.

Long-term Capital for Business

Charles Walker Excerpts

Tuesday 15th January 2019 Westminster Hall

[Several hon. Members rose—]

[Mr Charles Walker (in the Chair)]

We have 18 minutes before the wind-ups. I call Jim Shannon. Jim, please do not be more than six minutes.

--- Later in debate ---

[Several hon. Members rose—]

[Mr Charles Walker (in the Chair)]

I am going to call Luke Graham, who will speak for five and a half minutes, because he is a really good guy.

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[Drew Hendry]

It will come as no surprise to the hon. Gentleman that I do not agree with that. He has gone from making a sterling point about the English Treasury to saying that independence is somehow a threat. I do not think so; I think it is a marvellous opportunity. As he has raised the issue, I will say that it has been brought into sharp focus in this place over recent months.

As Marian Bell of Alpha Economics pointed out, businesses that were told to prepare for a no-deal Brexit have relocated their operations and those decisions may not be reversed, even in the event of the best possible economic outcome—even if that is remaining in the EU. As Brexit inches closer, the UK services sector has recorded the slowest sales growth in two years, according to the British Chambers of Commerce, whose survey of 6,000 British firms shows that labour shortages and price pressures persist.

Scotland is a world leader in patient long-term capital, but Brexit risks lenders following the example of a well-known hon. Member, the hon. Member for North East Somerset (Mr Rees-Mogg), in moving business to Dublin or the continent. We are being Mogged over Brexit.

In the face of austerity, we have to make different decisions to support business. The Scottish Government are introducing the Scottish national investment bank, which will provide patient long-term capital to support Scotland’s firms. In contrast, as we have heard, the UK Green Investment Bank, which was privatised by the Government, is now bereft of its UK focus.

The aim is for the Scottish national investment bank to invest in businesses and communities by 2020, subject to regulatory approval. It is backed by our commitment of at least £2 billion of investment in the first 10 years, which paves the way for a step change in innovative and inclusive growth.

We also welcome the plan for a Scottish stock exchange in the second quarter of 2019, with a focus firmly on social and environmental companies that are worth between £50 million and £100 million. The plan has now secured a partnership agreement with the major European stock market operator Euronext, meaning that the first Scottish stock exchange will operate since the closure of the trading floor in Glasgow in 1973.

That is all being done in the shadow of Brexit, which was a vehicle aroused solely to calm Tory infighting. As chaos reigns on the Conservative Benches, there is as much chance of success for business as for the economy of our people, who will ultimately pay the price in the long term.

[Mr Charles Walker (in the Chair)]

I call Marion Fellows to speak for the Scottish National party for up to five minutes.

2019 Loan Charge

Charles Walker Excerpts

Tuesday 20th November 2018 Westminster Hall

[Several hon. Members rose—]

[Mr Charles Walker (in the Chair)]

A number of colleagues wish to speak. If colleagues can restrict themselves to speaking for no more than five minutes each, I will not put a timer on. However, if colleagues go over five minutes, I will have to start reducing other colleagues’ time.

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[Peter Aldous]

I sense that I should plough on, Mr Walker, so as to give others an opportunity to make a speech.

It is vital that any taxation system is equitable and progressive, and that those with the broadest shoulders pay their fair share.

[Mr Charles Walker (in the Chair)]

Order. I will not hold it against the hon. Gentleman if he would like to be generous to Mr Goldsmith.

[Peter Aldous]

Then I will allow my hon. Friend the Member for Richmond Park (Zac Goldsmith) to intervene before I continue.

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[Ross Thomson]

I could not agree more. It seems to be easy pickings for HMRC. It is not going after those who are truly culpable. That is why such great distress is being expressed in our surgeries.

My constituent continued:

“This whole sorry affair has imposed life changing levels of stress on both me and my family, especially with the backdrop of the recent downturn in the oil and gas industry where I have been out of work for about 50% of the past two years.”

