Financial Services (Banking Reform) Bill
Lord Lucas Excerpts(11 years ago)
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Lord Lawson of Blaby
This is one of the most important matters that we will have to decide, not merely to make the banking system safer but to address the cultural problem. Proprietary trading is, as noble Lords will be aware, trading which a bank does entirely on its own behalf. There is no client at all. It is the furthest from the culture that we expect of banking, which is a culture of prudence and of servicing clients. Here, there is no client and we know from experience that, far from there being a culture of prudence, proprietary trading tends to be of a highly speculative and gambling nature.
It has also, incidentally, been connected with some of the greatest scandals. The LIBOR scandal, for example, was a proprietary trading scandal. Even when there is not a scandal, even when it is perfectly reasonable—I have nothing against speculation as such—in my judgment it is alien to what the banking culture should be. Speculation should be left to the hedge funds. It is a hedge fund activity par excellence and it should not be conducted by banks. That is my view. The view of the commission was slightly different. It was that, while that is probably so, there are practical difficulties and therefore there needs to be a full-scale review a few years hence to see how this is working.
At the moment, of course, there is very little proprietary trading going on in this country. Before the great crash of 2008, the amount of proprietary trading that some banks were doing accounted for more than 30% of their total business; it was as big as that. It has now disappeared, but it will almost certainly come back. Incidentally, when we had this debate in Committee my noble friend Lord Deighton said that there was no need to do anything now because there was no proprietary trading going on. With the greatest respect, he missed the point. We are saying that we should review this a few years hence when there may well be something going on. In fact, there almost certainly will be something going on. We are not legislating just for the here and now, but for the medium term and, so far as we can, for the long term. There will not be another banking Act for a very long time, so it is important that this review is in place.
There is one other thing that the review will be able to do. My good friend Paul Volcker, a very distinguished former chairman of the Federal Reserve in the United States, has been largely responsible for introducing what is known as the Volcker rule in the United States, which attempts to ban proprietary trading. Their system of legislation is so appalling that the rule has got encrusted with myriad barnacles which may make it less effective, but, nevertheless, the clear intention was to ban proprietary trading. He is a very wise observer of the banking scene over many years and he understands full well the practical and cultural problems that derive from banks engaging in proprietary trading.
A review a few years hence will be able to take account not merely of what is happening in the banking world in England at the time but will be able to see how the Volcker rule has worked in practical terms in the United States—and, if it has been defective in any way, we can learn from their experience. Therefore, I urge my noble friend, who made a remark yesterday, almost en passant, about proprietary trading when we were talking about the ring-fence, to go further today and to accept the amendment which we, as a commission, feel is right. He may want to change the wording in some way or other—I suspect that the period we set was a bit too soon; it might be sensible to have it a little further out—but I will leave that to his excellent judgment. The important thing is that the essence of this must be accepted by the Government. I beg to move.
Lord Lucas (Con)
My Lords, I am interested in a side effect of this amendment. I hope that it may result in us taking a proper look at high-frequency trading, which seems to me to be pretty close to theft, organised on behalf of stock exchanges at the expense of the rest of us in mutual funds and pensions. It seems extraordinary that we allow a certain group of investors privileged access to the stream of information coming out of an exchange, and allow them advantages over real investors. Real investors invest in real funds for long-term real return, performing the function of the market in terms of the allocation of capital and giving people an opportunity to invest their money at risk for return in order to enable them to live in retirement and to prosper from giving other people the use of their money. These are important functions of the market and high-frequency trading seems to me to be parasitical on that.
I have heard it argued that it improves, net-net, the terms on which investors are able to trade. That is not what investors tell me. They say it is as if someone is moving ahead of them. Every time they get into the market they can feel the market being moved ahead by the high-frequency traders. I think that that is an aspect of proprietary trading to which we should pay close attention, and I very much hope that this review will allow us to do so.
Baroness Cohen of Pimlico
I support the amendment. Most of what we are legislating to do is prevent banks doing terrible things to customers. Proprietary trading allows banks to do terrible things to themselves. They are no good at controlling it. The real horrors and the things that, more importantly, threaten the financial system are banks getting proprietary trading horribly wrong. There are examples of distinguished banks coming completely unglued in this. Deutsche Bank, UBS and Morgan Stanley all spring to mind. They seem to have a completely uncontrollable Wild West operation—and if the owners of the operation cannot control it, is it not a serious risk to the financial system and something that, as the noble Lord, Lord Lawson, suggested, should not be taking place inside a bank?
Financial Services Bill
Lord Lucas Excerpts(12 years, 4 months ago)
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Lord Lucas
My Lords, I very much support the spirit of this amendment; I will let my noble friend on the Front Bench answer for the technicalities. We have got ourselves into a position in which people do not trust the financial system and it is immensely damaging for us. It means that people cannot save in a sensible way; they do not want to expose their savings to what they believe to be a bad and unsafe part of the financial system, and with good reason. When one looks at what the banks have been up to, one just thinks that they have lost their sense of judgment as to what is right and proper and how things work in the long term. The things that have been going on at HSBC and Barclays pensions mis-selling, the problems with PPI and these extraordinary financial products which were sold to small businesses, all speak of a complete lack of interest in being trusted.
We must get back to a state where the financial system enjoys a proper level of trust. Otherwise, when people come to choose where to save their money, they will divert it into the likes of houses and push house prices ever further up. They will be tempted into deeply unsuitable investments because they cannot trust what is going on in the mainstream. That is all deeply undesirable. Getting back to us trusting them by the banks’ own actions will be difficult; they have blotted their copybook to such an extent. We are relying on the FCA to be an effective regulator and ensure that, if there are problems in the works of the likes of PPI, they do not go on for years, so that when they burst they are enormous headline issues affecting millions of people, but are picked up early and the banks are politely requested to mend their ways, perhaps without most of us knowing what is going on.
We need a regulator that is quicker and more effective at picking such things up early if we are to restore confidence in the system. We know that there are problems out there which have not been dealt with. There are pension funds charging 4% a year to people investing in them for managing the funds. That is a continuing iniquity which needs to be dealt with. The amendment is aimed squarely at such practice: at ensuring that what is offered to consumers, when one takes all the hidden charges into account, is fair and good value for money and that people are being invited to take proper decisions.
This is a valuable amendment in its spirit. If my noble friend can convince me that such provision is already in the Bill, I shall be delighted.
Lord Barnett
I strongly support the amendment moved by my noble friend Lady Drake. As usual, my noble friend Lord Peston spoke about the average consumer and the complexity of the Bill. I doubt that an average consumer will ever read the Bill. This is not an ordinary Bill. I do not pretend that the FSA was perfect, but we are now to have an FCA. I think it is in Clause 5—although that itself is not easy to find—but then it is in proposed new Section 1E. You and I may find that easy—I do not, because this is the most complex Bill I have read. I apologise, because over five years I introduced many complex Finance Bills—two a year on average—so I know about complex Bills and have dealt with them both in government and in opposition, but I find this one incredible.
