Finance Bill
Stella Creasy Excerpts(11 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
I would say—I think that this is the most tactful way of putting it—that the Government are determined to send the signal that the UK is open for business. That is how we can win the global race. Other Governments might wish to take other approaches, and that is for them to decide. For the UK, we believe in open markets and a competitive tax system—but a tax system, none the less, in which businesses pay the tax they should and in which economic activity is properly taxed.
We have made a commitment to act and have backed that up with extra resources for the OECD. The UK has been actively participating in the development of the OECD’s comprehensive action plan for tackling such issues, which will be presented to the G20 later this month. It might interest hon. Members to know that at the recent Lough Erne summit the G8 called on the OECD to draw up a common template for multinationals to report to tax authorities where they make their profits and pay taxes around the world. That will give tax authorities a new tool against tax avoidance to help them efficiently identify and assess risks, but requiring publication of that information would put the UK at a competitive disadvantage to other countries that did not require publication. It would also impose costly administrative burdens on business and Government.
The new clause proposed by the Opposition would require all multinational companies to report all their UK corporation tax payments—not just tax related to the GAAR, but the whole of their UK corporation tax. That goes way beyond the clear policy that we have set for the GAAR and would risk giving an impression that the GAAR has an impact on all corporation receipts, creating the sense of uncertainty about the impact of the GAAR that we have gone to some lengths to avoid.
Stella Creasy (Walthamstow) (Lab/Co-op)
I am interested by the Minister’s comments. The Minister has concerns about publishing such data, but in other cases the Prime Minister extols sunlight as the best disinfectant. Is it not important, if the public are to be confident in our tax system, for them to have such information? Why does he feel that tax receipts should be exempt from that disinfectant process?
Mr Gauke
There is a long-standing and widespread approach that tax is a matter of confidentiality between taxpayers and the tax authorities. I say that the approach is long standing; it is the approach we have had in the UK for time immemorial.
It is also the position that applies in pretty well all major economies, and if we were to change that approach, it would be sensible to do so multilaterally. If we introduced a requirement that multinationals based in the UK had to publish information in a way that would not apply if they were based elsewhere, that would raise questions about the attractiveness of the UK as a place in which to do business.
On how to move forward in this area, I would make the wider point that we work multilaterally. That approach was endorsed by Tony Blair, who, in a recent interview, said that if countries move unilaterally, others will eat your lunch, to put it bluntly. I think that was the phrase he used. It is right that we work with other countries to ensure that we have an effective tax system, but I would not favour measures that left the UK isolated in such a way.
Catherine McKinnell
It is a pleasure to speak here today on these important issues. I shall focus particularly on those covered by amendment 56 and by new clause 12. First, however, I shall touch on new clauses 4 and 5, and on new schedules 1 and 2, which relate to measures announced in Budget 2013. Together, they introduce three separate rules to combat what the Minister describes as loss buying. That activity goes against the accepted concept that losses brought forward on or after a change in company ownership should be allowable for corporation tax relief to the company and to the trade in which they occurred.
The Government’s new clauses seek to strengthen the loss-buying rules, first by expanding the application of chapter 16A of part 2 of the Capital Allowances Act 2001 so that it applies to “qualifying activities” and not just trades, as is currently the case. The other two rules introduced by the clauses are targeted anti-avoidance rules and will be included in a new part of the Corporation Tax Act 2010. As a consequence of the new clauses, companies will be prevented from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties. The Opposition support the introduction of these anti-avoidance measures, but it would be helpful if the Minister outlined, in response to this submission, what additional annual yield the Exchequer is expected to receive as a result of their introduction.
Before speaking specifically to the Opposition’s new clause 12, I would like to refer more generally to the Government’s general anti-abuse rule, which will be introduced by clauses 203 to 212, and take the opportunity to probe the Minister on its implementation, because it was last discussed in Committee of the whole House back in April. The Government have made much of the GAAR, their flagship policy for tackling tax avoidance, but, as the Minister knows, several serious concerns were raised about its likely impact, or lack thereof, during our debate in April.
We have been advised that the GAAR will target only “egregious”, “very aggressive” or “highly abusive” avoidance schemes, which the Bill defined as those that use “contrived or abnormal steps” to obtain a tax advantage. Yet the GAAR guidance’s definition of what those entirely subjective terms mean is inadequate. It states merely that they will be interpreted and applied in their “normal” sense. I do not know how Government Members would apply those terms in their normal sense, but I am interested to know whether Opposition Members would know how to apply those terms in their normal sense, given that we will be voting on that tomorrow when the Bill is considered on Third Reading.
Stella Creasy
I wonder whether my hon. Friend, like me, is concerned that the subjectivity and lack of clarity on this subject is a little like the concept of pornography; we all know it when we see it, but defining it is very difficult unless there is clarity. With tax avoidance schemes, clarity is absolutely crucial.
Catherine McKinnell
I fear that you, Madam Deputy Speaker, might accuse me of straying into rather unexplored territory if I were to compare tax avoidance to pornography, so I simply acknowledge the point my hon. Friend makes, which is that they are very subjective terms. That point has been made not only by me, but by many experts who are very concerned about the wording in the legislation. That is why it would be useful if the Minister responded to some of the concerns that have been raised during the Bill’s consideration.
The GAAR is projected by the Government to result in an additional yield of only £85 million a year by 2017-18. That is a notable sum of money, but it does not even come close to putting a serious dent in the £5 billion tax gap estimated to arise each year as a result of avoidance activity, and it is a mere drop in the ocean compared with the overall annual tax gap of £32 billion estimated by HMRC, which we know is a conservative projection. We also know that concerns remain about the so-called “double reasonableness” test and the GAAR advisory panel that will judge whether arrangements can
“reasonably be regarded as a reasonable course of action.”
As I have highlighted previously, what one person—let us say, a tax expert who has spent his or her entire career advising companies on how they might reduce their tax liability—regards as reasonable could be very different from what a member of the public or, indeed, a Member of this House might consider to be reasonable.
Stella Creasy
My hon. Friend is making a powerful case about the importance of the measures in question for developing countries. Does she agree that the Exchequer Secretary, having spoken about the importance of acting multilaterally and understanding how international companies operate, should be able to see the benefits of transparency to the UK tax system? Surely one thing that we are concerned about right now is UK companies using overseas territories to avoid paying tax in the UK. If we had the transparency that we suggest and HMRC worked with countries such as Tanzania, there would be benefits for both UK taxpayers and developing nations. It would be a win-win situation for all concerned.
Catherine McKinnell
My hon. Friend makes a good point. The Government have trumpeted their commitment to 0.7% of GDP being spent on international aid, but they stand by and say that they can do little to assist in ensuring that that is not swallowed up by the three times more that is lost in tax avoidance every year. If they could assist, that would be a win-win situation for developing countries and the UK.
In new clause 12, we call for additional transparency in what the Exchequer Secretary admitted are four fairly reasonable requests. Those requests are well considered and are made in all sincerity. We want to be able to bring in additional tax receipts for the UK Treasury, but we also want to use our powers and information, and the additional intelligence that we would gain from transparency, not only to benefit the lives of UK citizens, for whom public resources could be funded through the tax receipts, but to support developing countries.
My hon. Friend makes the point that it is a win-win situation, and we very much agree. That is why we urge hon. Members to support our new clause. As I have said, it is completely reasonable and I cannot see why Government Members would oppose it, particularly Liberal Democrat Members—I am pleased that the hon. Member for Burnley (Gordon Birtwistle) is in the Chamber to hear this debate on an issue that I know the Liberal Democrats feel strongly about. Indeed, at their recent party conference they held a debate in support of some of the measures we are proposing. I therefore see no reason why Liberal Democrat Members will not vote with the Opposition in the Lobby this evening.
Stella Creasy
I should start by saying that I have been remiss in respect of reading the Worksop Guardian, but I will wager that it is full of comments from people who are concerned about value for money in our taxation system and those who are desperately concerned about the impact of cuts on local services. Those cuts have been driven by the fact that we do not get the tax-take in this country that we seek. This new clause and new clause 12 seek to help the Government to be better at collecting tax. Does my hon. Friend think that that would go down well with the readers of the Worksop Guardian?
John Mann
I think the readers of the Worksop Guardian will hear my hon. Friend’s comments. Those such as your good self, Mr Speaker, who are expert at using the internet can read those pearls of wisdom without having to go all the way to Worksop or order a copy at this difficult time for the parliamentary budget. I recommend it to all.
Although I failed to be selected to serve on the Finance Bill Committee, I am prepared to volunteer for a new task, if it is not too late to do so. This relates directly to new clause 4 and the Minister’s speech, and I should make it abundantly clear that I am prepared to accept the task for no additional salary, directly or indirectly. It is to do with the advisory panel on the GAAR. If its members have not yet been selected, surely the Minister would love the opportunity to select an Opposition Member who is prepared to ask some questions that the public would perhaps want asked. I would be prepared to sit on this body without additional remuneration, should the Minister, the Government and the House wish that to happen. The Minister is not intervening, so perhaps I will have to put in a written application as well.
The question of the overseas territories is very important. Hansard will record precisely what the Minister said some minutes ago, but I shall paraphrase his comments as I did not have the opportunity to take down his exact words verbatim. In essence he said that we are the leaders in the world in dealing with tax avoiders, we are showing the way, and we are going to ensure that this all happens, yet we should not do more than anybody else. But the UK Crown dependencies and overseas territories are not German, French or American, and they rely on the British armed services to protect them in times of crisis or against the threat of invasion or assault. They rely on the British legal system and on the British royal family as part of their very essence, as democracies. Therefore, our relationship with these territories is a symbiotic one, in which we should expect absolute transparency in all matters relating to taxation and to companies and individuals from here.
The banks are the worst examples of complex structures that they themselves do not understand. They allow money laundering from Mexican gangsters—the worst kind—as proven by many successful US court proceedings. Big banks at the top are happy to tell us that they do not understand their own structures because they are so complex, but the structures are established in order to maximise profit—in other words, to minimise taxation—in territories that rely on our armed services, on our legal system and our democracy to underpin and oversee them. That is a cost to us that we rightly bear, yet corporates and individuals can hide things behind the opaqueness of structures there, so that these days my constituents cannot even discover who owns their football club and what moneys are there. This applies to even the most simple of examples, never mind the biggest and most complex of banks, financial institutions and other multinationals.
Stella Creasy
I am sorry to stop my hon. Friend mid-flow because he is making a powerful case not only for the readership of the Worksop Guardian, but for being on a Bill Committee with him, especially when it comes to finance measures. That would clearly be a unique experience. Does he agree that new clause 12 would be beneficial because it offers an opportunity to gather the evidence on the tax take that would show whether the Prime Minister’s warm words about tackling tax avoidance were being put into practice? I agree with the hon. Member for Daventry (Chris Heaton-Harris), who talked about Members on both sides of the House being interested in the matter, but one thing we all need is the information. The new clause offers precisely that opportunity.
John Mann
The new clause is so modest and so moderate. How could any reasonable and rational Member of the House possibly not vote for it? I would go much further and give more robustness, including a great wealth of powers to ensure that those overseas territories and Crown dependencies were forced to give economic efficiency, justice and morality in return for the defence and everything else that they get from this country, but I recognise that one needs a majority in the House to do such things. Therefore, I appeal to those decent, sensible, smiling Back Benchers to join us in an historic vote tonight—vote with the Opposition.
Alison Seabeck (Plymouth, Moor View) (Lab)
It is a real pleasure to follow the two previous speakers. The hon. Member for Amber Valley (Nigel Mills), who is just trying to escape the Chamber, gave a particularly thoughtful speech, understandably, given his background in taxation. My hon. Friend the Member for Bassetlaw (John Mann) gave a rabble-rousing speech. By the end of it, I was absolutely gutted that he did not make it on to the Bill Committee. I am sure that Government Members do not share my sorrow. I fully expect him at least to ask the readers of the Worksop Guardian whether he should be on the GAAR board—a proposition put forward by the hon. Member for Macclesfield (David Rutley).
Turning to new clause 12, I want to talk about my visit to Gala Bingo in Plymouth last week, at which I met the chief executive officer of the Bingo Association, Miles Baron. As hon. Members would expect, those present wanted to talk about tax—mainly VAT—and the lack of a level playing field, but we moved beyond the debate that we had on that in Committee, and they talked to me about the competition in gambling and bingo from offshore, tax-avoiding, multinational companies. Gala highlighted that it pays tax in the UK, but it feels that it loses out when it comes to VAT levels, and loses out significantly to offshore multinationals, which use innovative means to avoid paying tax in the UK. It feels that it is a smaller company trying to do the right thing.
Gala is not alone, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) made clear. If new clause 12 is taken forward, there could be a win-win situation for a number of companies in Britain and internationally, including in many third-world countries. British taxpayers are gambling away not only their income but our country’s tax revenues by using online offshore companies. If the UK is losing out, so too are many other countries; gambling is an international pastime, whether we like it or not.
Customers made clear their anger at corporation tax avoidance by Starbucks; I hope that they will continue to be discerning in a range of other fields, including gambling. To do that, they need a little more information about exactly who is doing the avoiding, and where and how avoidance happens. That is why new clause 12 is so important. The plea from my Front-Bench team for greater transparency is really welcome, because it empowers consumers.
At a time when we hear Members of the House, charities such as Christian Aid, non-governmental organisations involved in the third world as well as the general public express clearly the need to trade ethically, the need for more transparency, the need not to disadvantage developing and third-world countries, and the need for tax to be paid in the UK, we must ask whether the general anti-abuse rule in the Bill goes far enough. Does it have teeth? The Minister made all sorts of excuses and gave all sorts of reasons for not going any further, but he really needs to address the very sensible series of questions put to him by my hon. Friend the Member for Newcastle upon Tyne North on the GAAR’s lack of scope, and its failure to tackle the tax avoidance activity of multinationals.
The point that my hon. Friend the Member for Bassetlaw made about clarity of company ownership is one that virtually every MP in this House will have some sympathy with, because on a constituency level, we will have tried to track down directors of companies, and to get background information on companies, to solve relatively minor problems. Here, we are trying to ascertain exactly where they pay their tax.
To come back to bingo, a lot of people disapprove of gambling, but it is just one small part of the tax avoidance picture. It is the part of the issue that I have highlighted, simply because it is fresh in my mind following my visit. People may disapprove of gambling, but they probably disapprove more of tax avoidance. We have heard many examples of the type of companies that have been using the rules to avoid paying tax in the UK. It is worth repeating that the estimate for the tax that could be recouped by the GAAR is about £85 million, and that the current tax gap between the money that HMRC estimates could be collected and the actual amount collected is £4.5 billion. That is a significant difference.
I note that the Minister said that the GAAR was not a panacea. In fact, it is barely a sticking plaster. Although first aid is always welcome, the problem probably needs more major surgery, in the form of a strong commitment from the UK Government and the wider international community. Developing countries lose an estimated £160 billion per annum through tax dodging by multinational companies. That is much more than they receive in aid. Poor countries struggle to access the information that they need to counteract tax avoidance by foreign nationals and multinational companies. Our own tax rules need to make it easier for developing countries to identify and share vital information in order to avoid those losses. If an expert on the tax regime in a particular country were required, for example, that would be an appropriate course of action to take.
Stella Creasy
Is my hon. Friend surprised, as I am, that there is not more support for this proposal from some of those Members on the Government Benches who are less committed to the aid budget. After all, if we could tackle this problem—
Mr Speaker
Order. I say to the hon. Member for Bridgwater and West Somerset (Mr Liddell-Grainger): be quiet, and if you cannot be quiet, get out. You are adding nothing, and you are subtracting a lot. It is rude, it is stupid, it is pompous and it needs to stop—whoever it was.
Stella Creasy
Thank you, Mr Speaker. I was merely reflecting that if we could tackle the way in which tax avoidance is affecting the developing nations, we might not need to have an aid budget in the future.
Alison Seabeck
Indeed, but that is a whole separate debate. My hon. Friend makes a serious, sensible point.
In this recession, we really cannot afford to allow those billions to disappear. Nor should we allow those developing countries to lose out so substantially. We need to work closely with other Governments to bring consistency into the process and, in doing so, ensure that doing the right thing in taxation terms is given value. We need transparency so that the public can take more informed decisions about the products they buy and from whom they buy them. I hope that those Members on the Government Benches who have been toying with the idea of supporting new clause 12 will see the sense in getting justice into the taxation system, and that they will support the new clause.
Financial Services Bill
Stella Creasy Excerpts(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Greg Clark
The hon. Gentleman knows that the term, “payday lender” is relatively informal and loose. It is important for the FCA to have the powers it needs to protect consumers. Its focus should be on the consumer, rather than on a current definition of a practice pursued by a supplier. That is the way it is cast and it is the right power. From the discussions in the House of Lords last week—as he might imagine, I paid close attention to them—it was apparent that everyone who has taken a close interest in the past weeks, months and, in some cases years, was content that the powers vested in the FCA, which are clarified in the amendment, address all the concerns shared by Members on both sides of the House.
