Financial Services and Markets Act 2000 (Miscellaneous Provisions) Order 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Miscellaneous Provisions) Order 2015.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Employment Allowance (Care and Support Workers) Regulations 2015
Lord Newby Excerpts(9 years, 2 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the draft orders and regulations laid before the House on 13 and 19 January be approved.
Relevant documents: 20th and 21st Reports from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 25 February.
Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, I shall speak also to the draft Financial Services and Markets Act 2000 (Miscellaneous Provisions) Order 2015. I am pleased to introduce these statutory instruments.
The Government have fundamentally reformed regulation of the consumer credit market, transferring regulatory responsibility from the Office of Fair Trading to the Financial Conduct Authority on 1 April last year. The FCA is better resourced and more empowered than its predecessor and has been equipped with flexible rule-making powers to ensure that it keeps pace with developments in the market. The FCA regime is already having a significant positive impact and is helping to deliver the Government’s vision for an effective and sustainable consumer credit market that is able to meet consumers’ needs.
The raising of standards will improve further as the FCA undertakes authorisation assessments to assess firms’ fitness to trade—a process that has already begun for those industries regarded as the riskiest, including payday lending—and these instruments to be debated today help to support the effectiveness of the FCA’s regulatory regime.
First, the e-commerce order provides the FCA with powers to tackle credit firms, including payday lenders, which abuse their rights under the e-commerce directive to evade FCA rules. As noble Lords will be aware, the Government have taken robust action significantly to improve protections for consumers in the payday lending market. The Government transferred regulatory responsibility to the FCA’s powerful new regime and legislated to require the FCA to introduce a cap on the cost of payday loans.
The Government strongly welcome the payday lending rules introduced last year by the FCA, including limits on rollovers and the use of continuous payment authorities, and tougher requirements around affordability assessments. On 2 January, the FCA’s cap on the cost of payday loans came into force, as required by the Government. Consumers are far better protected under the FCA regime. The FCA has a wide-ranging enforcement toolkit to take action where wrongdoing is found, and the rigorous authorisation process for payday lenders is under way.
FCA regulation is already having a dramatic impact on the payday market—indeed, the FCA found that the volume of payday loans fell by 35% in the first six months since it took over regulation. These data are from before the cost cap took effect in January.
The Government are committed to preventing the gaming of the FCA’s regulatory regime, including the risk that lenders seek to relocate abroad and lend back into the UK. The important powers in this order will protect UK consumers by giving the FCA powers to take action against credit firms that abuse their rights under the e-commerce directive to establish themselves in another EEA member state but lend primarily to the UK. The powers will enable the FCA to require credit firms to comply with FCA rules—including, in the case of payday lenders, the price cap—or require them to seek full authorisation to continue carrying out their activities. The order therefore represents an important reinforcement of the FCA regulatory regime, helping to protect UK consumers from unfair costs and harmful practices.
I turn now to the miscellaneous order. This order will address a number of technical issues to ensure that consumer credit regulation strikes the right balance between proportionate burdens on business and providing robust protections for consumers. In particular, the order makes several provisions to minimise unnecessary regulatory burdens on firms.
For example, the order adjusts the working definition of a “domestic premises supplier”. This definition is important because it requires firms selling goods in a customer’s home to comply with the higher regulatory standards in the FCA’s “full permission” regime, thereby helping to protect consumers from the pressure-selling of goods or services on credit. However, it is important that this definition is drawn correctly to minimise unnecessary regulatory burdens on businesses and support the provision of goods and services to consumers.
The order ensures that firms providing goods or services in a home where no attempt is made to sell other goods or services, or anything extra provided is free of charge, are not regarded as “domestic premises suppliers”—for example, where a mobility aid supplier simply visits the customer’s home to measure up before a contract is signed, or where a kitchen supplier delivers and installs an item after it has been ordered. These firms can therefore benefit from the FCA’s lower-cost “limited permission” regime.
The order also makes a number of other technical adjustments to ensure proportionate regulatory burdens. For example, it ensures that solicitors—who are already subject to their professional regulatory regime—will not require FCA regulation when undertaking credit activities incidental to the firm’s professional services. I beg to move.
Lord Sharkey (LD)
My Lords, I will speak only to the first of the two orders before us. This order has the usual eye-catching name for such things: the Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015. A better and clearer name for the SI would be: “Closing a Gigantic Payday Lending Loophole”, because, as the Minister said, that is exactly what the SI does.
On 9 December 2013, in response to amendments put down by the noble Lord, Lord Mitchell, and by me, the Government finally accepted the need for strict control of payday lending. The FCA rules that followed capped the cost of payday loans and limited the number of permitted rollovers. They also created the conditions for real-time data-sharing by lenders in order to reduce the incidence of multiple simultaneous loans. The Treasury and the FCA are to be congratulated on that. Together, with some prompting from your Lordships’ House, they have entirely changed the nature of the payday loan sector in the United Kingdom. What started out as outrageous and cruel usury has been reduced to more or less sensible costs and more or less sensible limits. The capacity of payday lenders to inflict terrible damage, as they were doing, on the most disadvantaged has been severely reduced, and I am pleased to be able to say that many payday lenders have simply shut up shop in the UK as a consequence of the new regime.
I do not think that the situation is ideal yet because, for many of us, the number of rollovers is too high, there is not yet a proper real-time database of loans outstanding and there is no mechanism for automatically preventing multiple simultaneous loans. Of course, as we speak, payday lenders are busy changing their business models in ways that will require continued vigilance on our part. We will have to see how all that works out.
In the debate of 9 December 2013, I raised for the first time the question of what seemed to me a gigantic loophole in the proposed new regulations. This was the loophole to do with the e-commerce directive, which we are discussing. As the Minister said, this directive would allow any payday lender to avoid our regulation if they were based elsewhere in the EEA and were trading in the UK only electronically. This would mean that any payday loan company could continue to operate in the UK but entirely outside our rules, caps and limits if it were based in the EEA and had no bricks and mortar presence here in the UK.
I asked the Treasury at the time what it intended to do about this. I had subsequent conversations with the Minister and officials about the problem. This order is, as the Minister correctly said, the solution to that problem. It closes the gigantic loophole in the regulations. If payday loan companies based abroad now try to use the e-commerce directive to avoid UK regulation, they can now be stopped from operating in the UK or forced to comply with our rules if they want to continue to operate in the UK. This is a very good and very necessary step forward, and I am delighted that the Government and the FCA have acted.
