Finance (No. 2) Bill

Jonathan Reynolds Excerpts

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

[Jane Ellison]

Members should be paying more attention. Earlier today the Leader of the House updated right hon. and hon. Members on how that motion, if it is passed, will impact on the business of the House. We hope to hold constructive discussions with the Opposition, through the usual channels, on how this Bill will proceed.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

We are always here to help.

[Jane Ellison]

It is good to hear that Opposition Front Benchers are here to help.

To return to the matter under discussion, I will lay out the themes of the Bill and then I will allow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) to intervene. We are very clear that our taxes and the system underpinning them need to be fair and competitive and, critically, they must be paid. This Bill will take the next steps in helping to deliver a fairer and more sustainable tax system, one that can support our critical public services and get the country back to living within its means.

The Bill implements changes that respond to the challenges that our tax system and, indeed, our society face. It delivers on intergenerational fairness by tackling inequality of health outcomes across and within age groups, and it delivers changes that better reflect the different ways in which individuals choose to work, enabling people to earn money and create wealth, whatever their chosen business structure, but at the same time ensuring that those choices are not distorted. The Bill also delivers vital revenues to put our public finances on a sustainable footing, secure the future of public services that we all value and help to further bring down the deficit.

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[Mr Rees-Mogg]

I would explain the national debt of approaching £2 trillion because of the place where we started. It is very interesting that when the previous Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), started reducing the deficit he was told by Opposition Members, “Too far, too fast!” They chanted it like a mantra as he stood at the Dispatch Box nobly defending his policies. In fact, he went at the right pace to ensure that the Budget deficit came under control, while at the same time the economy was not unduly affected by the reductions in expenditure and increases in taxes that had to be made. It was a first-class balancing act by my right hon. Friend and that is why the deficit is at £2 trillion.

[Jonathan Reynolds]

I am loth to give the hon. Gentleman further exposure, but if that strategy was as successful as he believes, why did it not meet its own objectives and we are still discussing the deficit and the very large amount of national debt today?

[Mr Rees-Mogg]

It has succeeded. We have the fastest growing economy in the G7. For all the stuff we heard a year ago, the economy has carried on motoring ahead. The economy has done pretty well every year now since 2010. That is the success of the economic strategy that the Government followed. The deficit is about a third of what it was in nominal terms, but as a percentage of GDP it is now within the normal bounds of deficits.

[Jonathan Reynolds]

I may be falling into my own trap, but I remember listening to the hon. Gentleman’s speeches in the previous Parliament when he said that if the deficit was at this level, going on from 2010, that would be a disaster. Now he is saying it is a huge achievement. Can he not understand why the lack of humility makes one cynical about the content of his speeches?

[Mr Rees-Mogg]

I do apologise for a lack of humility. I shall try to do better in that regard. I am, however, flattered that the hon. Gentleman remembers my speeches from years ago. I admire his attention to the debates in this House. The point I was making then was that a deficit of £150 billion a year, or 10% or 11% of GDP, was completely unsustainable. It is now down to about £50 billion and about 3.5% or 4% of GDP. It is at a manageable level. That is the achievement of the previous Chancellor and the current Chancellor.

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[Victoria Atkins (Louth and Horncastle) (Con)]

So much has already been said in this debate that I am going to attempt to be short and, I hope, concise in my remarks. I am aided by the fact that a little time ago I got an A-level in economics, and I hope I will be able to explain my views on the Bill in language of which my economics teacher would be proud.

It is particularly appropriate that we are discussing the Finance Bill because, of course, the Prime Minister today made a momentous statement announcing the next general election. It is only right that we are talking about the economy and finances of this great country, because a strong economy is vital to achieve all that we care about. In my constituency, Louth and Horncastle, a strong economy means jobs and successful firms creating prosperity, and from that, taxes flow. Of course, taxes pay for everything that we care about, from the national health service to defence, in which I have a particular interest because RAF Coningsby is in my constituency. They also pay for schools, and I am sure that we all in this House are united in our wish to ensure that the young generation are educated properly and fully so that we can make a success of not only Brexit but the future. I was particularly pleased today to see the Prime Minister emphasising not only her plans for Europe but the future beyond Brexit.

But—there is always a but—we must still continue to get public spending under control. There is no magic money tree, no matter how often Opposition Members would like to pretend there is. We have, sadly, a debt of nearly £1.7 trillion, which equates to almost £62,000 for every household in the country. We are spending more money on debt interest than on defence and policing combined, which is why we must learn to live within our means.

I have to say that, having spent several hours in the Chamber listening to erudite colleagues, I was a little concerned when, in answer to how much money Labour planned to borrow after the next election, the shadow Chief Secretary to the Treasury said something along the lines of—I hope I am not misquoting him—“We will borrow less than the Conservatives.” I did not hear any detailed financial planning. I will look forward to that in the coming weeks.

One of the best ways to ensure that this country succeeds and is prosperous is to make it the best place in the world in which to do business. That is precisely why we are cutting corporation tax, which was 28% under Labour, to 20% today, falling to 17% in a couple of years’ time.

[Jonathan Reynolds]

There is no magic money tree.

[Victoria Atkins]

Indeed. I hesitate to rely on my A-level economics, but companies employ people who pay taxes, and companies themselves pay taxes—not just corporation tax, but VAT, payroll tax and business rates. This is all about giving businesses the best chance of succeeding.

[Jonathan Reynolds]

indicated assent.

[Victoria Atkins]

I am glad to see that the hon. Gentleman agrees with me.