Stella Creasy (Walthamstow) (Lab/Co-op)
I encourage the Minister to broaden his comments to encompass all our concerns about high-cost credit companies. Having seen the wonderful damascene conversion to the need to tackle these companies, many of us want to ensure that we do not inadvertently miss out on not just those payday or short-term lenders, but doorstep lenders, logbook loans and hire purchase agreements. High-cost credit encapsulates all those issues, and I think it would be welcome to the regulator to know that the intention of Parliament is precisely to tackle the whole industry.
Greg Clark
I am grateful to the hon. Lady for her point, which makes the point I was making to the hon. Member for Harrow West (Mr Thomas). To use the term “payday lenders” exclusively is to miss a broader range of potential practices that may cause detriment to consumers, and that is why this approach is about the powers vested in the regulator.
Stella Creasy
I shall speak to amendments 78, 137 and 148, which deal with the role of the Office of Fair Trading. Before I do, I want to place on record my gratitude to Members in the other place who, along with the hon. Member for Chatham and Aylesford (Tracey Crouch) have been so supportive of the sharkstoppers campaign. I mention Lord Mitchell, Lord Kennedy, the Right Reverend Welby—I think that is the appropriate term; apologies if it is not—Baroness Howe and Baroness Grey-Thompson. They have all been fantastic in championing a measure that I know has widespread support across the country.
I also put on record my gratitude to many organisations that have been helping make the case for action on high-cost credit, whether it be R3, the insolvency practitioners, the co-operative movement and co-operative party, Unite, Community and the thousands of concerned citizens who been involved in part of the campaign. I thank the hon. Member for Chatham and Aylesford for her kind words and for using the term “tirelessly” rather than “tiresome”, which is how some people might have interpreted the doggedness with which we have persisted in campaigning on this issue. In that sense, this amendment and the damascene conversion of the Government to the need to act on the cost of credit is very welcome. Throughout this campaign, we have all said that when the Government accepted that we were right all along, we would be grateful and would take it within the spirit of cross-party agreement that something needs to be done about these companies and about the impact of debt on our constituents.
With that in mind and in genuine appreciation of the fact that this moment has happened, I now want to press the Minister, as have many others, about the nature of the amendment and what will happen in the next year. Many of us are concerned that there is still a window of opportunity driven both by the delay in the implementation of these powers for the Financial Conduct Authority until April 2014 and by the continuing pressures that many in our constituencies will face, which might mean a bonzer Christmas for many of the legal loan sharks.
We started to campaign on this issue because we could see that toxic mix in Britain of a crisis in the cost of living, of families struggling, having lost jobs or facing wage freezes in Britain and, indeed, of the lax regulation in the UK of the cost of credit. We know that those pressures have got worse, not better, for British families over the last couple of years, so we know that one in three of those families in Britain have suffered a pay freeze over the last 12 months at the same time as they have seen the cost of basics rise and continue to rise. We know that many consumers have borrowed about £2,000 on top of their secured debts—their mortgages—to try to make ends meet in the last year, but only a quarter of them have managed to pay that money back.
The concern I bring to the House tonight is that when we look ahead to 2013, many of those pressures will not just increase, but explode over the course of the next year. The consequences for many, particularly those in the poorest communities, will be severe. We know that the pressures on the cost of living are not evenly distributed in British society. We know that the poorest 10% spend up to a quarter of their incomes on basics such as housing, fuel and energy, and we know that the prices of those commodities will become higher, not lower, in the coming year. Today we heard from E.ON—the last of the big six companies to announce it—about the increase in the cost of energy that consumers will face in the new year. The companies’ average increase of between 6% and 11% means that the average annual household energy bill will reach an all-time high of £1,300 next year.
I started to campaign on this issue because I could see the impact of debt on my community in Walthamstow, in north-east London. It gives me no pleasure to say that over the past 18 months many Members on both sides of the House, representing a range of communities, have approached me to discuss cost-of living issues, but I also know that London is a harbinger of the pressures that are to come. I know, because I have seen research-based predictions that London rents will increase by 26% over the next five years, that unless we do something about the cost of credit—unless we do something to help those who are struggling with the everyday cost of living—we shall face a society in which debt is just a way of life, with all the consequences that that will have for people.
However, this is not just about the cost of housing or, indeed, the cost of energy. It is also about the everyday cost of getting to work, which is having a great impact in my local community. I have talked to people in Walthamstow who have managed to secure apprenticeships but are forced to travel around London because there are so few apprenticeships in my area. A travelcard covering zones 1 to 3 costs £35 a week. Only people who are able to live at home can afford to take the opportunity to become an apprentice earning £100 a week, and we now learn that rail fares are to rise next year.
Those are pressures on the working poor in our community, but so are changes in the benefits system. Given that there is no spare supply of housing, it does not take a genius to recognise that the 1,000 families in my community who have been told that their housing benefit will be capped in April will have to borrow to make ends meet and keep a roof over their heads. The pressures that the legal loan sharks have decided to increase are the pressures that the amendment seeks to address.
It is clear that these companies are stubbornly resisting what are now widespread concerns about them and the profits they are making. Last year the industry was worth £1.7 billion in the UK; it is predicted that next year one company alone, Wonga, will be worth £1 billion, and it is just one of more than 200 companies that are now operating here. Moreover, the companies are clearly targeting young people, including students, and they have begun to change the terms of their loans. We became aware this week that Wonga is now offering what are supposed to be short-term loans on a 60-day basis. As the Office of Fair Trading has pointed out, the companies are abusing even the most basic consumer protections in the industry. That is why we need the amendment as a starting point, but it is also why we need to look at what else the OFT can do in the year ahead.
If we allow the pressures on consumers and their cost of living to continue and do nothing to curb the legal loan sharks now, we shall see another year in which millions of people are pushed into debt by them. We already know that a third of payday loan users take out loans that they know they cannot repay, and that 50% of people who have taken out loans have missed a payment. Given the additional pressure that those people will face next year, it will be a disaster for Britain if we do not act, and that means that we should think about what the OFT itself can do. I hope that the Minister will tell us tonight whether he will support measures enabling action to be taken now.
We know that the OFT will present new proposals in the new year, and that will present an opportunity for change that could set the tone for the new Financial Conduct Authority. I agree with my hon. Friend the Member for Nottingham East (Chris Leslie) and my hon. Friend the Member for Harrow West (Mr Thomas)—who is not in the Chamber now—that there should be regular meetings with the FCA to consider the industry now, but let us use the OFT to put down those markers.
First, as was pointed out by the hon. Member for Chatham and Aylesford (Tracey Crouch), we must pin down the question of irresponsibility in lending. What is an irresponsible rate at which to lend to people? The irresponsible lending guidance should be redrafted to make clear precisely what the cap should be and precisely what constitutes consumer detriment, in terms of both duration and the amount lent and including the total cost of a loan. Secondly, it should be made clear that it is irresponsible for lenders not to use a real-time credit register and ensure that every loan is recorded.
Justin Tomlinson (North Swindon) (Con)
The hon. Lady is delivering a categorical and passionate speech about a very important subject, and she has just made one of the most important points that can be made about that subject. Does she agree that the sharing of credit information in the UK car industry has, to an extent, transformed what was a very murky market, and that lessons can be learned from that?
Stella Creasy
I pay tribute to the work that the hon. Gentleman has done in raising issues about debt and credit, and about the way in which companies such as this operate. We know that many of them use a get-out clause, arguing that they could not possibly have known that someone had eight or nine loans at the same time. That is partly because there is no register specifying rates of interest and the number of loans that people are taking out. The OFT should make it clear that that constitutes irresponsible lending, and that loans should be made on a real-time basis. It is no good for supposedly short-term credit to be provided on a monthly basis. I also agree with all those who have expressed concern about continuous payment authorities. I hope that, in the new year, the OFT will make it clear that we must end both the fraud and the debt that they cause.
Yvonne Fovargue
Continuous payment authorities also militate against affordability checks. As was established by the OFT’s last review, once companies know that they can dip into someone’s bank ad infinitum, they simply do not bother to carry out the checks .
Stella Creasy
My hon. Friend is right. I pay tribute to the work that she has done in this regard, and also in regard to debt management plans.
Bad practice is widespread in this industry. The Financial Conduct Authority will have an opportunity to set the tone when it comes to the sort of consumer credit industry that we want in the future, but let us use the opportunity presented by the OFT to do something about the problems now, and to prevent 2013 from being boom time for the legal loan sharks.
The Minister must be aware that three quarters of consumers are looking towards Christmas with severe financial concerns, and that 10 million of us in Britain feel financially squeezed. Will he state explicitly whether he will support my proposals and take them to the OFT, so that we can be certain that 2013 will be a time for legal loan sharks rather than consumers to be worried? I urge him to read the Bristol research findings—which are already in the pocket of the Department for Business, Innovation and Skills—in order to understand how measures such as this, and total cost-capping, can work, so that we can finally say that Britain is a legal loan shark-free zone.
Damian Hinds (East Hampshire) (Con)
It is an honour to follow the hon. Member for Walthamstow (Stella Creasy), and to speak in favour of the spirit of Lords amendment 78.
The problems of high-cost sub-prime debt are widely acknowledged. Although they have come much more to the fore through opinion-formers of late because of payday lenders, they are not, of course, new, and by extension—this is somewhat at variance with what the hon. Lady said—it is not new that Government are not capping the cost of problem credit. It worries me slightly that we use the term “payday” as a catch-all shorthand for all these problems, and I hope that the Minister will reassure us that we are not just talking about payday lenders.
Dealing with problems of this kind requires an integrated approach involving financial capability and the provision of alternatives for people who need access to credit, but it also requires regulation. Disclosure is not enough in this market, especially as it often involves very vulnerable consumers and the ready, easy availability of credit. It could be said that supply sometimes creates its own demand. Some people tend to opt not for the solution that best suits their needs, but for the most recent that they have seen. In seeking to address these costs, however, we need to look at costs in the broadest sense. This is not just about interest rate charges.
Stella Creasy
It is wonderful to hear the hon. Gentleman talking about the positive aspects of capping. I suggest he look at total cost capping, because arrangement fees are not the only issue; there are also issues to do with late payment fees and the incentive they give lenders to push people to keep rolling loans over. Like the hon. Gentleman, I want this to be a future-proof—that is a dreadful term—proposal. We must also ensure lenders cannot get around it, however, which is why we need to cover all the costs involved.
Damian Hinds
The hon. Lady is entirely right, and I alluded to that point when I talked about behavioural charges. It is wrong to think we can legislate perfectly for all eventualities in advance, however. This market has an amazing ability to shapeshift and find its way around any regulation we might put in place, as has been seen in the United States.
I would like to hear an assurance from the Minister that under the new regime it will be possible to have a flexible capping regime that allows for all parts of the market to operate while also insisting that they do so in a responsible way. I also seek an assurance that we will not just address “payday” loans, which are a relatively new phenomenon in this country. Home credit is massive, and it has been with us since Victorian times, and has been a problem for quite a long time. There is also pawnbroking, which my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) mentioned. Logbook loans are a big market in the United States; they have not appeared in a major way here, but we can bet our bottom dollar that they would get a big boost if other parts of the market were capped. Rent-to-own is another area.
On the basis of the Minister’s conversations across Government, can he assure us that the Government will continue with an integrated approach that addresses not just regulation but boosting financial capability, starting with children’s capability with mathematics in school? Will they also continue to support operators that provide responsible credit, in particular credit unions? I pay tribute to the work the Government are doing in supporting that sector, and would like them to go further in modernising it and making credit union services more widely available, such as through the post office network.
Infrastructure (Financial Assistance) Bill
Stella Creasy Excerpts(12 years, 2 months ago)
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Danny Alexander
I am not sure I accept my hon. Friend’s characterisation of quantitative easing. One of the strengths of the tight fiscal policy that this Government have run and will continue to run is precisely that it allows the monetary activism that we have seen in this country and, indeed, in other parts of the world. However, he is right that the purpose of the Bill is to enable infrastructure projects to come forward quickly. That is why one of the key criteria by which we will decide whether to issue a guarantee to a particular project is that it can get under way within 12 months of the guarantee being issued, and that it has the necessary consents in place. This is about bringing forward projects now; it is not about offering guarantees now for projects where nothing will happen for many years to come.
Stella Creasy (Walthamstow) (Lab/Co-op)
Many Members will want to follow where the public money is spent, and we should consider the role of the Public Accounts Committee in understanding these measures. Will the Minister say a little more about when a liability will go on to the balance books, and the impact of the value for money assessment of the Public Accounts Committee of any of these projects? What will be the impact on those decisions and on any future liability that might be incurred?
Danny Alexander
Of course, the Public Accounts Committee will be able to undertake scrutiny in the normal way. Clause 3 sets out detailed reporting requirements to Parliament for the guarantees, and the PAC will want to scrutinise such matters. As I was explaining earlier, these contingent liabilities will be reported through the whole of Government accounts process, which is the appropriate way to report such things. They will manifest themselves as public spending only as and when the liabilities are called, or where an assumption has to be made about the likelihood of a guarantee being called; otherwise, they are contingent liabilities, as the hon. Lady will well understand.
The Bill contains measures that will support growth, jobs and families, all at minimal expected cost to the taxpayer. It will support the UK’s construction sector by providing access to finance for financially credible, high value for money projects. It will unlock the investment that the UK needs to make it one of the best places in the world to do business, and to support sustainable growth balanced across sectors and regions.
Stella Creasy (Walthamstow) (Lab/Co-op)
With every piece of legislation we are asked to consider in this House it is important to apply the test of why we are here. I believe that all Members across the House are here because they wish to improve the communities they represent and forward the causes they care about. The test for me tonight is whether this Bill will deal with the issues that my community and others across the country currently face.
The economic crisis across the nation cannot have passed anybody by. Given current levels of debt, disappointment and fear, many companies and families in our communities are struggling. When that happens, people look to their Governments as the first line of defence. Many of us in opposition fear that, in some of the ways the Government are approaching legislation, rather than being the home front, they seem to be saying, “Don’t panic, Mr Mainwaring.” I think that that is what we are seeing tonight. The Bill is designed to give the appearance that something is being done, but the critical question we must all ask is this: what is the something that needs to be done for the communities we represent?
Our communities are suffering from a toxic mix of several factors. First and foremost, there is a crippling lack of confidence in our country’s economic condition. The figure that should challenge the Government the most is the £750 billion-worth of assets that companies in this country are sitting on, which they have been stockpiling over the past four years. Frankly, companies in this country do not need credit; they need good reasons to spend. We have to give them those good reasons to spend credit and get demand going again.
When that demand is going, we know that that means jobs for communities such as mine, where there has been a stubborn 5,000 people out of work over the past year. It means tackling the long-term unemployment that is pock-marking too many of our young people. It means tackling the issues that my hon. Friend the Member for Glasgow North East (Mr Bain) mentioned, as people are having to work in different ways that do not suit their needs, setting up their own businesses and hoping against hope to make the money to keep a roof above their heads. It means tackling the low level of vacancies in our economy. It means tackling the third part of the trifecta of issues affecting the rising costs of living in our communities—families who are struggling with unemployment and wage freezes are also struggling with the increasing costs of transport, housing and food.
We have to ask ourselves whether the Bill will do more to advance the issues that people need to be advanced, and can be tackled, or will simply pass them by. We have to ask how it will help to restore our economy. We all understand the impact of choking off investment infrastructure, because we have seen it over the past two years. We have seen the fall in housing construction, which has resulted in 120,000 jobs disappearing from our economy. We have seen the dithering over our transport infrastructure, which has affected the discussions on aviation, high-speed rail, and, in my part of the world, London Transport, trains and electrification. We have seen the consequences for companies that are reliant on the internet and for communities who needed the broadband promise to have been implemented in 2012, not by 2015. We have seen decimated new industries that could offer great hope to our economy —in particular, the solar panel industry, decapitated by this Government through the choices they have made.
The Government have failed to understand the crucial link between the public and private sectors and the consequences of investment in one for benefits to the other. That is what the Bill must address. To give an example from my constituency—I am sorry that the hon. Member for Suffolk Coastal (Dr Coffey) is no longer here—Willowfield school was good to go under the Building Schools for the Future programme and is now finally being rehabilitated. Not only have the children in my constituency had to wait—and are still waiting—for the quality school environment that they need to achieve their potential, but young people who were out of work could have been put to work on building that school, which we all recognise we need.
It is a false economy not to see infrastructure investment as part of a growth strategy. I welcome the fact that the Government have now understood the potential that that has to make an impact on my community, let alone the other struggling communities across the country. It is also something that businesses would support. Two thirds of companies are worried about the standards of our local roads; 95% of them believe that congestion has impacted on their business; and a quarter feel that they have lost at least £1,000 in the past year alone because of problems with their internet connectivity. Most crucially, two thirds of businesses have no confidence that there will be improvements to address the problems, despite the Government’s proclamations.
