Money Market Funds (Amendment) (EU Exit) Regulations 2019

Lord Sharkey Excerpts

Monday 25th February 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I will speak on behalf of my noble friend. The Treasury has been undertaking a programme of legislation to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying SIs under the EU withdrawal Act to deliver this, and a number of debates on these SIs have already been undertaken here and in another place.

This SI is part of this programme, and has been debated and approved by the other place. The SI will fix deficiencies in UK law on regulations for money market funds to ensure that they continue to operate effectively post exit. The approach taken in this legislation aligns with that of other SIs laid under the EU withdrawal Act, providing continuity by maintaining existing legislation at the point of exit, but amending where necessary to ensure that it works effectively in a no-deal context.

The European regulation on money market funds relates to their establishment, management and marketing. These funds invest in highly liquid instruments—such as Treasury bonds—and provide a short-term, stable cash management function to charities, local government, businesses and other financial institutions. They are predominately used by investors as an alternative to bank deposits. The regulations were introduced as part of the response to the 2008 global financial crash, to preserve the integrity and stability of the EU market, and to ensure that money market funds are a resilient financial instrument. This is achieved by having further rules on prudential requirements, governance and transparency for operators of money market funds.

Money market funds are structured as either an undertaking for collective investment in transferable securities or alternative investment funds. Consequently, they are required to comply with regulations that apply to UCITS or alternative investment funds. The regimes for UCITS and AIF managers have been separately amended to reflect the UK leaving the EU by the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019, which were made on Wednesday 20 February.

First, this draft instrument removes references to the European Union which are no longer appropriate, and to EU legislation which will not form part of retained EU law. These references will be replaced, to refer to the UK and to relevant domestic and retained EU legislation. Secondly, in line with the general approach taken in other instruments, this SI will transfer functions within the remit of EU authorities to UK institutions. All functions exercised by the European Commission will be transferred to the Treasury. These relate to creating rules on standards for money market funds, such as their liquidity and quantification of credit risk.

All functions exercised by the European Securities and Markets Authority will be transferred to the FCA. The FCA will become responsible for technical standards on how funds should stress test their funds, and for two operational powers to establish a register and reporting templates for money market funds. The FCA, as the UK’s regulator for investment funds and the current national competent authority for money market funds, has extensive experience in the asset management sector and is therefore the most appropriate domestic institution to take on these functions from ESMA.

As previously stated, money market funds must be structured and regulated as UCITS or AIFs. This instrument makes provision to ensure that EU money market funds are able to use the temporary marketing permissions regime, which lasts for three years, as legislated for in the regulations for collective investment schemes and alternative investment fund managers. Following an assessment by the FCA and submitting a Written Ministerial Statement to both Houses, the Treasury will be able to extend this by a maximum of 12 months at a time. The temporary marketing permissions regime will allow for EEA money market funds which are currently marketed into the UK, and any subsequent money market fund structured as a UCITS sub-fund, to be able to continue to market into the UK as an MMF for up to three years after exit day.

This instrument amends the scope of the regulation to apply to the UK only, with the effect of only allowing the marketing of UK-authorised MMFs, or MMFs managed by UK fund managers. However, additional amendments maintain the eligibility for EEA MMFs with temporary permissions to continue to market in the UK at the end of the temporary marketing permissions regime period, if they gain the required permissions to market as a third-country fund under existing UK domestic frameworks.

Money market funds structured as UCITS will be required to gain authorisation under Section 272 of the FSMA, while for those structured as AIFs, their managers will need to notify under the national private placement regime.

The UK currently has a very small domestic market of money market funds, so these provisions address the cliff-edge risks that could arise as a consequence of defaulting to a UK-only market. This will ensure that UK investors can continue to access their investments and to have a choice of money market funds to use for cash management.

The Treasury has worked closely with the FCA in drafting this instrument. It has also engaged the financial services industry. This has included engagement with the Institutional Money Market Funds Association, which is the main industry body for money market funds. The House should be aware of remarks by its secretary-general, Jane Lowe, who stated:

“We believe the current draft SIs deal adequately with current EU legislation and consider that the dialogue between HM Treasury and industry was helpful to identify and iron out issues that arose”.


On 21 November, the Treasury published the instrument in draft along with an explanatory policy note to maximise transparency to Parliament and industry.

To summarise, the Government believe that this SI is needed both to ensure that the regulatory regime for money market funds and their operators works effectively, if the UK leaves the EU without a deal or an implementation period, and to ensure continuity for the UK investors they serve. I hope that noble Lords will join me in supporting this instrument. I beg to move.

[Lord Sharkey (LD)]

My Lords, I was grateful for the clarity of the Explanatory Memorandum and the impact assessment for this SI. I understand that the changes are necessary for the proper continuation in business of UK MMFs in a no-deal scenario. I also understand the importance of the temporary marketing permissions regime in allowing continued UK access for existing EEA MMFs, and I note the £250 billion of UK investment in these funds.

I also note that, as set out in paragraph 157 of the consolidated impact assessment,

“this SI transfers the European Commission powers to make delegated acts and implementing acts to HM Treasury, as a power to make regulations”.

This refers, I think, to Regulation 18 of the SI, which states:

“Any power to make regulations conferred on the Treasury by this Regulation is exercisable by statutory instrument … Such regulations may … (a) contain incidental, supplemental, consequential and transitional provision; and (b) make different provision for different purposes”.


It also states that such regulations will all follow the negative procedure. I was not sure of the purpose of the phrase,

“make different provision for different purposes”,

or to what extent it extends the Treasury’s latitude in drawing up these SIs. I would be grateful if the Minister could explain why this additional power is necessary and whether its scope is as unlimited as it might seem at first sight. I would also be grateful if the Minister could explain the use of the negative procedure for the SIs generated by the power. Is there not a case for using the affirmative procedure to allow Parliament more rigorous scrutiny in this obviously critical area of our financial services industry?

[Baroness Kramer (LD)]

My Lords, like my colleagues on these Benches, I support this statutory instrument. It is necessary: to put it in technical terms, British investors in money market funds would be in a right pickle if we did not pass it, because, as the Minister has said, the domestic market is tiny.

However, I want to raise an issue which is repeated in many of the other statutory instruments before us. Paragraph 2.8 of the Explanatory Memorandum states:

“When the UK is no longer a member of the EU single market for financial services, it would not be appropriate for UK authorities to be obliged to share information or cooperate with the EU on a unilateral basis, with no guarantee of reciprocity”.


I understand the emotional tag behind all this, but there is a wise old saying which goes: “An eye for an eye and we all go blind”. The 2008 financial crash and many of the other problems that we have had have come through fragmentation of regulation and the lack of information transfer between regulators in different locations and countries. I really do not understand why we are not seeking to do everything in our power to make sure that information flows continue. A money market fund that is being regulated by the FCA under the new statute following any kind of no deal might well be in the same family as other such funds being marketed in the EU 27. Therefore, something that flags up an issue or concern with one may well reflect through to the other, because it could be core to the administration and deep within the overarching family. Will the Minister explain the consequences of putting up any kind of barrier to existing information transfer and what risks we might be taking on? I am exceedingly concerned about fragmentation.

--- Later in debate ---

[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this short debate and hope that there is no substantive objection to the powers which are proposed in this statutory instrument. I will try to deal with the questions that were raised by noble Lords.

The noble Lord, Lord Sharkey, asked why there is an additional power to make regulations. The power to make delegated regulations simply transfers to the Treasury the power in the EU regulation, which lies with the Commission, to make technical standards such as specifying credit quality assessment criteria. As these are basically technical standards, we believe that the negative procedure is appropriate. I may stand to be corrected, but I do not think that any of the committees that scrutinise legislation in this House have suggested otherwise.

Both the noble Baroness, Lady Kramer, and the noble Lord, Lord Adonis, raised the question of removing the legal obligation to share information. I understand the concern, but I want to reassure both of them that this will not preclude UK supervisors from sharing information with EU authorities where necessary. I take the point that it is important that there is a good cross-flow of information between the UK and regulators in the EU, and there is already a good domestic framework for co-operation on information sharing with countries outside. We already have that, and the legislation allows for that. If you look at the Financial Services and Markets Act 2000 and the associate secondary legislation, all the necessary powers already exist for co-operation and information sharing with countries outside the UK, which will of course include the EU when we leave.

The noble Lord, Lord Adonis, asked about the impact assessment. The costs include a one-off cost for firms examining and understanding the instrument, estimated at £7,200, which will be shared between the 21 funds regulated under the MMFR in the UK.

