Critical Benchmarks (References and Administrators’ Liability) Bill [Lords]

Peter Grant Excerpts

2nd reading
Thursday 18th November 2021 Commons Chamber

[The Economic Secretary to the Treasury (John Glen)]

I beg to move, That the Bill be now read a Second time.

Many Members will have heard of LIBOR in the context of the manipulation scandals almost 10 years ago. The London interbank offered rate is the rate at which banks lend to each other in wholesale markets. As the right hon. Member for Wolverhampton South East (Mr McFadden) knows too well, from his experience on the Parliamentary Committee on Banking Standards, a number of changes were made to the administration and governance of LIBOR as a result of that scandal.

Stringent and effective regulation means that LIBOR is now effectively supervised. However, it is no longer robust, as I will explain, and is due to be wound down. The Financial Conduct Authority has confirmed the process to wind down the LIBOR benchmark by the end of this year. Most contracts that reference LIBOR will have transitioned to a different rate before the end of 2021, in line with the guidance of the regulators, but there remain a proportion of contracts that will not have done so.

[Peter Grant (Glenrothes) (SNP)]

It is comforting to hear that most of these contracts will have transitioned over. In the Lords, the Government estimated that the total value of those contracts was about £300 trillion, so even if a tiny percentage of them do not transition over, they could still represent a significant amount of money. Does the Minister have any indication of the number and value of contracts that he thinks will still need to be covered by this Bill—not as a percentage, but in actual pounds value?

[John Glen]

I cannot give the hon. Gentleman a precise figure. However, in my remarks now and further on, I will give an explanation of those that are excluded and therefore necessitate the creation of this synthetic rate. If he would just bear with me, I will get to the point, and he should feel free to intervene subsequently if he is not satisfied.

The Bill builds on the provisions of the Financial Services Act 2021, as I mentioned a moment ago. This provided the FCA with the powers to effectively oversee the cessation of a critical benchmark in a manner that protects consumers and minimises disruption to financial markets. If I may, I would like to take a few minutes to put the Bill into context.

LIBOR seeks to measure the cost that banks pay to borrow from each other in different currencies and over various time periods. It is calculated using data submitted by a panel of large banks to LIBOR’s administrator, which is the ICE Benchmark Administration. It is referenced in approximately $300 trillion of contracts globally. It is used in a huge volume and variety of contracts, including in derivatives markets, mortgages, consumer loans, structured products, money market instruments and fixed income products. For example, a simple loan contract may say that the interest payable is LIBOR plus 2%. In this example, LIBOR represents the cost to the lender of getting access to the money to lend it out, and the 2% represents the additional risk to the lender associated with making the loan.

Back in 2012, it emerged that LIBOR was being manipulated for financial gain. Following the subsequent Wheatley review, LIBOR came under the regulatory jurisdiction of the FCA in 2013. That led to significant improvements to the regulation and governance of LIBOR. However, in 2014 the G20’s Financial Stability Board, known as the FSB—not to be confused with the Federation of Small Businesses—declared that the continued use of such rates, including LIBOR, represented a potentially serious source of systemic risk. The FSB said that financial markets should voluntarily transition towards the use of more robust and sustainable alternatives. It reached that conclusion due to the structural decline in banks borrowing from each other through the unsecured wholesale lending market. That has meant in turn that LIBOR has become more and more reliant on expert judgments, rather than based on real transaction data. In other words, the market that this systemically important benchmark seeks to measure increasingly no longer exists, which underscores the fundamental need to transition away from LIBOR.

Since the FSB’s recommendation, the Government, the FCA and the Bank of England have worked together to support a market-led transition away from use of the LIBOR benchmark. Primarily, they have encouraged contract holders voluntarily to move to robust alternatives, in accordance with guidance from the FCA and the Bank of England, before the end of the year. At the end of the year, LIBOR’s panel banks will stop making the submissions to the administrator on which LIBOR is based. At that point it will therefore become unrepresentative, and the administrator will cease publishing in any setting where the FCA has not required continued publication using the synthetic methodology. The vast majority of contracts are expected to have transitioned away from LIBOR before that happens. For example, it is estimated that 97% of all sterling LIBOR referencing derivatives will have transitioned by the end of the year.

Despite extensive work and progress, there remains a category of contracts that face significant contractual barriers to moving away from LIBOR by the end of the year, and measures in the Financial Services Act 2021 sought to provide a safety net for those so-called tough legacy contracts. Through the Act, the Government granted the FCA powers to designate a critical benchmark as unrepresentative, if it determines that the benchmark is, or is at risk of becoming, unrepresentative—in other words, that it no longer accurately represents what it seeks to measure—and that it is not possible or desirable to restore its representativeness. The Act also provided the FCA with powers to compel the administrator of such a designated benchmark to continue to publish it for a temporary period of up to 10 years, to prohibit new use of the benchmark, and to require the administrator to change how the benchmark is calculated.

--- Later in debate ---

[Peter Grant (Glenrothes) (SNP)]

I am grateful to the Minister for setting out so clearly the background to the Bill and why it is needed, and for his answers to some of the questions that I raised. I do not think that anyone would doubt the need for this Bill or something very similar. LIBOR is clearly not fit for purpose, but we cannot just shut it down without replacing it with something, and that something has to have some kind of statutory backing.

As I mentioned, there have been concerns raised inside and outside Parliament about exactly how the Bill is worded and whether its present wording is the best possible way to achieve the objectives that we all want to be delivered. By far the biggest of those—the shadow Minister, the right hon. Member for Wolverhampton South East (Mr McFadden), mentioned this as well—is the degree of immunity from legal action that has been offered to the administrators of critical benchmarks. Again, I do not think that anyone can reasonably oppose the argument that we need to provide some kind of immunity—otherwise, it would just become a circus and the only people who would benefit are lawyers—but there is a question about whether the Bill goes far enough in this regard. Will the Minister respond in more detail to that question when he sums up?

The same questions were raised in the Lords on Second Reading on 13 October. I have to say that although in reply Lord Agnew made a succinct and powerful argument about why some immunity was needed, I do not feel that he addressed the question that had been asked: whether the immunity that the Bill gives is at the right level and goes far enough.

It is unfortunate that we do not have the chance to call expert witnesses to the House and question them on the record about the relative merits of the approach to immunity that the Bill proposes, versus the alternative safe harbour system that the shadow Minister mentioned and that I understand is being used in the United States of America. Could the Economic Secretary give an indication of whether safe harbour has additional risks that we are not aware of? Is there a risk that it could introduce more risk and more damage to the system, rather than less?

LIBOR is referred to in about $300 trillion-worth of financial contracts around the world. The shadow Minister mentioned that about £450 billion-worth is likely to end up being covered by the Bill; my quick guess at the arithmetic is that that will mean less than 0.2%. However, that is the danger of referring to percentages: we could say that 99.8% of contracts will successfully transition, but that still leaves £450 billion-worth that will not. We therefore need to make sure not only that the Bill passes, but that we get it right. The consequences of getting it wrong, or even not quite right enough, could be significant.

It has been mentioned that LIBOR is used to determine the interest rate of about 200,000 mortgages in the UK. The Financial Conduct Authority says that it expects the “majority” to have transitioned by the end of year. That could mean that only one contract of that sort will be left in the whole United Kingdom, but it could mean that there will be 99,999. It makes quite a difference.

About half of those 200,000 mortgages are for people in their own homes, and half are for buy to let. Let us not think that it is a harmless thing when buy to let goes wrong; the vast majority of buy-to-let properties are still somebody’s home, even if that somebody happens not to be the owner. If the worst happens and any of those mortgage borrowers get into serious difficulty, it will be no comfort to them whatever to be told that 11 million other people are blissfully unaware of the problem. To someone with a mortgage that goes bad, the badness rate for mortgages is 100%. We should never forget that.

I understand why the Economic Secretary was reluctant to commit to any kind of compensation scheme in future, but I would certainly appreciate it if he confirmed that the Government will not completely close the door on that possibility should circumstances demand it. We do not foresee a problem just now, but nobody thought that LIBOR could be manipulated as it was, until the fraudsters discovered that it could. Nobody thought about the problems that mini-bonds could cause, until the fraudsters found a way of causing them.

A further question on legal immunity arises from the global use of LIBOR. The Bill can give administrators immunity from being sued in courts in any UK jurisdiction, but is the Economic Secretary aware whether the transition away from LIBOR might leave them with any increased risk of being sued in overseas courts? Obviously we cannot prevent people from bringing actions in overseas courts, and even if they fail it is still an expensive and disruptive process for the administrators to have to defend themselves. Although we cannot legislate against the practice, is he aware of any circumstances in which the Bill could increase the risk of legal action in an overseas court?

The Financial Conduct Authority will have regulatory responsibility in relation to the Bill. Notwithstanding my well known views about its fitness for purpose, within the current regulatory framework the FCA is where responsibility should reside. However, I share the concerns raised in the Lords about the FCA’s accountability to Parliament. Effectively, the Lords Minister’s response was that there is direct statutory accountability from the FCA to Parliament, but that is not enough. Accountability achieves nothing if Parliament does not have the proper procedures in place to make that accountability work. The arrangements we have in place just now do not work.