The Bill must pass that test if it is to be part of the economic revival that our communities and our country need. Frankly, as many Labour Members have pointed out, it does not pass muster because of the restrictions that it places on spending. As the shadow Chief Secretary said, it is, in effect, deadweight funding for schemes that would get support in any case. I hope that Ministers will deal with that issue, because they have yet to identify the schemes that should receive funding—the so-called perfect schemes that have all the requirements in place and are good to go, but that for some mysterious reason are not moving forward. There is no clarity about when these projects might be chosen so that we know when and how they might make a difference. We might look to the national infrastructure plan, but we are already on version 2 and are promised version 3 shortly. One can understand why the businesses sitting on the £750 billion do not have confidence in the situation.
I encourage Treasury Ministers to think again about how they use the Public Accounts Committee. The Chief Secretary brushed off the argument that the PAC has an important role to play in value-for-money questions, especially in deciding what projects are invested in or what constitutes good value for money. As other Members have pointed out, there is lack of clarity about how the decisions on which schemes are invested in will be made, which Department will make those choices, and how the schemes will fit in with other spending priorities and, indeed, other priorities across Government.
I endorse the words of my right hon. Friend the Member for Salford and Eccles (Hazel Blears), who talked about the social value test and the importance of looking at investments in the round. We should not merely ask, “Can we get the road built?” We should also ask, “Can we get our young people back to work? Can we skill them up so that this money does not just pay back once but repeatedly?” That is the social return on investment that we should all look for.
Ministers also need to answer the question that occurs to many of us when we examine the current economic climate. One in four public sector organisations have reportedly said that they are planning to cancel investment projects in the next four months. If there is not clarity about which investment projects will be taken forward, when, and how that will be decided, what confidence can we have that the decision making process has not already corroded the possibility of those projects happening? Businesses that rely on work that they know is not going to come about will not get the comfort that the Bill should offer.
That is why the shadow Chief Secretary was right to talk about the Bill being a peashooter when we needed a bazooka. Frankly, it is a peashooter when we are facing a tank of a problem, because we know that there are worse things to come in our economy if the Government do not change course. We know that the cuts to benefits will kick in next year and that the cost of living will continue to rise as the cost of transport, energy and housing goes up. The impact of any investment that the Bill brings forward will not be felt for years to come, so it does nothing to address the challenges that my community and others around the country are facing now, about which I talked at the start of my speech.
I urge Ministers to consider what more they can do for the real wealth creators in our communities. We know that two thirds of jobs come from small businesses, so I make the same plea that I made in the Queen’s Speech debate for the Government to look again at what more they can do to help small businesses and unlock the money that is sitting in companies’ bank accounts, which could be invested in Britain’s future entrepreneurs. They should consider how we could use time-limited tax breaks to get our economy moving now, so that we can give real hope to families who are in debt.
We all want to get Britain back to work and reverse the current toxic cycle. I say that in a week when we have heard of one company doing fantastically successfully. It would not be a speech in the House by me were I not to point out that legal loan sharks are the one blooming industry in our country—we heard this week that Wonga’s profits are up 300%. We cannot have another year in which the only people doing well in this country are the legal loan sharks.
I ask Ministers not just to invest in infrastructure but to think again about what they can do for communities such as mine, Ealing North, Nottingham and Portsmouth. They should consider how they can bring jobs back to those communities, because the people we represent need and deserve nothing less.
Business and the Economy
Stella Creasy Excerpts(12 years, 6 months ago)
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Vince Cable
There were many candidates for the Queen’s Speech—a lot of productive legislation. The reforms in higher education are being pursued successfully. Many of the alarms sounded about the university reforms have not been realised. We can pursue questions about higher education in Business, Innovation and Skills questions next week. This is not about the higher education Bill.
Stella Creasy (Walthamstow) (Lab/Co-op)
On the point about what is not in the Queen’s Speech, I agree with what the Secretary of State said about concern about Governments who were intensely relaxed about excessive financial practices. In a week when we found out that Wonga intends to lend to small businesses failed by Project Merlin, does the Secretary of State regret that there is nothing in the Queen’s Speech to deal with legal loan sharking?
Stella Creasy (Walthamstow) (Lab/Co-op)
I was very challenged earlier when I heard the hon. Member for Blackpool North and Cleveleys (Paul Maynard)—I am sad that he is not here—demeaning the contributions of Labour Members by saying that we thought that this was a “state of the nation” debate rather than a debate on the Queen’s Speech. That struck me as a powerful example of the strong differences between Labour Members and Government Members when looking at our country. While Government Members believe that we are just bystanders to the crises that are unfolding across kitchen tables, in businesses and in our economies at local and national level, Labour Members believe in action. That is why we hear this Queen’s Speech and ask, “What is it doing to act on the central crisis that we now face in our economy?”
We are in a double-dip recession for the first time since 1975. Our economy, which was recovering, has slumped backwards—not by accident, but by design. What is more, there is no end in sight—no happiness to come for our constituents, who are struggling in these difficult economic times. The most optimistic pundits say that we might get growth of about 0.4 %, but the majority are gloomy, with some even saying that the economy will continue to contract. In 2010, this Government inherited an economy that was growing, thanks to an active Government who were seeking consciously and purposefully to intervene to make sure that this country pulled through the economic times we were living in—a Government who invested in our infrastructure and, yes, used temporary tax cuts and looked at how they could grow the economy. What a contrast!
That is the context in which we judge this Queen’s Speech, because two years on, things are getting worse, not better, for our constituents and for our country. A range of factors have been blamed for that situation, whether it be snow or the royal wedding; this afternoon I even heard that television was the problem. It is as though the Government cannot see what is staring them in the face—the fact that the impact of the decisions that they have made and the way in which they are dealing with the deficit has exacerbated the situation.
Whether it is about the future jobs fund, which they have had to reinstate because it is bad value for money to have nearly 1 million young people out of work, or the fact that only 30% of the cuts have taken place so far, which means that the problems are going to continue, they simply do not get “it”. “It” is a very simple issue—the crippling lack of confidence that consumers and businesses are now experiencing. I have spoken at length in this House about consumer confidence and my concerns about how consumers are behaving in the present economic situation. That is why tonight I want to talk about businesses, which cite the lack of consumer demand as the biggest barrier to growth.
Many hon. Members have talked tonight about the problems in our economy as a result of firms sitting on £750 billion worth of cash and deposits. They are not investing because they have no confidence in this Government and how they are managing the economy. All the prophecies about austerity have become real, because everybody is shutting up shop, such is the uncertainty. Businesses themselves say, “We will continue to be on the critical list until companies get their chequebooks out.” That is the problem that Britain faces and this Queen’s Speech should be addressing it.
As all hon. Members have mentioned, John Cridland, the director of the CBI, said that he wanted a Queen’s Speech to help businesses grow and create the jobs that we all want. Even the Secretary of State himself admitted that we needed a compelling vision, for our economy and for the future, that we could all fight for, but there has to be more to drive economic growth in this country than hope that the Olympics or the jubilee might do it. It is striking that the contrast between a bystander Government and an active Government is shown in the concept of growth. The previous Government had Ministers dedicated to a plan for growth, but it has taken this Government two years to get round to a growth plan, and what do we see? It is small beer and not the kind of thing that will challenge the £750 billion sitting there waiting, not being used. That is why businesses have been so disappointed.
Let me mention just one example. The hon. Member for South Down (Ms Ritchie) spoke passionately about our green economy—a massive growth industry that in 2009-10 was worth £116 billion. We were sixth in the global economy in this regard, but where are we now? What has happened to our green economy? What does the green investment bank really offer? It offers little to change the situation, let alone solve the problems caused by cutting off the solar panels tariff.
Yes, there are good things in the Queen’s Speech, including measures on parental leave and shareholders’ rights, but they are not the drivers of growth that we need. We need something stronger. Many hon. Members from all parties have made many serious points about things that we could do to drive growth, so let me offer some ideas that have not yet been talked about.
First, this Government need to learn from America and Germany and create a state investment bank that could lead to businesses having the cash they so desperately need. This would not be one of my speeches if I did not talk about credit and the problems caused by a lack of credit or by expensive credit. Those problems are now affecting businesses, too. There is no more damning indictment of this Government’s failure to manage our economy and support businesses than the fact that the legal loan sharks have stepped into the breach. Ministers should be ashamed that Wonga sees a business opportunity in the failure of Project Merlin. This Government could have used the Queen’s Speech to correct that. They could have intervened and set up a state investment bank—22% of small businesses say that access to finance is also causing them problems—but they did not do so.
Julian Smith
Does the hon. Lady welcome the Government’s national loan guarantee scheme, which will reduce the cost of loans to those small businesses that apply through it?
Stella Creasy
The hon. Gentleman does not understand the scale or the severity of the problems that businesses are facing in getting hold of credit, whether that is because the loan system is not working or because there has been a contraction in the amount of money in our economy in the past year. In part, that is because people are paying off loans and the banks are not lending to people—indeed, one of the banks in whose operations we have the most say, Royal Bank of Scotland, has failed substantially to do so. Whether for consumers or businesses, credit at an affordable rate just is not there to allow them to grow and give them the confidence to invest in the plant and materials that they need to help get our economy going again.
In addition, I want the Government to take seriously the role that small businesses could play in our economic revival. All hon. Members have mentioned that this evening. We know that two thirds of new jobs in economies such as ours come from small businesses—those employing fewer than 50 people. We needed a Queen’s Speech for small businesses, announcing an arsenal of measures to help them and a tough look at what could be done in the tax and regulatory regimes to help start-ups and small and medium-sized enterprises—perhaps even a start-up business Bill. Where was that? Where was the recognition of the different needs of small businesses, as opposed to big businesses?
We could even have gone further and used sunset clauses to give tax breaks in this financial year alone to help unlock that £750 billion—money we need to be out there, being invested in our companies and our communities. However, it is not going to be out there, because this Queen’s Speech will not deliver the kick-start that our economy so desperately needs, as shown in the picture painted by my hon. Friends the Members for Birmingham, Erdington (Jack Dromey) and for Edinburgh East (Sheila Gilmore) of the human cost of doing nothing and of being bystanders as our economy continues to deteriorate. There are consequences for our communities and our country.
This Queen’s Speech could have been a brilliant masterclass in thinking creatively and strategically about the role of Government in investing in our communities and in getting our economy to grow, but it was not. I believe the country will view the economy and the Queen’s Speech as people do when they see a toddler holding a hammer—with a deep sense of foreboding about the damage that it will do to anyone within its radius and no sense of how to stop it. I really hope that the Government will think again about both how they deal with people’s need to access credit in our communities and how they need to support small businesses. I fear that the Queen’s Speech does not meet the test that the country so desperately needs it to meet.
Financial Services Bill
Stella Creasy Excerpts(12 years, 7 months ago)
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Mr Hoban
I ask the hon. Lady just to hold her horses for a moment. This is about the third time we have discussed this matter and she may want to engage in the debate later, but we need to understand the function of the market. The previous Government—[Interruption.] The hon. Member for Nottingham East (Chris Leslie) says that we are still making the wrong decisions, but our predecessors in government examined this issue of the cost of credit and concluded that price caps worked against the interests of consumers. This Government have, following the parliamentary debates on the matter, commissioned research to examine the impact of a cap on the total cost of credit. We should look at the research, understand what remedies are being proposed and follow that through. One of the advantages of moving the cost of the regulation of consumer credit away from the OFT to the FCA is that the FCA has a greater range of tools and can make a wider range of interventions than the more narrowly focused solutions of the OFT.
Stella Creasy
Borrowing has always been a part of the British way of life and part of our debates in the House as long as I have been an MP, but as we argue how best to tackle the nation’s debt, we forget at our peril the need to help our constituents to manage their debts. As the Minister pointed out, amendment 40 is our third attempt to help our constituents to manage their debts and to give them the kind of protections from such toxic credit that others around the world take for granted.
I hope I can convince the Minister that this is not a political whim, but a matter of deep importance to many who are struggling with such companies, not just in my constituency, but in constituencies across the country. If he is not convinced, I urge him to come to one of my surgeries, or to come with me down my high street, which now has 16 such companies, to see the problem and understand the urgency of action. I am sure the hon. Members for Enfield North (Nick de Bois), for North Swindon (Justin Tomlinson) and for South Swindon (Mr Buckland) have the same problems in their constituencies. The amendment is about urgent action. Too many in our communities cannot afford to wait for the outcome of research in the summer, let alone for future legislation at some unknown point.
Let me start by finding common ground. I welcome the development of the Financial Conduct Authority and its role in managing consumer credit, and the statement that it will be more willing to intervene to address problems with financial products. The question we must address today—it is what the amendment speaks to—is whether the new authority will have the teeth to deal with the problems our constituents face and act in their interests. The amendment is designed to end any uncertainty on that by giving explicit authority to the FCA to act on one aspect of our consumer market that many hon. Members are concerned about. I want to put on record my thanks to those on both sides of the House who have co-signed the amendment. That speaks to the disquiet that many have that no alternatives have been put forward.
We know why there are problems, but it is worth repeating the reasons. As the costs of food, energy and transport soar and as unemployment continues to bite family households, and as wages freeze, British families are struggling and borrowing to manage their daily needs. Aviva’s work shows that UK families owe on average £10,500, which represents nearly half the average annual household income of £23,000. That level of debt will only increase, because there is no end in sight to the financial pressures people face. One in six of our nation is now a “zombie debtor”, which means a person who is able only to service the interest on their debt and not reduce it, and a third of us have no savings at all.
Since the start of the recession, mainstream lenders such as high street banks have been much less willing to lend money, but the truth is that for many, banks are making things worse, not better. Average overdraft fees in this country have simply been reduced from £25 to £12 a day, which is still a huge sum for people who have no money. Credit card rates have soared by 2% recently, taking the average interest rate to its highest level in 13 years, despite the Bank of England base rate remaining at 0.5% for 25 months. It is little wonder that many people are turning to the high-cost credit market to make ends meet.
Last year, the payday loan sector in this country was worth £1.7 billion, a fivefold increase in a year. Research by R3 tells us that nearly 4 million people will take out a payday loan in the coming months alone. The annual percentage rate—it is a misleading term, but it is still worth looking at—can begin at 444% and escalate to 16,500% or more. Home credit lenders, about which the hon. Member for North Swindon has warned us, can charge £82 in interest and collection charges for every £100 loaned.
It is little wonder that Payplan, a debt charity, is seeing a deluge of people in financial difficulty as a result of the payday loan market. It says that nearly half its clients had six or more payday loans in the last year alone. More than half owe more than £500 to those companies and, crucially, 61% had more than one loan at a time. Eighty-six per cent. of Payplan’s clients used their loans for basics such as food, transport and the everyday costs of living, not luxuries.
Such lenders are exploding across our towns and cities. Dollar Financial underpins Money Shop. Money Shop had just one store in 1992; it now has 450 shops across the UK. There are two in my high street in Walthamstow. Meanwhile, our friends at Wonga have secured £73 million from the Wellcome Trust to expand their operations; the Provident Financial share price has risen by 16% since the comprehensive spending review; and BrightHouse, which provides hire purchase agreements at hugely extortionate rates, has announced plans to nearly treble the number of stores it operates in our country.
The FCA has many toxic practices in the market to address. As the high-cost credit industry admits, a quarter of home credit users and a quarter of payday users have no other form of credit. As consumers, therefore, they do not have the power to shop around for more affordable forms of credit. That many of those firms do not do credit checks means that customers who borrow regularly from them cannot build up a track record to show to other lenders to prove that they are credit worthy so that they can borrow at more acceptable prices.
High-cost credit companies have high fixed costs, so they make their money by repeat lending, meaning that their entire business strategy is geared towards repeat borrowing and the “rolling over” of loans, about which many hon. Members are concerned. Thirty-two per cent. of payday loans are refinanced—the average is twice—and 15% of doorstep loans are refinanced before the end of their term. All hon. Members know what “rolling over” means: it means that interest can be charged on interest accrued as well as the initial amount loaned.
Such companies also engage in aggressive marketing campaigns to encourage that repeat borrowing, persistently offering customers the opportunity to extend their loans and take out new ones. There is strong anecdotal evidence that many of those companies lend consumers more money than they can afford to pay back in a month to ensure that they have to roll over their loan.
Above all, the rates charged by high-cost credit companies often do not reflect any economic rate, meaning one that reflects competition in the market or the cost of lending. That is why rates vary so substantially, from 4,500% with Wonga to a mere 2,500% with Uncle Buck, 1,700% with Kwik Cash or 1,200% with PaydayUK. There is simply a lack of competition in the market to drive the price down in the way Ministers expect.