Finally, the noble Lord, Lord Tunnicliffe, raised the point about reciprocity—I am sorry that he has had another bad day getting on top of these SIs. Of course, we cannot legislate here to make EU countries reciprocate what we are doing to them, but a series of bilateral discussions is under way to ensure that, in the unlikely event of no deal, essential relationships are preserved. I hope that I have answered all the issues raised by noble Lords.

[Lord Sharkey]

Before the Minister sits down, I may have expressed myself badly when talking about the negative instruments. The instrument we are discussing gives the Treasury the power subsequently to make other statutory instruments—that is partly what it does—and my question was about why all those subsequent negative instruments should come under the negative procedure. The Minister responded by talking about the sifting committees, but those committees will not get sight of those because of course they do not yet exist, and when they do, the sifting committees almost certainly will not. So that does not quite address the question I was hoping to put.

I was also not entirely certain about the answer to the point about making,

“different provision for different purposes”.

I am not quite sure I understood exactly what scope that gave the Treasury in drawing up a statutory instrument. However, if the Minister chooses to write to explain, I would be grateful.

[Lord Young of Cookham]

The Minister might indeed prefer to write. I think that it simply transfers existing powers which rest with the Commission to the Treasury, without changing the fundamentals.

On the sifting committee, I think that I am right in saying that wherever the sifting committee has recommended that statutory instruments under the EU withdrawal Act should be affirmative rather negative, the Government have agreed. I hope that that provides some reassurance to the noble Lord.

Subordinate Legislation: Transparency and Accountability

Lord Sharkey Excerpts

Thursday 21st February 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, we see too many skeleton Bills. The Healthcare (International Arrangements) Bill is the latest example and one of the very worst. These Bills force us to use secondary legislation scrutiny procedures for what should properly be in primary legislation and subject to amendment. Then there is the flood of Brexit SIs, many laid without proper impact assessments or consultations. We debate but we cannot amend and we are unwilling to reject. We have in fact rejected only seven SIs in the last half-century and this does not lend itself to effective scrutiny. Does the Minister agree that we need a thorough review, both of the use of skeleton Bills and of our procedures for dealing with SIs?

[Lord Young of Cookham]

The noble Lord’s question goes slightly broader than the narrow Question about statutory instruments’ transparency and accountability. On his first point, it is a matter for the DPRRC to draw attention to primary legislation where, in its view, too many powers are being subjected to subordinate legislation. The House, as it knows, can amend legislation as it goes through, and the Government have indeed amended legislation in many cases where the House has expressed the view that too much has been delegated. The particular Bill the noble Lord refers to is being debated later today. On his other question, about a wholesale review of statutory instruments, that goes slightly broader than this Question and at the end of the day it is a matter for the House and not the Government whether it wants to change the way it scrutinises legislation.

Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Lord Sharkey Excerpts

Monday 4th February 2019 Grand Committee

[Lord Young of Cookham (Con)]

My Lords, as this instrument has been grouped, I will speak also to the Financial Markets and Insolvency Amendment and Transitional Provision (EU Exit) Regulations 2019.

As with the instruments we have just debated, these two instruments are also part of the same legislative programme to ensure that if the UK leaves the EU without a deal or an implementation period there continues to be a functioning legislative and regulatory regime for financial services in the UK.

Turning to the substance of the over-the-counter derivatives, central counterparties and trade repositories SI, many noble Lords will be familiar with the European market infrastructure regulation known as EMIR, which the EU implemented in 2012. It is Europe’s implementation of the G20 Pittsburgh commitment in 2009 to regulate over-the-counter derivative markets in the aftermath of the financial crisis, reduce risk and increase transparency in derivative markets. It should be noted that EMIR, and the financial markets and insolvency SI which we will come on to in a moment, concern activities that mainly take place on financial markets. EMIR imposes requirements on firms that enter into any form of derivative contract and establish common organisational, conduct-of-business and prudential standards for trade repositories and central counterparties. Central counterparties, for example, stand between counterparties in financial contracts, becoming the buyer to every seller and the seller to every buyer. They guarantee the terms of a trade, even if one party defaults on the agreement, thereby reducing counterparty risk.

This SI addresses deficiencies within EMIR and related UK legislation to ensure that after the UK has left the EU an effective legal supervisory and regulatory framework for over-the-counter derivatives, central counterparties and trade repositories remains. This instrument is the last of three key SIs that fix deficiencies in EMIR, and it follows two SIs which have already been debated in your Lordships’ House and which have subsequently been made: the central counterparties SI and the trade repositories SI.

Firstly, the SI continues key requirements of EMIR that include the clearing obligation, which requires firms to clear certain types of derivative contracts at a CCP, the reporting obligation, which requires firms and CCPs to report derivative trades to a registered or recognised trade repository, and margin requirements, which compel firms to put forward money to cover the costs associated with trades. In order to have a framework in place to facilitate these requirements the relevant functions are transferred from the European Commission to the Treasury, and from the European Securities and Markets Authority—ESMA—to the UK regulators, namely the Financial Conduct Authority or FCA, the Prudential Regulatory Authority, known as the PRA, and the Bank of England.

Secondly, the power of granting equivalence decisions for non-UK trade repositories is transferred from the European Commission to the Treasury and functions for recognising non-UK trade repositories are transferred from ESMA to the FCA. The SI also transfers powers from the Commission to the Treasury with regard to equivalence decisions on over-the-counter derivative requirements and whether non-UK markets are recognised for the purpose of trading exchange-traded derivatives.

Thirdly, a temporary intragroup exemption regime provides continuity by ensuring that exemptions from EMIR requirements for intragroup transactions will continue after exit day. The regime will last three years from exit day to allow time for consideration of an equivalence decision by the Treasury and for the FCA to determine a permanent exemption. This period can be extended by the Treasury if necessary. Under the MiFID II legislation, there is an exemption from clearing and margining for certain energy derivative contracts, and this exemption is maintained by this instrument. Finally, EU processes which will become redundant are removed and replaced with equivalent UK processes.

I turn now to the financial markets and insolvency SI. This instrument, broadly speaking, concerns insolvency-related protections that are provided to systems and central banks under the EU settlement finality directive, or SFD. Systems are financial market infrastructure, such as central counterparties, central security depositories and payment systems, which provide essential services and functions relied upon by the financial services sector.

Currently, if an EEA-based system is designated under the SFD and receives funds or securities from a system user—for example, a UK bank—those funds or securities cannot be clawed back in the event of the UK bank being subject to insolvency proceedings. Importantly, this framework also benefits system users, who could receive services on less favourable terms, or not at all, if the EEA system were not protected from UK insolvency law. In certain cases, membership of a system is contingent on these protections. Designation is therefore important as it facilitates the smooth functioning of, and confidence in, financial markets.

In order to become a designated system, a system must be approved by its designating authority—the Bank of England, in the case of the UK. The Bank then informs ESMA, which places it on the EU register of designated systems. The SFD provides similar protections to central bank functions across the EEA. Collateral received by an EEA central bank in accordance with its functions, such as emergency lending, cannot be clawed back if the relevant counterparty to the central bank is subject to insolvency proceedings.

The relevant EU laws—the SFD and the financial collateral arrangements directive—are implemented in the UK via the Financial Markets and Insolvency (Settlement Finality) Regulations 1999, the Companies Act 1989, the Financial Collateral Arrangements (No. 2) Regulations 2003 and the Banking Act 2009. Should the UK leave the EU without a deal or an implementation period, there will be no framework for the UK to recognise systems designated in EU member states, which in turn may risk continuity of services from those designated systems for UK firms.

This SI therefore establishes two main measures to mitigate these risks and ensure that settlement finality protections continue to operate effectively following the UK’s withdrawal. First, this SI establishes a UK framework for designating any non-UK system, while maintaining existing designations for systems that were designated by the Bank of England before exit day. To do this, the Bank of England’s powers to designate, and charge fees to, UK systems will be expanded to non-EEA systems, such that they can be designated under UK law. Moreover, the Bank will be able to grant protections to non-UK central banks, including EEA central banks, which already receive protections under the SFD. This will help maintain the effect of the current framework, providing continuity to UK firms accessing systems and central banks, while assisting UK firms in accessing the global market.

Secondly, the SI establishes a temporary designation regime. This provides temporary designation for a period of three years to existing designated EEA systems that intend to be designated under the UK’s framework. The purpose of temporary designation is to allow time for designation applications to be processed by the Bank of England while ensuring continuity of access for UK firms to relevant EEA systems immediately after exit day. The SI also gives the Treasury the power to extend this regime should more time be required to consider these applications.