As the Minister said, this new order adds to the protection against the immoral and unscrupulous exploitation of the most vulnerable people in our society. However, it is a Treasury order and it is written in the Treasury’s normal, deathless—meaning, obvious-on-the-face-of-it—prose, which means that there are just a couple of questions that I would like to ask the Minister.
New Regulation 11A lists the kinds of activities that the order will apply to. Can the Minister say whether this list includes debt management companies? I know that he is aware of the wholly unacceptable charges and practices of some companies operating in this sector.
New Regulation 11B (2)(a) seems a little ambiguous. It says that the authority must be satisfied that the incoming provider,
“directs all or most of its activity to the United Kingdom”.
The question is: how is “most” to be interpreted here? Does it mean “most” by weight of advertising, “most” by number of customers or “most” by the value of lending to those UK customers? How will the authority arrive at a measure of whichever interpretation of “most” it wants to use? I very much hope that my noble friend the Minister will be able to say that the FCA will be able to use all or any of the above interpretations and that it will be able to use, as a conclusive determination, whatever measures it considers reasonable.
Those are details but, in this area, detail is often absolutely critical. However, I do not want the detail to overshadow my congratulations to my noble friend the Minister and the FCA. They have closed a potentially very damaging loophole in the payday regulations.
Lord Newby
My Lords, I thank both noble Lords who have participated in this debate. I, too, congratulate the noble Lord, Lord Sharkey, on his persistence in this area and on drawing this issue to the attention of the Government for the first time, I think. When he first did so, it was by no means clear that there was a legal route which enabled us to deal adequately with payday loan companies which just moved offshore. He spurred the creative minds in the Treasury to come up with a legal route, so we are extremely grateful to him for that.
He asked a couple of very specific questions, including whether the provisions include debt management companies. The answer to that is yes, they do. He asked how one defines “most” and gave a number of contributory definitions of “most”. It is for the FCA to determine that definition on a case-by-case basis. It will take into account all the factors in deciding how to do it.
The noble Lord, Lord Tunnicliffe, spoke of the Labour Party’s wish to promote a safer and more ethical lending environment. I think we all share that wish. That is why we have taken action on payday lending and have taken a range of actions to promote mutuals and credit unions, including giving £38 million to the credit union expansion project and undertaking a review of how we can promote credit unions further. Credit unions are, in the medium term, probably the best bet we have for many people having easy access to proper financial services and small loans. A key thing now will be to get credit unions up to the ease-of-use level that the payday loan providers have. To be critical of the payday loan sector, its great strength and weakness is that it is so easy to use. It is not so easy to get access electronically to your credit union account or to loans via credit unions. One of the key things that the credit union expansion project is doing is improving back-office infrastructure to enable credit unions’ systems to be more user-friendly, particularly for young people who are used to electronic methods of banking. I do not think we disagree on that.
The noble Lord, Lord Tunnicliffe, asked about the definition of “domestic premises supplier”. The key is to ensure that firms selling in the home, where there is a risk of pressure selling, are subject to greater regulatory scrutiny. We are clarifying that this includes where firms promote themselves as being willing to visit consumers in their homes. That makes them a domestic premises supplier, irrespective of the number of visits they make. This will make it easier for firms and the regulator to judge on which side of the line they fall. I think—and I will write to the noble Lord if I am wrong on this—that there is a big difference between a company that sells in its shop or online and then just delivers stuff to your house and a company which comes and gives a quote in your house. That is the sort of distinction we are trying to make. If I can expand on that further in any helpful way, I will do so.
Lord Tunnicliffe
I thank the noble Lord for that promise. I find the description that he just gave entirely understandable and reasonable but then I look at the draft legislation. It takes a heroic understanding of words to move from those in the order to the explanation I have just heard. If nothing else, I shall value the letter that explains how you move in such a way.
Lord Newby
It will be a great pleasure to give the noble Lord something of such value. We will attempt to do that.
Finally, the noble Lord asked whether we were satisfied with the performance of the FCA in taking over the reins of the OFT. The short answer is yes. Looking at the payday loans element alone, the impact of the FCA, combined with the legislative procedures that have been put in place, has been very dramatic in a direction that most people would welcome. The relative speed with which it was able to get the cap agreed and implemented is an example of that. The short answer to that question is yes, but of course both the Government and Parliament will scrutinise carefully what it does in future.
Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015.
Relevant document: 21st Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, these regulations ensure that a ring-fenced retail bank cannot be liable for pensions obligations arising from other parts of its wider banking group. These regulations are the final piece of secondary legislation necessary to bring about the ring-fencing of retail banking from investment banking. In completing this process, these regulations represent the final piece of legislation needed to complete the biggest ever overhaul of Britain’s banking system.
On election, the Government set themselves the task of fixing the banking system following the worst banking crisis in the entirety of British history. In 2010 we set up the Independent Commission on Banking—the ICB—led by Sir John Vickers to consider the options for structural reform of the banking sector. The ICB recommended ring-fencing core retail banking services from investment banking and trading.
Ring-fencing will insulate crucial core retail banking services, such as the taking of personal deposits, from shocks originating elsewhere in the financial system, and will make banks simpler and easier to resolve. This will help curtail the implicit government guarantee enjoyed by banks that are seen as too big to fail, and will protect taxpayer money from ever again being used to provide solvency support for failing banks.
One of the recommendations of the Independent Commission on Banking was that ring-fenced banks should not have any liabilities to group-wide pension schemes. The Financial Services (Banking Reform) Act 2013 gave the Government the power to ensure this, and these regulations exercise that power. They require ring-fenced banks to make arrangements to ensure that they do not have any shared pension liabilities with other group members or outside companies—with the exception of other ring-fenced bodies within the same group, and wholly owned subsidiaries. The regulations also give powers to the banks and to the trustees of banks’ pension schemes to ensure that the necessary changes can be made, and set out the role of the regulators, the PRA and the pension regulator for monitoring and assessing the changes.
The regulations are a necessary part of ensuring that there is a robust ring-fence in place protecting core banking services. Any shared pension liabilities could pose a huge risk to the viability of the overall ring-fence and could threaten the ability of the ring-fenced bank to maintain the provision of vital services. Collectively, the large banks run their pension schemes at a deficit that reaches the multiple billions of pounds. This means that were a non-ring-fenced investment bank to fail, the ring-fenced bank could suddenly be left with a large pension liability in the many millions, or even billions, of pounds that it might be unable to pay.