The Bill is about the competition objective and helping the consumer. The amendment is modest. If the noble Lord, Lord Sassoon, is in a good mood—I see that he is not; he is shaking his head—he should look at the amendment to see whether it would do any harm to the consumer. I should have thought that it might help them. The consumer will not read it, but the new FCA would have to read it and be responsible for it. First, the noble Lord must be in favour of good value for money—he is nodding. The last phrase of the amendment is that it should be “good value for money”. It deals with,
“the ease with which consumers can identify”.
That cannot do any harm to the Bill and the idea of helping consumers. Even if the noble Lord is in a bad mood today, as he indicated, I hope that he will see the amendment not in principle but in fact. It is a very modest amendment asking for very little.
The noble Lord, Lord Sassoon, does not always answer my questions positively, but this one is simple. This is not my question but that of my noble friend Lady Drake in her excellent introduction to the amendment. Is the amendment going to do any harm to the Bill? Is it going to help the FCA to help the consumer? If the answer is yes, can the Minister say that he will at least examine the Bill, take the amendment away and look at it with a view to including it at Report? That is all I ask, and I am sure that that is what my noble friend Lady Drake asks. I hope that he feels in a better mood when he comes to reply.
Lord Lucas
Before the noble Baroness withdraws her amendment, I wonder if I might take the opportunity to make a couple of points to my noble friend on the Front Bench. He has been saying that his lawyers are better than theirs, which I of course accept, but it really is not a matter for either set of lawyers. It is for the lawyers that the FCA will have when it comes into existence to interpret this Bill. One problem with the FSA is that the limitations it imposed on itself as to the speed and determination with which it has pursued some of these other problems have resulted in them ending up much worse than they might have been.
It would help if my noble friend was prepared either to say now or to consider allowing me to give him an opportunity to say on Report that the sentiments expressed by this amendment—indeed, the particular courses of action envisaged by it—are ones that he would expect the FCA to undertake on the basis of the powers that it already has in the Bill and that he would expect it to act quickly, as the noble Lord, Lord Peston said, to nip things in the bud rather than waiting until it is absolutely sure that it has identified the exact nature of the problem. In other words, it should be able to take swift and pre-emptive action. If nothing else, under Pepper v Hart this would give the FCA’s lawyers some comfort when they come to interpret the Bill in future.
Lord Sassoon
My Lords, I briefly draw my noble friend’s attention to a couple of things that I have already highlighted this morning. First, there are the additional product intervention powers that the FCA will have, as opposed to those which the FSA has had. Those go to the heart of his concerns, because we are certainly not giving those powers to the FCA, and it is not receiving them, without an intention to use them. Secondly, I drew attention to the consultation on the mortgage review, which indicates a developing line of thinking that goes precisely to his points. The evidence points in the direction that my noble friend is looking for.
Lord Sassoon
I have drawn the Committee’s attention to the opportunity that exists at the moment, and of course the Red Tape Challenge is a cross-government initiative. No. 10 and others take it very seriously; it is not simply a Treasury matter; and it goes with the wider drive in this area. I shall leave it at that.
I should say just a little about Amendment 128AA. I do not believe that the FCA needs to have a dedicated panel for representatives of social investors. As the FSA’s panels already do, the FCA’s panels will advise on a wide range of policies and regulations from a broad range of perspectives, and I do not believe that it is necessary or proportionate to establish another panel, at additional cost, purely to represent the interests of social investors and social sector firms. Social sector organisations will be able to feed in their views through public consultations. The interests of socially oriented financial services firms can be adequately represented by the Practitioner Panel and Smaller Businesses Practitioner Panel, and many of the FSA’s Practitioner Panel members belong to firms which are involved in social investment.
However, again in the spirit of wanting to be helpful in response to the amendment, and accepting that the interests of smaller specialist firms also need to be appropriately represented, I have sought and gained assurance from the FSA that from now on it will approach trade associations which represent social investors, such as the UK Sustainable Investment and Finance Association, asking them to put forward nominations to the Smaller Businesses Practitioner Panel. I hope that that will give additional reassurance to the noble Lord, Lord Tunnicliffe, about the approach in this area. Given all that, I ask my noble friend to withdraw her amendment.
Lord Lucas
My Lords, all of us in this House wish for that sort of reply from my noble friend, although some of us are not so lucky. I am sorry that the noble Lord, Lord Peston, was not present to hear that so that his scepticism on this matter might have been calmed. It was indeed an excellent reply from my noble friend and I very much hope that my colleagues will be able to take advantage of it.
Perhaps I may draw my noble friend’s attention to an organisation called lendwithcare.org, which is an excellent example of how to do things right in this area. It is concentrating on micro-lending in the third world but the pattern it follows would fit very well the sort of projects that my noble friend Lady Kramer and others have outlined. It takes proper steps to make it absolutely clear to those who lend that there is a serious chance that they will never get back any money. That is crucial. There is far too much opportunity here to induce in those who sell something as a loan the idea that they have a reasonable chance of getting their money back, and that can be very dangerous in unregulated investment.
Baroness Kramer
I join in thanking the Minister for a very positive reply. It sounds as though we have real hope of making progress in this area. I very much appreciate the process that the Government have gone through to get to this point.
I also appreciate the comments of my noble friend Lord Phillips. I read into them that, with his legal-eagle mind, he and some of his colleagues may now be turning to this clause and to this area of the legislation to work out an amendment which, if properly drafted, could both address the issues which I, together with my noble friends Lord Hodgson and Lord Phillips and others, have raised and cover the absolutely fair and relevant point made by the Minister, which is that we have no wish to expose people to scams or to create an opportunity for this to be used as a back door to taking unfair advantage. That is extremely important.
Feeling very positive about all these issues, I beg leave to withdraw the amendment and I look forward to the summer discussions.
Financial Services Bill
Lord Lucas Excerpts(12 years, 5 months ago)
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Lord Lucas
“( ) The general principle that consumers should have to give informed consent to the use of their personal data by a regulated financial institution, and in particular to the transfer of such data into or out of such an institution when that institution is part of a group of companies whether that group is a qualifying parent undertaking or not, and that it should be possible for such informed consent to be easily and effectively withdrawn.”
Lord Lucas
My Lords, the amendment concerns a subject raised by the noble Lord, Lord Whitty, at Second Reading. With his consent, I raise the matter now in his absence.
The issue of consent to the use of information on the internet is greatly confused at the moment. We have the principle of caveat emptor, as far as possible; we have a set of data protection regulations which are of variable application; and we have a daft system doing the rounds at the moment under which every website pops up with the message, “Can we use cookies?”, to which you answer, “Yes”, because the website will not function without that. That is a complete waste of time which has been foisted on us by Europe.
