Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015
Debate between Lord Sharkey and Lord Newby(9 years, 8 months ago)
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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.
Financial Services: Cold Calling
Debate between Lord Sharkey and Lord Newby(10 years ago)
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Lord Newby (LD)
My Lords, the FCA’s financial promotion rules apply to regulated financial services and products, and cover all forms of financial promotion, including cold calling. On consumer credit, the FCA requires regulated firms that accept business from unregulated lead generators to take reasonable steps to ensure that the business operates in compliance with legal requirements. The Information Commissioner’s Office can also issue a penalty of up to £500,000 to any organisation that breaches the legal requirements around cold calling.
Lord Sharkey (LD)
My Lords, 31 million adults say that they have been offered fee-charging debt management via cold calls and texts. When these calls are from intermediaries, as they usually are, they are not in fact regulated by the FCA. As a result, the callers are not obliged to tell of the existence of free debt management services, which would be the case if the calls came directly from the debt management companies. The FCA already bans cold-call selling of mortgages. Will the Government consider doing the same for payday loans and fee-charging debt management services?
Lord Newby
My Lords, all debt management companies themselves are required to advise on free debt management options at their first contact with a potential customer, so even when lead generators are being used there should be no cases in which people sign up for advice without having been told about the free alternatives. That is the key requirement. The circumstances that led to the banning of cold calling on mortgages a number of years ago, around the right to buy, were very different from the broader considerations that apply more generally.
Debt Management Organisations
Debate between Lord Sharkey and Lord Newby(10 years, 3 months ago)
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Lord Sharkey
To ask Her Majesty’s Government what steps they are taking to ensure that debt management organisations serve the interests of their clients.
Lord Newby (LD)
My Lords, the Government have given the Financial Conduct Authority responsibility for protecting customers of debt management firms. Debt management firms are subject to binding FCA conduct rules and must treat customers fairly. FCA prudential and client money requirements are also being introduced to protect customers’ money. The FCA will thoroughly assess every debt management firm’s fitness to trade as part of the authorisation process from October this year.
Lord Sharkey (LD)
My Lords, half of the clients of fee-charging debt management companies do not know that there are equivalent free services. These clients are mostly recruited by cold calling and 31 million cold calls were made last year. The FCA says that it does not regulate these calls. Can the Minister say who does regulate them and are cold callers required to advise of the existence of free debt management services?
Lord Newby
On the second part of the noble Lord’s question, debt management companies will be required under the new rules to signpost consumers to free debt advice, which will be a major improvement. There are two elements of regulation of cold calling and unsolicited text messages. The ASA has some responsibility in that area and it has already taken action to ban payday lenders’ use of unsolicited text messages. As with its regulation of other financial services markets, the FCA is committed to ensuring that cold calling by phone, text or e-mail makes the identity of the firm and the purpose of the communication clear to those being called.
Taxation: Personal Thresholds
Debate between Lord Sharkey and Lord Newby(10 years, 10 months ago)
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Lord Newby
No, I simply do not agree with the noble Baroness. The Government are considering a number of measures which will help people on low incomes, of which a potentially significant increase in the minimum wage is perhaps the most significant.
Lord Sharkey (LD)
My Lords, now that our economy is growing again, can the Minister say what more the Government can do to help those who need it most, in particular the long-term youth unemployed?
Lord Newby
My Lords, the most important thing the Government can do as the economy grows is to ensure that the macroeconomic framework is conducive to greater growth. There has been a 300,000 fall in the claimant count within the past year, so that is the single biggest thing that the Government can do to promote the continued reduction in unemployment and long-term unemployment. Youth unemployment has been falling now for five quarters. It is not falling fast enough but a raft of measures, including improved vocational education and an expansion of the apprenticeship scheme, have been designed specifically to tackle that long-standing issue.
Financial Services (Banking Reform) Bill
Debate between Lord Sharkey and Lord Newby(10 years, 11 months ago)
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Lord Sharkey
Before the noble Lord sits down, perhaps I may prompt him to address the question of payday loan companies operating outside the UK but in the EEA trading in this country. Do they or do they not? Will they be subject to the cap or not?
