Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019

Debate between Jonathan Reynolds and John Glen

Wednesday 23rd October 2019 General Committees

[John Glen]

Let me say at the outset that the instrument is needed to ensure that UK firms are able to make use of the new provisions included in EMIR REFIT and that EMIR will function appropriately after exit. Without the instrument, UK pension funds would be required to clear derivatives in a CCP, and that would come at a considerable cost to UK pension schemes and pensioners.

The instrument also ensures that the clearing suspension, a key financial stability tool, operates effectively in the UK. The hon. Member for Stalybridge and Hyde characteristically went through familiar arguments, stating his party’s position on the unsuitability of this process, and I will not go over that again. As he said, we both know where we are on that. He did make some specific points, which I will respectfully try to accommodate.

On the appropriateness of the transition of powers, the Bank of England will be given responsibility for suspending the clearing obligation in exceptional circumstances, with the consent of the Treasury. Both the Bank of England and the FCA will take on the responsibility to set certain binding technical standards that currently sit with ESMA. That is a widely understood common responsibility between them.

The SI does not give any new supervisory responsibilities to UK authorities. No new firms will be subject to supervision by UK supervisors due to the SI. National supervisors across the EU already have responsibility for supervising the users of uncleared derivatives and CCPs, and we are confident that the regulators are appropriately resourced for those roles.

The hon. Gentleman made a point about the wider framework. As he knows, a review is ongoing with respect to what we term air traffic control of regulations. There will be subsequent reviews of the configuration of powers between the Treasury, the FCA and the Bank of England, so the wider point that he made was a fair one, but that will be resolved hopefully after a deal is secured.

The hon. Member for Stalybridge and Hyde mentioned impact assessments. The Treasury has considered the impact of all its financial services SIs. I did not mention it before, but I am happy to say now that the impact of today’s SI was assessed to be below £5 million. When that is the case, Government policy is not to publish a full impact assessment. For previous exit SIs where the impact was assessed to above £5 million, impact assessments were published in advance and could be scrutinised.

The hon. Gentleman made some points about reassurance on the direction of travel of regulation. The context of the SI is that the UK’s pension regime relies on a higher number of defined benefit schemes than the rest of the EU. The way that those schemes need to interact with CCPs is unusual and different, so we have had an enduring dispensation not to participate in the same way. That is not a deregulatory effect, but because the pension schemes would have to hold a large amount of cash, which would be costly and uneconomic for them.

In essence, there has been enduring uncertainty around the conclusion of the process of resolution, but we have actively participated in it, given our historically different pension scheme arrangement. There is no desire not to observe the G20 Pittsburgh obligations on derivatives, and this is not some sort of deregulatory effort.

[Jonathan Reynolds]

It is an entirely reasonable observation that the UK pensions industry is structured differently and requires a different set of regulations and approach, but we have always known that. Is the Minister saying that, if we had not spotted this back then and left the European Union without passing the instrument, our regime would be deficient, or has something changed so that we now need to address it?

[John Glen]

Clearly, had we left on 31 March, the EMIR REFIT regulation would not have come in in July. What happened would have depended on the conditions under which we had left at the end of March and on whether we observed the changes naturally as part of the EU through a transition period, or if, in a no-deal circumstance, we used a different mechanism to consider ongoing legislation into which we had had some input but that was not quite finished. That is a bit of a difficult question to answer fully, but that is my understanding.

Breathing Space Scheme

Debate between Jonathan Reynolds and John Glen

Wednesday 19th June 2019 Commons Chamber

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

I begin by thanking the Minister for his courtesy in giving me advance notice of this statement, which we broadly welcome. There has been a growing consensus for some time about the need for something less dramatic than formal insolvency proceedings which offers hope to people with problem debts that there can be a way out. That is what the breathing space scheme should be—a space to let people get back on their feet, perhaps overcoming a health issue, a period of unemployment or something else that has adversely affected their lives.

There will always be disagreement between the Opposition and the Government on the necessity of the austerity policies that have blighted the country since 2010, but no one can deny that household debt in the UK is large, growing, and problematic for many people. The big change that I have seen in my constituency is that people are using credit not just to buy a car, a new sofa or a washing machine, but to pay their living costs at the end of the month—for food, dinner money, and children’s clothes. The worst is when people, unable to take control of their own affairs, go from one short-term credit product to another, compounding the costs and liabilities they are incurring and sometimes ending up in hock to illegal moneylenders as the only option they have left. One of my constituents in such circumstances ended up suicidal.

We want this policy to work, and my questions for the Minister are in that spirit. First, can he say why a 60-day period has been chosen as optimal? Going back to the need to let people overcome whatever problems they face, I have always felt that the period may need to be longer.

Secondly, will the Minister confirm my understanding that all debts will be covered, including public sector debts like council tax arrears and benefit overpayments? I very much recognise the obliteration of local government finances over the past nine years and, alongside colleagues, I presented a petition to Downing Street this morning on how bad it has been for councils like mine in Tameside. Council tax arrears are one of the biggest causes of the bailiffs being called, and we need such arrears to be included, too.

In addition, will the Minister look specifically at the issue of guarantor loans? Under such loans another person, typically a family member, accepts joint liability for the debt. I had another case of this type from a constituent in Stalybridge just this week. If the breathing space period does not apply to these loans, the burden will simply pass and offer no relief, which would be counterproductive.

Ultimately, this policy will work only if there are sufficient sources of advice and support for people to access during the breathing space period. It is a reality that such services—citizens advice bureaux, local authority and housing association advice centres, and so on—have been put under massive strain over the past few years. So what strategy do the Government have to significantly improve the capacity in this area? Whatever initiatives have been pursued to date, and whatever merit they have, there is no doubt that we need to go further.

Finally, in the famous words of Archbishop Desmond Tutu:

“There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in.”

As well as a change of economic policy, we believe it is time to regulate further the interest that can be charged on overdrafts and credit cards, to look at the marketing of credit to vulnerable people, and to ensure there is real and effective financial education in schools.

There is a lot to do. This statement is a move in the right direction, but let us make sure we keep going in that direction.

[John Glen]

I thank the hon. Gentleman for his typically positive and constructive remarks, and I will try to address the five key points he raises.

First, the 60-day time period is longer than our manifesto commitment of six weeks and is the product of listening to the consultation responses and to the experience of the mechanism in Scotland. Overall, it is seen as the right solution.

Secondly, the hon. Gentleman asked which debts are included. I tried to set out in my statement that the scheme is extremely broad, covering public sector debts and arrears. He asked about bailiffs and their role. Of course, the Ministry of Justice completed a consultation exercise in February and will respond in due course. There is also Cabinet Office guidance on the fairness of debt collection. He makes a reasonable point.

Thirdly, the hon. Gentleman asked about guarantor loans, which are an emerging new category of high-cost credit. Such matters are regulated by the Financial Conduct Authority, and I had a conversation just this morning with its chairman. I spoke to Andrew Bailey, its chief executive, earlier this week on the need to be vigilant across all emerging forms of high-cost credit, which is under ongoing review.

Fourthly, the hon. Gentleman asked about capacity and capability in the area of debt advice. I envisage that the creation of the Money and Pensions Service as a new single entity will bring much better co-ordination of the available advice. As I mentioned, the Government spent £56 million last year, and 85,000 more people were seen than in the previous year. We are looking at how that advice can become consistently of a higher standard.

Finally, the hon. Gentleman asked about the long-term causes and the regulation and marketing of high-cost credit products. Following the recent issues at London Capital & Finance, I directed the FCA to examine what happened, and I have asked my officials in the Treasury to conduct a separate review of how regulation works. We have to continue being vigilant on this evolving space, and the increased digitalisation of the availability of high-cost credit means that the regulation and oversight needs to keep pace.