The question raised by the noble Lord, Lord Whitty, is interesting and I shall be interested to see where the Government find themselves. When you have a regulated institution with financial data on people, under what circumstances is it allowed to share those data with other bits of the same company which are not regulated? This may apply to Tesco with all the data which it has on Clubcard. Is the retail side of Tesco allowed to look at what people are doing in their bank accounts and to understand what they should be marketing to them? Vice versa, is the banking side of Tesco allowed to look at all the Clubcard data and say, “Hang on, this guy looks as though he is going bust because he is starting to buy cheap orange juice, so we really ought not to be offering him the degree of credit that we are”. If we are to allow such sharing, what degree of information should be offered to consumers about what is happening? There is a standard practice on the internet—I rather suspect that we have all done it—where we are presented with a little form saying, “Have you read the agreement? Tick ‘yes’”, and the agreement is 154 pages long. As it is not really clear where the changes are from the previous one you signed, you tick “Yes” because you want to use the thing. You sort of trust the people you are dealing with.
Are we in the territory where the consent to share information will be hidden away in that kind of automatically signed agreement on the web, or are we in the territory where things would have to be made clear in the preamble to the consent form that this sort of sharing was being permitted and that no disadvantage would be incurred by the customer if they refused to share? I find this a puzzling area and I shall be very interested to know what the Government intend that the FCA should do. I beg to move.
Baroness Hayter of Kentish Town
My Lords, the British banking market is changing, thanks, partly, to the ongoing regulatory reforms, as new competitors enter the market. Clearly, that new competition is very much to be welcomed. Consumers need greater choice both for themselves and to drive up standards. However, we should be aware, as the noble Lord, Lord Lucas, has spelt out, that potentially some of the new entrants to the financial sector happen to possess a large amount of data on their customers from the non-banking activities. Therefore, it will be important for safeguards to be put in place to prevent any abuse of that information.
Clearly, supermarket banks own some of the largest consumer databases in the world, with item-level purchase data on each of the millions of members of their loyalty card schemes. Should that information be used by the banking arms of those conglomerates, it would clearly raise concerns for consumers about their personal privacy and about the potential for misuse. The concerns are fairly obvious. What about invasion of privacy? A consumer’s lender will know everything about what they had purchased and when. For example, imagine that a bank learnt from the supermarket side when a consumer started to buy cheaper food, they would know exactly when payday loans might be welcome. Similarly there is a possibility of the use of that ordinary supermarket data as a credit rating mechanism.
Lord Sassoon
My Lords, I shall respond to the amendment that has been moved but I shall not respond to the amendment that has been not been addressed. Amendment 106ZA seeks to add to the list of matters to which the FCA must have regard in advancing its consumer protection objective. The new “have regard” proposed by my noble friend focuses on data protection, as he has explained, and specifically would require the FCA to consider the issue of consumers having to give informed consent in order for their data to be shared, in particular within a group of companies which includes a non-financial services institution.
Of course, I agree that consumers should have full knowledge about what is being done with their data at all times and have to consent to any sharing of them. I will do my best to reassure the Committee, as I think it is fairly clear, that there is already legislative provision in place to deliver what my noble friend wants to achieve and that this applies whether or not we are talking about different entities—because it is essentially a legal entity test—within a banking group or different entities within a supermarket group. The bank within a supermarket group is bound to be in a different legal entity from the supermarket operation itself. The same considerations apply whether within a banking group, within other financial services groups or within a supermarket group.
The ability of a subsidiary to share personal information about its customers, either with the parent company or with another member of the group, is already regulated by the Information Commissioner under the Data Protection Act 1998. It is legislation that applies to a financial services firm in exactly the same way as it applies to a supermarket or any other data controllers. If a financial services firm has breached a customer’s rights under the Data Protection Act—for example, if it has used the customer’s personal information unfairly, for a reason that is not the one for which it was collected, or without proper security—then the right course of action is for the customer to complain to the firm and then to the Information Commissioner. The Information Commissioner has the powers to force compliance with the law.
The FCA will not, therefore, be the first line of defence in the area of data protection. It is important that we do not blur the lines of responsibility between a financial services regulator and the Information Commissioner, who, as we have seen through numbers of cases, whether in financial services or in other areas, is a regulator with teeth. The case in 2007 of Nationwide is an example of the Information Commissioner taking aggressive action. In support of that, the FSA will take action where appropriate. The Information Commissioner is the first line of defence, but if a financial services firm were to do something reckless, such as losing a laptop with consumer data on it, then it will be fined, as Nationwide was fined £1 million in 2007.
We have the Information Commissioner as the first line of protection to make sure that information cannot leak from one entity to another within the group without the informed consent of the consumer and that the data within the entity are properly used in the way I have suggested. However, as a second line of defence, in areas such as the one that I have described, of the loss of a laptop, the FSA—and in future the FCA—will have important supporting powers. Therefore, I would suggest that this “have regard” is one that is not necessary or appropriate and might raise false expectations about the responsibility of the FCA in an area where there is a regulator with proven ability to come down hard on those institutions that abuse consumer data. I ask my noble friend to withdraw his amendment.
Lord Lucas
My Lords, I am very grateful for that explanation. At this stage, it is exactly what I was hoping for. I beg leave to withdraw the amendment.
Financial Services Bill
Lord Lucas Excerpts(12 years, 5 months ago)
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Lord Lucas
“( ) the way in which a financial product or opportunity is drawn to the attention of or otherwise made available to members of the public;( ) the ways in which the provider of a financial product or service derives revenue therefrom, and the way that this is disclosed to the purchaser;”
Lord Lucas
My Lords, both segments of the amendment are in effect questions that ask my noble friend where he envisages that the limits of the FCA’s powers will lie in dealing with what I perceive to be a couple of current problems. The first part of the amendment is aimed at things such as tropical forestry investment. One finds full-page advertisements in supplements, in particular in the Guardian but doubtless in other places. Presumably, advertisers think that Guardian readers are notable suckers for green investment. The advertisements promise rates of return varying from 18% to 22% per annum over a period of 15 years, and are backed up by a remarkable lack of financial information of any kind—just lots of happy pictures of growing trees and talk about the value of the eventual timber and the many uses for it, about the unspecified rise in the market price of timber, and so on. As far as I can make out, they are complete scams. I investigated one of them in as much detail as I could—which turned out not to be very much, because not much was forthcoming.
The schemes escape FSA regulation because they are not considered to be collective investment schemes. Although they involve a collection of people pursuing a single investment objective—which is the way the scheme manager makes money—they are not collective in the sense that at their root is individual ownership of a separate plot of trees, land in the UK, wine or another similar separable asset. Therefore, the FSA currently is unable to regulate them.