Although implementing these regulations will have some transitional cost to the banks, the measure is clearly good value for money. The cost to the banks is hard to estimate, but the Treasury expects it to be in the tens or low hundreds of millions of pounds. This is relatively small in comparison to the cost of the broad ring-fencing package.
Furthermore, ring-fencing itself is the best strategy for structural reform of UK banks. The plan to ring-fence UK banks is based on the comprehensive work of the Independent Commission on Banking. The mechanisms by which ring-fencing will help financial stability are clear. The ring-fenced retail banks will be insulated from shocks elsewhere in the financial system. They will have higher capital requirements, which will improve their resilience. Ring-fencing will make banks’ structures simpler and will provide additional options to the regulator for a bank to be restructured, which will help resolution in the case of failure. By ensuring economic and operational independence, ring-fencing will achieve the objective of complete separation of retail banking from investment banking while still allowing the bank to benefit from its relationship with the wider banking group.
We firmly believe that this is the most cost-effective and proportionate option, and one that will ensure the long-term stability of the sector. The regulations play a key part in building a robust ring-fence and a stable banking sector, and I commend them to the Committee.
Lord Tunnicliffe (Lab)
My Lords, I sat through the creation of the Act to which these regulations relate. Broadly speaking, it had cross-party support. This is, as the Minister pointed out, a key element in completing the picture and therefore I welcome it. However, having spent several years serving on the Merits of Statutory Instruments Committee of your Lordships’ House, I can only join in its complaint—it is now called the House of Lords Secondary Legislation Scrutiny Committee—from its 26th report, published on 10 February. The committee said:
“In the EM, HMT gives limited information about the consultation process which was held from July to October 2014, referring only to a number of technical changes made in the light of consultation responses, as well as to two substantial changes in order to limit the burden on the banks and regulators. Though the draft Regulations were laid on 21 January, HMT had not published the summary of responses by 10 February. We are clear that Departments should publish their consultation summaries no later than the time of laying the instruments concerned before Parliament, as we set out in the report of our inquiry into Government consultation practice. In our view, Parliament should be asked to consider secondary legislation only when Government have provided adequate information, including about consultation, to support such consideration”.
I agree with the comments in that report. I believe that that general principle should be kept to and I am disappointed that the Treasury, in this particular case, has failed.
Also, what progress is being made in this whole ring-fencing process? As the Minister will recall, there was a degree of scepticism from our Benches and other places that the timescales that the banks had to create their ring-fence structures were extended. Can the Minister give the Committee some indication of what progress the banks are making in that extended timescale and what processes the Government and presumably the PRA, the FCA or whatever is the appropriate combination are putting in place to ensure that the banks are progressing towards their ring-fenced state and that we do not once again end up in a situation where too-big-to-fail institutions land us with a fait accompli and say, “We haven’t done it yet: we’ll do it later”. With those comments, I have no objection to the regulations in principle because, as the Minister said, they complete the picture to create ring-fenced entities.
Lord Newby
My Lords, I thank the noble Lord for his comments. On the consultation and the publication of the consultation response document, I am sorry that it was not published earlier. It has now been published. Compared with most SIs that we take through your Lordships’ House, this is actually—though important—quite short, and has a single purpose.
Lord Tunnicliffe
I also take the point that compared with the importance of the SI this is a modest point, but to a poor opposition spokesman like myself, without a wonderful array of staff behind me, if a document is not signalled in the EM I have great trouble actually finding it. While I am sure that the statement has been published and is right, surely it should be a matter of discipline that it should be published before it is laid, and every effort should be made to make sure that any documents referenced are referenced in the Explanatory Memorandum.
Lord Newby
I agree with the noble Lord. It is very difficult from the document itself to gain any sense of where pressure points or disagreements might be, and things should be published promptly, as the rules suggest.
The noble Lord asked how the ring-fence process is going. This is the final piece of secondary legislation required to implement ring-fencing. By passing it now, we have fulfilled our commitment to legislate for ring-fencing by the end of the Parliament. Further ring-fencing rules, which do not require legislation, are now being consulted on in two consultation papers and being put in place by the PRA. The PRA’s first ring-fencing consultation closed in January, and it is on course to publish its second consultation paper later this year. The big banks that have to implement ring-fencing are fully engaged with the PRA and, in January, gave their initial plans for ring-fencing to the PRA. So there is a bit of an iterative process going on between the drafting of rules and the banks’ own thoughts about how best they might do it. The other thing that has been happening is that Lloyds and RBS have been making changes to their business by winding down certain of their activities, both in terms of geographical spread and contracting some of their investment banking activities in anticipation of ring-fencing coming into effect. As far as we are aware and can see, both the regulators and the banks appear to be on track to have the ring-fencing successfully implemented in due time by 2018.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2015.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments (Special attention drawn to the instrument)
Lord Newby (LD)
My Lords, this instrument creates a new regulated activity in the Financial Conduct Authority’s regulated activities order. The new activity concerns the giving of advice on the conversion or transfer of a class of pension benefits known as safeguarded benefits, which are defined in the Pension Schemes Bill 2014-15, but are best understood as benefits that the Government have taken a decision to safeguard, because they offer a guaranteed income in retirement that is assessed to be particularly valuable. They include benefits commonly referred to as defined benefit, but also include benefits that offer other guarantees or promises. This new activity relates to a safeguard being created by the Pension Schemes Bill 2014-15 in the context of the new pensions freedoms announced at Budget 2014. The advice safeguard requires scheme trustees and managers to check that members have received appropriate independent advice before transferring or converting safeguarded rights into rights which can be accessed flexibly, and before paying an uncrystallised funds pension lump sum in respect of safeguarded benefits. This safeguard will ensure that members have fully considered the implications of giving up rights that provide a valuable guaranteed income in retirement. It is important that this safeguard is operational from 6 April 2015, when the new pension freedoms come into force.
In July 2015, the Government’s response to the consultation on freedom and choice in pensions committed that advice required under the safeguard would be provided by an FCA-authorised adviser. This instrument helps deliver on that commitment. This instrument provides for advice on the conversion and transfer of safeguarded benefits into flexible benefits to be regulated by the FCA in accordance with the regulatory framework established by the Financial Services and Markets Act 2000.
Without this order, the FCA would regulate only advice on transfers of safeguarded rights to contract-based schemes. The new regulated activity created by the instrument allows the FCA to regulate advice on all transfers of safeguarded rights and interests to trust-based schemes that can be accessed flexibly. The Government want to ensure that the consumer interest is prudently accounted for in the context of the new pensions freedom, and therefore this instrument has been brought forward to ensure the proper operation and consistent regulation of advice provided under the safeguard.