I hope that answers the hon. Gentleman’s questions.

Oral Answers to Questions

Debate between Jonathan Reynolds and John Glen

Tuesday 21st May 2019 Commons Chamber

[John Glen]

I listen to the Office for Budget Responsibility, which is forecasting sustained real-wage growth for every one of the next five years. The latest statistics capture household income up to April 2018, but since then we have had a year of real-wage growth.

[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?

[John Glen]

What is important is that this Government continue to focus on creating jobs, and allowing families to experience the value of such a job and receiving more money in their household take-home pay, and that is what we will continue to focus on.

Clydesdale Bank and SMEs

Debate between Jonathan Reynolds and John Glen

Tuesday 19th March 2019 Commons Chamber

[John Glen]

I acknowledge my hon. Friend’s long-standing efforts in this area. Before I was a Minister, I was a member of that APPG. The whole range of dispute resolution mechanisms that have taken place over the past 10 years all seem to have a very different story. As the Minister responsible, I was keen to ensure that we had a meaningful historical redress mechanism that would give discretion for the banks to examine these individual cases. I was also very keen that this House should be represented on that group. That is why having my hon. Friend the Member for Thirsk and Malton, with representatives from the SME Alliance, involved will allow full scrutiny of all the cases that have not been resolved adequately.

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

I thank the hon. Member for Lanark and Hamilton East (Angela Crawley) for securing this urgent question and for being a firm advocate on behalf of her constituent.

All people and all businesses in the UK deserve a mechanism that provides them with access to justice in the event that they end up in dispute with their financial services provider. Under your guidance, Mr Speaker, I will not comment on the specifics of the Guidi case. However, as many Members are aware, the issue of redress for SMEs against banks and other financial services providers is one that we have discussed in this place many times. At present, too many businesses are caught between the threshold for using the Financial Ombudsman Service and the cost and difficulty of using the full legal process to pursue a claim. So this issue is about more than just one case.

We must take decisive action to draw a line under historical cases like these, as well as ensuring that we have an adequate system of redress going forward. If we do not, then we have no hope of restoring the trust and confidence in business banking that this country so desperately needs. The debates that we have held so far have revealed a substantial coalition across the House for a full tribunal system, alongside a historical case review, that would look again at cases that have been settled by internal bank review processes. The Labour party, the Scottish National party, the Liberal Democrats, the Democratic Unionist party and many individual Conservative MPs certainly hold that view; it is only the Government who do not.

I therefore have some questions for the Minister. First, do the Government agree with the Opposition that where there is evidence from complainants, the historical review process should be willing to consider cases going back to 2000? At present, only those going back to 2008 would be eligible. Secondly, are the Government willing to reconsider their view on the establishment of an independent tribunal system for dispute resolution in order to level the playing field between businesses and their banks? Thirdly, have the Government listened to those people arguing that the expansion of the ombudsman service alone will not solve the problem, as it does not have sufficient resource and capacity to get to the root of the problem, and the mooted compensation cap by the Government looks far too low?

Most of all, do the Government acknowledge that MPs want to see some real action and progress on this? It is disappointing that despite many hours of parliamentary debate and consensus on what must happen next, with agreement stretching across the Treasury Committee, the Opposition, the Financial Conduct Authority, the major banks themselves, such as TSB and Metro, and the all-party parliamentary group on fair business banking, the Government are still reluctant to join this consensus. We all want to be able to tell our constituents that these issues are resolved and simply will not be allowed to happen again.

[John Glen]

I thank the hon. Gentleman for his comments. I always listen very carefully to the constructive way that he presents his case.

Let me address the hon. Gentleman’s three core questions. First, the historical review process has been as set out, but there is discretion within that. I know that there will be a lively discussion at the first board meeting about how the handling of past cases will be considered. In terms of the disputes over how to resolve this, the role of the Financial Ombudsman Service is being expanded. Its representatives were in Parliament last week offering access to colleagues across the House, and I have visited them to examine what they are doing to recruit the extra resources needed to deal with this extra category. I think that this will work; I would not have made the decision otherwise. The other key consideration I have to balance is about the rapidity and efficiency with which the vast majority of cases—we are talking about 99% of businesses with a turnover of up to £6.5 million—will be able to get a resolution. That is why I think that the ombudsman service is the right way to go forward.

Oral Answers to Questions

Debate between Jonathan Reynolds and John Glen

Tuesday 5th March 2019 Commons Chamber

[John Glen]

Financial services are well protected and ready to engage on arrangements for beyond the implementation period, but the Government are not complacent in respect of the whole economy. We have made a series of interventions through our productivity fund to meet the challenges of the next generation.

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

Whenever the Government table self-congratulatory questions like that one, there is a need to put on record what is really happening out there. Six million jobs in the UK pay less than the real living wage, 3.8 million people are in insecure employment and 2.5 million people work less than 15 hours a week. Economic growth, where it exists, is so geographically unequal that it does not reflect the reality of what people see around them. Let me ask, on behalf of those people: what is this Government’s strategy for in-work poverty and insecure employment?

[John Glen]

I thank the hon. Gentleman for his question. This Government’s strategy is to relentlessly pursue growth in the economy and opportunities for all. We have seen 18.3% growth since 2010, and a record 32.6 million people in work. We will continue to prioritise interventions around technical education, cuts in business taxes and support for new technologies to recognise the new jobs that need to be provided for.

Financial Services (Implementation of Legislation) Bill [ Lords ] (First sitting)

Debate between Jonathan Reynolds and John Glen

Tuesday 26th February 2019 Public Bill Committees

[Jonathan Reynolds]

It is a pleasure to serve under your chairmanship, Sir Edward, and to open the debate for the Opposition. I would now like to speak to amendments 11, 12 and 13, which aim to address some of our wider concerns about the powers being given to the Treasury in this Bill. In the Opposition’s view, the Bill lacks the necessary checks and balances that would prevent it being subject to the potential exploitation of its stated objectives. I express my gratitude to my colleagues in the Lords who began this process and achieved some important initial restrictions on those powers. However, we believe that further controls can be added to ensure that the powers cannot be abused.

I will address this group in two parts. Amendments 11 and 12 would alter the language in the Bill to prevent material changes taking place and restrict the nature of the adjustments that can be made. Amendment 13 explicitly prevents any deregulation under the Bill. Those changes of language are significant and important, because they specify in the Bill clear limits on what alterations and adjustments fall within acceptable realms. We must exercise such caution because included within the Bill, as specified in the in-flight list, are fundamental pillars of the post-financial crisis regulatory regime. That list includes critical rules which are designed to strengthen our financial markets and infrastructure, to prevent a repeat of the disastrous events of 2008, of which we still feel the consequences today. Those include the capital requirements directive V, the bank recovery and resolution directive II, and the central counterparty recovery and resolution regulation. Those regulations have played a central role in promoting integrity in financial markets.

The capital requirements directive, for example, sets out the asset buffers that systemically important financial institutions must hold, and in what ratios. That is to prevent a repeat of the events of 2008, so that banks do not enter a downward spiral at times of market stress and put the public purse at unacceptable risk again. Given the costs involved for banks, the regulations often involve significant negotiation and lobbying to find an agreeable level of capitalisation with which banks feel they can reasonably comply. Last year, for example, the Basel Committee on Banking Supervision granted concessions to United States banks after a long process of lobbying by those banks, which resulted in flexibility in how the rules were ultimately applied.

I will not comment on whether that was the right or wrong decision, but that is a clear example of the interests that will need to be managed in such a process. It does not seem right to the Opposition that the Treasury could be lobbied on such a matter with fairly limited public transparency and that the subsequent changes could then be channelled directly into an SI for which the Treasury is responsible for drafting. In truth, although the current Treasury can reassure us in good faith that that will not be the case, we simply do not know how things might change or who the Government or Ministers might be in future.