The Treasury Committee is overloaded with work. It simply does not have enough hours in the day to hold the FCA and other regulators to account to the necessary extent. I would almost argue that the FCA merits a separate Select Committee of its own, but when we add the scrutiny needed of other regulators in the financial services sector, there is a strong case—an unarguable case, I believe—for establishing a separate Select Committee, or even a Joint Committee of both Houses, dedicated to holding our financial services regulators to account. We have seen what happens when they get it wrong. I do not think that Parliament is doing its job sufficiently just now to keep them held to account.

The LIBOR rate-fixing scandal reminded us that in the financial services sector, as in many other places, there is no limit to the ingenuity of some very senior people in positions of great trust when it comes to devising frauds on a massive scale. There is no loophole in regulation too small to be exploited.

I support the Bill’s passage. I have not tabled any amendments, but I will agree to the unamended Bill with my fingers crossed, because I fear that only time will tell whether it is 100% watertight. In the sometimes murky environment in which the Bill will operate, anything less than 100% will not be enough.

Critical Benchmarks (References and Administrators’ Liability) Bill [Lords] (Allocation of Time)

Peter Grant Excerpts

Thursday 18th November 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP)]

I do not intend to oppose the motion. As I mentioned earlier, for once the time allocation of six hours is likely to be enough. However, I think the House deserves a better explanation than we got from the Leader of the House about why the Bill has been timetabled in this way. This will only be the fifth time this century that a Thursday has been used to ask the House to approve every single stage of a Bill in its passage through the Commons. The expedited procedure has its uses and there are times when it is entirely appropriate, but it does restrict the ability of MPs to give the Bill proper scrutiny. It should only be used in exceptional circumstances, and this House has the right to be told what those exceptional circumstances are without having to ask.

The Bill itself is not contentious, but the Minister will be aware—this will no doubt come out in the debate in a few minutes—that, on one specific matter relating to clause 2, there is a difference of opinion as to how best to achieve the objectives of the Bill. I do not know which of the two methods is best, which is why I have not submitted an amendment, but this would be tailor-made for a Public Bill Committee that gave Members a chance to hear from expert witnesses the arguments in favour and against both available methods. We could therefore take an informed decision about what is in the best interests of the financial services industry in these cases and, ultimately, of our constituents.

We have not been told why we have been asked to forgo the opportunity of a Public Bill Committee. It cannot be because the Bill addresses an urgent and previously unforeseen problem because it has been 10 weeks since the Bill had its First Reading in the House of Lords. It is four years since we first became aware that LIBOR would be phased out and we would have to find a replacement. Can I ask the Minister to explain why there is the urgency now? Why is there not time to timetable a Public Bill Committee and why did the Government not have the courtesy to follow their usual practice of putting an explanation about the urgency of the Bill into the explanatory notes, as they always have done in the past?

Critical Benchmarks (References and Administrators’ Liability) Bill [Lords]

Peter Grant Excerpts

Committee stage & 3rd reading
Thursday 18th November 2021 Commons Chamber

[Mr McFadden]

I am grateful to the Minister and have a few questions for him, all of which relate to clause 1. The methodology for calculating synthetic LIBOR is the five-year average picked by the FCA. Were other possible methods considered? What impact would they have had on the interest rate?

Secondly, the Minister referred to the rate bouncing around: on one day it could be less than real LIBOR and on another day it could be more. I believe that the FCA has used the figure of 12 basis points. For clarity, is that a fixed-term difference going forward, or will synthetic LIBOR vary on a daily basis, just as real LIBOR can?

On Second Reading, we talked about mortgages. However, as the Minister rightly said, a far greater sum of money based on LIBOR is in the derivative markets. What estimate have the Government made of the Bill’s impact on those markets?

Paragraph 6 of new article 23FA, which we have touched on a few times, tries to limit or define the scope of legal action taken as a result of the move from LIBOR to synthetic LIBOR. How might that influence any attempt at judicial review? How confident is the Minister that someone could not try a judicial review of this attempt to close down the option of legal actions taken as a result of a Government-mandated move in financial benchmarks?

The Minister referred to the discussion of fall-back provisions on page 3 of the Bill. For clarity, does this mean that some contracts will not transfer to synthetic LIBOR but will transfer to something else, depending on whether there is a fall-back provision in the contract? If there is a fall-back provision and it is not synthetic LIBOR, what will it be? If there is a fall-back provision that could have a different rate from synthetic LIBOR, how will contracting parties decide which one to use? Will the fall-back rate, if such a thing is specified in a contract, automatically take precedence over synthetic LIBOR, or might there be room for argument about which alternative rate to use?

Finally, there is the question of timescale and how long this will last. The Minister talks about encouraging remaining contracts to move off what will now be synthetic LIBOR. Indeed he said that, if we have to, we could pass further legislation. Is there anything more that can be done, other than encouragement, or are contracts not moving away from LIBOR because it is a better rate and, ultimately, what people care about is the interest rate they pay? I wonder how temporary this will be. Are we kicking this can down the road with nothing other than encouragement for a group of contracts that have stubbornly stuck to LIBOR despite all the regulator’s enthusiasm? Is there anything between the Minister’s encouragement and future legislation that might change this situation?

[Peter Grant]

I will not detain the House by repeating my comments on Second Reading. I am grateful to the Minister for his answers to a number of my questions, but one question he did not pick up, and on which I hope he can give some assurance, is what happens if something goes badly wrong with people’s mortgages. The small percentage of people who have mortgages covered by this legislation—although it could potentially be quite a big number of people—are now, through no fault of their own, quite literally staking their home on our getting this right. Although I appreciate that the Minister will not commit to a specific compensation scheme just now, will he at least give an assurance that the Government have not closed the door on that possibility should unforeseen circumstances lead to it being necessary?

I am also looking for clarity on the precise circumstances in which the administrator does or does not have immunity from legal action. The Minister has said the administrator is covered if it does something the law says it has to do, and it will not be covered if it does something it has chosen to do in a particular way. Does the administrator have discretion on the precise methodology it uses to calculate synthetic LIBOR, and can it exercise its judgment on the numbers it puts into the model? If the administrator has such discretion, nobody needs to sue it for using a synthetic LIBOR model; they can just sue it because of how it has carried out the calculation.

Given the nature of contracts of the value that the right hon. Member for Wolverhampton South East (Mr McFadden) mentioned, a slight change in the published rate can mean a lot of money. Every time the published rate is arguably a wee bit higher or a wee bit lower than somebody else thinks it might have been, one party will win and be quite happy, and the other party will lose and will potentially have a strong motivation to resort to legal action. Are administrators adequately covered against being sued simply because they have published a figure that says the current synthetic LIBOR rate is 1.2% rather than 1.25%? Are there grounds on which they might be sued because those 0.05 percentage points of difference in the published synthetic LIBOR rate either make or lose quite a lot of money?

[John Glen]

It is a pleasure to serve under your chairmanship, Mr Evans.

The right hon. Member for Wolverhampton South East (Mr McFadden) and the hon. Member for Glenrothes (Peter Grant) have raised a number of questions arising from what I said. The Government are clear that we support this transition away from LIBOR by providing additional legal certainty for contracts relying on LIBOR past the end of this year. The provisions of the Bill are vital to using the synthetic rate in an orderly winding down of LIBOR, and they provide protection to consumers and the integrity of UK markets, but there are four or five elements that I will address now.

The hon. Member for Glenrothes mentioned compensation, and we do not anticipate that being an issue. As with all matters, the Treasury keeps things under review. We will continue to monitor what happens as a consequence of this methodology.

Both the right hon. Member for Wolverhampton South East and the hon. Member for Glenrothes mentioned legal action, and it is possible that judicial review could be raised against the FCA on the synthetic methodology it is prescribing for ICE. We think that would be extremely unlikely, given that there has been an active exercise of listening to representations on designing a methodology that has broad credibility. That is fundamental to the integrity of the process. There has been no attempt to develop a methodology in isolation or separate from the consultation with the market.

The right hon. Member for Wolverhampton South East asked about both the future timetable and what will happen with contracts that have fall-back clauses overridden by the effect of this legislation. This Bill provides certainty where a fall-back provision is triggered by a benchmark ceasing to be published or made available. Neither the designation of a benchmark under article 23A of the BMR nor the imposition of a synthetic methodology would trigger the operation of the fall-back provision. Where a contractual arrangement has a fall-back provision that is triggered by other means, this Bill does not affect or override the operation of that clause. For example, it will not override a fall-back triggered by an assessment of unrepresentativeness or a prohibition on the use of the benchmark, provided that the circumstances in which the fall-back was triggered are met.

--- Later in debate ---

[Peter Grant]

I wish to reciprocate in my thanks to the Minister for responding with the courtesy and in the spirit of co-operation that we always get from him in these debates. This is becoming more topical just now, but he deserves credit in setting an example that we would all do well to follow. There have probably been very few Bills to come through this House that have involved so much work beforehand to produce a Bill that, in paper terms, does not appear to be particularly significant. I think we understand that its impact can be quite significant—the impact of not doing it could have been very significant. So may I ask the Minister to take the thanks of my group back to his officials and to everybody else who has contributed to the consultation—those in the FCA and the industry representatives—as I know they have put a lot of work into this as well? As I say, it has not produced a huge number of pages or words of legislation, but I believe it has plugged a potentially catastrophic gap in the regulation of our financial services industry, and they deserve our thanks for that.

