Financial Services and Markets Bill

Damian Hinds Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

I welcome this ambitious piece of legislation. It is quite right that for a country and an economy such as ours, in which financial services play such a key role, we should be able to set UK-specific financial services regulation. I very much welcome the reframing of the regulatory objectives around long-term growth and international competitiveness. I want to speak to two specific aspects of the Bill that fall under “other miscellaneous provisions” but are nevertheless incredibly important: credit unions and compensation for the victims of fraud.

I turn first to credit unions, and in particular their role in financial inclusion and providing an alternative to high-cost, sub-prime lenders. Last night, I happened to be flicking through a well-thumbed copy of Hansard and looked at a debate from January 2014—hon. Members will remember it—when we were discussing payday lenders and the problems associated with them. We have come a long way since then. I think it is important sometimes to look back and say, “Where has regulatory change made a big difference?” We have had: the CMA report; the new FCA regime, including on payday affordability checks, roll-overs and restrictions on advertising; the measures on continuous payment authority, which I remember the hon. Member for Walthamstow (Stella Creasy)—no doubt, she would have wanted me to say this—championing so strongly; the cost of credit cap; and, most recently, the new FCA consumer duty.

More broadly, the Government put financial education on the national curriculum and, of course, supported credit unions with a commitment of up to £38 million for their development and further regulatory liberalisation.

[Stella Creasy]

I acknowledge what the right hon. Gentleman is trying to point out. However, does the evidence not show that it was the intervention of the financial ombudsman service that led to the downfall of companies, such as Wonga and Amigo, that were exploiting our constituents, rather than the intervention of the FCA, which oversaw unaffordable lending on its watch? Does that not show us why we need further FCA reform? It is the opposite of the point that he is making.

[Damian Hinds]

The hon. Lady makes an important point. It would be wrong—I am sure she did not mean to say it, even though it is what she just said—to say there was a single cause for those things. In fact, it is about changing the entire framework. In other parts of the market, for example home credit, there is a different set of reasons again why there has been a decline. We know the sub-prime segment shapeshifts the whole time, and we have also seen the recent growth of buy now, pay later. At a time of heightened financial stress, it is inevitable that new risks and new vulnerabilities manifest.

Wise heads always remind us that in seeking to curb the parts of the high-cost lending market that we do not like, there is always a danger that we instead push some part of that customer base into the arms of a high-cost lender whose idea of a late payment penalty is a cigarette burn to the forearm, so we must get the balance right. Regulation has been a success, but ultimately what we need is an alternative, because credit does form a part of people’s lives, and that is where credit unions and others, such as community development financial institutions, come into play.

We have seen development in the sector, but I would like to see a lot more. We have a great example in Northern Ireland—and indeed in the Republic of Ireland—of what a much more developed credit union sector can look like, and I would like to see that in mainland Britain. The proposals in the Bill will continue that development, amending the Credit Unions Act 1979 to allow for conditional sale and hire purchasing agreements to be undertaken by credit unions, along with the marketing of insurance services. I would only encourage the Government to go further, because our credit union sector is still small in Great Britain compared to Northern Ireland and there is much more that can be done. There is also more that can be done on CDFIs, whose growth, frankly, has been disappointing.

I encourage keeping an open mind on the regulatory aspects of the Bill. I do welcome the measures, but while the 3% per month interest cap is very reasonable, in some parts of financial services it is difficult to break even on that cap. Ironically, the demise of the market leader of the home credit business sector makes it more urgent for us to ensure there is very good provision from credit unions and other responsible lenders in its wake.

The other issue I want to comment on briefly is the provisions on authorised push payment scams and mandatory reimbursement. This gives me the opportunity to join others in the nice things they have been saying about my hon. Friend the Member for Salisbury (John Glen), the former Economic Secretary to the Treasury. I had the opportunity to work with him when I was Security Minister and he was bearing down on the awful growth in fraud. We have not just seen that growth in this country. Fraud and economic crime have been growing in countries throughout the world. There is a change in crime, and we need to respond accordingly. I welcome the change in the Bill, because it brings consistency and fairness and will enhance confidence for people using online financial services. One should never take away all responsibility from the consumer, of course, but that is a welcome move.

Very briefly, there are two things I would like the Government to look at, one for the Treasury specifically and one for the wider Government. First, for the Treasury, it is not clear to me why this provision applies just to the faster payment system. It is true that the vast majority of scams happen through faster payments, but they may not in future. It is right that the regulator should have the ability at least to extend that scope.