Justin Tomlinson
There is a lot of competition, but because people cannot understand APRs, it is irrelevant. If repayments were displayed in cash terms, competition would kick in and help consumers.
Stella Creasy
The hon. Gentleman slightly pre-empts me. I was about to say that the doorstep market, 67% of which is owned by Provident Financial, is not competitive. Nevertheless, his point about APRs being difficult to understand is well understood.
The amendment is not a panacea. We need total cost caps on credit charges so that consumers have an explicit amount beyond which the cost of any loan will never go—interest rates, administration charges and late repayment fees included. I also agree strongly with the hon. Member for North Swindon about financial education and investment in debt advocacy services to give consumers help to negotiate with creditors and the support needed to make good decisions.
We also need an expansion in alternative sources of affordable credit through credit unions and social finance. The idea that the market will somehow reduce prices where there is disparity between the consumer and supplier belongs in the textbooks, not real life. We also need a proactive regulator to ensure effective competition and protection against consumer detriments. The amendment would address those problems and provide the opportunity, presented by the FCA, to take action as quickly as possible and to prevent the problems in our communities created by these loans from becoming worse.
I agree with the Chair of the Treasury Committee, who said about replacing the FSA:
“The creation of the FCA is an opportunity to create something much better. If we are not careful, the FCA will become the poor relation among the new institutions. But it is the one that will matter most to millions of consumers.”
However, for the FCA to be that better institution, its power to act on toxic financial products needs to be made clear. The financial services practitioner panel stated:
“We acknowledge that it will be useful for the FCA to have tighter powers to control any product that can and does do harm.”
The amendment is in that spirit. It would give explicit powers to the FCA to cap, where it sees appropriate, the charges firms can apply.
I understand that the Government have been briefing people that those powers are not needed because the FCA already has product intervention powers. The Minister seems to think that that could happen, but he must address two questions: first, can it intervene; and, secondly, are its powers of deterrence or sanction appropriate to the toxicity we all want to prevent? Clearly, there are good grounds to fear that the first is not the case. In his speech today and in the document setting out the FCA’s powers, there are somersaults and loops worthy of the Olympics gymnastics team. The document states:
“The government has said that the FCA will not be an economic regulator in the sense of prescribing returns for financial products or services. The FCA will, however, be interested in prices because prices and margins can be key indicators of whether a market is competitive. Where its powers allow, the FCA will take into consideration more positively the cost of products or services in making judgements about whether consumers are being fairly treated. Where competition is impaired, price intervention by the FCA may be one of a number of tools necessary to protect consumers.”
I am sorry to disappoint the hon. Member for Vale of Glamorgan (Alun Cairns), who is not in his place, but that is part of the Government’s thinking.
The problem, however, is that the Government’s thinking is fuzzy. Lawyers in this area have highlighted the lack of clarity about whether the FCA is intended to be a price regulator and about whether the legislation proposes such a thing. John Odgers, the lawyer for Which?, highlighted that point in his written evidence to the Treasury Committee:
“It seems to me to be desirable that a power of price intervention should be spelled out, if it is intended. Financial services regulators have not in this jurisdiction previously exercised that type of power, and might in future be loth to do so without a specific statutory authority, as the use of such a power would be particularly likely to attract a challenge.”
The Minister should talk to the OFT. It is particularly well placed to tell the FCA about the problems that the fear of legal scrutiny places on consumer credit regulation. As it admitted, that fear has defined its work in this field and its lack of action against these firms. It has feared the cost to the public purse of unsuccessful legal actions. In his evidence to the Public Accounts Committee on 5 September last year, the chair of the OFT stated that
“there are companies now pursuing particular practices that 10 or 15 years ago perhaps would not have employed the most expensive lawyers and taken every point under the sun. Now, however, that is happening with an increasing number of cases where you might have otherwise expected the party to throw in the towel after the first round. They do not do that, and therefore we have to take very careful assessments. We have a particular case at the moment that I have in mind where, much to my surprise, the parties have involved the most expensive City lawyers, and we know perfectly well that we are at substantial risks on costs if we lose.”
It is little wonder that Google has a stronger track record on taking action against such adverts and firms than the OFT, which, in the past eight years, has managed to take action against one brokerage firm only.
Susan Elan Jones (Clwyd South) (Lab)
Are the Government extremely weak on this issue compared with other Governments around the world?
Stella Creasy
We should listen to the companies themselves. They state explicitly that they are coming to the UK and expanding their operations here at an alarming rate precisely because of the lack of regulation of our payday industry in comparison with other countries. They are clear that, because we do not have that regulation, we are fertile territory for their practices.
Stella Creasy
Does the hon. Gentleman agree that, although limiting the number of roll-overs is certainly a step in the right direction, there is a risk that it could result in what has happened in America, where such a limit has led to firms paying off someone’s loan and starting a new one in order to circumvent the regulation? We need a regulation with clear, explicit powers to act in relation to these companies in a way that they cannot shrink away from.
Neil Parish
That is absolutely right. Many of the people taking out these loans earn less than £15,500 a year and therefore cannot afford the loan in the first place. I have sympathy for their position, but are we really helping them by allowing them to get into the hands of loan sharks, which results in their having to pay back huge amounts of money that they simply do not have?
I have made the point before that if financial companies and loan sharks are arguing that they need to charge huge amounts of interest because people are such a high security risk, they should not be lending them the money in the first place. Let us remember the old adage about finance: these companies will lend us an umbrella when the sun is shining, but they will take it away again as soon as it starts to rain. In the circumstances that we are describing, they should never have made the loans in the first place. Citizens Advice and financial advisers often tell us about people who have got themselves into huge amounts of debt, perhaps through no fault of their own.
It needs to be made absolutely clear to people what to expect. I am not a great believer in huge amounts of regulation, but I do believe that the consumer should be able to see exactly what they are signing up to at the outset, and be made fully aware of the consequences of their actions. They often do not understand the terms if they are hidden in the small print or expressed as complicated percentages, but if they were told, “You can borrow £100, but if you don’t pay it back on time, you could end up paying £2,000 back”, it might make them sit up and think about exactly what they were borrowing. They might then choose not to do it, or to go to someone who could lend them the money at a better rate.
The Government are doing a great deal to increase the use of credit unions, and we need to do much more work on that. Perhaps we should look into ways of financing them. I have a very successful one in my constituency, and we need to build on that. Only a small percentage of people here borrow money from credit unions, unlike in Ireland, where almost 50% of people have access to such loans.
Sheila Gilmore
That is indeed the case. I am not suggesting that we should not have financial education. What I am suggesting is that we also need regulation. My hon. Friend the Member for Walthamstow eloquently outlined the various forms that high-cost credit takes, so control over it is also important.
Stella Creasy
I thank my hon. Friend for giving way. Much as I support a good deal of what the hon. Member for North Swindon (Justin Tomlinson) said, I think he misunderstands the situation. Many of my constituents have tried to negotiate, but these companies will not respond to constituents individually as they do not recognise individuals in the negotiation of credit plans, so it is often organisations that have a status—a citizens advice bureau or Christians Against Poverty, for example—who are able to make the breakthrough. That is why these debt management companies are so invidious. They claim the same status as Christians Against Poverty and the citizens advice bureaux, so it is not just a case of being financially savvy; it is also about the having the muscle of a respected organisation behind people. That can cause some of the problems.
Sheila Gilmore
I thank my hon. Friend for that important point of view.
If we do not take steps to deal with high-cost credit, we will do many people a disservice. I urge the Minister, even at this stage, to support amendment 40. It does not lay down a set of rules, but merely asks the FCA to make the rules an important priority. In order to protect people who will often feel that they have little choice but to use this sort of lending, we need to have controls in place.
Alun Cairns
I entirely agree. That is one of my reasons for opposing amendment 40. In my view, it will not achieve what it sets out to achieve, but will have far-reaching consequences for not only the FCA but consumers and providers.
Alun Cairns
I will give way to the hon. Lady, and I trust that I shall then have a chance to respond to her question.
Stella Creasy
Will the hon. Gentleman enlighten the House on his concern about the expertise of the FCA and its ability to exercise the powers granted by the amendment? The amendment simply gives the FCA those powers; it does not direct it to use them automatically. I should also like to know why he was concerned by what the Minister said earlier about his support for the use of price regulation.
Alun Cairns
There are clauses that allow for product intervention and refer to terms and conditions, but that only underlines the fact that amendment 40 is not necessary. I do not understand the inconsistency. I am also worried about the reference to maximum pricing in the amendment. If it were passed, price regulation would be introduced to the financial services sector for the first time, because banking services are currently based on variable cost. Many products are intended to remove the risk from the consumer, and the risk is priced accordingly. Price controls could not accommodate changes and fluctuations in the marketplace. The amendment poses a major threat to the supply of valuable products to many consumers, to the free market, and to competition principles.
Direct pricing also poses the threat of practical consequences. How would the FCA determine the price of a product? One of my hon. Friends said that he considered 50% to be appropriate, but some Members are now shaking their heads, suggesting that that might be too high. How would the FCA decide whether the basis of pricing should be fixed or variable? What about the cross-subsidies that are arranged within financial institutions with the aim of securing the financial certainty that many consumers demand? What about the long-run incremental costs? It would be impossible to price products accordingly; but even if that were a solution, it would require a large-scale, sophisticated infrastructure body to provide continual oversight of the hundreds of products provided by hundreds of organisations.
For those reasons, I oppose amendment 40. In the same breath, however, I pay tribute to the campaigning that has highlighted the scandal of payday loans, and to the Treasury, which has responded accordingly. We have already heard that there will be a report by the end of the summer, and that it will be acted on. I hope that those who share the concern expressed by the hon. Member for Walthamstow about payday loans will be reassured by what has been said not only by Ministers but by Back Benchers, who will maintain the pressure for action.
Stella Creasy
There is genuine concern about the view of lawyers that unless the power is explicit, it will be open to challenge. Will the Minister publish the legal advice that he has had to the contrary, supporting his assessment that the power in amendment 40 could enable prices to be capped as part of action on consumer detriment?
Mr Hoban
I am certain that the FCA’s broad range of powers will enable it to do that. It can use its powers in pursuit of its consumer protection objectives. However, those are not the only powers that are available.
The hon. Member for Makerfield (Yvonne Fovargue) asked whether the FCA would be able to suspend permission with immediate effect. Under new section 55Y, it will be able to vary the permission of a firm, or to impose a requirement on a firm with immediate effect if it considers that to be necessary. We will consider whether the OFT should be given the same powers in the interim.
A helpful question was asked about the asymmetry between the information given to lenders and that given to borrowers, and about whether a cash illustration could be provided alongside information about the annual percentage rate. The consumer credit directive requires the costs of credit to be specified in terms of the APR. The Commission will review the directive in 2013. We have ensured that there is a new “with regard to” provision for the FCA—something else that it must consider when it seeks to secure an appropriate degree of protection for consumers. Consumers must have timely provision of information, and that advice must be accurate and be fit for purpose in the eyes of the consumer, not those of the provider of the service. We will consider whether a provider of consumer credit should quote an indicative cash cost alongside the APR.
Financial Services Bill
Stella Creasy Excerpts(12 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
As I have said, when the Bill is passed, the statutory responsibility will be on the Bank of England to inform the Government if there is a material risk that public funds might be used. We are trying to get away from a system in which it is the Treasury’s responsibility to try to regulate the financial system on a day-to-day basis in peacetime. We are giving the responsibility and clear accountability to the Bank of England so that it will trigger the arrangement by informing us of a material risk. As is set out in the legislation, twice-yearly meetings between the Chancellor and the Governor to discuss these things are required, although there could also be further meetings. Once the Bank has informed the Treasury of a material risk, which it will have a statutory responsibility to do, there will be a power of direction. I should just say, for the sake of completeness, that if we wish to keep the details of the use of this power confidential, I or my successors would have to inform, on a confidential basis, the Chairs of the Treasury Committee and the Public Accounts Committee, so that representatives of Parliament were informed.
The fourth and final flaw in the system that we are trying to address is that customers and consumers too often get a raw deal from the regulation of financial services. The disappearance from the high street of names such as HBOS and Bradford & Bingley has inevitably reduced competition in an industry that was becoming more and more consolidated even before the crash. The existing regulator’s dual prudential and consumer remit means that it cannot give consumer interests its undivided attention. In response to the Vickers commission and the Joint Committee, the new authority will have an explicit responsibility to promote competition. We have listened to the Joint Committee and announced that we will also bring the regulation of consumer credit into the authority’s remit so that, for the first time, the regulation of all retail financial services will be under one roof, and things like payday loans will be subject to tougher regulation.
Stella Creasy (Walthamstow) (Lab/Co-op)
The banks that have gone from my high street have been replaced by high-cost credit companies that offer exorbitant rates of interest. I know that the Financial Conduct Authority will have powers over competition. Does the Chancellor accept the argument, made by many Opposition Members, that price inevitably reflects competition, so it is absolutely right that the FCA should look to regulate the price of those products and finally tackle the legal loan sharks?
Mr Osborne
The Department for Business, Innovation and Skills has commissioned a review of the cost of credit, but I think that the Bill takes a significant step on that, partly because of the Joint Committee’s recommendations, because the regulation of all retail financial services will now come under the remit of the FCA. It will have the power to ban specific products, to name and shame particular firms and to publish details of misleading promotions, so there will be considerable new powers that were not previously available. On the hon. Lady’s specific concern about the price of credit, that is something the Government are looking at. Of course we are also looking at the recommendations of the FSA’s recent report on RBS—I do not wish to reopen that issue—in relation to legislation on the sanctions available for bank directors who fail in their role.
The Bill is an important piece of legislation. I believe that it replaces the confused and dysfunctional system that presided over the biggest banking crisis in our modern history. It creates clear lines of accountability by putting the Bank of England in charge of monitoring and dealing with debt levels in our economy. However, no amount of new clauses, powers or institutions can substitute for something for which Parliament cannot legislate: judgment. There were thousands of pages of financial regulation in existence in 2007, but that did not stop the queues forming outside Northern Rock or prevent RBS from making its final, fatal, bid for ABN AMRO. I hope that we have learned that financial stability depends not simply on a checklist of regulation, but on individuals within our regulators feeling empowered to trust their judgment, and our giving them the power to act on it. By putting our central bank in charge of monitoring overall levels of risk and the soundness of individual firms, we are trusting in its judgment. By giving the elected Government of the day the power of direction in a crisis, we are trusting in their judgment, and that of Parliament, to which they are accountable.
Britain has paid a higher price than most for what went so badly wrong in our banking system. The errors of the economic policy that led to such a boom have cost every taxpayer dear. Today we show that we are learning the lessons and passing on to our successors a better system than the one we inherited. I commend the Bill to the House.
Stella Creasy (Walthamstow) (Lab/Co-op)
This is the third time that we on this side of the House have proposed legislative action on the high-cost credit market in the UK. As Mae West said:
“I’ll try anything once, twice if I like it, three times to make sure.”
I can tell the House that we are absolutely committed to the argument that something needs to change drastically in our consumer credit markets. This Bill offers the potential to address some of those concerns. We have had a positive debate today about some of the large-scale problems in our financial markets, but I want to set out the other picture. I shall talk about those people at the other end of our financial markets, the people who are called the “under-banked”. There is now irrefutable evidence that millions of people in this country are unable to access credit in a manner that is positive and constructive to their financial health. We should consider that one in six of us is now what are called “zombie debtors”—paying off the interest on our debts, not the capital.
A perfect storm has hit UK consumers in the last couple of years as pay freezes, rises in unemployment, rises in the cost of living and a lack of regulation of the consumer credit market has made us a fertile territory for the high-cost credit industry. It is not by coincidence that these companies have flourished in Britain in the last couple of years, as there has been a 200% increase in the numbers of people borrowing from payday loan companies and a similar increase in the amount of money they are making from British consumers in the last 18 months alone.
With a mind to what we could do to the Financial Services Bill, let me set out what the prices are and what they mean to British consumers. Many Members will be familiar with my own personal travails with a company called Wonga whose rates are 4,214% representative APR in a year. Some may be familiar with QuickQuid whose rates are 1,734% representative APR, while some may have come across the Money Shop in their constituencies, with a mere 219% representative APR. Some may be familiar with some of the newer players in the market—for example, Ferratum, a major European payday loan company, which has a mere 3,113% APR. Then there is Peachy Loans, which will lend people £100 at a time, with £15 interest every 10 days. That works out at a representative APR of 16,381% every year. This is not to mention companies like Borrow, recently advertising themselves on the radio and TV, which encourages people to borrow £10,000 a year at an APR of 68%.
Before we discuss any legislation, it is worth thinking about this industry and how it operates. It wants to paint itself as the new industry, the new form of financial credit that Britons are crying out for, that the Facebook generation wants, that is online, quick, easy and consumable. There is another side to this story, however, as many will have seen the people who are struggling because of the toxicities in this market. When we know that 30% of payday loans are taken out to pay off other payday loans, that should tell us that something is going drastically wrong that needs addressing.
