GDP per Capita

Debate between Lord Young of Cookham and Baroness Kramer

Tuesday 11th June 2019 Lords Chamber

[Lord Young of Cookham]

The noble Lord makes a powerful case for a generous shared prosperity fund. The Government have tried to do what they can to reduce the disparity; extra funds were allocated to Wales in the 2018 Budget, giving the Welsh Government a £550 million boost. The GVA figures for London are slightly distorted by including people who commute into London but do not live in London. None the less, there is a regional imbalance. Public expenditure per capita is much larger in Scotland, Wales and Northern Ireland than it is for England. That is one of the ways that the Government seek to redress the imbalance the noble Lord just referred to.

[Baroness Kramer (LD)]

My Lords, the impact of the 2008 financial crash and the economic troubles that followed it was far greater outside London and the south-east than it was in this area. Since we are going into a period where the economy is weakening—we have had very poor first-quarter figures and the US economy looks like it is beginning to move into recession—what measures do the Government have in place to make sure that regional imbalance is countered? Have efforts such as the northern powerhouse and the Midlands engine actually delivered, or are they largely discussion and the creation of institutions that are not yet having any impact?

[Lord Young of Cookham]

I challenge what the noble Baroness said about the economy weakening. The economy has grown continuously for nine successive years. Employment is at a record level. Real wages are rising. The public finances are now under control. We are in the middle of the pack for future growth in the IMF forecast. Some of the issues she raised are matters for the spending review—both the amount of grant for local government and the shared prosperity fund—but she is unduly pessimistic in painting that scenario.

National Health Service: Pensions

Debate between Lord Young of Cookham and Baroness Kramer

Monday 10th June 2019 Lords Chamber

[Lord Young of Cookham]

We join the noble Baroness’s husband in wishing her a very long life. So far as the issue she raises is concerned, the BMA asked us to introduce this flexibility earlier this year. The chair of the BMA council said:

“This is a step in the right direction”.


The Secretary of State is willing to discuss other models for pension flexibility; we very much hope that, if we make these changes, high-earning clinicians will be able to attend to more patients while saving for their retirements without incurring significant tax charges.

[Baroness Kramer (LD)]

My Lords, senior officers in the armed services face the same problem. I raise this because I know that the Minister will follow up on it. One showed me his tax returns: a £5,000 increase in income led to an additional tax payment—in just the first year—of just under £17,000. This is driving away not only senior officers but especially the high-fliers who, with early promotion, get into this conundrum very early in their careers.

[Lord Young of Cookham]

My Lords, the Armed Forces Pension Scheme continues to be one of the best available defined-benefit occupational schemes. Service personnel on the AFPS are not required to contribute towards their pension throughout their career. However, we continue to monitor the differences between the various schemes to ensure that they are fair and provide appropriate support to the workforce.

Banks: Fraud Prevention

Debate between Lord Young of Cookham and Baroness Kramer

Monday 20th May 2019 Lords Chamber

[Lord Young of Cookham]

If I got a telephone call from the bank, I would hang up and then ring back. An additional measure will be introduced later this year for larger payments and payments where the banks think that there is a risk, in that they will have what they call multifactor authentication. In that case, they would text my noble friend saying that a payment was going through and asking him to confirm it. In the case my noble friend referred to, as I said, my instinct would be to hang up and ring the number on the back of my card.

[Baroness Kramer (LD)]

My Lords, it is beyond me why this code remains voluntary, creating an opportunity for banks to opt out of the system if they so wish when it offers only the most basic and minimal protection against fraudsters. Anyone going into a bank to move money by wire transfer, which I do for safety’s sake, is asked a series of questions about the payee; the bank also takes other steps because it knows that the responsibility will fall on it and that it is required by law. Should not the same strength be put behind online banking?

[Lord Young of Cookham]

We should welcome the steps forward I announced. Three initiatives are being taken by banks: confirmation of payee; the interception or interrogation of large sums; and the voluntary code. I will reflect on what the noble Baroness said and see whether there is a case for legislation, but we are making good progress with the steps I announced.

Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

Debate between Lord Young of Cookham and Baroness Kramer

Tuesday 7th May 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, the Treasury has been undertaking a programme of legislation, through SIs introduced under the EU withdrawal Act, 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 SIs made before 29 March covered all the essential legislative changes that needed to be in law by exit to ensure a safe and operable regime at the point of exit. While the deficiency fixes covered in this SI are important, it was not essential for them to be in law at exit, as long as they could be made shortly after. This SI will help ensure that the UK regulatory regime continues to be prepared for withdrawal from the EU. The approach taken in this SI aligns with that of previous 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.

This SI has four components. First, an important aspect of our no-deal preparations is the “temporary permissions regime”, which enables EEA firms operating in the UK via a financial services passport to continue their activities in the UK for a limited period after exit day, allowing them to obtain UK authorisation and complete any necessary restructuring. We also introduced a run-off mechanism via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, made on 28 February, for EEA firms that do not enter the temporary permissions regime or that leave the regime without full UK authorisation.

This SI does not amend the design of these regimes but introduces an additional safeguard for UK customers of firms that will enter run-off. Specifically, it adds an obligation on firms that enter the contractual run-off regime—part of the run-off mechanism established by the Financial Services Contracts Regulations—to inform their UK customers of their status as an exempt firm and of any changes to consumer protection. This ensures that EEA providers must inform their UK customers if, for example, there are changes to consumer protection legislation in the firm’s home state or in the EEA that affect UK customers. Part 3 of this SI introduces similar obligations for electronic money and payment services firms in the contractual run-off.

The second component of this instrument concerns the post-exit approach to supervision of financial conglomerates. An EU exit instrument fixing deficiencies in the UK’s implementation of the financial conglomerates directive was made on 14 November last year. As part of the EU exit instrument made on 22 March this year, which makes amendments to the Financial Services and Markets Act, Parliament approved a temporary transitional power giving UK regulators the flexibility to phase in regulatory changes introduced by EU exit legislation. As part of work to apply this power, the regulators proposed that, in certain circumstances, changes to the supervision of financial conglomerates should be delayed in order to give affected firms time to reach compliance in an orderly way. To achieve this, a transitional arrangement needs to be introduced to the FiCOD regulations in respect of the obligations on the regulators to supervise financial conglomerates.

The Treasury and the regulators engaged with industry on the temporary regimes and on the approach to phasing in onshoring regulatory changes in order to minimise disruption for firms. TheCityUK, with representation from a number of different trade associations and law firms, expressed support for the approach to transitional arrangements, describing them as “prudent and pragmatic”.

Thirdly, this SI makes a clarificatory amendment to the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. Here, the drafting approach resulted in the FCA having only the implicit power to cancel the temporary deemed registration or authorisation of an EEA-authorised payment institution or EEA-registered account information service provider that is providing account information services, which lacked the insurance cover currently applicable to EEA passporting firms conducting this activity. This instrument makes this cancellation criterion explicit.

Finally, this instrument makes corrections to earlier EU exit SIs. All the legislation laid under the EU (Withdrawal) Act has gone through the normal rigorous checking procedures. However, as with any legislation, errors are made from time to time and it is important that they are corrected.

Certain provisions in the Financial Services Contracts Regulations 2019 relating to the run-off regimes incorrectly referred to “EEA fund managers”. These references are now removed, as EEA fund managers will not be able to make use of these regimes. In the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019, made on 20 February, references to “European long-term investment funds” were not fully replaced with the term that will be used for UK-only funds. In the Capital Requirements (Amendment) (EU Exit) Regulations 2018, made on 19 December last year, a redundant paragraph on EU member state flexibility in the liquidity coverage delegated regulation was not deleted as it should have been. This SI corrects these drafting errors.

