UK Debt Management Office
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
The United Kingdom Debt Management Office (DMO) has today published its business plan for the financial year 2019-20. Copies have been deposited in the Libraries of both houses and are available on the DMO’s website, www.dmo.gov.uk.
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Local Bank Closures
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Ms Ryan. I congratulate my hon. Friend the Member for Moray (Douglas Ross) on securing this important debate. I acknowledge the contributions of all who have spoken this afternoon. I have listened carefully to the speeches, and it is good to have seven of my hon. Friends from north of the border here. I will endeavour to answer the points substantively.
I gave evidence to the Scottish Affairs Committee this morning on this very issue. Straight after this debate, I hope to make a speech at the Which? cash summit, where I will set out the work being done by industry, the Government and regulators to ensure that access to cash is safeguarded. I recognise that this is a very important issue for many of our constituents. In my own constituency of Salisbury, I have seen bank branches close and I understand how difficult that is for communities. We have heard some specific examples this afternoon of the distress that can be caused when the process does not go smoothly. I recognise there are different opinions across the House about how the challenge should be met, and I will address those shortly.
Undoubtedly, the fact that the retail financial landscape is changing rapidly, as more consumers and businesses opt for the convenience, security and speed of digital payments and digital banking, is a significant factor. Ten years ago, cash accounted for more than three fifths of all payments in the UK; today, the figure is less than three in 10—and that is anticipated to fall to less than one in 10 in nine years, by 2028. In 2017, debit cards overtook cash for the first time as the most frequently used payment method in the UK.
I am very sensitive to the point made by the hon. Member for North Ayrshire and Arran (Patricia Gibson) that debit cards are not everyone’s choice; it is really important that we keep in focus the need to maintain access to cash. In 2018, two thirds of UK adults used contactless payments, 72% of UK adults used online banking and 48% used mobile banking. How we use financial services is changing and consumers have more choice than ever. It is an exciting time, but it is also a disruptive and potentially confusing time for our constituents.
Closing a branch is never an easy decision, but the decision will ultimately be a commercial one for the bank. The Government have been clear that we do not intervene in those decisions because industry is best placed to know what works best for its customers. I recognise that branch closures can be very disappointing for customers and the impact on communities must be understood, considered and mitigated where possible. I will therefore set out some of the ongoing work in this area—in particular, access to the banking standard and how it might be enhanced.
Douglas Ross
The Minister says that closing a bank is a commercial decision and the banks are listening to their customers. How can they be listening if they take those decisions prior to any consultation and if, when they are encouraged to engage, they do not even turn up?
John Glen
That behaviour that my hon. Friend experienced in his constituency is not best practice. It is not acceptable. It is very unfortunate when that happens. My job is to try to ensure that there is a systematic upgrade to the quality of the consultation and engagement from the banks, and I will now set out what is happening.
The access to banking standard has been noted by a number of colleagues today. Since May 2017, the major high street banks have been voluntarily signed up to the standard, which commits them to work with customers and communities to minimise the impact of branch closures. The standard ensures that banks keep customers informed about branch closures, and that the bank sets out its reasons for closure and the alternative options for continued access to services. How meaningful that consultation process is has been raised, on the basis that it happens when a decision has been made and not prior to the decision. I am looking into that. I have written to the Lending Standards Board and will be meeting its representatives to discuss the matter further.
The options for continued access should include specialist assistance for customers who need more help. For example, the Lending Standards Board, which monitors and enforces the standard, has told me it sees evidence of support from firms to assist customers in understanding and using alternative banking options. I recognise that that happens in some, but not all, cases. Such support might include digital experts being placed in the relevant branches to demonstrate how mobile and online banking works and assisting those customers who wish to use that functionality, as well as making introductions to nearby post offices and retained branches.
I continue to be very supportive of the access to banking standard and I value the commitment it places on banks to communicate the next steps for customers when the decision is made to close a branch, but I am aware of the concerns that colleagues have expressed about the standard. I confirm that I recently wrote to the Lending Standards Board to seek reassurances that the access to banking standard remains fit-for-purpose, and I intend to meet the chief executive to discuss matters further, drawing on the meetings I have had with various groups from all parts of the House and on the representations made so forcefully by colleagues this afternoon.
I turn to the Post Office. I was pleased to see the successful renegotiation of its commercial agreement with high street banks. That will enable 99% of personal customers and 95% of small and medium-sized enterprise customers to continue to carry out their everyday banking at one of the UK’s 11,500 post office branches; that is 91 more branches than there were in March 2018. I acknowledge the point that my hon. Friend the Member for Moray made about functionality and how not all functions can be carried out at the post office. That could evolve, but we already see aggregation of banking services at the sub-regional level when more specialist advice is required. The issue is about working out ways to solve that challenging problem. I am engaged in that work and am happy to explore that further with him.
As a result of the renegotiation, postmasters will see a considerable increase in fees for processing deposits, and the fees will rise further if transaction volumes continue to grow. An increase in fee income will help the Post Office and its network become more financially sustainable and will allow for investment in automation, training and security in post offices. Some £2 billion has been invested by the Government since 2010.
It is essential that more people know about the banking services offered by the Post Office, which is why I asked it to work together with UK Finance to raise awareness. According to a survey by Which?, only 55% of UK adults are aware that they can use their post office for banking services; that statistic was made clear this afternoon by my hon. Friend. The point he did not make was that 77% of those who had used the post office for banking said they would do so again. We are on a journey of understanding, as people become familiar with what can happen in a post office. After that work, UK Finance and the Post Office found that awareness had increased and committed to using community outreach to further improve awareness. I will continue to take a keen interest in the progress of that work.
Although many customers are satisfied with the Post Office’s banking services, I am aware that there are still some outstanding concerns—they have been mentioned this afternoon—such as with privacy and queueing. I have therefore written to my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst), the Minister in the Department for Business, Energy and Industrial Strategy responsible for postal affairs, to request that our officials continue to work closely to explore the issues.
My hon. Friend the Member for Ayr, Carrick and Cumnock (Bill Grant) made a point about credit unions and post offices. I welcome any feasible innovations in that space. The main trade body for credit unions is conducting extensive UK-wide consultation, and it will come back to the Government in September. I would be happy to explore with it how the solution he suggested might be acted on.
Related to bank closures is the issue of continuing access to cash. It is clear that for some people, cash remains their preferred, or only, method of payment for a variety of reasons. My hon. Friend the Member for Waveney (Peter Aldous) set out his experience, and that situation remains true for many people out of choice. Our financial system needs to cater for everyone in our society. Although it is exciting for many consumers, technology must not come at the expense of choice. There will therefore be no changes to our current system of notes and coins. We want to ensure that cash is available for those who need it, when they need it.
In 2015, we established the Payment Systems Regulator, a powerful economic regulator of the payments industry. Its objectives balance the need for competition and innovation on the one hand with the protection of consumer and business interests on the other. Through the creation of the joint authorities cash strategy group, we are acting to ensure a comprehensive approach to regulation in light of changing trends and preferences for cash. The Payment Systems Regulator is already examining the factors that affect the distribution of ATMs across the country. I was concerned by what happened in Lossiemouth: it is a good case study for the regulator to be examining during the early weeks of its work.
I welcome today’s announcement by UK Finance, the trade body for banks, that it too intends to explore key issues around access to cash, including the role of local areas and communities. The industry must continue to play its part, and developers should consider the needs of all customers as they design new digital banking products and forms of payment. We are seeing companies such as Square trying to increase the use of card payments in small towns. No one should be locked out of the benefits that technology brings.