Thanks to my noble friend, I had very helpful conversations on this matter with his department, where officials said that the tack that I was originally pursuing might lead to the FCA having all sorts of jurisdiction over arrangements that were essentially private, such as arrangements between consenting adults to do something that might or might not be to their advantage but which the FCA would have no business regulating. Therefore, I attempted to reapply myself to what must be—from the frequency and scale of the advertisements—a large-scale fraud by now, and attach myself to the concept that if something is widely advertised as a consumer investment it is something to which the FCA should be able to pay attention. That is a reasonable way of separating large-scale public frauds from minor arrangements that should be outwith the ambit of the FCA.
The second part of the amendment deals with the fees or benefits that accrue to managers of investments. I will take as a particular example stock lending fees. Over a long period the FSA has been unable to make managers declare their full benefits from managing funds. The level of fees in this country is far too high anyway. Managers take far too large a proportion of the total return. Noble Lords may have heard the Danes on the radio this morning, threatening to bring low-cost investment management to the UK. Good luck to them; I hope that they will be permitted to do so. However, we ought also to pay attention to our own business, and to making sure that, where a firm says that it charges 1.5%, that is what it will charge, and that it will not indulge in something that is essentially a risky practice and take all the benefit from it without telling its clients that that is what it is doing.
There are a number of ways in which the City has derived benefit from the investment management process. One that particularly gets my goat is high-frequency trading, which is robbery by any other name. People get a preferential supply of information about trades and are able to surf the wave of real investors’ trades. Every penny that they make is at the expense of real investors—in other words, our pensions. The only reason we tolerate it is that they are doing this to foreigners as well, so we are making more money out of it than we are losing. That is not a healthy way to go on. We should have an open and transparent arrangement for saying how money is earned in the City, and it should be clear to people who are investing exactly what bite the managers and others in the City are taking out of a scheme, so that they can make a reasonable judgment on whether this is the right place to invest or whether they should take their money off to somewhere where they will be allowed a higher share of the total return. I beg to move.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am grateful to my noble friend for bringing up these important matters. As he knows, they are not easily dealt with. I will say a few things about where we are. I will not dwell too much on the specifics of the amendment because, as he said, his intention is to provoke a discussion around some of these topics rather than around the specific drafting.
The difficulty around these unregulated activities and schemes is that a line must be drawn between regulated and unregulated activities. Around the margin, wherever the line is drawn, there will always be incentives for rogues to exploit the boundary. This may well be what people are doing on some of the schemes to which he referred—I do not want to express a view. The first thing that we need to recognise is that a line has to be drawn between regulated and unregulated activities. For example, we would not want to draw the regulatory net so wide that it would capture investments in a family farming business or investments by family and friends in a small start-up business—the sort of activity that as a Government and as a House we very much encourage.
Once one accepts that there will be investment schemes that involve a number of people that we do not want to capture in the regulatory net, there will always be a borderline, and I fear that there will also be people who seek to exploit it. It certainly appears that the schemes that my noble friend referred to were structured specifically to avoid being captured in regulations. That means that the regulator cannot act unless either the schemes fall into the regulatory net, or the promoters of the schemes hold themselves out to be regulated. Some fall into the trap of holding themselves out to be authorised and regulated, and then they can be caught. However, the majority do not. I do not think we can simply or easily change the definition of a collective investment scheme in Section 235 of FiSMA to address the point, because either the boundary will shift somewhere else, or we will capture the sorts of legitimate activity that I have referred to.
What my noble friend Lord Lucas usefully draws attention to is the role of the FSA at present, and that of the FCA in future, which is to think very hard about the preventive consumer education work that is needed to warn the public about the risks of these unauthorised schemes. The fact that my noble friend regularly comes back to them undoubtedly helps to raise that awareness. On the other side, the regulator, whether it is the FSA or the FCA, will also work with the police, trading standards, and the Insolvency Service in this space to do whatever they can. However, I appreciate that unregulated activities will be nigh on impossible to stamp out altogether. I am sorry, but it is no great surprise that I cannot give my noble friend Lord Lucas a complete answer on that.
On fund management fees, the main point is to give my noble friend reassurance that there is a substantial regime in place through the FSA’s rulebook regarding the disclosure of investment management fees. There is a lot of debate and discussion in this area at the moment. The fact that it was discussed on Radio 4 this morning shows that this is becoming an issue which is getting a lot of exposure, which must be a good thing in terms of making investors aware of how much of their capital can disappear through regular compounding of fees. Whether the fee levels in the UK are particularly high or not, compared to other jurisdictions, is clearly not a straightforward matter but is another dimension of this which has been referred to. Ultimately I suggest that these issues are not matters for the Bill beyond the fact that I am sure that the FCA will have all the powers necessary in this area. It is an area in which awareness-raising of the sort which my noble friend is engaged in will focus the regulators to use the powers that they have. I am grateful to him for raising these points, but I ask him to withdraw his amendment.
Lord Lucas
My Lords, of course, I am grateful to my noble friend for his reply, although I do not share his optimism as to the number of people listening. As far as advertisements are concerned I can see I have lost that argument, and we will wait until some crisis arises and events force the Government’s hand. There we are. People should have been more careful with their money; they should have known that 20% compound for 15 years was probably not safe.
So far as investment management is concerned, I think we have been doing some useful things in these last few years in paying real attention to fees, to executive remuneration, and to other ways in which the return to capital is being eroded and the way in which that is costing us all in terms of pensions, support for pensioners and the health of the economy. I hope we continue to make progress. I shall certainly take an interest in the way the FCA asks for disclosure in this area. However, for the moment I thank my noble friend and beg leave to withdraw the amendment.
Lord Flight
My Lords, I believe that the FSA has been looking in some detail at how to regulate platforms, and has been doing so for quite a while because it is difficult territory. It is either about to or just has come forward with its proposals.
Lord Lucas
My Lords, I very much support what the noble Lord, Lord Sharkey, has said in this area. My Amendment 117B in this group picks up a couple of aspects of it. The first aspect is,
“the role of regulation in enabling innovative business models to compete with established businesses”.
By regulating this area so heavily we have created a structure where it can be extremely difficult for people to be innovative. The noble Lord, Lord Sharkey, drew an obvious example of that when he talked about the regulations that independent financial advisers have to work under. If IFAs are allowed to talk about ordinary money products but not allowed to talk about peer-to-peer lending products then, by not regulating them and not bringing them under the umbrella of regulation, we are making it difficult for these new entrants to compete. We are creating a barrier to innovation.
