Counter-Terrorist Asset-Freezing Regime

Sajid Javid Excerpts

Tuesday 28th January 2014 Written Statements

[The Financial Secretary to the Treasury (Sajid Javid)]

My noble Friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Under the Terrorist Asset-Freezing etc. Act 2010 (“TAFA 2010”), the Treasury is required to report to Parliament, quarterly, on its operation of the UK’s asset-freezing regime mandated by UN Security Council Resolution 1373.

This is the 12th report under the Act and it covers the period from 1 October 2013 to 31 December 2013. This report also covers the UK implementation of the UN al-Qaeda asset-freezing regime and the operation of the EU asset-freezing regime in the UK under EU regulation (EC) 2580/2001 which implements UNSCR 1373 against external terrorist threats to the EU. Under the UN al-Qaeda asset-freezing regime, the UN has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under the Al-Qaeda (Asset-freezing) Regulations 2011. Under EU Regulation 2580/2001, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

Annexes A and B to this statement provide a breakdown, by name, of all those designated by the UK and the EU in pursuance of UN Security Council Resolution 1373.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 31 December 2013:

ECOFIN

Sajid Javid Excerpts

Tuesday 28th January 2014 Written Statements

[The Financial Secretary to the Treasury (Sajid Javid)]

A meeting of the Economic and Financial Affairs Council will be held in Brussels on 28 January 2014. The following items are on the agenda to be discussed.

Current legislative proposals

The presidency will provide information on the ongoing work on financial services dossiers.

Implementation of the Single Supervisory Mechanism

The European Central Bank (ECB) will provide an update on the state of play of the implementation of the single supervisory mechanism (SSM). The establishment of the SSM will help to safeguard euro area financial stability and is critical to restoring market confidence over the medium-term.

Presentation of the Presidency work programme

The Greek presidency will present its six-month work programme for ECOFIN. The main themes of the presidency are: growth, jobs and cohesion; further EU/eurozone integration; migration, borders and mobility; and maritime policy.

Follow-up to the European Council meeting on 19-20 December 2013

Council will hold an exchange of views on the December 2013 European Council conclusions regarding the implementation of the compact for growth and jobs. The UK supports the objectives of the compact to promote growth and competitiveness and tackle unemployment.

Implementation of the Stability and Growth Pact

Council will be asked to endorse a draft Council decision on the existence of an excessive deficit in Croatia and a draft Council recommendation to put an end to the present excessive deficit situation.

Rothschild Bank and Mortgage Equity Release (Spain)

Sajid Javid Excerpts

Wednesday 22nd January 2014 Westminster Hall

[The Financial Secretary to the Treasury (Sajid Javid)]

I welcome you to the Chair, Mr Turner. It is always a pleasure to serve under your chairmanship. I thank the hon. Member for Ogmore (Huw Irranca-Davies) for making a powerful case on behalf of his constituents. I assure him that I have listened very carefully.

Some of us will have constituents affected by these products who now face an uncertain financial future instead of the comfortable retirement they thought they had earned. As the hon. Gentleman said, the equity release products in question were sold to some UK pensioners resident in Spain. It seems that they were sold by independent financial advisers operating in Spain who suggested that they release equity from their houses and invest the loan in a fund, often claiming that that would have inheritance tax benefits. The products were then provided by a variety of banks, mainly based in Scandinavia, but including Rothschild bank.

With the onset of the financial crisis, those investments did not perform, so many of the investors breached the terms of the loan they were given. That has left many expats in Spain, including those from the UK, with significant financial losses. Some of the banks involved, many of which were facing their own financial difficulties, have sought to repossess the properties on which the loans were secured. That has left some pensioners facing not only large losses, but the threat of repossession, which is a stark contrast with the comfortable retirement they had planned.

Of course, I am sympathetic to the difficulties that these people are facing. Many of them have lost a great deal, but I am afraid that the Government’s ability to act in this case is limited. The products were not sold in the UK or by UK companies and the loans were not secured against properties located in this country, so the UK authorities do not have any jurisdiction over that activity.

What I have said will be frustrating for the individuals involved, but the same rules allow our own regulators to protect our domestic consumers from foreign banks operating here in the UK. I realise that some banks in Europe were involved in providing the products sold by independent financial advisers in Spain. The hon. Gentleman highlighted Rothschild bank specifically. It has strong historic connections with the UK.

I have looked into the matter further, and I understand that Rothschild sold around 130 of the products between 2005 and 2008. However, that activity was carried out by its Guernsey-based entity and, as the hon. Gentleman knows, the Channel Islands do not come under the jurisdiction of the UK Government or UK regulators. The Guernsey regulator may have some jurisdiction over the design and distribution of the product, but that is not for the UK authorities to establish. I understand that some of those who have lost out have taken the case up with the Spanish authorities, and that may be an appropriate option for them.

I am sorry to report that the UK Government have limited influence over this case. I understand that Rothschild has provided affected customers with some flexibility. For example, it is my understanding that it is not repossessing the properties of those that have been affected. That, of course, is welcome. As I said, the UK authorities do not have any jurisdiction over this activity. However, I appreciate that Rothschild has major operations in the UK, so I am happy to write to it to pass on some of the concerns that the hon. Gentleman has raised. I will also raise the matter with my counterparts in Spain and Guernsey to bring it to their attention. I will be more than happy to meet the hon. Gentleman and his constituents if he would find that useful.

The hon. Gentleman may be interested to know that the UK ambassador to Spain wrote to the Spanish regulator about this issue in 2012. Following that exchange, the Foreign Office published advice for people considering taking out equity release products in Spain. It highlighted the importance of checking that the company offering the mortgage is registered with the Spanish financial regulator, known as the CNMV. The publication explains that consumers unhappy with the product should first complain to the company responsible and that, if they are still dissatisfied, they can complain to the Spanish financial regulator.

In a broader context, my hon. Friend the Member for South Derbyshire (Heather Wheeler) gave sensible advice for people who are thinking of taking out similar equity release products in the UK.

In summary, I fully understand and support the hon. Gentleman’s concerns for his constituents affected by these products.

[Huw Irranca-Davies]

I thank the Minister for a very positive, full and helpful response. He may not be able to answer this question now, but does he think that there is any scope within European legislation or elsewhere to avoid this situation happening in the future? In this situation, a UK-based company that has a subsidiary in Guernsey operates in Spain, and people assume that it is applying the same ethical and moral standards elsewhere. Let us lift the debate above Rothschild for a moment. Any company doing what has been described could, within the European Union, be brought to book in one way or the other. Does the Minister think that there is something there that we should be exploring?

[Sajid Javid]

When I first looked into the issue, I thought about that. Unfortunately, I do not think that there is such an avenue through European Union institutions. I am happy to explore the matter further; perhaps when we meet, I can give the hon. Gentleman more information. He may be interested to know that there is currently a mortgage market directive. It is in its final stages in the European Union, but I think that I am right in saying that it does not include equity release products. Obviously, it would not have helped the hon. Gentleman’s constituents anyway; it is for the future.

I am happy to raise the issue with people in the way I have explained to the hon. Gentleman and I thank him again for bringing up this case. I will be happy to report back to him.

[Huw Irranca-Davies]

The few minutes remaining provide an opportunity to get more issues on the record. The Minister may be interested in responding to some other people who have written to me subsequently, when they learned of the debate. One of them wrote:

“When my wife and I met Mr Dewsnip”—

who came up earlier in the debate—

“at one of his public presentations and had a private chat with him after the main event, he most certainly did advise us as to the suitability of the investment fund and assured us that Rothschild would be working on a daily basis with the fund managers to ensure that it was meeting expectations and performing as expected.”

I could cite other examples that imply an intimate, daily, minute-by-minute relationship, but I have yet to discover whether that also means that Rothschild or anyone who worked for Rothschild was financially benefiting from it. That would be interesting and it may figure in a subsequent meeting that I have with Rothschild.