Another constituent wrote:

“This is a complicated situation, however fundamentally, HMRC have closed down the opportunity to use these ‘loan’ schemes.”

My constituent accepts that it is a positive move to end ambiguity.

“The retrospective nature of this legislation is going to place a large number of contractors under extreme financial duress. Bearing in mind HMRC’s failure to sort this situation out sooner”.

Another constituent—this is the last example I will give—emailed me to say that he was emailed by a company stating that he could retain 78% to 80% of his salary legally. He wrote:

“The scheme was QC approved and top tax counsel advised it was sound… I learnt during the latter part of last week that my retrospective tax charge is very likely to exceed £230,000. As for HMRC’s so-called ‘Impact Assessment’ apparently finding that such sums would lead to few, if any issues for those being expected to pay such, I can only comment that they must assume that we are all multi-millionaires. Of course, they know full well that we aren’t.

It’s very daunting when the full weight of government makes demands with threats of the law being brought to bear when, according to the law, no law has been broken. I doubt very much that I can simply ignore threats, be taken to court and stand there and say such. Thus individuals are placed in the position of hiring lawyers with costs running into six-figures and this will be beyond the means of most, if not all of us.”

This particular constituent says that he is single and has

“never had a second income from a partner to assist with cost of living”.

He is facing serious financial distress.

It is right that we condemn those who sold on and encouraged such schemes. It is deeply unfair that we seek to do this retrospectively. It absolutely violates the core principles of the rule of law. I could not agree more with colleagues who have already expressed that frustration. I think that this particular measure is disgraceful. I will go further-I think it is dishonourable and should be stopped.

[Mr Charles Walker (in the Chair)]

If colleagues could keep to five minutes, we might get everybody in.

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[Julia Lopez (Hornchurch and Upminster) (Con)]

It is a pleasure to serve under your chairmanship, Mr Walker. I must begin with a little grovelling and apologise in advance for having to leave this debate for a Statutory Instrument Committee. I am grateful to you for allowing me to speak, and to my hon. Friend the Member for Wycombe (Mr Baker), who secured this debate. It is of great importance not only to my constituents, but to those of many other hon. Members.

My constituents are concerned about the 2019 loan charge. They have tended to work as contractors or freelancers in the IT and professional services sphere, and they are now deeply concerned that HMRC’s actions over the loan charge will place them in serious financial hardship, if not outright bankruptcy. They suggest to me that they were encouraged by professional advisers or the contracting companies themselves to enter special payment schemes, which were deemed legal and allowed for scheme users to be paid in the form of a loan rather than ordinary remuneration. Resulting from poorly drafted IR35 legislation, such schemes are now deemed by HMRC to be disguised remuneration that amounts to aggressive tax avoidance. HMRC is pursuing affected constituents at a time when many cannot easily recover their earnings.

My constituents fear that this action represents retrospective taxation, thereby undermining legal certainty and confidence in the tax system. They are also angry that the charge is being levied on contracting employees, despite a legal case involving Rangers, which judged the employer liable for any unpaid tax and national insurance. Given that for nearly two decades HMRC appeared to permit tax advisers and accountants to recommend the schemes without penalty, my constituents believe they have been let down by a system that should have alerted them to problems in a timely manner.

I have had a one-to-one meeting with the Financial Secretary on this issue in which he set out the Government’s position with clarity. I understand that scheme users will now be able to spread any payments to HMRC over five years should their taxable income this year be under £50,000. However, my constituents want to know why HMRC is not apparently being more robust in pursuing the tax advisers, accountants and contracting companies who took freelancers and contractors down this route in the first place.

One constituent told me:

“I decided to contract having been made redundant 3 times from what I considered safe and stable jobs. I have never in my life taken any state benefit. The only and main reason I signed up to a...scheme was because I felt that after a year as a self-employed person...the rewards did not justify the risks and with IR35...insisted upon by my employers”,

it seemed

“the only route open for me to improve my take home pay”.