Since the referendum result, we have heard noises about deregulation—faint, though they may be—and in our view, the Bill must be built to withstand the pressure that may come. That is why we have explicitly specified in amendment 13 that deregulation cannot be enabled as part of the Bill. That builds in vital protections for a regulatory framework to which we have already signed up at a European level. There will no doubt be reasonable disagreement about what constitutes a weakening or a lightening of the regulatory framework, but we are inserting an important direction to lawmakers and a clear signal to consumers that their interests will continue to be protected.

In truth, we simply do not know how things might change if we crash out of the EU without a deal. I and my Front-Bench colleagues have highlighted in Delegated Legislation Committees the complications that could be associated with capital requirements in such a situation. Capital requirements could be susceptible to problems with the removal of preferential treatment of Euro sovereign debt. At present, EU Government debt is treated with the same risk weighting as UK Government debt. If we crash out without a deal, the preferential treatment of EU sovereign debt will instantly change—it will no longer receive preferential treatment. The reverse would apply for UK sovereign debt.

Evidently, that could be highly disruptive and one would expect big institutions to recalculate their capital ratios and recapitalise when there has been no real change in the risk that they hold. Such a change would inevitably have an impact on how we ultimately implement the capital requirements directive V, as the status quo will have changed so dramatically from when it was first agreed. There must however be safeguards on the underlying process so that that dialogue can be publicly assessed.

I feel therefore that the amendments are reasonable, proportionate and would command public confidence. We might press them to a vote, subject to the Minister’s response.

[John Glen]

I start by thanking the hon. Gentleman for his explanation of the intent of the three amendments, which I shall address in turn.

I must confess that I was surprised to see amendment 11. The language that it seeks to remove was inserted as a concession to the Labour Front Bench on Report in the Lords. Indeed, the language was directly inspired by an amendment to the Bill tabled by Lord Tunnicliffe and Lord Davies of Oldham in Committee in the other place. Our original drafting reflected the Government’s position that the word “adjustment” is inherently limiting. Following concern in the other place, however, we agreed to insert this language—along with a further limitation, to which we will turn in amendment 13—to clarify what was meant by the term.

Under this wording, as agreed in the other place, the Government will be able to make only adjustments that reflect or facilitate the transition to the United Kingdom’s new position outside the EU, but that does not include changes that result in provisions whose effect is different in a major way to that of the legislation. The new wording clarifies limitations on the power to make adjustments, while, crucially, still allowing for some changes that may be needed, as the UK will have been neither at the negotiating table when the files were finalised nor advocating on behalf of the UK financial services industry during that process. Lord Davies’s position on Report was that he and Lord Tunnicliffe were content with the amended drafting. In light of that, I ask the hon. Gentleman to withdraw amendment 11.

On amendment 12, I am reminded of another debate that took place during the Bill’s passage through the Lords. That debate centred around the Opposition amendment that sought to replace “major” with “significant”, which was later withdrawn. Lord Sharkey, who spoke to that amendment, noted that subsequent to its tabling, he had realised that his dictionary defined “major” as “significant”. I note that the Oxford English Dictionary in turn defines “material” as “significant”. It is therefore clearly possible to interpret all three words as in essence meaning the same thing, in which case the amendment does not have the effect desired by those who tabled it.

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[Jonathan Reynolds]

I beg to move amendment 15, in clause 1, page 2, line 35, at end insert—

“(c) that draft was laid more than 1 month after the Treasury conducted a public consultation that was promoted to trade unions, regulatory institutions, service users, and any other stakeholders the Chancellor of the Exchequer considers appropriate.”

This amendment obliges HM Treasury to undertake wide-ranging consultation on their proposed implementation of EU legislation, to ensure appropriate public scrutiny on any regulatory divergence.

We have already discussed in Committee today the Opposition’s concerns about the transparency and suitability of the process that we are legislating for in the Bill; clearly, the concerns are quite widely shared across all Opposition parties. That is why we also propose amendment 15, which would mandate the Treasury to undertake full consultation before each regulation is transposed. That would provide an opportunity for better public scrutiny than the statutory instrument process normally affords. It would allow consumer groups, trade unions and academics, alongside a wide range of stakeholders, to give their input and identify where there might have been regulatory divergence that was not immediately apparent. The mandatory consultation would allow any adjustments to be openly debated and scrutinised. Such consultation is essential to maintaining a transparent process where the Treasury is being given powers in this manner.

Consultation and proper impact assessments have become major issues in the process so far of transposing existing EU legislation. I therefore urge hon. Members to support the amendment. It would empower the public and consumer institutions with an essential layer of scrutiny on a set of unprecedented powers being assumed by the Treasury.

[John Glen]

I thank the hon. Gentleman for his comments. The Government have committed to following Cabinet Office principles on consultation, and they have made clear their commitment to consult on each SI laid, as appropriate. As a matter of course, the Government publish impact assessments for statutory instruments, and that will be no different for those brought forward under powers in the Bill. Those assessments will include an analysis of economic impacts, and equalities considerations where relevant. In line with duties under the Equality Act 2010 and with Cabinet Office guidance, regulations will be made with that equality duty in mind, and any impacts identified will be included in the relevant impact assessments in the usual way.

The Government are already required by legislation to produce reports ahead of, and looking back at, the publication of SIs under the Bill, and those reports will include any inspected and realised impacts of the legislation. That commitment to rigorous reporting and transparency about the Bill’s powers, and the potential adjustments to files and proposed SIs, is evidence that the current Bill contains appropriate provisions for proper scrutiny. I hope that that provides reassurance about the Government’s commitment to transparency in the public and parliamentary spheres, and in that light I ask the hon. Gentleman to withdraw his amendment.

[Jonathan Reynolds]

I appreciate the Minister’s acceptance and reassurance that the levels of consultation and impact assessments are crucial to this process, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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[John Glen]

Clause 1 comprises the core substantive content of the Bill. In a no-deal scenario, the Bill gives the Government the power to implement, in whole or in part, a specified list of EU legislative proposals or in-flight files. In many cases, the UK has strongly supported the proposals throughout their negotiations and has played a leading role in shaping them over a number of years.

The files fall into two categories. The first relates to the pieces of legislation that have been agreed while we have been a member of the European Union, but that will not have come into force prior to the UK’s exit from the EU on 29 March. Those files are listed in clause 1(3)(a), (b), (c), (d) and (f). In a no-deal scenario, there would be no way to implement them in a timely manner, as each would require primary legislation. Clause 1 gives the Government the power to domesticate those files, in whole or in part, via affirmative statutory instruments. Furthermore, as was clarified following concerns expressed in the House of Lords about the breadth of powers, the Government have the power to fix deficiencies.

The second category of files relates to those still in negotiation. The UK has played a leading role in shaping them so far and they could bring significant benefits to UK consumers and businesses when they are implemented. Those files are set out in subsections (3)(e) and (g), incorporating the schedule. Clause 1 also gives the Government the power to domesticate those files, in whole or in part, via affirmative statutory instruments. The UK will not be at the negotiating table when the files are finalised, however, so we will not be able to advocate for the interests of the specific nature of the UK’s financial services sector as negotiations are concluded. The Bill, therefore, provides the Government with the ability to fix deficiencies within the files and to make adjustments to them that go beyond the deficiency-fixing power.