[Sajid Javid]

The hon. Gentleman is right to ask such questions and to raise them in any meeting that he may have with Rothschild and with the relevant regulators for the entities that we have discussed today. I will report back to the hon. Gentleman in due course. I thank him again for raising this important issue.

Question put and agreed to.

Money Transfer Accounts and Remittance Sector

Sajid Javid Excerpts

Wednesday 22nd January 2014 Westminster Hall

[The Financial Secretary to the Treasury (Sajid Javid)]

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

I congratulate the hon. Member for Cardiff West (Kevin Brennan) on securing this important debate. I listened carefully to him and to all other hon. Members who spoke. They set out a well-argued case and made their points well.

Remittances play a vital role in supporting the people and economies of countries throughout the world. As we have heard, they are a financial lifeline for the families of Somalis, Pakistanis, Poles and other diaspora groups that are living here in the UK. A healthy and functioning remittance sector is crucial for thousands of our constituents up and down the country. We heard from the hon. Member for Bethnal Green and Bow (Rushanara Ali) about her personal experience, and she referred to comments that I have made about my own personal experience. My parents came to this country from Pakistan. They have many loved ones still living there who rely on remittances. I have seen what it is like if sometimes those remittances are missed or not received—it can make a real difference to day-to-day living standards—so I am grateful to Members who have shared personal stories, or told stories on behalf of their constituents, and their contributions show just how important a topic this is.

The UK is a global leader in the fight against money laundering and terrorist financing. Our banks and regulators have a vital responsibility to ensure that there is not inadvertent financing of criminal activities that could pose real risks to British citizens, as well as to national and international security. The Government are proud of our international role on this issue—we are setting the agenda. The Prime Minister received wide international recognition for his role in driving forward that agenda during our presidency of the G8 last year.

The right approach to tackling money laundering and terrorist financing should support a healthy and growing money transfer sector, rather than stifling legitimate money flows or financially excluding honest customers. I assure hon. Members again that the Government are committed to achieving that approach, and I shall set out the steps that we are continuing to take as we work closely with the private sector to facilitate a sustainable, market-based solution to what I accept is a real challenge.

The context for the debate is the trend in recent years for banks in many countries to withdraw accounts from money service businesses in response to perceived risks, and to reputational and regulatory concerns. That is important, because access to banking facilities makes remittances quick and transparent, and keeps costs low. We need to be clear that neither the Government nor regulators can compel banks to offer an account to any customer. Such a decision taken by a bank is private and commercial, and in accordance with their risk appetite and compliance with legal and regulatory requirements. The Government cannot intervene in banks’ day-to-day decisions. I was asked about the publicly owned banks in the UK, and the same applies to them: the Government cannot intervene in their commercial decisions or prevent—

[Rushanara Ali]

The question is about not the Government forcing banks to act in a certain way, but whether discussions have taken place to encourage banks to look at a solution so that they can play an active role. In the session that the Minister hosted last year, the chief executive of one bank was receptive to such dialogue. It is about working with them to find out whether there is a way forward, rather than telling them what to do. Some more enlightened individuals—board members—in the banking sector are worried about the impact of this situation and the damage it does to their banks’ reputations, and they are keen to explore this issue.

[Sajid Javid]

The hon. Lady makes a good point. Banks should be concerned about the reputational impact that could arise as a result of their decisions. I confirm that the Treasury, the British Bankers Association and other representatives of the banking industry have discussed the issue. We are engaged with all banks, including state-owned banks. I stress that what a bank does, or does not do, is ultimately a commercial decision for it to take.

[Stephen Doughty]

I say gently that the idea that the Government do not get involved in directly suggesting what banks do and do not offer is a little bit away from the point. For example, the Government work closely with banks, through Help to Buy and other schemes, on what commercial products they offer and how they provide them to serve the public. I wonder, perhaps philosophically, why this matter is being treated slightly differently.

[Sajid Javid]

The hon. Gentleman will know that the state-owned banks came about by accident rather than design, and the Government’s overriding purpose now is to return those banks to the private sector, with the best interests of shareholders paramount. With regard to Government involvement in the banking sector, he mentioned the Help to Buy scheme. That is a good example of a scheme that is designed to work through incentives. No bank is compelled to take part in that scheme or similar ones, such as the funding for lending scheme, which work through incentives. It is important to consider what the Government can do to make it easier for banks to stay in the MSB sector or to get more active in it. That is the right area to explore to help our constituents.

The Government cannot prevent UK banks from facing supervisory and enforcement action from other jurisdictions. Hon. Members know that this is not just about rules in the UK, because European Union rules, and especially rules in the US, affect many money transfer businesses, because most transfers typically have to be converted into US dollars and therefore touch US soil. What the US authorities think is therefore important.

We are committed to doing our utmost to ensure that remittances continue to flow through secure, legitimate channels. The market is adapting, and remittances are continuing to flow into and out of the UK. Particular concerns have been raised regarding Somalia, as we have heard today. That market, too, is adapting and remittance channels remain open. The supervisors and the Government have been monitoring the situation carefully. We know that all MSBs operating in the Somali corridor prior to the decision by Barclays continue to do so, with a number still having bank accounts. Although individual MSBs may be finding trading conditions more difficult, remitters can still service a wide range of customers in the UK and different areas in Somalia. Additionally, many MSBs across a range of corridors are becoming agents of other MSBs, and discussions have been held with various MSB communities on using cash couriers in a manner that is secure and compliant with legal requirements for the cross-border movement of cash.

We must ensure that our constituents are aware of the options available to help them to continue to make remittances. Since the previous debate on the matter in this Chamber, the Government have engaged directly with the Somali community on these options.

Since the previous time I addressed hon. Members on this issue, I have made a written ministerial statement setting out the cross-government effort to find solutions, which included an action plan to secure the continued flow of remittances. The plan includes steps to improve trust in the UK remittance market by the formal banking sector, for example, through building the capacity of money service businesses and providing guidance on the banking of such businesses. It also outlined the creation of an independent action group on cross-border remittances. Through this group, officials from across the Government are working closely with regulators and the private sector to facilitate a sustainable market-based solution. The first full meeting of the group is scheduled to take place next Friday—31 January. I am pleased to announce today that Sir Brian Pomeroy will chair the group. Sir Brian has extensive experience in this field, as the founding chairman of the Payments Council and the previous chair of the Treasury’s financial inclusion taskforce, and through his work with the Alliance for Financial Inclusion.

[John McDonnell]

Fauzia Adan, a former constituent of mine, is now Deputy Prime Minister and Foreign Affairs Minister of Somalia. I am not sure whether there has been full dialogue with the Somalia Government regarding their representation on this group. Has a representative been nominated?

[Sajid Javid]

I cannot tell the hon. Gentleman specifically whether a representative was nominated or if there will be one in the group, but I can certainly look into that and get back to him. I can confirm that we are working with the Somalia Government, through the Foreign and Commonwealth Office, on this issue overall.

The Somalia-focused working group may be of particular interest to many hon. Members in the Chamber. The group has been tasked with developing a safer corridor pilot to ensure secure remittance channels to Somalia. The group will work with the World Bank, which will provide technical expertise, and the pilot will aim to improve the security, transparency and oversight of this existing remittance channel. The Department for International Development has held consultations to identify appropriate representatives for the working group on the safe corridor. International partners, including the World Bank, the G20 and the international strategic alliance on law enforcement, are also supporting this work.

The group working on the pilot has agreed its final terms of reference, through consultation with stakeholders, and these will be presented to the action group next week. The Somalia-focused group, working with its partners, including the World Bank and others, believes that there is a one-year implementation for the pilot project.

Before I conclude, I want to make sure that I have answered questions raised by hon. Members, if I have not answered them already. The hon. Member for Cardiff West asked about international engagement. I hope that I have given him some insight into that, regarding our working with the G20, the World Bank and other international partners. We are also working through the EU. The hon. Gentleman knows that a payment services directive exists, but a second payment services directive is being negotiated with EU partners. We have taken a strong interest in that to ensure that whatever comes out of it does not make this situation any more difficult, but helps to improve it by encouraging the development of rules to deal with money laundering and our other natural concerns that are proportionate and do not make the situation difficult for banks throughout the EU. We have to keep in mind that Britain has, I think, more money service businesses than any other European country, so that is another important aspect of our international engagement.