I recently concluded a Westminster Hall debate speech with a call to arms to the industry to think about all consumers when developing its services, and I re-emphasise that here this afternoon. I welcome the innovations that banks are introducing to respond to changes in customer behaviour as more of us choose to bank on demand online or via an app, rather than visiting a branch. We cannot reverse digital innovation, and nor should we, given the benefits it brings to our constituents—I acknowledge once again the point made by the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) about his constituents’ experience of connectivity—but we need to find solutions for the whole of the United Kingdom. Improving digital and financial inclusion is key to ensuring that vulnerable customers are not left behind.
I will keep pushing the industry—someone mentioned the carrot and the stick: both are required—to move forward and do more. I hope Members will recognise that I have responded thoroughly to the points made. I am happy to continue the dialogue, but I am working to engage on the specific issues raised and to secure the improvements needed.
Mortgage Prisoners
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
I am grateful for the opportunity to speak on behalf of the Government about an issue which I know has caused widespread concern throughout the House. A range of matters have been raised in the 13 Back-Bench speeches that we have heard today. I will do my best to respond to the points that have been raised, but if I am unable to respond to all of them, I will write to the Members concerned.
I thank my hon. Friend the Member for Dover (Charlie Elphicke) for securing this important debate. He has worked tirelessly to raise awareness, both as a founder member of the all-party parliamentary group on mortgage prisoners and through his recent ten-minute rule Bill, the Banking (Consumer and Small Business Protection) Bill.
It may be helpful if I begin by briefly reminding the House of the background to this matter, and, in particular, the reasons why the Government have sought to tighten mortgage lending regulations in recent years. In the aftermath of the banking crisis, there was a consensus that the prevailing regulatory framework at that time had left UK borrowers exposed to lax lending practices, with lenders providing mortgages without adequately checking borrowers’ ability to repay them. That enabled some to secure self-certified mortgages, or mortgages with loan-to-income ratios of 120% or more.
The Government and regulators therefore substantially strengthened mortgage lending regulations to ensure that borrowers would be better protected in the future. The new regulations, resulting from the 2014 mortgage market review, require lenders to conduct thorough affordability assessments to consider evidence of customers’ income and expenditure before agreeing to a new loan. I believe that was the right thing to do. It ensures that consumers can only borrow what they can be reasonably expected to pay back, and in doing so it protects borrowers and lenders alike against future economic shocks.
A number of colleagues across the House have raised individual cases that they have encountered and meetings they have had with constituents who are looking in on proceedings today. It is undoubtedly the case that these strengthened regulations made switching to a new provider more challenging. That left some borrowers unable to switch even when they were up to date with repayments and had an unbroken repayments record. That has been mentioned a number of times in this debate.
I recognise that this is a hugely stressful and difficult situation for the individuals concerned, and it is clear to me that they face an unfair regulatory barrier. Therefore, it has been my priority as Economic Secretary to find a solution. That is why I instructed —not reluctantly or grudgingly, but determinedly and assuredly—Treasury officials to work with the FCA, which is ultimately responsible for regulations, to consider ways of helping trapped borrowers switch more easily in future. I recognise the frustration about the rapidity of the changes and I want to set out now where they are at and what we can expect in the coming weeks.
The FCA’s proposed changes will see its affordability test move from being absolute to relative. Questions have been asked about what that will mean but I cannot set that out today because the work is ongoing. However, I will say a little more about what is going to happen. It will enable lenders to accept switching consumers, providing they are up to date with repayments and are not borrowing more. The consultation for these changes will run until the end of this month and I then expect the FCA to implement these changes rapidly—later this year.
Let me give the House a practical example of the difference this will make for consumers. A borrower might have taken out a mortgage under the previous lighter touch regulations but their fixed rate deal has run its course and they are currently repaying their mortgage on a standard variable rate, in keeping with the terms of their existing mortgage contract—although I accept that these are terms that they never thought would lead to them being locked into that higher rate. If they are looking to switch to a new deal, the current affordability assessments may prevent them from doing so—and clearly they do—perhaps because the difference between their income and expenditure leaves little room for margin. However, under the new rules there will be no such regulatory barrier; instead a good repayment history can be used as the reasonable basis for a lender to offer them a new deal.
While I recognise that lenders will want to consider their commercial risk appetite to take on these borrowers, and I recognise and hear the calls from various colleagues across the House about assurances over who will provide these mortgages, I would like to take this opportunity to encourage the lenders to think hard about how they might best support those looking to remortgage to a more affordable deal. I have had conversations about that with chief executives and industry representatives in recent months and I see plenty of innovation across the mortgage market.
Gordon Marsden
The Minister is giving some fairly strong details about what he hopes may come out of the consultation, but that does not alter two facts. First, this will simply be an option, not an obligation. Secondly, given the track record of Cerberus, can the Minister give the House today any assurance that such companies will sign up to this?
John Glen
On the hon. Gentleman’s first point, the regulator is not making up these rules in isolation in an ivory tower. It is working with industry representatives to ensure that the changes it delivers will create an environment with an effective outcome. There is no point having a solution that does not solve the problem. I cannot set out the range of options that will exist, but I am confident that the work being undertaken by the FCA will lead to an effective outcome. I will come to the hon. Gentleman’s second point later when I talk about the points that he and others made about Cerberus.
Martin Whitfield
Did I hear the Minister correctly when he said that this will not extend to any sum beyond the existing loan, and that there will therefore be no facility to enter any of the equity that has accumulated, in some cases?
Peter Dowd
I completely understand where the Minister is coming from, but it would be helpful if, at some point—not today; I accept that—he could set out the catalogue of metrics that will be used to ensure that these regulations, this interpretation, whatever it is, are operating practically within six, 12 or 18 months.
John Glen
That is a reasonable point to make. This intervention has to be meaningful and it has to deal with the problem of mortgage prisoners. I am very clear about that, and we in the Treasury will need to look carefully at how we evaluate this. As I was saying, I see plenty of innovation across the mortgage market and I look forward to seeing what affordable options lenders can offer to mortgage prisoners who are looking to switch.
Let me turn to the Government’s sales of mortgage books to purchasers that are not active lenders. Much of this afternoon’s debate has focused on the firms that purchase these mortgage books. It is regrettable that the Government have not received any reasonable bids from active lenders, with feedback suggesting that they have limited appetite for these loans. However, I would like to make it clear to the House that the administrators of these mortgage books must be FCA-regulated, regardless of whether they are active lenders. Any consumer whose mortgage is held by one of these firms has full recourse to FCA protections, including treatment in accordance with the FCA’s “treating customers fairly” principles, and the ability to complain to the Financial Ombudsman Service.
I have heard the comments about borrowers having their reversion rates drastically increased. To safeguard against this during asset sales, the Government have put in place contractual protections that have been enhanced to ensure that the terms and conditions of the original loans are honoured and, in the latest asset sale, to ensure that future rate rises are in line with the rates charged by the largest active lenders. This means that a customer will be treated broadly the same as if their mortgage was with an active lender, with payments in accordance with their original contract terms.
Kevin Hollinrake
The FCA’s own consultation on this states that where firms sit outside the FCA’s regulatory remit, the solution is more challenging. So whatever the Minister says, the FCA believes that we will be making the situation in which a debt is sold on to an unregulated inactive lender more challenging.
John Glen
My hon. Friend made reference in his speech to the distinction between business debts and mortgage debts, but I will clarify my remarks on that specific point to him in writing.
In these sales, the Government also stipulate that there must be no financial barriers put in place to harm a consumer’s ability to switch to a new deal with another lender. Once this FCA rule change is implemented, consumers will be in a better position to change their mortgage, provided that they are up to date with their payments and meet lenders’ risk appetites.
Let me also address the point that was raised regarding the sale of commercial loan portfolios to third parties. Since the financial crisis, it has been clear that the standards of behaviour across the financial sector must improve—I have said it in all the debates that we have held in the 17 months that I have been in office—and that banks must work to restore the trust that businesses have in their institutions.