Payplan, a debt charity company, says that 46% of its clients had six or more payday loans in the last year alone. This is not a short-term temporary measure; this is a way of life for millions of people in our country nowadays. More than half the people going to Payplan for debt advice owed more than £500 to these companies, and 61% had more than one at a time. Most crucially, 86% of its clients were using the loans for basics—food, transport and the basic costs of everyday living, not luxuries. This is not a market that is working for British consumers; it is not an industry that wants to lend people money and have them pay it off within a reasonable length of time. It is an industry that wants to lend to people, to keep lending to them and to keep taking money from them, drips at a time, raising the interest rate as it goes along, and adding money to the bill every single month.
The rates in themselves mean that debt is more likely. That is the challenge we have to address with our consumer credit regulations. We are talking about people who are short of cash now. They are not using it as a temporary stop-gap; they are struggling in Britain today. We need to be aware that 7 million Britons last year put their mortgages on their credit cards and 1 million people used payday loans to pay their mortgages. That is the sort of challenge we have to address. It is also the opportunity we have with the new Financial Conduct Authority.
I welcome the fact that Ministers have listened to the advice I gave them on 16 June last year when I suggested that the FCA could indeed take over this role and look at this industry. I welcome that, as I say, but I know there are issues over how the FCA should deal with the promotion of competition and over the real powers that the FCA needs to address these companies and to regulate this market. Indeed, I note that other consumer organisations such as Consumer Focus, Citizens Advice and the Financial Services Consumer Panel have written to the Minister asking for the FCA to have specific powers for product intervention. This must go beyond the point, which I recognise the hon. Member for St Austell and Newquay (Stephen Gilbert) mentioned, about the paucity of the response that the Office of Fair Trading has been able to make to these companies. I know all too well myself from when I tried to get the OFT to act on companies that did not display their APR how difficult it is to make progress. This goes beyond advertising and people knowing what the price is. It is about the fact that the prices reflected in the APRs I mentioned show that this is not a free market and that competition in itself is unable in this market to ensure that consumers are not put in detriment.
I know that many Members agree that things could be done, so let us give the FCA the power to intervene to make sure that there is competition and to use price as an indicator of competition. Let us give the FCA the real power it needs finally to address this country’s legal loan sharking. I agree with the hon. Member for Eastbourne (Stephen Lloyd) that there is a challenge with unauthorised overdrafts and credit cards, so let us use the FCA finally to make good on this Government’s broken promise to tackle the exorbitant rates on credit cards and unauthorised overdraft charges and cap those prices.
John Hemming (Birmingham, Yardley) (LD)
I share the hon. Lady’s concern about the very high levels of interest rates charged on certain debts. Does she share my concern about the effect of continual late payment fees, which have exactly the same effect?
Stella Creasy
Yes, I agree, and I hope that Government Members will join me in condemning those banks and credit card companies that, at the very time when millions of British consumers are struggling, are ratcheting up their interest rates, following the lack of regulation on excessive interest rates on our credit cards.
Stella Creasy
I hope the hon. Gentleman is on his feet to agree with me that this must be stopped.
John Hemming
I wanted to make reference to my entry in the register, as I have certain banking shares.
Stella Creasy
I hope that the hon. Gentleman will use the fact that he has shares to make representations to his bank about the consumer credit market in the UK.
The consequence of doing nothing about this industry and doing nothing about how British families are being made to struggle because of the cost of credit are far too great to see. Frankly, it is not good enough for the Chancellor and the Minister to say, “Well, we have to wait until we see the research from BIS.” We have been waiting years—yes, years—for action on this issue since it was first put to Ministers.
David Mowat (Warrington South) (Con)
I am following the hon. Lady’s argument closely, and many Government Members are equally concerned about these practices, but will she clarify what rate of APR she thinks should be the maximum for a loan of, say, one week?
Stella Creasy
I have answered this question in previous debates. I do not think that we should set a single rate of APR and I do not think we should have an interest rate cap: I believe we should have a total cost cap. In the absence of the Government making progress on such a cap, however, I view the FCA as offering an opportunity to start the more effective regulation of this industry. I hope that the hon. Gentleman would agree that the opportunity to have the industry and consumers setting rates and clarifying what is excessive and what counts as consumer detriment in the listing of these products represents a way forward. That is the argument of Labour Members, and we shall seek to table amendments on that basis. It is no wonder that the number of complaints about these companies and these loans is sky-rocketing in the UK.
Stella Creasy
I am sorry, but I will not, as I do not have much time left and I have already taken some interventions.
Between October and December last year, there was a 25% increase in the number of people complaining about these companies, and three quarters of those complaints were upheld by the financial services ombudsman. Demand for these products will only get stronger. Two in five people are expecting a pay freeze this year, and one in five expect to lose their job. Inflation rates might slow, but that will only slow the pace of the cost of living, especially in the capital city. Six million people are already considered financially fragile; if one more bill goes up—their mortgage, transport costs or even their food bills—they will be pushed further and further into debt. With banks not lending to these people, it is these legal loan sharks who will pick up the pieces.
We should reflect on the fact that the one industry growing in this country is these legal loan sharks. Cash Converters proudly says it is going to open another 40 new shops—at 1,413% APR; while Albemarle is opening 300 new shops, charging 853% APR. This is also a serious issue for our economy. If millions of families have thousands of pounds worth of debt that they cannot escape, it is clearly going to impact on consumer confidence. This will be the new economic crisis that will come to Britain in the years to come if we do not deal with this problem, as we have concentrations of communities with thousands of pounds of debt hanging around their necks, limiting the choices they can make for their futures and limiting the kind of lives they can lead. The failure to tackle these issues will leave millions of people with unmanageable debt, yet we have an opportunity to make progress through this Bill.
This problem is not going to go away. It is right to look at the industry and for consumers to be involved in setting the rates and determining what is consumer detriment. Let me tell the Minister that the public clearly want action on legal loan sharks. His own Back Benchers want action on them. I welcome the conversion of Government Members to this cause. I just hope that it is a conversion that will continue all the way through to voting in favour of our amendments. Even the industry wants action. It does not want the current uncertainty.
My simple question to Ministers, if they will not accept our amendments, will not send out the message and will not finally tackle legal loan sharking is this: how much worse does it have to get for the people affected in our communities? We know that 4 million people in Britain are already borrowing from these companies, and there could be as many as 10 million if we do not deal with these problems within the next year. That will be 10 million people stuck in a cycle of toxic debt that will damage them and their families for years to come.
I therefore ask the Minister to take on board the suggested amendments and to take account of the desire of Members on both sides of the House for action on legal loan sharking. Let us finally make the third time a charm.
Autumn Statement
Stella Creasy Excerpts(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Stella Creasy (Walthamstow) (Lab/Co-op)
The Government have today announced plans that take three times as much from families as from banks. Given that, as we now see, half of all households cannot make ends meet at the end of the month, does the Chancellor think that, under his plans, more or fewer people will be forced to borrow from legal and illegal loan sharks?
Mr Osborne
That is a pretty ludicrous question. We have tried to help families through the freeze in fuel duty in January and with rail fares, and we are uprating working and non-working-age benefits in the way that I set out. We were unable to pay the additional £110 on the child tax credit child element, as I explained. That is because of the substantial increase that the uprating will provide.
Finance (No. 3) Bill
Stella Creasy Excerpts(13 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Neil Parish
I share that view entirely. At the start of my speech, I spoke about a financial health warning on a loan, including what the rate of interest will be. There should also be an example, perhaps showing what the principal amount would be to repay if one started with £100.
Stella Creasy (Walthamstow) (Lab/Co-op)
I support the hon. Gentleman. Does he agree even when people know the rates, they have little choice because they cannot borrow from any other type of organisation? Research shows that a quarter of these companies’ customers cannot get credit elsewhere, so even when they know the rates they have no option.
Neil Parish
The hon. Lady is right that parts of the population cannot borrow elsewhere, which is a problem. That is another reason for clear warnings, if not restrictions, on the rates of interest charged.
The problem is not just that there is a population who cannot borrow from anywhere else but that many companies and loan sharks knock on people’s doors. Credit is often dished out in cash, which is very tempting. Some people could, if they went to a great deal more trouble, secure money from proper lending companies at a competitive rate.
Stella Creasy
I have come here today to speak in favour of the new clause, and to vote for it, too, which I believe will be a powerful expression of the need to act to tackle the problems caused across our country by high-cost credit companies, or so-called legal loan sharking.
I promised when the House debated the issue previously that I would congratulate those who took action to protect vulnerable consumers, and I want to do so. I welcomed the announcement of the consumer credit review and the coalition agreement promise to tackle the cost of borrowing on store cards and credits, but it worries many of us that it is already overdue. To meet the timetable, that work will have to be done within the next two weeks.
Even more worrying for the Opposition is the fact that we have had to drag the Government kicking and screaming to the table to discuss high-cost credit, because the coalition agreement made no commitment to tackle it. There is still uncertainty about whether it will be tackled in the consumer credit review.
Andrew Percy (Brigg and Goole) (Con)
I am a huge supporter of what the hon. Lady is trying to do. I agree that there is concern about how quickly we are moving, but we had 13 years of her party’s Government. Can we try to keep this a cross-party matter? Members of all parties are concerned about it, so let her not bash the Government, and when I speak I will not bash the Labour Government for their inaction. Let us all try to keep it positive.
Stella Creasy
I very much hope that there will be cross-party agreement, but, as I will explain, I fear that that consensus is being broken for the purpose of choreographing coalition conferences. That worries me greatly. I hope the hon. Gentleman will agree that when so many people are suffering by having to pay the high costs of credit that companies charge, any delay is unacceptable, and I hope he will vote accordingly.
I know that we are not alone in wanting action as soon as possible. The campaign has the widespread backing not just of MPs or policy makers but of debt experts, campaigners and members of the public. They are deeply concerned that doing nothing to regulate these firms is feeding a growing crisis of personal debt for families across the country, and they want action.
I fear that I am going to end up condemning the Government today, because we are debating not whether to act, or whether regulating for a cap on the cost of credit would be effective, but when to do so: debating when, not if, is unforgivable.
Neil Carmichael (Stroud) (Con)
I am concerned that the action that the hon. Lady recommends might well drive people into the worse position of having to appeal to really rather unpleasant loan sharks. That must be the great worry.
Stella Creasy
The evidence on which that presumption —that myth—is based is very uncertain. I would argue that there is a strong parallel with the debates on the minimum wage and the fear that its introduction would drive companies out of business. We now know that that is simply not the case. Evidence shows that a cap on the cost of credit would lead to a fairer deal for consumers, for which we are arguing today. It is important that we get it right, given the number of people involved in the market. I ask Members to support the new clause because it proposes regulatory action now, given the consensus that there is a problem. It states that it covers
“other measures relevant to the high cost credit lending sector that may prevent consumer detriment.”
By consumer detriment, we mean lending that drags people into debt.
We might all agree that there is a problem in the market, and that something needs to be done, but the coalition’s choreography is getting in the way, and I fear that our constituents will lose out. In making the case for Government Members to change their mind about the political fancy footwork and instead dance with us to action now, I want to set out what the problem is, what is causing it, what could be done about it and why doing nothing, or even delaying doing anything, should not be an option.
This question is important when we are debating a Finance Bill, because we can use taxation and regulation to deal with social and economic problems. For example, we could tackle problem drinking by raising taxes on high-strength alcoholic drinks. Indeed, in Committee, the Economic Secretary to the Treasury said:
“We can see that such a measure will have a disproportionate impact on tackling problem drinking, because the change in taxation will make it less attractive for producers to make such strong products.”––[Official Report, Finance (No. 3) Public Bill Committee, 17 May 2011; c. 166.]
By the same principle, the Treasury could tackle problem lending by penalising companies that fail to meet certain standards in their provision of consumer credit.
The problems in the lending market make the issues clear. The UK has one of the highest levels of personal debt in the world. As of April last year, Britain owed more than £1.4 billion in private debt. As the hon. Member for Tiverton and Honiton (Neil Parish) pointed out, borrowing money is sometimes essential, whether to enable someone to pay for training or a house, or to start a business. Indeed, borrowing is critical for our future economic recovery. I am therefore saying not that we want to stop people borrowing, but that we want to stop problem borrowing. However, the current signs are that personal debt is on the rise, and that is a problem.
Pat Glass (North West Durham) (Lab)
Does my hon. Friend agree that the evidence suggests that this country is now becoming a haven for such companies, which are targeting this country because of the lack of regulation? Does she also agree that that is making things far worse for our constituents?
Stella Creasy
My hon. Friend is exactly right. It is not just evidence; the companies have specifically said that the lack of regulation in the UK compared with other countries makes it a target market for them.
We know that borrowing is becoming a problem for people. More than four in 10 people are worried about their current debt, and in recent months 4 million have taken on more debt than they ever have before. One third of families say that they have no emergency savings whatever. However, this debate is not about a lack of rainy-day money. The number of people who say that they are likely to exceed their overdraft limit has more than doubled in the past year, and the number of people who say that they are likely to use an unauthorised overdraft this month has nearly doubled since July last year, from 900,000 to 1.6 million.
That means that more people are getting into financial difficulties. In recent years, personal insolvency in the UK has reached a record high. On average, there are more than 160 personal insolvencies every year in each constituency, which is a dramatic increase since the start of the last decade.
New clause 11 covers not only those who are formally in financial difficulties but those who are affected by debt and who have not sought help. The proposal reflects the growing inequality in our society between those who can borrow affordably and those who cannot. Research by the Department for Business, Innovation and Skills shows that most households have a debt-to-income ratio of 10% or less, but that one in five households have debts worth more than 100% of their annual household income. There is growing evidence that such households are using multiple forms of unsecured credit—a mixture of high-cost credit and credit cards. Thirteen per cent. have four or more types of debt.
The question for many of us is this: who is borrowing? Eleven per cent. of lone parents use non-mainstream loans compared with just 3% of households overall. The Consumer Credit Counselling Service tells us that one in eight people who contacted it during the first half of 2010 were claiming jobseeker’s allowance. However, one thing that might concern many hon. Members is the growing evidence that the people who are suffering in this market are not just those whose incomes have always been fragile, but many middle-class families. Experian data show that the biggest increase in insolvency is among those with suburban mindsets—people who are in work, married and have kids, and who are trying to make ends meet.
Lorely Burt
Is it a matter of regret to the hon. Lady that the previous Labour Government presided over the greatest expansion of consumer credit in the history of this country? In their 13 years, the previous Government tried to do a number of things, but rejected the proposal in new clause 11. Does she agree that this Government, one year in, should be given the opportunity to finish their consultation and make proposals of which she might approve?
Stella Creasy
I am interested in the hon. Lady’s impression that consumer credit is a bad thing, because I do not agree. I would also be interested in her views on research by the Office for Budget Responsibility, which shows that as a direct consequence of the Government’s Budgets an extra £10,000 of debt is being put on to households. Perhaps she would like to comment on the implications of that for family finances. No? Then I will continue.
The problem is not just the high-cost credit industry but the nature of the industry and the way in which it operates, which is causing so many problems. What most worries many Opposition Members is that so many families are struggling. Indeed, we know that 46% of families say that they do not earn enough in a month to pay all their bills. Crucially, of that 46%, 10% say that the reason they are struggling is the repayments on high-cost credit. It is those very products that are pushing them into financial difficulty.
For the avoidance of doubt, I say clearly that I am not trying to put Wonga and the other companies out of business. I do not hold with the constituent of mine who argued that we should learn a lesson from Dante and put them in the seventh circle of hell, but we can make the credit market fairer for all concerned. It is important to set out, therefore, the kind of companies we are talking about and just how quickly this industry is growing in the light of recent economic circumstances.
Many people know about payday lending—the form of credit whereby a borrower gives a creditor a cheque or an authorisation to make an automatic withdrawal from their bank account. That is used as security for a short-term loan to be repaid, supposedly on the next payday. It is a long-established form of credit in other countries, but it is relatively new to the UK—and it is growing rapidly. By 2009, the payday lending industry was worth more than £1.2 billion, and the figures I have gathered from the Department for Business, Innovation and Skills, which were released under a freedom of information request rather than being put in the public domain, show that it is now worth £1.9 billion. Indeed, in its “Keeping the Plates Spinning” report, Consumer Focus estimates that payday lenders are expected to quadruple the scale of their operations in the UK in the next few years alone.
Richard Fuller
The hon. Lady says that the payday lending market was £1.2 billion in 2009. According to the Office of Fair Trading review of the payday loan market, it was £600 million. To clarify the situation, and for my education, will she explain the difference between the two numbers?