Several hon. Members asked how well Government co-ordination is working. We have a steering group at Government level, of which the Treasury is part, which meets every single week. As well as the Treasury, the group involves the Cabinet Office, the Foreign and Commonwealth Office, the National Crime Agency, which provides information from our intelligence agencies that we think might help, Her Majesty’s Revenue and Customs, the Financial Conduct Authority and the Department for International Development. The Treasury is a core part of that group, which has proved important in ensuring that we stay on top of the issue and treat it with the urgency that it deserves.

[Rushanara Ali]

I thank the Minister for his answers, but I have a couple of further questions. First, are there likely to be any impact assessments on cash couriers? Will the group’s terms of reference include what it would mean if cash couriers were going into those countries? What should Somali and other remitters expect? Secondly, will the terms of reference be published? Will there be opportunities for people in the community and the various sectors, and for the NGO community and Opposition Members, to feed in their suggestions?

--- Later in debate ---

[Sajid Javid]

First, we believe that cash couriers, if structured properly, can play a sensible and legitimate role in expanding provision for MSBs. That can work if it is done in a certain way. The action group is working to produce more guidance on how we think that can work, with the aim of making the banks more comfortable. That is why it is important to discuss the matter around the table with regulators and NGOs, which are also part of the action group. That is important not just in the context of cash couriers, but more generally.

My understanding is that the terms of reference will be published, but I will look into that further and get back to the hon. Lady with a more specific answer. My only slight hesitation is that some aspects of the discussion will be confidential and sensitive, especially those relating to money laundering and the financing of terrorists. I hope that she understands that some information will not be put in the public domain because it would not be practical or sensible to do so. Although I am keen to ensure an ongoing flow of information from the action group so that our constituents may stay updated, I do not suggest that the action group will share all the information that is put before it, or all the work that is going on at a Government level.

[Kevin Brennan]

Although the Minister is not able to order anyone to do anything, I asked him whether he agreed that Barclays ought to consider reopening the bank accounts of businesses such as the one in my constituency that were closed following our debate in July 2013, so that while the court case is being considered, those businesses may get on with the business that they have carried out legally, lawfully and without problem for many years? It would be helpful if the Minister were able to say that he feels that Barclays ought at least to consider doing that, even though I completely accept that he is not in a position to order it to do so.

[Sajid Javid]

I thank the hon. Gentleman for reminding me of his question. I understand why he raises that matter, and there are two parts to my answer. First, there is a legal dispute, and I do not think it is sensible for any Minister to give an opinion on any matter that is before our courts, which would not be helpful to either party in the dispute. Secondly—this links to my earlier point—Barclays has to make its own decisions. Barclays is a commercial organisation. It has to assess the risks of doing business as well as, as the hon. Member for Bethnal Green and Bow pointed out, the potential impact of its commercial decisions on its own reputation. I will ensure that Barclays receives the report of our proceedings so that it may have an opportunity to reflect on the words of not just the hon. Gentleman, but all hon. Members who have participated in the debate.

[Stephen Doughty]

With your indulgence, Mr Owen, I have three brief points for the Minister to respond to. First, on the time scales and the window of opportunity that we have, will he assure us that there will be key milestones by which certain aspects of the process will have been concluded? Secondly, will the action group report back to the wider community that has an interest after the meeting on 31 January, because one concern is that there has not necessarily been as much feedback and information sharing as possible with the community? Finally, at what level is the weekly group meeting? Is it at the level of directors, heads of team or Ministers? Who is involved in that group?

[Sajid Javid]

First, we all share the sense of urgency on the time scales, which is apparent from all hon. Members who have spoken today and from the Prime Minister’s communication that the hon. Gentleman read out. Naturally, it is always helpful to set targets—I referred to the target that the Somali focus group pilot would be up and running within a year—but we also have to respect that there is no advantage in setting an artificial target and saying that something should be done in six months or a year. This complex issue requires a degree of international involvement and co-ordination, so the most important thing is to ensure that we do the work urgently, but in a way that brings a long-lasting solution. While I share his sense of urgency, I hope that he respects that answer.

In answer to the second question, we will share as much information as possible with all members of the public, although of course the matter is of particular interest to certain communities in the UK. I have had meetings, for example, with representatives of the Somali community, as have a number of officials in the Treasury, DFID, the FCO and other Departments, and we will continue to have those meetings and to share as much information as possible.

Broadly speaking, the weekly meetings involve officials from all Departments, but the hon. Gentleman’s question was more specifically about the level of those officials, and I will have to find that out because I am not sure whether it is always the same officials involved and always people at the same level. Clearly there will be some commonality when the meetings take place, but I can find out more detail and share it with him.

[Kevin Brennan]

I shall intervene to allow the Minister to receive his in-flight refuelling, because we would like to know what it says.

[Sajid Javid]

I have just had a moment of inspiration, so I can share with hon. Members that the weekly meetings are between the heads of the teams in each Department, which will hopefully reassure the hon. Member for Cardiff South and Penarth (Stephen Doughty).

I hope it is clear that the Government share the concern of all hon. Members who have spoken today, and I speak from my personal perspective of understanding the importance of the remittance sector, as well as in my role as Financial Secretary. We will stay on top of the issue, engage and share as much information as we can. I congratulate the hon. Member for Cardiff West on instigating the debate, which has been a welcome opportunity for us all to share more information.

Equitable Life Payment Scheme

Sajid Javid Excerpts

Wednesday 22nd January 2014 Written Statements

[The Financial Secretary to the Treasury (Sajid Javid)]

As of 31 December 2013 the Equitable Life payment scheme has made payments totalling £816 million to 717,600 policyholders. The scheme has also published a further progress report, which can be found at: http://equitablelifepaymentscheme.independent.gov.uk/

Over the coming months the scheme will continue to make payments and any policyholders who have not been contacted should call the scheme directly on 0300 0200 150 to check their eligibility for a payment. To support this, the scheme has implemented a new system in their call centre which allows most policyholders to verify their identity on the telephone and thus receive any payment due more quickly, usually within two weeks.

The scheme remains committed to locating as many of the remaining policyholders as possible before it closes in 2015. In addition to the recent advertising campaign which resulted in around 20,000 people calling the scheme, the scheme has also identified enhanced methods of policyholder tracing. It is anticipated that these new approaches will result in thousands more policyholders who have not already identified themselves to the scheme being paid.

Debt Advice (FCA Levy)

Sajid Javid Excerpts

Tuesday 21st January 2014 Westminster Hall

[The Financial Secretary to the Treasury (Sajid Javid)]

I welcome you to the Chair, Mr Hollobone; it is always a pleasure to serve under your chairmanship. I congratulate my hon. Friends the Members for Worcester (Mr Walker) and for East Hampshire (Damian Hinds) on securing the debate. I listened carefully to them and the other hon. Members who contributed, and I thank all hon. Members for their contributions. I think that I am right in saying that each of them contributed to yesterday’s important debate on the payday lending sector in general. Once again, they shared thoughtful and well-balanced comments.

The Government believe that consumers should have access to free, independent money and debt advice. The Money Advice Service has the important job of ensuring that consumers get that advice. The Government want to empower consumers to manage their money well and to make responsible financial decisions, which is where MAS’s money advice role comes in. However, as we have heard, for consumers facing difficulties with debts, the first step in getting those debts under control is debt advice, and MAS also has a role to play in that regard. Money advice can help consumers to keep on top of their finances and stop them getting into problems in the first place.

Let me say something about payday lending generally, because it is connected to consumer detriment issues, which we heard about both yesterday and today. As well as giving MAS responsibility for ensuring that consumers have access to debt advice, the Government are tackling the root causes of spiralling debt. We are fundamentally reforming the regulatory system that governs lenders and we are, in particular, clamping down on payday lenders.