Question put and agreed to.

Bill accordingly read the Third time and passed, without amendment.

Finance (No. 2) Bill

Peter Grant Excerpts

2nd reading
Tuesday 16th November 2021 Commons Chamber

[Lucy Frazer]

I will just carry on to my next point, which is that there will be an increase in the social care budget in the spending review period.

A fairer tax system also means tackling those who avoid paying their share. A new economic crime levy will help to fund measures that will prevent criminals from laundering money in the UK. It will apply to about 4,000 businesses and bring in £100 million. The Bill also contains tougher measures to prevent promoters from marketing tax avoidance schemes. In addition, it includes sanctions to tackle tobacco duty evasion, which costs the Exchequer an estimated £2.3 billion a year. The Bill also clamps down on electronic sales suppression, a form of tax evasion in which a business deliberately manipulates its electronic sales records to reduce its recorded turnover and corresponding tax liabilities.

[Peter Grant (Glenrothes) (SNP)]

I am pleased to hear about the Government’s commitment to taking on those who make money by promoting tax avoidance schemes. One such scheme that has been on the go for a long time is the loan charge. Can the Minister give us an update on progress towards bringing to account not the thousands of small-time self-employed people who have been caught, but the big players in that scandal? How many people have actually been surcharged or prosecuted for promoting loan charge schemes?

[Lucy Frazer]

I am grateful to the hon. Member for that question because I appreciate, since being in this role, that the loan charge is an issue that has affected many people across the country and that many MPs feel very strongly about. I have spent quite a considerable amount of time already talking about this issue not to only the chief executive officer of Her Majesty’s Revenue and Customs, but to officials. I have also had the opportunity to meet HMRC officials who are dealing with the vulnerable people who may be subject to the loan charge and to ask questions about how they are treating them.

The hon. Member makes a really good point, because the real perpetrators in relation to the loan charge are those who offer these schemes and getting people on low pay into them. An issue I have raised directly with HMRC is how we can further prosecute and bring these people to justice. Unfortunately, I understand that many of them are located offshore, but we will be doing everything we can to ensure that those who are responsible for promoting this are brought to justice.

This Bill deals with those who try to get out of paying tax, but it also creates a simpler and easier system. Its measures make capital gains tax easier to navigate, doubling the window for reporting and for paying CGT on residential property from 30 days to 60 days. This will give people longer to work out what they owe and make it less likely that they will make a mistake. For businesses, we are creating a simpler tax system through reforms to basis periods, leading to a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years.

There is no doubt that the pandemic has cast a long shadow over this country and our finances, but just as our wartime predecessors rebuilt from the blitz, now is the time to open a new chapter in our national story—one of economic growth and renewal, and with it, transformed lives.

--- Later in debate ---

[James Murray]

As my hon. Friend rightly points out, investing in education is critical to the future of our country and the next generation. We heard the Minister say how uncomfortable she feels talking about cuts, but that is the reality of 11 years of Conservative government. No matter how they try to massage the announcements they are making now, the truth is that if we compare 2021 with 2010, we can see the impact that 11 years of the Tories has had on our public services.

At a time when working people are facing rising prices and flatlining wages, it shows the Tories’ true colours that they are prioritising a tax cut for bankers. To rub salt in the wound, as the IFS has pointed out, the cut in air passenger duty will flow through the UK emissions trading scheme and push up electricity prices at home. It was shocking to hear the Chancellor announce a cut in air passenger duty just days before COP26, and it is shocking that his tax cut for banks will cost the public finances £1 billion a year by the end of this Parliament.

That cut will see the corporation tax surcharge for banking companies slashed from 8% to 3%, with the allowance for the charge raised from £25 million to £100 million. It is worth reminding ourselves why that sector-specific tax was first introduced. As the policy paper published alongside the Budget—I am sure the Minister has read it—sets out clearly, the charge has been levied on banks to reflect

“the risks that they pose to the UK financial system and wider economy”

and to recognise

“the costs arising from the financial crisis.”

When the surcharge was introduced 10 years ago, in the wake of the financial crisis, the Government at the time seemed to recognise that banks had an implicit state guarantee due to their central position in the UK economy, and that that guarantee should be underpinned by greater tax contributions. Yet, as Tax Justice has pointed out, the Office for Budget Responsibility found in 2019 that £27 billion of Government expenditure on bailing out the banks was still outstanding. It seems that the Government are determined to push ahead with a cut to the surcharge, despite the fact that it will not even have fully repaid the public money spent on banks during the financial crisis, let alone provided any insurance against a future crash. We will question Ministers on that further in Committee.

We will also use that chance to press Ministers on other parts of the Bill, including those that introduce the residential property developer tax and measures relating to money laundering and tax avoidance. We support the principle behind the residential property developer tax, which will be levied on the largest developers in the residential property sector. It is right that those responsible for putting dangerous materials on buildings should pay towards the very significant costs of removing unsafe cladding, but it would be a mistake to assume that levying that tax alone will mean that the cladding scandal will in any way come to an end.

The tax is expected to raise £2 billion over 10 years, yet the Housing, Communities and Local Government Committee has estimated that addressing all fire safety defects in every high-rise or high-risk residential building could cost up to £15 billion. What is more, extreme pressures on labour and materials mean that the cost of fire safety works could rise significantly, all but wiping out the money raised from the new tax proposed in the Bill.

The bottom line is that leaseholders living in buildings with potential fire risks and facing huge remediation costs need to know how those costs will be met in full and that the necessary work will be done without delay. There are plenty of people involved in this scandal who should be paying to fix it, but leaseholders are absolutely not among them.

We also support the principle behind the economic crime levy to raise money from the anti-money laundering regulated sector to pay for measures in the economic crime plan to help tackle money laundering. As the director of the Centre for Financial Crime and Security Studies has said, a

“key challenge for the UK Government’s response to financial crime is a lack of investment in capabilities to respond to its policy ambition.”

We hope that the funding from the levy will go some way towards increasing the capacity in government to tackle economic crime, although we will press Ministers on whether it is enough.

[Peter Grant]

Does the shadow Minister agree that, as part of the drive to deal with money laundering, there is also a need for significantly greater transparency so that the people who buy up huge swathes of property in London, for example, are openly identified and any illegal money that has been laundered in that way is much harder to hide?

[James Murray]

The hon. Gentleman makes an important point. Alongside funding, of course, there are also changes to the law that would strengthen the UK’s ability to fight economic crime. Top of the list must be putting in place a public register of the beneficial owners of overseas entities that own UK property. Such a register would bring much needed transparency to the overseas ownership of UK property and help to stop the use of UK property for money laundering.

So, where is the register? In 2016, Prime Minister David Cameron first announced plans to make it a reality. In 2017, the “National Risk Assessment of Money Laundering and Terrorist Financing” confirmed that property continued to be an attractive vehicle for criminal investment, particularly high-end money laundering. In 2018, a draft Bill to set up a register of overseas entities was published. In 2019, a Joint Committee of MPs and Lords published their pre-legislative scrutiny of the Bill and the Government published their response. In that response, published in July 2019, the Minister responsible, the hon. Member for Rochester and Strood (Kelly Tolhurst), said:

“Knowing who ultimately owns and controls a company is an important part of the global fight against corruption, money laundering and terrorist financing.”

We agree. The Minister committed to

“turn this Bill into an Act, and to deliver an operational register in 2021.”

However, since that Government response was published in July 2019—and since, as it happens, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) became Prime Minister, at the end of that very month—the desire to see the register put into place seems to have lost its energy.

Ministers are legally required by the Sanctions and Anti-Money Laundering Act 2018 to report to Parliament annually on the progress that has been made toward putting such a register in place. In 2020, a ministerial statement was indeed published, but any commitment to the register being operational by 2021 had by then been dropped. This year’s ministerial statement, published on 2 November, barely mentioned the register, arguing:

“The overseas entities register is one of a number of proposed corporate transparency reforms”.

The statement focused mainly on other changes and, in fact, barely mentioned the register, ending with that dreaded phrase:

“The Government intends to introduce legislation to Parliament as soon as parliamentary time allows.”

It is astonishing that the Government feel that the need for the register is becoming less urgent. The Pandora papers confirmed how overseas shell companies secretly buy up luxury property in the UK, and how much transparency is needed to help to tackle money laundering.

What are we meant to conclude from the fact that the appointment of the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) as Prime Minister in July 2019 coincided perfectly with a change in direction by the Conservatives away from a commitment to make transparent the ownership of overseas companies buying up UK property? What could possibly be the connection between overseas individuals investing in UK property through anonymous companies and the current occupant of 10 Downing Street? Why on earth would anyone in Government not want to introduce the transparency that their own colleagues have said in the past is crucial to tackling high-end money laundering?

I am sure that later in the consideration of the Bill, we will return to the matter of anti-money laundering. At later stages, we will also consider the effectiveness of measures in the Bill to tackle tax avoidance, as that is an important matter for us and the public. In the Opposition, we have long been pushing for the Government to do more to tackle tax avoidance, and while any action on that is welcome, including the measures in the Bill, we do not believe they go far enough. Crucially, as well as the regulations that are needed, the Government must invest in the resources that Her Majesty’s Revenue and Customs needs to tackle the problem effectively.