As I explained in my opening remarks, it was not essential for the additional measures and corrections covered by this instrument to be in law by the original exit day of 29 March, and that is why this instrument has not been considered by your Lordships earlier. Now that the Article 50 process has been extended for six months, we can ensure that these provisions are in place and that the UK’s regulatory regime will continue to be prepared for withdrawal from the EU in all scenarios. I hope that noble Lords will join me in supporting these regulations. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am so glad I did not have to write the content of this SI; it was hard enough trying to work one’s way through it when simply reading it. It is obviously the result of a combination of “Oops!” and communication with customers. I see absolutely no reason to oppose it. If anything, this underscores the complexity of trying to make arrangements for dealing with a no-deal scenario. I hope we never have to use it, because we would run into more “Oops!” if we ever found ourselves in that situation. I hope the Treasury is going ahead with a mapping exercise to try to link this all together, because how anybody who functions in the industry can ever work their way through all this is completely beyond me. Frankly, if you ever needed an argument for remaining, it seems that this alone provides it.

[Lord Tunnicliffe (Lab)]

My Lords, this is one of many no-deal SIs on which I have been forced to represent Her Majesty’s Opposition from the Front Bench—a pretty unattractive pastime. The principal reason for this is the fact that most of these SIs amend an SI that amends an SI that amends an Act that is many years old, which makes it fundamentally difficult to understand them. When one has put all the intellectual effort into understanding the so-called no-deal SI, one then discovers that the actual substance of the SI is frequently merely technical or consequential.

I found that this SI, and particularly its Explanatory Memorandum, really won the prize for being the most difficult to understand yet. In my frustration, I thought I would find out to what standard an Explanatory Memorandum should be created. I had the inspiration to go along to the Secondary Legislation Scrutiny Committee offices to seek guidance. I was once on that committee when it had a much grander title, the Merits Committee, and the staff there were always helpful and competent. I asked, “What is the guidance on the creation of SIs?” They said there were two pieces of guidance: that given by the committee itself and the Government’s guidance, which—for reasons I do not understand—is actually issued by the National Archives. The guidance from the committee itself is some 17 pages long. The latest version is from July 2016. Its objectives are caught in one particular paragraph:

“The purpose of the EM is to provide members of Parliament and the public with a plain English, free-standing, explanation of the effect of the instrument and why it is necessary. It is not meant for lawyers, but to help people who may know nothing about the subject quickly to gain an understanding of the SI’s intent and purpose. Legal explanations of the changes are already given in the Explanatory Note which form part of the actual instrument”.


The latest government guidance from the National Archives, the fifth edition on statutory instruments, dated 27 November, states at paragraph 2.9.2:

“The purpose of an EM is to provide the public with an easy-to-understand explanation of the legislation’s intent and purpose—why the legislation is necessary. Avoid repeating content you have included in the Explanatory Note. Your explanation should be concise but comprehensive, and should not generally exceed four to six pages. Use plain English and avoid … jargon”.


I put it to noble Lords that this document fails.

I then turned to the EM itself, which at paragraph 15.2 states:

“Katie Fisher, Deputy Director for Financial Services EU Exit Domestic Preparation at HM Treasury, can confirm that this Explanatory Memorandum meets the required standard”.


She is wrong. It does not.

However, in my frustration, I rang the number given at paragraph 15.1 to try to understand a little more and my conversation resulted in an email from Richard Lowe-Lauri. At long last, after much toil, I feel that I do largely understand the Explanatory Memorandum, as prompted and helped by that useful email. What did I find? I found at the end of this exciting process that the issues tackled in this SI are technical, consequential or merely corrective. Therefore, I have nothing to object to, except for one very minor question about paragraph 2.4, the last sentence, which happens to be about five lines long. It states:

“It also inserts provisions into other temporary regimes, allowing EEA financial services firms to continue to service existing contracts with their UK customers post-exit, and mitigating risks faced by UK firms using services provided by non-UK central counterparties and trade repositories”.


I could not find anywhere how and what the risks were that we were mitigating and how they were being mitigated. Otherwise, I have no objection to the SI.

Making Tax Digital for VAT (Economic Affairs Committee Report)

Debate between Lord Young of Cookham and Baroness Kramer

Monday 29th April 2019 Lords Chamber

[Lord Young of Cookham]

I am sure that if my noble friend and I had been on the Finance Bill at the time, we might have raised some of the issues that he has now raised. I make the point again that the legislation went through all its stages in the other place after its publication in draft.

I was grateful for what my noble friend Lord Tugendhat said about HMRC in some generous words, which I know will be well received by the hard-working public servants in that department. I believe all Governments, and both Houses, are committed to striking the right balance between helping the compliant majority to fulfil their obligations, and providing appropriate support to customers who need extra assistance to get things right, while taking robust action against those who seek to avoid paying their fair share of taxes. For this reason, the Government welcomed the committee’s detailed contribution to this important debate.

I say to my noble friend and to others who have taken part in this debate that my comments will reflect the Government’s response to the reports, including the updated response which we published in March. I will share with the Chancellor and other Ministers in the Treasury the tone of the debate and the deep concern expressed by Members on all sides about some of the actions that have been taken. Again, without any commitment, I will see whether within the confines, which I hope the House understands, there is any flexibility available to reflect the anxieties that so many Lords referred to.

Several noble Lords spoke more specifically about the charge on disguised remuneration loans. My noble friend Lady Noakes made this the focal point of her speech. As acknowledged by the report:

“Disguised remuneration schemes are an example of unacceptable tax avoidance that HMRC is right to pursue. All individuals using these schemes must accept some degree of culpability for placing an unfair burden on other taxpayers”.


It is the Government’s view, supported by a unanimous Supreme Court ruling, that these schemes are not and have never been effective, and that tax was always due. It is unfair to the vast majority of ordinary taxpayers who pay all their taxes to let anyone benefit from contrived tax avoidance of this sort. I am sorry to disappoint the noble Lord, Lord Kerr—

[Baroness Kramer]

The Minister is doing his best and because he referred to the Supreme Court, he will be aware that that ruling focused on the culpability of employers. There was no expectation in any of those Supreme Court discussions that action would be taken against the ordinary user. That has been a source of a great deal of the fury around this issue.

[Lord Young of Cookham]

With respect to the noble Baroness, the unanimous decision of the Supreme Court was that the tax was due and is payable by the employee and not the employer. I will come on to the employer in a moment. I was about to disappoint the noble Lord, Lord Kerr, on one of the questions he put to me. But if it was always the case that the tax was due, as I have just said, the loan charge is not retrospective, as he implied. I am not sure that he meant to imply this, but it does not have to be paid in the current tax year. It becomes liable, but I hope that people will engage with HMRC and agree terms that may cover a longer period.

[Lord Young of Cookham]

My understanding is that the tax now due accrued over a period of time, and was payable in the year in which it was accrued. That has been consolidated and crystallised into the loan charge. If I am wrong, I will write to my noble friend.

The Government are committed to tackling the promotion of tax avoidance and that is why HMRC has been investigating more than 100 promoters and others involved in marketing tax avoidance, including many who sold disguised remuneration arrangements. HMRC recently won a legal case, mentioned by the noble Baroness, Lady Kramer, over a contractor loan avoidance scheme promoter, Hyrax Resourcing Ltd. This will help collect over £40 million in unpaid taxes.

The charge on disguised remuneration loans has been criticised by those who say that it ought to be the employer who has to pay the tax that is outstanding. I agree, so let me be clear that HMRC will seek to collect the loan charge from employers in the first instance, and will pursue individuals for the tax due only where it cannot reasonably do so from the employer; for example, if the employer is no longer in existence or is offshore. In those cases, HMRC seeks to collect the tax liability from the individual who benefited from the tax avoidance.

[Baroness Kramer]

Since most of the employers in these cases were local government, they would pay any bill that HMRC thought was appropriate. Central government departments would also pay. Collecting from HMRC itself ought to be quite simple, and there are various public bodies, such as the BBC. Is the Minister now giving a reassurance to all those who have received a loan charge demand but were working for those public entities that they, at least, will not be pursued, because their employer will be paying?