Secondly, a bigger point—not for my hon. Friend the Economic Secretary, he will be pleased to know, but for others in Government—is that we should extend the principle beyond the banks. It is difficult to get sympathy for banks and bankers, but right now they are bearing the entirety of the burden even though they are just the last link in the chain of the scam. They have responded very well, partly through regulation on such things as strong customer authentication and so on, but also by going further off their own bat. I think that is partly to do with their moral commitment to their customer base, but it is also about the liability they face through the contingent model. One wonders whether, if social media platforms, telecoms companies and others had had those same incentives, we might already have a lower level of fraud than we have today.

Save for those two encouragements to my hon. Friend the Minister for the Government to look at going further, I strongly welcome the Bill and all he is trying to do.

Delivery of Public Services

Damian Hinds Excerpts

Tuesday 28th June 2022 Commons Chamber

[The Minister for Security and Borders (Damian Hinds)]

The Government absolutely recognise the difficulties that families across the country are facing. It is a concerning time, and that is why we are taking concerted and wide-ranging action, the details of which I will come on to highlight, to ensure that people and businesses get the support that they need.

Countries around the world are seeing slowing growth and higher inflation, and I am afraid the UK is simply not immune. This month’s OECD economic outlook says:

“The world is paying a heavy price for Russia’s war in Ukraine. It is a humanitarian disaster, killing thousands and forcing millions from their homes. The war has also triggered a cost-of-living crisis, affecting people worldwide. When coupled with China’s zero-COVID policy, the war has set the global economy on a course of slower growth and rising inflation”.

Our priority is ensuring people get the support and help they need, continuing our responsible economic management and helping people to stay in jobs.

It is important to note what has happened in the labour market. Economists had projected that unemployment would peak during covid at somewhere close to 12%. In the event, it peaked at 5.2% and is now down below 4%. The unemployment rate is now close to historic lows, and youth unemployment is at near record lows, at nearly half the rate during the same period of 2010. Redundancies are at the lowest level since records began in the mid-1990s. Total real wages are 3% above pre-pandemic levels.

We must never forget that by far the most important thing for living standards, for fighting poverty and for the dignity of families throughout the country is having a job, and it was the decisive action of this Government that kept so many people in jobs through the pandemic. The furlough scheme and the self-employment income support scheme, which together went to an estimated 14.7 million people, helped to protect jobs, businesses and livelihoods. Some £100 billion of loans and grants were made available to support businesses of all sizes. And now, as we find ourselves in another global phenomenon, the Government are rightly stepping up once again.

We understand just how hard the rising cost of living is for families across the UK, and we are taking significant steps to ease these pressures. Central to that effort is the £37 billion to help households, especially those most in need, with the cost of living. We know that the best approach to managing pressures in the long term is helping people into work, supporting them to increase their income and helping them to keep more of what they earn, hence the reforms to universal credit and the taper rate, the increased national living wage and the higher national insurance thresholds.

This has been an important debate, with good contributions from both sides of the House, and I thank everyone who has contributed. I thank the Opposition spokespeople, the right hon. Members for Wolverhampton South East (Mr McFadden) and for Dundee East (Stewart Hosie) and the hon. Member for Aberavon (Stephen Kinnock), and I thank the hon. Members for Bristol North West (Darren Jones), for Stirling (Alyn Smith), for Birmingham, Hall Green (Tahir Ali), for Reading East (Matt Rodda), for Coatbridge, Chryston and Bellshill (Steven Bonnar), for Ellesmere Port and Neston (Justin Madders) and for Motherwell and Wishaw (Marion Fellows).

I also thank my Conservative colleagues. My hon. Friend the Member for Bexhill and Battle (Huw Merriman), with his Treasury Committee background, spoke with great authority and knowledge. He acknowledged some of the changes we have made to help the travel trade, to which I will return in a moment, and he reminded us of the lesson of history on wage price spirals and the ultimate importance of driving productivity to make sustainable rises in real wages.

My hon. Friend the Member for Eastleigh (Paul Holmes), in a very perceptive speech, noted the repetition we sometimes hear from Opposition Members, who do not always match it by voting with us to support investment in our key public services. He rightly said that every Member should acknowledge the problems we face and should work together on the issues, and I strongly agree.

My hon. Friend the Member for Bury North (James Daly), in a similar vein, pointed out some of the issues facing both the Welsh Government and the Westminster Government, including on the national health service.