He goes on:

“I am not justifying any shortfall in the tax...that I maybe should or could have paid, but Government and HMRC”

allowed

“schemes to flourish for years without redress...HMRC have chosen to inflict regular PAYE/NI rates, apply penalties and interest for open years and take no account of holidays, sickness benefits, pensions, training and out of contract time that freelancers have to finance themselves. Surely, even a concession on the rate being charged under the Loan Charge would be a fair and reasonable compromise?”

I must confess that without having access to the precise details of individual tax paid and the specifics of the schemes entered into, I have found myself caught between the concerns of constituents and the assurances of Ministers, who believe very strongly that the loan schemes clearly represented an illegitimate attempt to avoid tax. I fear, therefore, that the fairness and legality of HMRC’s actions will end up being determined in the courts by those with the tax expertise to look dispassionately at these matters. None the less, I wanted to raise these concerns in this afternoon’s debate in my role as a constituency MP, and I would be grateful if the Minister addressed the specific concerns that my residents have raised with me: namely, the apparent lack of action against culpable financial and legal advisers and employers, the calculation of tax owed, and retrospection in the tax system, which risks undermining wider confidence in the system.

[Mr Charles Walker (in the Chair)]

I call Janet Daby. You have four minutes, I am afraid.

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[Mr Hayes]

I have answered many debates in this Chamber as a Minister of various Departments, and I tell the Minister, who is a good and honourable man, that when this many hon. Members from both sides of the House come together in a single cause, he had better take action. The writing is on the wall and he has to respond. I know he will take that piece of sound advice in the spirit that it is offered to him.

I will briefly make three recommendations and then draw my remarks to a rapid conclusion. First, I would like the Minister to tell us what further impact assessment has been made by scale and detail on the families affected by the measures. Secondly, I would like him to give us an estimate of how many people who cannot or will not pay will be driven to bankruptcy, and what effect that will have on the Treasury’s revenue calculations on the matter. Thirdly, as I have already said twice—I make no apology for amplifying it—I would like him to tell us what steps he is taking in respect of the architects and advocates of the schemes, who have done so much damage.

I have no doubt that being a Treasury Minister is about churning figures, but it is also about changing lives. This matter affects the wellbeing of large numbers of our constituents. Families will be blighted and faith in fairness will be ruined. The Minister—an honourable gentleman, a good Treasury Minister, a valued colleague and friend—needs to see the writing on the wall and take action. Woe betide those who do not. They will rue the day that they failed to listen to the voices that have been aired today.

[Mr Charles Walker (in the Chair)]

I thank Mr Hayes for his generous and succinct contribution. Last but not least, I call Justin Madders.

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[Lyn Brown (West Ham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Walker. Today we have heard some awful stories from my hon. Friends the Members for Mitcham and Morden (Siobhain McDonagh), for Poplar and Limehouse (Jim Fitzpatrick), for Lewisham East (Janet Daby), and for Ellesmere Port and Neston (Justin Madders) and others, and I am grateful to everybody who has contributed to the debate and put the case so clearly.

There is no doubt that small business owners, contractors and others who have used these schemes will be significantly affected by the charge next year. Many are not wealthy people. They did not intend to avoid tax, and until recently many were not aware that there was even an issue. In some cases, the schemes were presented by agencies or employers as part of a standard contract. Some people could lose their livelihoods; some could lose their homes. The schemes we are talking about are a form of tax avoidance, and it is right that tax owed is collected. Avoidance should not pay—that is the principle. However, those who will be negatively affected by these schemes deserve our empathy and understanding, and many of the stories we have heard confirm that some of those affected are vulnerable and became caught up in these schemes without initially comprehending what they were all about.

If what is being reported is correct, it is an absolute disgrace that hospital cleaners, locum doctors, nurses, council workers, social workers and other people who work hard for the public on low or moderate pay were recruited into these schemes by tax advisers and bogus umbrella companies. It is an absolute disgrace that the Government are determined just to take on those individuals, rather than those who facilitated this avoidance for profit—those who fully knew what they were doing, and did it anyway.