I concede that I have some differences with my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) over some of his assertions about what would be the best solution, but we have tried to work co-operatively where there is common ground, and that work is going forward. I am pleased that banks are now committed, through the standards of lending practice, to ensuring that third parties who buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute that cannot be resolved. That will help to ensure that all businesses can resolve disputes if they arise.
I thank my hon. Friend the Member for Dover for calling this debate. I have tried to address the points that have been raised. I believe it is right that the Government and the regulator introduced more stringent rules after the financial crisis. Rigorous affordability assessments are an important factor in ensuring that a borrower has the means to pay back their loan, as well as maintaining the financial stability of the UK. Unfortunately, however, a minority of borrowers have since found that they can no longer pass those strengthened affordability assessments, despite being up-to-date with their repayments. That is why the Treasury did act, and is working with the FCA to remove the regulatory barrier.
I recognise the urgency associated with securing this solution, and I am urgently working to ensure that the FCA delivers on both what it wants to deliver and what we have asked it to deliver.
John Glen
No; I shall continue.
Borrowers who would like to switch lenders, who are currently up-to-date with payments and not looking to borrow more, can expect to find switching to a new, cheaper deal easier once the FCA changes are implemented later this year and are adopted by lenders. That will apply to all borrowers, regardless of whether they are with an active or inactive lender. In the meantime, those borrowers whose mortgages are sold to a purchaser that does not offer new mortgage deals will continue to be protected by the FCA principles of “treating customers fairly”.
I hope that that is a full response. I will look carefully over the points raised and write to individuals on any that have not been addressed.
Funeral Plans: Regulation
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
I congratulate the hon. Member for Airdrie and Shotts (Neil Gray) on securing this debate, and I thank him for all the work that he has done on this topic with his colleagues. I hope that today marks a significant moment, following the excellent work that he has undertaken. I acknowledge the ambiguities that exist at this time. Although I will try to address a number of them in my response, I invite him to meet me and officials to go through them in detail so that we can fully absorb his concerns.
I also acknowledge the work that has been undertaken by other Members who have spoken in the debate, including, in particular, that done by the hon. Member for Swansea East (Carolyn Harris), who has an ongoing interest in this topic. I mention particularly the work that she has done with the children’s funeral fund. I hope that her Adjournment debate on 1 May, with the Under-Secretary of State for Justice, my hon. Friend the Member for Charnwood (Edward Argar), was of assistance.
On Sunday, I launched a consultation that outlines the Government’s proposal to bring all funeral plan providers within the remit of the Financial Conduct Authority. I will take this opportunity to outline the rationale behind that announcement and do my best to respond to the questions that have been raised.
Sadly, many of us in the Chamber will have had to plan a funeral for a loved one. It is a difficult, emotional and expensive experience, with an average funeral costing between £4,000 and £6,000. For the last 14 years, funeral costs have been rising at twice the rate of inflation—about 6% per annum—so it is understandable that people wish to make some of the arrangements in advance, giving them the peace of mind that their loved ones will not be left with difficult decisions or a large bill after they have passed on. Funeral plans allow people to make these arrangements, to pay for their funeral in advance and to lock in a price. The market for funeral plans has grown considerably in recent years, with sales rising by nearly 200% between 2006 and 2018. Almost 1.4 million plans are now held by individuals up and down the country.
The hon. Member for Airdrie and Shotts asked about the Government’s perception of what this intervention will do to the market. That is difficult to anticipate at this point, but we will look carefully at the responses throughout the consultation, which runs up to 25 August, and will be alive to those concerns. The huge growth in the market, combined with a largely voluntary regulatory framework, has given rise to some pretty shameful practices, with some companies taking advantage of people only trying to do the right thing by their families. It is clear that the market has outgrown the 18-year-old legislative framework and that more robust regulation is needed, as the hon. Gentleman explained to the House more than two and a half years ago.
I will briefly describe the current framework. At present, funeral plan providers who offer plans backed by either a trust or an insurance contract are excluded from FCA regulation. It appears that all funeral plan providers have structured their business such that they benefit from these exclusions. A system of voluntary regulation has been established by the FPA, which has done some good work covering about 95% of the market, as the hon. Gentleman pointed out, but the reports of poor practice have largely come from providers that are not FPA members. A system that allows market participants to choose whether to be regulated cannot be sustainable for a market of this size and nature—we are talking about £3.5 billion being invested by 1.3 million people—because only the reputable firms will choose to comply.
For these reasons and following reports of poor practice, I launched a call for evidence in June last year on the regulation of the funeral plan market. The Government sought views and evidence on how the market was operating and on the Government’s initial policy proposal to bring funeral plan providers within the FCA’s remit. In the light of the evidence received, it is clear that consumer detriment is present in the market, both at the point of sale and afterwards. At the point of sale, some providers and their distributors use high-pressure and misleading sales tactics to promote and sell funeral plans. Given the context—what these individuals are trying to do at a difficult time in their lives—that is particularly unacceptable. Standards of disclosure are also poor, leaving people unsure of what is included in their plan.
We have also found that after a plan has been purchased some providers remove high upfront costs in the form of commission or administration fees, which have been as high as £800, leading to concerns about whether there will be enough money left to pay for the funeral. Some funeral directors have also been named on plans without their knowledge or prior consent, and in some circumstances this has led to an alternative funeral director being appointed, with customers at that vulnerable time left confused about who will conduct the funeral service. There is also anecdotal evidence of conflicts of interest within some trusts’ investment strategies, and there are clear signs that consumers are being disadvantaged.
Perhaps the most striking finding, however, was that 84% of respondents agreed that regulation must be made compulsory, so there is clear demand from the market itself for enhanced regulation. Action must and will be taken. Consumers need to understand the products they buy and be confident they are well regulated. This should have wider benefits beyond the immediate funeral plan sector. Research by the CMA, which is investigating the wider market, has found that the vast majority of people do not shop around for a funeral, which is entirely understandable following a bereavement. A properly regulated funeral plan sector that enables people to plan ahead with confidence and shop around should have knock-on effects for competition in the wider funeral sector.
The FCA is best placed to take on responsibility for regulating the sector, although I acknowledge the concern about the cost and nature of that regulation and would be happy to discuss that with the hon. Gentleman in a meeting. We need to get that right, given the wide range of small family providers, and to make sure it is appropriate. The FCA would be obliged to consult on that. It is none the less a well-established regulator, accustomed to taking strong regulatory action when necessary, and it has the appropriate rule-making powers to tackle the conduct and prudential concerns that are identified in the market. It will be able to develop a targeted and proportionate approach to regulating the market, in line with its statutory objectives.
My Department has developed a full legislative proposal to bring funeral plans within the FCA’s remit. That framework will ensure that the Government meet their three stated objectives for the regulation of the funeral plan market. First, all funeral plan providers and their distributors will be subject to robust conduct standards via FCA rules. Secondly, the FCA will have the necessary powers to tackle the prudential concerns in the market. Finally—this was raised by the hon. Gentleman—consumers will have access to the Financial Ombudsman Service if things go wrong.
Jim Shannon
The hon. Member for Airdrie and Shotts (Neil Gray) referred to compensation. I want to ask Minister about this because it was discussed at the working group today. If someone pays for a funeral plan and the firm that takes the money goes bust or ceases to operate, will there be a method whereby people can get their money back?
John Glen
That would be resolved by the process in which we are currently engaged—the consultation process, and the proposals for legislation in the autumn—and my expectation is that that is what we shall be aiming for.
We should set the framework for a market that functions more fairly and in the interests of consumers. The future regulatory framework for funeral plans was set out, in detail, in a consultation that I launched on Sunday. The consultation will run for 12 weeks, and it will give stakeholders an opportunity to comment on the proposed legislative framework before the Government consider the responses and finalise their proposed approach.