Lord Newby
My Lords, this is a complicated area that we have just begun to start looking at. In order to minimise the extent to which overseas operators might be able to operate in this area, we need to take our time and do the job properly. It is another contributory argument for doing the job in a deliberative manner.
Lord Sharkey
My Lords, I am grateful for the answers that the Minister has given, with the possible exception of the last one. I should be grateful if, as these deliberations take place, he would consider writing to us to tell us the latest position on these people trading from outside the country in the country. If that turns out to be possible, we need a radical rethink of exactly what we are about today. Leaving that to one side, I am reassured by the answers that my noble friend the Minister has given but I particularly want to stress that absolutely critical to this working at all is a real-time database. This is not about data sharing or the old system of batch processing. It will work only if real-time data processing and real-time lending information are available to the regulator and the lending companies. I hope that as the FCA proceeds it will come to an understanding that that is absolutely the case and an absolutely necessary requirement. Having said all that, I beg leave to withdraw the amendment.
Financial Services (Banking Reform) Bill
Debate between Lord Sharkey and Lord Newby(10 years, 12 months ago)
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Lord Newby
Absolutely, I am very happy to do that. I hope that the rules would send that message very clearly, but I am very happy to reinforce it.
I go back to the terms of the amendments. I am concerned that some of the provisions could make it more difficult for a consumer to cancel an agreement—for example, requiring borrowers to sign for cancellation of a CPA. I am confident that the FCA’s proposals will give consumers control with respect to CPAs and in managing their repayments. I strongly support the noble Lord in seeking to protect consumers using the high-cost credit market and ensuring that they know their rights. However, I believe the objectives of transparency and protections for consumers are already provided for by the new regulatory regime; the FCA has already set out the action that it proposes to take in this area.
I turn to the amendment proposed by the noble Lord, Lord Sharkey. His proposal would require the FCA to implement a number of rules from the Florida model of payday regulation, including a requirement for a cap on credit. I can give the noble Lord at least some of the assurances that he seeks in terms of the FCA considering the Florida approach to regulating payday lenders very closely, as it decides how to design a cap on the total cost of payday loans for the UK market and make sure that it works effectively here. It will consider rollovers and look, for example, at the experience of Florida with a real-time database.
While I completely support the noble Lord’s desire to learn lessons from other countries’ experience, I have some doubts as to whether it is as straightforward as he thinks to simply import almost an entire regulatory framework from another jurisdiction. The UK has a very different market from other countries, and it is right that the rules governing regulation of payday loans in the UK reflect our own unique national characteristics. The FCA will be charged with doing that, building on the international evidence and examination of the UK market, and drawing on the Competition Commission’s analysis among other things. Therefore, while I share the noble Lord’s commitment to ensuring the UK consumers are protected when they borrow from high-cost lenders, I hope that he will agree that the best way to achieve that is through development of evidence-based rules that are tailored to protect UK consumers. We have a clear action plan to deliver this objective.
The noble Lord, Lord Eatwell, raised the question of the content of the amendments and the relationship between the Government, in setting policy in this area, and the FCA—where the Government stop and the FCA begins. I heard very clearly what he said. The exact nature of the amendment that we will debate at Third Reading is currently being formulated, and I shall make sure that his point is very much in the minds not only of Ministers but of officials as they set about that task.
With those assurances about the amendment that we will introduce, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Sharkey
I was struck by the point made by the noble Lord, Lord Eatwell, that the Government must at some point surely say how the FCA is to arrive at a rate or an amount for a cap and by what criteria the cap should be determined. I am sure that they will want to revisit that whole notion again at Third Reading.
As to Florida, I am encouraged by what the Minister says. I make the overriding point that the Florida system has been operating for 11 years; it is simple, it is easy to understand and it works. What we have here now does not work, is not simple and is not easy to understand—and it costs three times as much as Florida. That is a powerful reason for looking carefully at Florida and assuming that there is something that we can really learn here, no matter the differences between the two jurisdictions. However, I am very grateful for the Government’s decision to cap the total cost of payday loans, and I look forward to a further discussion of the issues at Third Reading under Committee stage rules. In the mean time, I beg leave to withdraw the amendment.