This particular innovation is not just fluff or amusement. It promises, if it gets going in a substantial way, to alleviate some of the pressure on the national financial system: you get away from borrowing short and lending long, and away from the £85,000 guarantee, and you put those risks back on the lender. It is also a structure that may prove to be extremely useful in local lending in areas where the lenders can identify that the borrowers are part, in some way or another, of the same community and can, in that way, develop substitutions for pay-day lending and other more expensive and onerous arrangements. So there are real opportunities here to improve the financial system as a whole. The FCA really ought to have regard to the way in which regulation produces barriers for entry in the way that the noble Lord, Lord Sharkey, has described.
But it is not just without government that these barriers appear; they are also within government. One of the principal barriers to the expansion of peer-to-peer lending is the tax arrangements, that you cannot offset your losses on bad debts against the interest you earn on the good ones. Banks can but peer-to-peer lenders cannot. Among the reasons why the Treasury, which is refusing to regulate, will not extend tax concessions is that these businesses are not regulated. So the Treasury itself is causing the problem that is crippling the development of this business.
It is all very well to run a business which is restricted to borrowers of the highest quality, which is effectively what it is at the moment. All the peer-to-peer lenders that I am aware of have pretty low bad debt ratios. That is because they do not lend to risky borrowers, because there is no offset for the losses. The net return to their investors if they did start making loans with, say, an average default rate of 5% would start to become extremely low because there would be no relief for the 5% of losses and they would be paying full income tax on their 12% of income. It starts to make very little sense, so none of the peer-to-peer lenders have gone into that territory. But lending to areas of the community where there is a risk of default, such as young businesses, is exactly the sort of area where this Government are trying to push the banks with so little success, and where businesses such as the Funding Circle would love to go if the Government would make it possible.
As I say, the reasons for not going there are entirely due to the Treasury, and the reasons why the Treasury cannot grant the concessions are also down to the Treasury. It really should be open to the FCA to try to break that circle and persuade the Treasury to face one direction at a time and to promote something which is in everyone’s interests, particularly the Treasury’s. Nor would I just confine our thinking to peer-to-peer lending, which is what is there at the moment. Other peer-to-peer ideas are around. Peer-to-peer investment in start-ups already qualifies. There is an FSA-registered business called Seedrs, in which I take an interest. There are proposals for peer-to-peer investment management. That goes back to an earlier amendment in terms of trying to reduce the return that stays in the pockets of investment managers by disintermediating that business.
There are certainly proposals for doing this in the field of annuities. The opportunity is obvious: old people want income and young people want capital. If you can produce a mechanism where the two can exchange that, you are looking at something where you can cut out a very large amount of cost in the middle, where you could produce for people who are trying to settle their pension fund annuity at the moment a decent rate on which to do it, and where you could provide for young people who need capital a decent rate at which to have it.
The difficulty with doing that is the forest of regulation we have put in place to tie down the existing old-style businesses in that area. The opportunity for and the benefits of innovation in that area seem obvious. So we must have an FCA which understands not just not-regulating but also how regulating constructively will enable businesses to compete where, if they are left unregulated, they may not even be able to exist.
Lord McFall of Alcluith
My Lords, I should like to add my support. My name is not on the amendment. A number of months ago I spoke to Giles Andrew, of Zopa, about peer-to-peer lending, and I was very taken by what he said. I think back to the MPC and the American whose name escapes me but who is just departing from the MPC to take up a post at the Peterson Institute in America and his comments about a spare tyre. We lack a spare tyre in the UK in terms of our banking. Whether it is a Labour Government or this Government, none of us has solved the problem of getting lending out. We have a lot to learn in that area. Our top banks are responsible for 450% to 500% of our GDP. We will not make progress on that. This initiative should be looked at. Nothing fundamental will change tonight but it is good that it is on the agenda and I am delighted to be associated with it.
Lord Lucas
My Lords, is my noble friend agreeing with me that the principal reason why there is no ability to offset tax for peer-to-peer lending activities is that they are not regulated and therefore there is scope for abuse?
Lord Sassoon
No, my Lords, I am not saying that. There are plenty of different tax treatments for all sorts of regulated and unregulated activities. I see the issues as separate. However, I have indicated a couple of areas in which changing the tax treatment would be difficult and would run counter to some of the broader accepted principles by which we run the tax system. But I would not link the two things explicitly together.
Financial Services Bill
Lord Lucas Excerpts(12 years, 5 months ago)
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Baroness Hayter of Kentish Town
My Lords, I first apologise to the Committee, because I would like to degroup Amendment 128AA, which is in this group. I know that the Minister has had minutes’ notice of this, but I apologise to others. It is an important issue, and clearly we will return to that.
I support the amendment moved by the noble Lord, Lord Phillips, and I will also speak to Amendment 104ZA. As we have heard, social enterprises are businesses that trade to tackle social problems and improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community. So when they make profits, society profits. They do not make profits for the shareholders. In future, perhaps we should adopt the words of the noble Lord, Lord Hodgson, and call them not-for-profit distribution, NFPDs, which may be the new word for them.
Funding is certainly needed to start up enterprises but, just as critical is the need to scale up and sustain them. That means getting access to modest and responsible sources of finance which will grow profits and jobs in this case, and make the local and national economy work. Appropriately funded social enterprises can lead an economic fight-back in the most deprived communities. The more deprived the community, the more likely you are to find social enterprises working there. They reinvest in the community. Indeed, 39% work in the 20% most deprived communities. They employ more people relative to turnover than mainstream small business and are outstripping other SMEs in terms of growth and sustainability. Just as access to funding can unlock the social enterprise sector’s potential, so it is the single largest barrier to the sustainability of this sector. Last year, 44% of respondents to a survey said that they were hampered by the availability and affordability of finance.
I make no apology that our Amendment 104ZA asks the FCA to discharge its general functions in a way that promotes growth and development of social finance and social investment. We ask that it should promote competition. This is, if you like, an emerging market, which needs a little help at the moment. I think that the word “promote” is not too dangerous but if the Minister would accept “enable”, I would settle for that. There is a distinctive difference to this sector. I hope that our regulatory system is big enough to engage with it.
Lord Lucas
My Lords, one of the reasons why the likes of Wonga charges high rates of interest is that its formula for doing business is mechanical. What is required in order to be able to offer proper rates of interest on small amounts of money to people who are not well off is trust, knowledge and community. That is what this sector sets out to provide. Armed with that, it is capable of giving a much better deal to borrowers without imperilling those who are lending money. It is a thoroughly worthwhile sector of the financial industry.
We need to ask the FCA not to promote it but, as the noble Baroness, Lady Hayter, says in her late revision, to enable it. The Government and regulation stand in the way. They give the big banks privileges which are not extended to small lenders. Some of them probably cannot be. I do not know that there is any way in which the £85,000 guarantee can be got down to these sorts of institutions. But they impose immense tax differentials so that you can end up not being able to offset losses if you have made them in community lending. As the noble Baroness, Lady Kramer, says, you can end up not knowing as a financial adviser whether you are allowed to mention these sorts of investments. We need a financial regulatory structure that gets out of the way, levels the playing field and gives these businesses a fair opportunity.