The hon. Member for Airdrie and Shotts asked an important question about what would happen during the gap between now and the introduction of the full new regulations. Whatever regulatory route is chosen, a transition will be necessary. FCA regulation can be carried out via secondary legislation and will therefore be quickest. The membership of the existing regulatory authority—the self-defining one—clearly has some reputational benefits in the interim, and I would encourage consumers to use the FPA-regulated providers during that period. I recognise that there is a dispute about the most appropriate way forward. That is what the consultation will be about, and the Government will reflect carefully before presenting proposals.
I hope that I have responded adequately to the points that have been raised. I thank colleagues on both sides of the House for their contributions to the debate. This is a very important issue involving real human misery, and as the hon. Gentleman has said, what was happening was an outrage. I am determined that we will get this right for our constituents across the country and leave the market in a far better state.
Question put and agreed to.
Financial Conduct Authority Investigation: London Capital and Finance
John Glen Excerpts(4 years, 12 months ago)
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The Economic Secretary to the Treasury (John Glen)
I have today laid a direction before Parliament requiring the Financial Conduct Authority (FCA) to carry out an independent investigation into the events and circumstances surrounding the failure and placing into administration of London Capital & Finance Plc (LCF), using powers under Sections 77 and 78 of the Financial Services Act 2012.
Following a request from the FCA, I announced on 1 April the Government’s intention to direct the FCA to launch an investigation into the events at LCF and the circumstances surrounding them. Today’s direction orders this investigation and sets out the terms on which it will be carried out.
The direction requires the FCA to appoint an independent person to carry out the investigation on its behalf, with the approval of HM Treasury. I have approved the FCA’s appointment of Dame Elizabeth Gloster to carry out the investigation on its behalf. The investigation is expected to run for 12 months.
The investigation will look at the actions, policies and approach of the FCA, as the institution with statutory responsibility for the authorisation and supervision of LCF during the relevant period. It will focus on whether the FCA discharged its functions in a manner which enabled it to effectively fulfil its statutory objectives, and may consider any other matter deemed relevant for this purpose.
This independent investigation is separate to the investigation by the Serious Fraud Office, working in conjunction with the FCA, into individuals associated with LCF.
I have also announced today that, alongside this independent investigation, the Government will separately review the wider policy questions raised by the case. This will include research into the wider market for non-transferable securities, such as mini bonds, and their role in the economy. The Treasury will begin work alongside this to consider the regulatory arrangements currently in place for the issuance of these investments, including the financial promotions order which governs the marketing of those products.
The Government are committed to creating a stronger and safer financial system. The independent investigation into the supervision of LCF will ensure that the events and circumstances surrounding the collapse of LCF are better understood. Its findings will help to properly protect those who invest their money in the future.
Copies of the direction are available in the Vote Office and Printed Paper Office.
[HCWS1584]
Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019
John Glen Excerpts(4 years, 12 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019.
It is a pleasure to serve under your chairmanship, Mr Robertson. As the Committee will be aware, the Treasury has been undertaking a programme of legislation through statutory instruments introduced under the European Union (Withdrawal) Act 2018 to ensure that if the UK leaves the EU without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. The SIs made before 29 March covered all the essential legislative changes that needed to be in law by exit to ensure a safe and operable regime at the point of exit. Although the deficiency fixes in the draft regulations are important, it was not essential for them to be in law at exit, so long as they could be made shortly afterwards.
The draft regulations will help to ensure that the UK regulatory regime continues to be prepared for withdrawal from the EU. They are aligned with the approach that we have taken in previous SIs laid under the 2018 Act: providing continuity by maintaining existing legislation at the point of exit, but amending it where necessary to ensure that it works effectively in a no-deal context.
Let me turn to the substance of the draft instrument, which has four components. First, an important aspect of our no-deal preparations is the temporary permissions regime, which enables European economic area firms that operate in the UK via a financial services passport to carry on their UK business after exit day while they seek to become fully UK-authorised. We have also introduced a run-off mechanism—via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, which were made on 28 February—for EEA firms that do not enter the temporary permissions regime or that leave it without full UK authorisation.
The draft regulations will not amend the design of those regimes, but they will introduce an additional safeguard for UK customers of firms that enter the run-off mechanism: an obligation for firms that enter the contractual run-off regime, which is part of the run-off mechanism established by the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations, to inform their UK customers of their status as an exempt firm and of any changes to consumer protection. That will ensure that EEA providers must inform their UK customers if, for example, there are changes to consumer protection legislation in the firm’s home state or in the EEA that affect UK customers. Part 3 of the draft regulations will introduce similar obligations for electronic money and payment services firms in the contractual run-off regime.
The second key component of the draft regulations concerns the post-exit approach to supervision of financial conglomerates. An EU exit instrument was made on 14 November 2018 to fix deficiencies in FICOR—the Financial Conglomerates and Other Financial Groups Regulations 2004, which implemented the financial conglomerates directive in the UK. As part of an EU exit instrument made on 22 March 2019 to amend the Financial Services and Markets Act 2000, Parliament approved a temporary transitional power to give UK regulators the flexibility to phase in regulatory changes introduced by EU exit legislation.
As part of their work to apply that power, the regulators proposed that, in certain circumstances, changes to the supervision of financial conglomerates should be delayed to give affected firms time to reach compliance in an orderly way. To achieve that, a transitional arrangement needs to be provided in relation to FICOR in respect of the obligations on the regulators to supervise financial conglomerates.
The draft regulations make a clarificatory amendment to the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. The drafting approach taken in the 2018 regulations resulted in the Financial Conduct Authority having only the implicit power to cancel the temporary deemed registration or authorisation of an EEA payment institution or account information service provider that provides account information services without the required insurance cover; the draft regulations will make that cancellation criterion explicit.
Let me address the corrections that the draft regulations will make to earlier EU exit SIs. All the legislation laid under the 2018 Act has gone through the normal rigorous checking procedures, but, as with any legislation, errors are made from time to time and it is important that they are corrected.
In the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations, certain provisions relating to run-off regimes incorrectly referred to EEA fund managers. Those references are now removed, as EEA fund managers will not be able to make use of the regimes.
In the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019, which were made on 20 January, references to European long-term investment funds were not fully replaced with the term that will be used for UK long-term investment funds. In the Capital Requirements (Amendment) (EU Exit) Regulations 2018, which were made on 19 December 2018, a redundant paragraph on EU member state flexibility in the delegated regulation on liquidity coverage was not deleted as it should have been. This statutory instrument corrects those errors.
The Treasury has worked closely with the financial services regulators in the drafting of EU exit instruments that the instrument amends. We have also engaged extensively with the financial services industry on the instruments to which this SI relates.
David Hanson (Delyn) (Lab)
Before the Minister says “finally”, will he clarify one point in the explanatory memorandum? Paragraph 7.6 states that
“If the UK were to leave the EU without a deal, the UK would be outside the EU’s framework for financial services. The UK’s position in relation to the EU would be determined by the default Member State and EU rules that apply to third countries at the relevant time. The European Commission has confirmed that this would be the case.”
What does that actually mean in practice?
David Hanson
The current Prime Minister—it is quarter to 3, and I think she is still in post—has indicated that she does not want a no-deal scenario. The next Prime Minister, whoever he or she may be, may well run the clock down until 31 October, when there would be a no-deal scenario. Before the Minister sits down, will he clarify what paragraph 7.6 of the explanatory memorandum means in practice if a no-deal scenario comes to pass?
John Glen
Like any Minister at any point in time, I can speak only for the Government I represent at this moment in time. The assumption behind the right hon. Gentleman’s question is one that I cannot take on board, because that is a hypothetical scenario that I am not, at the moment, privileged to answer.
David Hanson
If the assumption is hypothetical, why is paragraph 7.6 in the explanatory memorandum?