[Lord Young of Cookham]

The safest thing I can do is repeat what I just said: HMRC will seek to collect the loan charge from employers in the first instance, and will pursue individuals for the tax due only where it cannot reasonably do so from the employer; for example, if the employer is no longer in existence or is offshore. The BBC is still there and is not offshore, as are the other employers mentioned by the noble Baroness, so HMRC will indeed seek reimbursement from them first, before it seeks to collect the liability from the individual. By the end of 2018, about 85% of the yield in advance of the charge was from settlements with employers. Since the 2016 Budget announcement, around 6,000 have agreed settlement, raising £1 billion for the Exchequer. These numbers will continue to increase as more settlements are agreed.

The Government recognise the impact of this legislation on the individuals affected and the importance of them receiving appropriate support. Some individuals are facing large tax bills, often as a result of using these schemes over a number of years or receiving large sums through the schemes. That is why the best thing for anyone concerned about paying what they owe is to get in touch with HMRC, which is expanding its specialist service for customers with additional needs to help them meet their obligations. HMRC has a good track record of supporting customers to pay their tax debts and has made it clear that it will not force anyone to sell their main home to pay their disguised remuneration debts. It does not want to make anyone bankrupt; insolvency is considered only as a last resort and few cases ever reach that stage. HMRC is determined to work with individuals to reach manageable, sustainable payment plans wherever possible.

My noble friend Lord Forsyth spoke about suicides and my noble friend Lady Noakes about the Samaritans. HMRC has been informed that a customer who had used DR schemes has taken their own life. Out of respect, and given HMRC’s duty of taxpayer confidentiality, the Government are not in position to comment further, but we continue to improve support to vulnerable customers and will extend HMRC’s valued needs enhanced support service to customers undergoing compliance checks. HMRC works alongside the voluntary and community sector to improve its support and to ensure that vulnerable customers receive adequate support beyond getting their tax affairs right.

[Baroness Kramer]

I do not want to keep stressing the issue of suicides, but in the one case that I am personally aware of is the Minister aware that HMRC is now pursuing the heirs for the loan charge?

[Lord Young of Cookham]

I was not aware. Of course, I understand the sensitivities of the issue and will raise the matter with HMRC.

HMRC has introduced simplified payment arrangements for those who approached it to settle by 5 April this year so that individuals will not have to pay the loan charge. Regardless of whether the individual decided to settle their taxes or whether the loan charge applies, for those who need more time to pay there is no maximum period for payment.

Resources for HMRC were raised during the debate. The Government have always provided HMRC with the resources that it needs. At the 2015 spending review, they invested £1.3 billion to transform HMRC to make it quicker and easier to deal with. In addition, since 2010, the Government have invested £2 billion in HMRC to tackle avoidance and evasion.

My noble friend Lord Forsyth raised the right of appeal on accelerated payment notices and follower notices. As my noble friend knows, the rules do not affect a taxpayer’s right to appeal against an HMRC decision or assessment concerning their tax liability. If the taxpayer successfully appeals the actual liability, the follower notice penalties will no longer be due. Again, Parliament granted HMRC these powers to discourage tax avoidance.

My noble friend also asked about retrospection. I think that I have dealt with that, if not wholly to his satisfaction. It is a new charge on DR loan balances outstanding on 5 April. It does not change the tax position of any previous year or the outcome of any open compliance checks.

My noble friend asked what the position was on the powers review. We agree that HMRC has to balance tax collection with important taxpayer safeguards. The powers review was a major project coming alongside the merger of HMRC and Customs and Excise. There has not been a similar fundamental change to justify another such review, but I say in response to my noble friend that we keep the tax system under review and will consider options for reviewing and updating the tax administration framework to ensure that it is effective in modern tax administration.

A number of noble Lords spoke about low-paid employees and social workers being affected by the loan charge. HMRC’s analysis shows that around 3% of those individuals who used a disguised remuneration loan scheme worked in medical services and teaching.

My noble friend Lord Tugendhat raised the issue of naming. Again, Parliament has legislated to allow taxpayers to be named in limited circumstances. These are prescribed explicitly in legislation. HMRC places importance on taxpayer confidentiality, and no one can be named simply for disagreeing with it. I hope that HMRC never engages in what my noble friend called “innuendo”.

In view of the number of interventions, I may claim a bit of injury time on the question about HMRC inaction on loan charges. The Government’s view, as I think I have already said, is that these schemes never worked. Compliance activity has been taken ever since the schemes were first used, including the use of thousands of inquiries into scheme users, successful litigation and agreement of settlements. The loan charge was introduced to draw a line under all outstanding DR loans, but HMRC has always warned against the use of DR schemes, with the first spotlight being published in 2009. Many scheme users did not disclose details of their scheme use, or disclosed partial information which did not enable compliance—this is in response to an issue raised by the noble and learned Lord, Lord Judge. Where DOTAS numbers were provided, HMRC routinely opened inquiries, and it will look carefully at cases where individuals provided evidence that they fully and properly disclosed their use of a DOTAS at the time and where HMRC closed an inquiry with that evidence. However, it does not believe that there are many cases where that has happened.

I am conscious that I have not said anything about Making Tax Digital, so I will say a few final words about that report. We want every individual and business to develop the skills and confidence to seize the opportunities of digital technology. In a world where businesses are already banking, paying bills and shopping online, it is important that the tax system keeps pace. Making Tax Digital gives UK businesses more control over their finances and allows them to manage their tax more easily so that they can focus on what they do best—innovating, expanding and creating jobs. The Enterprise Research Centre found in 2018 that web-based accounting software delivered productivity increases for micro-businesses of 11.8%. One should set that against the costs mentioned by my noble friend Lord Forsyth and the noble Baroness, Lady Burt.

I was asked what the position was on small businesses unable to go digital because of the absence of broadband. Businesses that are unable to go digital will not be forced so to do. If it is not reasonably practical for a business to join MTD for reasons of age, disability or remoteness of location—which can affect broadband connection—it may qualify for an exemption.

I am deeply conscious that I have not done justice to the many serious questions that have been raised, and I am already over my time. In conclusion, I thank noble Lords for their contributions to this stimulating debate—

Small and Medium-sized Enterprises: Clydesdale Bank

Debate between Lord Young of Cookham and Baroness Kramer

Tuesday 19th March 2019 Lords Chamber

[Lord Young of Cookham]

I am grateful to the noble Lord for his response. It makes sense to wait for the expansion of the financial ombudsman’s scheme, which I and he referred to, and which comes into effect next month. I also believe that the two voluntary schemes to which he referred are better than the alternative—a statutory independent tribunal, which the Treasury Select Committee considered. We gave that serious consideration, but agreed with Simon Walker’s conclusion that that would not be the right approach. It would involve primary legislation, setting up a tribunal and probably costs for the SMEs that wished to access it. I think a dispute resolution system, as outlined, would be much quicker, much less expensive and not constrained by a narrow interpretation of the law. An ombudsman could see whether a contract was fair and reasonable, for example.

The noble Lord asked whether the standard lending practice was voluntary. Yes, it is a voluntary scheme. It sets the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers throughout the entire product life. We believe that this is the right approach to resolving complaints, but we have not ruled out other options if it does not deliver.

[Baroness Kramer (LD)]

My Lords, do the Government recognise that people have been waiting for more than six years for justice? Those SMEs were maltreated by Clydesdale, RBS and Lloyds. They were viable companies paying their loans that were put into bankruptcy so that their assets could be stripped for profit and advantage, and the Government have at every step of the way dragged their feet, as has the regulator. Now, rather than the limited, partial voluntary schemes that the Minister proposes for the future, will the Government understand the reality of the experience of so many people, take a much firmer hand following the Australian example, do a complete retroactive review and ensure that everyone is compensated by the Government’s initiative, not wait for people who have been badly damaged to come forward to battle yet again?