My hon. Friend the Member for Southend West (Anna Firth) spoke of the great success of the vaccine programme. She rightly spoke with great respect of national health service clinicians and staff in her constituency, and she covered some of the innovation they are driving in Southend.

My hon. Friend the Member for Peterborough (Paul Bristow) spoke of the importance of employment, and I echo and wholeheartedly agree with what he said about the hard work of staff at Her Majesty’s Passport Office, particularly in his constituency.

Let me turn to some issues that came up a number of times, starting with passports. We discussed the subject of passports across these Dispatch Boxes during an Opposition day debate two weeks ago. On that occasion, hon. Members may recall my acknowledging that although 98.5% of UK passport applications are being processed in 10 weeks, some of our constituents have clearly not received the level of service that they rightly expect. It is incumbent on us to do everything we can to address that.

To give some background, in a normal year before covid, some 7 million people would apply for a passport. During the period of covid, that number came right down. The projection is that 9.5 million people will apply for a passport this year, which is an unprecedented rate of year-on-year growth. The hard-working staff in HM Passport Office really have stepped up to the plate. In March, April and May, around 3 million applications were processed. I acknowledge, absolutely, that there have been difficulties with specific cases. The hon. Member for Motherwell and Wishaw spoke with compassion about a particularly compelling case. If she comes to me after the debate, I will make sure that she is put in touch with a Minister to discuss that further.

When I spoke about this two weeks ago, I said that on the most recent reporting, 650 additional staff had been added to HM Passport Office since April 2021. That figure, on the most recent statistics, is now up to 850, with the recruitment of a further 350 staff in train. Suppliers and contractors have also increased their resourcing and we have added a further service desk and added capability on couriering. The service has continued to improve, and more passport applications are being processed now than ever before.

[Darren Jones]

Will the Minister confirm whether civil service cuts will apply to the Passport Office after that period of recruitment?

[Damian Hinds]

It would be quite wrong for Ministers to stand at the Dispatch Box and give analyses of and running commentaries on what is a sensible and important exercise to go through—[Interruption.] Well, it is. We have just been through two enormous events—leaving the European Union and the coronavirus pandemic—which have involved all manner of changes in how the civil service operates, some of which are temporary, whereas some are more sustained. Meanwhile, there have been opportunities, as there always are, to look afresh at how we do things. It is right for Government to do that on behalf of our taxpayers and all our electors, to whom we have a duty to spend taxpayers’ money as efficiently and effectively as we can.

Let me turn to airports, which a number of colleagues spoke about, and particularly my hon. Friend the Member for Bexhill and Battle. There has been a sharp increase in passenger demand after a very suppressed period. That has put considerable pressure on the aviation sector, resulting in some passengers experiencing unacceptable delays and, in some instances, airlines cancelling flights. As Members on both sides of the House have noted, we have seen some of these effects in other countries, including members of the European Union.

A number of operational challenges have contributed to the situation, including staff shortages, crew availability and issues relating, in some cases, to covid restrictions still being in place in other countries. Although the private sector—the aviation industry—is responsible for resourcing airports and airlines, we rightly work with that important sector, which supports a lot of jobs and prosperity, sustains business travel, brings tourists to this country and generates a lot of export earnings. We have worked with the sector to support it in a number of ways.

On 29 April, we laid a statutory instrument to make use of our new Brexit powers to allow Ministers greater flexibility over regulation. That allowed for temporary changes to permit certain training to be undertaken while background checks are completed, helping to speed up recruitment but without a change in security assurance. Having listened carefully to the industry, we were also able to agree that HMRC employment history letters could be used for a time as a suitable form of reference check, with safeguards, to reduce the time that recruiting takes.

On the inbound side, which is an area of Home Office responsibility, Border Force is working to a projection that demand will go back to pre-pandemic levels and is staffing accordingly. Our collective focus must be on ensuring that people can get away for business travel, to help to create prosperity, and for their well-earned summer breaks, on time and as hassle-free as possible.

On driving licences, let me first say that if the right hon. Member for Dundee East comes to me with the case that he mentioned of the community mental health nurse in his constituency, I will make sure that a conversation takes place with the appropriate Minister. More than seven in 10 people apply online for driving licences; there are no delays in those applications. The Driver and Vehicle Licensing Agency is also back to normal times for vehicle registrations and non-medical driving licence paper applications. The remaining area in which more improvement is needed is applications from those with a medical condition. As colleagues may know, that part of the operation was hit by industrial action, but it is anticipated that it, too, will be back to normal timings by September. In the meantime, the DVLA continues to recruit more staff and utilise overtime to reduce medical application delays, and has opened further customer service centres in Swansea and Birmingham.