Banking: Lending
Debate between Lord Sharkey and Lord Newby(11 years ago)
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Lord Newby
My Lords, as the noble Lord knows, there was a review about whether there should be a formal good bank/bad bank split of RBS. The Government decided that the cost and disruption of doing this was not justified. However, as the noble Lord says, the bank has itself decided to make an internal split, enabling it to have a greater focus on lending and on dealing in a more orderly way with many loans which will not be repaid or will be only partially repaid. Many of these are related to the property sector.
Lord Sharkey (LD)
My Lords, in March it was noted that lending to SMEs had shrunk by 25% in real terms since 2009 and it has continued to decline since then. The Business Bank is intended to address the problem and BIS forecasts that the first SME loan portfolio guarantees will be in place by the end of this year. Can the Minister update the House on progress?
Lord Newby
My Lords, in respect of SME lending more generally, gross lending is now rising. The picture is clouded by the fact that a lot of SMEs are still paying back loans, so the net position is not as positive, but net lending is down by a much lower amount. As far as lending to SMEs as a whole is concerned, the picture is improving. The Business Bank was launched on 17 October and it aims to support economic growth by bringing together public and private sector funds to improve financial markets for SMEs. Very recently it announced its first commitment of £45 million from the initial £300 million investment programme.
Banking: Co-operative Bank
Debate between Lord Sharkey and Lord Newby(11 years ago)
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Lord Sharkey
To ask Her Majesty’s Government to what extent their aims of producing more diversity in banking and of reforming banking culture will be affected by the change in ownership of the Co-operative Bank.
Lord Newby (LD)
My Lords, the Co-op Bank is negotiating a deal on its capital with its creditors. It will cease to be fully mutually owned, but will continue to compete in retail banking markets. The Government’s reforms will make the banking sector safer, more competitive and diverse. We are implementing the recommendations of both the independent and parliamentary banking commissions. These fundamental reforms will be unaffected by the change of ownership for the single bank.
Lord Sharkey (LD)
The fact is that the Co-op Bank will now be owned by a couple of vulture funds, which I suppose is diversity of a sort. What advice would the Minister give customers who are looking for ethical values in retail high street banking?
Lord Newby
My Lords, the Co-op is undoubtedly having a significant change in ownership, but one would hope that even vultures will be able to see that the Co-op’s USP is its particular ethical stance. Its strength appears to me, at least, to be very much in that direction. So for the development of the Co-op, one would hope that they would see continuation of those traits being in their own interests, as well as those of anybody else. Of course, there are other mutuals that the discerning customer can put their money with; the Nationwide is very successful, as are other building societies. We must be clear on the difference between “for profit” and “ethical”. I would not want to brand every other high street bank as unethical just because they are also making a profit.
Financial Services (Banking Reform) Bill
Debate between Lord Sharkey and Lord Newby(11 years, 1 month ago)
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Lord Newby
My Lords, as far as immorality is concerned, later we will deal with amendments on the reversal of the burden of proof and on the new criminal offence which will be available should banks behave in a grossly immoral way. That is the way to deal with the narrow point my noble friend makes. The whole question of the culture of the banks is addressed only partially in the legislation because it is by definition a cultural issue. We are taking very significant steps to regulate individual senior managers and hold them to account for what they do in a way that has never been the case in the past. Again, that is quite a revolutionary change. Regarding the specific point raised by the noble Lord, Lord Flight, I believe that local authorities at least can bank wherever they choose, but I will look into the point and write to him. I simply do not know what the position is.
Lord Sharkey
My Lords, I will be brief because I see that I am holding back an avalanche of 158 government amendments. There have been a lot of strong, very well argued and diverse views, but there have also been some general themes. For example, there was a feeling that getting close to the customer is absolutely critical. I entirely agree with that. In fact, I fear that without this there is little chance of reforming the banking culture at all. There also seems to have been a general desire in the Chamber to discuss again the issues raised and to see whether on Report there could be a way of advancing some of the arguments put forward today. In the mean time, I beg leave to withdraw the amendment.