One of the most important things about any tax system is not just that it should help to pay for the things that we care about, but that it should be fair. In my previous career, I prosecuted tax fraudsters for a living. I am delighted to say that the main offence that we used to prosecute such people was cheating the public revenue, because if they commit tax fraud, they are a cheat. I look forward to helping the Government not just in the Finance Bill, but in the Criminal Finances Bill, to ensure that tax fraudsters feel the full force of the law.

Looking beyond Brexit, the reason I welcome this Finance Bill is that it places a very great emphasis on helping working families with the cost of living. I intervened on the hon. Member for Aberdeen North (Kirsty Blackman) to say that we have raised the national living wage in April to £7.50, which means an income boost of more than £500 for a full-time worker this year. The personal allowance will rise for the seventh year in a row, benefiting 29 million people, which means that a basic rate taxpayer will pay a full £1,000 less in income tax than they did in 2010 under Labour.

I also welcome this Bill for the help that it gives local authorities for adult social services—I am talking about an additional £2 billion of funding over the next three years—and the extra £100 million it provides in 2017-18 for capital investment for accident and emergency departments in England. I also welcome the £320 million to extend the free schools programme. The fact that the Prime Minister has called an election today shows that the Conservatives are the true Government of the United Kingdom. I know that the Scottish National party will welcome the fact that, under this Bill, Scotland will get more money, as will the Welsh Government and the Northern Ireland Executive. I welcome this Bill and I look forward to the campaign on the principles therein.

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[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to close today’s debate on the Finance (No. 2) Bill, even if other events have possibly overshadowed today’s important parliamentary business. In fact, I understand that there are reports circulating this evening that the Crown Prosecution Service is about to charge 30 senior Conservatives with election expenses fraud, so I am afraid it is possible that we may be squeezed down the news cycle still further. I am grateful to Members for their thoughtful contributions to today’s debate.

This is a poor Government who have achieved very few of the aims set out by David Cameron when he first came to power in 2010, especially in relation to the public finances. Instead, they have created a crisis in living standards and underfunded essential public services. Those of us who entered Parliament in 2010 know that the Government’s promises on the economy when they came to power have not even come close to being fulfilled, and this Bill takes a lot of pages to deliver very few tangible improvements on that poor level of performance.

I will begin by reiterating the concerns raised by my hon. Friend the Member for Bootle (Peter Dowd) at the beginning of today’s debate. The Bill is certainly large, adding complexity and technical detail to the statute book, yet we have been presented with an almost impossibly tight timeline in which to properly scrutinise and discuss it. The stakeholders we have consulted have echoed those worries. For example, industry bodies tell us that they have struggled with interpreting and analysing the Bill’s full impact, given the time and volume involved. I imagine that that process will be truncated still further, given the imminent general election.

On the specifics of the Bill, HMRC is rightly at the centre of the Government’s plans to tackle tax avoidance. The Government’s own estimate of the current tax gap stands at £36 billion, which in the opinion of many tax experts is a highly conservative figure, given the method of calculation. It is extraordinary that the Government believe that they can address that gap by drastically cutting HMRC’s staffing and budget levels. At autumn statement 2016, the Government announced a series of cost savings via administration and operational measures at HMRC, totalling £180 million a year by 2021-22. It goes entirely against reason that the Government are trying to find £180 million in savings in an organisation that is critical to efforts to recoup a slice of that £36 billion in missing revenue.

The significance of that tax gap has never been more critical. Our NHS has been pushed into crisis by the Government’s failure to fund it and social care properly. Each week brings new and damning revelations about the state of the service we all rely on, with the end result being that in some areas the Government have simply given up on their own targets, such as the 18-week waiting time for hip and knee surgery. We need a properly funded plan for the NHS that takes into account the real needs of delivering a 21st-century health service with patient welfare at its heart.

We also face the significant added complication of Brexit, which remains unaddressed in the plans for HMRC. Although we all remain in the dark about what exactly our departure terms will look like, we face the reality that we may for the first time in decades have a customs border between us and the EU that will need policing. We are already seeing a crisis in VAT evasion from overseas sellers, potentially costing the Exchequer as much as £1.5 billion a year, by its own estimates. Should we leave the single market, there will be a huge increase in pressure on the customs system, which is struggling to cope as things stand. These are serious matters for consideration, related to the fulfilment section of the Bill. UK retailers are not on a level playing field with unscrupulous sellers from around the world, at a cost to both our competitiveness and our Exchequer, and HMRC is currently ill-equipped to tackle that abuse.

Businesses of course operate in a global environment today. That brings its own challenges, and we need to make sure we are providing the right framework for businesses to handle it. We are approaching what has been termed the fourth industrial revolution, which has precipitated a huge shift in the nature of work and employment. It is unsurprising, therefore, that many of the clauses in the Bill legislate for those changes, such as those involving IR35 and Making Tax Digital.

Undoubtedly, we must change our approach to how we treat employment in the 21st century, but the Government seem to be firing unsuccessfully at a moving target. This change in approach comes far too late and, in our opinion, has the wrong focus. The rise of the gig economy has brought opportunities for some, but challenges and exploitation for others. Flexibility and independence have been highly valued advantages for some workers, but self-employment has also been abused by unscrupulous employers as a means to reduce their tax bill and to avoid giving contractors the rights and entitlements of employees. So far, the Government’s only answer has been to propose punishing the employees by increasing taxes on them, not to consider the rights and obligations of both sides of this equation.

We saw that reflected in the chaos of the Budget last month, when the Chancellor’s completely wrong-headed decision to introduce NICs parity with employed workers highlighted the lack of understanding at the highest levels in the Treasury of the modern nature of work. The Government rightly backed down on the issue, but it showed that trying to legislate piecemeal for what has effectively been a revolution in the world of work has been ill thought through and will not succeed.

