Financial Services

Lord Sikka Excerpts

Wednesday 11th January 2023 Lords Chamber

[Baroness Penn (Con)]

We absolutely recognise the importance of cash to the people the noble Baroness mentions. As she says, it is for shops and other service providers to determine how they accept payments, but we are legislating to protect access to cash through the Financial Services and Markets Bill. That should help those shops and service providers which wish to continue to accept cash to do so, because we are focusing on this from both a consumer and a wholesale perspective.

[Lord Sikka (Lab)]

My Lords, if I understood the Minister correctly, she said that the consultation, or the rules, on bank branch closures are being strengthened. May I ask her to consider three facts? First, there is absolutely no consultation between banks and customers before a branch is closed. Secondly, banks do not publish details of their financial calculations to show whether a branch should be closed or not. Thirdly, people do not have the opportunity to object and vote against a bank’s decision. In light of that, what is any guidance worth?

[Baroness Penn (Con)]

My Lords, what I actually said is that the FCA guidance on bank branch closures has recently been strengthened. I do not recognise the picture the noble Lord paints. Firms are expected carefully to consider the impact of planned closure on their customers’ everyday banking and cash access needs and to consider alternative arrangements. The strengthened FCA guidance has specifically looked at enhancing protections for consumers who rely on those branch services. For instance, there are examples of banks placing people in those branches to ensure that they can help their customers to access banking through digital means such as mobile or online banking. There is also the rollout of Post Office banking hubs to provide more in-person services to customers.

Financial Services and Markets Bill

Lord Sikka Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I too welcome the noble Lord, Lord Remnant, to the House and thank him for his excellent maiden speech.

This is not a Bill that will clean up the City, enhance its accountability or streamline the regulatory architecture. There are at least 41 overlapping and buck-passing regulators. These include the Bank of England, the FCA, the PRA, 25 anti-money laundering regulators, OPBAS, the Pensions Regulator, the Pension Protection Fund and sundry others, all poorly co-ordinated. The enforcement architecture is also fragmented. It involves the SFO, the Crown Prosecution Service, the FCA, the National Crime Agency, the Bank of England, the Treasury, the Home Office and God knows who else. Can the Minister explain why this potholed regulatory architecture will not hinder the Bill’s objectives?

The FCA has been severely criticised for its failures in episodes such as Connaught, London Capital & Finance, Blackmore Bond, the Woodford fund and Link Fund Solutions. The Work and Pensions Committee’s July 2021 report relating to protecting pension savers said that the FCA’s evidence lacked integrity. John Swift KC’s December 2021 review into the supervisory intervention on interest rate hedging products criticised the FCA. The National Audit Office investigation into the British Steel Pension Scheme was also critical of the FCA. Can the Minister tell us why the Bill has not been preceded by an inquiry into the operational efficiency of the FCA?

The regulatory apparatus in this country is adept at sweeping things under its dust-laden carpets. Indeed, the Government themselves have done that. They have a history of shielding banks engaged in “criminal conduct”. A good example is that of HSBC, which the Bank of England, the Treasury and the then banking regulator colluded to cover up. This week the Times reported that Barclays, HSBC, NatWest, Standard Chartered and Lloyds are facing nearly 100 lawsuits, mostly in the US, for violating competition law, fixing prices, interest and exchange rate violations, sanction busting and terrorist financing, yet we have not heard a peep about it from anybody in the UK. As usual, they think things will go away. The Bill dilutes the current regulatory system and even eliminates the modicum of independence enjoyed by regulators by empowering Ministers to direct the FCA. Ministers’ objectives are entirely different from the regulators’.

Since 2015, 4,685 bank branches—almost half—have closed. Many districts and villages do not have a physical bank branch and millions cannot access online banking, so it is hard to see how the FCA is promoting effective competition when people just cannot access banking services. Can the Minister explain how the Government are dealing with disappearing bank branches?

The Bill adds an international competitiveness element to the FCA’s remit—something that was removed after the last crash, as others have said. This really opens the floodgates to reckless practices. The regulator would need to look at what Cayman, Bermuda, Belize and other jurisdictions are doing and use those as a benchmark to recalibrate UK regulation. This is ultimately a race to the bottom and will surely undermine the prime objective of securing financial stability.

The collapse of FTX and other companies has led to losses of nearly $1 trillion, which shows that crypto assets and currencies are highly dangerous. Yet instead of banning these dreamt-up currencies, the Bill legitimises the trade. That will send a message to ordinary people that it is perfectly safe to hold and trade in those assets. After all, it is regulated. The ultimate result will be that, before long, the regulators will be paying millions of pounds in compensation. I urge the Minister to reconsider this part of the Bill, because it could well be the beginning of the next crash. In due course, I will table a number of amendments.