The Treasury has been working very closely with the regulators in the drafting of the instruments. It has also engaged the financial services industry on these SIs and will continue to do so going forward. The Treasury published these instruments in draft alongside Explanatory Notes to maximise transparency to Parliament, industry and the public. That took place on 22 October and 31 October 2018 respectively for the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 and the Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019. Furthermore, the Treasury published the impact assessment that accompanies these SIs, providing further transparency regarding the reasons behind, and foreseen impacts of, these proposals.

The Government believe that the proposed legislation is necessary to ensure the smooth functioning of financial markets in the UK if the UK leaves the EU without a deal or an implementation period. I hope that noble Lords will join me in supporting the regulations. I beg to move.

[Lord Sharkey (LD)]

My Lords, as the Minister noted, the first SI—dealing with OTC derivatives, CCPs and trade repositories—was published in draft on 22 October last year. The second, dealing with financial markets and insolvency, was published in draft on 31 October last year. The impact assessments for these SIs are contained in a consolidated batch of nine HMT impact assessments, which themselves rely occasionally on references to IAs for other SIs. That batch was published on 29 January, three months after the publication of the drafts and two working days before we were scheduled to debate them. Even one working day beforehand, last Friday morning, the IAs were not available in the Printed Paper Office. Can the Minister explain the very late appearance of the SIs and why the PPO did not have copies by Friday? Can he reconcile this late publication of IAs with giving Parliament proper time for scrutiny? Can he assure the Committee that future Treasury IAs will be published in good time and lodged with the PPO?

The consolidated IAs contain a headline assessment of cost and benefits. As to costs, there are three headings: “Total Transition”, “Average Annual” and “Total Cost”. In each case, the IA estimates the costs as “Unknown: likely significant”. This is unsatisfactory and raises the question of whether HMT understands the role that IAs play in parliamentary scrutiny. It is of no help that the consolidated IA reckons the benefits to be “significant” but declines to attempt to quantify them. In the remaining 52 pages of the impact assessment there is no real detailed examination or quantification of likely costs and benefits, apart from a reading time-based estimate and a passing reference to the trade repositories SI where costs are estimated, apparently, at £500,000 per TR. I say “apparently” because there is a typo in the cost reference for these TRs, so it is not clear whether the figure is meant to be £50,000 or £500,000. Perhaps the Minister can clear that up. I think that it would help the Committee in its scrutiny of future Treasury SIs if consolidation was avoided and we returned to individual impact assessments in proper form for each SI.

Turning to each SI, I found it quite hard in parts to follow the EM for the OTC derivatives, CCPs and TRs SI. I would be grateful for some clarification from the Minister. In paragraph 6.1, the EM notes that the SI revokes two pieces of delegated legislation. Will the Minister expand on what these are and why they are being revoked? The EM does not say why—or if it does, I could not find it. In paragraph 7.7, the EM explains that:

“As a general principle, the UK would need to default to treating EU Member States largely as it does other third countries, although there are cases where a different approach would be needed including to provide for a smooth transition to the new circumstances”.


The EM does not explain what these cases may be or what the different approach might be. Will the Minister tell the Committee what these cases are, or may be, and what different approaches will be needed, and why?

Paragraph 7.12 of the EM states:

“Where the Commission has taken equivalence decisions for third countries before exit day, these will be incorporated into UK law and will continue to apply to the UK’s regulatory and supervisory relationship with those third countries—with the exception of those taken under Article 25 EMIR as set out in the CCP Regulations”.


Will the Minister explain what these exceptions are and why they exist?

In paragraph 7.16, the EM notes that the SI introduces a power that allows the FCA to suspend the reporting obligation for up to one year, with the agreement of HM Treasury, where there is no registered UK TR available. Surely the Treasury must know how likely this is and who it will affect. Again, the EM and the impact assessment do not help—or at least did not help me. Will the Minister say how likely this suspension is, who it will affect and what its consequences and impact might be?

I turn briefly to the second instrument, the financial markets and insolvency regulations, which is, by comparison, a model of clarity and straightforwardness. My only question relates to paragraph 1.76 of the impact assessment, which explains that the relevant EEA systems will be required to notify the Bank of England, before exit day, to enter the regime. What happens if they do not? What risks does this generate, and what procedures are in place to mitigate them?

I realise that I have asked quite a few quite detailed questions, and if the Minister prefers to respond in writing I would be happy, as long as we have the answers before the SIs reach the Chamber. I emphasise that I feel strongly that the consolidation of IAs makes proper parliamentary scrutiny significantly more difficult, and the very late production of IAs, as in this case, really does not help.

[Lord Tunnicliffe (Lab)]

My Lords, there is much that I would support in the intervention by the noble Lord, Lord Sharkey. I particularly like the way he sneaked in the fact that he got to page 41 of the IA.

The first instrument is on an area that I knew little about before I read it. With that limitation, it seems generally to make sense. It is clear about the transfer of functions, who will be responsible for equivalence decisions and information exchange—data comes over with a discretionary relationship. It is clear that the object of the exercise—at least this is how I read the Explanatory Memorandum—is to retain the discipline of EMIR. In view of its importance, I was surprised that a UK name for EMIR was not created, as was done in a previous SI, so that we would all know what we were talking about, given that the E in EMIR stands for European.

Going a little way into the detail, as the noble Lord pointed out, paragraph 7.16 allows a reporting obligation to be suspended for one year. From what I understand of the overall regime that this is part of, its very essence is open reporting of transactions. That is what the G20 came up with to create this regime. Will the Minister give us some feel for what risks are being taken by Part 2 of the instrument, which creates an opportunity for reporting to be suspended for up to one year? It also has what seems a fairly reasonable exemption for intragroup activity. It is a classic three years, plus however often the Treasury wants to extend it. It also has an exemption for energy derivative contracts up to 3 January 2021, but I could not see where that date came from; perhaps it is something to do with an international agreement.

--- Later in debate ---

[Lord Young of Cookham]

I plead guilty as charged. As I said a moment ago, we recognise the importance of parliamentary scrutiny. We will try to do better and make sure that the relevant impact assessments are available in time.

[Lord Sharkey]

I asked about the absence of the impact assessments from the Printed Paper Office. That is the route by which most of our colleagues get the information. They were transmitted electronically to some noble Lords on 29 January, but they were not available in printed form until this morning. That seems a very odd lapse.

[Lord Young of Cookham]

Again, I take that seriously. Would the noble Lord allow me to make some inquiries within the machinery of government in this House to find out what exactly went wrong there? I understand that they were delivered to the Printed Paper Office on Friday.

Financial Guidance and Claims Bill [HL]

Lord Sharkey Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

Moved by

[Lord Sharkey]

72: After Clause 17, insert the following new Clause—
“Ban on unsolicited direct approaches by, on behalf of, or for the benefit of, companies carrying out claims management services
The FCA must, within the period of six months beginning with the day on which this Act comes into force, introduce a ban on unsolicited direct approaches to members of the public carried out by whatever means, including digital, by, on behalf of, or for the benefit of, companies carrying out claims management services.”

[Lord Sharkey (LD)]

My Lords, as I mentioned on day 2 of Committee, there has been an enormous increase in the number of cold calls—180% in the last 10 months. There are now 2.6 million cold calls every month, which is an absolutely enormous number. No noble Lord disagreed when I described cold calling as an “omnipresent menace”. It turns out that the menace is even more omnipresent than I had thought. It has even reached the Bank of England. I have the transcript of a cold call received by one of the Bank’s regional offices. The bank official answers the phone and says, “Bank of England, hello”, the cold caller says, “Hello, can I speak to the business owner?”. The official asks, “Of the Bank of England?”, the cold caller says, “Yes”. The official says, “No”. The cold caller says, “Well, do you want to sell the business?”. The official says, “What, the Bank of England?”, the cold caller says, “Yes”. The official says, “No”. The cold caller then says, “Oh all right, bye bye”. Not all cold calls are as harmless as that turned out to be.

The Bill acknowledges and tries to remedy some of the problems with the claims management companies and the associated cold calling. We believe that the transfer of regulatory authority to the FCA is a very desirable move, as is the transfer of the complaints procedure from the Legal Ombudsman to the Financial Ombudsman Service. The impact assessment to the Bill lists some of the problems with the CMCs that will be addressed by these regulatory changes. It notes that, in 2014-15:

“23% … of all CMCs faced some sort of regulatory intervention”.