For example, IR35 shifts the entire burden of taxation on to contractors, rather than looking at the underlying issue of why the public sector has become so dependent on these types of employees. As is argued by the Low Incomes Tax Reform Group, the rules on errors in taxpayer documents seem to ignore the fact that low-income groups could now be caught in punitive anti-avoidance measures simply because they have no choice but to operate through an agency, or because they cannot afford accountancy advice to help them to fill out their tax returns. As an alternative, we advocate a wholesale review of the package of measures offered to self-employed individuals. Our scrutiny of the measures in the Bill is delivered through that lens: these are a succession of piecemeal changes that risk hurting people unwillingly caught in the net of self-employment, rather than wealthy tax avoiders.

Opposition to the NICs rise for the self-employed was so intense because the UK prides itself on being a country of entrepreneurs, and on being able to create an environment in which small businesses and independent workers can thrive. The Making Tax Digital proposals are yet another illustration of how the Government continue to miss the point when legislating for a changing world of work. These proposals will put undue pressure on small businesses and the self-employed, who simply do not have the resources to input tax information on a quarterly basis.

Even the House of Lords Economic Affairs Finance Bill Sub-Committee has said that it does not share HMRC’s confidence in its estimates of how far the tax gap will be reduced by this measure, which it has described as fragile and little more than guesswork. Evidence given to the Sub-Committee showed that the initiative is in fact likely to result in greater errors in taxpayer reporting, not fewer, as businesses come under pressure to fill out accounts four times as frequently. Again, HMRC will be expected to accommodate this system at the same time as its resources are being cut and even more legislation is being piled up for it to enforce. In line with the rise in business rates, it is difficult to see how the Government can truly say that they are seriously committed to helping UK business to succeed. Instead, 2017 has so far been characterised by punitive measures and uncertainty, and this looks set to continue.

We should be discussing a Finance Bill—this is what we needed—that would address the real problems that exist in this country: the fact that real pay is still lower than before the financial crisis, that 6 million people earn less than the living wage, and that 4 million children live in poverty, two thirds of whom are in households where their parents work. We should be talking about how to balance the tax system and spread the burden, not simply getting into a race to the bottom on corporation tax while seeing crushing rises in business rates, alongside increases in bureaucracy and administration. We should certainly be discussing a serious and realistic plan for the NHS and social care; from what I have seen in my own constituency, I reject entirely the Government’s assertion that they are properly resourcing social care in particular. We have a Finance Bill that does none of these things. For that reason and many others, we will oppose giving it a Second Reading tonight.

Oral Answers to Questions

Jonathan Reynolds Excerpts

Tuesday 18th April 2017 Commons Chamber

[Mr Hammond]

I am not sure what the worst case scenario that the hon. Lady is talking about relates to. We have heard various figures bandied around in Brussels in terms of an exit charge. The work that the Government have been doing—which I was asked about earlier—relates to the economic and fiscal impact of different possible exit scenarios. The numbers being bandied around in Brussels are simply a question of a potential demand which would be raised in the negotiating process, but they are simply that: a negotiating strategy.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I agree with the Chancellor that one of the biggest contributors to the UK’s public finances is the tax revenue that we receive from the financial services sector. Now that we have had the triggering of article 50 and the Government’s White Paper, will he tell us whether he is confident that that revenue will not be significantly reduced, either through the loss of jobs or the loss of any major areas of financial activity?

[Mr Hammond]

Yes; the negotiating strategy and the objectives that we have set out in the article 50 letter would create an environment in which the financial services industry in the UK would be able, by and large, to continue the levels of commercial activity that currently take place with the European Union 27. But of course that will depend on negotiating the right arrangements with the European Union, and it is essential that we go into these discussions in constructive mode, recognising that there are real issues on both sides and that the UK’s financial services industry is an asset not only of the UK but of the whole of the continent of Europe. European businesses depend on those financial services.

[Jonathan Reynolds]

I share the Chancellor’s assessment that there is a mutually beneficial deal for us and the EU to agree on, if this Government have the ability to deliver it. Will he therefore state unequivocally that, as a result of the deal that the Government will seek to negotiate, there will be no significant loss of jobs in any major financial institutions, no removal of any major City-wide functions such as clearing, and no relocation of any EU-wide regulatory agencies such as the European Banking Authority?

[Mr Hammond]

On the hon. Gentleman’s last question, the location of the European Union’s agencies is clearly a matter for the European Union. We cannot credibly seek to leave the European Union and at the same time dictate to it where it should locate its agencies. On the initial items on his list, it will indeed be the UK Government’s objective, as we go into the negotiations, to protect our financial services sector.

Breathing Space Scheme

Jonathan Reynolds Excerpts

Wednesday 29th March 2017 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I congratulate the hon. Member for Rochester and Strood (Kelly Tolhurst) on securing this debate, which is critical to many individuals and families. I also recognise her commendable work in initiating and progressing the Families with Children and Young People in Debt (Respite) Bill, which has the potential to form part of a much needed solution to the escalating levels of personal debt.

As several hon. Members have already outlined, we face a growing crisis with the levels of unsecured household debt. In January, the TUC released analysis that showed that it reached record levels in 2016, according to data provided directly by the Office for National Statistics. Total unsecured debt, which does not include mortgages, reached a record level of £349 billion during the third quarter of 2016. Unsecured debt per household increased to an average of nearly £13,000 in that quarter, which was an increase of more than £1,000 on the previous year and according to the TUC was the largest annual increase since 1997. As a share of household income, that represents an average of 27.5%, the highest figure for eight years.