The Financial Conduct Authority takes on its consumer credit responsibilities from the Office of Fair Trading in April. The FCA will have far stronger powers over lenders than the OFT has, and it will be more nimble, meaning it is able to keep pace with a fast-moving market. The FCA is already flexing its regulatory muscle in advance of taking on regulatory responsibility for high street lenders. It plans to cap roll-overs, hold payday lenders to account on affordability assessments, curb the misuse of continuous payment authorities, and mandate risk warnings on payday lending adverts that signpost borrowers to the advice and help that MAS can provide.

The Government have taken decisive action to tackle the harm caused by the cost of payday loans. In the Financial Services (Banking Reform) Act 2013, we gave the FCA a clear mandate and duty to put a cap on the cost of payday loans by the beginning of 2015. This is not just an interest rate cap, but a cap on all fees and charges associated with a payday loan including, of course, default charges and roll-overs.

As we have heard—I agree with hon. Members about this—the provision of debt advice is vital. Free debt advice is currently funded by a levy on financial services lenders, which stand to benefit from advice that helps borrowers to get back on their feet and in control of their borrowing again. Once the responsibility for consumer credit transfers to the FCA, it is absolutely right that the levy begins to apply to consumer credit firms including, of course, payday lenders.

I welcome the focus of my hon. Friend the Member for Worcester and the Business, Innovation and Skills Committee on this issue. We all agree that payday lenders must pay their fair share towards the provision of advice. However, although I listened carefully to points made by my hon. Friend and other hon. Members, I am not yet persuaded that the levy collected from payday lenders should be ring-fenced for debt advice only and used to top up funding for front-line debt advice, and I shall now explain why.

We should not consider debt advice separately from money advice. The two go hand in hand to help consumers to get back in control and to give them budgeting skills and financial awareness to help them to stay out of problem debt, which is crucial, as my hon. Friend the Member for Gosport (Caroline Dinenage)said. We also should not forget that money advice can be vital in helping those on the brink of taking out a payday loan. It can help them to understand what they are getting into, how to borrow responsibly, how to find out whether there are better and cheaper options available, and whether they should be turning to payday loans at all. As money advice could help to stop people from getting into trouble with payday loans in the first place, it is right that payday lenders contribute to funding free money advice and debt advice services. The Money Advice Service has a statutory objective to provide money advice and debt advice.

[Ann McKechin]

I have listened carefully to what the Minister has said about money advice. The Money Advice Service primarily uses a website to provide access to money advice. In Glasgow, less than 30% of those on the lowest incomes have broadband access in their house, so the people who need advice the most are the least able to access it. It is not just about giving money advice; it is about how that is delivered. I have to say that, in my experience, it is poorly delivered.

[Sajid Javid]

I listened carefully to what the hon. Lady said, and others have also made that point. When I visited MAS’s office in London last week, I looked much more closely at how it provides money advice. The hon. Lady is right to say that it relies considerably on a website, but it is more than just a website—there are individuals involved. I listened to a lengthy recorded call that was an example of how people who wanted money advice before entering into a financial transaction could be guided through the process. I saw for myself how that was adding value. Although that was obviously a phone call and not face-to-face advice, it was more than just web advice. The hon. Lady highlights the importance of MAS continuing to consider how it can continue to improve its service and ensure that it is providing appropriate advice.

[Justin Tomlinson]

There are a couple of problems. The MAS website is a poor man’s version of Money Saving Expert and it spends a fortune on self-promotion and advertising for its inferior product. The reality is that the financial world is changing, with direct debits and standing orders, and there has never been a greater need for face-to-face help for those who have become overwhelmed by difficulty.

[Sajid Javid]

I agree with my hon. Friend about face-to-face advice, including debt advice. All the debt advice that MAS provides through its partners is face-to-face debt advice. More than 158,000 face-to-face sessions took place in the last financial year, whereas 150,000 had been planned for, which shows that face-to-face debt advice is crucial. I agree with many comments made by colleagues, including the hon. Member for Makerfield (Yvonne Fovargue), about the importance of face-to-face advice.

[Paul Blomfield]

I am a little bit concerned by how the Minister is counterpoising money advice and debt advice. I think that all hon. Members in the Chamber would agree that money advice is important, although there are questions about how MAS delivers it, but that does not overshadow the need for effective debt advice. Given all the contributions that have been made and all the evidence there is, does he agree that the demand for debt advice is growing?

[Sajid Javid]

I agree that demand seems to be growing, and evidence on that is emerging. It might help the hon. Gentleman if I move on to how MAS determines its budgets for money advice and debt advice, and how it has to take demand into account.

[Mr Robin Walker]

As the Minister will be aware, the Treasury Committee, among others, pressed MAS to justify the efficiency with which it delivers those services, and it was right to do so—I am the last person to object to that. Does he agree that it is important that MAS does not take from that the message that the only way to justify itself is by keeping its budget flat or spending less money? Delivering a greater service and providing more money to debt advice services would also be a sign of efficiency, so a message that MAS could take from this debate is that there is support for it providing a better service, and potentially more money, to the free debt advice industry.

[Sajid Javid]

I completely agree with my hon. Friend. He will know that I gave evidence to the Treasury Committee’s inquiry on MAS last year in my previous role as Economic Secretary. I said that the Government would have a full review of MAS during this Parliament, and over the coming weeks and months, I will set out how that review will take place. The review will consider some of the issues he raises.

[Damian Hinds]

As the Minister is on a roll, I have a question. Will he confirm that he said only that money would not be ring-fenced for debt advice, rather than that money would not go to debt advice? Perhaps we should all welcome that extra flexibility, but if he is suggesting that the money would still come in and would not necessarily involve levelling down other contributors, who would decide—and how would they decide—how that extra funding would be allocated between money advice and debt advice?

[Sajid Javid]

As my hon. Friend will find out, I am coming on to how MAS determines its budget. As we all would hope and expect, the budget is based on demand. More generally, MAS has a statutory responsibility to consult on its budget for the forthcoming year. Right now, MAS is consulting on its budget for 2014-15. This debate, the Business, Innovation and Skills Committee report and the information from stakeholders, which we have heard about today, are important in providing MAS with the information it needs to develop its budget for the future. That makes a big contribution to how MAS decides the correct allocation of resources for forthcoming years.

MAS’s budget is based on what it needs to achieve its statutory objectives. Although it is right that payday lenders contribute to that funding, it is also right that the funding is based on demand and that it delivers value for money. In the year ahead, MAS’s budget for debt advice will be based on its assessment of demand for such advice. MAS must consult on its plans for providing debt advice each year, which must then be approved by the FCA.

The National Audit Office recently commended MAS for delivering value for money in its debt advice provision. As we have heard, MAS is also carrying out ongoing research to ensure that the debt advice it funds has the best impact on consumers and that it reaches those who need it most. MAS recently conducted an in-depth study of where in the UK debt advice is needed most. The study shows that 21% of over-indebted people do not even recognise that they are in debt and that 44% of people who are in debt are not aware of the solutions available to them. It is important that MAS reaches such people and engages with them successfully to give them the help that they need. MAS will use the report to inform how it funds debt advice, thereby ensuring that it targets those who need it most. It is important to note that more money does not necessarily mean better provision.

[Paul Blomfield]

I accept that more money does not necessarily mean better provision, but the Minister has acknowledged that there is increased demand and that that increased demand is only the tip of the iceberg. He will also know that many of those delivering services on the ground have been hard pressed because of the reduction in other resources, especially those available through local authority funding. In many parts of the country, citizens advice bureaux are trying very hard to reorganise provision. In my own city of Sheffield, there is a comprehensive reorganisation to deliver value for money and ensure that the challenge can be met. Nevertheless, given the escalating demand for debt advice, which he has acknowledged, would he not also acknowledge that there is now an opportunity, which should be addressed, for that increased demand to be matched with additional resources?

[Sajid Javid]

Where there is emerging evidence of increased demand, I would expect MAS to respond. I am looking for the actual numbers, but off the top of my head, in 2012-13, the most recent financial year, MAS planned for 150,000 face-to-face debt advice sessions, but provided 158,000 sessions. The trend increased in the first six months of this financial year.