The approach of defining the appropriate independent advice required under the advice safeguard by reference to a new FCA-regulated activity was indicated during the Lords Committee stage of the Pensions Schemes Bill on 12 January this year. Amendments to the Bill were the made at Lords Report stage on 27 January to provide that the appropriate independent advice required by the Bill should be provided by a person who,
“has permission under Part 4A of the Financial Services and Markets Act 2000 … to carry on a regulated activity specified in regulations made by the Secretary of State”.
The House was informed in early January that the Treasury would lay an instrument to create the relevant regulatory activity. This is the order we are now debating.
The Financial Conduct Authority will set out in a forthcoming consultation paper the precise standards of advice it will require. This paper, which will be published very shortly, taken together with the Pension Schemes Bill, its regulations and this order, will ensure that the advice safeguard is robust, effective and fully operational when the pension freedoms come into force in April 2015.
I commend the order to the Committee and beg to move.
Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for presenting this order. He has clarified my only concern of understanding. I wish I had had the conversation with him four or five working hours ago. As I understand it, the order does all sorts of bits and bobs, but its essence is in Article 7.8 which fills a hole in the FCA applying these standards to the transfer to trust-based schemes. It took me a great deal of time to find out the difference between a contract-based scheme and a trust-based scheme. I shall not repeat my understanding lest I have it wrong, but that seems to be the essence of the order.
The “Regulatory Triage Assessment – final stage” document offers three alternatives. Option 2 is:
“Amend the FCA’s Regulated Activities Order via statutory instrument such that advice on occupational transfers is fully regulated”.
It does not give a very convincing reason why it should not do this. It is not that we are not supporting this Bill. The Opposition have not opposed the general essence of what the Chancellor is trying to do, but the size of what is happening and the importance of quality advice cannot be overstated.
I believe it has been estimated that perhaps some 500,000 defined benefit scheme holders may seek transfers almost straightaway. I think that a firm called Hargreaves Lansdown has done that. Given the very sudden discontinuity that will occur in April, is the Minister confident that the advice industry has the capacity to meet people’s needs? Does the pensions industry have the ability to meet the apparently thousands of transfer requests that it will face? Is the Minister happy that the mechanisms are available to protect the public from fraudulent operators? Does the Minister think that the Government have done enough to educate the public on the size and challenge of the changes they face? I happened to come across an article in the Observer this weekend which was rather less than reassuring. It said:
“Figures from insurance company Zurich show that, while the average length of retirement is 25 years, over half the population believe they will be retired for 20 years or less. Most people also predict they will not live beyond 85. But figures suggest half of people retiring now could live to 90 or beyond”.
That does not show an appropriate level of public understanding in facing this significant change. The noble Lord’s colleague, Steve Webb, the Minister in the other place, did not exactly use resoundingly assuring language in the article. He said:
“We wouldn’t be doing it if we thought it was a disaster, but you do take a risk when you trust people with their own money”.
I wish that his tone had been slightly more reassuring—I hope that the Government have a rather greater aspiration than the avoidance of disaster. I hope that in the short time left before April they will do their best to improve the level of education among the general public so that not too many people make decisions that they subsequently regret.
Lord Newby
The noble Lord is quite right to describe the order as filling a hole in the regulatory structure. That is exactly what it does. He talked about two separate changes that are taking place from 1 April. The relatively narrow one in terms of the number of people we think are likely to take advantage of it is the flexibility for people with a defined benefit scheme or other safeguarded scheme to move to a more flexible scheme. That is what the order covers. People in that category are required to take advice via a regulated adviser. We think that the majority of people with safeguarded pensions will find, on taking that advice, that it is in their best interests to retain them. However, it is for them, in discussion with the IFA community, to decide on a case-by-case basis.
I was asked whether there are enough properly qualified people to do the work. There are about 20,000 registered IFAs and around 7,000 of those are pension transfer specialists so it is quite a body of people. Given all the other changes that have taken place in the financial services sector, the concern of the IFAs in recent years has been that there was not enough work to go around—or would not be in future—on their old model of operating. I suspect that for this category of people, there will be adequate advice.
The article to which the noble Lord referred and many of his later comments were about the more general freedoms under which, from April, people will no longer have to take an annuity. There is a different and larger challenge there in terms of providing support for people in that category. As the noble Lord knows, we are setting up a completely new guidance service to advise people in that category. That service will have three strands—web-based, telephone and face-to-face—and is being developed by my colleagues in the Treasury. When I talked to them about this earlier, they assured me that they feel they are on track to have enough people and adequate systems in place to deal with the very large number of requests they will get.
One other thing that my colleague, Steve Webb, said about the change on 1 April was that he suggested people spend the day in bed rather than worry about changing their pensions literally on day one. It is important that people take time to get not just the guidance but also to think about how they want to dispose of the funding they have in their pension pot.
I completely share the concern of the noble Lord and several commentators that many people do not understand pensions at all. They have a pension but that is about all they know about it. One of the great potential benefits of this change and the fact that everybody will get free guidance is that it will help people to understand how a pension works. I think there is a view in a lot of people’s minds that a pot of money called a pension is somehow different in some mysterious way from any other pot of money. The truth is that it is a pot of money available for them to dispose of, now pretty flexibly. People will need to confront their own mortality, possibly in a way that they did not feel they needed to in the past. That is undoubtedly a challenge to people but one that they should face up to, and not just because of how they deal with their pensions. It also affects a whole raft of ways in which they think about their later years. For many people on the normal retirement age, that period will be 30 years or more—a third of their life.
It is a challenge. We are putting in place robust, we hope, measures through the guidance systems in terms of these safeguarded pensions—the subject of this order. That advice will ensure that people get the level of support they need to take the correct decisions and enable them to get the very best out of their pension savings. Of course, at this stage we do not know whether our systems will be as robust as we hope they will be. We do not know quite how people will respond to this. However, I think we have behaved responsibly in not only opening up the freedoms but also putting in place a system to ensure that people can exercise those freedoms in a responsible manner for their own benefit.
Entrepreneurs’ Relief
Lord Newby Excerpts(9 years, 2 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Leigh of Hurley
To ask Her Majesty’s Government what assessment they have made of the economic impact of the increase in Entrepreneurs’ Relief since May 2010.