Financial Inclusion in England

Lord Sikka Excerpts

Wednesday 30th November 2022 Lords Chamber

[Baroness Penn (Con)]

I am afraid to say to my noble friend that I do not recall the farthing myself. The Government had a consultation on cash and digital payments in 2018 and the responses strongly supported not changing the denominational mix of coinage at that time. However, as with all areas of policy, we keep this under review.

[Lord Sikka (Lab)]

My Lords, I have met many people who are visiting pawnbrokers, putting down their everyday things just to get a few pounds to enable them to survive. They are paying interest rates of 160% upwards. Does the Minister consider that to be affordable? If not, what is she proposing in order to help these people?

[Baroness Penn (Con)]

I do not consider that to be affordable at all. We are taking a number of actions in this area. We work closely with Fair4All Finance, the organisation set up to distribute funding from dormant assets. One of its projects is working on the no-interest loans pilot scheme to try to provide a different route and access to credit for those who need it. At the Autumn Statement, we heard from my right honourable friend the Chancellor the action we are taking to direct our support this winter and next year to the most vulnerable households.

Autumn Statement 2022

Lord Sikka Excerpts

Tuesday 29th November 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Jones of Moulsecoomb.

This Budget offers nothing to women. Over half the workforce in the public sector is female and all the Government are offering them is cuts in real wages, condemning millions of teachers, nurses and others to rely on charity.

Depressions are avoided by improving people’s purchasing power but this Government are bent on depleting it; for example, by freezing personal allowances and income tax thresholds. Some 3.2 million additional people will now become liable to pay income tax, and another 2.6 million will pay tax at the higher rates. Even before the pandemic, the poorest 10% of households paid 47.6% of their income in direct and indirect taxes, compared with 33.5% by the richest 10%. Can the Minister explain why the poorest continue to pay the highest proportion of their income in taxes?

After the September Budget, the Government found £19.2 billion to bail out pension funds. They have for years funnelled billions in quantitative easing to City speculators. In the most recent Budget, the Chancellor handed £18 billion of tax cuts to banks but could not hear the cry of 800,000 hungry children. Ministers have taken to the airwaves to claim that they are actually inconveniencing their rich friends, even though the Chancellor failed to introduce a wealth tax or financial transactions tax, end the non-dom tax dodges, or reform trusts to prevent the rich from avoiding inheritance tax.

However, the Government have lowered the 45% income tax band threshold from £150,000 to £125,140. The result is that, from April, a FTSE 100 chief executive earning a £4 million annual salary will pay £1,243 a year extra in income tax. That is equivalent to £24 a week, which is less than they pay for a glass of wine when they go out on a Saturday night. The Government call this progressive taxation. By taxing capital gains at the same rate as earned income and charging national insurance on the same basis, the Government could have raised £25 billion to redistribute, alleviate poverty and invest in the economy. Instead, they have tinkered with the tax-free allowances for capital gains tax and will now raise only around £1.6 billion over five years.

The Government continue to penalise workers by taxing earned income at rates between 20% and 45%, but capital gains are taxed at rates between 10% and 28%. Recipients of capital gains use the National Health Service and social care but pay nothing in national insurance. That is wrong. There is similar tinkering with domestic dividends, which will raise £940 million by 2027-28. The Government could have raised around £8 billion a year by aligning the tax rate on dividends with earned income. And the Government have done absolutely nothing to check tax avoidance on dividends paid to foreign investors; they continue to be paid tax- free. No other Government do that.

Conservative Chancellors make ritualistic references to tax avoidance, and this Budget is no exception—although the Chancellor failed to mention that, since 2010, HMRC has failed to collect over £400 billion in taxes. Alternative models of the tax gap put that amount at around £1,500 billion.

Additional investment in HMRC is most welcome. Every £1 spent on investigations into the tax affairs of large businesses yields an extra £56 in tax to HMRC, while investigations into wealthy individuals yield £28 for every £1 spent. But what budget have the Government actually allocated to HMRC? Let us look at the small print in the Treasury papers. For 2022-23 the budget for HMRC is £5.9 billion, for 2023-24 it goes down to £5.6 billion and for 2024-25 it is down to £4.6 billion. That does not suggest that the Government are serious about tackling our tax-avoiding friends—and double-digit inflation means that HMRC’s budget is in fact totally depleted.

On 13 July, during the passage of the Energy (Oil and Gas) Profits Levy Bill, I drew attention to several fatal flaws in the design of the levy, otherwise known as the windfall tax. It applied only to profits from the North Sea and excluded profits generated through refining, trading and forecourts. It did not apply to untaxed global profits of companies resident in the UK. Several Ministers continued to claim that we cannot tax the global profits of companies, so I shall remind the Minister what the law is: companies resident in the UK are liable to pay UK corporation tax on their global profits. Of course, they get credit for taxes paid in other countries that are subject to double-tax treaties and agreements. That means that if a company has funnelled profits from the UK to a tax haven with zero corporation tax or at least a lower rate, those profits can be taxed here—but the Government choose not to do so.