The Budget papers confirm that HMRC is set to receive a

“£0.9 billion cash increase over the Parliament”.

However, as TaxWatch has pointed out,

“the vast majority of this will not go towards tackling tax fraud, but rather to deal with the additional complexities surrounding the UK’s departure from the European Union.”

We know that effective investment in tackling tax avoidance can bring in much more than is spent, so it is crucial to make sure that that is not ignored by the Government. We will return to this important matter in later stages of the Bill. We will return to that point because the principle at the heart of our tax system must be that everyone plays by the rules and pays their fair share. That principle needs to be stated and supported, as under this Government, with this Budget and this Finance Bill, our country is moving further and further away from that ideal.

Labour’s vision of the economy is this: invest in good modern jobs with decent pay and conditions in every part of the country; support small businesses and high streets from being undercut by large multinationals who do not pay their fair share of tax; and buy, make and sell more in the UK to use every lever we have to support British industries to succeed. That is how we begin to rebuild and strengthen our economy after a decade of low growth, with no end in sight. That is how we make sure people have more money in their pockets for them and their families, and how we increase tax revenues to invest in public services.

But that is not what we are getting from this Government. The low growth they are responsible for means that taxes have had to go up. Faced with a choice of which taxes to raise, the Tories have shown the British people their true colours. Millions of families across the country are already being hit by the Tories’ decision to cut universal credit. From next April, working people across the country will pay more, as their income tax personal allowance is frozen and their national insurance contributions are hiked up. Yet from the April that follows, banks will see the tax they have paid since the financial crisis cut by £1 billion a year by the end of this Parliament. That is the choice the Tories have made: taxes on working people will go up, while taxes on banks will be cut. For people who are working hard but finding things tough, the Tories have nothing to offer except a tax rise.

Fairness is the one of most British values there is, yet it is one this Government just do not get. The Tories are spending all their time protecting themselves, when they should be looking out for the British people. Labour would grow the economy. We would invest in the future. We would make sure working people were never again the first to feel the brunt of tax rises that this Tory Government are forcing on their shoulders.

--- Later in debate ---

[Peter Grant (Glenrothes) (SNP)]

It is my great pleasure to contribute to this debate. Today, 16 November, we mark the feast of St Margaret Atheling, Queen of Scots, one of our two national patron saints and, like the rest of us, an adopted Fifer. For those not familiar with it, I recommend a read through her life story, because a surprising amount of it has lessons that are as relevant today as they were nearly 1,000 years ago, when she was alive. For example, Margaret was revered for her generosity to the poor. She is said to have regularly gone into the streets dressed in poor clothing and given food to the hungry and money to the poor. She clearly believed that earthly power has no legitimacy unless it is used in the interests of others. We might want to bear that in mind in the decisions we take later today, and indeed every day, in this place.

I wish to look at some aspects of the Finance Bill, and at who it benefits and who it damages. I go back to the question I raised with the Minister earlier about prosecutions and penalties against promoters of the loan charge. I was disappointed that the Minister did not answer the question as to how many such penalties had been applied. I would have thought that, if it was that important to the Government, they would have made sure that their officials put that information into the briefing for today. I have no issue with people who deliberately went into loan charge agreements knowing that they were wrong and that they were doing that only to dodge their rightful tax liabilities going through the full legal process. However, a lot of people who signed up to the loan charge did so because they did not understand it or because they were assured by paid tax advisers that it was all okay, and a lot of them did it because they would have lost their jobs if they had not. They get hounded to the ends of the earth—some of them literally get hounded to death—yet very few of the people who made millions out of these schemes have ever been brought to justice. The victims in my constituency have serious doubts as to whether any of the real villains of the piece will ever be brought to justice or indeed whether this Government have any intention of doing that.

When we look at the impact of this Finance Bill, and of the Budget statement it is based on, we must not let ourselves be hoodwinked by the massive impact of other announcements that have been flipped through by the Government in other ways over the past six months or so to try to make it look as though their Budget was not quite as savage as it was. We must recall the £1,000 a year cut in universal credit; the ending of the pensions triple lock, leaving our pensioners more at the mercy of rampant inflation than they were before; and the national insurance hike, which has been trumpeted as the saviour of the health and social care sector, whereas the reality is that, for several years at least, very little of it indeed will go into improving the availability of social care in England. It might be there in three or four years, but this is not a crisis that is going to be there in three or four years—it is a crisis that has been there and has been ignored for far too long.

Of course, sometimes when the Government want to increase taxes, they like to find sneaky ways to increase taxes on low-paid workers in a way that does not make it obvious what they are doing. All they have to do to achieve that is to do nothing. There is nothing in this year’s Finance Bill about the thresholds for the different rates of income tax. There is nothing in it about the level of income at which someone first becomes liable to pay income tax, because they have left it exactly as it was last year in cash terms. With people likely to face inflation of 4%, people on low incomes will either take a real-terms cut in wage of 4%, or if they get enough of an increase to match inflation the Chancellor will say, “Thank you very much. I’ll have a bigger cut of it for myself than I had before.” People on low earnings who are already struggling need an increase of 4% to stand still and to continue to struggle.

The 1.25% increase in the national insurance charge might not seem to be that much; 10p or 50p an hour below the proper living wage might not seem to be that much, but it soon adds up. Take, for example, someone working 40 hours a week on the Government’s new minimum wage of £9.50 an hour, and paying income tax and national insurance according to the rates and thresholds set out in the Bill. Those are exactly the people the Government say the Budget is designed to help. They are exactly the people for whom work is supposed to pay. Now, take the same person but this time getting the real living wage of £9.90 an hour, let their personal allowances and national insurance thresholds keep pace with inflation, and scrap the national insurance increase, leaving it at 12%, instead of 13.25%. The difference in their take-home pay is £800 a year. That does not seem much to those of us lucky enough to be on an MP’s salary, but for those who are just about managing to get through to the end of the week, another £800 a year in their pocket—or £800 taken out of their pocket by the Budget—makes a significant difference. The impact of this year’s Tory cuts alone—they are cuts, no matter what the Minister might say—is that those people are suffering a pay cut of almost 5% in real terms.

We have not even started to look at the more fundamental issues referred to by my hon. Friend the Member for Glasgow Central (Alison Thewliss) and why we need a complete rehash of the entire tax system. Why should somebody who, by an agreed definition, is earning only enough to live on pay income-based taxes at all? Why do we not set tax and national insurance thresholds to match the proper living wage so that the tax authorities have no claim whatsoever on the wages of those earning only just enough to keep them and their family alive?

The Government may well say that times are difficult, that tough choices must be made and that we cannot afford to inflation-proof tax allowances this year, but the tax allowances of some have been inflation-proofed and more—not individuals but businesses that are, for example, lucky enough to be able to afford to buy a casino. In clause 80, on page 63, we see changes to the thresholds for the various rates of gaming duty: the tax that casino operators pay in what is termed the gross gaming yield, which is the difference between the stakes that people pay in and the winnings they take out. It is in effect an income tax on casinos and similar places. Lo and behold, the tax thresholds for casinos are going up by 5.4%, which is higher than the rate of inflation that the Chancellor expects to see. That is on top of their inflation-busting increase last year. They have had an increase of 8.7% over just two years.

To put that into context, a casino with a gross gaming yield of £10 million a year will pay £100,000 less in tax next year than it would have last year, while the poor souls working their tails off in the casino kitchen keeping the clients fed and watered will be paying higher taxes. How can it be right that a casino owner pays £100,000 less in tax while the people whom they employ on low pay in their kitchens and catering departments have to pay increased tax? That is not a necessity; it is a deliberate political choice, and it is the wrong choice.

If only other businesses had as much to celebrate as the casino industry clearly does. Hospitality businesses are—quite rightly—being told to adapt their business models so that all their workers get paid a fair living wage. I have had some quite difficult conversations with hospitality businesses in my constituency that are not happy at that. But why on earth do the Government think it is also the right time to tell them that they must pay more tax on every single job that they create? Why on earth is it right to tell them that the rate of VAT that they will pay next year will be 60% higher than this year? It is ridiculous.

I am not saying that we should not take difficult decisions. The UK’s finances, like those of many western democracies, are in a seriously difficult place. The Minister said that levels of debt and borrowing are affordable. They are—just about—but they certainly are not sustainable. We must turn that around quickly. Difficult decisions need to be taken, but the problem is that, far too often, the Government are happy to take decisions that are difficult for other people but not at all difficult for their friends, chums and millionaire donors. The economic impact of the covid pandemic has almost certainly been made much worse because of their total lack of planning on the economic impact of the action needed. That means nearly all the Government’s support schemes had to be thrown together at almost no notice, which inevitably means they did not achieve what they were supposed to achieve. Very few of them achieved optimal results from day one. Too many people, several million of them, were excluded from support altogether, and almost all the schemes that were implemented turned out to carry levels of fraud risk that were far higher than they needed to be. Billions of pounds of public money has been lost to fraud that would have been avoided if the Government had prepared better in advance.

The economic damage of the pandemic could have been lessened, although we accept it almost certainly could not have been avoided completely, but the economic damage of Brexit could have been avoided completely if, in 2016, people had been told the truth of what it would involve. Let us not forget that the Government’s analysis is that the self-inflicted damage of Brexit is likely to be twice as bad as the economic damage of the covid pandemic.