[Yvonne Fovargue]

The Minister’s concentration on the number of sessions is somewhat concerning because it is easy to provide a one-off session to someone with one debt. Providing for ongoing work with individuals with a high number of small debts, who continually have to write to creditors, is what costs time and requires expertise, which is why such organisations need paid staff with a high level of expertise. Such staff also help those people with money advice, because they identify the difference between priority debts and non-priority debts, and hopefully, following that advice, the individual will be more empowered to address their own problems.

[Sajid Javid]

I value what the hon. Lady says. She has considerable experience of this subject from before she came to the House and she makes a good point. If she would find it useful, as I certainly would, I would love to sit with her and learn more about what she says, which could help to inform decision making. If she is agreeable, that would be a good step forward.

In the interest of time, I will answer some of the questions that have been raised. Spending time on debt advice, when there is a demand for it, is clearly the right thing to do, and it is crucial to establish how debt advice can best be delivered to reach consumers. My hon. Friend the Member for Worcester is right that debt advice should be funded appropriately to meet demand and to provide services that directly benefit consumers. Last year, 94% of MAS’s £34.5 million budget for debt advice was spent on front-line delivery services. MAS aims to provide 150,000 debt advice sessions this year; last year, it exceeded the same target by 8,000.

The shadow Minister asked whether I have had direct discussions with MAS about this issue. I have not had specific discussions about the levy, as it would not be appropriate for me to get involved at this stage, given the independence we rightly give to the FCA in its oversight of MAS regarding the levy structure. She may be aware that the FCA is still deciding the best way to structure the levy on the consumer lending industry, and it will publish details on that shortly.

The hon. Lady asked me about MAS more generally, and I again point her to the review that will take place, as the Government have promised, during this Parliament. She also rightly asked about alternative sources of lending, which we discussed in yesterday’s debate. She mentioned credit unions, and of course the Government are committed to helping to promote them. We have a credit union expansion project under which there is £38 million of Government funding to help credit unions to modernise and to increase their customer base across the country by more than 1 million. We also recently made regulatory changes to the interest rates that credit unions can charge to ensure that they are not losing money each time they make a loan commitment. As I said in closing yesterday’s debate, I would like to see what further action the Government may take to promote that important sector.

I once again thank my hon. Friend for securing the debate. He and many others made important points, and I know that he in particular cares deeply about consumer detriment in regard to the payday loan sector. He has already played a significant role in the Government’s response to consumer detriment in that area. He mentioned that he recognises that the FCA is independent, and I am sure that the authority has heard the arguments today and will reflect on them. I assure him that I will also further reflect on the points he and other hon. Members have articulated so well.

[Mr Philip Hollobone (in the Chair)]

I thank all who participated in that debate for their contributions. If they are not staying for the next debate, I ask them to leave quickly and quietly.

Payday Loan Companies

Sajid Javid Excerpts

Monday 20th January 2014 Commons Chamber

[The Financial Secretary to the Treasury (Sajid Javid)]

I congratulate hon. Members on securing this debate, and balanced and thoughtful contributions have been made by hon. Members on both sides of the House. In particular, I thank the hon. Member for West Bromwich West (Mr Bailey) for his contribution and his work on the issue in chairing the Business, Innovation and Skills Committee.

I recognise that the issue has caused concern not just in the Chamber but across the country. I should like to reassure all the hon. Members who have spoken today that the Government are taking decisive action to protect borrowers from the harm caused by payday lenders and that we are fundamentally reforming the regulatory system that governs them. I will do my best to answer hon. Members’ questions, but first I should like to take a little time to set out the main course of action that is being undertaken.

As many hon. Members will be aware, thanks to the changes made by the Government, the Financial Conduct Authority will take on new consumer credit responsibilities from the Office of Fair Trading in April. The OFT has done a good job with its powers and resources. However, the FCA will have far stronger powers than the OFT. It will be a regulator with teeth. It will have the power to set its own rules, rather than having to wait for the Government to pass legislation each time a new problem arises. That will put it in a stronger position to keep pace with a fast-moving market.

Furthermore, for the first time those rules will be binding on lenders. The FCA will have far stronger powers to enforce breaches of its rules and standards. For example, currently the OFT can fine up to a maximum of only £50,000, whereas there is no ceiling on FCA fines. For the first time the regulator will have powers to award redress to wronged borrowers. The FCA will thoroughly assess every single lender over the next two years. Those that are not fit to trade will be ejected from the market. It will approve key executives to ensure that they are personally accountable for the way their firms operate. In short, we are moving from PC Plod to Sherlock Holmes.

It is encouraging to see that the FCA is already flexing its regulatory muscle. It set out proposed new rules in October, as we have heard today, including: a cap on roll-overs; curbs on the use of continuous payment authorities; and mandatory risk warnings on adverts. The Government, as many Members will know, have welcomed the FCA’s proposals, and we look forward to its confirmation of the final rules next month.

Our absolute priority in this area is to ensure that the FCA can clamp down quickly on the causes of harm in the payday lending market, particularly the unfair and extortionate cost of borrowing from certain payday lenders and the spiralling costs faced by those struggling to repay. We took the opportunity in the Financial Services (Banking Reform) Act 2013 to give the FCA a clear mandate, and indeed a duty, to put a cap on the cost of payday loans by the beginning of next year, which means that it will not have to spend precious time making the case for a cap and can instead focus on the best way of implementing a cap and protecting consumers from those unfair and damaging costs.

The FCA is already on the case on that front, and we should see rules to implement a cap in place this year. It will be not just an interest rate cap, but a cap on all fees and charges associated with a payday loan, including default charges and roll-overs, which many hon. Members made the case for today. The total cost cap will work alongside the regulatory interventions already proposed by the FCA to tackle decisively the causes of consumer harm in the payday lending sector.

I will endeavour now to cover some of the important points raised in the debate. A number of hon. Members mentioned real-time data sharing. The Government believe that lenders must make proper assessments of an individual’s ability to repay before they lend and that that should be based on accurate, timely and comprehensive information. The FCA is looking at real-time data sharing as an absolute priority and has committed to bringing about a real improvement in the way data are shared, including looking at the role of credit reference agencies and at international examples of data-sharing systems.

The FCA has warned the industry that it must improve the way data sharing works, including how quickly lending data are made available. A number of Members referred to last week’s announcement by Callcredit that it will introduce real-time data sharing from this April, which I think is a welcome step. However, if the industry fails to improve properly, the FCA has been absolutely clear that it will not hesitate to act. The Government wholeheartedly endorse both that message to the industry and the regulator’s commitment to action.

The hon. Member for West Bromwich West and several others rightly mentioned advertising, particularly advertising aimed at children. The idea that children might see payday loan adverts and then put pressure on parents to take out loans is very concerning. The Broadcast Committee of Advertising Practice, the body that writes the broadcast advertising code, is considering the extent to which payday loan advertising features on children’s TV and whether there are any implications for the regulation of the sector. However, it is important to note that recent Ofcom research found that payday loan adverts make up just over 0.5% of TV ads seen by children aged between 4 and 15. Many payday loan firms, including Wonga and those that are members of the Consumer Finance Association, have stated that they do not advertise on children’s TV. It is essential that all payday loan advertising is responsible and is not designed to target children. That is why payday loan adverts are subject to the Advertising Standards Authority’s strict content rules. I hope that I will reassure hon. Members when I say that the ASA will not hesitate to ban irresponsible adverts. In fact, it has a strong track record of doing so, including, recently, Wonga and Cash On Go adverts. I hope that I will provide further reassurance by saying that the FCA is consulting on new rules for consumer credit adverts, and it will have the power to ban those that breach its rules.

Several hon. Members mentioned affordability tests. The Government believe that it is crucial that loans are made only to those who can afford to repay them, so we welcome the FCA’s tough action to make sure that that is the case. This will include ensuring that firms have suitable and sustainable business models, including appropriate affordability assessments. The FCA has announced in its rule book consultation that it will transpose much of the OFT’s affordability guidance requiring lenders to check borrowers’ ability to repay loans sustainably into binding rules that will, for the first time, be enforceable with the full range of FCA enforcement powers. This package of measures should help to address the problem of lenders giving loans to those who will struggle to repay them.