John Glen
As has been indicated throughout the process, the explanatory memorandums set out the situation in the event of a no deal. The right hon. Gentleman wants me to explain where we will be at a certain point in time, but I am not able to answer him at this point.
Finally, during the debate on this instrument in the other place, Lord Young committed the Treasury to reviewing the explanatory memorandum for this instrument. Although the original was factually correct and followed the guidance issued to Government Departments for the drafting of EU exit instrument explanatory memorandums, I accept that it could have provided a clearer and more accessible explanation of the provisions in the instrument, which is why I submitted a revised version of the explanatory memorandum to Parliament on Thursday 16 May.
As I explained in my opening remarks, it was not essential for the additional measures and corrections, including this instrument, to be in law by the original proposed exit day of 29 March. That is why the instrument was not considered earlier by the Committee. Now that the article 50 process has been extended by six months, we can ensure that the provisions are in place and that the UK’s regulatory regime will continue to be prepared for withdrawal from the EU in all scenarios. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.
John Glen
I am grateful for the points that Members have raised, which I will be happy to go through. The additional measures and corrections in the instrument will help to ensure that the UK’s financial services regulatory regime continues to be prepared for withdrawal from the EU in any scenario, but I recognise the context of the multiple debates we have had and the concerns expressed by multiple Members on the process that has got us to this point and how it needs further elucidation, which I will try to do now. I start by saying that we have used the provisions in the legislation and that the changes did not impact materially on any meaning of thousands of pages of legislation. We always intended and expected that this mechanism would be required in the context of that volume of SIs.
I will now try to give some more detail. In a no-deal scenario, for which any responsible Government must be prepared, EU law and regulators will not have jurisdiction in the UK, so any relevant functions will be taken on by UK authorities and UK law will apply. The hon. Member for Oxford East made reference to Andrew Bailey’s recent comments on deregulation. It is important to contextualise that the European Union (Withdrawal) Act 2018 does not give the Government power to make policy changes beyond those needed to address deficiencies arising as a result of exit.
The hon. Lady tempts me to enter into a wider discussion of the future of regulation.
All I will say on that is that I do not believe that enduring competitive advantage can be or will be achieved in any jurisdiction by deregulation. It means for the UK at the moment that, as far as possible, the same rules that apply pre-exit will apply immediately post-exit. However, it is necessary to make changes to reflect the new third-country relationship between the UK and the EU, and to transfer functions currently carried out by the EU bodies to the appropriate UK body, in the context of this provision of a no-deal scenario.
Our onshore regime will be safe and workable until we have the opportunity to consider long-term reforms to our regulatory framework. The hon. Members for Glasgow Central and for Oxford East make a fair point about the clarity of that long-term arrangement. It obviously needs urgent work by the Government to establish that.
Alison Thewliss
The Minister says that it will need “urgent work”. When will that “urgent work” be done?
John Glen
We are talking about urgent work in the context of no deal, which is not the current Government’s policy. There are so many hypotheticals there that I cannot give the hon. Lady an answer to that question, because it would be dependent on the attitude of the EU to us. So there are a number of unknown issues there.
The issue of the Keeling schedule has come up several times; it was raised by the hon. Member for Oxford East. It is not normal practice for the Government to provide consolidated texts for secondary legislation debates, and changes to legislation are set out in the explanatory memorandum that accompanies the legislative text. My understanding is that the Keeling schedule was essentially an effort to assist and facilitate understanding, but it proved to be quite an unedifying means of doing so, because it just created more confusion given the complexity of the work. So it was not that there was wilful intent to obscure; it was just that the Keeling schedule was not an edifying mechanism to use in itself.
We have published drafts of legislation online in advance of laying them before Parliament, and we have provided links to all laid and made legislation on the same website. So we have tried to make the legislation easily accessible, so that it can be found in one place. I will just also note that the National Archives will publish an online collection of documents capturing the full body of EU law as it stands on exit day, and it will gradually incorporate and retain direct EU legislation into the Government’s official legislation website, which will include a timeline of changes to retained EU law, both pre-exit and post-exit.
The hon. Lady asked—I think others did, too—why these drafting mistakes were not spotted earlier and how can we trust the quality of other EU exit SIs. As I said in my speech, they passed through the usual quality control procedures and we have engaged extensively with the regulators. We have also published EU exit SIs in draft in advance of laying them, for industry to familiarise itself with the legislation.
All I can say is to repeat what I said before—these drafting errors do occur from time to time. I hesitate to say this, but I think that they would happen under all Governments. Obviously, however, if the Opposition are making the case that they would be perfect, then that is potentially for the future to see. [Interruption.] I do not intend to give them a chance, no. [Laughter.]
The hon. Lady went on to ask why such errors were not made in earlier instruments. The Government made a clear commitment to ensure that a fully functioning regulatory regime for financial services would be in place in time; it was. However, we delivered that via a programme of SIs, which ensured that those legislative changes were made by 29 March. These are not essential but desirable things to correct, but the additional measures provided for in this SI will nevertheless help to ensure that the UK regime continues to be prepared for withdrawal from the EU in all scenarios.
We have gone over the issue of the resourcing of the FCA multiple times, but there are no new functions transferred to regulators as a result of this SI. The business plan of the FCA is sufficient for the resources that it has. I have frequent meetings with Andrew Bailey, the chief executive of the FCA, and his colleagues. Andrew Bailey has said that he expects to hold FCA’s fees steady for a year or two, assuming there is an implementation period. However, the FCA can increase its fees should it need to, without reference to Government.
I have already addressed the point made by the hon. Member for Glasgow Central about the further errors. I can only apologise. We published the instruments in draft in advance, and errors happen from time to time. I am not relaxed about that. When fine colleagues from the Treasury come to see me and point them out to me, they get a smile, but it is not the easiest conversation. However, these things happen.
On the process, we continually keep our legislation under review, with the regulators and industry feeding into our analysis. To the point the hon. Lady made—or perhaps it was the right hon. Member for North Durham—about businesses emailing the Treasury, that does happen. TheCityUK—the trade body for the City—has expressed confidence in the preparations that we have made for a no-deal scenario.
The right hon. Member for North Durham asked about the application of the SIs to overseas territories, as he has previously in Committee. The overseas territories are outside the EU so will not be affected. The exception is Gibraltar, and our onshoring SIs made provision for the UK’s regime to work effectively with Gibraltar’s regime after exit.
The right hon. Gentleman correctly drew attention to the provision around the de minimis impact assessment and the net cost to business being less than £5 million. We do not expect the SI to have a significant impact on business given that it does not introduce new substantial requirements for firms. He made a point about previous impact assessments; however, they were considered in the light of the statutory instrument discussed at the time. These are minor amendments that will not materially affect the substance.
In the 33 Committees I have been on regarding this matter—there may be some more to come—I have never said that this is a perfect solution. The Government have tried to consult widely and work with the regulators to come up with a suitable solution for the context of no deal. I have been faithfully introducing the instruments, and bringing transparency around the process.
The revision of the explanatory memorandum was a direct response to points made by those on the Opposition Front Bench in the Lords, to try to make it simpler. I thank Lord Tunnicliffe for his comments. The new explanatory memorandum has to contain, by law, a large amount of material, but paragraph 2 now offers a full explanation. It is improved, it is in one place, and it does not use the template that we used previously. It now functions as a stand-alone document, so I thank the Opposition for their input.
I hope that the Committee has found this afternoon’s sitting informative, and can join me in supporting the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019.
Debt Collection Letters
John Glen Excerpts(4 years, 12 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir Graham. I thank the right hon. Member for North Norfolk (Norman Lamb) for raising the important issue. I read his article in The Times Red Box today and I have looked into the matter in some depth. I hope that I will be able to respond to his core request.