Again, following concerns raised in the other place, the Government have clarified the nature of those adjustments and have stated that they cannot depart in a major way from the original EU legislation. However, the Government will have some flexibility to make adjustments to take account of the UK’s new position outside of the EU. It is only right that the UK retains the latitude to ensure that pieces of legislation finalised after we have left the EU reflect the interests of the UK’s financial services industry, and this Bill must tread the line between giving sufficient powers to enable the Government to effectively implement the legislation and imposing appropriate restraints to reassure Members that safeguards are sufficient.

I put on record my thanks for the collegiate way in which Opposition Front Benchers in the Lords worked with us to arrive at the present drafting and set of safeguards without division. Those safeguards are set out in subsections (7) to (10) of clause 1, and include a two-year sunset clause; a requirement for the affirmative procedure in every instance in which the power is used; strong reporting requirements on Government, including a requirement to publish a draft SI alongside a report detailing omissions and adjustments at least one month before laying it before the House; and a further requirement to publish a report twice a year setting out how the power has been exercised in the previous six months, and how the Treasury intends to exercise it in future.

I should note at this stage one issue to which we may return on Report. Members will note that subsection (3)(e) is not included among those files deemed settled. The Commission was required under the prospectus regulation to adopt delegated acts in January of this year; that has not yet happened, and as such, we do not yet know the content of that delegated legislation. Should the Commission adopt those acts prior to Report, we will seek to amend the Bill accordingly, limiting any adjustments that may be made to the fixing of deficiencies.

Clause 1 is the heart of this short Bill. It is the duty of responsible Government to prepare for all outcomes, and the Bill will provide us with the critical ability to implement legislation that maintains the functionality, reputation and international competitiveness of our financial sector. It is a key part of our no-deal preparations, and without this clause, I am afraid that there would be no Bill to take forward. I recommend that the clause stand part of the Bill.

I will now turn to new clause 1, which is suggested, essentially, as an alternative. The Government believe that the new version of clause 1 tabled by the Opposition is inappropriate as an alternative to the current version, as it does not as drafted provide the Government with any means of domesticating legislation through the Bill. As has been set out a number of times over the course of this and other debates on the Bill, there exists a body of in-flight EU legislation that the UK will want the ability to implement in a timely manner in the period following EU exit, in order to maintain the functionality, reputation and international competitiveness of our financial sector.

New clause 1 does not include any powers to domesticate EU legislation. It compels the Treasury to bring a motion before the House to debate a document stating what EU legislation it proposes to domesticate, but it does not include the necessary mechanism through which those measures can be implemented subsequent to the House’s approval. As such, the Bill would become a hindrance rather than a help—a means for debate without the necessary powers—and the Treasury would be left, having sought the approval of the House of Commons on those pieces of EU legislation it wishes to domesticate, needing to again seek approval by introducing primary legislation or, indeed, another version of this Bill. That would undermine the purpose of the Bill by not enabling the UK to implement important EU legislation in a timely manner when necessary. It would leave the UK lagging behind international counterparts on the issue of financial services regulation—something that I am sure Opposition Front Benchers would not wish to happen—and our financial services industry would then be at a competitive disadvantage at a crucial period in our country’s history.

Even if new clause 1 were amended to include a power to implement the legislation, I suggest that it is an unsuitable alternative to the current procedure. It requires the Treasury to collate into a single document the legislation it wishes to implement, alongside any adjustments it wishes to make and explanations of why those adjustments are necessary. That document would then be debated by the House through the aforementioned motion.

My objections to that extra layer of procedure are, in part, identical to those rehearsed earlier in my objections to amendment 4. Under the Bill as drafted, there will be extensive opportunity for scrutiny of the legislation before it is implemented. During the Bill’s passage through the Lords, we inserted the requirement to publish a draft SI alongside a report detailing any adjustments and the justification for those adjustments one month prior to laying it before the House. The publication of those draft SIs will allow Members to seek a debate on the proposed content, should they so wish. Indeed, the draft SI and the accompanying report seem essentially similar in function to the document that this new clause would require the Treasury to produce. I should also note that publication of those draft SIs will allow Parliament, including any interested Select Committees, to scrutinise the proposed content.

I sympathise with what I suspect is the intention behind the new clause. I imagine, and perhaps the hon. Member for Stalybridge and Hyde will confirm this, that the consolidated document is an attempt to make sense of all the pieces of financial legislation that form part of this essential Brexit planning for a no deal. This Bill addresses a specific issue; it is vital for the UK’s financial services industry that these 17 key pieces of legislation can be domesticated in a timely manner in a no-deal scenario. It will not be possible for the Treasury to set out in a single consolidated document its intentions for all these pieces of legislation prior to their final publication.

We simply do not know what the final version of each file will look like. It would mean the Treasury’s having to wait until all legislation in the Bill was finalised at EU level before producing this document. That would potentially lead to intolerable delays and to the UK financial services sector’s lagging behind its international competitors during this crucial period.

That is why, in the current draft of the Bill, the Treasury has committed to six-monthly reports that will set out how we have used the powers under this Bill in the preceding six months, as well as how we intend to use them in the subsequent six months. That should provide a clear and timely overview of how the Government are using the powers provided for in this Bill. In light of that, I ask that the hon. Members refrain from pressing the new clause as an alternative.

[Jonathan Reynolds]

I appreciate the Minister’s point that clause 1 is essentially the whole of the Bill that we are discussing, but we do intend to press new clause 1 to a vote as an alternative, for the reasons that I outlined. If I can explain to hon. Members who have not been on a Bill Committee before, under advice from the Chair I understand that if existing clause 1 were accepted then he could not then offer us a vote on new clause 1, because we would have accepted that entirely. Therefore, we will vote against clause 1 stand part in order to move new clause 1.

Question put, That the clause stand part of the Bill.

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[John Glen]

I beg to move amendment 1, in clause 2, page 3, line 42, leave out subsection (4).

This amendment removes the privilege amendment inserted by the Lords.

I shall speak only briefly on this amendment, as it is a standard form amendment removing the privilege amendment inserted by convention into all Bills that begin life in the House of Lords and have consequences for the public purse. The privilege amendment, as I am sure members of the Committee are aware, recognises that it is the constitutional right of the Commons to initiate legislation that relates to revenue raising or expenditure, and so forbids Acts that are introduced in the Lords from engaging in these activities.

As stated in the explanatory notes accompanying the Bill, regulations made under clause 1(1) could result in money flowing into, or out of, central Government funds. Further, regulations made by virtue of clause 1(4) could lead to provision for the charging of fees. Such financial matters are among those in respect of which the Commons claims the privilege to initiate legislation, and so the privilege amendment was inserted in the Lords. This amendment simply clears it away to enable regulations under, or by virtue of, the Bill to make provisions having consequences for public finances.

[Jonathan Reynolds]

We were interested, having never been on a Committee for a Bill that has been to the Lords already, in exactly how this worked. We were slightly worried at one point that the Minister was seeking to usurp the Bill of Rights 1689 by trying to make Treasury regulations without recourse to primary legislation; I am relieved to see that he is not seizing power in such an inappropriate way. I understand now that it is a pro forma amendment and I understand why such a process works in the Lords before it comes back to us. We therefore have no objection to this amendment.

Amendment 1 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

[John Glen]

Clause 2 is simply a technical clause that extends the powers granted in clause 1 across England, Wales, Scotland and Northern Ireland. Financial services policy covered in the Bill relates entirely to reserved matters. It also enables the Act to come into force on the day on which it is passed, as we know of at least one file—the prospectus regulation—that will likely need to be implemented soon after EU exit. I therefore recommend that the clause, as amended, stand part of the Bill.

Question put and agreed to.

Clause 2, as amended, accordingly ordered to stand part of the Bill.

New Clause 2

Report on the provisions of regulations under this Act

“(1) Prior to making any regulations under this Act, the Treasury must publish a report on the impact of the provisions of those regulations.