Lord Sharkey
Government Amendment 60U is headed, “Power to require disposal of interest in payment system”. New subsection (2) states:
“The power conferred … may be exercised only if the Payment Systems Regulator is satisfied that, if the power is not exercised, there is likely to be a restriction or distortion of competition in—
(a) the market for payment systems, or
(b) a market for services provided by payment systems”.
How is that a remedy for anything? When it comes to divestment or disposal, is it the Government’s notion that someone will pick up the shares that have been disposed of; and, if so, who will it be? What would be the incentive for anyone to pick them up?
Lord Newby
My Lords, I am grateful for the wide welcome given to these provisions.
Economy: GDP Forecast
Debate between Lord Sharkey and Lord Newby(11 years, 3 months ago)
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Lord Newby
I am sure that the noble Lord will therefore have been very pleased to have seen the growth figures last week. I point out to the House that a key factor in growth is the level of interest that people have to pay and that, as a result of the Government’s decisive action in 2010, interest rates have fallen compared with the forecast, as a result of which we will, by 2015-16, have paid £31 billion less in interest payments than was expected in 2010-11.
Lord Sharkey
My Lords, what impact will the improved growth figures have on the public finances in general and, in particular, will they allow the Government to do more to help supply funding to SMEs?
Lord Newby
My Lords, the increased growth figures will of course have a materially positive impact on the debt forecast going forward. With regard to lending to SMEs, the Funding for Lending scheme was strengthened at the Budget and I am pleased to say that the figures published this morning show that there has been for many months a slight uptick in lending to SMEs.
Bank of England: Monetary Policy Committee
Debate between Lord Sharkey and Lord Newby(11 years, 4 months ago)
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Lord Newby
My Lords, my understanding is that it is for the MPC to decide on the scale of quantitative easing. As my noble friend will know, there is a Treasury representative at all meetings of the MPC. That representative is allowed to speak but does not have a vote.
Lord Sharkey
My Lords, last week the New Economics Foundation suggested a new approach to quantitative easing. It suggested channelling investment directly into housing infrastructure and SME lending. Does the Minister agree with that suggestion?
Lord Newby
My Lords, the Government are looking at a number of ways of increasing investment in all those areas of infrastructure. We set out in the spending review our plans for doing that in 2015-16 and subsequently. Plans or programmes already in place, such as the finance for lending scheme, are already having a significant impact on new housing construction.
Bank of England: National Debt
Debate between Lord Sharkey and Lord Newby(11 years, 5 months ago)
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Lord Newby
My Lords, this measure was taken to deal with the heart attack suffered by the British economy and over a period it will be unwound. This is a matter for the Monetary Policy Committee of the Bank of England to manage. At the point at which it feels it right to start unwinding, no doubt it will explain how it plans to do it.
Lord Sharkey
My Lords, the Prudential Regulation Authority has said that the banks must raise an additional £27 billion in capital. Will the Minister tell the House how the Government intend to make sure that this increase in capital requirements will not lead to further reductions in lending to SMEs?
Lord Newby
My Lords, the Government are not responsible for the way in which banks may or may not raise capital. We are very keen for the banks to continue to lend money to SMEs and, indeed, to increase the extent to which they do it. One way in which we hope that this will happen is through increased competition in the banking sector. We hope that current trends in some aspects of that, with some of the new smaller banks lending to SMEs, will continue.
Taxation: Tax Collection
Debate between Lord Sharkey and Lord Newby(11 years, 9 months ago)
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Lord Newby
My Lords, it is important to recognise that the big cut in staff in HMRC took place before 2010. The number of staff fell by 25,000, and 10,000 staff working in compliance roles—that is, the very staff about whom the noble Lord is concerned—were cut during that period. We have added 2,500 staff in that area since we came in and they are generating a very significant amount of additional funding. On international tax evasion and avoidance work, a whole raft of initiatives is under way. There is a new unit within HMRC and we are working very closely with the OECD. I am sure that a number of further announcements in this area will be made during this calendar year.