[Lord Young of Cookham]

If there was inaction for the past six years, that covers a period when we were both Ministers together in the coalition Government. The noble Baroness asked whether it was fair to ask people to wait. What we propose would bring a swifter solution to those who have already waited a long time—as I agree—than the alternative of a statutory scheme which, as I said, requires primary legislation, regulations controlling SME lending, which is not regulated at the moment, and then possibly expensive access to the tribunal through legal representation for SMEs.

The banks have a good record of observing the recommendations of the financial ombudsman scheme, so we should let them have the opportunity to show that they will also honour the recommendations of the two schemes being announced today, which will be up and running in the autumn—far sooner than a statutory scheme.

[Lord Young of Cookham]

I recognise that there are more cases than the one that has generated the interest. There has been a lot of press interest in some RBS schemes. Looking at the FCA estimates, we estimate that the expansion in eligibility for the FOS scheme will result in no more than an additional 1,300 cases from businesses on top of the existing 6,000 cases from microenterprises. To put that in context, the employment tribunal received over 109,000 cases in the financial year. We think the FCA’s planned expansion of the FOS to include small businesses is the right and proportionate response. We look forward to the next steps and to these vital pieces.

The noble Lord then asked me a number of questions about the incentive loans or interest rates that banks sometimes offer and some of their other practices. I am not sure whether they fall precisely under the remit I have just announced but, if the noble Lord will permit, I will write to him when I have received further clarification.

[Baroness Kramer]

My Lords, since I can now follow up with another question, I remind the Minister that during the coalition years Vince Cable, in his role at BIS, commissioned the first investigation into the many complaints against RBS, its abuse and its behaviour. As a consequence the FCA, as it is now—the regulator—was asked to act. The regulator commissioned a consultant called Promontory to produce a report, which was utterly damning—but we did not know that, because it was not published—and the summary the FCA produced was 180 degrees different from the underlying report. It was only its leakage and its exposure that brought this to much wider attention. Essentially, Members on all sides of this House—and in the other House—have been dragging this Government to try to deal with this and to get the FCA and the other regulators to deal with their underlying responsibilities. Would it not be appropriate to make sure that, where an institution is to any degree regulated by either the FCA or the PRA, they take fundamental responsibility for its ethical behaviour and not limit themselves to the narrow regulatory perimeter behind which they hide?

[Lord Young of Cookham]

I do not disagree with the recommendation the noble Baroness made at the end: that they should have a broader remit in their responsibilities and not confine themselves to the narrow remit that may be set out. Again, perhaps I can write to her, as she has strayed just a little from the rather narrow case that brought me to the Dispatch Box. She raises an important point about the broader responsibilities of regulatory bodies, which I will write to her about.

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

Debate between Lord Young of Cookham and Baroness Kramer

Monday 4th February 2019 Grand Committee

[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.

[Baroness Kramer]

Having gone to the Printed Paper Office myself well into the afternoon, I know that if the Printed Paper Office had received them, it was not aware it had, so there is something there that needs investigation.

[Lord Young of Cookham]

We need a post-mortem on this, which I will authorise.

In response to the question put by the noble Lord, Lord Sharkey, regarding the numbers on the impact assessment, and how they relate to trade repositories, I say that there are eight trade repositories operating in the EEA that are in scope of familiarisation costs. The impact assessment confirmed that we anticipate that the IT costs for those TRs will be approximately £10,000 to £15,000 per TR—although this cost is also dependent on the size of the TR—and, for firms that will need to update their systems, £5,000 per firm. Costs to the FCA associated with supervising the trade repositories, as well as new IT systems to connect to trade repositories, would be approximately £500,000 per trade repository, although this cost is also dependent on their size. The impact assessment also acknowledged that there may be other costs associated with trade repositories connecting to the Bank of England.

I think it was the noble Lord, Lord Tunnicliffe, and it may have also been the noble Lord, Lord Sharkey, who asked about the FCA’s power to suspend the need to report if there were no trade repositories. That is most unlikely. There are a number of trade repositories in the UK and there are arrangements in the legislation to passport them so they carry on. There are also arrangements for relatively speedily authorising any new TRs. It was slightly odd that a city such as the City of London did not have any TRs, so we think it most unlikely that the FCA will utilise its power to suspend reporting obligations against that background.

In the earlier debate, the noble Baroness, Lady Kramer, asked me whether the EU was considering reciprocity to UK funds in a no-deal scenario. The EU has not done the same for UK funds passporting into the EU, but many UK asset management firms operate EU fund ranges, and they have welcomed the creation of the temporary marketing permission regime, which enables them to market them into the UK.

I was asked what happens to an EEA system that does not notify the Bank of England of entering the TDR. Such a system will not enter the temporary designation regime and it will therefore not have recognition for UK insolvency law purposes. A notification is not an onerous requirement; the Bank of England provided details of this last autumn. The noble Lord, Lord Tunnicliffe, pointed out that under Section 8 we cannot create any new criminal offences, or, I think, create new taxes or new public authorities, and I am confident that nothing in the SIs goes against that restraint.

Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019

Debate between Lord Young of Cookham and Baroness Kramer

Monday 4th February 2019 Grand Committee

[Baroness Kramer (LD)]

My Lords, we have allowed my noble friend Lady Bowles to go off to her committee today so I am afraid that there is somebody on these Benches with a far less-detailed knowledge of the intricacies of the relevant pieces of legislation. That may be of some relief but she will be back on future occasions so the respite is only temporary.

We have no objection to these two SIs, although I would like to probe around them a little. Clearly the UK Government should make this move because, frankly, EEA UCITS with a presence here in London suddenly fleeing because of a lack of temporary permissions would be a hole beneath the waterline for the future of fund management in London. The measure is absolutely necessary. The vast majority of those funds have said that if they had to go back and apply again as third countries for third-country permissions to keep their existing funds in place, they would prefer to exit. That is the situation with which we are dealing so the Government’s move is appropriate.

However, noble Lords will be aware that a great deal of money has already fled London. Two or three weeks ago, EY provided a report setting the number of assets to have left the City, primarily funds, at around £800 billion. With the latest Barclays announcement, that takes the number to about £1 trillion, which is a reasonable amount of assets under management to have left because of Brexit. So that everybody understands, I say that this is not about people being disloyal or unpatriotic. One of the companies involved, Somerset Capital Management—co-founded by Jacob Rees-Mogg—domiciled two recently launched funds in Dublin, apparently because of the demands of various clients. Clearly, a great deal of the movement out of London has been client-led.

That is a problem because conglomeration is a very powerful factor in driving this industry forward. Losing something like £1 trillion of funds under management and finding that many players are playing double-handed, with a presence in both London and somewhere else—typically in Dublin but perhaps in other places in the EU 27—puts into doubt a future never before doubted: that London would dominate in this area. Did I understand correctly from the Minister—and do I understand correctly from reading the instrument—that the transitional arrangements described are simply to provide continuity for existing London-domiciled EEA UCITS? Has there been any assessment of the likelihood of new funds to open choosing London for their headquarters? Has there been any assessment of whether the limited reach of the regulations means that, if we leave on 29 March, funds to open later in the year are far less likely to be London-domiciled because they will have to apply through a third-country process? I would be interested to understand that.

In a sense, that leads me on to the impact statement, which is peculiar. The Minister is absolutely right that the statement is recent: I think it went online on Friday and was printed only today. The costs are defined in the summary as “Unknown: likely significant”. But the description which follows that brief table says that the only really quantifiable costs on businesses are,

“marginal compared to the … costs arising from the UK leaving the EU”—

thank goodness, as this is one tiny area—and that they,

“mainly consist of familiarisation costs”.