In addition to what were rule breaches, an independent review identified poor practices among many CMCs. One example of poor practice was poor value for money services offered by the CMCs. The impact assessment noted that evidence from the FOS showed that CMCs do not in practice achieve higher-value redress settlements than consumers complaining directly. The second example was the misrepresentation of services offered to consumers and a reliance on nuisance tactics, such as unsolicited calls or texts. A third example was the progression of speculative and/or fraudulent claims by CMCs. That last point is developed in the report of the Insurance Fraud Taskforce of January last year. The report says that,

“unscrupulous CMCs … play a role in encouraging fraudulent claims. As well as causing a social nuisance through their reliance on cold calls, also known as ‘claims farming’, CMCs have been reported to pressurise otherwise honest people to exaggerate or make up claims”.

This is all pretty unsavoury and the Government are to be congratulated on doing something about CMC practices in this Bill.

The impact assessment also lists the expected benefits brought by the measures in the Bill to consumers. It notes about cold calling that:

“Consumers are expected to benefit from reduced demand from CMCs for leads sourced through nuisance calls and text messages”,


but it does not estimate the reduction and clearly does not expect the cold calling problem to vanish. The question is whether this expected reduction will be significant and whether third-party claims farmers will really be affected by the regulatory changes.

But there is a better question than that: why should we tolerate CMC cold calling at all? After all, we do not allow it for mortgages, and the Government have promised to ban it for pensions. Banning cold calling has been debated many times in this House. On every occasion there has been universal dissatisfaction with the practice and, I believe, a universal desire to put an end to it. Cold calling not only is a profound social nuisance but also does real damage. Whiplash claims are an obvious case in point—I have lost count of the number of times that I have been called by someone saying that I was entitled to recompense because I may have been in a car accident. But speculative and fraudulent whiplash claims are reducing, largely because of the welcome provisions in the civil liabilities Bill. It looks as though one consequence of this is that CMC activity has moved in bulk to holiday sickness claims. The UK travel industry has seen a huge and dramatic increase in claims for food poisoning, essentially. As the noble Lord, Lord Hunt, has already explained, these claims have risen 500% since 2013 and they show a 600% increase year-on-year for 2016 alone. Such claims now represent over 90% of all personal injury claims.

ABTA is aware of the dubious marketing tactics used by CMCs. As we have already been told, they include UK holidaymakers being approached by CMC reps in their resorts and at ports of arrival back in the United Kingdom. Then, of course, there is cold calling. All this adds up to a major problem. This is not just damaging the travel industry, although it is doing that; it is also persuading people to commit fraud on a massive scale. As I have mentioned, we have reached the point where more than 90% of all personal injury claims are for alleged food poisoning. ABTA is campaigning for a ban on cold calling on behalf of, or for the eventual benefit of, CMCs. That is no wonder. The situation is clearly out of control. It again raises the question of why on earth we allow cold calling to go on. Here is our opportunity to ban it for CMCs. That is what our amendment sets out to do. It simply says that the FCA must, within six months of this Act coming into force,

“introduce a ban on unsolicited direct approaches to members of the public carried out by whatever means, including digital, by, on behalf of, or for the benefit of, companies carrying out claims management services”.

--- Later in debate ---

[The Earl of Lytton (CB)]

My Lords, I would not normally deign to interpose in this debate but, having listened to a number of the arguments that have been put forward, I feel compelled to voice my support, but with a word of warning.

I was looking at my private emails and found that since half-past two this afternoon I have had four spurious emails from an outfit called Metro Bank, with which I have no business, telling me about the suspicious activity on my account and suggesting that I might like to click on a link. The fact that such messages usually contain spelling mistakes and start off “Dear Customer” without any other personal identifying information, and the fact of the sheer number of these repeated emails, probably tells its own story, but never mind. The reason I raise that is because in my experience—along with that of probably everybody in this House who has received on their mobile phone something to do with PPI or a personal accident—I frequently get messages that tell me my claim has been settled in the sum of £4,275.80, or something like that, and ask me to click on a link so they can process the claim. I have had no such incident and made no such claim; the process is led by a completely bogus and fraudulent promise of something for nothing.

In my experience, these things are increasingly moving from a posse of anonymous, but still identifiable, 0800 telephone numbers of one sort or another to people’s mobile numbers and landlines. In particular, the mobile numbers may well be a pay-as-you-go account: completely anonymous and possibly passed on in a pub, complete with its ticket. Nobody can track down where these things are coming from. So, if somebody makes a cold call from a pay-as-you-go mobile phone, and having made contact then pass that live contact back to a claims management company of perhaps no great repute and even less good intent, is that still a cold call? If not, then straightaway the whole process of what these amendments are designed to deal with is bypassed. I would like to make sure it is not.

[Lord Sharkey]

Could I try to provide a little clarity, perhaps even a partial answer? The amendment is worded so that cold calls, or the result of them, cannot be used for the benefit of claims management companies. It is not just about the cold call itself—information cannot be passed on in a way that benefits CMCs.

[The Earl of Lytton]

My Lords, I am grateful for that. The nub of what I am getting at is whether we have a problem with enforcing that. These people are clever and devious and will basically stop at nothing because it is a free bet—they seem to be able to weave their way in and out of our virtual world of technology to con people and mislead them. I would be absolutely in favour of anything that can reliably prevent that happening. That was the only point I really wished to make.

--- Later in debate ---

[Baroness Buscombe]

I thank my noble friend for his further response.

To respond to my noble friend Lord Trenchard’s question about whether SMS, email and letters are all cold calling, this is an important point and I confirm that we differentiate between them. Cold calling is the solicitation of business from potential customers who have had no prior contact with the salesperson conducting the call, while unsolicited direct marketing is communication by any means, including email and text, of marketing and advertising material. We genuinely believe that the existing measures I have set out, alongside the new FCA regime, should help tackle CMCs conducting unsolicited direct marketing. I know there is a very strong feeling across the Committee, and we take this on board, but, for the reasons I have set out, the Government do not believe that the amendment is necessary. I hope that the noble Lord will withdraw his amendment.

[Lord Sharkey]

I am extremely grateful for the support of all noble Lords who have spoken. I am especially grateful to the noble Lord, Lord Deben, for his forceful reminder—several times—that this kind of cold calling activity should have no place in our society. It is not necessary, it is damaging, it lures otherwise honest people into crime and it is morally repugnant. Thinking about what the Minister said, I feel that she was right at the beginning: she did disappoint the House.

Financial Guidance and Claims Bill [HL]

Lord Sharkey Excerpts

Committee: 2nd sitting (Hansard - continued): House of Lords
Wednesday 6th September 2017 Lords Chamber

Moved by

[Lord Sharkey]

42B: Clause 3, page 3, line 15, at end insert—
“( ) As part of its pensions guidance function, the single financial guidance body must make provision to ensure that members of the public receive the information and guidance set out in subsection (1) through either—(a) the single financial guidance body, or(b) regulated advice from a financial advisor,before accessing defined contribution or money purchase pension benefits.”

[Lord Sharkey]

My Lords, Amendment 42B is in my name and that of the noble Baroness, Lady Altmann, for whose support I am extremely grateful. I will speak also to Amendment 42C. Amendment 42B is very simple. It provides that, before accessing pension pots, people must have received the appropriate information and guidance either from the SFGB or from a regulated adviser. I touched on the need for this in my earlier remarks on Amendment 27A, and I am sure that I do not need to remind the Committee that take-up of advice on pensions is very low and that financial capability and understanding are also at very low levels. Conversely, financial misunderstanding is at very high levels. This augurs badly for sensible pension decisions.

The FCA’s July interim report on retirement outcomes shows that accessing pension pots early has become the new norm under pension freedoms, as the noble Lord, Lord Young, noted a moment ago, with 72% of pensions accessed by people aged under 65. Most of these people withdrew lump sums. Half withdrew the full value of their pension. The FCA says that it found no evidence of people squandering their pension savings, but expressed concern about why people are shifting their savings out of pensions. Over half of the fully withdrawn pensions were not spent but were transferred into other savings or investments. This suggests, according to the FCA, a mistrust of pensions, and raises the possibility or even probability of new risks, such as paying too much tax and missing out on investment growth and higher retirement income. The FCA also found that most consumers chose the path of least resistance; they usually accepted the draw-down option offered by their existing pension provider without shopping around or even using the information provided by their own pension provider. That is perhaps entirely unsurprising, given the very low levels of take-up of advice and the high levels of ignorance and misunderstanding. It may be unsurprising, but it is also worrying.