On the national health service, it is true that following the disruption of covid, the elective waiting list has grown in England, in Wales and across the United Kingdom, as it has grown in other countries. I place on record my enormous appreciation, gratitude and admiration for everybody who works in our national health service: their contribution throughout the pandemic has been absolutely exceptional. GP appointment numbers have now recovered to pre-pandemic levels; as of April, there were 1.26 million GP appointments per average working day. The Government plan to spend more than £8 billion to support the NHS to provide the elective care that was delayed by the pandemic. With the additional £1 billion that we announced for the second half of 2021-22, that could fund the equivalent of approximately 9 million more checks, scans and procedures.

There is no doubt that these are difficult times. Covid-19 was a major, indeed unprecedented, time in global history. The war in Ukraine is devastating for the people of Ukraine, and the economic shockwaves are felt far beyond, too. As Ministers, we are here to be held to account for the Government’s response, quite rightly, but I must say to the Opposition that they cannot just will away these huge global challenges with wishful thinking and fantasy economics.

Calmly and determinedly, this Government are stepping up to face these challenges head on. We do not underestimate the scale or complexity of them. We will not waver. We will weather these storms. With the fortitude of the British people, the creativity and belief of British business and the innovation of British entrepreneurs, we will emerge stronger than ever. The British people know that dedicated public servants are working flat out for them. They can be assured that they have a Government who are taking the difficult decisions and who are on their side.

Question put and agreed to.

Resolved,

That this House notes that UK economic growth is forecast to grind to a halt next year, with only Russia worse in the OECD; further notes that GDP has fallen in recent months while inflation has risen to 9.1 per cent and that food prices, petrol costs and bills in general are soaring for millions across the country; believes that the Government is leaving Britain with backlogs such as long waits for passports, driving licences, GP and hospital appointments, court dates, and at airports; and calls on the Government to set out a new approach to the economy that will end 12 years of slow growth and high taxation under successive Conservative governments.

Better Jobs and a Fair Deal at Work

Damian Hinds Excerpts

Wednesday 12th May 2021 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

I strongly welcome the focus in the Gracious Speech on jobs, skills, progression and careers. Since 2012, at the peak of unemployment, we had something of a jobs miracle before the start of the pandemic as a result of the creativity of British business, the favourable investment conditions, our flexible labour markets and our effective labour market policies. Now our focus, quite rightly, is on keeping people in jobs, as far as possible, and helping those out of work to return as soon as possible. To call the most recent projections from the Monetary Policy Committee encouraging would be something of an understatement: they are really quite dramatic if they can be realised. All the support that has had to be put in place to make that possible has obviously been very expensive, but it looks as though the record will come to show that that investment will have paid off fiscally as well as in reducing the human cost on individuals, families and firms.

Like my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), I hope that we will soon be able to return to our 0.7 % commitment, not only for the reasons he rightly set out, but also in terms of our shared prosperity as a world because of the effect that co-ordinated ODA can have on areas such as improving health outcomes, reducing conflict and general economic development.

Despite the good projections we have seen, we are not out of this yet. We are rightly especially focused on youth unemployment because of its potential scarring effect, and I very much welcome programmes such as kickstart. However, as we look beyond the very short term, we should reflect that the one problem we never cracked in the jobs miracle, despite the great growth, was productivity. The productivity problem did not just exist in the 2010s, or under Tony Blair, or under Margaret Thatcher; we have had a yawning productivity gap against the United States, Germany and France since before I was born. Academics used to talk about a low skills, low wage equilibrium, although we do not hear so much about that now: firms design jobs around the skills that they think are available, and then there is little incentive for individuals to upskill because there are not the jobs available for them to upskill into. We need to break that cycle, and I am confident, with the momentum from this programme, that that can be done.

There have been important reforms such as universal credit, with progression at its heart and removing things like the 16-hour rule, as well as the national living wage, the apprenticeship levy and the growth of high value-added industries, and the plan for growth can help in that, but we need to ensure that growth and opportunity are evenly spread. We have significant challenges to address. Some 11 million adults in England have missed out on A-levels or their equivalent, and a much lower proportion of people reach what is called in the technical jargon levels 4 and 5, which are the higher-level technical qualifications—people not going on to do a degree, but doing those qualifications that can be worth so much.