Lord Sharkey
My Lords, the 2010 comprehensive spending review committed HMRC to improving the customer experience. However, in December last year, the National Audit Office concluded that customers were still not getting a good service. For example, last year 20 million calls went unanswered and there was a cost of £33 million in phone charges to customers kept hanging on. Will the Minister say whether HMRC intends to increase staffing and resources to address this problem?
Banking: Regulation
Debate between Lord Sharkey and Lord Newby(11 years, 11 months ago)
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Lord Sharkey
My Lords, regulation will surely provide for penalties for those who break the rules. However, when it comes to the massive mis-selling of pensions, endowments or PPI policies, the FSA has confirmed that in the past five years not one single bank employee has had disciplinary action taken against them. Does the Minister believe that that is right, and can he reopen the issue with the FSA?
Lord Newby
My Lords, one of the general problems that we are grappling with is that bankers seem to think that they live in a different world to the rest of us and that they should be able to avoid not just censure but charges if they have done something that is criminally wrong. That is why in the recent Financial Services Bill we introduced new provisions to deal with people who have manipulated the LIBOR rates so that, when the whole episode is fully looked into, if criminal action is necessary, it will for the first time be able to be taken against people who have cheated the system.
Banks: Funding for Lending Scheme
Debate between Lord Sharkey and Lord Newby(11 years, 11 months ago)
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Lord Sharkey
To ask Her Majesty’s Government what is their assessment of the performance to date of the Funding for Lending scheme.
Lord Newby
My Lords, we are still in the very early days of the scheme. However, initial indications have been positive. Bank funding costs have declined, mortgage availability has improved and quoted rates on fixed-rate mortgages have decreased since the scheme was announced. Participating banks have also introduced discounted loans for small and medium-sized companies.
Lord Sharkey
My Lords, there is a lot riding on the Funding for Lending scheme, but its current performance is far from clear. For example, in quarter 3, Barclays increased net lending by nearly £4 billion and the taxpayer banks—RBS and Lloyds—decreased lending by over £3 billion the same period. Overall, net lending to businesses continues to decline. Does the Minister agree that the Funding for Lending scheme can be judged a success only if it helps to produce an increase in lending to business, especially small businesses? Will he persuade the Bank to disaggregate the figures it publishes so that we can see exactly how much lending is going on to small businesses when we see the quarterly Funding for Lending scheme report?
Lord Newby
My Lords, one of the core principles and purposes behind the scheme is to increase lending to small and medium-sized businesses. We are confident that as the scheme gathers pace, it will be clearer that it has been effective. On figures on lending to small and medium-sized businesses, the Bank already publishes the quarterly Trends in Lending report, which covers SME lending. The most recent report was published in October. This report gives a very good time series about what is happening to lending to SMEs, and we are not convinced that having a second, broadly equivalent, series produced on a slightly different date would help to explain what is happening any more clearly than is already the case.
Financial Services Bill
Debate between Lord Sharkey and Lord Newby(12 years ago)
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Lord Newby
I am sure that the noble Lord is right. However, with this amendment, we are seeking to address the problem that people in deprived communities are denied access to many of the products that are available in more affluent communities. We want to give the FCA a nudge towards trying to see how simple products and various other products can be developed, which will support people in deprived communities. It does not in any way detract from the FCA’s requirement to protect unsophisticated investors from sophisticated investment products.
The challenge that this amendment seeks to deal with is that, for many people in deprived communities, the range of products available, even simple products, is very limited. We want to see how we can help to ensure that the regulatory framework does not keep that straitjacket as tight as it sometimes has been.
I hope that I have been able to persuade your Lordships that the government amendment will have a material impact on access in deprived communities. I hope that I have also been able to reassure noble Lords that what they intend to provide through Amendment 25F is already enshrined in the Bill and that the noble Lord will be persuaded to withdraw his amendment.
Lord Sharkey
I support Amendment 27 and I am grateful to the Minister for bringing it forward. It is a significant and important change. As we discussed in Committee, we believe that the question of ease of access to financial services is key to a proper and robust regulatory system. Ease of access to financial services absolutely needs to be a factor in any consideration of whether competition is effective or not. Nowhere is this more true than in areas of social and economic deprivation. There is already evidence of market failure in precisely these areas, to which we will return in some detail with Amendment 28A.