The FCA’s Retirement Outcomes Review is the fifth such investigation into the UK’s retirement market. All five investigations have found much the same thing: they have consistently identified DC pension customers’ poor awareness of their options and the distrust, disinclination or inertia that can so easily lead to poor decisions. It is not just poor decisions that are a concern but scams and frauds as well. Without taking proper advice, vulnerability to scams and frauds increases. The FT reported earlier this year that losses from pension scams in March this year alone had risen to a record high of £8 million. Victims of what they described as “liberation fraud” were typically conned into placing their pension funds into investments that do not exist or are illiquid or incapable of delivering the promised returns. Victims are not usually warned about tax charges in liberating their pension funds before the age of 55, which can wipe out half the value of their savings. Being better informed and advised will not, of course, prevent all poor decisions or prevent all scams and frauds, but it is a powerful safeguard against these things. It is not the same as just having information advice out there somewhere; it means accessing and using this information and advice, which is what our Amendment 42B would do. It requires people, before they can access their pension pots, to have received information and guidance either through the SFGB or regulated advisers—the same kind of controls that currently apply to taking out a mortgage. The amendment would make that work for many more people.

I turn briefly to deal with Amendment 42C, which would simply require the SFGB to report annually on the levels of usage of pensions guidance and regulated financial advice by those accessing their pension pots. As I explained earlier, the quality of guides is very high but the take-up is very low. We need to know how well the SFGB is doing in fixing this problem and have the SFGB publish the data. We need to see how successful it is, for example, in raising the level of take-up from the current extremely low 7%. That is a vital way in which to hold the new body to account and what the amendment does—although, having thought about it a little more, I accept that the SFGB may not be the best-placed organisation to do that. The Minister, from whom I gratefully take correction, is nodding as I say that. But I hope that the Minister will give careful and sympathetic consideration to Amendment 42B in particular. I beg to move.

[Baroness Altmann]

My Lords, I support the amendment, to which I have added my name. It would make the take-up of guidance the default option or a mandatory option for anyone who does not have independent, regulated financial advice. We are taking time and spending so much effort setting up a body that is designed to help to guide and inform the public; this amendment would help to ensure that the public actually get the benefit of it.

Clause 5(1) gives the Secretary of State powers to issue,

“directions to the single financial guidance body”,

to do this. Therefore, before anyone could transfer or access their pension savings, they would have received this guidance, which will be set up specifically to make sure they understand the risks before they make any decisions about their pension. Someone would also explain the tax consequences and the potential long-term dangers of giving up a pension because, once they have given it up, they cannot get it back. As the noble Lord, Lord Sharkey, just remarked, the recent FCA research shows that there are some people who are transferring money out of their pension and just putting it into a cash account or a different investment because, clearly, they do not understand the benefits of keeping it in a pension. Having somebody explaining it to them first would be very much the aim of this particular body.

I wholly support the pension freedoms that the Government have introduced, but they are introducing them into a landscape where, for the past few decades, people were encouraged to believe that they did not really need to understand or engage with pensions, because all the decisions were taken for them. For most people, they were in a default fund on their savings journey and then, when they took the money later on, they were put into an annuity and that was it. They did not really need to understand what any options were because they did not really have many options. Unfortunately, people did not understand how annuities worked either. If we make this guidance a default or mandatory option then we make sure that we are protecting the public as well as giving them the freedoms. It is right that we give them the opportunity to make decisions that will suit them, but we have to make sure that we give them the opportunity of making properly informed decisions and as fair a chance as possible of making the freedoms work for them.

Providers too often want people to make a decision when they are too young, for example. It is not just in the freedoms landscape that people are taking their pensions early; the majority of people were buying annuities well before the age of 65 under the previous system, too. I hope that the Government will seriously consider that the 7% take-up rate for Pension Wise is woefully low—we need to find a way to increase that and we need to make sure that we protect the public and give them the fairest chance of making the freedoms work. Pension Wise or the new body could, for example, issue vouchers for everybody who is coming to the stage at which they might need to make a decision about their pension. They could be sent a voucher for a free guidance session. The financial guidance body, perhaps with the FCA and with providers, can work on ways of boosting take-up, but it is definitely something that would make the work that we are doing in this Committee so much more valuable around the country. I support this amendment.

--- Later in debate ---

[Lord Young of Cookham]

I thank all those who have taken part in this debate for these amendments on the specifics of the pensions guidance function.

Amendment 42B, tabled by the noble Lord, Lord Sharkey, and my noble friend Lady Altmann, seeks to ensure that people have taken guidance or regulated advice before accessing their defined contribution pension pot. The pension flexibilities introduced in 2015, which a number of noble Lords who have taken part in the debate have spoken about, gave people the freedom and choice to decide how to access their defined contribution pension savings. The flexibilities give people control of their money and allow them to make choices which tailor their approach to their own particular circumstances. As has been mentioned in the debate, at the point of introduction, this provision was not there.

Since 2015, we have provided Pension Wise as a source of free and impartial guidance to help people make more informed decisions. There have been over 5.3 million visits to the Pension Wise website since launch and there have been more than 154,000 appointments. Customer satisfaction with Pension Wise remains very high. In 2015-16, Pension Wise delivered 61,000 guidance appointments. In 2016-17, this had increased to 66,000. By the end of July this year, there had already been nearly 27,000 appointments. This clearly demonstrates that the work we and the industry are doing to promote Pension Wise guidance is working.

It is important that people know that help is available when making important decisions about their pensions. Clause 3 ensures that the Government’s guidance guarantee will continue to be met by the new body. It is also important, however, that people have the freedom to choose sources of information, guidance or regulated advice that are right for them before making a decision about their pensions. It is not immediately clear that such an intervention at this point in the journey would be effective in changing people’s behaviour, and it might serve only to frustrate people who have already made the decision about accessing their money. As has been mentioned, such an approach would not be without cost, which would fall on the firms that pay the levy. Additional costs would need to be justified with clear benefits in terms of better outcomes for people.

Pension schemes and providers are required by law to signpost people to Pension Wise guidance. We know that this is working: pension providers are consistently cited by around half of the people who contact Pension Wise as the place they first heard of the advice. We are working with providers to ensure we continuously improve the effectiveness of signposting. We are also working with a number of employers, locally and nationally, to promote the Pension Wise service.

The FCA’s Retirement Outcomes Review: Interim Report found that take-up of Pension Wise was low. However, it also highlighted a number of mitigating contextual factors which should be considered. It found that 53% of pots had been fully withdrawn, but that the vast majority of these were small pots—60% were smaller than £10,000 and 90% were smaller than £30,000. It also found that 94% of people making full withdrawals had other sources of retirement income on top of the state pension, and so the FCA did not see this as evidence of people squandering their pension savings. Lastly, some people who did not use Pension Wise decided that financial advice was the right route for them. Between October 2015 and September 2016, sales to people who took regulated financial advice accounted for 37% of annuity sales and 70% of draw-down sales.

Having said all that, I find this all quite difficult. As noble Lords have suggested during this debate, it may well be the case that people could benefit from using more guidance. However, the landscape is somewhat complex and bears further scrutiny. I am not persuaded that the amendment in front of us is the right way to go. I listened with interest to a number of the alternative suggestions that were made.

I return to my script. The interim report to which I referred a moment ago has raised a number of issues, and the FCA has proposed a number of remedies. It has invited views and is actively engaging with government, regulators, industry and consumer bodies before delivering its final report in the first half of 2018. The right way forward may be to wait for the full report of the FCA and consider its recommendations, which may pick up some of the points made in this debate, in light of all of the information and evidence. This will ensure that we make the right interventions at the right time, which help people make the right choices for their circumstances.

Amendment 42C—which I was never attracted to—tabled by the noble Lord, Lord Sharkey, would require the new body to report annually on the usage of pension guidance and regulated financial advice by members of the public accessing their pension pots. The noble Lord made it clear that, on reflection, he thought that this might not be the best way to proceed, so it might be for the interest of the House if I skip the next four paragraphs of my remarks, as I think that the noble Lord indicated that this may not be the best way to go forward. There is already a robust process in place in this area, and we should not seek to duplicate work which is already in train and well advanced. The FCA has already identified a range of indicators that are intended to give a snapshot of the market for financial advice and establish a baseline.

I think that I have dealt with the points that have been raised in the debate; if I have not, I would like to write on them. However, against the background of what I have just said, I hope that the noble Lord may feel able to withdraw his amendment.