It is clear to Opposition Members that the Government’s policies have created a perfect storm for those conditions to worsen. Weak wage growth has left many households struggling to get by as the cost of living continues to increase and the poorest continue to bear the brunt of Government cuts. It is therefore hardly surprising that personal borrowing has increased to fill the gap. As we have heard, sometimes people have no other option as a means of putting food on the table.

As we have said previously, the Government need to reassess their policy programme urgently, with specific consideration for the impact it has on the most vulnerable in society. However, in the interim, some sort of remedial approach is needed to give a helping hand to people who find themselves in a vicious circle of debt.

There is currently too great a gap between struggling with debt repayments and formal bankruptcy proceedings. Insolvency proceedings are typically suitable for only a small number of unmanageable personal debt cases. In particular, as my hon. Friends the Members for Makerfield (Yvonne Fovargue) and for Blackburn (Kate Hollern) said, a single event can often serve as the trigger for a spiral into debt problems. That is typically a change in circumstances such as family breakdown, redundancy or bereavement. The individual suffering from such problems can often be back in employment or have support from the welfare system arranged in a period of six months to a year, but at present the challenge of having to deal with the initial personal problems alongside that mounting debt can have an adverse effect on getting back into employment and cause serious mental health issues, which slows the process down. Those factors combined demonstrate that a breathing space scheme would help to alleviate the pressure on individuals while they get back on their feet.

[Kirsten Oswald (East Renfrewshire) (SNP)]

Does the hon. Gentleman agree that schemes such as the debt arrangement scheme that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) spoke of are hugely important in alleviating the stresses and strains that impact on not only the family members who are dealing with the debt but the children themselves? If we do not put steps in place to try to deal with that, the impact on the children could be long standing; it could have a lasting effect on their life chances.

[Jonathan Reynolds]

I endorse those remarks in terms of what the objectives of such a scheme should be. We believe that, for it to be as effective as possible, the Government must undertake some further exploration of the technical details. In current versions of the scheme under way elsewhere, I understand that public sector debts such as council tax debt are excluded as well as self-assessment fines, benefit overpayments and so on. Those debts can often cause the most serious stress to individuals, so it is important to include those obligations alongside consumer credit.

[Yvonne Fovargue]

Does my hon. Friend agree that, as recent research from StepChange has shown, local authorities and Government agencies are worse than payday lenders in how they enforce debts?

[Jonathan Reynolds]

I am afraid that is my experience. I want to stress that that has been a serious problem for my constituents. In preparing for the debate I recalled that in recent months in my surgeries there have been three individuals who have all been pushed into dire financial situations specifically by the recovery of benefit overpayments, including one situation in which someone had to borrow money from family to feed their children. I have also found one of the fastest growing problems is council tax arrears, which affected 36% of the clients helped by the charity StepChange in my constituency in 2015, up from 20% of its client base in 2012.

As per previous announcements confirmed in the spring 2017 Budget, the Government intend to shift collection of certain overpaid tax credits from Her Majesty’s Revenue and Customs to the Department for Work and Pensions, with its enhanced collection programme projected to collect £520 million by 2022. The recovery of that sum is likely to have a substantial impact on the individuals concerned in the next few years, so a breathing space scheme that includes that type of debt would be enormously helpful in alleviating some of that pressure.

[Paul Blomfield]

I wonder whether my hon. Friend would echo the concerns raised by my hon. Friend the Member for Makerfield (Yvonne Fovargue) that the Government have indicated some sympathy for the proposals but seem to be kicking the issue into the long grass. If the Minister says nothing else in his response, will my hon. Friend share my hope that he will give a commitment of a date for when a review could be undertaken and completed?

[Jonathan Reynolds]

I agree entirely with my hon. Friend, and in my closing remarks I will ask for exactly that commitment.

There needs to be clarity over how participation in a debt arrangement scheme will impact on an individual’s credit rating. The rationale behind avoiding bankruptcy is partly down to the future impact of that on an individual’s borrowing capacity and financial position, particularly when their financial affairs may stabilise in a matter of months. Individuals struggling with debt in the short term may be hesitant to enter into a scheme if they feel that would damage their long-term ability to secure finance or if it would serve as a black mark on their credit history, should they wish to obtain a mortgage in future.

The key priority now is to see some progress and movement. The Government initially promised to put forward the review of the scheme—[Interruption]

[Mr Andrew Turner (in the Chair)]

Order. I understand that there may be more than one consecutive Division in the House. Please could all Members return here as soon as possible after the final Division so that we can conclude the sitting? If there is only one Division, Members should return immediately after that.

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[Mr Andrew Turner (in the Chair)]

The sitting will conclude no later than 6.7 pm.

[Jonathan Reynolds]

Before the sitting was suspended, I had begun to reach my conclusion. The key priority now is to see progress and movement on this issue. The Government initially promised to have a review of the scheme by December 2015, as we have heard today, but we are still waiting for that. Since then, according to the debt charity, StepChange, 1.3 million people have sought debt advice from the major debt advice charities. That shows the urgency of the situation and the real need for the scheme.

In a December 2015 report, StepChange also estimated that problem debt was costing the economy £8.3 billion, through knock-on effects such as lost productivity and the strain on health services. I ask the Minister to agree about the importance of minimising the harm caused by personal problem debt, the costs of which evidently affect all parts of the country. Will he also commit to a timeline for producing a detailed proposal for a breathing space scheme?