Has there been any attempt in that estimate of significance to estimate the changing pattern of investment for new funds that will follow, because of the limited nature of this new SI? From a cost perspective, I do not know whether that has been included in the numbers.

The benefits are described as “significant” but, again, we have no numbers around any of that. I suppose that one person’s significant differs from another’s but it seems that it is significant compared to having nothing to protect us from a cliff edge. I can certainly understand that that is significant but it seems peculiar, frankly, to suggest it as a benefit. The status quo is clearly the benefit; there are no costs and there is no reduction in the future location of funds in the UK. A benefit that basically avoids the damage of a cliff edge seems a terribly odd description.

Finally, I saw the humour on the Minister’s face, and I share it, at the second SI, which deals with long-term investment funds. Since, as I understand it, this is a continuity and rollover SI and there are no funds, can he help me with the logic of why we are bothering with it? I do not mind it being on the statute book but it seems slightly redundant to provide for the continuity of nothing. I thought that the Minister might help me in this context with these issues, but we will of course oppose neither instrument.

[Lord Young of Cookham]

I think I can help the noble Baroness on that. There are no UK-based funds of this nature but there are some based in the EU—about five—that market into the UK. Those are the ones that will be able to apply for a temporary passport.

[Baroness Kramer]

I find that very helpful and I thank the Minister for saying that.

--- Later in debate ---

[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this debate for their broad support for the statutory instrument before us. The noble Baroness, Lady Kramer, implied that she was not well informed on financial matters, but we all know that not to be the case. I agree with what she said about the TPRs. These are sensible measures, not least for seeking to keep the City of London’s pre-eminent position in financial markets at the forefront of our priorities.

The noble Baroness mentioned the migration of funds. I, too, saw the EY report. The £800 billion figure was an estimation of firms’ stated intentions rather than of actual assets transferred. The report states that the estimate is a “modest” sum when compared to the total assets of the UK banking sector, which stand at almost £8 trillion. None the less, it underlines the case for taking forward measures such as this to prevent any unnecessary migration of funds out of the UK. She also asked whether new funds could be established. The answer is that where there is an umbrella fund with lots of sub-funds, an existing umbrella fund with a sub-fund approved under the TPR can then get another sub-fund approved subsequently because it shares the same governance structure as the original one, so it has already been validated. Otherwise, a brand new one would have to start from scratch, in the way that the noble Baroness implied.

The noble Baroness asked about the impact assessment, She is quite right that it was published recently. These impact assessments focus narrowly on the changes that these SIs make and how businesses will need to respond. They do not deal with the broader economic impact of leaving the EU. The whole point of these SIs is to try, wherever possible, to maintain stability and continuity and minimise the amount of turbulence for firms involved. An impact assessment for the EU withdrawal Act deals with the impact of the parent Act; the Government have also published analysis of the potential economic impact of a range of scenarios, including no deal. These SIs mitigate the impact of leaving the EU without a deal. As the noble Baroness said, if they were not in place, there would be substantially more disruption and turbulence for the industry as a whole.

I think I have dealt with temporary marketing permissions. New EEA UCITS that are not sub-funds with temporary permissions, as I have just described, will have to use the third-country regime to market into the UK after exit day. The instrument does not change the process for authorising UK UCITS; that remains the same. There should be minimal change for the domestic industry.

The noble Lord, Lord Tunnicliffe, reiterated his opposition to no deal, which I understand and which he has made absolutely clear on earlier occasions. The best way to avoid no deal is to agree a deal; as I think he knows, the Prime Minister wants to meet others to identify what would be required to secure the backing of the House.

I think I answered the question from the noble Baroness, Lady Kramer, about removing LTIFs, in that some market and want to go on doing so. It will allow for EEA funds that market into the UK before exit day to continue to do so through the temporary marketing permission regime. The noble Lord, Lord Tunnicliffe, is right that it can be renewed at the end of three years. The TMPR can be extended only by the Treasury, pursuant to an FCA assessment on the effect of extending, or not extending, on financial markets, funds in the TMPR and the FCA’s objectives. It must also go through the House.

I was asked, if reciprocity is so important that they can continue marketing into this country, what about the reverse? The answer is that we can legislate only in relation to EEA funds and managers that passport into the UK. We cannot, through our own unilateral action, oblige them to do the same to us. That is why we are seeking to agree a deep and special partnership with the EU, as well as an implementation period—important for both of us—so we can have this reciprocity.

[Baroness Kramer]

On reciprocity, we know that some temporary permissions are now being provided by the EU. For example, the London Clearing House has been given 12 months. Does the Minister anticipate temporary permissions in this area? Some guidance would be extremely helpful for the industry.

[Lord Young of Cookham]

The noble Baroness makes a valid point. The answer may become available before I sit down. I agree that it would be of great value to firms based in this country if they could continue marketing into the EU in the event of no deal. I have just been handed the answer to an earlier question, which I have already replied to off the cuff. There may be some more in-flight refuelling.

On the response of industry to what we are doing, I draw the Committee’s attention to the remarks of Richard Withers, the head of government relations for Vanguard in Europe—one of the world’s largest asset management firms. He said that the collective investment scheme regulation that the Committee is debating now is a well-considered and well-drafted piece of secondary legislation, which removes possible disruptions to the UK public’s long-term investment and pension savings activity while also ensuring that the UK remains an attractive and pre-eminent target market into which global fund management companies distribute their products.

On the last point, it looks as if I may not be able to give a response to the very good question aimed at what representations are now being made by the Government or City institutions to encourage the EU and the relevant authorities there to do to us what we are in the process of doing to them. If I have not got the information by the time we reach the end of the next statutory instrument, I will write to the noble Baroness, Lady Kramer. I beg to move.

Taxation: Digital Publications

Debate between Lord Young of Cookham and Baroness Kramer

Thursday 6th December 2018 Lords Chamber

[Lord Young of Cookham]

I detect a certain degree of unanimity in the representations made so far. As I said, I have some sympathy with the argument that we should now equalise the tax on e-publications and conventional publications. We have had that freedom for only two days, so I hope the noble Lord will understand that we have not acted so far. However, meetings are under way with interested parties to develop the case. As I said earlier, if the Chancellor is convinced that a substantial case has been made, I am sure he will respond favourably.

[Baroness Kramer (LD)]

My Lords, research from the National Literacy Trust shows that one in eight children from disadvantaged backgrounds say they do not have a book of their own at home. Have the Government, in anticipation of this potential, done any assessment of what impact zero-rated VAT would have as a way to tackle reading inequalities? Do they plan any such assessment, as so many of these children have access to a smart phone or a tablet?

[Lord Young of Cookham]

Again, the noble Baroness makes the case for equalising. As far as literacy is concerned, this country has quite a good record if one looks at the international literacy standards. With e-publications for schools, at the moment the VAT can be got back through the local authorities. The noble Baroness adds reinforcements to the case that has already been made for using the freedom that we now have to equalise the rates.

Infrastructure and Projects Authority

Debate between Lord Young of Cookham and Baroness Kramer

Wednesday 10th October 2018 Lords Chamber

[Lord Young of Cookham]

As I said in my initial reply, the reviews are primarily aimed at the project leaders. They give them advice on how to identify risks and take mitigating action to ensure that those risks are circumvented to ensure that the project hits the relevant milestones. There might be occasions when Ministers have to intervene, for example, if some legislative change is needed or if fresh estimates and more money are required from the Treasury, but for the most part the reviews are aimed not at Ministers but at departmental leaders. As someone who has been a Minister, if I was in charge of a project that had a red tag attached to it by the IPA, I would take a very close interest in its progress and make sure that it was delivered.