To a much larger degree than the Government will admit, the tax rises on the poor contained in this Finance Bill are the price of a Brexit that, let us not forget, was rejected by almost two in three voters and every single local authority area in Scotland. If that is the price for Scotland to remain part of the United Kingdom, it is a price I do not believe the people of Scotland are willing to pay any longer.

Interestingly, a standard form of wording that I do not see in this Bill is, “Extent. This Bill shall apply to Scotland.” I do not expect it to be too much longer before those words are no longer part of any legislation passed by this House.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call John McDonnell.

--- Later in debate ---

[Christine Jardine (Edinburgh West) (LD)]

It is a pleasure to follow the right hon. Member for Hayes and Harlington (John McDonnell). I rise to my feet on behalf of the Liberal Democrats to say that we cannot support this Finance Bill, which derives from a Budget that missed a vital opportunity to help struggling families in this country. Instead, it hammers them with tax hikes, empty words and broken promises. It is completely out of touch and offers nothing to help them with the energy bills that they will face this winter. Worse than that for me, the Bill sends a clear message to children and their parents that they are worth less to this economy than investment bankers and banks. Far from providing the support that families needed when we are facing a cost of living crisis, this Finance Bill will provide less in extra catch-up funding for schools than it does in tax cuts for big banks. There will be just £1 of extra catch-up funding for each child, compared with £6 a day in tax cuts for each banker. That brings the £1.8 billion new catch-up money offered to just £5 billion, one third of what the Government’s own advisers said was necessary to allow our children to catch up on the many millions of hours that they have in total lost in their classrooms over the past 18 months, which threaten, according to official figures, to leave them losing anything up to £46,000 in income over the course of their lifetime. Putting bankers before children tells us everything we need to know about the priorities in this Bill.

People who have worked hard, paid their taxes and played by the rules are seeing their incomes squeezed through no fault of their own. They are being crippled by tax hikes and their benefits have been slashed—all in the face of skyrocketing bills. We should be demanding a fair deal for families and an investment in future generations: support for vulnerable families, more investment in our children’s education and more funding for tackling the climate emergency. Instead, we see an end to the £20 uplift to universal credit, nearly half the minimum wage rise clawed back through the increase in national insurance, no help with energy bills, the Chancellor’s announcement on universal credit taper giving back just one third of what he snatched away, and millions of families with no help at all.

When it comes to the climate, while COP26 was getting under way in Glasgow and we were all looking for something that would send a clear message that saving the planet was a major priority, what did we get? We got a reduction in air passenger duty, which will do nothing at all to help to reduce carbon emissions.

This Bill offers nothing of what we would like to see for the people of this country. It offers nothing, either, for the businesses, because it fails to deliver on the Government’s promise to reduce business rates through a fundamental review of the system, leaving companies with no long-term support as they cope with the impact of the pandemic and new international trade barriers. The business rates announcement will not abolish the skewed and complicated system, which only benefits property landlords and not the hard-working business owners who rent from them. Even the tax cuts for businesses investing in green energy for properties are only set to benefit commercial landlords, not our high street shops, whose owners will really pay the bill.

Businesses have been hit hard by endless Government disasters, the handling of the pandemic and a new mountain of red tape introduced post Brexit. However, I cannot agree with the hon. Members for Glasgow Central (Alison Thewliss) and for Glenrothes (Peter Grant) that the answer to all that is an independent Scotland.

[Peter Grant]

Oh, go on, go on.

[Christine Jardine]

Not this time. On that point, I cannot agree, because there have been Governments in this place that have done wonderful things for Scotland, not least of which was to deliver devolution, and we have learned in Scotland over the past 14 years that moving the Government to Holyrood does not guarantee it will be any better. On behalf of my colleagues in the Liberal Democrats, we will not support the Finance Bill and we will support the Labour amendment.

Oral Answers to Questions

Peter Grant Excerpts

Tuesday 2nd November 2021 Commons Chamber

[Lucy Frazer]

I thank my hon. Friend for his support. He will agree that the best way to support people is by supporting them into work and helping them to progress once they are in work. He makes an important point about communications. The Government run an annual public communications campaign to inform workers and employers of the change to the minimum wage rates. Her Majesty’s Revenue and Customs also has a dedicated team who actively provide information to individuals and employers on minimum wages, and the UC changes will also be reflected in the claimants’ statements once they are in effect.

[Peter Grant (Glenrothes) (SNP)]

All those announcements are, of course, welcome for low-earning households in which somebody has a job, but none of them will deliver a single penny into the pockets of the very lowest-income households in which nobody is able to get a job. They are being hit by a £1,000 a year cut in universal credit. What is there in the Budget that will reinstate that £1,000 cut for the very lowest-income households on these islands?

Money Laundering and Terrorist Financing (Amendment) (No. 2) (High-Risk Countries) Regulations 2021

Peter Grant Excerpts

Monday 13th September 2021 General Committees

[Peter Grant (Glenrothes) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Graham.

I will certainly support the statutory instrument, although like the shadow spokesperson, the right hon. Member for Wolverhampton South East, I have some questions and observations. It is absolutely right that decisions are based on the best economic intelligence that can be gathered and, if possible, made on a global basis. It does not work if one or two countries apply sanctions but no one else does, any more than it does if one or two countries dodge the sanctions that everyone else tries to apply. It is important to ensure that our allies throughout the world work with or are exposed to the same rules as we are.

When we last debated money laundering regulations I mentioned something that I shall mention again because it should give us all a bit of a kick. Of the 24 high-risk third party countries on the list, seven are members of the British Commonwealth, including one, Zimbabwe, where there are historical concerns about the rule of law as well as money laundering. One country on the list is a British overseas territory.

In some of those countries, the problems with the lack of proper financial regulation—with being seen worldwide as havens for all kinds of dodgy financial dealings—have been present since the days of direct rule and the British empire. The problems were created 100 years ago, or perhaps more recently, and we are now trying to clear up the mess left behind by our imperial forefathers. It is as good an example as any of the maxim that, in international affairs, what we do to other people we very often end up doing to ourselves.

The right hon. Member for Wolverhampton South East mentioned one or two examples that are clearly going in the wrong direction. We cannot afford to be complacent. Many Governments and widely respected non-governmental organisations have been saying for a number of years that they are concerned about the direction in which financial regulation in the United Kingdom is going. Perhaps more accurately, they are concerned that it is not going in the right direction as fast as the bad guys are trying to pull in the wrong direction.

The Government consultation on their company regulation contained a lot of positives, and I certainly look forward to seeing what draft legislation emerges from it. The response that the SNP submitted in 2019 included two key points. The United Kingdom needs a robust and transparent system of company registration, which we do not have just now. The system of company registration is not working. It must be crystal clear who owns companies, who benefits from them and who is pulling the strings.

We need other legislation on Scottish limited partnerships, which we know have been used and abused to facilitate money laundering and all the criminal and terrorist activities that it supports.

We will support the regulations today, but, as I heard myself saying last week—doubtless I will hear myself saying the same on other financial regulation legislation over the coming weeks and months—this is a small step in the right direction that does not go nearly far enough. Will the Minister tell us when the substantial weaknesses in company registration legislation will be sorted out? My concern is that if we are not careful we could start to see the United Kingdom appear on some people’s suggestions for additions to, if not a red list, an amber list. Give the extent to which the United Kingdom’s economy and, indeed, Scotland’s economy rely on our reputation as a trustworthy place to do financial business, we cannot afford to take that risk.

Health and Social Care Levy

Peter Grant Excerpts

1st reading
Wednesday 8th September 2021 Commons Chamber

[Mel Stride]

First, the hon. Gentleman’s knowledge of my constituency is obviously rather deficient, because I expect that mine shares many characteristics in common with his. I do not dispute the fact that any major fiscal move, such as putting up national insurance and bringing in this levy in this manner, will have associated complexities and difficulties. My pledge to the House is that the Treasury Committee will, I am sure, after private discussion, decide that we wish to look more closely at a number of the issues that are being raised in this debate, including the one that he mentioned.

Let us be honest about the options that were available to the Treasury. How could we have squared the circle and funded £10 billion-plus a year? The first thing that the Treasury could have done is to seek to cut expenditure in other areas, yet I have no doubt that if it came forward with any proposals of that nature, the Opposition would have fiercely resisted that as austerity all over again. We have to understand that on the current projections, there are many unfunded commitments, including, for example, keeping our railways going, going for net zero, additional funding that will be needed for school catch-up and so on.

[Peter Grant (Glenrothes) (SNP)]

Given the right hon. Gentleman’s experience on the Treasury Committee, does he not agree that a tax hike of this scale could—if it was necessary—be much more fairly and equitably carried out if the tax burden was spread across a number of different taxes, rather than 100% of the burden being landed on one single, narrowly based tax?

[Mel Stride]

I will come back to the hon. Gentleman’s point, but let me just stick with the options. The second option was to lean into growth, to assume that we could grow our way out of this problem. We have just had a huge contraction of the economy. We are not yet back up to the pre-pandemic level, although the Bank of England thinks that we may arrive at that point some time towards the end of the year, and we have many headwinds to growth ahead of us, not least the bottlenecks in supply chains, the labour shortages that we have witnessed in certain areas, and many other issues.