The issue of growing personal debt will not go away. Indeed, evidence shows that it is getting worse. The Government need to respond to this debate by promising clear and comprehensive action on how that can be tackled. Opposition Members believe that, although the scheme would not be a total solution for the public, it would be an excellent starting point.

Draft Crown Estate Transfer Scheme 2017 Draft Scotland Act 2016 (Income Tax Consequential amendments) Regulations 2017

Jonathan Reynolds Excerpts

Monday 20th March 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to see you in the Chair this afternoon, Sir David. I do not have a great deal to say on these rather technical amendments, but in respect of the draft Scotland Act 2016 (Income Tax Consequential Amendments) Regulations 2017, Labour remains supportive of greater Scottish control over income tax in Scotland. The regulations make a series of consequential amendments arising from the Scottish Government’s powers to set income tax rates and bands. As such, there is no real issue of substance to discuss, so we support the changes. Of course we wish that the Scottish National party Government in Scotland would show more willingness to use these powers to differentiate the Scottish tax system from that of the Conservative Government in Westminster, but that is their decision to make.

The transfer of management of the Crown Estate in Scotland and of the revenues it produces is a welcome measure, which Labour supports as a means of ensuring that Scottish people can more directly benefit from their stewardship of the Crown Estate’s considerable assets in Scotland. Labour was a driving force behind the Smith commission, which supported this transfer as the realisation of a long-held aim for Scotland to have control of the use of the Crown Estate north of the border.

I have one question for the Minister, which is about the process for resolving disputes between the UK and Scottish Governments. I understand that this is the most substantive change following the publication of the original draft seen by Parliament in October 2015. Could the Minister say a little about the negotiations with Scottish Ministers, particularly as regards the process for resolving disputes through determination by independent experts, how those experts will be chosen and what the process will be?

Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017

Jonathan Reynolds Excerpts

Tuesday 14th March 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Good morning, Mr Flello; it is indeed a pleasure to see you in the Chair.

We find ourselves in a slightly unusual position with this procedure today—we do live in unusual times. As we have heard from the Minister, it is the Government’s intention to continue with the transposition of elements of the second markets in financial instruments directive into UK law. However, this process takes place while a huge question mark hangs over our future relationship with the European Union, under whose auspices the directive was drawn up. Although there seems to be an indication of a broad consensus that there will be no bonfire of EU regulation, we have yet to receive any real clarity or guarantees from the Government in that regard.

MiFID II has been the subject of much discussion among market participants since the referendum result. In particular, it has been mooted as potentially providing an answer to the financial services sector’s anxiety about securing passporting arrangements for the cross-border trading arrangements on which it depends to function. It is almost a decade since the original MiFID legislation was applied in the UK. It has achieved many of its original goals in creating a more harmonious investment landscape across Europe, and it is important that we preserve the elements of consumer protection that it has embedded in UK markets.

Best execution has played an important role in contributing to better outcomes for consumers and creating a more efficient trading landscape across Europe. Labour supports those efforts and sees the importance of a robust framework in which they can operate. For that reason, we support treating the operations of organised trading facilities as a regulated activity.

Labour supports moving binary options from the supervision of the Gambling Commission to the Financial Conduct Authority. That is not to say that we do not have some concerns about the regulation of binary options and how they are used by consumers, who are potentially vulnerable, but we believe that they have more in common with high-risk financial products than betting activities. We remain in dialogue with the FCA to ensure that those products come with the appropriate caveats. Structured deposits are an entirely different class of product, but the same principle applies: consumers must have full disclosure on the products that they are purchasing. Any further clarity in that regard will be welcome.

Labour also supports the ongoing efforts to transpose MiFID II into national law, which will help to harmonise standards across Europe and provide a higher standard of consumer protection in the UK. As we come to exit the EU, it is essential that we consider the benefits that historic regulation has brought us and how they can be protected in the future. Indeed, if equivalence is to be sought as we enter the negotiations, it is vital that we as policy makers ensure that these obligations continue to be diligently met, regardless of the overall climate of uncertainty.

Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017 Draft Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2017

Jonathan Reynolds Excerpts

Monday 6th March 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mrs Main.

As the Minister has outlined, the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017 enact the annual re-rating of various national insurance contribution rates, limits and thresholds and allow for the payment of a Treasury grant not exceeding 5% of the estimated benefit expenditure for the coming tax year into the national insurance fund. The draft Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2017 provide for increases in certain tax credit rates and an increase in the weekly rate of guardian’s allowance—a small benefit paid to people looking after a child who is effectively an orphan—from April.

Labour is acutely aware that average real hourly pay remains 10% below its level before the financial crisis and that rising inflation is devaluing people’s wages further. Indeed, analysis by the Institute for Fiscal Studies that came out last week shows that low-income working families with children are suffering most and that, by the end of the Parliament, average households will be £5,000 a year worse off than they might have otherwise expected. We will therefore not oppose any rise, however small, in vital support for people who are struggling to get by. However, we would not want that to be mistaken for any type of endorsement of the Government’s overall insistence on making the majority of people pay for tax cuts for the more affluent while continuing to pursue cuts to in-work benefits.

Although the Government are uprating some benefits—though not by very much—they are excluding others entirely. As a result of the benefit freeze for benefits and tax credits administered by Her Majesty’s Revenue and Customs, child benefit is frozen for four years; the basic 30-hour, second adult and lone parent elements of working tax credit are frozen for four years; and the individual per child element of child tax credit is frozen for four years. How can that be right? If the economy is growing, it is surely only just that the benefits are shared fairly. Labour is committed to ensuring that the lowest-paid in our society are not further burdened by having to subsidise tax cuts elsewhere that arguably are not needed.