[Baroness Kramer (LD)]

My Lords, I suggest to the Minister that if he were in charge of a project and he saw an amber/red, he would find within his department very few resources with the kind of expertise, training and coalface experience to be able to come to grips with these large, complex and high-risk projects. Will he take back to the Government the need to completely relook at resources and staffing against these projects? It is not the standard civil servant, nor the management consultants who are required; it is hard-bitten folk with real experience of the relevant industries, and the Government should start to put that rapidly in place.

[Lord Young of Cookham]

The noble Baroness raises a very important issue. If she looks at the annual report of the IPA, she will see the action it is taking in order to make sure that the Civil Service has exactly the skills and resources it needs. There is a fast-stream process and it is recruiting graduates and providing leadership programmes in order to ensure that the Civil Service does indeed have the capacity to manage these very large and costly projects.

Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018

Debate between Lord Young of Cookham and Baroness Kramer

Thursday 1st February 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, the order amends existing regulations to clarify an outstanding regulatory issue for the peer-to-peer lending industry. Peer-to-peer lending is not what happens at the Bishops’ Bar, but a thriving business activity which I will describe in a moment.

Specifically, the order, drafted in consultation with the Financial Conduct Authority and the Prudential Regulation Authority, will set out when a business borrowing via a peer-to-peer lending platform would need to have a deposit-taking licence to do so.

Peer-to-peer lending is a relatively new financial service, with the world’s first peer-to-peer loan originating in the UK in 2005. This nascent industry has experienced rapid growth and, at the industry’s request, the Government legislated to bring running a peer-to-peer lending platform into the scope of financial services regulation. Running a peer-to-peer platform is a discrete activity and not, for example, another type of asset management service. It allows investors, including consumers, to lend money directly to businesses or other consumers via the peer-to-peer platform.

The Government therefore introduced bespoke legislation regulating peer-to-peer lending where it interacts with consumers. This means that all P2P platforms used by consumers need to be authorised by the FCA and comply with financial, organisational and conduct requirements. These requirements include rules regarding separation of client money, business conduct such as fair treatment of customers, financial promotions and creditworthiness and affordability assessments.

This approach to regulation has allowed the industry to thrive, and £3.5 billion was lent via peer-to-peer platforms in 2016. In 2016, peer-to-peer lending to businesses grew 36% compared with the previous year, and was the equivalent of 15% of all new loans by UK banks to microenterprises in 2016. These impressive statistics demonstrate the Government’s commitment to fostering a diverse and competitive financial services sector which delivers quality services at efficient prices.

There is a degree of risk in members of the public making deposits, as they may not necessarily have the same degree of financial literacy as professional lenders. As a result, regulation surrounds businesses accepting deposits from the public. Under current legislation, conditions set out that if a business wishes to accept deposits from the public in order to wholly or materially finance their activities, such as a bank, they must be authorised and regulated by the FCA and the PRA. This could be termed “accepting deposits by way of business”. The regulatory permission for accepting deposits by way of business is known colloquially as a banking licence.

Currently when a business borrows money via a peer-to-peer platform, the legislation could be read as saying that businesses are technically accepting deposits from the public “by way of business” and therefore require a banking licence. In reality, it is not the case that the core business of these borrowers is accepting deposits. If it were, they would, for example, be operating like a bank and require FCA and PRA oversight.

However, for the vast majority of commercial borrowers, borrowing via peer-to-peer platforms is simply a way of financing their business—for example, capital expenditure. In the existing legislation as inherited by this new industry, there exists uncertainty as to whether those who are not accepting deposits as their core business would still need to be regulated.

It remains the case that peer-to-peer platforms used by consumers should be regulated, but some peer-to-peer platforms are therefore unsure as to whether businesses borrowing via their platform would require a banking licence. The practicalities of obtaining and then maintaining a banking licence just to borrow via a peer-to-peer platform would be burdensome for both the borrower and the platform, increasing costs and making it unviable as an efficient source of finance.

The order therefore provides clarity for peer-to-peer platforms and their business borrowers regarding the regulatory framework. It does this in a number of ways, specifically by making clear that where a peer-to-peer borrower is using deposits solely to finance their other business activity, they should not need a banking licence, and by ensuring that regulated financial institutions still need a banking licence to accept funds from the public, regardless of whether they do so via peer-to-peer or other means.

The order is required to provide certainty to peer-to-peer lending platforms and the businesses which fund their growth and other costs through this means. The certainty provided by the order will ensure that no undue burdens are placed on the sector or businesses because of legislation which predates the invention of this financial service. I beg to move.

[Baroness Kramer (LD)]

My Lords, I may have been the first person in this House to use the phrase peer-to-peer lending, to the enormous amusement of Lord Peston, who misunderstood it as “pier to pier”, which, as he said, was impossible. It is now a widely accepted, very successful strategy. I am not sure if this is officially a conflict of interest, but I declare that one of my children is an employee of a peer-to-peer lending platform. Back in the old days—and certainly before my son was involved—my noble friend Lord Sharkey and I helped to construct the framework that sits behind the regulations. We obviously missed a trick in allowing this discrepancy to enter the regulation, and for that, I—also on behalf of my noble friend—apologise. I am very glad that the Government are clearing up this misconception.

Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017

Debate between Lord Young of Cookham and Baroness Kramer

Thursday 1st February 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, these three orders relate to the mutuals sector, which encompasses co-operatives, community benefit societies, credit unions and building societies. In the mutuals sector the interests of members, not shareholders, are paramount. Mutuals are an important part of Britain’s diverse and resilient economy, and we wish to keep it that way. Recognising this, the Government have brought forward a package of measures to provide further support for the sector and level the playing field between mutuals and companies.

There are nearly 7,000 co-operatives in Britain today, which together contribute more than £36 billion to the UK economy. They employ over 200,000 people and are part-owned by 13.6 million members of our society. The Government recognise the value of co-operatives and want to ensure they are not saddled with unnecessary administrative burdens. Since 2012, small companies have enjoyed an exemption from the requirement in the Companies Act 2006 to have their accounts fully audited.

The first statutory instrument, the Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017, will increase the thresholds at which co-ops are required to appoint a professional auditor from £2.8 million in assets and £5.6 million in turnover to £5.1 million in assets and £10.2 million in turnover, in line with those for companies. While this proposal is deregulatory, noble Lords can be confident that appropriate controls remain in place. Members must vote to apply the exemption and the regulators can still demand a full audit if they have concerns over the management of a co-operative. Furthermore, co-operatives which disapply the requirement to appoint a professional auditor will still be required to prepare a less onerous audit report.

The second of the three orders before the House is the draft Building Societies (Restricted Transactions) (Amendment to the Prohibition on Entering into Derivatives Transactions) Order 2018. Building societies serve over 20 million UK customers and are an integral source of loans to first-time buyers. In order to offer fixed-rate mortgages, building societies must hedge against the risk of interest-rate changes and may do so by buying derivatives. The European markets infrastructure regulation of 2012 requires all derivatives to be centrally cleared. This means that building societies must either become direct members of a clearing house or clear through third-party members.

However, as it currently stands, the legislation prevents building societies complying with the membership rules of the main UK clearing house. The specific rule which we are concerned with requires that, in the event of a member defaulting, other members must bid for a portion of the defaulted member’s derivatives portfolio. Under current legislation, building societies cannot take part in this process because they are prohibited from trading derivatives for any purpose other than to hedge balance-sheet risk. As a result, building societies must clear indirectly through third parties which are members, placing them on an uneven footing as compared to banks. Clearing through third parties incurs expensive broker fees and makes building societies dependent on clearing-house members continuing to offer this service.

This SI will amend the Building Societies Act 1986, which I believe I put on the statute book, to allow building societies to trade derivatives not just to hedge their balance-sheet risk but for the purpose of complying with the membership rules of a clearing house. The Government have consulted representatives of the building societies and the Prudential Regulation Authority in developing these proposals, and they are content.