The result of the failed windfall tax levy is that Shell has not paid any windfall tax while BP might, and neither company has paid any UK corporation tax for the last three years. So my question to the Minister is: how do the Government hope to collect more without redesigning the windfall tax scheme? It needs a complete redesign. I hope the Minister will be able to answer that.

Finally, empirical evidence shows that austerity kills. Some 335,000 people died between 2012 and 2019 from government-imposed austerity. Could the Minister tell us how many more will die from the cuts included in this Budget?

Financial Markets: Stability

Lord Sikka Excerpts

Thursday 3rd November 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the noble Lord, Lord Sharkey, for facilitating this very timely debate. I want to talk about the elephant in the room, which is the finance industry and how it has destabilised the whole society. We have about 41 regulators for the finance industry, but they have very little idea of what the finance industry actually does. Indeed, it came as a shock to them after the banking crash that they were using derivatives to such a large extent. After the fiasco of the mini-Budget, some £1.3 trillion has been wiped off the UK bond market, and that includes £882 billion from gilts and the index-linked gilts market. The Pensions Regulator tells us now that some 7,500 pension schemes may well be technically insolvent. Did the Bank of England, the Treasury, the regulators or the FCA know how the pension funds are funded? We frequently get impact assessments accompanying financial Bills, but none of them looks at the destabilising effects of what the Government actually do. I hope we will get something different.

Financial markets are inherently unstable and, in the absence of effective regulation, continue to destabilise society. Short-termism is prevalent, compounded by fraud and anti-social practices, which are rife in the City of London. Numerous financial products have been mis-sold for more than half a century. Has any big company ever been liquidated as a result? No. Governments bail out the industry—that means there is no threat of bankruptcy at all for the key players and they then have a public licence to continue to misbehave. Financial sanctions are puny and they continue to engage in tax avoidance, rigging interest rates and exchange rates, forging customers’ signatures, money laundering and anything else we can think of.

The finance industry is the only industry that has the capacity to decimate economies. Research by my colleagues at the University of Sheffield has shown that between 1995 and 2015, the bloated, scandal-ridden finance industry made a negative contribution to UK GDP of £4,500 billion, yet the Government do not take that on board in anything they do in relation to this industry. There is no public inquiry of any kind as to how the industry operates. Can the Minister tell us when we will get a public inquiry into this scandal-ridden industry?

Effective regulation is the key. That was recognised after the 1929 Wall Street crash, when the US created the Securities Exchange Act. Of course, it has not fully succeeded. The UK has a rather laissez-faire approach. Until the mid-1970s banking crash, there was no regulator for the banking industry at all. The Banking Act 1987 handed the keys to the Bank of England and it failed miserably, as was shown by the frauds at BCCI and Barings and the collapse of Johnson Matthey. Then we had, through the revolving doors, the Financial Services Authority, after which the 2007-08 crash showed that the chaps regulating the chaps does not work at all; it has never worked. Then we brought in the FCA and the PRA and the scandals have not gone away, whether it is London Capital & Finance, Blackmore Bond, Woodford Equity or any other. The HBOS and RBS frauds are still unresolved. My colleagues have sent regulatory bodies 10,000 pages of evidence to show that banks are forging customers’ signatures to repossess their homes and businesses, yet we have seen no action of any kind.

The shadow banking industry is not regulated at all, yet it is bigger than the regulated banking industry. That is another elephant in the room and we saw part of the effects of that through its effects on pension schemes. Can the Minister tell us why the shadow banking industry is not regulated on the same terms as the banking industry?

I shall wind up by reminding noble Lords that we need effective independent regulation in which the stakeholders, not the City elites, are in control of what happens in our society. Until that happens, there is little prospect of stability in the finance industry and that will affect the rest of the economy, because everything is now financialised. Indeed, private equity owns supermarkets: if they collapse, supermarkets will collapse too.

--- Later in debate ---

[Baroness Penn (Con)]

I do not believe that that characterisation is right. Ensuring that we have a strong financial services sector also benefits many other parts of our economy in terms of access to capital, and many other things. It does not need to be at the expense of the rest of our economy. It strengthens the rest of our economy.

[Lord Sikka (Lab)]

The Minister referred to £100 billion of tax from the finance industry. That is misleading, because it includes things such as the VAT collected by the finance industry, which is borne by customers; PAYE, which is borne by employees; and national insurance, part of which is also borne by employees. Surely that £100 billion number needs to be corrected.

[Baroness Penn (Con)]

No, it is correct. The noble Lord seems to know how it is composed, so we are transparent in how that number is reached. I would like to make a little progress.