We will not divide the Committee, but I have placed on the record our objections to the Government’s strategy, as of course we will in response to the Budget on Wednesday.

Oral Answers to Questions

Jonathan Reynolds Excerpts

Tuesday 28th February 2017 Commons Chamber

[Mr Hammond]

We are very keen on LEPs working together across regions so that these very large pots of devolved funding, including some of the money in the national productivity investment fund that I announced in the autumn statement, can be used to maximum effect across a coherent economic geography. I am not so sure that it is within my power to bring them together, but I would certainly encourage them to work together.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Yorkshire is of course home to some of the country’s finest financial institutions, such as the Yorkshire Bank and the Yorkshire Building Society—

[Helen Goodman (Bishop Auckland) (Lab)]

And the Skipton.

[Jonathan Reynolds]

Like all financial institutions in the UK, they will be desperately keen to understand what the Government’s Brexit plans will mean for financial services. The Treasury still has not replied to my letter in January asking for some basic clarity, but we need to know how the Government intend to achieve equivalence, how it will be made certain and how we will avoid becoming just a rule taker from the rest of the EU. Chancellor, these are reasonable questions, so may we start to have some answers, please?

[Mr Hammond]

They are perfectly reasonable questions. I am not sure that the Skipton Building Society is holding its breath on how equivalence will work to allow it to carry on marketing complex financial instruments across the European Union. These are matters for negotiation. If we end up with an equivalence regime to allow financial services businesses to continue to trade into the European Union, it will be important that that equivalence regime is based on objective criteria, not political criteria, so that as long as our regulatory regimes are in fact equivalent, we can be confident of continuing to be able to trade.

London Stock Exchange

Jonathan Reynolds Excerpts

Tuesday 21st February 2017 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is always a pleasure to see you in the Chair, Mr Hollobone. I begin by congratulating the hon. Member for Stone (Sir William Cash) on securing this extremely important debate at a critical time for the London Stock Exchange and for the many financial services companies in Europe and beyond that depend on its continued successful functioning. The hon. Gentleman could reasonably be regarded as the Archbishop of Brexit, so when he says that something might not be in the national interest as a result of the Brexit process, I for one certainly take heed of that.

The London Stock Exchange is a great British institution, with a history dating back to 1698. In the intervening centuries, the LSE has evolved far beyond a simple trading platform. Its services are now exported around the world and a variety of markets benefit from those services, which include clearing, indexing and technology. As policy makers, it must be our priority to provide an environment in which that can continue. However, the LSE sits at the convergence of a number of challenges as the UK seeks its departure from the European Union. We need to pay careful attention to how those challenges can be managed, not only for the future success of the LSE but to ensure that potential damage to the rest of the financial services sector is mitigated.

The first and most sensitive of those challenges is undoubtedly the proposed merger of the LSE and Deutsche Börse. Given the standing of the LSE, it is unsurprising that it has been courted by numerous merger partners over the years. Mergers were under discussion between these two particular organisations as long ago as 2000. The LSE last rejected an offer from Deutsche Börse in 2005. Today’s proposed merger has shareholder approval from both sides. The only barriers that remain are regulatory approval and the go-ahead from the relevant European and UK competition authorities.

There are good reasons why this deal could be in the best interests of industry more widely and the consumer, notwithstanding the outcome of in-depth scrutiny by anti-trust authorities. In the years following the 2008 financial crisis, regulators have made significant progress towards tackling a fragmented post-trade environment and mitigating systemic risk. It is arguable that the economies of scale provided by this merger may help those efforts, while creating a significant global player, as the hon. Member for Wimbledon (Stephen Hammond) outlined.

Consolidation has been a notable trend in recent years among trading venues, driven by a number of factors, but ultimately larger single entities have the potential to reduce costs for their stakeholders. This particular merger could also improve capital flows across the European Union, in the intended spirit of the capital markets union. I worry a little bit, listening to Conservative Members, about the degree of protectionism that seems to be slipping into centre-right parties around the world at the moment. Those advantages are perhaps being underestimated.

It is undeniable that the UK’s decision to leave the European Union has significantly altered the terms of reference for the deal. In my view, it will be extremely challenging for the relevant regulatory and anti-trust bodies to deliver a final verdict on the proposals while the detail around the conditions of our exit from the European Union remain so vague. Notably, there seems to be some debate over whether the headquarters of the new entity would be in London, which was treated as a given prior to the vote on 23 June, or in Frankfurt, which has now entered the discussion given the UK’s signalled departure from the single market. Clearly there are strong arguments for both sides, but the conversation must take place in the context of ensuring a future for clearing activities in the City of London.

London is one of the world’s leading centres for clearing, providing essential market infrastructure to global financial services. The revenue and jobs that the industry supports must be recognised in the Brexit negotiations. LSE’s subsidiary, LCH.Clearnet, which is 57% owned by the LSE, cleared over 90% of the world’s over-the-counter derivatives last year, amounting to a figure in excess of $655 trillion. That is especially pertinent given the ongoing efforts by certain parties to relocate euro-denominated clearing to the continent. In 2015, LCH cleared €327 trillion across different euro-denominated products, according to evidence submitted to the Treasury Committee by the LSE earlier this year. The scale of that activity is so significant that it could support up to 232,000 jobs throughout the UK, which would be lost if euro-denominated clearing went as part of the Brexit process.

Although efforts have so far failed on the continent, given some strong practical arguments against re-domiciling those transactions, the relevant authorities must give careful consideration to potentially creating a bridge between Frankfurt and London that includes LCH.Clearnet, to mitigate the risk of that gaining traction.