A number of hon. Members rightly raised credit unions as an alternative for people looking for short-term credit. The Government believe that credit unions provide an invaluable service to people on lower incomes, offering sound financial advice and responsible lending. That is why we have already taken action to try to help the sector by, for example, increasing the interest rate that credit unions can charge, as we found that many—indeed, almost all—were making losses, and this was clearly not sustainable. The interest rate was therefore increased from 2% to 3% per month. We also have the credit union expansion project, with £38 million of Government money designed to modernise the sector. I want to do more for it, and the Government are considering what further action they can take.

I congratulate the hon. Member for West Bromwich West on securing this debate and thank all hon. Members for their thoughtful and balanced contributions.

Banking

Sajid Javid Excerpts

Wednesday 15th January 2014 Commons Chamber

[The Financial Secretary to the Treasury (Sajid Javid)]

I thought that Labour Members had turned over a new leaf this year: they admitted that they got it wrong on immigration and they admitted that they got it wrong on education, so I hoped that the hon. Member for Nottingham East (Chris Leslie) would follow suit and admit that they also got it wrong on banking. I hoped he would admit that it was Labour’s changes to banking regulation that led to the world’s largest banking bail-out—changes that meant that when the alarm bells were ringing, no one was listening. The Bank of England was completely powerless to act. I hoped that the hon. Gentleman would also admit that City bonuses rocketed under Labour’s 13 years in office, while Labour Cabinet Ministers were telling the world that they were

“intensely relaxed about people getting filthy rich”

and they were handing out gongs to the likes of Fred Goodwin. City bonuses were surging to all-time highs, rising year after year, more than tripling over five years and peaking in 2008 at over £12 billion. Instead, this is a new year and the same old Labour.

[Michael Connarty]

rose—

[Sajid Javid]

I will give way to the hon. Gentleman; I might be about to hear an apology, so I will listen carefully.

[Michael Connarty]

I think anyone who reads the transcript deserves an apology from the Minister, who forgot to mention that the relaxation of banking controls started with Mrs Thatcher and the Conservative Government. He forgot to tell people on the record that when people like me on the Opposition Benches were urging constraint—I am an economist—the Minister’s right hon. and hon. Friends were calling for fewer controls and a lighter touch with the banks, as was the SNP in Scotland.

[Sajid Javid]

I think the hon. Gentleman has a challenged memory of events. I am sad to see that he had an opportunity to apologise, but did not take it.

Let us look at the facts. At the time of the changes Labour was making to the financial sector, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) warned the then Government in November 1997:

“The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]

Let me share another quote, in this case from the current shadow Chancellor from a speech he made as City Minister in 2006:

“Nothing should be done to put at risk a light-touch, risk-based regulatory regime.”

What we are hearing from Labour is the same old headline-chasing nonsense that we have come to expect and no answers at all to the problems they created.

I agree with the hon. Member for Nottingham East on one thing: public confidence in the banking system and in bankers is still low, just as—let us be honest—public confidence in the political system and the people in this Chamber is still low. That is precisely because, five years ago, partly as a result of the irresponsible decision of some bankers, but largely as a result of the policies of the then Labour Government, our country found itself in a huge mess. When trust is lost on that scale, it is not won back overnight.

[Steve Brine (Winchester) (Con)]

Perhaps the Minister can answer this question because the shadow Minister did not give way to me. The shadow Minister said that restricting the number of branches that banks can hold will not close branches, but of course it will. What does he think closing branches will do to people’s faith and belief in the banking sector. I have three branches of Barclays in my constituency—in Chandlers Ford, Alresford and Winchester—so if, God forbid, a Labour Government were ever elected, which one would they propose to close?

[Sajid Javid]

My hon. Friend highlights the fact that the Labour party has no ideas about how to increase competition in the banking sector, and any kind of approach that includes arbitrary quotas will clearly lead to the sort of problems that my hon. Friend outlines.

[Harriett Baldwin (West Worcestershire) (Con)]

It is reported today that the Opposition are proposing specific market shares on specific banks. Has that ever been tried in any other country?

[Sajid Javid]

My hon. Friend is right. It is reported that, this Friday, the Leader of the Opposition will make a speech on the economy and attempt to set out an economic policy. I am afraid that his last such speech did not go very well. From what we know about this proposal—very little at this stage—I am not aware of any country in the developed world that has a similar approach, with the possible exception of the former Soviet Union, which adopted a similar approach to its banking sector.

[Lyn Brown (West Ham) (Lab)]

I am glad we are discussing history, because I am aware of the hon. Gentleman’s own history as a banker. I wonder what his remuneration and bonuses were back in those days. Given his history and the fact that he should be saying sorry—I presume—will he tell us whether he believes that bankers deserve a bonus in excess of 100% of their salary. Does he think so and does the Chancellor think so?

[Sajid Javid]

The hon. Lady seems to suggest that it is best to have Ministers who have no experience or knowledge in the areas for which they are responsible. We saw that under the previous Government, and look what happened. To win back the confidence of the British people, we need a long-term economic plan for recovery.

[Chris Leslie]

I would not want the Minister unintentionally to miss answering the important question that my hon. Friend the Member for West Ham (Lyn Brown) asked. For the record, do the Government believe that the senior bankers at the Royal Bank of Scotland should or should not be allowed to pay bonuses of over 100% of pay?

[Sajid Javid]

I will come to that later in my speech when I will deal with some of the issues that the hon. Gentleman raised.

Bringing back confidence to the economy will of course mean dealing with the banking sector to make it more stable, more resilient and more efficient. That is exactly what this Government have been doing for the last three years.

[Mr MacNeil]

Does the Minister agree that, as with the debate on the bedroom tax before Christmas, this debate is really one about the symptoms of inequality in our society. Since the 1970s, we have seen 80% of the gains in productivity going to the top 1%—an inequality level roughly equivalent to that of the 1920s. Governments all over Europe and in the United States are not getting to grips with inequality and the hampering of life chances that it is causing. What does the Minister think should happen? The bankers should not receive the bonuses they are getting and people should not have their life chances halted by the bedroom tax. Are this Government going to do anything serious on this issue?

--- Later in debate ---

[Sajid Javid]

The hon. Gentleman will know that inequality surged under the previous Government and has come down under this Government. In fact, the rich pay a higher proportion of tax than they have ever paid, with the top 1% of earners paying almost 30% of income tax for the first time and the top 5% paying almost half of the total income tax take. The Government are proud of making sure that the rich make a fair contribution to public finances.

[Jesse Norman]

My hon. Friend is making an extremely powerful case, but may I remind him of the central fact of the past 15 years? The banks had the same level of leverage for 40 years, until 2007, after which it went up by two and a half times. It was that explosion of leverage, under Labour, that destroyed the banking system both in this country and internationally.

[Sajid Javid]

As always, my hon. Friend is spot on. Because of the changes that Labour made in the regulatory system, no one knew what was going on, and if they did, they were absolutely powerless to act, especially those in the Bank of England. That is the legacy of the last Government.

Let me now say something that the Labour party seems to be scared of saying. We need well-run successful banks in this country. We need the services that they provide. We need the loans that they give to small businesses, and the mortgages that they offer to home owners. We need the jobs that they produce—more than 450,000 throughout this country, and more than two thirds of those are outside London. We, as a Government, also need the huge taxes that the financial sector and its employees pay—some £60 billion last year—so that we can run our schools and hospitals.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Small businesses have been among the biggest victims of the financial crisis, because banks have stopped lending to them. I share some of the Minister’s scepticism about the advantages of shutting bank branches, which may indeed only harm banking and access to financial services in rural areas, but I nevertheless think that the Government could be doing a great deal more to ensure that the banks lend more to small businesses on fairer terms. What will the Minister do about that?