The last order before the House concerns mutuals in Northern Ireland including, for this purpose, credit unions. Under the Financial Services and Markets Act 2000, mutuals in Great Britain are registered with and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. As noble Lords will recall, prior to the appointment of the FCA as the primary financial services regulator, this function was performed by the Financial Services Authority. Following the failure of Presbyterian Mutual in October 2008, at a cost to the taxpayer of £50 million, Northern Ireland Ministers and HM Treasury agreed that responsibility for regulating Northern Ireland credit unions and other mutuals should transfer to the FSA. Responsibility for regulation was transferred in 2011. The aim of this transfer was to provide members of those mutuals with access to the Financial Services Compensation Scheme and the Financial Ombudsman Service, among other benefits.

It was intended that the registration of Northern Ireland’s mutuals should follow in due course, once the establishment of the new Financial Conduct Authority and Prudential Regulation Authority was completed. It is clearly logical for registration and regulatory oversight to lie with a single authority. The Northern Ireland registering authority, the Department for the Economy, also supports the move. A good deal of preparatory work has now taken place, and Department for the Economy and FCA officials are working closely to ensure that Northern Ireland’s mutuals are supported during the transfer of registration, which is set to occur on 6 April this year. Societies previously registered with the Department for the Economy will not have to re-register; their records will simply be transferred to the FCA.

I trust that the Members of the House will agree that these orders represent a welcome update to mutuals legislation across the country for the wider benefit of the sector. I commend the orders to the House.

[Baroness Kramer (LD)]

My Lords, I have a few questions to ask the Minister on these orders, although I cannot see anything major wrong with them. The first order the Minister described lifts the threshold at which point a co-op is required to have a professional audit. I have two questions on that. Looking through the attendant paperwork, I notice that responses to the consultation came from different co-operative societies. It is no surprise that they would wish to be on a level playing field with their various competitors which are privately owned companies, so I perfectly understand why they feel it is unfair that they should carry a cost burden which their competitors of the same size do not. But there is a difference between a private company and a co-op, which is that the membership of the co-op, which in effect is its ownership, is typically much more widely cast and made up of a large number of people who may not have a great deal of financial sophistication, whereas the owners of a privately owned company may have much greater awareness of the financial structure and happenings within that company. So I wonder to what extent the Government in their consultations took into account the exposure of relatively small people to losses that might seem quite small to those who have very large incomes but might be significant to those who are part of the membership of a co-op. It is the first area of concern.

Secondly, I am curious to understand the choice of benchmark. From the outside, it looks slightly random. I wonder whether it was done on a percentage of size within the industry or whether there was some structural characteristic within the industry that led to the choice of that benchmark.

The second issue the Minister addressed was the provision of the order that would allow building societies to be members of clearing houses. I think that all of us in this House agree that it is crucial that interest-rate swaps are cleared through a central counterparty—in the UK that would usually be the London Clearing House—and that it is very frustrating for building societies and mutuals to have to go the agency route and pay a brokerage fee, usually through an existing member which, quite frankly, is fairly disinterested in the service that it provides to that building society, never mind charging for it—so I am entirely on board. Can the Minister strengthen his confirmation that this provides no capacity for building societies to engage in speculation? It seems to be very clear that it does not. We all recognise that anyone providing a fixed-rate mortgage can do so only if they can hedge it through a derivatives contract, so that is an entirely appropriate and necessary use of a derivatives contract, or by doing it at the level of the balance sheet to achieve the same kind of protection.

Capita

Debate between Lord Young of Cookham and Baroness Kramer

Thursday 1st February 2018 Lords Chamber

[Lord Young of Cookham]

On the first question, I understand that dividends have been suspended. That was part of the announcement. That, together with the rights issue of some £700 million, will mean that there will be some additional £900 million available in cash to the company. I will write to the noble Lord. I have asked about the Crown representative. I was assured that one had been in place. I will drop him a line on the specific question of 12 months, but there has been, and indeed is, a Crown representative on the board.

[Baroness Kramer (LD)]

My Lords, I hope that the Government will understand that they now have a very strong warning sign from both the Carillion and Capita events that they have been concentrating their outsourcing on far too small a group of companies, but also companies that, partly through their concentration, are too complex not just to manage, but to audit, or for the analysts or the credit rating agencies to get a grip on them. Will the Government strengthen the assessment capability for central and local government, and other parts of the public sector, so that they can comprehend the risk far more accurately at the prequalification stage, when contracts are to be let, and during the period of supervision? Picking up on diversification, which is certainly crucial to small entities, does he understand that diversification in and of itself is necessary to break the systemic risk that comes with overconcentration?

[Lord Young of Cookham]

On the noble Baroness’s first point about it being too complex, I believe that the chief executive officer himself, Jon Lewis, said yesterday that it is too complex and he wants to streamline it, hence the asset disposal and the streamlining of the operation.

I know that more personnel have been recruited within the Cabinet Office to beef up the Government’s capacity to supervise these contracts. I take on board the point that the noble Baroness made about making sure the Government have the resources to monitor the contracts we have placed with private sector companies.

We are at one on her final point. We would like to reduce the concentration of these big contracts to a small number of companies. We would like to broaden the base and see more companies bidding for these contracts and winning them.

Financial Guidance and Claims Bill [HL]

Debate between Lord Young of Cookham and Baroness Kramer

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

[Lord Young of Cookham]

My Lords, the amendment tabled by the noble Baroness, Lady Greengross, seeks to require the FCA to make rules restricting fees relating to claims for financial services within two months of the Bill receiving Royal Assent. I agree wholeheartedly with what the noble Baroness and others who have taken part have said on the need to ensure consumers are not charged excessive fees by companies offering claims management services. I also appreciate the Committee’s wish to ensure this protection is given to customers of CMCs as soon as possible. However, it will not be possible for the FCA to make all the necessary rules within two months of Royal Assent. That is indeed an ambitious target.

The Bill puts a duty on the FCA to make rules restricting charges for regulated claims management activity relating to financial products or services. The duty is broad so as to give the FCA the flexibility to design an appropriate cap relating to a wide range of claims for financial products and services. Conceivably, different types of claim might require different levels of cap. To ensure the cap is appropriate, the FCA will need to obtain evidence from across the sector, analyse that information to develop suitable proposals, prepare a cost-benefit analysis and consult on draft fee cap rules. This will, necessarily, take some time. I am sure noble Lords will agree that we need a robust cap, developed on the basis of sound evidence and consultation.

The Government are giving the FCA the tools it needs to start that work as soon as possible. Schedule 5 to the Bill gives the FCA the information-gathering powers it will need to do the work, and Clause 19 provides that those powers will come into force on Royal Assent. However, the scale of the work that needs to be done means it cannot do it all within a two-month window.

Noble Lords have quite rightly raised the current campaign on PPI and how it impacts on the proposals in the Bill that may not come into force for some time. They have asked what might be done in the meantime, which is a very good question. The Government remain committed to establishing a tougher regulatory regime for CMCs. We are considering further the nature of any fee controls that could be introduced before the FCA’s new powers are switched on, using the helpful and comprehensive range of responses to the Ministry of Justice’s consultation. Indeed, this could include a ban on up-front fees. To that end, the Claims Management Regulator is working with the FCA. We are taking the opportunity in the Bill to incorporate a duty on the FCA as the new regulator to develop and implement a fee cap for financial services claims. As that debate gets under way I am sure those concerned will take on board the concerns expressed in the debate to make sure CMCs do not use the benefit of any hiatus to unduly disbenefit—

[Baroness Kramer]

Will it be possible for the Government to bring forward some appropriate language that achieves that when we get to Report so it becomes a locked-in proposition rather than one that has various legislative stumbles before it can be achieved?

[Lord Young of Cookham]

I will do what I can to shed some more light on those issues. As I said, discussions are going on to see whether we can bring those proposals forward. We will certainly update the House when we come to Report.