There is so much change going on in the world, with, for instance, robotics, artificial intelligence, machine learning and voice computing. Any one of these things on their own could constitute an industrial revolution, but right now they are all happening together, and on top of that we have the opportunities and changes that come from leaving the European Union, what we have to do around the net-zero ambition and then of course the new challenges that we face as a result of this pandemic.

I am therefore pleased that skills and investment in human capital are at the heart of this approach. Quality standards and intensiveness of courses were already being addressed through steps like apprenticeship reform, the creation of the Institute for Apprenticeships and Technical Education and the institution of T-levels, and I am pleased that that is going to be taken further with a statutory role for employers in the design of qualifications and in the skills accelerators. I also very much welcome the bold plan to significantly reform student finance, which up until now has been very much centred on traditional three-year, away-from-home undergraduate degrees, by making it much more flexible and enabling people to do things in manageable chunks so as to work with their careers and to do more learning from where they live.

We clearly need to go further and build on all of this, and although we are of course focused on young people we must not forget older people: whenever there is a slowdown, there is always the danger that people leave the labour market earlier than they would otherwise have done. We can do more on returnships and helping people get back into the labour market. Sometimes a short, intensive type of training is all that is required, and I would finally just reflect from my time as an Employment Minister and also when we were doing the national retraining scheme that what we heard most in terms of the things that hold people back was not some specific skill but confidence, and helping people through that journey has to be at the heart of what we do.

Tax Avoidance and Evasion

Damian Hinds Excerpts

Tuesday 25th February 2020 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

This is an important subject for debate this afternoon, first because we need tax receipts to fund our public services and, secondly, because as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) said, people expect to see fairness. They expect to see everyone and every entity shouldering their fair share of the burden. Sadly, there are people who have an interest in trying to get round the system and to cheat the system, and they strive harder and harder every year to do so. We live now in a more complex world and a more complex new economy that is more multinational, more digital, more services-based, and that can create new opportunities for those organisations and people.

However, the gap is much bigger and older than that. According to HMRC’s own estimates, the biggest part of the tax gap is about individuals and organisations failing to take reasonable care, followed by legal interpretation, illegal tax evasion and then the exploitation of loopholes through avoidance. It is important to note that all economies suffer a tax gap. According to a UN World Institute study in 2017, the world loss from tax avoidance was estimated at $500 billion. That is not the whole tax gap; it is the element that results from avoidance. Proportionally, the countries that suffer most are not wealthy countries such as ours but low income and lower middle income countries. According to analysis by Statista of the total loss, the countries that suffer the biggest loss are the United States, with more than $180 billion; Japan, with somewhere around $50 billion; and France and Germany, with between $15 billion and $20 billion. According to the analysis, the UK was at that time down at somewhere below $2 billion. One can quibble about the detail of the methodology, but it would take a massive error and correction to put the UK close to some of those comparable countries.

Overall, the UK tax gap is less than 6%, as my right hon. Friend the Chief Secretary to the Treasury said, and one of the lowest in the world. It is also one of the most accurately measured in the world. Some members of the Opposition Front-Bench team—they have gone now—were muttering earlier, “You’ve been in government for 10 years. What have you been doing?” Well, we have been bringing down the tax gap. If we compare the tax gap in 2005-06 with 2015-16, it has come down from somewhere close to 8% to somewhere under 6%. It is still a big issue to be tackled, and I am pleased and proud that this Government are redoubling their efforts and leading internationally in that regard.

All countries do some degree of tax competition, either explicitly or implicitly, and our tax regime is one reason why we have attracted many international companies to base themselves here, create jobs and grow our economy. However, I am afraid to say that many companies do try to reduce their tax. Sometimes, they say that they have a fiduciary duty to their shareholders to do so, but Governments also have a fiduciary duty to their shareholders: our citizens and our taxpayers. We simply cannot have the sort of aggressive tax avoidance that we have seen from some companies, because our public services rely on tax receipts. There will be battles over what constitutes economic activity and over what is a legitimate location for intellectual property, but our argument is simple: “If you benefit from our economy, you must contribute to our economy.”