[Sajid Javid]

I agree with the hon. Lady that businesses rely on the banks for the lending that they need. The action that we have already taken through, for example, the funding for lending scheme has ensured that the banking sector has had more money at lower rates to on-lend to small businesses and, indeed, households. We also recently announced a consultation on collecting small and medium-sized enterprises credit lending data, which will help to spur further competition in that sector.

[Ian Lucas]

The Minister is endorsing a noble cause in recommending support for small business and for manufacturing in particular, but given that manufacturing accounts for 10% of the economy, why does only 2.6% of bank debt stock result from lending to it? Why does the Minister not do something about that?

[Sajid Javid]

Part of the answer might be that manufacturing was decimated under the last Government. Its share of the economy fell from about 17% to the 10% to which the hon. Gentleman referred, and, of course, lending fell with it. If the hon. Gentleman were honest and recognised the damage that his party did to the manufacturing sector, perhaps what he says would be taken more seriously.

We need a more stable, resilient, efficient banking sector, and it is on that requirement that we have focused our reforms. As Members will know, back in June 2010 my right hon. Friend the Chancellor announced the establishment of an Independent Commission on Banking, chaired by Sir John Vickers, to explore how the sector should be reformed in the wake of the financial crisis. Last year the House passed the Financial Services (Banking Reform) Act 2013, which has enabled us to implement the commission’s recommendations. The changes will mean that banks must ring-fence the deposits of individuals and small businesses, so that everyday banking can be separated from volatile investment banking.

As all Members, and, indeed. all members of the public will know, the financial crisis saw taxpayers bailing out the banks that got into trouble, but we have taken steps to ensure that that will not be repeated. Our banking reform Act introduces a bail-in tool, as a result of which shareholders and creditors, not taxpayers, will be first in line to bear the costs of future bank failures.

[Chris Williamson]

I think that the Minister should admit that the Government have watered down the Vickers commission. Will he now come clean with the House, and tell us that that is what they have done?

[Sajid Javid]

That is exactly what we have not done. We have accepted the central recommendations of the Vickers commission.

We have not just been working to prevent a repeat of the crisis. Many Members on both sides of the House have been rightly appalled by the revelations of poor behaviour on the part of some in the industry, such as payment protection insurance, interest rate swap mis-selling, and LIBOR manipulation. Those practices were going on right under the noses of Labour Treasury Ministers, including the current shadow Chancellor, who did nothing at all to stop it.

[Guy Opperman]

My hon. Friend attended the local banking conference that I organised shortly before Christmas. Does he agree that “challenger banks” such as Aldermore, Virgin, Metro, and even the Bank of Salford—which is run by Labour and Unite, and is excellent—are a key element in the greater competition that we need in order to reinvent the banking market in this country?

[Sajid Javid]

My hon. Friend’s intervention gives me an opportunity to commend him for his initiative to promote regional banks. He is absolutely right in his assessment.

We also set up the Parliamentary Commission on Banking Standards, chaired by my hon. Friend the Member for Chichester (Mr Tyrie). As a result of the commission’s work, we amended the banking reform Act in order to implement its recommendations on holding bankers to account more effectively for poor behaviour. If a bank were in future to enter resolution because of reckless mismanagement, senior bankers could face a prison term of up to seven years.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

The Minister has spoken in strong terms about the experience of the financial services. Does he accept that the unique way in which bonuses drive short-term risk taking led to the scandals that we witnessed, and, indeed, to the financial crisis? Does he really believe that the reward for short-term risk taking behaviour to meet bonus targets should be more than 100% of the reward that someone receives for doing his or her own job?

[Sajid Javid]

What I do accept is that badly structured and badly designed bonuses will lead to bad behaviour. I am sure that the hon. Lady herself accepts that if an arbitrary cap is imposed on bonuses and it leads to an increase in fixed pay but no overall fall in overall pay, the bad behaviour will actually worsen.

We are putting our house in order. We are learning from the huge mistakes of the last Government, and are ensuring that we create a country in which the public can trust that their money is secure and our banking sector can flourish.

[Dr Coffey]

My hon. Friend is making great progress in the debate. Will he also mention the fact that taxpayers are now benefiting from the fines that have been levied on the industry, and that the Chancellor has extended the arrangement to ensure that military charities and others benefit?

[Sajid Javid]

I am glad that my hon. Friend has referred to that. It was the right thing to do, and it demonstrates that we can take some of the money that is coming from the banking sector and use it for good causes.

[Sir Andrew Stunell (Hazel Grove) (LD)]

My hon. Friend mentioned the shadow Chancellor’s failure to tackle the abuses that were taking place in the banking system. Will he confirm that the shadow Chancellor encouraged the development of a less regulated environment, and that that contributed to the problems that we now face?

[Sajid Javid]

My right hon. Friend has made an important point. I have already quoted what the shadow Chancellor said in 2006, when he was the City Minister, but those were not just his views; they were also the views of his boss, the then Prime Minister, the man who did more damage to our financial sector than any other. This is what the last Labour Prime Minister said in his 2007 Mansion House speech:

“I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”

Shortly afterwards, he carried out the world’s largest banking bail-out.

[Kwasi Kwarteng]

Will the Minister share with the House his thoughts about which member of the last Government recommended that Fred Goodwin should receive a knighthood as an honour from the Government?

[Sajid Javid]

I have to tell my hon. Friend that I am not sure who it was, but I know that the knighthood was widely supported by members of the then Government, which shows what their priorities were.

[Jesse Norman]

Was it not the previous Prime Minister who said, “We will do for Great Britain what we have done for the City of London”, and is it not a disaster that he said and did that?

[Sajid Javid]

Again, my hon. Friend makes an excellent point.

[Huw Irranca-Davies]

The Minister is understandably making a case for the financial sector, as he also should for manufacturing and all other sectors. What my constituents fail to understand is why, when public and private sector employees over the last few years and now have accepted pay restraint and real-terms squeezes on their earnings, and we in this House, including Ministers, are facing public demands to accept pay restraint on our pay and conditions as well, top bankers are immune from those constraints.

[Sajid Javid]

I will come on to that topic shortly and share with the hon. Gentleman some numbers that show what has happened to the pay of top bankers.

[Chris Leslie]

Do it now.

[Sajid Javid]

I will come on to it. The hon. Gentleman raised the two issues of banking competition and remuneration and I want to cover them.

I was very pleased that the hon. Gentleman talked passionately about the importance of competition. It is a shame that the previous Government did absolutely nothing to encourage it for 13 years. It is worth reminding the Chamber that when the last Government took office there were at least 10 major UK banks, but over their 13 years of incompetence they continued to permit and manage banking takeovers which shrank the number of market players and left the big banks to dominate.

Greater competition in banking is good for people and businesses and the economy. That is why we are implementing the recommendations of the Independent Commission on Banking for improving competition; indeed, we are going further. We are addressing the issue of too big to fail through ring-fencing, meaning that big banks will no longer get a competitive advantage from this implicit guarantee. We have put competition at the heart of financial services regulation by giving the Financial Conduct Authority a formal competition objective as well as making provision for a secondary competition objective for the Prudential Regulation Authority. We are also making sure that the FCA has the right tools to get the job done on competition by giving it concurrent competition powers.

While competition dropped under Labour’s stewardship, it is increasing under ours. As we have heard, since the crisis Metro Bank, Virgin Money and the new TSB brand have entered the market. Indeed, RBS also announced recently that it has teamed up with investors, including the Church Commissioners, to launch a 300-branch challenger bank, Williams & Glyn’s, focused on small businesses.

In fact our financial regulators are currently in talks with 22 potential new bank applicants because of the steps we have taken to promote banking competition. On top of that we are creating a new payment systems regulator so that smaller banks and others can access the payment systems fairly and more transparently, and we have secured a seven-day current account switching service to make sure that people have the confidence to change accounts. There are further innovations coming on cheque imaging and mobile payments. This is a Government who are bringing competition back to banking.