The LSE is one of the vital cogs that has helped to build the UK’s successful financial services sector. It is critical that we ensure it can continue to function effectively post-Brexit. A full and in-depth assessment of the proposed merger must take place in that context.

[Mr Philip Hollobone (in the Chair)]

If the Minister would be kind enough to conclude his remarks no later than 5.27 pm, he would allow Sir William to sum up the debate.

Draft Investment Bank (Amendment of Definition) and Special Administration (amendment) Regulations 2017

Jonathan Reynolds Excerpts

Tuesday 7th February 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

May I, too, say what a pleasure it is to be here under your chairmanship, Mrs Moon, bright and early after such a late sitting in the House last night?

I thank the Minister for his speech. He and I have now discussed several pieces of legislation to improve the oversight and regulation of the financial system following the financial crisis, and the amendments in the draft regulations are clearly another part of that.

It is well documented that even before Northern Rock crashed many people had expressed concerns that the standard insolvency legal procedures did not work for banks. Providing a regime that is fit for purpose must therefore be a priority, so this is a particularly important and interesting area of legislation and, although we do not oppose the draft regulations, I have a number of questions on which I am seeking clarity.

I have two general questions. First, why did more than two years elapse between the January 2014 publication of the Bloxham review and the March 2016 launch of the consultation? That seems to be an abnormally elongated procedure. Secondly, it would be interesting to know why the measures to require certain third parties to co-operate with the administrator, which were considered in the consultation last year, will not be implemented under the draft regulations. Why did the Government feel it was unnecessary to proceed in that area?

On the specific content of the provisions, I have a number of further questions. I appreciate that this area of law is fairly detailed and not especially accessible, but because of its importance I feel the level of scrutiny in Committee must be fairly thorough. I take advice from a number of sources of expertise in the City when preparing remarks such as these for the simple reason that I would never wish someone to read our exchanges following a subsequent financial crisis and find that we had not dealt with any measures with sufficient rigour. I am happy to receive answers from the Minister either today or in writing later.

Proposed new regulations 10A and 10B, on page three, specify how the client assets that the investment bank is required to hold on trust for its clients—money that does not belong to the bank, but which it holds beneficially for clients—are to be dealt with. Basically, the bank needs to confer with the Financial Services Compensation Scheme about such assets. The client asset regulations, which were overseen by the FCA, have been shown to be defective in a fairly recent Supreme Court case. In Lehman Brothers v. CRC Credit Fund Ltd and others in 2012, it emerged that they failed to specify how the trust arrangement worked. The courts held there must be a trust but that the regulations did make not clear how that trust worked. It was unclear whether the trust failed, in that case, because Lehman Brothers had failed to separate each client’s assets into a separate trust account or whether all assets held for clients should be treated as being held on the terms of one enormous trust. The Supreme Court held by majority that there should be held to be one enormous trust, so that clients could be protected.

That creates a certain degree of confusion. Can the Minister say how conferral with the Financial Services Compensation Scheme will solve the chaos, after a bank goes into insolvency, of identifying which assets are held on trust and are, therefore, ring-fenced from insolvency proceedings and which assets are to be divided up among the unsecured creditors?

Several investment banks have been fined by the old FSA and now the new FCA for failing to organise their clients’ assets into trusts in compliance with those regulations. What do the Government propose to do to ensure that banks operating in the UK do not indulge in what might be a criminal practice of treating assets that should be held on trust for their clients as though they belong beneficially to the bank?

In the Supreme Court, in Lehman Brothers v. CRC, Lord Walker commentated that, as a result of that case, in his view, investment banking can be

“more of a lottery than even its fiercest critics have supposed.”

He had some very strong words about regulatory non-compliance. His particular focus was on the failures of the system for protecting client assets in times of bank insolvency and that litigation is important in relation to the regulations being analysed today. The case shows that senior employees at Lehman Brothers had known the bank was failing to protect its clients’ assets for several years and had knowingly used those assets for its own purposes.

[Mark Field (Cities of London and Westminster) (Con)]

The hon. Gentleman makes a good case, and he will appreciate that this is pretty complex. There is an assumption that there are very easily defined pots of money that can be assigned to a particular client, which clearly is not the case. Does he not recognise that the nub of the problem, and the main issue with Lehman’s, was that it was an issue of liquidity rather than solvency? As it happens, it has been able to give more than 100p in the pound, albeit many years on. Therefore, we have learned quite a few lessons from Lehman. The Bloxham review has made an important contribution in trying to clarify these issues, but we should not think it is going to be entirely simplistic to have a template in place that does not lend itself, in part at least, to some of the commercial realities on the ground in the investment banking world.

[Jonathan Reynolds]

I absolutely recognise that and I certainly agree this is a far from simplistic area to get right. It is our role as a Committee to probe the Government on how the regime would operate in the event of that lack of liquidity that we all seek to avoid in future. What are the Government doing to confront this failure on the part of banks, regulators and the FCA regulation in that eventuality? How do the regulations confront those issues?

How does proposed new regulation 10B(12) confront the issue of knowing which assets are to be held beneficially for the bank and which assets are to be held beneficially for the clients? In the interest of certainty, would it not be preferable to require banks to segregate each client’s assets into a distinct account and stop the practice referred to in that Supreme Court decision of bundling all those assets into one large account, perhaps making it easier to misappropriate them due to the size of the account? Does new regulation 10B perpetuate the confusion identified by Lord Walker in the Supreme Court case?