The right hon. Gentleman is committed to helping to improve the lives of those with mental health problems. In particular, his efforts alongside those of my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer) and the hon. Member for Liverpool, Wavertree (Luciana Berger) during the passage of the Financial Guidance and Claims Act 2018 have ensured that those in mental health crisis have an alternative access mechanism to enter breathing space, which is a policy I will touch on later.
I appreciate the right hon. Gentleman’s concerns about the content of debt collection letters. I have an example here, and he is right to draw attention to the language used and its intimidating nature. I share his concerns regarding the impact that such letters can have on vulnerable people, as he set out clearly. I understand that 6,000 individuals have signed a petition by the Money and Mental Health Policy Institute to call for the prescribed content in debt collection letters to be updated.
If hon. Members will permit me, I will set out the Government’s overarching objectives for the consumer credit market, then get to the core point. The Government’s vision is for a well-functioning and sustainable consumer credit market that can responsibly meet the needs of all consumers. Of course, that vision extends to how firms treat consumers when they encounter financial difficulties. That is why we fundamentally reformed the regulation of the consumer credit market by transferring regulatory responsibility from the Office of Fair Trading to the Financial Conduct Authority just over five years ago, on 1 April 2014. When that transfer took place, 82 sections of the Consumer Credit Act 1974 were repealed and replaced by FCA rules, but 167 sections could not be easily replicated and remained in the Act, including the sections that dictate the prescribed content of debt collection letters.
The information requirements in the 1974 Act aim to protect consumers by reducing the information asymmetry between firms and customers. Where there is a requirement for information to be reproduced using prescribed wording, that is intended to highlight important messages on a consistent basis and to ensure that firms give consumers the information that they need to make informed decisions, across the wide variety of consumer credit products.
The FCA had a statutory duty to review the retained sections of the Consumer Credit Act by 1 April 2019. Its review considered whether the remaining sections could be transferred to FCA rules, as the right hon. Gentleman suggested, without having an adverse impact on consumer protection, and whether those sections remained appropriate for today’s market. On 25 March 2019, the FCA’s final report was laid in Parliament. It is a substantial piece of work, as I am sure he knows. I welcome the report and the significant and extensive analysis undertaken by the FCA during the review.
The Government are undertaking a programme of work to review the FCA’s findings and consider whether further reform of the consumer regulatory regime is needed. Indeed, a few weeks ago, I had an extended session with officials to discuss the programme of work relating to the Consumer Credit Act and better understand the breadth and depth of the issues that are manifest in it.
I acknowledge the point that the right hon. Member for North Norfolk made about, essentially, a quick win with respect to the reform of the letter, leading to a more substantial and extensive piece of work, and I will examine carefully what he said and take that back with me, to try to understand what could be possible. As any financial services lawyer will attest, the Consumer Credit Act 1974 is a complex and technical beast, and we want to ensure that we take an holistic view of it, considering it in its entirety so that further complexity is not created and no adverse and unexpected outcomes arise. However, I recognise that changing the wording on a letter would not appear to be a significant issue with respect to the wider implications.
Norman Lamb
I appreciate the Minister’s constructive response. As an ex-lawyer, I think it is perfectly possible to address the real mischief here by adapting the letter using more constructive and up-to-date wording without undermining the broader objectives of the 1974 Act.
John Glen
The right hon. Gentleman rightly reiterates the challenge, and I take it on. At this point, I should also mention the reference he made to the work of the hon. Member for Leeds West (Rachel Reeves) on bailiffs. There is absolutely no excuse for aggressive tactics from enforcement agents, and that is why the Ministry of Justice has launched a call for evidence, looking at the need for an independent regulator. The call closed in February 2019 and the Government will respond in the summer. I am meeting with the relevant Justice Minister just after the recess to press for robust action, so that is very much on my agenda as well. I recognise the right hon. Gentleman’s portrayal of how deeply wrong some of those behaviours are.
Hugh Gaffney
Sometimes a letter gets passed on to another debt collection agency and then another, so pressure is being put on individuals all the time. If I remember rightly, each time a letter is passed on more money is added on. I ask the Minister to have a look at that.
John Glen
The hon. Gentleman makes a reasonable point, and that is something we need to examine carefully when we consider what needs to happen in this area. I thank the hon. Gentleman for his intervention.
Stakeholder views will be essential to inform the Government’s decision making, and I would welcome the opportunity to meet the right hon. Member for North Norfolk and any other interested colleagues across the House to better understand how this important issue should be addressed as our policy thinking progresses. During my time in office, I have encountered many individuals who have been in financially vulnerable circumstances and I have compassion for the unique challenges they face. Indeed, only last week I welcomed to the Treasury some individuals with lived experience of financial difficulty, to hear in more detail how they had got into those situations.
I would like to take this opportunity to assure the right hon. Member for North Norfolk that reviewing the mental health aspect of the prescribed content in debt collection letters will be top of my list of priorities during this programme of work. The issue requires continued dialogue to understand what the best outcome for these vulnerable individuals would be, and how best to deliver it. Given the letter’s rather terse words referring to a solicitor, which are really not appropriate and could have been written a long time ago, I will reflect on the right hon. Gentleman’s point about the changing nature of debt advice and about how best it can be presented.
That does not mean that those most at risk will not see benefit in the near future. I draw attention to the significant work that has been undertaken to meet the Government’s manifesto commitment of implementing a breathing space scheme, which I alluded to earlier. The scheme will give the most vulnerable consumers 60 days of respite from creditor action, to access debt advice and put their finances on a sustainable footing.
Yvonne Fovargue
Can the Minister confirm that the breathing space would also apply to statutory authorities, for example local authorities, which are possibly the biggest users of bailiffs?
John Glen
I will come on to that point in a few moments, but my instinct, as I think the hon. Lady knows from my visit to the all-party parliamentary group on debt and personal finance, is that if the breathing space does not contain the maximum amount of public sector debt it will not be meaningful. At this moment, however, I cannot formally confirm how the scheme will work, but I will say a few more things in a few minutes.
The Government set out the detailed policy for the breathing space scheme in a consultation launched in October 2018. As part of the scheme, firms will not be able to communicate directly with consumers to request repayment of debt. In particular, the consultation paper set out the design of an alternative access mechanism for those in mental health crisis. The mechanism would enable those individuals to enter breathing space without having directly accessed debt advice. I feel very strongly about the mechanism, as those suffering from a mental health crisis may find it particularly difficult to engage with debt advice services in the way that people without mental health challenges do.
The consultation closed in January 2019, and the Government will shortly publish a response to set out their approach to the whole scheme, before laying regulations to implement breathing space before the end of the year, which is when a comprehensive answer to the question asked by the hon. Member for Makerfield (Yvonne Fovargue) will be provided.
In conclusion, I share the concerns raised by the right hon. Member for North Norfolk and recognise that, in certain cases, the content of debt collection letters can increase consumer harm. I hope I have assured him that the issue will be at the top of my list of priorities when considering further reform in the consumer credit regulatory framework. I take the point about whether the letter issue can be expedited separately, and I look forward to working with the right hon. Gentleman to better understand the most timely and effective way of remedying the problem. I thank him very much for bringing the matter to the House.
Question put and agreed to.
Oral Answers to Questions
John Glen Excerpts(4 years, 12 months ago)
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Mrs Emma Lewell-Buck (South Shields) (Lab)
The Economic Secretary to the Treasury (John Glen)
The Government take child poverty extremely seriously and are committed to ensuring that all children have the best life chances. The Government believe that moving into work and progressing in work is the best and most sustainable route out of child poverty, and we have reformed the welfare system to ensure that work pays and working families can keep more of what they earn.