In response to the noble Lord, Lord McKenzie, this is a similar point to one he raised earlier, and the answer is very similar. The CMRU regulates CMCs, while the Solicitors Regulation Authority regulates solicitors firms conducting claims activities—I think that I am reading exactly the same note as I received earlier. The full scope of claims management services for the purposes of FCA regulation will be defined through secondary legislation, including the extent of any exemptions. The Government want to ensure that there is a tougher regulatory regime and greater accountability for CMCs, while ensuring that solicitors are not burdened with unnecessary regulation—the more I read, the more familiar the sentences become. Both the scope and the nature of exemptions will be drafted to reflect these priorities.

Against a background of what I have said about the Government seeing whether, if we cannot—as we cannot—implement the full Act within two months, something can be done in the meantime, and against an undertaking to update noble Lords by the time we get to Report, I hope that the noble Baroness might be able to withdraw her amendment.

Financial Guidance and Claims Bill [HL]

Debate between Lord Young of Cookham and Baroness Kramer

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

[Lord Young of Cookham (Con)]

My Lords, the co-pilot is in charge of this leg of the legislative journey, and I apologise in advance for any turbulence. I thank the noble Lord, Lord McKenzie, for tabling these amendments and for the way he argued in support of them. As I listened to some of the contributions, it struck me that during this debate we have identified gaps in existing provision. One of the things we want the new body to do is to identify those gaps and then fill them. I will come back to this issue later on in dealing with some of the specific points that have been raised. I am grateful for the contributions that have been made and I will try so far as I can to address them.

Clause 2 sets out the functions and objectives of the new body, including the role of the strategic function. In designing these functions, we have set the parameters so that the body has a clear remit to focus its efforts while at the same time ensuring that the scope is sufficiently wide so that it can respond to changing needs and circumstances in meeting that remit.

I begin with Amendments 19 and 39, which seek to integrate financial inclusion within the new body’s strategic function and to set out in statute a definition of financial inclusion and exclusion, the case made by the noble Lord, Lord McKenzie. As my noble friend mentioned at Second Reading, we take the issue of financial exclusion seriously. The Government are grateful for the work of the ad hoc Select Committee on Financial Exclusion in highlighting this important issue. I am all too aware of the appetite of noble Lords to read the Government’s response, and I recognise that the general election held this year and subsequent ministerial changes have, unfortunately, pushed back that response, which will be published shortly. None the less I am grateful for the comments from the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Coussins, about the appointment of my honourable friend Guy Opperman as a Minister with responsibilities in his department.

I cannot anticipate the Government’s final response, but in the meantime I want to be as helpful as I can to the noble Lord, Lord McKenzie, and others by outlining our understanding of the term “financial inclusion”. I begin by picking up the point identified by my noble friend Lord Trenchard in looking at issues of definition. To quote the World Bank:

“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit and insurance—delivered in a responsible and sustainable way”.


That is an internationally accepted definition of financial inclusion. When we consider that definition, it follows that the Government’s policy regarding financial inclusion must be focused on ensuring that there is an adequate and appropriate supply of useful and affordable financial services and products. The Government therefore work closely with the industry regulator, the Financial Conduct Authority, to ensure that appropriate action is taken when the market fails to supply services and products. The noble Baroness, Lady Coussins, mentioned bank closures, which is an example of where the market has failed to supply what particular customers want. In passing, I note that in many parts of the country the Post Office is stepping up to the plate, and one should not underestimate its contribution.

On the matter of “financial capability”, the term refers to the ability of the public to manage their money well, including the ability of members of the public to engage with services and products made available by the financial services sector. So there are two different concepts—capability and, as I shall refer to in a moment, the supply of services. Of course there is little value in ensuring an appropriate supply of useful and affordable financial services and products if people do not have the ability to actually use them. That is where financial capability comes in. It is the role of the single financial guidance body to improve the ability of the public to manage their money so that they have the skills, knowledge, motivation and confidence to fully use the financial products and services on offer.

Against the background of those definitions, the concern that we have about these amendments is that the reference to “financial inclusion” would fundamentally change the nature of the new body from an information and guidance body to more of a regulator with specific powers to intervene in the financial services market. At the moment the Treasury and the FCA have responsibility and the relevant powers to intervene when the financial services market fails to supply affordable products and services. Against that background, the attempt in the amendments to give the body a remit over financial inclusion risks duplication and confusion.

I think noble Lords will be aware of the FCA’s work in the area of financial inclusion. It is of the utmost importance that this progress is not impeded by unnecessary confusion over the role of different public bodies. Indeed, the FCA’s competition objective states that it may have regard to,

“the ease with which consumers who may wish to use”,

financial,

“services, including consumers in areas affected by social or economic deprivation, can access them”.

The FCA takes those objectives very seriously and has undertaken a number of pieces of work in recent years—

[Baroness Kramer]

Perhaps there is a slight misunderstanding here. The FCA certainly sees its role as regulating appropriately those financial services that exist, but where a gap exists, it takes no responsibility for filling it. Many in this House have had a long dispute with both the Treasury and the FCA about that, because the gap never gets closed. I draw that to the Minister’s attention, because often those who are not close to this matter assume that it has that role.

[Lord Young of Cookham]

My initial response is that if the gap is indeed not closed, it is one of the objectives of the FCA to address that. I was just quoting that it has to have regard to,

“the ease with which consumers who may wish to use”,

financial,

“services, including consumers in areas affected by social or economic deprivation, can access them”.

If it is not responding and ensuring access, that is a case not for giving that responsibility to another body but for holding the FCA to account to get it to discharge the responsibilities that we have given it.

The FCA takes its objectives very seriously, and has undertaken several pieces of work in recent years to increase access and protect consumers, including a report on consumer vulnerability in February 2015. To give one example, in June this year, the FCA published a call for input on access to insurance, following a broader report on access to financial services that it published in May last year. The call for input seeks views on the challenges that firms face in providing travel insurance for consumers who have or have had cancer and the reason for pricing differentiations in quoted premiums.

I look forward to seeing that work develop, and I encourage all relevant stakeholders to provide responses to the call for input. It is important work and, in response to the noble Baroness, is an example of the sort of project to promote financial inclusion that the FCA can conduct in its role as industry regulator.

Against that background, I urge the noble Lord, Lord McKenzie, to withdraw Amendment 19 and not to press Amendment 39. I am grateful for the opportunity to address the important topic of financial inclusion, to which I am sure we shall return, but, as I said a moment ago, the Government are concerned that the amendment could create confusion between the roles of the FCA, on the one hand, and of the SFGB, on the other.

I turn to Amendment 25, which makes provision for the new body to advise the Secretary of State on the role of Ofsted and the primary school curriculum. I am aware that the Lords’ Select Committee on Financial Exclusion made a similar recommendation on the role of Ofsted and the primary school curriculum in its recent report. We will of course respond to each recommendation in due course and give them the close attention that they deserve but, for the time being, I just comment that the Government believe that this amendment could cause confusion about the remit of the new body with regard to the school curriculum.

As was stated earlier, the new body will have a role to help co-ordinate and support initiatives delivered by charities and other parties which are designed to improve the financial education of children and young people. It will be able to identify gaps in provision, identify best practice, and work with schools to understand how they are delivering financial education, in which lessons that is taking place, and explore further the barriers to school involvement. The Government are clear, however, that the school curriculum and monitoring of school performance is a matter for the Department for Education in England and those of the devolved nations.

In practice, this means that the body will be able to undertake activities to help schools to provide financial education. For example, the body will be able to undertake activities such as funding the project undertaken by the Money Advice Service and the Education Endowment Foundation to run a trial of Young Enterprise’s Maths in Context programme. Some 12,000 pupils in 130 English schools will take part in the trial, testing whether teaching maths in real-world contexts improves young people’s financial capability and attainment in GCSE maths exams.