The third thing that the Treasury could have done is to borrow more money, and that is probably what the Opposition would have done in this situation. Despite the fact that the Bank of England now seems to feel that there is more money—I suspect that the Office for Budget Responsibility will confirm that around the time of the Budget— because the economy is doing a bit better than we expected, probably to the tune of about £25 billion, it would be a very brave Chancellor who started to borrow yet more and more, knowing that one day it is possible that the markets might turn around and look at the United Kingdom and decide that they no longer have confidence to lend to us. That would be a very dark day.

--- Later in debate ---

[Peter Grant (Glenrothes) (SNP)]

I am pleased to contribute to this debate. As I listened to the hon. Member for Wycombe (Mr Baker) just now, the words that kept going through my mind were “Union dividend, Union dividend”—we are tied to a nation whose public finances are in a mess, unsustainable and in a dreadful state.

Before I come on to the regressive nature of the Government’s proposal, I want to touch on just how far it falls short of the promises that the Prime Minister and others made in order to get elected. They have claimed that they have a plan to reform social care in England. It is obviously not for me to dictate what that plan should be, but if they have one, perhaps the Minister will tell us what changes, if any, there will be in the balance of resources between the NHS and social care. What changes, if any, will there be to the arrangements to manage each individual’s needs as they make the transition from health to social care? What changes, if any, will there be to the balance in the provision of care for the elderly between residential and non-residential? What changes, if any, are planned to the balance of responsibility between the state and the family?

There are no easy or right or wrong answers to any of those questions, but although I do not have the answers, I know that there are questions. The Prime Minister does not. I do not believe the Prime Minister even recognises that any one of those questions must be faced up to before he can claim to have a plan, or even the first hint of a plan, to deal with the position that we have, or some of us have, in social care.

The second major problem is that, even if the crisis in social care in England could be fixed with money alone, this proposal would not deliver anywhere near enough, and most of the “not enough” is not going to social care. A lot of it will go to benefit the families of some care recipients—some, but not all; and guess which some?—leaving precious little to actually improve the service. To claim that anyone voting against this tax hike today is voting against meaningful improvements to social care is simply untrue, and those who are preparing to make those claims on their Twitter accounts know that what they are about to tweet is not true.

I am in favour of increased funding for our health and social care services. If necessary, I will support fair and progressive tax increases to fund them, and I will pay my share of those taxes quite happily. However, I will not support this proposal, because it is not fair and it is not progressive. It discriminates against younger people with average incomes in favour of older people with much higher incomes. It discriminates against people who earn their money through their own hard work in favour of people who earn their money through the simple fact of having had plenty of it to begin with. It discriminates against my constituents in Glenrothes and Central Fife and in favour of those in places such as the Prime Minister's constituency, where, according to the Government’s own statistics, the average income per person is nearly £10,000 a year higher than what my constituents have to get by on.

The Government have claimed—we have heard this in a number of Conservative contributions—that they already know which of the UK’s nations will contribute most to this tax hike, and which will benefit most. They have claimed to have conducted an analysis which shows that it is not regressive in terms of different income groups. Although our SNP amendment was not selected, I expect to see the Government honour the spirit of that amendment, not by the end of the year but by the end of the week. I expect them to publish the analysis that we have asked for—or is this another case of their claiming to have all the information until they are asked for it, when we suddenly discover that it does not exist?

The final substantial objection to the Government's proposal is that it is designed to grab powers away from the democratically elected Governments of three of the partners in this Union, and place them in the hands of a Prime Minister who has no mandate to do this even in England. I have no issue with anyone allocating additional resources to Scotland, but I have a big issue with signing up to a regressive tax hike with no guarantee whatsoever that the Barnett consequentials will not be siphoned off as a result of some later Budget decision. Any guarantees that we get from the Government today will be as worthless as the promises that they made in their manifesto in 2019.

Let me be clear: the SNP will continue to honour its manifesto commitments. Any Barnett consequentials coming to Scotland as a result of increased spending on health or social care in England will be passed on in full to health and social care services in Scotland. But within that overarching guarantee, who do the Government think has the mandate to decide exactly how Scotland’s health and social care funding is allocated? I doubt that there is a single person, even on the Tory Benches, who honestly thinks it is right to assume that, because a particular way of allocating funding might be right in England, it is automatically right in the other three UK nations, where health and social care are organised in a completely different way. There is all the difference in the world between allocating funding to be used in a way that honours the Scottish Government’s manifesto promises, and decisions being foisted on us in a failed attempt to cover up the fact that the British Government do not keep their promises, to the electorate or to anyone else.

If one of the Prime Minister’s heroes had been here today, he might well have observed that never had so many promises been broken in such a short time to the detriment of so many and to the benefit of so few.

--- Later in debate ---

[Steve Barclay]

I have just given way and addressed my right hon. Friend’s points head on. Let me, in turn, address head on the points raised by the shadow Chancellor, the hon. Member for Leeds West (Rachel Reeves).

In the shadow Chancellor’s speech, she said that she opposed the levy despite, as a number of Members pointed out, the previous Labour Government taking a similar approach in 2002-03, because she supports taxing wealth. The problem with that is that only a broad-based tax base, such as income tax, VAT or national insurance contributions, can raise the sums needed for such a significant investment. Again, that was a point made by critics of the Government, including my good friend, my hon. Friend the Member for Wycombe (Mr Baker). It could not be raised by taxes on wealth. Currently £6 billion is raised from inheritance tax, £8.7 billion from capital gains tax and £12.3 billion from property transaction tax. Indeed, that case was demolished by the Chair of the Treasury Committee, my right hon. Friend the Member for Central Devon (Mel Stride), as well as by my hon. Friends the Members for Dudley South (Mike Wood) and for Thirsk and Malton (Kevin Hollinrake), who highlighted that to raise the revenue required requires a broad-based approach.

[Peter Grant]

On the subject of cases being demolished, one of the cases that the right hon. Gentleman’s colleagues have made great deal of play of today is that of the fictional Yusuf in the Government’s own document. According to the Government, Yusuf’s care home costs are £700 a week. They claim that under the current system they would have had to spend £293,000 before they reached the current cap. The Minister will be aware—I hope he can count—that in order to spend £293,000 at £700 a week—

[Madam Deputy Speaker (Dame Rosie Winterton)]

I would like the hon. Gentleman to put his question.

[Peter Grant]

What percentage of people going into a care home have any chance of still being alive in nine years’ time?

[Steve Barclay]

One of the features of the Dilnot proposals—Dilnot has been very frank about this—is that his costs ramp up over time. That is why the initial funding is £5.4 billion, but obviously, the social care element will increase. I will come to the case put forward by SNP Members, who seem bizarrely not to want the Union dividend that is offered and to not be seeking that additional funding. Let me finish on the Opposition amendment—

Covid-19: Government Support

Peter Grant Excerpts

Wednesday 7th July 2021 Westminster Hall

[Peter Grant (Glenrothes) (SNP)]

Thank you, Mr Mundell. I am pleased to sum up for the Scottish National party this evening. I commend my hon. Friend the Member for Midlothian (Owen Thompson) for securing the debate, and, as others have mentioned, for his tenacity in refusing to let the excluded become the forgotten. I commend everyone else who has contributed.

I summed up in a Petitions Committee debate on the same subject in December 2020. Most of what has been said today was said in December 2020. It was ignored then. It cannot continue to be ignored. What did not happen in December 2020 did not happen today either. Nobody has made a fulsome defence of the Government’s action, or inaction. In 2020, eight Conservative MPs spoke. None of them defended the Government. In 2020, we got platitudes and fake sympathy from the Minister who responded. I hope that that is one thing that will not be repeated here tonight.

There is a saying much loved by a certain type of business analyst, which is, “If you fail to plan, you are planning to fail.” That is exactly what the Government did in the 10 years between knowing that a serious potentially lethal viral pandemic was coming and it actually appearing. They planned for the public health implications. There was no planning at all as to what they would do in the almost inevitable situation where significant sections of the economy would have to be shut down to protect public health from the ravages of the virus.

It is safe to say that when the Prime Minister made his famous, or infamous, “Don’t go to the pub” speech, neither he nor the rest of the Government had any idea what they were going to do to protect those in the hospitality sector from the immediate and inevitable collapse of their businesses, or indeed, to help anybody else in any other sector. An indication of how hasty and ill-thought-out the Government’s response was is that one of the mainstays of that support, announced on 11 March 2020 —the business interruption loan scheme—had to be completely rewritten 23 days later.

It would be tempting to assume that that same chaotic, shambolic approach is the reason that so many self-employed people and small business owners got overlooked, but that would be wrong because it was not a mistake. It was not an oversight. It was not an accident. It was absolutely deliberate.

The Chancellor told the House in his 11 March Budget statement last year:

“There are millions of people working hard who are self-employed or in the gig economy. They will need our help too.”—[Official Report, 11 March 2020; Vol. 673, c. 280.]

He knew—the Government knew—that those people did not fit into the packages of support that had already been identified, but he went on to announce that the help they were getting was being allowed to apply for universal credit—a benefit that has been deliberately designed to be not enough to live on for any sustained period.