Since 2010, more than 100 measures have been taken on evasion, avoidance and non-compliance. On enforcement, HMRC’s litigation and settlement strategy was refreshed in 2011. The office of the Tax Assurance Commissioner was established in 2012. Now, we are committed to new anti-avoidance measures, including increasing the maximum prison term, a single beefed-up unit in HMRC and a new package of anti-evasion measures.

Just as important—in fact, it is probably more important —is the work that this country has been doing internationally under Conservative Governments. That started with the 2012 joint statement with France and Germany calling for reform of international tax rules, given that our current system effectively dates back to the 1920s. We used our G8 presidency in 2013 to drive forward the G20 OECD agenda on base erosion and profit shifting—the so-called BEPS project. We were the first country to commit to the country-by-country reporting template and the first to adopt OECD rules to address hybrid mismatch.

I was proud of the 25% diverted profits tax in 2015, and I am proud now that this Government are pushing ahead with the digital services tax. We have always been clear that we would prefer international agreement, but if that is not possible, we will go it alone. If international progress now makes the digital services tax obsolete, great. That would be the best outcome of all, but if it does not, unless and until that is the case, we are right to proceed.

There is important work on avoidance, evasion and non-compliance, but what we cannot do, as we sometimes hear from Opposition Members, is to pretend and mislead people that overcoming this kind of cheating and making the system work better will solve all our fiscal challenges. The same goes for pretending that it is possible for just about anything to be paid for by “the rich” and “corporations”. In the end, all taxes are taxes on individuals. On company taxes—corporation tax is part of a suite of taxes alongside VAT, national insurance and business rates—it is right to offer companies an attractive rates of corporation tax that reward investment and job creation, but they must invest in their people’s skills, which is why we have the apprenticeship levy. We must also ensure that people are paid properly, and that is why we have the national living wage.

I commend the Government for their world-leading work. There is always more to be done, but I will vote against this misleading motion.

Treasury

Damian Hinds Excerpts

Monday 24th February 2020 Ministerial Corrections

The following is an extract from Treasury Questions on 11 February 2020.

[Damian Hinds (East Hampshire) (Con)]

Creditor enforcement action can greatly exacerbate the problems that people going through mental health crises can experience. May I commend the Chancellor and the Economic Secretary for the breathing space initiative, which will help to ease the pressure on those people and so many more?

[John Glen]

I thank my right hon. Friend for his comments, and I am very pleased that the breathing space scheme is moving forward. We published the impact assessment last week, and 700,000 people will benefit from the scheme next year when it comes into force. That number will rise to 1 million in the following year.

[Official Report, 11 February 2020, Vol. 671, c. 707.]

Letter of correction from the Economic Secretary to the Treasury, the hon. Member for Salisbury (John Glen).

An error has been identified in the response I gave to my hon. Friend the Member for East Hampshire (Damian Hinds).

The correct response should have been:

Oral Answers to Questions

Damian Hinds Excerpts

Tuesday 11th February 2020 Commons Chamber

[Sajid Javid]

With respect, I think the hon. Gentleman is confusing cutting spending and tackling waste, and we know that the previous Labour Government was good at neither of those, with overspending and loads of waste. It is right that as a Government we look carefully at every single pound that is spent and make sure it is done so appropriately.

[Damian Hinds (East Hampshire) (Con)]

T6. Creditor enforcement action can greatly exacerbate the problems that people going through mental health crises can experience. May I commend the Chancellor and the Economic Secretary for the breathing space initiative, which will help to ease the pressure on those people and so many more?

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

I thank my right hon. Friend for his comments, and I am very pleased that the breathing space scheme is moving forward. We published the impact assessment last week, and 700,000 people will benefit from the scheme next year when it comes into force. That number will rise to 1 million in the following year.[Official Report, 24 February 2020, Vol. 672, c. 2MC.]

Apprenticeship Levy

Damian Hinds Excerpts

Tuesday 11th February 2020 Westminster Hall

[Damian Hinds (East Hampshire) (Con)]

It is a great pleasure to speak in this debate. I congratulate my hon. Friend the Member for Gloucester (Richard Graham), who, along with my right hon. Friend the Member for Harlow (Robert Halfon), has done so much to promote apprenticeships and to ensure they are a regular subject of debate here in Parliament. There have always been very high quality apprenticeships in this country. Multinational companies in engineering and automotive have long offered apprenticeships that compete and are comparable with the very best in the world, but not all apprenticeships have been very high quality. Within sectors there have always been companies that have seen it as part of their duty, responsibility or mission to invest in the next generation coming through, but there have also always been companies that have not seen that imperative and benefit instead from the training provided by competitors.