Stella Creasy
I will happily explain the difference between the two numbers. The hon. Gentleman might have heard me say that I made a freedom of information request to obtain the most up-to-date data from the Department, and it is a source of concern that Ministers did not share the information with MPs. Research shows clearly that the market has grown to £1.9 billion. If I tell the hon. Gentleman that 5% of the population have taken out a payday loan in the last year, representing 2 million, perhaps he will understand the discrepancy. Perhaps he might like to account for why the Government did not want to put that information in the public domain.
Richard Fuller
I just wish to point out to the hon. Lady that I think there is a lot of consensus, which I hope she does not destroy in her passion for this issue.
As a point of clarification, the 5% figure in the OFT’s analysis came not from the payday loan market but from participation in the high-cost credit market, which includes credit unions and credit cards. Given that my source is the OFT, perhaps she will clarify that point too.
Stella Creasy
I am happy to share the figures with the hon. Gentleman, although I am afraid to say that his interpretation is incorrect. One of the things that I have done—perhaps I am getting a reputation for it in the House—is my homework on this market, and I have sought as much accurate information as possible. That was why I made the freedom of information request, and I would be happy to share the data with him. One of the challenges is that the Government have information about how quickly this market is growing, but they are timid about confirming it.
Nic Dakin (Scunthorpe) (Lab)
My hon. Friend is setting out carefully and deliberately the challenges that people face. Does she agree that the exponential growth in this high-cost credit lending is the very reason the Government need to act to address this issue sooner rather than later, in line with the consensus across the House?
Stella Creasy
I absolutely agree. I am quoting research by the consultancy practice, R3. It is conducting surveys because it is worried about the mix and range of credit that people are taking out and the high-cost credit itself, which is causing people to get into debt. That is why I am passionate about tackling the problem sooner rather than later. Contrary perhaps to some of the briefings that hon. Members might have had from the payday industry, the majority of people borrowing from these companies are on comparatively low incomes. In particular, one in 10 UK payday customers has an income of less then £11,000, and 46% have incomes of less than £15,000 a year. It is evident how quickly high repayment charges eat into an already meagre wage.
Stephen Williams (Bristol West) (LD)
The hon. Lady just made the hypothetical point that a 2% increase in interest rates would cause those costs to rise. Undoubtedly that might be true were rates to rise, but they have not risen, and one reason market interest rates have not risen is that the Government are dealing with the deficit at a time when the Labour party has not come forward with any policies to tackle the emergency.
Stella Creasy
I hope that the hon. Gentleman is not being complacent about the cost of living, its impact on people in his constituency and the fears of many about what an interest rate rise would mean for their monthly mortgage payments. One thing that worries me is that a lot of people are borrowing just to make ends meet; they are borrowing not for investments, holidays or fancy televisions, but to pay their rent and mortgages and to put food on their families’ tables. His complacency about interest rates not rising any time soon is misplaced.
David Rutley
I have heard the hon. Lady speak with passion in this debate and others, and I respect the point being made. However, some of the points being made by Government Members are important, particularly those concerning fiscal constraint and household spending constraint. The gap in her argument is that it is vital that households bear down on their spending. It is not just about the cost of financing a television or whatever else; it is about not going for it in the first place. There is a wider scope for this argument. This debate is not just about the cost of the debt, but about people avoiding it in the first place by lowering their expectations of what they need.
Stella Creasy
I would be interested to hear the hon. Gentleman’s advice to the nearly 500,000 Londoners who are having to use their credit cards to pay their mortgage or their rent. Right now, people are borrowing to pay for everyday essentials, and I fear that he sounds a bit like Marie Antoinette saying that people should just eat cake. That is very misplaced, given the dire financial situation that many people are finding themselves in, certainly in my constituency and, I will wager, in his as well.
Indeed, Shelter’s research shows that it is not only people in London who are using their credit cards to pay their mortgages. There are 2 million people in this country who are doing it. It is horrifying to think of the situation that those people are getting themselves into, given the interest rates that they are paying on their mortgages, let alone the rates that they are paying on their credit cards.
We also know that changes in the cost of living affect some more than others. The Resolution Foundation points out in its low earners audit that those on low to middle incomes spend a higher proportion of their incomes on the goods and services that are hard to cut back, such as their housing, their fuel, their transport to work or the food that they put on their children’s plates. That is what the hon. Gentleman is talking about. Those low to middle income earners spend 40% of their spending on those everyday essentials, compared with the 26% spent by higher earners. One in five pensioners have had to cut back on essentials such as food because of the rising cost of living.
This is not just a demand-side issue; it is also about the way in which the high-cost credit market is stacked against the consumer. That is why I believe that the market merits regulation. In order to make its profits, the high-cost credit market makes use of a number of the attributes of the people who have to borrow from it and of the way in which the market is structured. As has been mentioned, a quarter of the customers of high-cost credit companies cannot access any other form of credit. Indeed, Consumer Focus’s research shows that many users of payday loans are unable to access mainstream credit such as overdrafts because they have already maxed them out. That means that they have no choice; they have no power to shop around for a cheaper loan. Also, they cannot build up a credit history that would show a mainstream lender, who might lend at a lower rate, that they could be trusted to pay a loan back.
Because high-cost credit companies have fixed costs, they make their money by repeatedly lending to people. That means that their business strategy is geared towards encouraging repeat borrowing and the rolling over of loans. Friends Provident has found that 29% of payday loans are refinanced, with the refinancing rolling over on an average of two occasions. Some 15% of home credit loans are refinanced and rolled over into a new loan before the end of their term. It is worth explaining what that means for the cost of borrowing from these high-cost credit companies.
One person who got in touch with me took out a loan of £650 with Wonga, in two instalments, to be paid back within a month. When the repayment date arrived, he found that he could afford to pay only the interest that had accrued on the £650, which was £163. The original £650 loan was then rolled over for another month. At the end of that month, he paid off the loan, which cost him another £858. That was the original £650, plus interest of £208 accrued in the second month. The clock starts ticking in the first month of these interest payments, which is how 4,500% interest rates are reached. The longer a loan is rolled over, the closer it can get to the 4,500% APR that Wonga charges. The process of rolling over meant that he had paid £1,021 for borrowing £650 over two months. It is difficult to see what level of cap on the number of roll-overs would make a difference in this market, because the industry consistently refuses to release information about its business model. We can therefore only guess at the impact that the number of roll-overs has on people’s debts.
Furthermore, we know that the rates charged by high-cost credit companies often do not reflect an economic rate, due to a lack of competition in the market, a lack of regulation to drive down costs, and the absence of any ceiling being set. I recognise that using APR is problematic in understanding the cost of borrowing, especially in the payday loans industry, but as a yardstick it can help us to illustrate the issue. We know that payday loans can cost 4,500% from Wonga. They can cost 2,100% from Uncle Buck, 1,200% from Payday UK, and 1,700% from KwikCash.
John Woodcock (Barrow and Furness) (Lab/Co-op)
I apologise for coming in late to the debate. My hon. Friend uses the same tube line as I do. Did she notice on the way in that one company was advertising on the tube, offering a decision by text within a minute for a loan at an APR of 1,734%. That cannot be right; we have to do something to crack down on it.
Stella Creasy
I agree absolutely with my hon. Friend. There is no ceiling on this market, which means that company rates are going up, not down. We also know about the lack of competition with other sections of the market. Provident owns 6% of the market. In 2004, the Office of Fair Trading referred the doorstep lending industry to the Competition Commission and, in 2006, its report confirmed the lack of competition. As Citizens Advice argues, however, the fact that these problems are getting worse, not better shows that the measures suggested in 2006 have not worked and that it is time to strengthen the intervention we make in this market.
Although I am an avid supporter of the credit union movement, it cannot at this moment present any kind of alternative to this market within any relevant timetable. Credit union membership is growing by 8% a year, but the payday lending industry alone is three times as big as it was two years ago. Credit union lending therefore remains relatively small scale, equivalent to just 5.9% in value terms of the high-cost commercial sector. As a consequence, it is unlikely to exercise any real competitive restraints on the prices in the high-cost credit sector.
With all the signs that this market is growing exponentially, this new clause and the review it recommends would allow us to look at a number of issues on how to tackle it effectively. First, it could consider excess profits—
Neil Carmichael
I thank the hon. Lady for giving way. I think that credit unions are really important. I have promoted them in my own constituency and I will continue to do so. I have joined one myself to demonstrate that it is something that we should all think about. Surely it would be a good idea to put out a more positive message about the role credit unions can play and encourage people to start thinking about being responsible in the management of their finances through the use of credit unions.
Stella Creasy
The hon. Gentleman is being a little unfair to accuse me of not putting out a positive message about credit unions, given that I worked long and hard to set up the Waltham Forest community credit union and to secure it more than 4,000 members from my borough. My point is that when only 2% of the British public are part of a credit union, it cannot be the answer to the problems caused by these companies. The question is how to get the right mix, and I believe that regulation needs to be part of that mix. Of course extending access to affordable credit is part of the solution, but it will take decades for credit unions to provide a serious alternative to these companies from which people are borrowing and getting into debt with now.
Frank Dobson
In response to the intervention by the hon. Member for Stroud (Neil Carmichael), is it not a further problem that because of the cuts to citizens advice bureaux, welfare rights units and law centres, good advice, which might help people to steer clear of loan sharks, is less and less available? As the years go by and the cuts continue, the problem will get even worse and the inequalities will grow.
Stella Creasy
There is a real concern about the lack of advocacy services and about people’s inability to get help in negotiating with their creditors. I believe that we have to make credit affordable for all; payday lenders could be part of the mix if they were properly regulated. That is all that the new clause calls for.
Let me present some figures that might tempt Treasury Ministers when they see what could be achieved in the way of tax through this review. The Competition Commission inquiry into the lack of effective price competition in doorstep or door-to-door lending estimated that companies were making an excess profit of at least £150 million a year. The commission considered that 90% of that excess profit was made by Provident Financial alone. On that basis, Provident has made £675 million in excess profit out of low-income communities since 2005—a sum greater than the total amount of credit union lending that took place in 2010.
The Competition Commission’s findings showed that excess profits amounted to additional costs to the consumer of approximately £9 for every £100 lent. A cap on that basis would have allowed Provident to charge no more than £53 for every £100 lent in 2006—still a lot of money. Even allowing for inflation at about 4.5%, taxing credit lent at a rate of £63 per £100 lent in this market would save consumers some £18.80 on every £100 borrowed or about £94 on the cost of a typical £500 loan. Even if Ministers rejected looking at tax measures, they could look at how to introduce an effective cap on the cost of credit.
Let me be very clear: I do not want to see a cap on interest rates. I know that Members have been lobbied extensively on this and been given information about capping the costs of credit based on caps on interest rates. I do not believe that caps on interest rates work effectively. The European research shows that low caps in America have been problematic, but it points out that the more flexible caps in Europe have been effective in controlling the market.
There are many myths about capping the costs of credit, as there were about regulation and the minimum wage. To those who argue that capping the costs of credit would cut lending and put firms out of business, I say that they should look at Poland, France and Germany, which all have such caps. To those who fear that caps would encourage all banks to start charging 4,000% interest, I say that that clearly would not happen. The EU research shows that interest rate caps have in some cases led to less illegal lending, as consumers are better able to manage their borrowing requirements without turning to informal sources of credit.
Tracey Crouch
That is a good point. In fact, what troubles me most is the impact on consumers. As we have been told by Members in all parts of the House, these companies prey on people who are incredibly vulnerable, and we need to ensure that the industry behaves much more responsibly.
A response to the Government’s call for evidence on consumer credit is due shortly, and I look forward to the findings of the review. I have always had some sympathy for the proposal of a rate cap. However, it is interesting to note that Citizens Advice does not share the hon. Lady’s view, and nor does the money-saving expert Martin Lewis.
Stella Creasy
It is true that Citizens Advice opposes a cap on interest rates, but I think the hon. Lady will find that both it and Martin Lewis have been very positive about the proposal for a cap on the total cost of credit, which the new clause would allow to be investigated. I hope that the hon. Lady will correct the record accordingly.
Tracey Crouch
The total cost of credit involves more than just the high-cost lending industry, but the hon. Lady spent most of her speech talking about individual high-cost credit lending companies such as Wonga. We must find a focus, and the fact is that wider issues of consumer credit are involved. I hope that the review will come up with a solution on which we can all agree.
The Government are considering specific product regulation as part of their draft Financial Services Reform Bill. Under the proposals to establish the financial conduct authority, a new model of conduct regulation will be established that will use early and proactive intervention to ensure that consumers are protected. That is a far more pragmatic solution than the blunt instrument of taxation, which, as I noted earlier, could have the adverse and opposite effect of creating a greater problem.
Mrs Chapman
I am very grateful to my hon. Friend for that intervention, as he put it extremely well. I was aware that credit unions in Northern Ireland were incredibly advanced. I have found that although the fledgling credit unions in my constituency are doing a marvellous job, they are unable to do the very thing that he says is unable to be done in Northern Ireland. That strengthens the argument for accepting this new clause.
Stella Creasy
I wonder whether my hon. Friend would like to comment on the irony that credit unions have a cap on what they can charge, yet these legal loan sharks do not.
Mrs Chapman
That is an excellent point, with which I shall finish my remarks. I am aware that many colleagues would like to contribute and, having heard my hon. Friend’s comprehensive speech, I will allow others to do so.
Stella Creasy
Is the hon. Gentleman saying that it is not acceptable for banks to do what he just described? What does he make of the evidence suggesting that one of the challenges in this market is the fact that a quarter of their customers cannot borrow from banks, so even if they wished to use unauthorised overdrafts, they could not actually do so and the only source of credit available to them are predatory lenders such as Wonga?
Justin Tomlinson
Absolutely, and that highlights my first point about using credit reference checks. These people should not be getting money from high-cost lenders. Many of the more reputable high-cost lenders will not lend to them, but many of them do and prey on these people—that is particularly true of the doorstep lenders. We have to try to ensure that more people have access to the affordable banking arrangements—the credit union arrangements—but we must not fall into the trap of thinking that the banks always get things right because, as in the example I just gave, they can prove a lot more expensive—
Justin Tomlinson
The hon. Lady may shake her head, but my interest lies in ensuring that people get the clearest information and the cheapest possible price. I will not defend any organisation that is going to exploit the most vulnerable people.
Unsurprisingly, the final item on my tick-list is the need for financial education. I chair the all-party group on financial education for young people, and I thank the 224 Members who are now signed up to the group. People do not understand APR and, as I have argued, it needs to be removed and replaced by a transparent approach. In addition, we need consumers to be able to understand the implications of what they are signing up for, its true cost, how to source alternatives and the best way to address the situation if they get into difficulties.
I am conscious of the time so I will conclude. We are all agreed that action is needed—nobody, from either side of the House, disputes that. I welcome the consumer credit review, but we must not fall into the trap of a quick fix to chase political headlines which simply makes matters worse. We need a measured and wide-ranging response that puts the vulnerable consumer first. Let us not chase a fix that makes things a hell of a lot worse for the most vulnerable people.
Andrew Percy
I am feeling the love in the Chamber today, which is a good thing—there must have been something in the water in Goole this morning. However, the serious point is that that hopefully proves that although there are concerns, and although lots of Members who will vote differently from each other this evening have made incredibly passionate speeches, they clearly all want to see the same thing. We might disagree on how to get to there, but the fact that I am agreeing with so many people is perhaps a sign that there is consensus on this issue, which is a good thing.
Stella Creasy
At the risk of increasing the love in the Chamber, does the hon. Gentleman agree that the new clause would put beyond doubt—along with other measures that could be taken to tackle the problems that we all agree exist—tackling the question of regulation and acting on it by the Government? At the moment, we have no guarantee that that will happen in the consumer credit review; rather, we have only vague assertions that they are thinking about it. The review proposed by new clause 11 would guarantee that that would happen, which is why we want action now.
Andrew Percy
Of course that is what we all want to see, but we await the response of the Minister. At one point, some Opposition Members seemed to be saying that the Government were going to announce something at the Liberal Democrat conference, suggesting that it would no doubt be a well attended—I will not be going —and joyous occasion. Indeed, the hon. Member for Walthamstow seemed to suggest that the Government already had a solution that they were about to announce in October, so we all look forward to hearing what they have to say.
To end where I began, this is a hugely important issue for a lot of my constituents, as it is for constituents up and down the country, and it is time that we did something about it. It is appalling that people end up on a conveyor belt and seem unable to get off it. I therefore look forward to the Minister’s response, and I genuinely hope that we have some action soon, in the interests of all our constituents.
Sheila Gilmore
I might be wrong, but I understand that the fund is not a substitute for the money that was available through the growth fund. When it was introduced, it was hoped that banks would lend to community-based lending organisations; they have not done so, yet high-cost lenders can get finance to expand their businesses to make them attractive.