[Lord Sharkey]

My Lords, I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord McKenzie, for their contributions to the debate. In a way, I am not quite certain where this leaves us. I listened quite carefully to what the Minister said, and I can understand the merit in having this completely underworked, over-resourced FCA carry out yet another inquiry in its spare time into this again. However, I can also understand the merits of doing something fairly concrete, fairly soon, about what I think we all agree is a problem. I am also puzzled about why it is quite so difficult, in the sense that this is what happens when you take out a mortgage. It seems to me perfectly reasonable to suggest this is also what should happen when you access your pension.

In passing, I should say that, first, I am quite grateful for the Minister’s speedy dispatch of the second amendment—I will not dwell on that—but I disagree with him when he talks about Pension Wise working. That is not right or accurate; it is misleading. A more accurate view is that it works exceptionally well for the very small number of people who use it. That is a better statement than the blanket statement that Pension Wise is working. That is one of the roots of the problems that we face here.

In the face of the lack of absolute enthusiasm for the first amendment, I will withdraw it. However, we should continue the conversation about this and not just wait for the FCA to opine. There is perhaps room for a more round-table general discussion about what advances we can make without waiting for whenever—shortly or in due course—the FCA will publish its findings. However, in the meantime, I beg leave to withdraw.

Amendment 42B withdrawn.

--- Later in debate ---

[Baroness Altmann]

My Lords, I refer to my Amendment 73, which attempts to define cold calling using many more words. That was in the context of banning cold calls for claims management companies. I do not claim that this is the correct version for cold calling.

[Lord Sharkey]

My Lords, I was pleased to add my name to the amendments in the name of the noble Baroness, Lady Altmann. Both amendments address the problem of cold calling and pensions. I would, like the noble Baroness, have preferred an outright ban on cold calling, just as I would like an outright ban on cold calling for the benefit of debt management companies and for claims management companies. We can deal with banning cold calling for claims management companies later in the Bill, as the noble Baroness just pointed out, and she and I have both tabled amendments to do exactly that. Regrettably, banning for pensions and debt management companies is outside the scope of the Bill.

The amendments before us, therefore, cannot and do not go that far, but they do offer a pretty good work-around. They would do two things, as the noble Baroness has explained. They would require the SFGB to provide information and guidance on cold calling. They would also require people to have received this information and guidance before taking any action following a cold call.

Noble Lords have discussed cold calling on many occasions in this Chamber. On every occasion there has been universal dissatisfaction with the process and universal recognition that it is a menace, yet it still goes on. There has been a 180% increase in the past 10 months alone. There are now 2.6 million calls every month. This is an omnipresent menace. But there is no cold calling for mortgages. We banned that. Successive Governments have never got around to banning cold calling for pensions, for debt management or claims management and I know that the Government have promised, yet again, to ban cold calling for pensions. But, yet again, it is a promise without a delivery date. It is a promise that has no obvious legislative vehicle except this one.

I still do not understand why the Government are dragging their heels over this or over debt management and claims management cold calling either. I acknowledge that there will be complexities in devising the details of any ban, but it is surely not beyond the ability of the Government to deal with it speedily if they assign the right priority and the right resources to it. In any case, I remind the Minister that we have already held out in these debates the possibility of an enabling clause in the Bill with the details to follow later in secondary legislation. We have had no response to that—all rather disappointing and mystifying. In the absence of any willingness on the part of the Government to actually do anything in the Bill, these amendments show how progress can be made. I very much hope that the Minister will respond positively.

[Lord McKenzie of Luton]

My Lords, we support the thrust of the amendment, but there is just a query on its precise ramifications which perhaps I may raise now. The amendment states:

“As part of its pensions guidance function, the single financial guidance body must provide information and guidance regarding unsolicited communications and make provision to ensure that members of the public receive this information and guidance before taking any action following an unsolicited communication”.


I am not quite sure how that could be caused to happen; that is, where the knowledge of an unsolicited communication is and how that feeds through to encourage people not to take any action until they have considered these matters. When the Minister winds up, she might expand a little on that.

I certainly support what the amendment is trying to achieve. The idea of taking a power in the Bill to seek to move forward more quickly once it has left this House is certainly worth considering. But I guess that my key message is to the Government. Their response to the consultation document was robust and covered not only cold calling, but we have this equivocation as to when it is going to happen. I find it difficult to understand, given everything that is going on with Brexit, which is changing the world, why we cannot move swiftly to introduce provisions in a vital area where there is clear consumer detriment that is destroying many people’s lives. It would be helpful to have that clarification in the wind-up, and subject to that we support the amendment.

Tax Havens

Lord Sharkey Excerpts

Thursday 6th April 2017 Lords Chamber

Asked by

[Lord Sharkey]

To ask Her Majesty’s Government what steps they are taking to curb the use of tax havens.

[Lord Young of Cookham (Con)]

My Lords, the Government are committed to a regime where tax is fair, competitive and paid. The UK is at the forefront of global action to tackle harmful tax practices through implementing the agreed base erosion and profit shifting project outcomes, the OECD’s new common reporting standard and the development of new beneficial ownership information standards.

[Lord Sharkey (LD)]

I thank the noble Lord for that Answer. Last week, Oxfam’s report revealed that last year five UK banks made £9 billion in profit in tax havens, which was 67% of their global profits. Half a billion pounds of this profit was made in UK-linked tax havens, where the banks paid just 7% in tax. What estimate have the Government made of the loss to the Exchequer of profit shifting by UK-based companies?

[Lord Young of Cookham]

My Lords, I do not have the estimate of the amount lost but the noble Lord will know that we are taking steps to avoid the diversion of profits through country-by-country reporting. This means that we tend to tax the activity in the country where it takes place—so, if the activity takes place in the UK, companies will be taxed in the UK. We have also introduced a diverted profit tax, so if people seek to divert their profits to another country, a higher rate of tax can then be paid. Therefore, we are taking measures to plug the loopholes that the noble Lord has identified.

Higher Education and Research Bill

Lord Sharkey Excerpts

Report: 3rd sitting (Hansard): House of Lords
Monday 13th March 2017 Lords Chamber

Moved by

[Lord Sharkey]

144: After Clause 82, insert the following new Clause—
“Sharia-compliant student finance: progress reports
(1) The Secretary of State must publish on the Department for Education’s website, and must bring to the attention of schools in England and Wales as appropriate, a report which—(a) sets out progress towards the introduction of a scheme of Sharia-compliant student finance; and(b) provides an estimate of when such a scheme will be available for students entering tertiary education.(2) A report under subsection (1) must be published within one month of this section coming into force and must be updated quarterly thereafter. (3) Where any update provided under subsection (2) varies an estimate of when a scheme will be available, the Secretary of State must provide an explanation.”

[Lord Sharkey (LD)]

My Lords, Islamic law forbids interest-bearing loans and that prohibition can be a barrier to Muslim students going on to attend our universities. I first became aware of this when I visited the Preston Muslim Girls High School as part of the Lord Speaker’s outreach programme. I talked about the work of the House and I tried to answer the girls’ questions. There was one question that I could not answer: why was there no sharia-compliant system of student finance? Many of the girls came from very religious backgrounds and some would not be able to accept interest-bearing loans. This meant that they could not go to university. They were certainly qualified to go—Ofsted rates their school as outstanding on every measure. The headmaster explained to me that when tuition fees were low, many Muslim students were able to attend university, financed by family and friends. However, since 2012, this has become much more difficult given the current level of fees and the real rate of interest now payable on student loans. As the excellent impact assessment to the Bill notes, the situation worsened in 2016-17 when maintenance grants were replaced by interest-bearing loans. The Muslim community is disadvantaged by all this. The impact assessment says that:

“The unmet demand for student finance consistent with the principles of Islamic finance might mean that some would-be students may be prevented from participating in higher education on the basis of their religious beliefs”.


The coalition Government took this problem seriously. In 2014, a BIS consultation had an astounding 20,000 responses. In their response to the consultation, the Government’s conclusion was clear, saying that,

“the Government supports the introduction of a Sharia-compliant Takaful Alternative Finance product available to everyone”.

However, they added that:

“Given the complexity of these issues and the time needed to resolve them, it is unlikely that any Alternative Finance product could be available before academic year 2016/17”.


That was in September 2014. We are already into academic year 2016-17, and too far into it for any scheme to be available for academic year 2017-18. Worse, I have been told privately that the scheme will not be ready until academic year 2019-20. That is seven years after the problem was recognised, five years after a solution was agreed and two academic years from now. Muslim communities have been disadvantaged for five years and face the prospect of another two years of it.