Lord Sassoon
My Lords, let me begin by saying that, as with the previous group, I wholeheartedly support the sentiment underpinning these amendments. The Government want markets which serve the wider economy, underpin growth and contribute to a more prosperous society as a whole. We want more proactive and judgment-based regulation, and we want the FCA to be tough and decisive in identifying and acting on bad practice in the financial services sector.
The Government have been very clear that they want social ventures to create positive change in our society and that to achieve this we need to make it easier for them to access the capital and advice they need. There is a growing social investment market which seeks to combine financial return with social impact. Investors are often willing to accept higher risk and a lower financial return because of the social value that their investment can make. However, as has also been noticed, the market is embryonic and needs support. The Government are committed to providing that support. In a moment, I will describe how we seek to do that. Before I do so, I will turn to some of the specific amendments to which noble Lords have spoken.
There are a number of reasons why I cannot support Amendments 104, 104ZA, 120, 137, and 139. First, where their intention is to promote social investment, that is simply not an appropriate role for the regulator. Although I agree with my noble friend Lord Phillips of Sudbury that the Government need to act in support of the social investment sector, we will not create a healthy UK financial services market, including for social financial services, by giving the FCA the job of taking forward what should be and is part of the Government’s wider social policy agenda. Let me be clear: the FCA’s job should be to administer a regulatory regime, policing it so that consumers are appropriately protected, regardless of what they invest in, that there is effective competition, and that markets are clean and operate with integrity.
Secondly, where the intention behind the amendments is to—
Lord Sassoon
My Lords, I cannot agree with that construction of what is intended here. Mis-selling very clearly comes under new Section 1C, the consumer protection objective. We have, perhaps, teased out of this discussion that if we are talking about social responsibility in the sense that my noble friend intends and in the way he has described it, it is more linked to the consumer protection objective, rather than the integrity of the UK financial system. The difficulty may partly be in the different uses of “integrity”. We are not talking in new Section 1D about integrity in the direct sense of the behaviour of the individuals in the system. We are talking about the wholeness and stability and soundness of the financial system, which is why these particular factors are listed in Section 1D(2). They are linked to concrete actions that would be expected of the FCA, examples of which I have just given. We may be partly mixing up apples and pears here because I do not think that social responsibility fits into this clause of the Bill.
If my noble friend came back and tried to attach it to proposed new Section 1C, I would still argue that social responsibility is a matter for government. Social responsibility in the sense that he is talking about will go to the heart of what the Joint Committee will look at in response to the LIBOR scandal. The responsibility of the participants in the sector will be tackled in different ways.
I have tried to reassure the Committee—I can see that I may have given only partial reassurance—that the Government firmly believe that the financial industry should serve society. There is a big unfinished agenda and the Government will not shy away from driving it forward. The right way to do so is through different avenues but not through expecting the FCA to be responsible for these particular areas. I ask my noble friend to consider withdrawing his amendment.
Lord Lucas
My Lords, while my noble friend is doing that, perhaps he will say something about the effect that Amendment 103 would have in a practical sense. If faced with the words “and society” at the end of the subsection, how would the FCA’s decisions be different? Under what kind of practical circumstances would it make a difference?
Lord Phillips of Sudbury
My Lords, that is a strictly out-of-court request at the moment. However, if the Committee will indulge the noble Lord, Lord Lucas, and myself, I will give him a short answer.
I am concerned, and those who have supported the amendment and the whole of the social investment sector are deeply concerned, that there is no single recognition in 168 pages of its special nature—not one single indication. I agree with them—others have made the point—that that is a profound omission given where we are, the financial sector we have got and the innovative drive and importance—potentially more than actually—of this new social sector.
Financial Services Bill
Lord Lucas Excerpts(12 years, 6 months ago)
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Baroness Garden of Frognal
My Lords, I apologise for intervening on my noble friend—
Lord Lucas
My Lords, this is a Second Reading. We are a self-regulating House. Whips have no business telling us what to do. We are listening to my noble friend with great fascination and I hope that he takes another 10 minutes.
Lord Lawson of Blaby
My Lords, I am grateful for that. This is a very important and complex Bill, and we should be able to speak if we are not waffling—and I hope that I have not been waffling—at adequate length. However, I assure the House that I shall not take another 10 minutes.
No banking system is likely to be stable if it is financed by a mountain of loan capital on an exiguous equity base. Yet that is what we now have. I suspect that this is unlikely to change unless there are two supporting changes.
First, the bank regulators and supervisors should at least strongly discourage if not actually forbid the remuneration of bankers on the basis of the rate of return on bank equity. Secondly, there needs to be a fundamental change in the tax system as it applies to banks, or at least banks that conduct ring-fenced activities, à la Vickers. At present, a bank that finances itself by raising loan capital finds that the interest paid on that capital is tax-deductible, whereas the dividends paid on equity capital are not, so there is a clear tax incentive in the system for the banks to capitalise themselves on the smallest possible sliver of equity—the very reverse of what is needed in the interests of stability. That should be changed. Interest on the bank’s loan capital should no longer be tax-deductible. The quid pro quo might well be the abolition of the blunt instrument of the bank levy.
In conclusion, I warmly welcome the Bill, but there is much still to be done.
Financial Services Bill
Lord Lucas Excerpts(12 years, 6 months ago)
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Lord Lucas
My Lords, it is very important that when we come to the Report stage of this Bill and the arguments that we will doubtless still be having with our Front Bench, we vote according to our expertise and not our politics. We are holding ourselves out in this House to be a source of expertise. The debate, at least until now, has demonstrated that to excess. If we allow ourselves, when it comes to votes, to be pushed around by our Whips, we become a mere House of politics, which is what Mr Clegg wishes to make us. If we are to be a House of politics let us be elected and get it done with. If we are going to be a House of expertise, it is important that when an argument has been won in this House and the Government still resist it, our views make their way down to the other end. I very much hope that when my noble friends and I come to discuss such important points as the duties and responsibilities on regulators, and we have reached a settled conclusion in this House, we vote that way and do not let ourselves be put off by spurious political considerations. We are a House of expertise. We should be proud of it and we should live up to it.
It seems to me that many of those who have spoken have focused on the way in which duties are placed on the various regulators. This is crucial; things obviously have to be divided between ministries and responsibilities are given out to one or another. The same happens with bits of ministries, but if you do not allow some overlap, you get situations like the current spat between the UK Border Agency and BIS where the UK Border Agency regards university students as some kind of poisonous plague and BIS, quite rightly, wants to encourage as many as possible. We need the UK Border Agency to have regard to the effect of its policies on the economy as a whole rather than just on immigration. You need to blur the boundaries from time to time and to place responsibilities on agencies that go beyond the powers that they actually have, so that they take into account the wider effects of what they do. The case has been very well made today that we must have regard to that consideration in this Bill.