Let us look at one group of excluded workers: people who were persuaded in the past, by previous Governments, to set up their self-employed business as a limited company with themselves as the only shareholder and themselves as the only director, or perhaps with a close family member as another director. When the Government claimed in May 2020 that they had not had time to work out proper eligibility criteria to apply to that massive group of workers, that was tenuous, two months into the pandemic. It is beyond ludicrous to continue—to keep saying that 16 months in—but that is exactly the excuse the Government are using. The other excuse is that it is too hard to tell the difference between a shareholder of a company who actively works in the company and a shareholder whose only involvement is to take the dividends at the end of the year.

This is not difficult; it is not rocket science. It is easy. If only Governments and Government agencies were as willing to use data-matching technology to help people through a crisis as they are, quite rightly, to use it to catch benefit fraudsters and other crooks fleecing the finances of the public sector. That is all it needs; it needs only the will. If the Minister, as I expect, is going to defend the Government’s inaction, all I ask of him is that he do the excluded the courtesy of admitting to them that the reason the Government are doing nothing is that the Government do not care.

[David Mundell (in the Chair)]

I call the shadow Minister. Again, if you could stick to four minutes, that would be extremely helpful.

Financial Conduct Authority and Blackmore Bond plc

Peter Grant Excerpts

Wednesday 30th June 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP)]

Before we adjourn, I wish to draw the attention of the House to the collapse last year of Blackmore Bond plc and in particular to look at what the Financial Conduct Authority did, what it could have done, and what it failed to do to prevent this.

Blackmore Bond plc was incorporated in July 2016, went into administration in May 2020, and has since gone into liquidation. Between October 2016 and November 2018, it raised £46 million in loans, known as mini-bonds, almost all of it from small-scale individual investors. They were repeatedly told that their investment was guaranteed to be paid back on time with regular interest payments. By the time the joint administrators had disentangled the company’s financial affairs, it was obvious that none of that £46 million was left to repay the bond holders. Their “guaranteed” investment of £46 million had been reduced to nothing.

Obviously, primary responsibility for that must lie with the company’s directors, Phillip Nunn and Patrick McCreesh, who were also the joint owners not only of Blackmore Bond but of about two dozen related companies. I will disclose some information later that may help Members to understand just how culpable I believe those two are. However, whether their conduct is found, in due course, to be criminal, civilly unlawful or just downright despicable, the scandal yet again raises serious questions about the regulatory framework that allowed Nunn and McCreesh to persuade people to put money they could not afford to lose into high-risk investments where losing everything was always a possibility.

In fact, an experienced investment adviser, looking at the promotional material the company sent out, could only conclude that losing everything was not only a possibility but almost inevitable. That is probably why the directors of Blackmore Bond did not approach investment houses or experienced investors; they deliberately targeted people they thought would be an easy touch.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Gentleman mentions the regulatory framework, and I am sure that he will go on to say whether he feels there were also shortcomings from the regulator itself in this case. The FCA’s attention was drawn to the boiler-room tactics of Blackmore Bond and the fact that it was pretty much a Ponzi scheme back in March 2017, yet three years later the company was still operating. It is simply unacceptable that the FCA should have taken that approach and not been more proactive.

[Peter Grant]

For the second time in a few days, the hon. Gentleman has managed to read my notes a couple of paragraphs ahead of me. I am going to come on to that.

My concerns cover not just the Financial Conduct Authority but other regulators, such as Companies House, the Insolvency Service, the Financial Reporting Council and the professional bodies that regulate the audit of limited companies. Of those, only the FCA falls directly under the remit of the Treasury, so that is what I will focus on tonight, but I will continue to apply for debates so that the part played by other regulators can be examined.

[Jim Shannon (Strangford) (DUP)]

Will the hon. Gentleman give way?

[Peter Grant]

I think the sky would fall down if I did not give way to the hon. Gentleman.

[Jim Shannon]

I am sure the sky will not fall down, but I appreciate the hon. Gentleman’s giving way.

Does the hon. Gentleman agree that financial devastations such as the Blackmore Bond scandal have the potential to be avoided if there is proper scrutiny by regulatory authorities, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) referred to? Does he also acknowledge that, often, that work starts with us in this House making legislative change?

[Peter Grant]

The hon. Gentleman is absolutely correct. Ultimately, the regulator is us. If we highlight deficiencies in the system, we must try to get them put right. That is partly why I was so keen to secure this debate.

As the hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned, in March 2017, the Financial Conduct Authority received information from a very reliable, experienced financial services professional that a company called Amyma Ltd was using high-pressure sales techniques to target individuals to persuade them to invest in Blackmore Bond. The source, a Mr Paul Carlier, described in detail what he had seen and heard, and explained exactly why he was convinced that it was illegal. He made a point of sending his concerns directly to the then chief executive of the Financial Conduct Authority, among others. As a mark of gratitude, the FCA wrote back and said that it was aware of the situation and it was being passed on to the appropriate department.

It was the end of 2019 before there was any obvious sign that the FCA had done anything. To be fair to it, when it acted, it did not hold back. It banned outright the sale of mini-bonds to the kinds of investors whom Blackmore Bond had been deliberately targeting. If the FCA had done that earlier, it could have prevented up to £26 million of the losses eventually suffered by Blackmore’s victims.

The FCA has said that the sale of these kinds of investments was an unregulated activity, that Blackmore Bond plc was not registered or approved by the FCA for any regulated activity, and therefore that the whole thing was beyond its scope. That is just not good enough. What the FCA is effectively saying is that it had the legal power to ban the sale of these mini-bonds absolutely but could do nothing to stop one rogue company selling them to one particularly targeted group of vulnerable investors. I simply do not buy that.

While the sale of these high-risk bonds to investors who wanted low-risk investments was allowed to carry on in an unregulated free-for-all, the promotion of those same bonds is a regulated activity. The FCA’s website says that all adverts and promotions for financial services or products

“must be fair, clear and not misleading”.

Blackmore Bond’s promotional materials failed all those tests—something I will return to soon. Again, it took the FCA far too long to do anything, and when it did something, it did not do enough.

The FCA will claim that at some point during 2019, it was able to get Amyma’s website taken down. It seemed less keen to be reminded that in August 2019 Paul Carlier had to tell the FCA that the website was back up again. It may be just coincidental that a few weeks after Blackmore Bond went into administration, the director and sole shareholder of Amyma placed that company into voluntary liquidation, having first reduced the company’s assets from £316,000 to nil in the space of 18 months, meaning that the creditors of Amyma, including Her Majesty’s Revenue and Customs, would not see a penny of the £188,000 they were owed. It appears that Blackmore Bond really can pick its professional and business advisers very carefully.

Coming back to the promotional materials, though, under section 21 of the Financial Services and Markets Act 2000, any financial promotion must either be issued by an FCA-authorised company or have its contents approved by such a company. There are exemptions, but I have no indication whatever that any of those exemptions comes close to applying to Blackmore Bond. So if Blackmore Bond issued financial promotions that had not been approved by an FCA-registered firm, that was an offence under the Financial Services and Markets Act and the FCA should have been dealing with it.

The company issued its mini-bonds in six ways. For each one it issued an “information memorandum”, which appears, as far as I can tell, to have been approved by an FCA-registered firm. But that was not the only marketing it did. My constituent, who has probably lost £40,000, provided me with a copy of a separate document that he received. It is dated 3 October 2016—the same date as the information memorandum for the first series of mini-bonds. The FCA has confirmed to me that it meets its definition of a financial promotion. It was therefore an offence that it was circulated without being approved by an authorised firm, and there is nothing in this document to suggest that it was ever approved by an authorised firm. The FCA is not convinced about that. Its view is that it “cannot categorically say” whether the document was or was not lawful when it was circulated. But if that is the case, surely, knowing what it knows now about the operation of Blackmore Bond, if it “cannot categorically say” that it was not a criminal offence to send it out to potential investors, it should be investigating it.

Then we come on to the requirement for this and any other financial promotion to be fair, clear and not misleading. I am aware of the time, so I can only give a few examples of statements in the document that are either blatantly false or extremely misleading. On page 5 it tells bondholders that their money will be backed by “100% asset-backed security”. Not true; it was never the intention that the bondholders would even be guaranteed first call on all the assets, never mind that there was never a time, after the first series of bonds was issued, when Blackmore Bond plc ever held enough assets to repay the value of the bonds it had sold.

On page 4 it says:

“Blackmore Bond is part of The Blackmore Group”—

that bit is correct—

“a multi-channel investment group with a proven track record.”

The Blackmore Group was only incorporated in February 2016; it cannot possibly have had a proven track record by October 2016. It certainly could not have realised the £22 million in profits and property development that is claimed in the same document.

On page 4 we are told that

“The Blackmore Group”

has

“assets under management of £25 million”.

So how come The Blackmore Group’s accounts for 2016, signed by the directors, tell us that the total value of their assets was £390,000, and that after allowing for creditors and other liabilities, the total value of the Blackmore Group at 2016 was £2,281? How can that have created assets under management of £25 million?

Finally, on page 18, the directors promised:

“There are no fees or charges”—

completely untrue. Page 24 of the information memorandum devotes over half a page to explaining why the company will have to pay fees. They say that they will pay fees essentially for the marketing of bonds and for investor relations, and that those fees will not exceed 20% of total bond value. They then entered into an agreement with Surge Financial Services Ltd—a company well known to those who have an interest in financial misdealings—that they would pay it exactly 20% of the total bond value.