Mrs Lewell-Buck
I despair at that predictable answer. There are 1.7 million children in destitution. Reports of children arriving at school hungry, scouring bins and stealing food from dinner halls are commonplace. Child poverty has risen by over half a million since 2010. Yesterday the UN rapporteur on extreme poverty was joined by Human Rights Watch in making it very clear that this Government’s relentless austerity measures and cruel welfare reforms are to blame for growing levels of hunger and poverty. Does the Minister agree with those internationally respected organisations?
John Glen
No, I do not. I do recognise the diverse needs across this country. When I served with the hon. Lady on the all-party parliamentary group on hunger and food poverty and visited South Shields, I acknowledged that there are significant challenges. That is why I am very pleased to see that the employment rate in her constituency is up 20% since 2010.
Michael Fabricant (Lichfield) (Con)
I wonder whether the Minister and the Chancellor have had a chance to read the west midlands local industrial strategy, drawn up by the Business Secretary and the Mayor of the West Midlands, Andy Street. Is the Minister aware that youth unemployment has reduced by some 50% over the last few years in the west midlands? Is that not a way to take children out of poverty?
Tim Farron (Westmorland and Lonsdale) (LD)
While there are only 300 people registered as unemployed in my constituency, there are nearly 2,500 children living below the poverty line, which tells us that living in a workless household is not the principal or only cause of poverty; low wages are also a cause. Will the Chancellor urgently review the living wage, so that it actually becomes a living wage, rather than giving it an inaccurate label intended only to ease the consciences of the comfortable?
John Glen
The national living wage has gone up to £8.21 an hour. The Government’s aspiration is to allow it to rise to 60% of median earnings. It is important to acknowledge that in 2010 take-home pay was £9,200 after national insurance and tax. For someone working full time on the national living wage, that figure is now £4,500 more, at £13,700.
Tom Pursglove (Corby) (Con)
Investing in education and skills is a positive, proactive means of promoting aspiration and ensuring that the families of the future are in working households, not in poverty. To that end, what discussions are being had between Ministers in the Treasury and elsewhere in Government about education funding and investment in skills and training?
Kirsty Blackman (Aberdeen North) (SNP)
In evidence to the Work and Pensions Committee, the Child Poverty Action Group said of the two-child cap:
“You could not design a better policy to increase child poverty than this one”.
Will the Minister use the spending review to ditch that policy?
Kirsty Blackman
That is not good enough. Analysis by Cambridge Econometrics states:
“In all of the Brexit scenarios, real wages for low-pay workers are depressed due to increases in prices and reduced levels of productivity, due to skills shortages and lower industry investment.”
Faced with this child poverty double-whammy, does the Minister agree that it is no surprise that the Tories are set for an absolute drubbing on Thursday?
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Child poverty has now reached such an unconscionable level that Members are right to highlight that, this week, the Government were condemned by Human Rights Watch for pursuing what it called “cruel and harmful policies”. Whether or not the Government accept that, the reality is that 4 million British children now live in poverty, that that figure has grown by 500,000 in the last five years and that the majority of those children have parents who are in work. Let me ask the Government: if they do not accept that Conservative policies are creating this crisis, what do Ministers believe is responsible for this humanitarian disaster?
Mr Philip Dunne (Ludlow) (Con)
Stephen Gethins (North East Fife) (SNP)
The Economic Secretary to the Treasury (John Glen)
The Government published a detailed set of economic analyses on the long-term impacts of EU exit on the UK economy—its sectors, nations and regions, and the public finances—covering multiple EU exit scenarios. The analysis shows that the spectrum of outcomes for the future UK-EU relationship would deliver significantly higher economic output than in a no-deal scenario in all nations, including Scotland.
Stephen Gethins
The Minister is right to highlight those analyses, which show that every single Brexit will be damaging to our economy and will hit public services. Coming after a decade of Tory austerity, will he rule out a no-deal Brexit and use the comprehensive spending review to start investing in our public services?
Patricia Gibson (North Ayrshire and Arran) (SNP)
Patrick Grady (Glasgow North) (SNP)
Mr Peter Bone (Wellingborough) (Con)
The Minister did not quite answer the question from the hon. Member for North East Fife (Stephen Gethins). Is the Government’s default position still that on 31 October, we will leave on a no-deal basis if no agreement has been made?
Sir Desmond Swayne (New Forest West) (Con)
Is not the greatest threat of uncertainty to the Scottish economy the prospect of a second independence referendum?
Daniel Kawczynski (Shrewsbury and Atcham) (Con)
Kevin Hollinrake (Thirsk and Malton) (Con)
When Sally Masterton discovered a £1 billion fraud at Lloyds Bank the bank discredited her, constructively dismissed her and prevented her from working with the police investigation. Five years later Lloyds apologised for her mistreatment but nobody at the bank has been formally investigated or sanctioned for this mistreatment. Will the Minister use his powers to instruct the Financial Conduct Authority to carry out that investigation?
The Economic Secretary to the Treasury (John Glen)
As my hon. Friend knows, the FCA is conducting two investigations into the events at HBOS Reading and Lloyds has instructed Linda Dobbs to look into who knew what when. It is absolutely clear now that such circumstances could not be repeated given the action we have taken with the senior managers regime, but I look forward to the outcome of those reviews and we will be taking action accordingly.
Emma Dent Coad (Kensington) (Lab)
Financial Exclusion: Access to Cash
John Glen Excerpts(4 years, 12 months ago)
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Bim Afolami
That is good. I hope that the Minister will tell us what work he can do across Government to champion financial education, which we all agree needs to be improved significantly.
The Minister wrote to me on 20 February about things that the Government were doing to promote affordable lending and credit unions, and about the affordable credit challenge fund, a no-interest loan scheme. Those are all very good things, but I simply say to him: we want more. There is a need for legislative change to allow all types of credit to be provided by credit unions. If he pushed that through Government, he would be a hero not only on the Government’s side of the House but on the Opposition’s side as well.
The last thing I will say about the cashless society is this: I was on a trip to China a year or so ago and I was in a city called Wuhan, a long way away from Beijing, and I could not use cash. Things are moving very fast. I could not use cash. We need to enable people to adapt to the new society and not try to hold back the tide. The Government need to help people achieve that.
The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir Henry. I thank the hon. Member for Feltham and Heston (Seema Malhotra) for securing this important debate. I commend her for encouraging us to consider the issue across multiple areas, because it is in understanding how things fit together that we will find some of the solutions that the 15 speeches that I have carefully listened to in this morning’s debate have drawn attention to.
To improve financial inclusion, we need to be firing on all cylinders, bringing together regulators, civil society and industry—from the big banks to credit unions—to ensure we create a financial services landscape that offers something for every consumer. I am keen to engage with the points made. I will have further conversations, including with the hon. Member for Glasgow East (David Linden) tomorrow; I have attended the all-party parliamentary group of the hon. Member for Makerfield (Yvonne Fovargue) and met a number of other colleagues, who are here today, on specific matters. I will try to attend to all the points in my response.
It is undeniable that the retail financial landscape is changing, as more consumers and businesses opt for the convenience, security and speed of digital payments and digital banking. At the end of 2017, debit cards overtook cash for the first time as the most frequently used payment method in the UK. It is also true that increasing digitalisation and technological innovation are changing not just the way we pay for things, but every part of our society—from communications to shopping, and from transport to healthcare. It is an exciting but disruptive time. I acknowledge that it is a confusing time for some of our constituents, as they struggle to keep pace with the rate of change.
The Government recognise that there is a need for cash and traditional face-to-face methods of banking. Although financial firms take operational resilience very seriously—indeed, last Monday I visited Barclays Joint Operations Centre to see how the bank is keeping its customers safe from cyber-attacks—we cannot guarantee that IT systems will never fail. Cash is therefore a crucial back-up system that many people continue to rely on.