I will focus mostly on minutiae. The big picture has been well covered by people who know it better than I do. I reassure my noble friend the Minister that during the Committee stage I will not try to insert any of these peculiar particular considerations into the Bill, other than making sure that the regulators, when they are created, have the power to deal with these things without having to come back for primary legislation. The three things that concern me particularly are high-frequency trading, consumer regulation and disintermediation. High-frequency trading has got to the point where stock exchanges—I do not know whether this is true of the London Stock Exchange, but it certainly is for some of the American exchanges—are allowing privileged access to data streams to high- frequency traders. These people with their computers are sitting co-located with the Stock Exchange. They are getting the data before anyone else, so the common experience of a pension fund manager trying to shift a block of a few million shares is that the market moves ahead of them because the high-frequency trader can see what is happening. This is licensed insider trading. The only people who benefit are the few running these specialist computer installations. The people who suffer from it are all of us through lower returns on pension funds. It is a thoroughly undesirable activity.
I am no friend of the Tobin tax; I can understand why people want to impose it but I do not think that it would work. However, we have to find a way, either through looking at the definition of insider trading which, it seems to me, high-frequency trading is well over the boundary of in some instances, or by looking at things like instant registration of share ownership. Why not update that so that companies have much more control of who is on their register rather than having a sea of unregistered deals out there? Why not bring company registers up to date and see what benefits that might give? I want the regulatory authorities to be able to explore those sorts of questions. It will take time but I do not want them to find that they are limited in what they can do in the way they are at the moment with consumer regulation.
There is a boundary between what the FSA can look at and what it cannot when it comes to collective investments. You would think when you read the pages of the Guardian or similar newspapers with their whole-page spreads for tropical forestry investments that they were collective investments. They are in the sense that a lot of people are piling into them all together. But because the investment at the end of the day is in individual named trees, the FSA cannot touch it. These are the most monstrous scams and people will suffer because of them. There was a supplement in the Guardian that must have had five or six whole pages of advertisements for these things. Why the Guardian deserts its responsibility to its readers to that extent I do not understand, but at some point these things get big enough so that the FSA should take an interest. I do not want it to be hobbled by provisions saying that there are artificial boundaries that the FSA cannot cross. It must be able to look at the effects that these products have on consumers, the likelihood of disaster and misbehaviour, the way in which they are sold to unsophisticated customers rather than sophisticated customers and say, “This looks like an area that we should investigate and therefore we can”, rather than being obstructed by technicalities.
The same appears to be true of some wine investments. This is not something that is without its extensions. The noble Lord, Lord Whitty, raised the interesting question of customer data and how Tesco Bank would be able to combine my liking for baked beans with my banking records. I can see why that would be useful. You say a lot about yourself in your pattern of purchases. Doubtless it could use that in judging my creditworthiness. Perhaps it is a good idea that it should, but we jolly well ought to debate it. Whatever financial regulator we create ought to be able to deal with that sort of emerging problem as it comes along.
Lastly, I come to disintermediation. I shall not take long because Andrew Haldane of the Bank has said such wise things about it. We have to make sure that the regulators we produce can unblock the road. At the moment they are in a totally ridiculous situation. The Treasury says people like Zopa and Funding Circle, which are disintermediating between members and borrowers, cannot have tax offset. If you make a capital loss because some of your loans go bad, you cannot offset that against the interest you have earned. So, this restricts these operations to only the finest possible lending. It also says that they cannot put their products into ISAs or similar things. It says they cannot do these things because they are not regulated and they are not regulated because the Treasury will not let them be regulated. We invented this disintermediation. I think that I am right in saying that Zopa was the first in the world. It is as if we had invented Google and then prevented it doing business. There are now hundreds of these things all around the world, but we have a block on the development of our own industry, which could be a fundamentally good thing that would offer new opportunities.
When the right reverend Prelate the Bishop of Durham comes to look at community lending, he will see that we will be able to produce the sort of disintermediation structures that work at a local level. When the sector becomes sizeable it will start to reduce the burden on the Treasury of the £85,000 guarantee, because the direct system will not qualify for that. We will start to attack the whole problem of lending short and borrowing long, because if we do it through the likes of Zopa or Funding Circle we will take the time risk but we will have a tradable asset. Therefore, we will get rid of the systemic risk that caused such great problems in the banking sector. We ought to encourage these things, but the Treasury has put a total block on their development and as a result the rate of growth in this country of that kind of business is terribly slow.
We must make sure that in producing new structures we are conscious of the fact that there will be people who will want to innovate in disintermediation. It is not only mechanised lending that is capable of disintermediation; investment management is also capable of it. We are conscious that investment managers as a class earn very large rewards. We are beginning to see disintermediation at the seed capital end of things. I am associated with one such firm. It would be nice to see that in mainstream investment management. We ought to be able to disintermediate annuities. Old people want income, young people want capital. That is a classic disintermediation opportunity, but it will be possible only if we write the regulations correctly. Otherwise, we will put young firms at a total disadvantage compared with the established, regulated operations against which they are trying to compete. The Bill ought to be on the side of innovation and dispersing rather than concentrating risk, but at the moment it may not be.
Lord Bilimoria
My Lords, perhaps I may add that this came to a head with the Welfare Reform Bill, which was committed to a Grand Committee. I remember what a stand-off there was between the Opposition and the Government. That was a sad day for this House. In the end a compromise was reached so that much of the Bill was debated on the Floor of the House. We must be careful about the signal we send out to the country about the priority of something as major as this crisis, which has brought the country to its knees. We must be careful of the message we send out before we make this decision.
Lord Lucas
My Lords, we have to face the fact that we do not do as good a job in Grand Committee as we do in a Committee of the Whole House. There is no opportunity for Peers widely to participate in Grand Committee in the way that there is in the Chamber. Given the importance of the Bill and the depth of interest in it, I hope very much that the Government will listen to what has been said.
Lord McFall of Alcluith
My Lords, perhaps I may remind the House that Finance Bills in the other place are accorded the greatest status by being debated on the Floor of the House. If we are going to have equal status in terms of the scrutiny and examination of this Bill, the least we can do is send a message to the other place that we take this seriously, and that it has to be done on the Floor of the House.
Queen’s Speech
Lord Lucas Excerpts(12 years, 7 months ago)
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Lord Lucas
My Lords, I cannot help my noble friend on the question of which economist has the best recipe for growing the economy—growing hair, yes, but not the economy. Therefore, I shall concentrate instead on fairness, regulation and votes in this House.