(2) A report under this section must consider, in respect of the regulations proposed to be made—

(a) the impact of those provisions on households at different levels of income,

(b) the impact of those provisions on people with protected characteristics (within the meaning of the Equality Act 2010),

(c) the impact of those provisions on the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and

(d) the impact of those provisions on equality in different parts of the United Kingdom and different regions of England.” .—(Jonathan Reynolds.)

This new clause would require a report to be made on the impact of any regulations under this Bill before any such regulations are made

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Draft Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019

Debate between Jonathan Reynolds and John Glen

Wednesday 20th February 2019 General Committees

[John Glen]

Yes I am. The green impact assessment, which was issued on 8 February, also identifies that the familiarisation costs will be £150 per firm and that there will be a range of costs between £510,000 and £680,000.

I concede that this is an unique exercise in preparation for an outcome that the Government do not wish to have, and I hope that it will not need to be used. We had to take a view, however, about how to do it efficiently in a relatively compressed time period and I am convinced that we have done the best that we could have done in the circumstances.

We have shared working drafts of the legislation as it has progressed to identify any unintended consequences and to help industry to understand how the sector would need to respond. We have published almost all our statutory instruments before they have been laid on a dedicated section of our website with contact details for stakeholders to contact us. I am not saying that it is perfect, but I draw the Committee’s attention to the remarks of Miles Celic from TheCityUK, who noted that there is an industry-wide recognition that all parties—industry, Government and regulators—are operating in an uncertain and time-constrained environment where doing nothing is simply not a feasible option, and that these are exceptional circumstances that require a unique response.

On some of the other points, there was sensitivity about the transfer of functions to the FCA. As the national competent authority, the FCA has been instrumental in making strong representations on PRIIPs. It formally rejected the early iterations and delayed the implementation of the first draft that came out in 2016, so it was implemented on 1 January 2018. I set that out in detail to the Front-Bench colleague of the hon. Member for Stalybridge and Hyde. Frankly, the FCA is capable, as it is now doing, of responding to last year’s call for evidence, looking into the key concern of the industry around the methodology for calculating the information displayed in a KID—particularly relating to performance information and risk estimation, as well as transaction costs—and coming forward with suggested changes.

On the hon. Gentleman’s point on equivalence and the appropriateness of the changes to the Financial Services and Markets Act, in a situation in which we leave the EU without a deal, we cannot favour EEA countries of the basis of our close proximity. We will have to treat all third countries the same way. The hon. Lady’s point on the need to resist duplicate but different regulatory requirements is wise. Whatever happens, it is my determination to try to avoid that, because the common framework that exists in this area holds a lot of value for the industry.

I also point out that EU national competent authorities collaborated fully in the construction of these regulations, and the FCA was one of the leaders in that. Any amendments to fix the exit deficiencies would have to be made known to the Treasury, and any new binding technical standards derived from this ongoing review will also have to come from the Treasury and will have to be laid under the affirmative procedure.[Official Report, 18 March 2019, vol. 656, c. 4MC.]

I think I have covered most of the other points made. The FCA’s resources have been covered in previous Committees, but for the record the FCA set out in its 2018-19 business plan the proportion of its resources to be used for forthcoming exit work. As of December 2018, it has 158 full-time employees working on Brexit. I cannot break that down, because I do not think that the FCA has, but that is a significant increase from 28 nine months earlier. It will bring forward a new plan in 2019-20.

[Jonathan Reynolds]

We have addressed this in lots of similar Committees. Part of our contribution to the EU budget covers, among many things, a contribution towards the EU regulatory bodies that affect our economy. On those people working on the Brexit withdrawal process, it is surely reasonable, as we re-domicile that remit, to put some of the money currently spent through our contribution to the EU budget into our own regulators, which will have so much more to do.

Santander Closures and Local Communities

Debate between Jonathan Reynolds and John Glen

Thursday 14th February 2019 Westminster Hall

[Jonathan Reynolds]

Will the Minister give way?

[John Glen]

In deference to my esteem for my shadow Front-Bench colleague, I will.

[Jonathan Reynolds]

I am very grateful. The idea of banks collaborating and having hubs that would be the joint front end of their back-office functions comes up time and again, but it has not happened. There is no work being done to deliver that. Surely, there are issues to do with competition law, regulatory compliance and liability for mis-selling that simply make it quite unlikely. That is why a serious alternative is required.

[John Glen]

I respect the concern that the hon. Gentleman has raised and I will respond to it.

Before I get into the detail into what I am trying to do as the Minister with responsibility in this area, I want to reflect on some of the facts of changing banking practices. More of us choose to bank online or on an app, but the point made by the hon. Member for Central Ayrshire (Dr Whitford) about a mixed appetite for banking services is important, as is the intergenerational point. Between 2011 and 2016, branch usage declined by 42% whereas mobile banking usage increased 354% between 2012 and 2017. Cash was used in 61% of payments in 2007, but it is projected that by 2027—in just eight years—it will go down to 16%. There is a significant and rapid change.

Draft Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019

Debate between Jonathan Reynolds and John Glen

Tuesday 5th February 2019 General Committees

[John Glen]

I am very happy to respond. In the situation that we have a deal, which is what the Government wish to happen, we would enter the implementation period. That means we would have continuity of current arrangements until we secured the enhanced equivalence solution, which we would be working towards, by the middle of next year, before the end of the implementation period.

The hon. Member for Stalybridge and Hyde expressed concern about the cost. We estimate that 126 EEA firms benefit from UK protections via the SFD and would therefore be in scope for this regime. Each firm is expected to have a one-off familiarisation cost of £210, so the total cost would be £27,000.

The hon. Member for Aberdeen North asked about the extension of the Bank’s power to designate non-EEA systems, which she posited was a significant policy change to the EU SFD and therefore incompatible with the general onshoring approach. The key point is that if, in the undesirable circumstances that we leave the EU with no deal, the UK becomes a third country and therefore is treated the same as any other non-EU jurisdiction, the new regime would need to reflect that. The SFD is a directive rather than a regulation and so allows for a degree of member state discretion on transposition into national law. I suspect that is why there is the impression of some arbitrary decision being taken.

A number of member states, including the UK, have in place or are working towards a framework for designating non-EEA entities. I would therefore submit that the Bank’s power to designate non-EEA systems is not a significant policy change from how the SFD framework currently operates in the EU at member state level. I note the hon. Lady’s observations about how her approach would differ, in that, if changes were made to the EU directive, we would submit another SI. I cannot give her the explicit rationale for why we did not adopt that approach, but I am happy to write to her on that point.

The hon. Lady also raised concerns about who had looked at the SI and asked about hits on the website. I do not have that data. I do not know whether it has been collected; I do not think it has. We engaged with stakeholders, including the financial services industry, while drafting these SIs, and they were published in advance. We shared the draft legislation with industry to allow stakeholders the opportunity to familiarise themselves with our approach and to test our understanding of the impact, and it was welcomed and supported. I cannot give the hon. Lady a precise answer about the iterations leading to the final SI being laid before the House, but I can say that there are no concerns about where it has ended up.

The hon. Lady asked about my view on the likelihood of no deal and whether it has changed. Obviously, we cannot completely rule out the possibility that the UK will leave the EU without a deal, but from my perspective as a junior Treasury Minister, it is important that I deliver a fully functioning legislative and regulatory regime come what may, and that is what I am determined to do. We have engaged with stakeholders to ensure that happens. The Commons continues to debate and, I hope, approve SIs relating to no deal, but I think the process the Government are going through is well known.