The levy must be seen in the context of a package of measures introduced in the 2015 summer Budget and autumn statement, which included the reductions in corporation tax and included the national living wage and this third arm, the apprenticeship levy. With that package, the Government effectively said to companies, “We will give you a very competitive corporation tax regime, which will lower the hurdle for investment. It will mean that businesses can grow, but we need to make sure that people are paid properly and fairly, and we need to ensure that everybody invests in the next generation of talent coming through.”

There have been some difficulties with the levy, some of which have been referred to. One is the speed of approval of certain standards, which has got better over time but needs to carry on getting better. Fundamentally, there has been a great quality uplift in apprenticeships. Thanks to the levy, the amount of cash in apprenticeships has doubled over the decade in cash terms. We have seen a move to longer, higher level apprenticeships, and the move from so-called frameworks to standards. That is all a bit jargonistic, but it basically means that there is a more exacting standard for the apprenticeship, with a greater degree of employer approval. Effectively, business has voted for a higher standard of apprenticeship, which creates some tension against a numerical target.

I want to talk briefly about each of the three main objections to the apprenticeship levy: first, it is just a tax; secondly, it is too inflexible; and thirdly, “I can’t manage to use the whole amount.” On the first point, the apprenticeship levy is a non-optional deduction levied by Government, so it does bear some tax-like features, but it is not exactly the same as a tax. Of course, money is extracted from business as part of the overall Exchequer requirement.

Something that I discovered when I worked at the Treasury was that for every tax, there is a really good argument against it. Corporation tax? Too many companies avoid it. Business rates are a fixed cost, as we all know, and that can be difficult for certain companies. National insurance is a tax on employment. Sales tax, or VAT, may apply at an early stage of development. Even excise duty, which is based on volume, inevitably involves problems with whatever system is set up and whatever threshold is set.

It is right that we rebalance the approach over time and right that we look again at business rates and introducing a digital sales tax, because there are concerns about some companies being able to avoid corporation tax, and, conversely, there is the strain on some of our shops on the high street and elsewhere,. Fundamentally, in that suite of taxes and ways of getting money out of business, the levy solves the free rider problem when it comes to investment in skills and, relatively speaking, rewards the companies that make a greater investment. I suggest that, as part of a suite of approaches, it has an important role to play.

The second big argument is that the levy is too inflexible. As my right hon. Friend the Member for Harlow mentioned, there is always a question of re-tagging: of training that would happen anyway, or re-accrediting skills that exist already, and it is always a strain. The apprenticeship levy already covers quite a lot. Let us compare what the apprenticeship levy in the UK covers compared with the German apprenticeship system, which is commonly regarded as the gold standard in apprenticeships. The minimum specification for our apprenticeships is lower in terms of duration; the age range that it covers is considerably wider than is common practice in Germany and some other countries; and, as has been alluded to, it covers apprenticeships at numerous different levels.

We can argue legitimately that there are more things that it should be possible to use levy money for, such as pre-apprenticeship programmes, and so on, but the mathematical reality is that if we were to do that, other things being equal, we would need a higher levy or we would need to take something else out of eligibility for levy spend.

Finally, there is the objection, “I cannot spend it all.” It is worth bearing in mind, of course, that some companies do spend it all, or almost all of it. It is also true, and relevant, that sectors vary. In the engineering sector, for example, there is typically a very high apprenticeship spend. In retail and hospitality, it is typically lower. Again, we need to recognise the mathematical reality, which is that the levy is designed so that levy payers cover the apprenticeships in their own companies but also cover the cost of apprenticeships for non-levy payers. To change the system, it would be necessary to extend the scope of the levy or raise its level.

I think it is right at this point to review and reform the levy. It is legitimate to look at such things as coverage of MBAs, although it turns out that it is hard to define where the line should be drawn on post-level 6 qualifications. I think we could look more at tailoring the specifications of difference to different age groups and sectors, and I think there is an argument around pre-apprenticeships and that particular social justice agenda. The overall principle, however, is good. It has increased the amount of money and investment available for apprenticeships and skills and protected it, and it solves the free rider problem. I would say that, along with T-levels, higher level technical qualifications and our school reforms, apprenticeships are key to reforming productivity, and they deserve our support.

[Caroline Nokes (in the Chair)]

I now call John Howell. Please can comments be kept to four minutes, so that the Minister and Front-Bench spokesmen have time?