On bankers’ pay, we understand the depth of public anger but we will not take any lectures from the Labour party. While bonuses continued to increase year after year on its watch, even after 2007, they are now down 85% from their peak in 2008. Since 2010 we have been leading the way on tackling unacceptable pay practices. First, we have introduced rules that require significant parts of bonuses to be deferred and paid in shares, which means there is now a much better alignment of pay with risk and performance. While we make sure that only good performance can be rewarded, we are also making sure that poor performance can be punished by introducing measures that mean firms have clawback policies to reduce or revoke pay retrospectively.

Those steps are having an impact. The 2012 bonus pools at almost all major banks have declined massively since this Government came to office. The truth is that while Labour talks about clamping down, this Government get on with the job.

[Emily Thornberry]

If the public are watching this debate, they may well want to ask the question I shall ask now, and I hope we get an answer. Do the Government have a view on the maximum amount a banker should be given by way of either a salary or a bonus, and does the Minister agree with the bonuses currently being given out by Chase Manhattan bank?

[Sajid Javid]

First, I am not sure even whether the Opposition have a view on what the right level of bonuses is. Also, I am not sure about Chase Manhattan bank because it does not exist any more as far as I know.

[Kwasi Kwarteng]

Will my hon. Friend explain to the House what the last Government said about bonus levels, if they said anything about them, and the gratitude with which they spent bankers’ tax receipts?

[Sajid Javid]

My hon. Friend again rightly points out that the previous Government did nothing when bonuses were reaching a record high. Even after they had carried out the world’s largest bank bail-out, pumping in over £40 billion of taxpayers’ money, they still allowed bonuses the next year to reach an all-time peak of almost £12 billion. That is their legacy.

[Chris Leslie]

We now come to the point that the Minister has twice said he would address later on, so will he address it now? Will the Chancellor of the Exchequer be using his power as a shareholder in the Royal Bank of Scotland to allow its senior bankers to exceed the level of bonus beyond 100% of pay: yes or no?

[Sajid Javid]

That is exactly what I was coming on to next. It is important for taxpayers that any proposals by RBS are considered fully and properly. The Government have not yet received a proposal from RBS on bonuses; once we do, we shall be in a position to judge whether it represents value for taxpayers.

The Government do not support the EU cap on bonuses. The Government have fought against it and we are currently challenging it in court. The bonus cap creates perverse incentives by removing the link to performance. It is damaging to financial stability; it is opposed by the PRA and the Bank of England; and, indeed, the cross-party Parliamentary Commission on Banking Standards rejected crude bonus caps as unworkable.

Let me turn finally to the bank levy.

[Chris Williamson]

Will the Minister give way?

[Andrew Gwynne]

Will the Minister give way?

[Sajid Javid]

No, I have given way enough and others want to speak.

If we need an example of how little the Opposition understand the banking sector, we only have to look at their policies on the bank levy, a levy they turn to every time they want to fund a policy announcement. They seem to believe that the bank levy could raise enough money to pay for capital spending, a youth jobs guarantee, regional growth funding, housing, child care and community services. On top of that, they think they can cut the deficit with it, reverse VAT increases, reverse child benefit savings and reverse tax credit savings—in total over £30 billion of commitments. Only the economically illiterate would think that with £1 raised in tax, we could have £10 of spending power.

It is no wonder that Labour gave us the deepest recession in 100 years, the largest post-war budget deficit and the world’s largest banking bail-out. In short, whereas their old banking policy was to stick their heads in the sand, their new banking policy is to stick their heads in the clouds, so frankly I do not think they are in a position to tell this Government what to do. Instead we shall work to continue to make this sector more stable, more resilient and more efficient, and we shall continue to help our banks to help our country get back to our best. I urge the House to reject this motion.

[Several hon. Members]

rose—

Investment Bank Special Administration Regulations 2011

Sajid Javid Excerpts

Tuesday 14th January 2014 Written Statements

[The Financial Secretary to the Treasury (Sajid Javid)]

Today, HM Treasury is laying before Parliament the final part of Mr Peter Bloxham’s independent review of the Investment Bank Special Administration Regulations 2011. This report follows on from the interim report laid before Parliament on 23 April 2013.

The special administration regime came into effect in February 2011, following provisions made under the Banking Act 2009 to offer a modified insolvency procedure to investment firms. In accordance with section 236 of the Act, the Treasury were required to review the effect of the regulations within two years of the date that these powers came into force. Mr Peter Bloxham was appointed on 28 November 2012, and reported to the Treasury on 7 February to begin the review.

The Act required a review of the Investment Bank special administration regulations to consider if the regulations are achieving their specified objectives. These specified objectives are:

identifying, protecting, and facilitating the return of client assets;

protecting creditors’ rights;

ensuring certainty for investment banks, creditors, clients, liquidators and administrators;

minimising the disruption of business and markets; and

maximising the efficiency and effectiveness of the financial services industry in the United Kingdom.

Mr Bloxham’s terms of reference set out a two-stage process. The first stage, denoted by his interim report, asked him to address each of the objectives above in turn to determine whether they had been achieved. The second stage asked Peter Bloxham to consider further possible changes to the special administration regime that may improve the operation of the regime, and consider wider changes that may make the regime more robust. The final report being laid before Parliament today represents the completion of the second stage.

After completion of both stages of the terms of reference, Mr Bloxham concludes that the special administration regime stands as a useful provision under the Act and should therefore be kept, subject to change. Mr Bloxham makes extensive and considered recommendations for possible improvements to the regime, which are summarised within the final report.

I am personally very grateful to Mr Bloxham for all his work on this review over the last year, and to those who consulted with him.

The Treasury agrees with Mr Bloxham’s recommendation to retain the investment firm special administration regime. The Treasury also recognises that amendments can be made to the regime to allow it better to fulfil its specific objectives. The Treasury will now consider the rest of Mr Bloxham’s recommendations in full and take suitable steps to enhance the regime in due course.

Insurance Growth Action Plan

Sajid Javid Excerpts

Thursday 19th December 2013 Written Statements

[The Financial Secretary to the Treasury (Sajid Javid)]

The insurance industry is a vital asset for the UK. It employs over 300,000 people across the country, attracts global capital, serves the needs of consumers, and is a major British exporter. This Government are therefore committed to making the UK one of the most competitive places in the world for insurance.

The Government are today launching a UK insurance growth action plan, which sets out five areas where action will be taken by Government and industry, working with other partners, to strengthen the sector’s contribution to economic growth and work together to enhance the UK’s position as a global leader in a truly global industry.

The UK industry in overseas markets

The Government will develop a co-ordinated, targeted approach to promotional and other activity, focusing on five key markets—Brazil, China, India, Indonesia and Turkey—including establishing a programme of senior Government and private sector visits, as well as prioritising financial services and insurance within upcoming free trade negotiations.

The UK as a location for insurers

The Government will develop a programme to target overseas insurers to move their domicile to the UK, including developing a marketing campaign setting out the business case for locating in the UK, and the regulatory authorities have committed to streamlining authorisations processes for prospective insurance applicants.

Insurers as long-term investors in the UK

Building on the successful outcome the Government negotiated on the solvency II directive, the following insurers—Aviva, Friends Life, Legal and General, Prudential, Scottish Widows, and Standard Life will work alongside partners with the aim of delivering at least £25 billion of investment in UK infrastructure in the next five years.

Serving UK insurance customers

The Government want to see an insurance sector that helps customers manage risk, puts its customers first—by harnessing the power of new technology and creating products that meet their needs—and has their trust and confidence. The Government ask that the industry commits to ensuring consumers are able to access the insurance products they need with information that enables them to make informed choices.

Skills and diversity in insurance

The Government’s aim is to see an insurance work force in the UK representative of the customers it serves and well equipped to meet their needs. To this end, the Government welcome industry’s proposals to: establish a gateway project to help people find apprenticeships and graduate training places within insurance; double the number of technical apprentices over the next five years; and strengthen the pipeline of senior female executives in the insurance industry.

Copies of the UK insurance growth action plan will be available on the gov.uk website and have been deposited in the Libraries of both Houses.