In Committee, I tried to persuade the Government to accept a deadline of 2018-19 for the introduction of a sharia-compliant system. I chose that date because Islamic finance experts assured me that a Takaful system could be put in place from a standing start within eight to 12 months. Some of these experts had advised the Government on the introduction of a Takaful system and knew what it would take to get it up and running. The Government rejected the idea of a deadline without even hinting at what they thought might be an introductory date. However, the Minister was kind enough to meet me to discuss the situation. He and his officials made it clear that the Government were not prepared to accept any kind of deadline, nor did they give an estimate of when a sharia-compliant system might arrive. I repeated that I had been told that the problems with the Student Loans Company and HMRC were causing the delay and uncertainty, and that they had not assigned the scheme sufficient priority or sufficient resource. I explained again that prominent Islamic finance experts believe it should take no longer than eight to 12 months to put a system in place. These experts also point out that establishing the sharia-compliant help-to-buy guarantee scheme took only five or six months to develop and launch.

I also asked whether the department had told schools, and through them Muslim families, about the work going on around the Takaful system. The answer was no. The reason given was the desire to avoid raising expectations. I thought this was precisely the wrong answer. If the department had been in better touch with the Muslim community, it would have known that expectations had already been raised by David Cameron as long ago as 2013 when he spoke to the World Islamic Economic Forum in London and announced the arrangement of student finance on a sharia-compliant basis. That was four years ago. I thought that Muslim students, their families and communities had a right to know what progress was being made and when to expect a solution. That is why my amendment would require the Secretary of State to tell all relevant schools about the progress being made and to give an estimate of the likely date of availability.

--- Later in debate ---

[Lord Sharkey]

My Lords, I thank all noble Lords who have spoken in this brief debate. I am astonished by some of the Government’s response. The Minister said that this scheme will be open for applications before the end of the Parliament, but this Parliament ends in 2020. On the whole, the Government’s response takes insufficient account of the worries caused in the Muslim community by the uncertainty about the date of availability and of the perfectly understandable desire of the Muslim community to know what progress is being made. It gives no substantive explanation for the very long delay to date or the inability to get this work done in a reasonable time. The Government have offered no rebuttal of the Islamic finance experts’ view that with political will and proper resource we could have sharia-compliant student finance available for students going up to university in April 2018.

This is all extremely disappointing. We should do better. My amendment will at least let the Muslim community know what progress is being made and when to expect a solution to a problem that continues to disadvantage them and their children. I wish to test the opinion of the House.

Building More Homes (Economic Affairs Committee Report)

Lord Sharkey Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Sharkey (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Forsyth, and I enthusiastically endorse his comments about making a Cabinet Minister of Gavin Barwell. I too am a member of your Lordships’ Economic Affairs Committee which, under the exemplary and firm guidance of the noble Lord, Lord Hollick, produced the report we are debating.

The report’s conclusions were in fact straightforward: that the housing market is obviously in crisis, and has been for a long time; and that the crisis is getting worse. In many areas of the country, people have no realistic prospect of being able to buy their own home. The UK-wide ratio of house prices to average income stands at 8:1 and prices continue to rise, last year by 7%. This morning, the IFS forecast that average incomes will not in fact increase at all over the next two years. It is not surprising that home ownership levels are in steep decline, especially among young people. As others have pointed out, the key reason for this is the lack of supply. There is not enough private housing, not enough housing association housing and effectively no local authority housing.

The committee’s report examined this failure to build and other aspects of the housing market. We concluded that it was vital that local authorities returned to building at scale and across all types of tenure. We made other recommendations to do with the planning system, the use of public land and the use and taxation of existing housing stock. These were all important and, we believed, helpful recommendations but we were clear that:

“Local authorities and housing associations must be incentivised and enabled to make a much greater contribution to the overall supply of new housing”.


We then said:

“Without this contribution it will not be possible to build the number of new homes required”.


Since the early 1960s, the private sector has on average built around 150,000 new homes annually. We saw no reason for the private sector as currently incentivised to increase its output. The builders made it clear to us in evidence that they are margin maximisers and not volume maximisers, for entirely understandable reasons, as the noble Lords, Lord Hollick and Lord Forsyth, have explained. This means that there is a significant supply gap that must be filled by the public sector. Housing associations can and do build around 50,000 new homes in a good year, which means a gap in supply of around 100,000 homes if we are to reach the recommended target of 300,000 per annum. That gap will have to be filled by the public sector.

The Government’s response to our report came in two parts, as the noble Lord, Lord Forsyth, has mentioned. The first was a preliminary and rather sketchy response; the White Paper was the substantive response to our report and it has a promising title, Fixing our Broken Housing Market. That blunt title and its acknowledgement that the housing market is broken were encouraging signs and so were the forewords by the PM and the Secretary of State. The Secretary of State said:

“Soaring prices and rising rents caused by a shortage of the right homes in the right places has slammed the door of the housing market in the face of a whole generation”.


That is true. The Prime Minister said of the proposals in the White Paper:

“We’re giving councils and developers the tools they need to build more swiftly”.


That is less obviously true and skirts around the crucial question of volume. Speed and volume are not necessarily the same thing. The White Paper says that:

“The consensus is that we need from 225,000 to 275,000 or more homes per year to keep up with population growth and start to tackle years of under-supply”.


If the private sector and housing associations between them manage to build 200,000 homes a year, the Government have a deficit on their own figures of between 25,000 and 75,000 homes a year. Who will build these required homes, and how? It has to be local authorities. The committee took that view.

We also noted the keenness of some local authorities to build and the obstacles in their way, the chief of which was money. We have the very odd situation where borrowing on the general revenue account is limited only by the well-understood prudential principle, but borrowing on the housing revenue account is generally not available or much more restricted. This means, as others have noted, that local authorities can borrow to build swimming pools but not to build houses—a ludicrous situation, given the gravity of our housing problem. We recommended allowing local authorities to borrow to build social housing, as they can for other purposes. We saw this as the surest and simplest way to increase housing volume. I think that the Government have rejected this proposal, chiefly by ignoring it. They agree that local authorities have an important role in delivering new homes but, in the absence of the ability to borrow on the housing revenue account, this relies chiefly on joint ventures financed through the general account. There is nothing wrong with that; in fact, there is a great deal to like about joint ventures through the general account, as we said in our report. Again, the question is one of volume.

These schemes have so far been disparate and sometimes very small-scale. What volume do the Government think will emerge? How have they modelled this number? What confidence can we really have that this kind of venture will produce the required 25,000 to 75,000 new homes each year and what similar schemes can the Government point at to show that this kind of scheme produces volume results in a reasonable time? These are important questions. Without these additional homes from local authorities, the Government’s housing plan will fail. I would be grateful if the Minister could address these questions when he replies.

The White Paper contains many other proposals, many of them important improvements on the current housebuilding regime. In particular, it recommends a proper assessment by local authorities of forecasting housing needs and requires a plan to show how these needs may be met. This is a very good idea in principle—at least the first bit is, even if I thought that local authorities were already in fact obliged to do exactly that. The second bit, showing how the need may be met, may prove very difficult given the current budget cuts under way if borrowing requirements are not relaxed and joint ventures are the only significant tool available. I welcome in principle, though, the notion of a new housing delivery test. Speaking of local authorities, the White Paper says that,

“where the number of homes being built is below expectations, the new housing delivery test will ensure that action is taken”.

In paragraph 2.49, it goes on to give some detail. The remedy for underperformance seems to be that,

“the presumption in favour of sustainable development in the National Planning Policy Framework would apply automatically”.

That really is quite opaque. Can the Minister explain how this would actually work to remedy a shortfall in building homes?

The section of the White Paper entitled “Helping People Now” reprises the problems with the housing market and recites the grim statistics that we have heard already this afternoon. It goes on to offer help and lists a range of demand-side schemes, which it says will help more than 200,000 people to become home owners by the end of this Parliament. We have seen such schemes before; they have been, in one form or another, a prominent feature of government tinkering with the housing market for a long time. All these schemes have two things in common: they do not address the fundamental flaws in the housing market, and typically help people who are already near the threshold of home ownership over that threshold. On what basis do these schemes provide value for the taxpayers’ money spent? Does not their narrow focus and inflationary effect mean that the money could be better spent on improving supply rather than increasing demand?