Stella Creasy
Does my hon. Friend agree that it is a cause of concern that the Wellcome Trust, which is supposed to advance charitable endeavours, has lent £73 million to Wonga so that it can expand its operations in the UK? Such companies can easily access credit; indeed, that sum is the entire amount left from the growth fund for credit unions across the UK.
Sheila Gilmore
I thank my hon. Friend for that helpful intervention. If we are to put the money where our mouth is, it is extremely important that we do not just sit in the House constantly agreeing about how bad something is; we need to take action. On that basis, I urge Members, and perhaps even the Government, to accept the new clause.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I think that the debate has demonstrated the potential for cross-party support for the analysis underpinning the discussion we have had this afternoon, but I gently point out to Opposition Members who seek to turn this into a partisan political issue that their Government had the opportunity over 13 years to tackle this. In fact, we had a debate on it while the Financial Services Act 2010 was going through Parliament, not long before the general election, during which my opposite number at the time ruled out acting on interest rate caps because of the impact of depriving the most vulnerable of credit services. It is not a new issue, or one that is fresh to this Parliament. Ministers in the previous Government were opposed to the idea of caps because, as the hon. Member for Liverpool, Walton (Steve Rotheram) indicated, it could restrict the supply of credit, forcing those who need it into the hands of illegal moneylenders, an outcome that Members on both sides would not want to see.
Let us be clear that credit can be a good and positive force that enables people to meet needs when there is a sudden shock, such as an unexpected expense or a cut in income, but it must be used sensibly and sustainably. When people decide to borrow, they must be mindful of what that means for them and realistic about their ability to repay the loan. That is true whether the loan is over 10 years, five years or a matter of days, as is the case with some instant or payday loans. However, all lenders have a responsibility in this regard. Lending more than borrowers can afford to repay does not benefit anyone. Under the recently introduced consumer credit directive, all lenders, including high-cost credit lenders, must ensure that when they decide to advance a loan they do so after making a thorough assessment of the lender’s ability to repay.
We know that consumer debt grew significantly under the previous Government, more than doubling from £620 billion in 2000 to more than £1.4 trillion by May 2010. Some of this debt is now being repaid as consumers begin to come to terms with their borrowing, with the amount of unsecured debt reducing in the past two years. Although much of this debt will be repaid without any problems, some borrowers get into difficulty. Lenders have a responsibility to help customers and treat them fairly when they get into difficulties with loans, not push them further into debt. Continuing to add excessive arrears and default charges is a lose-lose situation; the debt increases out of all proportion to the amount borrowed, the lender is less likely to be repaid and the borrower may have difficulty borrowing again. Lenders should work with borrowers, not against them.
We should all be concerned about people borrowing at high rates of interest. However, the high-cost credit market, whatever its faults, provides a service for those who cannot get credit from any other source. We should be careful about describing high-cost credit providers as legal loan sharks. We all recognise from our own communities that real loan sharks are far worse, resorting to violence and intimidation to recover their debts. High-cost lenders are licensed and operate within a regulatory framework, which provides some recourse when things go wrong.
We should be clear that action has been taken over the past year to improve consumer protection in this area. First, under the consumer credit directive, which came into force earlier this year, consumers now have a right to withdraw from any credit agreement within 14 days. If they do so, they have to pay back only the money lent and the interest accrued over that time. Secondly, consumers have a right to repay a loan early at any time, in part or in full. Thirdly, lenders now have to provide information in a standard format so that borrowers can easily compare the costs of different loans. Improving the transparency of information will help consumers. Fourthly, lenders must conduct a full credit assessment before advancing any loan. Lenders will also have to explain the key features of the credit agreement.
In addition, the Office of Fair Trading has recently published its guidance on irresponsible lending, which clearly sets out that deceitful, oppressive or otherwise unfair lending practices are not acceptable. The OFT, which is responsible for the regulation of credit—something that whoever tabled the new clause seemed to forget—has the power to remove the licence of those who breach the irresponsible lending guidance.
Much good work is going on, including the excellent work of credit unions, which many of my hon. Friends have mentioned. It is a shame that the hon. Member for Edinburgh East (Sheila Gilmore) is not in her place. My hon. Friend the Member for East Hampshire (Damian Hinds) is right that there is £73 million to help to expand and modernise credit unions. The money that the previous Government put into credit unions is diminishing, because the money that credit unions were able to earn on the debt was lower than the default rate on the loans given. I therefore welcome the money that the Department for Work and Pensions has found to strengthen credit unions.
As a number of hon. Members have said, we are reviewing the wider consumer credit landscape. At the end of last year, the Treasury and the Department for Business, Innovation and Skills published a joint call for evidence on the consumer credit and personal insolvency review, which covers all aspects of the consumer credit life cycle, including what happens when things go wrong. This is an opportunity to ensure that the regulatory framework is fair to consumers and the industry. Part of that review focuses on the high-cost credit market. Following an OFT review that took place under the previous Government, we have asked for evidence on five of its recommendations.
Mr Hoban
Let me just finish the recommendations, and then I will give way.
The first recommendation was to provide information on high-cost credit loans to consumers through price comparison websites. The second was to introduce a “wealth warning” on high-cost credit products. The third was to collect essential information on the high-cost credit sector so that the OFT can track developments. The fourth was for the Government and industry to develop a code of practice. The final recommendation was to work with credit reference agencies to explore ways in which payday lenders could provide suitable information about the payment performance of their customers. That would help those who use high-cost credit to build up a credit history that they can use to access more mainstream lenders.
Stella Creasy
I wonder whether the Minister can deal with an anomaly that has driven the new clause. I received a letter on 25 May, which set out that the high-cost credit market was not specifically included in the consumer credit review. Is the Treasury taking the lead on this and does BIS need to follow? Will the Minister clarify this matter, because the letter from the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey) said that BIS was not looking at this area per se?
Mr Hoban
There are a number of taxes that disincentivise certain activities. We could be here all day identifying them. The challenge is to what extent an increase in tax is passed on to the consumer and to what extent it is borne by the shareholders. There is a lot of evidence that in areas where borrowers are relatively insensitive to price, such as payday lending, the additional costs of tax measures would be passed on to the consumer. I am yet to be persuaded that that would not be the case. It might help if the Opposition had some concrete proposals on tax that could be assessed, but so far they have not. Perhaps the hon. Member for Walthamstow has a proposal.
Stella Creasy
I am saddened that the Minister did not feel that any proposals were made in the debate. I thought I had caught his eye when I talked about whetting his appetite with the excess profits that companies make. I made a specific proposal on that, which I will repeat for his benefit. Provident has taken £675 million in excess profit out of low-income communities since 2005-06, according to the Competition Commission’s investigations. Perhaps he could look at taxing the excess profits that these companies are making. Does he agree with that proposal?
Mr Hoban
I listened carefully to that point, and the hon. Lady again demonstrated the problem that she is long on analysis, but short on solutions. She talked about excess profits, but of course there is a range of solutions for that, one of which is to increase competition in the market to force prices down. I am not sure that a windfall tax, which I think is what she is proposing, would have the impact that she expects.
Private Finance Initiative
Stella Creasy Excerpts(13 years, 5 months ago)
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Stella Creasy (Walthamstow) (Lab/Co-op)
I rise to speak as another member of the Public Accounts Committee, which lays claim to having had a number of debates about the PFI, as has the Treasury Committee. I congratulate the hon. Member for Hereford and South Herefordshire (Jesse Norman) on securing this interesting and important debate about the PFI, which has been a key part of investment in this country for more than a decade, and how we make the way in which we invest in our infrastructure as a country work. I have a lot of sympathy with his concerns about whether the contracts have been done to the best of their availability and what we can do to improve them. There have been a number of debates and efforts to improve them, and I welcome the fact that he is saying that there is mixed picture on the PFI in terms of where it has delivered and that perhaps we can learn from where it has not delivered.
I want to set out some of my concerns about the hon. Gentleman’s proposals for the future. What really matters, given that a record 61 projects are currently being negotiated under the PFI, is how we can learn from what has happened. That has certainly been one of our key messages on the PAC, and I am sure that my fellow Committee members agree that we need to look at what we can learn and where we can make progress. One of the things that has surprised us on the PAC, as the hon. Member for South Norfolk (Mr Bacon) has mentioned, is the way in which negotiations on the PFI have taken place and the revelation from one of the major PFI companies that it has not been talking to the Government about the possibility of a rebate, which is an issue that the hon. Member for Hereford and South Herefordshire has raised, or about where contracts might be renegotiated.
Mr Metter from the industry used the colourful phrase that he would not ask his investors to take a haircut, by which he meant that he did not feel that it was possible to look at a voluntary scheme. I would be interested to hear more from the hon. Gentleman about his negotiations with other contractors and whether he thinks there is more interest in some kind of voluntary scheme.
We all recognise that it is difficult to ask the private sector to renegotiate a contract that it has signed up to in good faith. That therefore calls into question some of the ways in which we might deal with some of the problems with PFI, particularly the way in which the initial decision to move to PFI was made, which is something that I want to address. We must also consider what it would mean if those contracts were renegotiated. I hope that the hon. Gentleman agrees that there is a real concern that, if any contract is renegotiated, especially if capital parts of a project have been completed, it is services that will actually get renegotiated. Many of us are concerned that the renegotiation of services could mean fewer services, particularly in public institutions such as hospitals. Renegotiating services could have a negative impact on many of our constituents.
More fundamentally, on the hon. Gentleman’s concerns about PFI, I hope that I can convince him that, rather than pursue a voluntary rebate—as I have said, it has transpired from our discussions with the industry that that is not what the Treasury has been doing and that the industry is not aware of such conversations—we should look at the tax status of these companies. I am sorry that he was not able to sit through the second half of our hearing, where we heard some frankly shocking evidence from Treasury officials about their approach to the situation. The issue is of particular importance to the PFI, because when a decision to go to the PFI is made, one of the value-for-money constructs is an assessment of the amount of tax that will be returned to the Exchequer through working with a private company in the UK over the course of the contract. It is set out clearly in the Green Book that the Government make an assessment not of the specific company’s tax take, but of the general tax take that can be expected from working with the private sector in the UK in order to build a project.
Stella Creasy
One of the genuine delights about serving on the Public Accounts Committee with the hon. Gentleman is that he has such a wealth of knowledge and anecdotes that clearly illustrate the challenges that we are dealing with. He took part in the Committee’s session, so he will know that I have grave concerns that moving assets overseas to offshore tax havens has substantial consequences for our assessment of the value for money of PFIs. When the decision to go for a PFI project is taken, an assessment is made of the tax that we will get in return, but there is widespread evidence that many companies then move their assets overseas to offshore tax havens. In fact, the Treasury Committee took evidence showing that 91 PFI projects were owned by secondary market infrastructure funds, so we are losing money. One of the best examples of that problem is a body set up by HSBC. The HSBC Infrastructure Company Ltd, which manages a number of hospitals in this country, has made £38 million in profit from 33 PFI schemes, but it has paid just £100,000 in tax in the UK in the past six months.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
Just to clarify, is the hon. Lady suggesting that, as part of the negotiation of a PFI contract for, say, an NHS hospital, a calculation is done on the basis of what corporation tax would be paid? Were NHS trusts doing that? I am a bit surprised to hear that.
Stella Creasy
No, let me be clear. The Treasury uses the Green Book to assess whether a PFI is an appropriate model. An assessment is made specifically of the Exchequer’s tax take over the life of the contract. It is precisely because that is part of the value-for-money assessment that I have great concerns about the fact that we are not getting the tax we expected, which would make the PFI a reasonable model to use.
It is therefore fair to ask what we can do. If the Government are proceeding with the PFI—that is an interesting issue for Government Back Benchers who are concerned about this issue—what action are they taking to learn from the way in which previous contracts were negotiated? One thing that is clear to those of us on the PAC is that there is a better understanding of the skills needed to negotiate these contracts. The hon. Member for South Norfolk was clear about the skills needed in the public sector to negotiate with the private sector and to improve the way in which contracts are negotiated. We must also appreciate that we in the public sector have tried to renegotiate contracts after the fact by asking for increased provision in our hospitals, for example, or by looking at different services. That, of course, has consequences for the response from the private sector.
The fundamental question as regards continuing with the PFI—the Government certainly seem content to do so—is what action Ministers are taking on tax and tax havens. The hon. Member for Hereford and South Herefordshire is right that we need better data on tax assessments, and those of us on the PAC were certainly unable to get information about assessments of the tax that various PFI projects were expected to generate when they were commissioned and about what would happen next. What concerned us was that, although Treasury officials accepted that an initial assessment would be made, they were clear that no assessment would be made further down the line of whether that initial assessment had been reasonable.
Indeed, there has been no learning about the way in which tax is assessed in decisions to go for the PFI, even though that could be used in future contracts. Specifically, officials were clear that there is no commitment from the Government to look at the tax status of funds or even to explore what action might be taken, for example, to require a company bidding for a PFI contract to show in its books that it has been operating in the UK for the past five years, so that we can be confident that the bulk of its work is done in this country and therefore that we would get the tax back. We would then have a reasonable expectation that the Treasury would recoup the general sum that was part of the calculation. This is not a new concern or a new idea; in fact, a previous Labour Member tabled a private Member’s Bill on precisely this point, but it did not receive support from the then Opposition, and I hope that that will change if we can all agree that we want to improve the way in which the PFI operates, if it continues to be taken forward.
The hon. Member for Hereford and South Herefordshire has said that the PFI might be a better model for some types of infrastructure projects than others, but the list of the 61 projects that the Treasury is developing includes a wide range of projects, including hospitals, schools, fire buildings, roads and police stations, so this is a live issue. We could be making progress on challenging the costs to the Exchequer and the value for money of projects, but there is no commitment from the Treasury to look at these issues.
Those are the main concerns that I wanted to put on the record about the hon. Gentleman’s campaign. First, were we to push for a rebate, it would be difficult to get the private sector to renegotiate, although I wish him well in looking for haircuts from people such as David Metter. Secondly, there might be very real consequences for the renegotiation of the cost of the services that are delivered, although I am sure that they would be unintended consequences as far as the hon. Gentleman is concerned.
Thirdly, it is a real concern that we may leave untouched the tax status of these companies and the money that the Exchequer might lose, but which was part of the original decision to go for a PFI project. In putting as much pressure as possible on the Government to talk to companies—the briefing says Ministers have, but the reality revealed in the PAC is that they have not—I hope the hon. Gentleman will also put pressure on them to look at companies’ tax status. I hope he will put pressure on them to look at how we can close the present loophole, so that we can be sure that where an assessment is made of the money that will be returned to the Exchequer over 30 years or whatever term is chosen for the 61 projects, the Exchequer will actually recoup that money. We all agree that value for money should be at the top of the agenda, and we should be thinking about the best way to get the infrastructure buildings that our country will need in the future. If so, how do we make sure, not only when the contract is committed to but in the years ahead, that we are securing that value for money?
I congratulate the hon. Member for Hereford and South Herefordshire on securing the debate, and I urge him to think about his target. I look forward to hearing what he has to say later.
Mr Jones
My hon. Friend, whose constituency neighbours mine, has hit the nail on the head.
In our situation, regardless of demand or whether the Coventry and Warwickshire PFI hospital wants to close a ward or to stop the activity associated with closing a ward, such as the cleaning or maintenance, the fixed costs must still be met. That is most detrimental, and it is a drain on the Warwickshire health economy.
Another concern relates to the primary care trust and the strategic health authority. That context is changing, but some of the people involved in those organisations were instrumental in the creation of the PFI hospital and, whatever happens, I suspect that they would not want to see the hospital—this landmark development in Coventry—fail. The concern is because, ever since the hospital was built—before the mortar between the bricks or the paint was dry—the local PCT, NHS Warwickshire, has been trying to reconfigure services. We immediately had an acute services review, which threatened services at my local district general hospital, the George Eliot, and to a greater extent at Rugby’s St Cross, as my hon. Friend the Member for Rugby has said. NHS Warwickshire paired St Cross up with the Coventry and Warwickshire trust which, really, subsumed it. Services were drained away from Rugby to the new PFI hospital in Coventry, regardless of whether people in Rugby wanted the choice of going to St Cross. If we do not get a grip on the situation soon, I fear that the same might happen in my constituency at the George Eliot.
That brings me to the crux of the argument made by my hon. Friend the Member for Hereford and South Herefordshire. I echo his concern about such huge beasts of projects, which are so expensive and we hear stories about, such as the £300 for changing a light bulb. They are real, tangible problems, and our constituents cannot understand why the previous Government signed the taxpayer up to such ridiculous commitments. Although the previous Government took on those contracts, I appreciate that the new Government cannot simply tear them up. Some difficulties might arise from how the contract was framed, in particular on the capital commitments. The companies that originally constructed and financed the hospitals have sold the debt on, and it might have been sold on again, so we would now find it difficult to pin down those people and to get some form of rebate.