Lord Newby (LD)
My Lords, no formal economic assessment has been made, but HMRC monitors and regularly publishes information on entrepreneurs’ relief and its take-up. The value of entrepreneurs’ relief is forecast to rise from £1.5 billion in 2010-11 to £3 billion in 2014-15. This Government have increased the lifetime limit from £2 million to £10 million and this is expected to benefit those who want to grow their business and reinvest their gains into new enterprises.
Lord Leigh of Hurley (Con)
My Lords, I thank my noble friend and draw your Lordships’ attention to my declaration in the register of interests. The great success of the UK economy has not happened by chance, but by the implementation of policies designed to encourage business. As mentioned, the increase in the cap from £2 million to £10 million has had a dramatic effect in allowing and encouraging entrepreneurs to start new businesses. However, many of them have gone through this cap, which is a lifetime amount. Will the Minister consider taking away that cap and possibly the 5% limitation as well?
Lord Newby
My Lords, as the noble Lord has pointed out, we have increased the cap fivefold. However, we believe at this point that the limit is necessary as part of the overall design of the relief and to ensure that the relief is well targeted and not open to misuse. As I said in my initial Answer, it is worth £3 billion already.
Lord Shipley (LD)
My Lords, in noting the success of government policies in entrepreneurialism and enterprise, may I draw my noble friend’s attention to the Burt report, entitled Inclusive Support for Women in Enterprise, produced by Lorely Burt MP, the government ambassador for women in enterprise? It has a particularly helpful set of recommendations, not least on the work—and the possibilities for additional work—done by local enterprise partnerships. Do the Government have any plans to give the Burt report their very full consideration?
Lord Newby
My Lords, the Burt report contains a whole raft of really interesting proposals, which the Government will consider. The latest figures that I have show that some 990,000 SMEs are led by women. At about 20% that is a record high, as far as I am aware.
Lord Flight (Con)
My Lords, are the Government aware of the tremendous success of entrepreneurial endeavour—
Lord Flight
Excuse me. I apologise for my extremely embarrassing mobile phone. Is the Treasury monitoring the extent of entrepreneurial activity and success in this country? Never in my lifetime have I known such an explosion of entrepreneurship, particularly among all the new technologies, where other government measures are helping. This is a sort of Schumpeterian thing that is happening, which ensures our future. I find it quite difficult to access detailed figures—for example, on how many of the 1.5 million new companies over the last two years are new enterprises or other things. Is the Treasury monitoring the amazing thing that is happening in this country?
Lord Newby
My Lords, the Treasury is keeping records and noting the number of businesses. There are a record number of private sector businesses in the country at the moment, with an increase of 760,000 compared to 2010. There is of course a whole raft of measures, from having a long-term economic plan that has kept interest rates low to much more specific measures to support small business, which is helping this phenomenal growth.
Lord Liddle (Lab)
My Lords, can the Minister, in praising the Government’s economic record, explain to the House why if entrepreneurship has flourished so much in this country we have one of the largest trade deficits in the world, at 6% of GDP?
Lord Newby
My Lords, we have had a trade deficit for a very considerable time. One of the reasons we have such a large deficit now is that the amount of net income from UK investments abroad has fallen dramatically, not least because a lot of foreign companies have been investing here. However, the Government have set an ambitious target for increasing exports. By common consent, UKTI is far more focused in what it is doing than it has ever been. We are seeing an increasing number of British companies exporting to an increasing number of countries.
Lord Grocott (Lab)
Did I hear the Minister refer to the Government’s “long-term economic plan”? I knew that, in the other place, Conservative Members of Parliament were obliged to say that in all their speeches on every conceivable occasion but I had not realised that the implant was operating in the brains of Liberal Democrats as well. Can he confirm whether that is the case?
Lord Broers (CB)
My Lords, I am sure the Minister realises that there is a point in the growth of new companies, especially high-tech companies, where they have gone through the first phase but their next phase requires not a few million pounds but perhaps £100 million. In Cambridge, we have certainly lost some very successful companies to US investors at that stage. In fact, it is quite a regular occurrence. Are the Government thinking about that, and about perhaps persuading our City to fund some of these new companies and not always leave it to the Americans?
Lord Newby
Yes, my Lords, but while the problem to which the noble Lord refers is of course a long-standing one in the UK, the Government have done a number of things. One is the growth of the enterprise investment scheme, which generated investment of £1 billion in 2012-13. The seed enterprise investment scheme is another, albeit for slightly smaller firms, and some of the initiatives of the Stock Exchange on AIM and the development of the retail bond market are also designed to help fill that funding gap.
Lord Dobbs (Con)
Is my noble friend able to cool fevered brows on opposite Benches and confirm that part of that long-term economic plan is to continue the extraordinarily successful growth of job creation, which has given this country an unemployment and employment record finer than any other economy in Europe?
Lord Newby
My Lords, it is far beyond my powers to cool the fevered brows opposite, but I repeat: we have been extremely successful in terms of private sector employment. Over 2 million additional private sector jobs have been created in this Parliament, which means that we now have more people employed in the UK than ever before, and the joint-highest rate of employment.
Lord Davies of Oldham (Lab)
My Lords, does the long-term economic plan, developed against a background where the Government have postponed the ability to eliminate the deficit, have as a constituent part no decision on the fundamental issue of aviation in terms of Heathrow or the third runway in the south-east? Does it also contain a commitment to continually run a low-wage economy and zero-hour contracts for an awful lot of the people who get new jobs?
Lord Newby
My Lords, growth in the UK this year is the highest in the G7. It will be, at worst, the second highest in the next year. Frankly, this is an economic position of which this Government are extremely proud.
Employment Allowance (Care and Support Workers) Regulations 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Employment Allowance (Care and Support Workers) Regulations 2015.
Relevant document: 21st Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, I am pleased to introduce the two regulations and the order standing in my name on the Order Paper. I can confirm at the outset that the provisions in them are compatible with the European Convention on Human Rights.
The changes to the NICs rates and thresholds and the extension of the employment allowance covered by these three instruments were announced as part of the Chancellor’s Autumn Statement on 3 December last year. In the Budget on 23 March 2011, we announced that for the duration of this Parliament the basis of indexation for most NICs rates, limits and thresholds would be the consumer prices index instead of the retail prices index. I can confirm that the basis of indexation used to calculate the changes follows that approach. The exceptions to this are the secondary threshold and the upper earnings and upper profits limits.