The hon. Member for Stalybridge and Hyde asked what the procedure would be for extending the temporary designation regime. Under this instrument, the Treasury will be able to extend the temporary designation regime by an additional 12 months beyond the initial three-year period. We would do that by laying a negative SI, given that we would not be substantively changing anything; it would be an administrative change. We would lay a written ministerial statement before both Houses in advance of laying that SI, in order to inform them of the situation.

[Jonathan Reynolds]

I suspect that the Minister may need some inspiration to answer this question, but could that be a cumulative process? Could it be used only once, or could a series of annual negative SIs be laid to prolong the process in perpetuity?

[John Glen]

I am grateful for the advice I have received, mystically, from behind me. It could be a multiple approach, but, again, that would be justified in the written ministerial statement. It is quite difficult to see how that would go on in perpetuity, but if there was a justification from the Bank of England, that would be made clear and that would happen.

Draft Interchange Fee (Amendment) (EU Exit) Regulations 2018

Debate between Jonathan Reynolds and John Glen

Tuesday 22nd January 2019 General Committees

[John Glen]

I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central, for their points. I will do my very best to respond to them all.

First, I will address the overall context of where we are. It would be wholly undesirable for us to have a no-deal outcome, but my job is to deliver 63 statutory instruments to ensure that we have a functioning regime in place. Never has so much effort gone in to achieving something that hopefully we will not need.

I acknowledge the rigour and seriousness with which the Opposition Front Benchers have taken to this task, and I take on the points that are repeated each time. All I can say is that I will seek to maintain good will by giving as full an explanation as possible. Where I can, I will follow up with letters if I do not know all the responses that are sought.

Now I will seek to address the points that have been made, in sequence. The hon. Member for Stalybridge and Hyde mentioned the issue that was raised in the Lords concerning, first of all, the scope of this measure and why we are taking action under this mechanism. This SI reduces the scope of the UK legislation relating to interchange fee regulation from the EEA to the UK, and it maintains caps on transactions that involve only UK entities. It is laid under the EU (Withdrawal) Act, which transfers directly applicable EU law to the UK statute book, and it gives the Government the power to amend legislation to fix any provisions. However, it does not allow us to innovate.

Baroness Bowles of Berkhamsted legitimately wanted us to move forward and insert a cap so that we would not be vulnerable in a third-country situation to whatever might come from the EEA, but that is not something that the Government are permitted to do under this legislation. So, the measure is limited just to making those fixes, to restrain the Government from that sort of proactive innovation.

Linked to the point about the payment services directive, I will say that all legislation that is ongoing through the EU will be subject to the in-flight files Bill, which is now going through the House of Lords and will come to the Commons, I believe in February. That will determine the mechanism by which we onshore files that are ongoing.

So, there is a deliberate restraint on innovation during this SI process, which therefore prompts questions. However, what we cannot do in this situation is to assert proactively what sort of third country we want to be to the EU, when the EU has not offered a reciprocal arrangement that would make sense.

[Jonathan Reynolds]

I understand very clearly what the Minister is saying. However, we have sold this process to the public and to our colleagues in the rest of Parliament as a process that continues the status quo. I understand that logically what the Minister is saying is absolutely right; effectively, he is saying that we cannot innovate to provide for the status quo. By transposing this measure, however, we are actually diminishing the position of British consumers, which is of concern.

[John Glen]

I fully recognise that that is a legitimate point to raise, but in addition to this process we have the in-flight files Bill, which determines how we would go about onshoring—or not—provisions of ongoing directives, and we are also working on financial services legislation for the 2019-20 session, which would seek to respond holistically to the challenges that would be presented in a no-deal scenario. We are not passively waiting to be vulnerable, but this is the first stage of a process that we would have to undertake. It would be complex and time-consuming, and there would be a lot of work to be done, but that is where we are.

With respect to the challenge posed by the hon. Member for Glasgow Central about no deal, I really do not want to see a no-deal. There are a lot of observations that a managed no-deal would be okay, but what is not clear to me is how one determines that degree of management. It seems to me to be quite a random set of actions and the consumer detriment in the short term would be considerable.

I have covered the point about why I am using secondary legislation rather than primary legislation, and the constraints under which I have to act. I was asked about the capacity and expertise of the payment systems regulator to deal with these new responsibilities. The payments systems regulator was set up four years ago. It has issued public statements on the actions that it is taking. In the Treasury, we are confident that it will be making adequate preparations and effectively allocating resources ahead of March 2019. It has responsibility for monitoring and enforcing compliance with the new interchange fee regulation and for some regulation of the UK payments systems. We remain confident in its ability to continue to discharge its responsibilities.

The hon. Member for Glasgow Central raised the issue of the de minimis impact assessment. It has been prepared in line with the better regulation guidance, and we consider that the net impact on businesses would be less than £5 million a year. There is potential for limited costs relating to compliance reporting to the payments systems regulator, and that is where that cost comes from. Firms will benefit from the reduction in uncertainty under a no-deal scenario, and without this instrument legislation would be defective and firms would be left to deal with an unworkable and inconsistent framework that would substantially disrupt their businesses.

The hon. Lady made a number of points related to the Bird & Bird legal paper. I have not seen that. To be fair, I would prefer to reflect on that fully and write to her in detail, so I can address some of the concerns raised around different drafting elements of it. She asked whether the SI capped debit card fees. We are maintaining a domestic cap for debit and credit card transactions. Those are referred to in amendments made to articles 3 and 4 by regulations 6(1) and 7(1). However, their derivation applies only to debit card transactions in the existing law.

I was asked about the broader question of monitoring the interchange fee in future, as a third country in a no-deal situation. Clearly, the Government keep all policy under review, but we would need to look proactively as soon as possible at what would be the appropriate arrangement to come to. As has been made clear in the discussion this morning, if we were a third country the 0.2% and 0.3% cap would not automatically be applied, and that would have serious implications.

[Jonathan Reynolds]

I understand what the Minister is saying about the unworkability of the legislation if this does not go through, but from what he is saying it seems that if this SI were not passed, the British consumer would be in a stronger position than if it were passed. When we think about the circumstances of no deal—immediate tariffs, almost certainly some further depreciation of sterling, higher inflationary pressures—I am not sure that we are in a position to say that passing this legislation is in the best interests of the British consumer.

[John Glen]

We have to remember that this is in a no-deal situation; we would be outside and without the scope of the EU regulations of which we are currently a part. We would have no regulations for maintaining the caps within the UK. All we are doing is domesticising that existing provision as far as we can, within a UK environment. In our engagement with industry and with the PSR, it has been recognised that this is necessary but it is not the final solution. That is why there would need to be further innovation and policy work subsequently, as I have set out.

In conclusion, the SI is needed to ensure that the UK continues to have a functioning legislative and regulatory regime for payment card interchange fees in the event of a no-deal scenario. I have reiterated my belief that that should not be the outcome we secure in the end, but I hope I have dealt with the points raised. I will return to the hon. Member for Glasgow Central on her specific concern about the Bird & Bird note, and I shall make that available to the Committee.

Draft Capital Requirements (Amendment) (EU Exit) Regulations 2018 Draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

Debate between Jonathan Reynolds and John Glen

Wednesday 12th December 2018 General Committees

[John Glen]

I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their questions, and acknowledge concerns about the rigour of the process. All I can say to the Committee is that I am doing everything I can to ensure that it is as rigorous as possible.

For both statutory instruments, there was significant engagement with industry and the regulators. The draft Capital Requirements (Amendment) (EU Exit) Regulations 2018 were laid on 21 August, with an explanatory note seeking to draw out concerns. The draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 were laid on 8 October for consideration.