If the reports are right, in some cases nurses or other public servants were made redundant by public sector organisations, only to be hired immediately as contractors through agencies who then facilitated these tax avoidance schemes. What action have the Government taken against those agencies? Some might say that this was fraud, because the schemes were not a genuine way to reduce tax liability. I have some sympathy with that view, because the schemes seem to have harmed many “clients”, and in my head I cannot justify a professional tax expert setting up such a scheme and getting a nurse, a social worker or someone else on a low or moderate wage involved in it. If it is not illegal for those tax experts to do that, it bally well should be.

Let me ask the Minister a direct question: if his Government maintain that these arrangements were illegal when entered into, why have they done nothing about the advisers who recommended them? Does he agree that when advisers promoted these schemes, they were promoting something illegal? The advisers get off scot-free while those who can ill afford it carry the can.

One of the employee benefit trust schemes we are talking about was created by Deloitte, which is one of the largest business services companies. It was put in place by Deutsche Bank, working with offshore entities in the Cayman Islands that were set up for this specific purpose. That was confirmed by the Supreme Court in 2016 following court rulings in 2014 and earlier. Two years on, however, there has been no investigation or prosecution, and no penalty for mass-marketing unlawful schemes. No accountancy firm has been disciplined by the professional body, the Institute of Chartered Accountants in England and Wales, and the Government did not even attempt to recover the legal costs spent fighting those cases. Why?

The Government’s priorities seem clear: they will not go after the enablers. We appear to be talking about advisers and employers who have exploited public service workers—workers who will see no benefit themselves—and at the same time directly reduced the tax that pays for those self-same public services. It is simply wrong, and it goes to show yet again how absurd, short-termist and unfair the outsourcing and privatisation policies have been.

We believe that clemency should be considered when businesses or people are at risk. As hon. Friends and other hon. Members have said today, if the loan charge causes businesses to go under next year, that will not help the Treasury recoup losses in the longer term. As the hon. Member for Aberdeen North (Kirsty Blackman) said, it will cost the public sector more if we have to evict people from their homes and rehouse them. I hope the Minister will tell us what the Government will do to treat everyone involved with compassion and care, particularly those who unintentionally fell foul of the schemes, including vulnerable people and those on low incomes. Campaigners say that the exact opposite is happening: people are being treated with little understanding or compassion by HMRC.

The impending deadline of April next year and the potentially severe consequences for anyone on a low wage who does not meet that deadline justify concerted outreach to those who have loan balances outstanding. We cannot let vulnerable people who have been exploited end up with massive tax debts hanging over their heads for many years to come. If we see bankruptcies, failing businesses, repossessions and even suicide, that will be because this Government have not done the outreach needed and not invested in adequate training. It will also be because the context for the charge is a cut to the HMRC workforce of 17% since 2010, even while they are rightly being asked to do more to tackle such complex problems.

We should not let the Government’s approach to loan schemes distract us from their absolute failure to deal with large-scale tax avoidance. Loan schemes are far from the only form that avoidance has taken in recent years, and are small in comparison with the tax avoidance methods used by the ultra-rich. Labour supports strong measures against tax avoidance. We want the Government to go much further. We want them to go after the enablers-those who knew that the schemes were tax avoidance and illegal, but who peddled them anyway. Thank you.

[Mr Charles Walker (in the Chair)]

And thank you, shadow Minister. This gives the Minister extra time to answer all the questions he has been asked. He will leave two minutes, because he is generous, for Mr Baker to wrap up at 3.58 pm.

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[John Glen]

In fairness, I should allow the hon. Member for Aberdeen North (Kirsty Blackman) to intervene.

[Mr Charles Walker (in the Chair)]

There is no time, Minister. You have 40 seconds.

[Kirsty Blackman]

I have contacted HMRC on behalf of constituents and have been told that it cannot talk to me about those individuals and that they will get an answer by 5 April. That is not helpful.