Stella Creasy
I am interested in what the hon. Gentleman is saying. We have all talked about the difficulty of renegotiating the existing contracts, but 61 PFI projects are currently in train for which contracts have not yet been signed. Is the logic of what he and perhaps other Government Back-Bench MPs are saying that they want the Government to stop the negotiations and to look at another format? I do not understand. If there are so many concerns about PFI as a model—it never seems to work and is always too expensive—is the sum total that it should not happen at all?
Mr Jones
I am not necessarily saying that PFI should not happen at all, but that contracts should be negotiated in the correct fashion to minimise the taxpayer’s exposure to situations such as those we have seen. Contracts must be right when ensuring that organisations are a suitable size, for example, to fit into the local health economy. With hindsight, we might question whether the PFI hospital at Coventry was too large for the wider Coventry and Warwickshire health economy.
The general point is that we must get the issue right in future. I accept the hon. Lady’s comments, but I am confident that Ministers are ensuring that any contract negotiations will be made properly, so that we do not over-commit the Government, as was done previously.
Mr Jones
I share my hon. Friend’s view, which he has expressed powerfully. We must also consider a point made by my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) that, thanks to the Labour party, the country is now so indebted that, to put in any new infrastructure, we have to look seriously at schemes such as the PFI, because without them the country simply does not have the money to finance any projects.
Mr Jones
I will not give way, because I am mindful that other Members wish to speak.
In conclusion, my hon. Friend the Member for Hereford and South Herefordshire has done an excellent job in bringing the PFI to the fore. I sincerely hope that the Government and the Minister will look at the issue closely and carefully to see whether we can get some form of rebate from the providers of PFI projects—in particular, over the terms of the service contracts—not only because of the financial situation but to ensure that the quality of services such as cleaning and maintenance are preserved, but at a lower cost.
I hope that the Minister shows the same vigour and enthusiasm as my hon. Friend the Member for Hereford and South Herefordshire. If she takes the matter forward, which I am confident that she will, hopefully we will see a great day for the British taxpayer and for people in constituencies such as mine, who are suffering the cost of the frivolity of the previous Government, which is now affecting the Warwickshire health economy.
Stephen Barclay
My hon. Friend is absolutely right. It is helpful for the Minister to look at that example as a benchmark.
Secondly, although I am conscious of time, I want to cover the public sector comparator. Hon. Members have touched on the fact that it has often been flawed, because the PFI was a way of taking deals off the balance sheet and it was the only show in town, but there have been other imperatives. There was a regulatory imperative—not to mention, with a lot of marginal seats in the north-west, a political imperative—to go ahead with the Manchester incinerator, even though it was, at 350 base points, over and above the 300 threshold that the Treasury had at the time. Likewise, there was a defence imperative to go ahead with the air tanker contract, which was appalling value. The existing fleet was falling apart and there was no fall-back position, so there was a defence need for that contract to go ahead. It would be interesting to get from the Minister a sense of the extent to which guidance has changed to guard against some of those risks, and how we as a House get visibility of whether a viable fall-back position has been developed for some of those 61 contracts.
Thirdly, specifically on defence, the response in the Treasury minute of December 2010 is a little ambiguous. It says:
“The Government does not agree with the Committee’s conclusion…on the applicability of PFI to Defence, but agrees with the Committee’s recommendation.”
It will be interesting to see how guidance on defence PFIs will be refined.
I welcome the appointment of David Pitchford in connection with the major projects defence review. That will be useful in addressing some of the problems we see with these contracts, such as their long-term nature and the increased costs.
Stephen Barclay
I will give way, but I wish to allow time for my hon. Friend the Member for Warrington South to speak.
Stella Creasy
Briefly, does my colleague on the Public Accounts Committee share my concern that Mr Pitchford has said that he was not looking at PFI as part of his work in the Major Projects Authority? That seems to have been an oversight.
The Economic Secretary to the Treasury (Justine Greening)
I pay tribute to my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) for securing this debate. The topic is incredibly important, and he has done a brilliant job of raising it high up the agenda and rightly so.
We have heard from many Members today, but not from as many Opposition Members as we might have expected. Many Members feel that the PFI has, in their experience and their constituencies, let them down. Nevertheless, one of the qualities of today’s debate was the balance demonstrated by hon. Members. Not all PFI contracts have been bad. Many have delivered good contracts. There have been bad ones for the taxpayer and bad ones for the private sector. The one that is particularly close to my heart, as my hon. Friend the Member for South Norfolk (Mr Bacon) has mentioned, is the public-private partnership for the London underground. Investment in my stretch of the underground was significantly delayed, because of its bad structure and the ultimate failure of both of the private companies that participated in it due to the losses that they were making as a result of their poor contracting. The topic is important.
My observation as an incoming Treasury Minister was that the background to the issue was all part and parcel of a much broader lack of financial management shown by the previous Government across government. I might address that later, if I have time, but I intend to leave a couple of minutes at the end to my hon. Friend the Member for Hereford and South Herefordshire to have a final say.
As my hon. Friend the Member for Wycombe (Steve Baker) and a number of other colleagues have pointed out, the main attraction for the previous Government in turbo-charging the PFI process was the fact that they were able to spend not only taxpayers’ money that was being earned at the time, but taxpayers’ money that had not even been earned and that would be earned at some point in the future. The main appeal of PFI for them was that it was off balance sheet. It was also unfortunate that it came at a time when that Government thought that they had abolished boom and bust and were saying that we all lived in the land of milk and honey. The general ethos that was applied to the public sector was to spend, spend, spend, get on with things, and be less worried about whether it was good value and just get on with the job at hand. My hon. Friend the Member for Worcester (Mr Walker) pointed out how that impacted upon his local hospital.
We have some problems. I will discuss what the Treasury is doing to try to sort some of them out, but we seem to have three main issues. One is a lack of accountability, which is an inherent risk in these contracts, mainly because of their longevity and the fact that the people who set them up will not be there to manage them or be accountable for them throughout their duration. There is also an issue of transparency, and I will talk later about what we are doing in that regard. Underpinning all that is the need for value for money and for having contracts in place that deliver on behalf of taxpayers in the way in which they are meant to. My hon. Friend the Member for Warrington South (David Mowat) put it very well: PFI can work, but the challenge is making sure that, in structuring our contracts, we end up with a win-win situation for the private sector contractor, for the public sector and for taxpayers. We can do that, but the challenge that we saw over the past decade is that it just did not happen often enough.
The shadow Minister asked about the number of contracts that we have signed off. No PFI contracts have been approved yet by the new Government, and we have put in place much more stringent processes to ensure that any contracts that go ahead have a much better prospect of being good value for money.
My hon. Friend the Member for Nuneaton (Mr Jones) asked whether the Government are looking closely to see how we can ensure that we get value for money. We are doing that—he is absolutely right to say that we should do it—and we are doing it across the board.
Many hon. Members discussed transparency, which I will discuss shortly. My observation is that one of the reasons why we are debating the PFI is that, ironically, there is perhaps more transparency in the PFI in some respects than there is across the rest of Government spend. One of the projects that I am leading on behalf of the Treasury is to introduce common chartered accounts. Any hon. Member who has been in business will find it fantastical to learn that the Government do not have common chartered accounts, but that is indeed the case. Once that system is in place, once we are able to upgrade the combined online information system database and once we can drive central Government further in terms of the transparency agenda, we will go through a similar process of lifting up the stone on central Government spend as we have done in relation to PFI contracts. Transparency is absolutely critical in that regard.
I want to outline where there is room for improvement. We are all aware that we face tough economic conditions and that we must ensure that we get value for money. The Government have already taken a number of steps to address many of the concerns about the use of PFI in funding public infrastructure, concerns that have been expressed in this important debate. I will go on to talk briefly about what we are doing in relation to existing contracts, but first I will talk about what we are doing to ensure that we can achieve good value for the taxpayer for new projects.
With new projects, value for money is, of course, the primary driver for the choice of procurement route. We are very clear that private finance should be used only when it can be demonstrated that it offers better value for money than a publicly financed alternative. As I have said, my hon. Friend the Member for Worcester made a powerful case in relation to that. We have already taken measures to strengthen the value for money assessment of new projects.
As the hon. Member for Solihull (Lorely Burt) pointed out, we abolished PFI credits in the 2010 spending review. Previously, funding for local government projects was ring-fenced. That had become a genuine cause for concern, because what it actually meant was that Government Departments and local authorities could use the PFI as a means to increase their budgets, with the potential for diverting funds away from more beneficial areas—areas that could have offered taxpayers better value for money. Now, the economic case for PFI projects must be compared by Departments and local authorities on a like-for-like basis with the other calls that they have on their budgets.
I have huge respect for my hon. Friend the Member for South Norfolk. His experience on the Public Accounts Committee goes back many, many years. As he pointed out, too often there has been insufficient competition and an insufficient ability for firms to compete. I actually felt that he was violently agreeing with my hon. Friend the Member for Stroud (Neil Carmichael) on the point about specifying contracts. The key is to specify contracts smartly, in other words tying down the details that need to be tied down in areas where we have certainty, as my hon. Friend the Member for Warrington South pointed out, but leaving flexibility in other areas—the right areas.
I remember that that issue arose when I was serving on the Work and Pensions Committee when I first came into this House, which I very much enjoyed. We looked at the EDS contract in relation to the Department for Work and Pensions. That point—the importance of flexibility—was one of the key things that came out of that process. I am sure that EDS will not mind my putting this on the record, but one of the challenges that it faced was that it was dealing with a Government who wanted to specify absolutely everything and therefore the cost of the contract absolutely ballooned. In fact, what was needed for that system was to retain an element of flexibility for future demands as they evolved. The key to success in all these contracts is people understanding not only what needs to be tied down in terms of the contract but, critically, where flexibility must be left.
We have issued new guidance, which the shadow Minister, the hon. Member for Bristol East (Kerry McCarthy), asked about, to strengthen the approvals for PFI projects. As of 1 April this year, any centrally funded projects that are outside a Department’s delegated authority have to go through a rigorous three-stage scrutiny and approval process with the Treasury. To put that in context, previously the Treasury only reviewed PFI projects when they were at the outline business case stage. After that, it was only the risky ones that were further reviewed. We now have a three-stage scrutiny process, which means that projects are subject to far more scrutiny as they are being developed. In addition, the largest and most risky projects in Government will be subject to a review by the Major Projects Authority, which has just been established by the Minister for the Cabinet Office.
We have also published guidance to help public sector bodies identify savings in their PFI contracts. I will come on to the Romford case study in a second and provide hon. Members with an update. All the measures that I have outlined should mean that we are better placed to ensure that only those projects that offer the best value for money to taxpayers can go ahead, which is absolutely right.
As for operational savings, clearly we have a number of PFI projects that are in place and operating right now. Therefore, it is about looking at not only new projects but the existing stock of PFI projects. As many hon. Members are aware, we have taken a strong interest in the pilot savings project that is currently under way at the Queen’s hospital in Romford. As my hon. Friend the Member for Hereford and South Herefordshire said in a recent newspaper article, we have taken a deep dive to get under the skin of the project to see where we can save money. He raised the idea of a rebate. Although we want to drive savings, it is a challenge to do that with contracts that are already in place, as the hon. Member for Walthamstow (Stella Creasy) pointed out. Nevertheless, we want to try to save money.
The pilot is nearing its conclusion, and we will be passing on the lessons that we have learned to the wider PFI portfolio—of course, there will some lessons that are not applicable. Given the commercial sensitivity of the pilot, it is probably inappropriate for me to comment in more detail before it is completed. However, I assure hon. Members that the pilot has made good progress and that there will be lessons that we can take from it to help to achieve better value for money from existing contracts.
My hon. Friends the Members for Wycombe and for North East Cambridgeshire (Stephen Barclay) asked about guidance. We have been seeking industry agreement to a new voluntary code of conduct to support the idea of achieving operational savings from other PFI projects. That is important not only for getting better value for money but for driving better standards of transparency, so it is clearer to the outside world what contracts are delivering for the general public. We also issued some draft operational savings guidance in January 2011. Therefore, although the pilot in Romford is still ongoing, we have already issued some guidance on where further savings can be made.
As for the PFI rebate, the Chancellor and the Commercial Secretary have both met my hon. Friend the Member for Hereford and South Herefordshire. We fully support the principle of making savings in PFI contracts and we will look carefully at how we can do that over the coming weeks, months and years.
The Government want to improve the financial transparency of PFI projects. We currently collect and publish data on each PFI project twice a year. That includes information on the capital value, the equity owners and the full stream of payments over a project’s life. The Cabinet Office is now publishing tender documents and contracts for all future central Government projects over £25,000, and that will capture privately financed projects.
My hon. Friend the Member for Wyre Forest (Mark Garnier) mentioned the PFI equity issue and the trading in secondary markets. We agree that more can be done in that area and that there is not sufficient transparency around investor returns, particularly with regard to secondary market sales. The Treasury is now collaborating with the National Audit Office to look at PFI equity issues, including not only transparency, but equity risk issues and equity returns. We are currently working with it to ensure that we scope that work stream effectively to obtain output that will be of use to the Government. We are also engaging with PFI investors and contractors to reach agreement on the voluntary code of conduct, as I have said, and transparency will form a critical part of that.
Value for money, not the accounting treatment, should be the key determinant of whether a PFI scheme goes ahead. We have talked briefly about the fact that public-private partnerships have been left off Government balance sheets. The whole of Government accounts project, which will be completed in the coming months, is basically, in a nutshell, the Government’s first set of consolidated accounts. They will be done under international financial reporting standards—in other words, proper accounting standards—and they will put that liability on the balance sheet, so giving us a sense of what it is for the first time. That will show the massive liabilities that were run up by the previous Government not only for our generation but for future generations.
The Green Book covers offshore tax. I understand the point made by the hon. Member for Walthamstow. From my experience of having worked in business, of course we want to look at the bottom bottom line, but we also need to be pragmatic in understanding that companies will always look at their tax position. If they think that they are having to move onshore and are disadvantaged by doing so, there is always a sneaky suspicion that they will recoup that lost cost elsewhere. It is not quite as straightforward as simply saying that we should not use any company based offshore.
The key challenge for us all is to ensure that we have a more competitive tax system in the first place that does not drive companies offshore, which is why we are reducing corporation tax year on year. I very much hope that the hon. Lady will find time to support and vote for that when the Finance (No. 3) Bill finally goes through. The best way to tackle offshore tax is to have a competitive tax regime that makes companies want to stay in the UK and be based here for tax in the first place.
Stella Creasy
I am interested in what the Minister has said. Does that mean that the Treasury will rewrite the Green Book, so that it does not take account of the potential tax take under a PFI, if she is saying that offshore tax avoidance is unavoidable in some circumstances, given that it is part of the value-for-money decision on a PFI? There is a specific point about PFI and tax, so will the Green Book be rewritten, so that it is not part of the decision in future?
Justine Greening
We are not going to rewrite the Green Book. My point is that there are a number of variables in any PFI contract. There are several variables in the overall propensity for it to be profitable for the taxpayer in relation to value for money or for the private sector firms considering engaging in it. Tax is one of those variables. Obviously, it can change, as can the costs, which the parties to the public-private partnership for the tube discovered once they became engaged in it. We need to tackle the underlying issue that, under the previous Government, Britain became uncompetitive in the corporation tax world. We have got to get back to being more competitive over the coming years, which is exactly what we plan to do.
We are working on the skills agenda across Government. I do not have time to go into that now, because I want to give a minute to my hon. Friend the Member for Hereford and South Herefordshire. I assure hon. Members that we recognise that, as does the civil service. There is currently a huge review of skills going on across government to ensure that we have the right skills in place. We have therefore taken a number of steps. I know that my hon. Friend wants to come in, so I will conclude my remarks.
Regulatory and Banking Reform
Stella Creasy Excerpts(13 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hoban
I cannot comment on the case my hon. Friend raises, but we have corresponded about it. We need to see better outcomes for consumers of retail financial services. As she may be aware, we are also consulting on the future regulation of consumer credit and will announce our response to the consultation proposals shortly. One of the challenges we face is the disjointed regulation of consumer financial services. Credit, in the situation she raises, is regulated by the Office of Fair Trading, and other aspects of financial services are currently regulated by the Financial Services Authority and, in future, the Financial Conduct Authority. Whatever body is the regulator, we need to see better outcomes for our consumers, which will help to restore the trust in regulation that we all recognise is so vital.
Stella Creasy (Walthamstow) (Lab/Co-op)
Further to that point about the powers of the Financial Conduct Authority, will the Minister clarify whether it will have oversight of the consumer credit market, particularly the high-cost credit market, which is a source of concern for many Opposition Members? Perhaps he will take the opportunity to confirm whether the FCA’s powers of intervention could include capping the total cost that lenders can charge for lending where it is detrimental to consumers so that we can deal with the toxicity of the legal loan shark market.