I am very glad to see that in this amendment the Government propose to put explicitly into the Bill consideration of ease of access to financial services in areas affected by social or economic deprivation.
Financial Services Bill
Debate between Lord Sharkey and Lord Newby(12 years ago)
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Lord Sharkey
My Lords, this amendment has two purposes. The first is to make sure that relevant data on each bank’s performance are in the public domain. This will make it possible to have an informed debate on whether the banks are competing effectively in the interests of consumers, as the FCA is required to promote. At the moment, all we have is aggregated and regional data. We do not know to what extent, or even whether, the banks are effectively competing, or indeed whether they are properly engaged in all the areas where we might want to see effective competition.
In a more general sense, increasing the amount of data on bank activity in the public domain is a very good thing. We need banks to change their practices, and their culture and transparency is a critical part of doing exactly that. We need to be able to see the changes in both practice and culture and not have to rely just on assertions that changes are taking place. For example, we need to see evidence that, as it says in the coalition agreement, the banking system serves businesses and not the other way round. Exactly the same applies to ordinary customers, too.
The second purpose is to focus attention on banks’ lending to SMEs. Your Lordships will have heard many times about the absolutely critical role of SMEs in our economy, and of their role as key providers of jobs. The importance is hard to exaggerate. Our economic recovery and our enduring economic health depend on the performance of our SMEs, as it always has. The ONS data for July 2011 show that SMEs provide 60% of all jobs in the private sector and generate 49% of private sector turnover. The BIS economics paper of 16 January this year re-emphasises the importance of SMEs to the economy, but goes on to say that,
“there are a number of structural market failures restricting some viable SMEs from accessing finance”.
The report notes that access to debt finance is now harder than before the credit crunch.
In 2007-08, 90% of SMEs seeking finance obtained it. This figure now stands at 74%—and, crucially, the total stock of lending to SMEs is in decline, especially to those with a turnover of less than £1 million. To place this in a long-term context, the Breeden report of March this year estimates that by 2016, if things go on as they are, there will be a shortfall of between £26 billion and £59 billion in the finance needed by SMEs for working capital and growth. The Government are very clearly alive to these problems and hope, as we all do, that the Funding for Lending scheme will succeed in making a real difference in funding for SMEs.
The data provided by the banks on lending to SMEs are provided on an aggregated basis. That means there is no information to allow assessment of performance and suggestion of improvement, or to show which banks are performing better than others or, critically, which are effectively absent from which areas. We do not know which banks are supporting—and to what extent—the third sector in taking advantage of the new rights conferred under the Localism Act. To do all this properly, we need access to disaggregated data and data on a postcode level so we can see clearly which banks are doing what and where with the vital SMEs. We need this data so we can identify in detail the areas of market failure and therefore of competitive failure, which the Government acknowledge do exist.
The SMEs are vital to the economy and to jobs. Funding SMEs is vital to their performance. Underfunding, which is the current situation, threatens our economic recovery and the creation of jobs. There is evidence of market failure and of a failure of competition. The amendment will allow us to identify that failure and will provide us with the information to help put right that failure. It will help promote effective competition, as the Bill requires the FCA to do, and it will help fulfil the coalition agreement’s pledge to develop effective proposals to ensure the flow of credit to viable SMEs.
Of course, I hope that my noble friend will agree to this amendment, but it has occurred to me that he may have one or two reservations about doing so. In particular, he may worry that the amendment imposes too onerous a burden on the banks. He may worry that the publication of a bank’s performance may somehow be prejudicial to its commercial activities. I hope that I can give him some comfort on both points.
The burden that this amendment imposes on the banks is not onerous. The FCA may decide, in general, what data it considers to be relevant. I am sure that, in general, it will take into account the burdens imposed. Specifically, publishing the disaggregated and postcode-level data on lending to SMEs imposes, if anything, a trivial additional burden on the banks. The BBA already publishes aggregated data on a quarterly basis, which includes lending to SMEs on a regional basis. By definition, disaggregated data exist before they can be aggregated. Surely, the banks know the postcodes of their customers—except, it appears, for some HSBC Cayman Island accounts.