The second point made by the right hon. Member for Cities of London and Westminster moves me on to new regulation 10D on page five. The regulations appear to bundle together too many things that are not the same. Regulation 10D(2) refers to set-off agreements, netting agreements and title transfer arrangements and seems to be based on the assumption that those agreements are similar. That was not my understanding when the regulations were explained to me. Consequently, would it not be preferable for the regulations to separate more clearly the different types of agreement and arrangement so that no confusion is caused by treating them as though they were functionally identical?

As we all remember from 2007 and 2008, it is fairly chaotic when banks go into insolvency. Any uncertainty about the types or nature of assets that parties have will only add to the confusion. The regulations need to ensure that they deal with the different types of right with sufficient clarity to guide the authorities and the insolvent bank’s administrators through a future crisis.

Thirdly and finally, new regulation 10E refers to the Prudential Regulation Authority, which the Government are changing to the new prudential regulation committee. The reference to “security interests” in the title of the measure is unclear and perpetuates the problems of uncertainty in previous provisions. The term “security interest” does not describe any specific legal position, but tends to be a catch-all term that commercial lawyers use to describe a right that they hope will protect their clients if the counterparties go into insolvency. A security interest could be a trust, mortgage, charge and so on, and it would be preferable if the legislation were clearer about the rights involved. The regulations attempt to bundle the rights together, therefore leaving it to general law to sort out the problems of detail that the rights may create in future. However, that does not seem optimal when as much certainty as possible is required.

In conclusion, to move away from the specifics of the regulations, the Minister knows that many of our fellow citizens feel that despite changes for the better, the UK banking system somehow remains a liability, rather than a strength. That worries me and should worry us all because, as we initiate Brexit, financial services are clearly fundamental to the UK economy, and we have to make sure the public understand that. In responding to those points, I hope that the Minister will provide reassurance that the lessons of the financial crisis are being learned and that steps are being put in place to ensure that our regulatory regime is fit for purpose.

Draft Bank of England and Financial Services (Conseqential Amendments) Regulations 2017

Jonathan Reynolds Excerpts

Wednesday 18th January 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

May I, too, say that it is a pleasure to see you in the Chair, Mr Flello? As we have heard from the Minister, the regulations are purely consequential on the change of the Prudential Regulation Authority’s status from a subsidiary to a committee of the Bank of England.

Hon. Members will be aware that the PRA was created by the Financial Services Act 2012, and it is responsible for promoting the safety and soundness of the firms it regulates. Only a few years later, sections 12 —“Bank to act as Prudential Regulation Authority”— to 14 of the Bank of England and Financial Services Act 2016 and its relevant schedules demoted the PRA to the Prudential Regulation Committee. The Labour party voted against that Act on Third Reading because of concerns that it failed to appropriately increase the oversight, transparency and accountability of the Bank’s work. In Committee in particular, Labour voted against the aforementioned section 12 owing to its downgrading of the PRA. Unfortunately, I therefore have to tell the Minister that we cannot support the regulations.

Before addressing the technical substance of the matter at hand, it is important to reflect on the fact that individuals sit at the heart of all the considerations we discuss at a Treasury level. Their lives and livelihoods can to be significantly impacted by our decisions on these matters. Despite taking place nearly a decade ago, the 2008 economic crash will be fresh in the memory of those who lost their jobs and homes as a result. Those events nearly brought down the global financial system, and it was only due to taxpayer-funded bail-outs that it was able to survive. What is more, it was that financial crisis that caused the deficit that the Government have relied on as their justification for making a series of political choices to cut public services, funding to local authorities and support for the most vulnerable, and to drive down the incomes of working people.

It is our responsibility as lawmakers to do everything in our power to ensure such events can never be repeated. Moreover, as the official Opposition, we are obliged to be honest and constructive in our scrutiny of legislation. It is in that fashion and for those reasons that we oppose the regulations. We fear that changing the Prudential Regulation Authority to the Prudential Regulation Committee signals less transparency over the Bank of England’s role. Currently, the Prudential Regulation Authority is a separate corporate body and a distinct authority. It can be held separately liable and accountable for its actions and interactions. However, the Prudential Regulation Committee will be less independent, given the demotion of the authority, which currently has statutory powers to create a rulebook and to enforce its own regulations, to being a mere committee of the Bank of England.

Debates over the past few years have thrown up numerous contradictions and queries, and it is not clear to what extent those have been sufficiently resolved. It is difficult to understand how the changes contained in the regulations will make the regulator more competent and effective in carrying out its work. Our concern is that it will not, and that there is no evidence to demonstrate otherwise. Having set up a structure that remains relatively young, would it not be logical to let it work itself out and see what the issues are, rather than to tear it up so quickly?

Will the Minister say how the body can be both more integrated and remain independent? Have the Government mitigated the serious risk of oversight being impaired by a conflict of interest? Will the Minister clarify the safety mechanisms in place to prevent the Bank’s main board from rationing resources to the proposed committee? Will he guarantee that the Prudential Regulation Committee can go public if it feels that it is not getting the support and resources it needs from the main Bank of England board?

We continue to argue for the retention of the Prudential Regulation Authority as a distinct regulatory authority, just as we continue to express concerns that the Government are failing to provide a proper framework for a banking system for the future. We need a healthy and effective banking sector that is appropriately regulated and serves the interests of our wider economy, by delivering the vital investment that our country needs for long-term economic growth. We know that people want assurances that we as a society and Parliament have learnt from the financial crisis, that we will improve transparency in banking regulation and banking practices and that the serious damage inflicted on people’s livelihoods caused by the collapse in 2008 can never happen again. I therefore tell the Minister that it is our duty to vote against the regulations. We will divide the Committee.