We have heard that cash remains some people’s preferred, or only, method of payment for a variety of reasons. I am sensitive to that, and it is important that the Government act. We have expressed our commitment to safeguarding access to cash for people who need it. As the hon. Member for Feltham and Heston acknowledged, we have set up the Joint Authorities Cash Strategy Group, which brings together the Bank of England, the Payment Systems Regulator and the Financial Conduct Authority, to provide comprehensive oversight of the UK’s cash infrastructure, from supply to customer access. The announcement was made a couple of weeks ago, and the group’s work will complement the Bank of England’s work to reform the wholesale cash industry, so that it encourages innovation and guarantees resilience, even in a lower cash usage environment. As cash is used less, we need to refine the way it is distributed, because the existing method is too expensive and needs to be improved.
Industry has a central role to play in maintaining access to cash, because with industry innovation we can do more at a lower cost. As the Access to Cash Review showed, creative industry initiatives are already being developed. In conjunction with PayPoint, Link is exploring a new service that offers cash and balance inquires through PayPoint’s convenience store terminals. In response to the hon. Member for High Peak (Ruth George), I make the following observation on an initiative by Square, a digital payments company that recently did a trial in Holywell to help small, independent retailers take card payments. It found that 55% of shoppers in Wales would be more likely to shop locally if businesses took cards, which has led to more than 95% of the town’s independent shops now taking cards. It works both ways, and FinTech provides new opportunities.
The shadow Economic Secretary mentioned the important initiative by Lloyds, in partnership with Visa. I note his reference to the Post Office, which provides for cash withdrawals and cash and cheque deposits at each of its 11,500 branches across the UK. Indeed, a sub-postmaster in Devon, whom I met last year, recently contacted me again to say that banking transactions have really boosted business at his rural post office, which is hosted in a library. I will meet him next week to look at that and at what lessons can be learned across the country.
I am sensitive to the points raised by the hon. Members for Feltham and Heston and for Harrow West (Gareth Thomas) on credit unions. I want to update the Chamber on that matter, which I take very seriously. There are 440 credit unions across the United Kingdom, and it is a question of distilling exactly what they want to happen. When I spoke to a number of CEOs of credit unions at the Association of British Credit Unions Limited conference on 9 March, it was clear that they have initiated a national call for evidence and will come back in September with a clear ask of Government about what legislative action needs to take place. As the hon. Member for Glasgow East helpfully pointed out, there credit unions have a whole range of experiences. It is not a question of the Government’s mandating them to be set up, because that would not work. We have initiated a pilot for prize-linked savings, and I hope that will actually increase the use of credit unions. I note the suggestions about getting schoolchildren involved in the use of credit unions, and I am open to looking at how that could be advanced.
Mr Sweeney
I spoke to John Lyons, who runs the Carntyne and Riddrie Credit Union. He made it clear that the reason the Greater Milton and Possilpark Credit Union failed my constituents was that credit unions were previously allowed to share resources between each other. Owing to punitive restrictions on regulations, that is no longer the case, which is why individual credit unions are more vulnerable to failure.
John Glen
I am always sympathetic and listen carefully to credit union chief executives and their experiences. I have been in the Treasury for 16 months, and rarely does a week pass without my receiving notification of a credit union that could be in difficulty. If we are to loosen the regulatory reform and enable more transactions and more functions of credit unions, we need to ensure that we have the governance in place, so that people do not fall foul of credit unions that go the wrong way. It is a complex area. I am not trying to be patronising, but it is important that we get a joined-up policy solution that pays attention to the sector’s requests.
Although maintaining access to physical banking and cash is important, there is another, equally important side to this story: ensuring that the benefits of new technology are felt by all, and that everyone has the ability to participate. For people who need to keep tight control of their money, and for those who cannot afford to lose a penny, the ability to check their bank balance on the go, or to freeze a card instantly, is critical. We know that too many people are currently excluded from such benefits.
Recognising that the advantages of digitalisation should be felt by all, the Government’s digital strategy commits to enabling people in every part of society to access the opportunities of the internet. We have established the digital skills partnership to bring together the public, private and third sectors to address the digital skills gap in a more co-ordinated and collaborative way. From 2020 we will introduce an entitlement for adults who lack basic digital skills to undertake fully funded basic digital skills training. This new entitlement will mirror existing entitlements for adult literacy and numeracy training.
I want to address the point made by my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami). The new Money and Pensions Service will simplify the current public financial guidance landscape and offer a more holistic approach to financial education. I am talking to representatives of UK finance and the voluntary sector to look at how we can get a more co-ordinated approach to financial education, which is always raised in these debates.
The Government recognise that access to the internet depends on being able to connect to it, and we are making progress with this problem. Superfast broadband, providing downloads of at least 24 megabits per second, is now available to 96% of UK homes. Hon. Members will have seen that last Sunday we launched the Rural Gigabit Connectivity programme, a £200 million investment that will enable communities that have not previously benefited from broadband to leapfrog to the most advanced fibre technology. I hope that will be a solution for colleagues who represent the most rural constituencies.
I will conclude, in order to give the hon. Member for Feltham and Heston an opportunity to respond. We all agree that vulnerable customers must not be left behind as digitalisation changes the way we bank and pay for things. Of course, part of that is about ensuring that physical banking and cash remain available to people who need it—the Government, regulators and industry are already taking action to ensure this. However, it is equally important that we redouble our efforts to ensure that all our constituents benefit from new technology. We cannot reverse digital innovation and nor should we, given the benefits it brings to our constituents.
I want to end with a call to arms to industry to think about all consumers—not only when it is considering the future of cash and physical banking, but when it designs new digital products and brings new innovations to the market. I will keep pushing industry to achieve this, and I hope hon. Members will join me in doing so.
Contingent Liability Notification
John Glen Excerpts(5 years ago)
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The Economic Secretary to the Treasury (John Glen)
I can today confirm that I have laid a Treasury Minute, informing the House of the contingent liability that HM Treasury has assumed in relation to the transfer of sponsorship of the Bradford & Bingley plc (B&B) employer defined benefit pension scheme and the NRAM employer defined benefit pension scheme (the “Schemes”) from B&B and NRAM, respectively, to UK Asset Resolution Limited (UKAR).
UKAR and the trustees of each scheme (the “Trustees”) have agreed that the sponsorship of both Schemes should be transferred from B&B and NRAM to UKAR.
The contingent liability takes the form of a credit support deed (a “CSD”), entered into by HM Treasury and UKAR in respect of each of the Schemes, which will provide comfort to the Trustees that, in the event UKAR is unable to meet any payment obligation in respect of one or more of the Schemes, HM Treasury will provide UKAR with sufficient funds to meet such payment obligation. The remote maximum contingent liability possible under the CSDs together is estimated at c. £1.4 billion, based on the current mortality assumptions and discounted defined benefit obligations of the Schemes. This would only crystallise in the highly remote circumstances where the value of assets in both Schemes fell to zero and HM Treasury became liable for all liabilities under each scheme. Given that the majority of assets in the Schemes are held in gilts and the expectation that each scheme will be in surplus at the time of transfer, this scenario is considered highly unlikely.
As the Schemes will be in surplus at the time of transfer, UKAR is not expected to make any additional payments to either scheme until at least the next triennial valuations in three years’ time. In the light of this and the fact that UKAR will be funded via the usual supply procedure, HM Treasury considers it unlikely that the CSD will be called upon.
The CSD will remain in place for as long as UKAR remains the sponsor of the Schemes. It should be noted that HM Treasury, as the ultimate owner of B&B and NRAM, already has indirect exposure to this risk. An existing guarantee given by HM Treasury to the B&B pension scheme trustees will remain in place following the transfer of the B&B pension scheme to UKAR.
The transfer of sponsorship will not affect members’ benefits, there will be no impact on members’ accrued rights, and the relevant trustee board of each Scheme will remain unchanged following the transfer of sponsorship to UKAR.
I will update the House of any further changes as necessary.
[HCWS1553]