I will start with the Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations. These are necessary in order to set the class 1 national insurance contributions lower earnings limit, primary and secondary thresholds and the upper earnings limit for the 2015-16 tax year. The class 1 lower earnings limit will be increased from £111 to £112 per week from 6 April this year. The lower earnings limit is the level of earnings at which contributory benefit entitlement is secured. However, NICs do not need to be paid by the employee until earnings reach the primary threshold.
The class 1 primary threshold will be increased from £153 to £155 per week from 6 April. The secondary threshold is the point at which employers start to pay class 1 NICs. In line with the commitment in Budget 2011, this is being increased by RPI from £153 to £156 per week.
From this April, the income tax personal allowance for people born after 5 April 1948 will be increased above indexation from £10,000 to £10,600, and the point at which higher-rate tax is payable will be increased from £41,865 to £42,385 in the 2015-16 tax year. As I mentioned, the upper earnings limit is not subject to CPI indexation. This is in order to maintain the existing alignment of the upper earnings limit with the point at which higher-rate tax is paid. The upper earnings limit will be increased from £805 to £815 per week from 6 April.
Employers have to pay NICs at 13.8% on earnings above the secondary threshold. In the Autumn Statement, the Chancellor of the Exchequer announced a zero-rate earnings band for employers’ NICs for earnings of employees under the age of 21 from 6 April. The introduction of the zero-rate earnings band for employees under the age of 21 is expected to benefit about 340,000 employers, helping to support the jobs of almost 1.5 million young people currently in employment.
The zero-rate earnings band applies only to earnings up to the equivalent of a new threshold called the upper secondary threshold, which is to be set at the same level as the upper earnings limit for the 2015-16 tax year. These regulations introduce the upper secondary threshold and set it at the same level as the upper earnings limit of £815 per week from 6 April.
Finally, these regulations also set the prescribed equivalents of thresholds and limits that I have mentioned for employees paid monthly or annually. Apart from the introduction of the zero-rate earnings band for employees under the age of 21, there will be no other changes to NICs rates in the 2015-16 tax year. Employers will continue to pay contributions at 13.8% on all earnings above the secondary threshold. Employees will continue to pay 12% on earnings between the secondary threshold and the upper earnings limit, and 2% on earnings above that.
The social security order sets the class 3 contribution rate for those paying voluntary contributions and the class 4 profits limits for the self-employed, as well as providing for a Treasury grant.
Starting with voluntary class 3 contributions, the weekly rate will increase from £13.90 to £14.10 a week for the 2015-16 tax year. Moving on to the self-employed, today’s order also sets the profit limits for class 4 contribution liability. The lower profits limit on which these contributions are due will increase from £7,956 to £8,060, in line with the increase to the class 1 primary threshold.
At the other end of the scale, the upper profits limit will increase from £41,865 to £42,385 for the 2015-16 tax year. This is to maintain the alignment of the upper profits limit with the upper earnings limit for employees. The changes to the class 4 limits will ensure that the self-employed pay contributions at the main class 4 rate of 9% on a similar range of earnings as employees paying class 1 contributions at the main rate of 12%. Profits above the upper profits limit are subject to the additional rate of 2% in line with the 2% paid by employees on earnings above the upper earnings limit. For completeness, I mention that the weekly rate of class 2 NICs, which are also paid by the self-employed, will increase from £2.75 per week to £2.80 per week from 6 April.
From 6 April, class 2 contributions will be due only if taxable profits for the 2015-16 tax year are at or above the small profits threshold of £5,965. This threshold replaces the class 2 small earnings exception and, along with the class 2 rate, was set in the National Insurance Contributions Act 2015.
The Government need to ensure that the National Insurance Fund can maintain a working balance throughout the coming year, which the Government Actuary recommends should be one-sixth of benefit expenditure for the year. The re-rating order provides for a Treasury grant of up to 10% of benefit expenditure to be made available to the fund for the 2015-16 tax year. A similar provision will also be made in respect of the Northern Ireland National Insurance Fund.
Lastly, I turn to the regulations relating to the employment allowance for employers of care and support workers. The Government wish to support individuals and families with the cost of care. These regulations will allow employers of care and support workers to claim the NICs employment allowance. As a result, they will be able to reduce their employer NICs bill by up to £2,000 a year. Claiming the NICs employment allowance is quick and simple. Employers, or their agents, simply tick a box in their payroll software to confirm that they are eligible for the allowance and wish to claim, and their employer NICs liabilities will be reduced accordingly. Employers need to tick the box only once and this will be transferred to future years as well.
In the first six months since its introduction, the NICs employment allowance has already been enjoyed by more than 850,000 businesses and charities. We estimate that a further 20,000 employers of care and support workers will benefit from the extension of the allowance. I commend the order and regulations to the Committee.
Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing the regulations and order. This is something of an annual feast, and I commend him for the speed at which he read out his speech. The same three statutory instruments were debated yesterday in the Seventh Delegated Legislation Committee of the other place, where the Opposition put their traditional questions and got detailed responses. I am going to give everyone encouragement by saying that I do not intend to ask exactly the same questions to receive exactly the same answers. I commend the Commons report of the proceedings to anyone present who is interested in those detailed questions.
I have a couple of questions on the first of the three instruments that we are considering—the Employment Allowance (Care and Support Workers) Regulations. Three questions asked in the Commons were detailed in nature, but the fourth question asked by my colleagues in the other place was: why have the Government made this change? They introduced the NICs employment allowance to aid small businesses, and we did not oppose that. At the time, there was a debate about the care issue. The Government resolutely set their face against that but then, rather suddenly, they changed their mind. I am genuinely curious as to which road to Damascus the Government went down to come to this conclusion. It is not a conclusion that we particularly dissent from but we are interested in whether there is any further logic behind the reasoning.
As far as I can see, the only problem with these regulations is that the decision to make the change seems to have been reasonably recent. I worry a little, as do my colleagues in the other place, about the extent to which it might induce tax avoidance, which both sides of the House are firmly against. It seems to me that the simplicity with which this allowance can be claimed, as the Minister outlined, is essentially, in tax avoidance terms, also its intrinsic weakness. The difference between a personal servant and a care worker seems somewhat semantic. I have read the regulations, and of course the employer or the person being cared for has to fall within the definition in them. Nevertheless, those definitions could be rather nudged by people who are seeking to avoid NICs. I would value some further comment from the noble Lord as to the extent to which the Government expect this to be used for tax avoidance, because somebody is going to use it. It is inevitable that any new tax or national insurance regulation will be exploited by tax avoiders. Somebody will use it. What are the Government going to do to make sure that does not happen? What additional resource is that likely to cost HMRC?