All in all, the White Paper is a bit of a disappointment or at least a curate’s egg. It contains some good things but they are all essentially second-order good things. It is not radical; in fact, it is rather timid. We have had a dysfunctional and socially harmful housing market for a long time and it is getting worse. It needs lots of reform, and there is some in the White Paper, but it needs radical reform if we are to bring real and sustainable improvements. What it needs is a lot more building by local authorities. The easiest, most obvious and most reliable way to do this is to relax the restrictions on borrowing on the housing revenue account. It is a pity that the Treasury seems to have prevented that solution going forward. This is a simple measure. It would work and greatly reduce the £9 billion of the housing benefit payment that currently goes to the private rented sector. Without the scale of local authority building that this measure would allow, it will not be possible to build the number of new houses required. That is a missed opportunity and it risks the perpetuation of a huge and socially damaging housing problem.

NHS: Congenital Heart Disease

Lord Sharkey Excerpts

Wednesday 14th December 2016 Lords Chamber

Asked by

[Lord Sharkey]

To ask Her Majesty’s Government how many hospitals have challenged NHS England’s recommendation that they cease to provide special surgical services for congenital heart disease.

[Baroness Chisholm of Owlpen (Con)]

My Lords, the department has not received any formal challenges to NHS England’s proposals for changes to the way that congenital heart disease services are organised. I know that there are some concerns about NHS England’s proposals but we must remember that no final decisions have been made. A service-change process is now under way that will include public consultation. NHS England will announce further details in the new year.

[Lord Sharkey (LD)]

The Royal Brompton Hospital is one of the hospitals that has those concerns. NHS England said at a recent meeting in the Commons that there were no concerns over the quality of care provided by the hospital, yet the NHS England proposals for the Royal Brompton would remove a quarter of the paediatric care beds in London when there is already a growing shortage. They would also destroy the hospital’s world-leading adult congenital heart disease programme and cost a lot of money. Given all that, can the Minister say exactly what problem the Royal Brompton proposals are aiming to solve?

[Baroness Chisholm of Owlpen]

I do not want to go into issues relating to specific hospitals but I emphasise that no decisions have been made. Where it is decided that changes need to be made, these will be managed carefully and will be carried out in partnership with current service providers, patient groups and advocates. Decisions are likely to be made in the summer but there will be no change on the ground until at least 2018. The public consultation will give everyone a chance to put forward their views and to discuss the plans further.

Policing and Crime Bill

Lord Sharkey Excerpts

Committee: 4th sitting (Hansard - part two): House of Lords
Wednesday 9th November 2016 Lords Chamber

Moved by

[Lord Sharkey]

214E: After Clause 142, insert the following new Clause—
“Posthumous pardons for convictions etc of certain abolished offences
(1) A person who has been convicted of, or cautioned for, an offence specified in subsection (3) and who has died before this section comes into force is pardoned for the offence if two conditions are met.(2) Those conditions are that—(a) the other person involved in the conduct constituting the offence consented to it and was aged 16 or over, and (b) any such conduct at the time this section comes into force would not be an offence under section 71 of the Sexual Offences Act 2003 (sexual activity in a public lavatory).(3) The offences to which subsection (1) applies are—(a) an offence under section 12 of the Sexual Offences Act 1956 (buggery) or under section 13 of that Act (gross indecency between men);(b) an offence under any of the following provisions (which made provision similar to section 12 of the Sexual Offences Act 1956)—(i) 25 Hen. 8 c. 6 (1533) (an Act for the punishment of the vice of buggery);(ii) 2 & 3 Edw. 6 c. 29 (1548) (an Act against sodomy);(iii) 5 Eliz. 1 c. 17 (1562) (an Act for the punishment of the vice of buggery);(iv) section 15 of 9 Geo. 4 c. 31 (1828) (an Act for consolidating and amending the law relating to offences against the person); (v) section 61 of the Offences against the Person Act 1861;(c) an offence under section 11 of the Criminal Law Amendment Act 1885 (which made provision similar to section 13 of the Sexual Offences Act 1956).(4) The references in subsection (3) to offences under particular provisions are to be read as including offences under—(a) section 45 of the Naval Discipline Act 1866,(b) section 41 of the Army Act 1881,(c) section 41 of the Air Force Act 1917,(d) section 70 of the Army Act 1955,(e) section 70 of the Air Force Act 1955, or(f) section 42 of the Naval Discipline Act 1957,which are such offences by virtue of the provisions mentioned in subsection (3).(5) The reference in subsection (2)(b) to an offence under section 71 of the Sexual Offences Act 2003 is to be read as including a reference to an offence under section 42 of the Armed Forces Act 2006 which is such an offence by virtue of section 71 of that Act of 2003.(6) The following provisions of section 101 of the Protection of Freedoms Act 2012 apply for the purposes of this section and section (Sections (Posthumous pardons for convictions etc of certain abolished offences) and (Other pardons for convictions etc of certain abolished offences): supplementary))(1) (so far as relating to this section) as they apply for the purposes of Chapter 4 of Part 5 of that Act—(a) in subsection (1), the definitions of “caution”, “conviction”, and “sentence” (and the related definition of “service disciplinary proceedings”);(b) subsections (2) and (5) to (7).”

[Lord Sharkey (LD)]

My Lords, I shall also speak to Amendment 214F. Both amendments are in my name and those of the noble Baroness, Lady Williams of Trafford, and the noble Lords, Lord Lexden and Lord Black of Brentwood. These amendments each do one simple thing. Amendment 214E grants posthumous pardons to those men, now deceased, who were convicted under the dreadful Labouchere amendment and other homophobic legislation, for acts that would now not be crimes. Amendment 214F provides that a pardon is granted to those living who were similarly convicted and who have, or will have, obtained a disregard under the Protection of Freedoms Act. I am very glad to say that the Government have said they will support these amendments and I thank the Minister for her help and encouragement.

If these amendments pass, it will be the culmination of a long campaign to put right a historic injustice. Some 65,000 men were convicted under the Labouchere amendment and other anti-gay statutes. Of these, 16,000 are still alive and 49,000 are dead. When we passed the Protection of Freedoms Act in 2012 we made provisions for the living 16,000 to have their convictions disregarded. That is, for all practical purposes, the convictions would no longer have any effect. That was a great step forward. We recognised a terrible injustice and did something to make amends and to put things right. At the time it seemed to me that the 49,000 men convicted but now dead deserved exactly the same treatment. It seemed a straightforward argument. The disregard for the living acknowledged a wrong and offered a partial remedy. Simple justice suggested that we do the same for the dead. We should acknowledge the wrong done to them and should provide some comfort to their relatives, their friends and their memory.

I tried, with other noble Lords, notably the noble Lords, Lord Black of Brentwood, Lord Lexden and Lord Faulkner of Worcester, to amend the Protection of Freedoms Act to do exactly that—to extend the disregard posthumously. I tried via the LASPO Bill in March 2012 and via the Criminal Justice and Courts Bill once in July 2014 and again that October. During this process the Government’s position began to shift. The initial and rather blunt refusal to take action became a willingness to discuss and, eventually, a willingness to help. I was encouraged to persevere and to promote a posthumous pardon for Alan Turing. There was a feeling that, if Turing were pardoned, it would be morally impossible not to extend that pardon to all those others similarly convicted but now dead. So it would prove, if these amendments now pass. If they do, we will finally be putting right a cruel and unjust historic wrong—a wrong that has wrecked the lives of thousands of gay men. I urge your Lordships to support these amendments and I beg to move.

[Baroness Williams of Trafford]

I intervene on the noble Lord to say that not only do the Government support this amendment, we strongly support it. I thought that might be helpful to the debate in Committee.

--- Later in debate ---

[Lord Sharkey]

My Lords, I thank all those noble Lords who have spoken in favour of Amendments 214E and 214F, and all noble Lords who have spoken in this brief debate. I also want to claim some fellowship as a Mancunian with the Minister. Wigan is only 17 miles from Manchester, and while I was at the University of Manchester as a mathematics undergraduate, I was taught by a man called Robin Gandy who was the only doctoral student that Alan Turing ever had. Robin Gandy was full of stories about Alan Turing and I knew these from a very early age.

In closing, I thank the noble Lords, Lord Lexden, Lord Black of Brentwood and Lord Faulkner of Worcester, who have been supporters of these amendments in their current form and in all their previous forms. It is also appropriate to thank my noble friend Lord McNally and the noble Lords, Lord Bates, Lord Faulks, and their officials for listening to the case we have made and for helping to arrive at a solution.

Amendment 214E agreed.