For the worry that publication of disaggregated data may somehow be prejudicial to the bank’s commercial activities, it is hard to make a convincing case. Exactly like all other large, competitive organisations, the banks will already have detailed research on what their competitors are up to with SMEs—or, if they do not, they are even less competent and less competitive than we might have supposed. The amendment simply puts that information into the public domain.
The amendment is not onerous. It simply requires more transparency from the banks in the interest of more effective competition. It requires, in particular, more transparency about the banks’ support for the SME sector. We would all benefit from that, and people and businesses in deprived communities would benefit greatly. Even the banks would benefit from a move to greater transparency.
I very much hope that the Minister will be able to agree to this amendment or to assure the House that at Third Reading the Government will bring forward something equivalent. I beg to move.
Lord Newby
My Lords, it might be to the benefit of the House if I give the Government’s response to this amendment now. In responding to an earlier amendment, I said that the FCA would necessarily need to gather data from industry to understand what existing provision there was and whether it met the needs. But we need to make proper provision for any data requirements. Normally, that is in the FCA’s rulebook, or covered by commitments made by industry to provide and publish relevant information, working through trade bodies as appropriate. Ideally, we would not need to legislate to make that happen.
Let me be clear on our position: the Government agree that we should be able to see where provision is lacking, particularly where there are areas where bank lending is simply not being offered or getting through. Getting this data in the public domain will help to crystallise the problem, and what should be done about it by industry and by the Government if necessary.
I can confirm today that we will be working with industry, through the British Bankers’ Association and other interested parties, to get a commitment from the banks that they will publish more granular data. This will build on the work that industry is already doing and will deliver publication of the kind of data that all sides of the House clearly want to see. The members of the business lending taskforce already publish subregional aggregated lending data on an annual basis. While this is a good first step, I think we all agree that it is not enough. Therefore, we will work with industry to collate and publish lending data that is disaggregated by institution and presented on a postcode-level basis.
The Government will take this forward as an urgent and pressing matter. In reiterating our commitment to make progress in this area, I confirm that should our negotiations with industry fail to deliver—I sincerely hope that that does not happen—the Government will introduce amendments to the Banking Reform Bill along the lines proposed in the amendment we are debating today, to ensure that the data, in disaggregated and postcode-specific form, are published.
I hope that this reassures noble Lords that the Government share their commitment to making progress in this area and that the noble Lord will be prepared to withdraw his amendment in light of this commitment.
Small and Medium-sized Enterprises
Debate between Lord Sharkey and Lord Newby(12 years ago)
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Lord Sharkey
To ask Her Majesty’s Government what additional funding to small and medium-sized enterprises, particularly in deprived communities, has resulted from the Funding for Lending scheme.
Lord Newby
My Lords, the Funding for Lending scheme is not specifically targeted at particular regions or sectors of the economy; it is designed to incentivise banks to increase lending in aggregate, which will of course have a positive effect on the economy as a whole. The early indications have been encouraging but it is too soon to judge the impact of the scheme. The Bank of England will publish quarterly net lending figures for each participating bank from 3 December.
Lord Sharkey
I thank the Minister for that Answer. However, the fact is that the Bank of England’s last quarterly report shows that the stock of lending to SMEs continues to decline. It also shows that the number of loan applications themselves is down. I note that only 50% of SMEs had ever heard of Project Merlin. Could the same lack of awareness of Funding for Lending be contributing to the problem? Do the Government know how many SMEs are aware of this scheme? What are the Government doing to make sure that they are aware of the scheme?
Lord Newby
My Lords, the figures so far published do not take account of the impact of Funding for Lending, which only opened in August, and not least because it takes some time for loan approvals under the scheme to be finalised. I absolutely agree that promoting the scheme will be crucial. We are encouraged by the steps that the banks and building societies have already taken to do so, including double-page advertisements in national newspapers and promoting mortgage products very actively, not least through their websites. The Bank of England is administering the scheme but the Treasury is directly involved in monitoring it via a joint oversight board with the Bank.