The other thing about this is that, as far as I can see, it does not have an impact assessment and I am curious as to what the Government’s assessment is of the cost of this move. They estimate 20,000 may qualify for it and stress that it could be up to £2,000 per annum. I can do the arithmetic and I think that is £40 million per annum. I do not think there is an expectation that all will be at the maximum by quite a margin. I would value the Government’s estimate of the cost of this policy move.
Lord Newby
My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his welcome of these SIs. He asked me a number of specific questions. Why did the Government change their mind? We saw the error of our ways. We listened to our stakeholders and they thought that this was a very strong idea, so we decided, in line with our general commitment to reducing the cost of care and helping with care needs, that we would make this change.
The noble Lord asked whether this opens up a big new scope for avoidance. Given the scope of the change, we do not anticipate that it will really broaden the scope for avoidance. HMRC uses its routine compliance checks to identify and tackle potential avoidance and we have an anti-avoidance rule in the primary legislation. The incentive for avoidance here is relatively small and we think that the benefits of introducing the scheme more than outweigh any small potential for avoidance.
The noble Lord’s final question was about the cost. We estimate it will cost about an extra £10 million a year. I hope I have answered his questions and that he will now be happy to support the measures.
Childcare Payments (Eligibility) Regulations 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Childcare Payments (Eligibility) Regulations 2015.
Relevant document: 20th Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, the regulations before the Committee today were laid on 13 January under powers set out in the Childcare Payments Act 2014, which introduced the new tax-free childcare scheme. They were announced by the Chancellor of the Exchequer at the 2013 Budget and will provide financial support to working families with their costs of childcare. Once the scheme is in place, the Government will meet 20% of eligible working families’ childcare costs up to an annual maximum of £2,000 for each child. Support will be delivered through childcare accounts, into which a parent will deposit their funds to pay for childcare and into which the Government will add a 20% top-up payment.
The regulations before us today were published for consultation between 14 July and 3 October last year, and I would like to put on the record my thanks to all those organisations and individuals who responded. As I will explain in a moment, the Government listened to the suggestions which were made and introduced some small but important changes to the way in which some of these regulations operate.
There are 18 regulations in all, but I am pleased to say that I do not intend to describe each of them in detail. However, I would like to give an overview of who will qualify for support once the new scheme is introduced. First, a person must be in the UK, over the age of 16 and have responsibility for looking after a qualifying child. It does not matter whether they are the child’s biological parent; they simply need to be responsible for their care. Secondly, the person responsible for the child must be in paid work, either for an employer or self-employed in their own business. If they have a partner, both partners will need to be in work. Providing support to the self-employed with their childcare costs is a significant, perhaps the most significant, advantage of the new scheme over the one it replaces; namely, the employer supported childcare scheme. As its name implies, that scheme was available only to people in employment.
The third eligibility condition is that the person’s income, and that of their partner if they have one, must be below the level which would make them liable to pay income tax at the additional rate of 45%. This currently applies to individuals with an income of more than £150,000 per year. Finally, someone will not be able to qualify for this scheme if they are already in receipt of support with their childcare costs from other government-funded schemes, most notably tax credits, universal credit and employer supported childcare. These are the eligibility conditions as they are set out in the Act. However, it is essential that the Government should retain the necessary flexibility to make adjustments to these conditions to ensure that the scheme remains properly targeted where it is most needed. This is why some of the detailed rules determining eligibility for support are set out in these regulations rather than in primary legislation.
I would like to draw the attention of noble Lords to some specific aspects of the regulations. First, regulation 5 sets out what is meant by a “qualifying child” for the purposes of the scheme. In broad terms, this is any child under the age of 12 or, in the case of a disabled child, under the age of 17. Regulation 9 defines what is meant by being in paid work for the purposes of the scheme. This is that a person will meet this condition if they receive as little as what someone would earn if they worked for one day a week at the prevailing rate of the national minimum wage, equivalent to around £52 a week, or £676 a quarter. Regulation 10 defines income in the case of self-employed parents. This broadly follows the well-established approach used for income tax purposes and is based on the net profit they generate from their business over the relevant period.
I will turn briefly to the ways in which the regulations have been amended following the consultation. Two significant amendments were made to the regulations as they apply to self-employed parents. The first concerns the requirement to generate a specified amount of profit every quarter. The point was rightly made that this had the potential to exclude self-employed people in very seasonal businesses where they are able to make a profit only at certain times of the year. To address this, the regulations were amended to give self-employed parents the option of meeting the minimum income level across a full tax year rather than in each quarter, as had been the case originally.
The second change applies to newly self-employed parents and again concerns the minimum income rule. The point was made that it is very common for new businesses not to make a profit immediately and that therefore it would be unreasonable to require them to reach the minimum income rule straightaway. The regulations were therefore changed so that someone starting out as self-employed will not be required to reach that level in their first entire year of trading. This will mean that they will not be disqualified from using the scheme as they struggle to make a profit when they are starting to establish their business.
A further change to which I would draw your Lordships’ attention concerns parents who are about to return to the workplace. The point was made during consultation that such parents need sufficient time to put suitable childcare arrangements in place before they start working. As originally drafted, the regulations provided a seven-day window during which a person could apply to open a childcare account in anticipation of starting a new job. The argument was made that seven days is simply too short to allow parents to make adequate childcare arrangements before they take up work after an absence. The regulations were therefore amended to allow someone to be treated as being in paid work where they have accepted the offer of a job up to 14 days before they actually start work. This will help to smooth the transition back to work and encourage parents back to the workplace.
Finally, I would like to refer to the position of those with responsibility for disabled children. As both the noble Earl, Lord Listowel, and the right reverend Prelate the Bishop of Sheffield rightly pointed out at Second Reading of the Bill, such parents can face significantly higher childcare costs than other parents. The Government are keen to ensure that this is reflected in the way that the new scheme will operate.
As I said at that time, the Exchequer Secretary to the Treasury made a commitment in another place to consider whether it would be possible to increase the maximum amount which families with disabled children could receive from the Government. I am glad to confirm that the Minister has honoured that commitment. She has said that such parents will be able to receive up to double the amount of support that other parents will be entitled to. This will mean that they will be able to receive support of up to £4,000 a year for each disabled child, rather than £2,000 a year as is the case for other parents. This change, which has been warmly received by the childcare sector as a positive step for disabled children and their families, does not feature in the regulations which we are considering but will be brought into effect by a separate instrument. However, given the interest shown in the matter at Second Reading, I thought that it would be appropriate to mention it now. I beg to move.
Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for explaining the regulations. I particularly thank him for the way in which the Government have reacted to the consultation by introducing some detailed changes. I also thank him for what he has said about disabled children, in giving us notice of further regulation to follow. I have only one or two points to make about these regulations, which we are not going to oppose as we see value in more money being put into the whole issue of childcare. First, I have a couple of detailed questions about them and then some questions about whether the right balance has been achieved in terms of the distributive effect that the Act has.
Of the two questions about implementation the first is about NS&I, which has been the chosen instrument for these accounts. If I have read the impact assessment properly, I believe that there could be 2 million such accounts. I understand that when NS&I introduced what I think were called pensioner bonds in the new year, it processed 30,000 accounts and its systems failed. Can the Minister assure me that by the time this scheme is introduced, the NS&I systems will be robust enough to cope with the volume?
Secondly, the choices that people will have to make between this, the current scheme which is being phased out and other potential state sources of support are really quite complex. The Government acknowledged this by assuring us during the debate on the primary legislation that there would be an online calculator to help individuals. I wonder whether the Minister can give us some indication of progress on the online calculator. I think that these regulations are expected to be rolled out in the autumn which, in terms of delivering things, is relatively close.
The substance of my concern is in regulation 15. The Minister does not have to look it up; it is the £150,000 regulation. These regulations existed in draft when the original primary legislation was debated.
I think this is the order that specifies that it will be £150,000. That is a large figure. Perhaps this is because of the paucity of my friends, but I do not know a lot of people on £150,000. Indeed, the figure could rise to £300,000 in a household with an affluent wife and an affluent husband together. That seems to be a pretty high figure. I wonder why the Government have chosen such a high figure, because of the subsequent distributive effects.
In effect, the order was debated when the primary legislation was debated in the other place. I draw attention to the Public Bill Committee in the other place on 16 October 2014, when Vidhya Alakeson, then deputy chief executive of the Resolution Foundation, said in evidence;
“Our analysis shows that 80% of families that will benefit from tax-free child care are in the top 40% of the income distribution. The evidence on how parents respond to child care investment is reasonably limited, but we know from self-reported surveys that parents with a family income of more than about £60,000 a year are not predominantly making work decisions and suchlike on the basis of the affordability of child care. The vast majority of this funding is targeted at those families, which suggests to me that you are unlikely to see much of a change in behaviour, but you will get a cost shift from parents to Government”.—[Official Report, Commons, Childcare Payments Bill Committee, 16/10/14; cols. 100-01.]
Does the Minister accept the Resolution Foundation’s analysis that 80% of the benefit will go to the top 40% of households? If not, does he have some Treasury-based analysis to counter that claim? I know of no other analysis. So far, the Government have not revealed any analysis that they have done; there is certainly no distributive analysis in the impact assessment. Therefore, I have to take the Resolution Foundation’s statement as the best analysis available.
The scheme will cost, say, £600 million a year—it varies by year in the impact assessment, but it is £600 million-plus. Well, 80% of that is half a billion pounds, which is a not inconsiderable sum. Is it true that half a billion pounds is being directed at the top 40% of households? Was that the Government’s intention, was it a mistake or do they not know?
The position that we took in the other place during the passage of the Bill is that if the upper limit had been lower, money would have been saved that could have been used to increase the percentage relief to those who qualify. Therefore, the distributive effect would not have been this apparently amazing situation where half a billion pounds is going to the top 40% of the income distribution. The Minister’s colleague in the other place, Priti Patel, was pressed on the matter of distributional analysis. At the end of one of her responses—before she was interrupted—to the Public Bill Committee on 21 October, 2014, which is now some time ago, she said:
“Officials are discussing with colleagues across Government the possibility of considering the matter in more detail and of carrying out distributional analysis of all Government child care support. Much child care support is outside the Treasury’s remit and lies with the Department for Education, and many of the schemes that exist have been touched on in the Committee”.—[Official Report, Commons, Childcare Payments Bill Committee, 21/10/14; col. 164.]
That seems to me like a promise of a report about the distributional analysis of government childcare support. Am I right in interpreting it as such a promise? If so, when do the Government intend to produce such a report, which I think we would all find very interesting?
Lord Newby
My Lords, the noble Lord asked me a number of questions about these regulations. First, is NS&I up to it, given the teething problems with the pensioner bonds? NS&I is up to it. It is an established provider of payment processor services within government. It manages the premium bonds. The difference between this and pensioner bonds is that those bonds suddenly became available and there was a great rush. These provisions will be introduced on a phased basis and there will be no incentive for hundreds of thousands of people, even if the phasing worked that way, all to want to do it within an hour or two of each other.
The noble Lord asked about the online calculator. As he pointed out, the scheme is due to be introduced from the autumn. The online calculator will be introduced in good time before implementation. It would be of no particular benefit to anybody if the calculator were available now, but it will be available well before the scheme is implemented.
I think the main burden of the noble Lord’s comments is about whether the £150,000 cut off is appropriate. It is worth pointing out two aspects of the context here. First, this scheme replaces one that has no limits to the income at which people can benefit. It also does not cover the self-employed, many of whom will not be high earners. In that respect, it is a more inclusive and fairer scheme. The other element of context is that the Government’s overall system of childcare support remains focused on people with lower incomes. Families in receipt of tax credits already receive more generous support with childcare costs than under universal credit. Support will be intended to cover up to 85% of the cost of childcare and will be available regardless of the number of hours worked. It is not a scheme about helping the wealthy. There is a question about where you put the cap. The only two logical places would be at the thresholds for the 40% or 45% tax rate. Any other limit between those two would involve a disproportionate amount of effort and administrative change. The Government took the view that, given the history of this scheme and the fact that the cap on those who can benefit is being reduced, the 40% threshold was too low. We want to support people with childcare at incomes above that level. Therefore, we went for this limit. An intermediate limit would have been complicated and confusing.
The noble Lord’s final question concerned what had happened to the commitment given by my colleague in another place, Priti Patel, to carry out a cross-departmental distribution analysis of all childcare support. I reassure him that officials across government are currently examining the feasibility of carrying out distributional analysis across all childcare support schemes, but this is taking time because of the complexities involved.
Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2015.
Relevant document: 21st Report from the Joint Committee on Statutory Instruments
Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2015
Lord Newby Excerpts(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2015.
Relevant document: 21st Report from the Joint Committee on Statutory Instruments