What the directors forgot to mention in any promotional literature was that they were also going to pay themselves a management fee. During 2017, the directors of Blackmore Bond plc chose to pay £1.4 million of management fees to the Blackmore Group Ltd, of which they again were the sole shareholders, the sole directors and the sole beneficiaries. Why did they choose to conceal that information from this document, and from the information memorandum that was sent out to persuade people to buy their bonds? Effectively, the directors were making sure that their cut was cleaned out of Blackmore Bond plc’s accounts as soon as—sometimes before—it hit the bank account, so that whatever happened to that company, their money would be saved and the poor investors would be left with nothing.

Blackmore Group does not of course have to publish a profit and loss account, and even the very sketchy financial statements it does publish are not audited, so it is anyone’s guess what Mr McCreesh and Mr Nunn did with that £1.4 million, and that, as I say, was only up to December 2017.

During my investigations into this affair, I received a copy of a chain of emails between one bondholder and Patrick McCreesh, who, as I say, with Phillip Nunn, owns and runs the entire operation. The bondholder is not a constituent of mine. He was happy for me to quote at length from his emails. He is happy for me to give his full name, but I have chosen not to identify him entirely, but his name is John—and it genuinely is John.

John’s investment was with another Blackmore company, Blackmore Estates Ltd. The bond was due to be repaid in January 2020, but by March 2019 John had got worried, because he had not heard anything from Blackmore Estates for a while, and he wanted to know what had happened to his money. Patrick McCreesh advised him that Blackmore Estates was now part of Blackmore Bond plc, and set out to persuade him not to claim back the investment he was legally entitled to in January 2020, but to reinvest it in Blackmore Bond plc.

There were numerous email exchanges, but by 16 August John was really getting worried because his online account with Blackmore did not seem to show anything. There was no indication whether he had any money left at all. He then wrote:

“Patrick, I have entrusted you with my military retirement fund, my only savings. Unlike others I cannot afford to live without this money. You have had my investment since 2015 and I am yet to receive a single penny back. If things are going downhill why would you call me personally and persuade me to re-invest only a few months ago?”

That referred to a telephone conversation they had in about April 2019.

Three times further to that between August 2019 and January 2020 John reminded Patrick McCreesh in the most poignant terms that this was all he had. It was a pension he had got by serving with distinction in Her Majesty’s forces. Patrick McCreesh knew that John could not afford to lose the money, yet he deliberately set out to entice him to leave the money with McCreesh, and not to take back the money he was entitled to, but to put it into a company that by the summer of 2019 Patrick McCreesh and Phillip Nunn knew had no future. They had not published audited accounts for some time, but they had prepared draft accounts that showed that, in the first two years of its existence, one third of the bondholders’ entire money had disappeared. By July 2019, Nunn and McCreesh knew the business was dying. McCreesh still went out and deliberately targeted this poor gentleman to fleece him of what McCreesh knew was all he had.

As I say, I have pages and pages from the email exchanges between John and Patrick McCreesh in relation to, as I said earlier, whether the conduct was criminal, civilly unlawful or simply despicable. I am happy to share the remnants of my speech with anyone who wants to look at it. It makes it perfectly clear of the behaviour certainly of one of those two directors that to describe it as despicable would be excessively charitable to Mr McCreesh, and I have no indication that Mr Nunn would have been any better.

John will not ever get his military pension back, and there are 3,000 other Johns out there. They were all taken in by two individuals with a track record of dodgy financial dealing, but who are still free to go and set themselves up as directors of a different company and start all over again. That will not be by selling or mis-selling mini-bonds to people like John, because that is now illegal, but they will find another way. Until the Financial Conduct Authority and other regulators scare them out of the way, there will be another generation of Johns, and in 50 years from now or 100 years from now, our successors will be in the successor to this Parliament bemoaning the fact that billions of pounds have been taken out of the pockets of hard-working people and used to fund a luxury lifestyle for charlatans, crooks and conmen.

The Financial Conduct Authority was not the most culpable party in this. Nunn and McCreesh were, and they have to be called to account somehow. The Financial Conduct Authority was not the only regulator that failed because it did not have the powers, failed because it did not use the powers or possibly failed because it did not have the resources to deal with the amount of financial misdealing that is going on just now. But one way or another, for the sake of the next generation of Johns, the Financial Conduct Authority and the other regulators have to get their act together, and they have to do it quickly.

[The Economic Secretary to the Treasury (John Glen)]

I congratulate the hon. Member for Glenrothes (Peter Grant) on securing this debate. I also pay tribute to the hon. Member for Strangford (Jim Shannon) and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) for their contributions. I extend my sympathies to the Blackmore Bond investors. The hon. Member for Glenrothes set out the distress that has been caused to those many individuals, some of whom are his constituents. I am painfully aware of their very challenging situation through my own conversations and correspondence, and this evening we have heard more of those troubling accounts. Given these difficult circumstances, it is only right that I explain the reasoning behind the Government’s course of action and some of the decisions that we have made so far. I will also touch on the conduct of the FCA, the independent regulator.

Let me first remind the House of the background to this situation. As Members will be aware, Blackmore Bond was an unregulated firm established in 2016. Between 2016 and 2018, it issued non-transferable debt securities, otherwise known as mini-bonds, to retail investors. It raised £46 million, involving approximately 2,800 UK investors, to be used in property development projects. Blackmore stopped making coupon payments in 2019 and administrators were appointed on 22 April last year.

The orientation of most of the hon. Gentleman’s remarks was about the failures of the FCA, but I want to try to address some of his other specific points. He asked about the way that Blackmore hid behind other regulated firms such as Amyma. It is true that although several other firms were involved in the distribution of Blackmore bonds, some of which were authorised by the FCA, the Blackmore bond itself was not regulated. Amyma was not directly authorised by the FCA. It was an appointed representative of another authorised firm, Equity For Growth (Securities) Ltd, between July 2018 and September 2019, when its status was terminated. The FCA intervened to take down Amyma’s website following further investigation. Similarly, as a result of steps taken by the FCA, Northern Provident Investments, an FCA-authorised firm, withdrew its approval of Blackmore’s promotional materials, meaning that its bonds could no longer be marketed. This is clearly a very complex area, but ultimately the FCA cannot be said to have the same set of responsibilities towards unauthorised firms engaged in unregulated activities.

[Peter Grant]

The Minister gave the same dates on Amyma as me—between 2018 and 2019. Did it not strike him, as it struck me, that Amyma was an appointed representative of another company, but the concerns about it arose in 2017, before it appeared to be an appointed representative of anybody? Does he not agree that there is something to be looked at there and that the Financial Conduct Authority should be asking questions about it?

[John Glen]

I have set out the record as the FCA has presented it. I am sure that the hon. Gentleman will wish to continue correspondence with the FCA on some of those unresolved matters. However, I do make the distinction between the different responsibilities that the FCA has with regard to the different actors in this case.

It is only right that we do our utmost to minimise the chance of episodes like Blackmore Bond taking place in future, so I want to turn to the regulation of mini-bonds and the steps we are taking to safeguard consumers, which was a key focus of the hon. Gentleman’s remarks. I want to be clear to the House that the Government are committed to ensuring that the financial services sector is well regulated and consumers are adequately protected. That is why in April we launched a consultation that includes proposals to bring the issuance of mini-bonds into regulation. This follows the action taken by the FCA to ban the promotion of high-risk mini-bonds. This work is the culmination of a review into the regulation of mini-bonds that I announced in May 2019, and it delivers on one of the recommendations of Dame Elizabeth Gloster’s recent report. The consultation closes next month, in July, after which the Government hope to bring forward plans to legislate in the autumn.

The hon. Member for Glenrothes also referred to the financial promotions regime, and I think that underlying that was a concern about what the Government are doing to improve the efficacy of the regime. We continue to keep the legislative framework underpinning the regulation of financial promotions under review, including whether it is suitable for the digital age. The Government have set out our intention to bring forward legislation to create a regulatory gateway for authorised firms approving the promotion of unauthorised firms. That change is designed to strengthen the regime by ensuring that the firms able to approve financial promotions are limited to those with the relevant expertise to do so. The FCA will be able to better identify when a financial promotion has breached the restriction and take action accordingly.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)

Peter Grant Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

[Peter Grant (Glenrothes) (SNP)]

[Gareth Thomas]

[Peter Grant]

[Gareth Thomas]

[John Glen]

[Peter Grant]

[John Glen]

--- Later in debate ---

[Mr McFadden]

[Peter Grant]

[Mr McFadden]

--- Later in debate ---

[Mr McFadden]

[Peter Grant]

[Gareth Thomas]

--- Later in debate ---

[The Chair]

[Peter Grant]

[John Glen]

--- Later in debate ---

The Government have a duty to make sure that not-for-profit operators and other legitimate, law-abiding companies and mutuals, as my hon. Friend the Member for Harrow West has said, are not unfairly affected or carrying the burden of responding to the need to pay out compensation for scams. The savers and pensioners who have invested in that way should not be forced to pay higher charges as a result. I appreciate the pressure on time and hope that the Government will consider the amendment in great detail.

[Peter Grant]

[The Chair]

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

[Peter Grant]

[Guy Opperman]