The hon. Member for Stalybridge and Hyde accurately characterised the global drivers of the regulations. I want to address the specific concern he raised about the directive on the change in capital requirements consequent on our leaving in a no-deal scenario. He is right to say that the capital requirements regulation specifies how much capital and liquidity firms must hold against different types of exposures. He is right that certain EU assets are subject to a 0% risk weight, meaning that no capital needs to be held against those exposures. However, in a no-deal scenario, the UK will treat the EU as a third country and vice versa.

Without an assessment of equivalence between the EU countries and the UK, the EU would end preferential capital treatment for UK exposures, so it has been Government policy not to grant the EU unilateral preferential treatment in the absence of equivalence, and the SI makes the appropriate amendments to ensure that EU sovereign debt is no longer treated more favourably than other assets of a similar nature.

[Jonathan Reynolds]

Will the Minister give way?

[John Glen]

Perhaps I may just make the next point, and see whether it addresses the hon. Gentleman’s concern.

EU sovereign debt will none the less retain the low risk ratings that sovereign debt typically attracts. In addition, we are introducing transitional powers for the regulators to phase in the new requirements. That is up to two years, mitigating much of the impact.

[Jonathan Reynolds]

I am grateful for that clarification, and for the second point in particular. I understand the political case for not having a unilateral preferential regime that is not reciprocated by the EU. However, when we think about all the market volatility and stress that no deal gives us, to reclassify the capital adequacy of UK resident banks feels quite difficult, even if it is phased in over a period of two years, which is not that significant to be honest.

[John Glen]

I acknowledge how it sounds, but this is a regulatory change to enable the discretionary power. The Government’s intent is to make prudential assessments in a non-politicised way.

[Mr Richard Bacon (South Norfolk) (Con)]

May I say how delighted I am that the Government are taking an approach that allows discretion? That was one enormous problem at the time of the financial crash, which was also a sovereign debt crisis. The hon. Member for Stalybridge and Hyde forgot to mention who was in charge at the time. That crisis was exemplified perhaps most clearly by Gordon Brown standing outside the shiny new Lehman Brothers office when it opened, shortly before the crash. The capital regime was so inadequate at the time under that regime—

Draft EEA Passport Rights (amendment, Etc., and Transitional Provisions) (EU Exit) Regulations 2018

Debate between Jonathan Reynolds and John Glen

Wednesday 24th October 2018 General Committees

[John Glen]

I have stated my and the Government’s position. We are working towards a deal that is in the best interests of the United Kingdom as a whole. There was an awareness of this measure on 20 December last year. It was laid on 11 July. The head of the PRA came to the Select Committee on 11 July and set out how desirable it was. With respect to the wider question of the economic consequences of different outcomes, it would be beyond the scope of this Committee if I set that out here and now. However, I can say that we must have a deal that is right for financial services and allows us flexibility going forward, but this measure is about making sure that we have adequate certainty for consumers who benefit from the financial services of EEA firms, and that is what this is about.

As to what will happen to UK firms that passport into the EEA , the Government, as I said, can take legislative action only in relation to EEA firms that passport into the UK. We cannot, through unilateral action, influence the status of UK firms operating in the EEA. However, as I said, it is hugely desirable for their consumers for them to do it. That is why we really want to avoid that situation and agree a deep and special partnership with the EU, as well as an implementation period, which is important for both.

[Jonathan Reynolds]

I think the Minister is saying that the Government’s objective is still for mutual regulatory recognition for—essentially without the existence of the passporting regime—similar arrangements to those we have now after we leave. I think most people would acknowledge that that is quite a difficult thing to propose without negotiating a new relationship with Europe that would include such things as being part of a new customs union, as the Labour party has proposed.

Is it not possible that, if the Government agree what we might call the Chequers package—a common rule book on goods—even though a deal might be agreed we should still be using the measures we shall agree today? Even though a deal of some sort was agreed, because it did not cover the financial services sector, we would still be using the regulations that are before the Committee.

[John Glen]

Of course, the outcome of the negotiations will determine what we do. If we get a deal, clearly the implementation period will take effect. We would then have to look at what new legislation was optimal, from a financial services point of view, to keep us competitive; but such decisions have to be deferred until we get to that point.

I do not want to detain the Committee unduly, but there were other points I wanted to address. On the point about the FCA and the PRA powers to enforce home regulator powers or breaches, it is not an extra-territorial measure, but it has effect in the UK only. It merely preserves requirements imposed by an EU regulator so that the EU regulator does not have to impose such requirements itself. Once in the regime, the UK regulators will be able to disapply the requirements if they choose.

I think I have probably addressed all the points that were made. I am grateful for the number of points that have been fed to me from my left. I do not think that I have addressed all the scenarios to the satisfaction of the hon. Member for Edinburgh South, and I acknowledge his dissatisfaction. All I can say is that the Government are fully committed to delivering the best possible deal on financial services. I visited Edinburgh over the summer recess and I acknowledge the importance of financial services to the hon. Gentleman’s constituency, and to jobs throughout the country. We hope that we shall not need provision for a no-deal scenario, but it is appropriate that we make provision for it today.

Question put and agreed to.

Resolved,

That the Committee has considered the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.

Oral Answers to Questions

Debate between Jonathan Reynolds and John Glen

Tuesday 11th September 2018 Commons Chamber

[John Glen]

Absolutely we will.

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

This Government may say that they are taking action on household debt, but the fact is that they rely on that excessive debt for economic growth. The Office for Budget Responsibility says that nine tenths of all GDP growth last year is attributable to household consumption, which is being fuelled by unsustainable levels of debt. Instead, we should raise investment, both public and private, which in the UK is well below the average for a developed country. We have plans to do that, but will we see any such proposals from the Government in the forthcoming Budget?

[John Glen]

The Chancellor has set out in successive Budgets our commitment to invest in this economy with the national productivity plan. We must recognise that we need affordable investment, and we have found out over the past 24 hours that the Opposition’s plans are confused. If £500 billion is just a down payment and the start of the investment, where will it end? Is that affordable?

Financial Services

Debate between Jonathan Reynolds and John Glen

Thursday 26th April 2018 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Sir David. I congratulate my hon. Friend the Member for Chelmsford (Vicky Ford) on securing the debate, and my hon. Friend the Member for North East Derbyshire (Lee Rowley) and the hon. Members for Glasgow Central (Alison Thewliss) and for Stalybridge and Hyde (Jonathan Reynolds) on their contributions.

We have had a very well-informed discussion of a wide range of financial services issues. It felt as if every discussion I have had over the last three and a half months as a Minister has been put under scrutiny. I will try to respond to all the points raised. I acknowledge the deep knowledge and experience of my hon. Friend the Member for Chelmsford, in both her work in financial services, infrastructure and project financing and, more recently, her work as a Member of the European Parliament, particularly on the Committee on Economic and Monetary Affairs.

Before I get into the substance of the issues, it would be useful to acknowledge that today’s debate is occurring not in a vacuum, but in the context of a strong and resilient economy. GDP growth has remained solid at 1.8% in 2017, extending the period of continuous growth to five years. That is higher than the 1.5% forecast at the autumn Budget. The UK economy has beaten expectations, and the Treasury and the Government will continue to set ourselves the mission to beat the forecasts. As Economic Secretary to the Treasury, I am committed, along with my Treasury officials, to ensuring that the financial services industry retains its place on the mantel as a beacon of prosperity for this country.

As I continue to tell industry and my colleagues in Government, financial services constitute the plumbing of this country’s economy. We do not want to be reticent about describing and applauding that. Financial services, as others have mentioned, represent 12% of total UK economic output, and the industry contributed £72.1 billion to the Exchequer in 2016-17—11% of total Government tax receipts. It is a critical industry for our nation.