It seems to me that we are going to experience tough times for some while. Under those circumstances, fairness is terribly important. We have to be sure that particular groups do not manage to feather their own nests while the rest of us are having a hard time of it. Therefore, I entirely support what my noble friend Lord Tugendhat said about executive pay. There are structural reasons why executive pay has escaped reality in the way that it has and we need to make structural changes to bring it back into balance. I am grateful to my right honourable friend the Chancellor for the steps that he took in the direction of fairness in his Budget, particularly as regards the payment of stamp duty on the part of people who were dodging paying it by means of measures connected with overseas companies.
I am also grateful to my noble friend the Minister and his colleagues for their help on low-value consignment relief, a nice little dodge that enabled pirates in the Channel Islands to make off with a couple of hundred million quid of our money every year. However, he should know that he has scotched that snake but not killed it. The likes of The Hut, which was one of the companies involved, now ships out of Chicago, sending stuff marked as “a gift”. Others bulk ship into Europe and then treat their merchandise as if it was a postal packet coming in, shipping it round Europe in the European mail systems in contravention of postal regulations and VAT regulations. However, with open borders, it is hard to see ways of stopping that. Therefore, I very much hope that my noble friend and his colleagues will remain in close contact with Richard Allen and will use all his understanding and expertise to deal with the remnants of that abuse.
We also need to deal with big companies that are getting away with not paying tax. Goldman was in the news again the other day. That will not do. It is not fair and something has to be done about it. My favourite bogeyman is Amazon, which has £7 billion of sales but pays no corporation tax. That is just taking the mick. The Government have plenty of ways of pressurising Amazon. It is running a most unprincipled monopsony. I cannot find a major book publisher who will come to tea in this House and talk to me about what Amazon does. I have to find out what is happening from the little boys, who are less frightened. If you sell through the Amazon marketplace, you are not allowed to sell anywhere else in the world at a lower price. Amazon makes you keep your prices up elsewhere at the level at which you sell on Amazon, and it appears to be allowed to do that. There does not seem to be any thought of a referral to the Competition Commission. Amazon encourages people who use its marketplace to evade VAT. It was also extremely slow in complying with regulations that require it to produce information about who people are buying from in its marketplace, and it is still not acting satisfactorily in that regard.
There are lots of ways in which the Government can bring pressure to bear on Amazon. They are dealing with the supermarkets in a very similar situation; it is time that they dealt with Amazon. Having these major corporations destroying jobs and tax-paying businesses while paying no tax themselves absolutely will not do.
I want to speak about the benefits of regulation. I am looking forward to our changes in financial regulation. Investor protection has been a positive thing in this country, although it has sometimes been overenacted. I encourage my noble friend to consider extending investor protection because, once people get used to the idea of it, they assume that investments offered in newspapers have some level of protection. However, a few weeks ago the Guardian, which ought to know better, had a supplement carrying pages and pages of advertisements for investments in tropical forestry, offering 18% compound for 15 years. These are total scams, and the people who will make money out of them are the promoters. The uncertainties are enormously played down and the track records do not bear out the projections. A moment of proper financial regulation would see these scams swept away, yet the Government allow them because technically they are not collective investment schemes. In any ordinary sense of the word, they are collective investment schemes in that a lot of people are being herded into one investment. However, because each investor nominally owns a tree or two separately, they are not seen as collective investments and are not regulated. A lot of people are going to get hurt by such schemes and the Government really ought to tackle them. We have got used to protection and we deserve it.
The other area where regulation will do some good is in disintermediation. A number of companies, such as Zoopla, disintermediate basic banking. You can borrow from them and lend to them but you do not; you lend to the borrower and the borrower borrows from you directly. If you are a lender and a borrower, you can get much better rates from them than from a high street bank because you are cutting out all the intermediary functions and, in particular, you are cutting out all the costs that come from banks having to carry capital. You are doing away with one of those comfortable lies, which is that it is possible for banks to borrow short and lend long without carrying undue risk. You are taking that risk straight through from borrower to investor and are therefore able to offer much better rates. However, businesses such as Zoopla do not grow very fast and they are not very big, one of the principal reasons being that they are outside investor protection. People do not know how these businesses are run. They are not subject to any overt regulation. However, people have got used to safety and they want it. These businesses are basically good, worth while, sensible, money-saving and growth-generating, and they ought to be brought within the ambit of financial regulation so that people can trust them and use them as part of their ordinary range of investments. The same applies to venture capital.
Earlier, one of my noble friends talked about the price of annuities. If older people want income and young people want capital, matching the two can be done through disintermediation. One does not need to go through the horrible arrangements that have to be gone through at the moment based on gilt rates. If we could extend disintermediation to collective investments, that would be a real attack on executive pay. I am sorry; I am too old to be frightened by the Whips.
When it comes to votes in this House, we like to tell ourselves that we are a House of expertise, experience and independence. If change comes, that situation will degenerate and we shall become a House of politics. We are letting that happen. On all sides in this House, we are becoming more and more subject to the Whips; we are voting according to politics rather than according to our expertise. However, we are being freed from this by the Government because the Government have decided that they have no loyalty to us. They are prepared to sell us down the river for their own political ambitions. Therefore, we do not have to show loyalty to them for a while. We can vote on the basis of our expertise and our understanding. I think that that would improve the politics in this House. If what we sent back to the other end were not the product of political pressure, but the product of our own wise judgment, that would improve the performance of this House. I hope that we shall do that more in the coming year.
Taxation: Low-value Consignment Relief
Lord Lucas Excerpts(13 years, 9 months ago)
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Lord Lucas
To ask Her Majesty’s Government whether they have assessed the cost to the Exchequer of Low Value Consignment Relief.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the latest estimate of the annual cost to the Exchequer of low-value consignment relief is £130 million for calendar year 2010, a reduction from the previous estimate of £140 million for fiscal year 2009-10.
Lord Lucas
My Lords, I am grateful to my noble friend for that Answer, which I find mildly unbelievable since the turnover of the largest company involved in this scam is around £500 million—and that is just one of them—on which we lose around £100 million a year. Does my noble friend agree that what started out as a quite reasonable relief for Channel Islands flower growers has now been abused to the point where it has destroyed whole industries in the UK? You can no longer on the internet retail records, computer memory, contact lenses or gifts. It is ever expanding and costing us thousands of jobs and, as the Minister says, hundreds of millions of pounds. Has not the time come to put a stop to it?
Lord Sassoon
My Lords, there is a very wide range of estimates of the effect of LVCR but I believe that the HMRC data are as reliable as—more reliable than—any. I am grateful to my noble friend for drawing attention to this issue because the Government are committed to tackling tax avoidance. In that context, we are actively reviewing the operation of this relief. Ministers hope to be in a position to announce any possible changes to the operation of LVCR flowing from the review in the Budget on 23 March.