As others have also mentioned, more than 1 million people are employed in the financial and insurance sector in the UK. Some 63% of those jobs are outside London, with 52% outside London and the south-east. That includes 98,000 in the north-west, and 87,000 in Scotland—including, I understand, that of the spouse of the hon. Member for Glasgow Central. Those figures represent the livelihoods of people up and down this country and, as the hon. Lady pointed out, they represent a multitude of jobs beyond the square mile. As I often point out, there is a whole ecosystem of support services and economic activity related to financial services. Bank tellers, mortgage brokers, salespeople, and IT staff form the backbone of this industry in the UK.

The Government’s approach to financial services is based on ensuring that the sector does what it should: effectively channelling savings and capital flows into productive investment to allow the real economy to manage financial risk, take advantage of commercial opportunities, and boost economic prosperity up, down and across the country.

Our historical success has been based on being the most open and dynamic financial hub in the world and having the deftness to continuously innovate and adapt, but there is no room for complacency. We cannot and will not rest on our laurels. The success of financial services has helped elevate the UK to the status of a post-industrial economy. My hon. Friend the Member for Chelmsford made reference to the industrial strategy, which was launched in November 2017 to prepare the whole UK economy for the future. We are taking action across a range of sectors. We published an investment management strategy. I look forward to responding to the recommendations of the green finance taskforce, which reported in March. We are poised to continue to be leaders in innovating in these sectors, to capture the value of innovation, capitalise on all opportunities and speed prosperity to all regions of the United Kingdom.

Close alignment between our financial sector and other parts of the economy is therefore crucial to the success of our industrial strategy. Financial services is a high-growth, high-tech driver of the UK economy and we are working to ensure that, in the face of rapid change, the UK remains the No. 1 place in the world to conduct financial services business. We are fully committed to that mandate, as demonstrated in the announcement of our FinTech sector strategy last month, which is intentionally aligned with and complementary to our industrial strategy.

I want to run through current Government thinking on the regulation of financial services, which is key to how the sector will thrive in a post-Brexit Britain. I also want to reassure hon. Members that the changes required to the financial services regulatory framework following our exit from the EU are an integral part of the Treasury’s exit planning. The Government are listening to the views of industry—the International Regulatory Strategy Group was mentioned—and of course to those across Parliament. I look forward to further work with my Treasury colleagues on financial services regulation as we prepare for our departure from the European Union.

Following the financial crisis 10 years ago, the Government introduced necessary changes to seek to restore public trust in financial services. I recognise that that has been a long and difficult process, but we continue to attract international commendation for the robustness of our regulatory and prudential systems. In the last round of the Financial Sector Assessment Program, the International Monetary Fund found that the UK was fully compliant on the 19 Basel core principles for effective banking supervision. Only France and Switzerland are able to match that. A decade on from the crisis, we should never lose sight of the principal purpose of the regulatory and supervisory regimes: to ensure financial stability and protect taxpayers from having to step in to deal with failure. The key lesson from the financial crisis has been cross-border co-operation, not a global race to the bottom or destabilising protectionism.

That thinking extends to our approach to Brexit. It is crucial that our exit from the EU is smooth and orderly. As my hon. Friend the Member for Chelmsford said, we made a big step forward in agreeing the legal text on an implementation period, which will keep market access on existing terms for firms and consumers. In December, the Government said that, if necessary, we will legislate to ensure that the contractual obligations she mentioned continue to be met, which will benefit millions of UK consumers who have insurance policies from EU firms. It is in the interests of the EU to take similar measures for UK firms serving EU customers, and we continue to encourage co-operation between regulators. We are working on that active dialogue all the time.

It defies logic that a loose relationship with the UK would give the EU the depth of co-operation necessary for a market as close as the UK, and vice versa. That means—I want to be crystal clear—that we do not intend to rip up the rule book after exit. When I hear echoes that there should be a bonfire of financial services regulation post-exit, or a race to the bottom, nothing could be further from the truth.

On 7 March, the Chancellor set out a vision for our future relationship in financial services in what has been called his HSBC speech. The hon. Member for Glasgow Central asked about that vision. It was a thorough analysis of the challenge and the opportunity and the need to prioritise financial stability, and argued for a deal that preserves the mutual benefits of the sector. Neither the UK or EU should be under any illusion about the significant additional costs that would be borne by Europe’s businesses and consumers if this highly efficient market were to fragment. It is a complex ecosystem that serves the UK and the EU. Oliver Wyman calculates that the wholesale banking industry would need to find $30 billion to $50 billion of extra capital if new regulatory barriers forced fragmentation of firms’ balance sheets.

To echo the Chancellor, the major winners from fragmentation would not—despite what President Macron suggests—be Paris or Frankfurt, Dublin or Luxembourg, but New York, Singapore or Hong Kong. That point was made by the hon. Member for Stalybridge and Hyde.

[Jonathan Reynolds]

I agree entirely with the Minister’s analysis but he would surely recognise that the transition period can come into play only if the Northern Irish issue is solved. The only way to solve the Northern Ireland issue is with a customs union, and the only way to solve where the country is on that is to let the House of Commons vote on it. Does the Minister know whether the Trade Bill will come back to the House at any point in the near future to give the it the chance to resolve the issue and get the benefits he is describing?

[John Glen]

The hon. Gentleman has made a valiant attempt to try to draw out from me something over which, as he is probably very aware, I have little control. I do share with him an appreciation of the centrality of financial services in the City of London and we have a shared understanding that, if the EU does not come to a place of understanding about City of London financial services, it would leave Europe a lot less competitive.

To address that, the Chancellor set out what our future regulatory framework should look like, underpinned by three things: a binding dialogue for regulatory requirements, supervisory co-operation arrangements that are reciprocal and reliable, and an independent arbitration mechanism to provide durable dispute resolution. That is clear. It is complex, but necessarily so, given what we are dealing with.

Reaching such an agreement with the EU need not be a challenging objective because the status quo is an unbeatable precedent to work from. Our markets are already deeply interconnected; our rule books are identical; and our mutual commitment to world-leading standards is unbeatable. The EU itself has challenged the notion that financial services cannot be addressed in trade negotiations, as evidenced in its approach to creating a deep bilateral framework with the US in the Transatlantic Trade and Investment Partnership negotiations. In those negotiations, the EU pitched a relationship based on mutual recognition of regulations and a unique dialogue on aligning future rule-making. TTIP is a precedent for the approach that we wish to take with the EU. It is in neither the UK’s nor the EU’s interest to exclude financial services from the future relationship.

The UK is clear that there are limitations to how much either of us can achieve unilaterally. The reality is that the European Council and European Parliament have now formally recognised the need to address the terms of market access in financial services between the UK and the EU, so we need to come to the table and discuss it further.

Myriad financial services on which businesses rely to reduce their costs are derived from or pass through, or are linked to, the UK market. Businesses also reap the benefits of the savings and capital flows to consumers across the continent. Those flows untap greater financial prospects for a broad range of people and allow them to access new products and services, such as innovative investment opportunities, tailored and appropriate debt products, and technology-driven solutions such as open banking.

My hon. Friend the Member for North East Derbyshire talked about shared services in the context of the challenges relating to bank closures. The only inhibitor to that is the banks themselves—there is no restriction on finding a shared venue. I know from my conversations with banks in my constituency that phenomenal changes are going on in the age profile of bank users. Just before the Easter recess, I took the opportunity to visit different banking environments and a mobile banking facility in Derbyshire. I was very impressed with what I saw. It happened to be a Lloyds mobile bank, and it came to the village twice a week at the same time. It had disabled facilities. Of course, we all want to retain that certainty about the bank network, but that is not possible because it is a commercial decision. I am in active dialogue with a range of banks, as we all are as constituency MPs, and I know that these are difficult decisions. I commend my hon. Friend’s suggestion, and I raise it actively when I meet representatives of banks.