Future of UK Capital Markets

Alun Cairns Excerpts

Tuesday 30th January 2024 Westminster Hall

[Alun Cairns (Vale of Glamorgan) (Con)]

I beg to move,

That this House has considered the future of UK capital markets.

It is a great privilege to serve under your chairmanship, Ms Nokes. It is also a pleasure to propose this debate on the future of UK capital markets. I have raised this debate following engagement from stakeholders across the sector. Like many other European markets, we have seen de-equitisation, as well as a slowdown in initial public offerings, with the US strengthening its position against other markets around the world. Arm’s flotation in New York over London last year attracted much attention, and we need to look at why that happened. We should also consider what is happening to the small cap and fledgling indexes, which the UK Equity Markets Association understandably highlights.

There are certainly examples where companies that may well have listed in the UK in the past are now floating in New York. We need to be conscious of that, and if the trend continues, we need to be concerned by it. I am not yet alarmed, but I look to the Government, regulators, fund managers, the London stock exchange and others to consider what can be done to ensure that London maintains its prominence in world financial markets.

The success of the Square Mile is hugely important to the whole of the UK—to its economy, tax revenues and status—and it is equally important to the UK financial infrastructure that is available to companies and individuals all over the UK, whether that is companies seeking capital, or individuals, including pensioners, looking for investment opportunities and potential enhanced financial returns.

The point I am making is that capital markets matter to us all and extend well beyond the world of finance. We need to recognise that domestic investors have moved away from UK equities in recent years. Asset managers’ investment in equities has dropped significantly, from 30% in 2017 to around 20% now. Although the London stock exchange remains the largest in Europe, its capitalisation has declined and the contribution of new international IPOs is down significantly. The number of companies listed in the UK is down by a third over the past 15 years, and UK retail investors have moved away from equities. Around 10% of assets are held in equities in the UK, compared with more than 30% in the United States. That is in spite of technology enabling more and more platforms. It is a far cry from the famous “If you see Sid, tell him” ad of the 1990s.

Some outlets, such as the BBC, sensationalise the reports of London losing its listings. An excellent report written by EY on UK finance last year provided a more balanced perspective, highlighting how London dominates in Europe in every aspect, even after the aggressive marketing by some cities in the EU following Brexit.

[Jim Shannon (Strangford) (DUP)]

I congratulate the right hon. Member for Vale of Glamorgan on securing this debate, and I am pretty sure he will agree with what I am going to ask. Does he not agree that we cannot live up to the potential in the City market without implementing the necessary changes to promote safeguarding and safety? Those are critical. Does he believe that the Government and the Minister must be more proactive in that matter?

[Alun Cairns]

The hon. Member makes an extremely important point, and I will come on to it as I progress. He is right about the importance of standards. London’s reputation on standards is essential not only to London, but to every part of the United Kingdom and well beyond.

I was highlighting the challenges we have had in the UK. If there are challenges here in London, there are even greater challenges elsewhere. London still dominates the European market. However, the market is always evolving and we need to react. That being the case, I am pleased that the Government are already alive to change and, along with others, have launched a series of initiatives to analyse and act on what the UK needs to do to secure London’s important international role. We have seen the wholesale markets review, the UK listings review, the Kalifa review, the UK secondary capital raising review and the London stock exchange UK capital markets industry taskforce. Those are just some examples of what has been going on in recent times.

The influence of some of the reviews led to the Edinburgh reforms and the Chancellor’s Mansion House speech last year. Those are positive steps but, 12 months on from the Edinburgh reforms and six months on from the Mansion House compact, this is a good time to take stock. There is a need for co-ordination and assessment of developments. I am concerned that there has been a series of reviews, including those I mentioned earlier, but securing outcomes for the benefit of companies and investors must be our focus.

There is clearly a balance to be struck between evolution and revolution. The Chancellor is on record as saying that he favours evolution, which is fair enough, but we do need to see progression, too. We also need to consider the freedom that Brexit provides, against the diversion from standards in our closest markets. I am not saying that is easy, but regular review of progress is a positive step. There are wins available for the United Kingdom, and I look to the Government to respond.

The central piece of the Mansion House speech was an agreement with the largest UK defined contribution fund managers to invest at least 5% in private equities by 2030. There are also clear ambitions for defined benefits schemes, and I hope the Minister can provide a further update on that in his response. After all, when we consider that just 1% of the UK’s near £5 trillion assets are in private companies, the 5% target is a major step. I press the Minister by saying it is a good start but we need to go even further, and monitor progress towards that 2030 target. I also look to the Minister to provide further details on the defined benefits reforms and ambitions.

I recognise that the Chancellor announced plans to consolidate the local government scheme. As he said, when it comes to pension pots, big is beautiful. I get that, and the wider benefits that consolidation will bring. I would, however, add a note of caution. Large funds need large investments, which in general is a good thing, but we could end up squeezing small and mid-sized companies out of the equation. Guidance to secure the role of smaller private equity funds, which usually focus on smaller firms, would be helpful. I am concerned that large pension funds will have few places to go, other than to large private equity firms in the US, defeating much of the Government’s objectives.

The London stock exchange plans for an intermittent trading venue also offer new opportunities to bridge the gap, but it would be helpful to gain feedback on the timing of the regulatory approval. I also welcome the Treasury’s commitment to the replacement of the EU prospectus regulation with the Public Offers and Admissions to Trading Regulations 2023 that stem from Lord Hill’s listings review. That is welcome and will streamline the process significantly.

We obviously await detailed Financial Conduct Authority rules, and look to it to act swiftly in that respect. To credit the FCA, it has streamlined the listings process and loosened the rules for related party transactions. These reforms and others are very welcome, and I pay tribute to the Minister and his colleague for the part they have played. The scale of the reforms should be recognised and will have effect. However, the speed of change and the scale of reform need to increase. The capacity of the regulator will be a challenge, but we need to do whatever possible to support it to make the necessary changes we are asking of it, at pace.

In this technical debate, however, we need to remember why we are doing it, and what else can be done. We need to make it easier to raise capital in London, and the process of listing less clunky, while also focusing on attracting capital from domestic and foreign investors to provide the liquidity and funds for growth. London’s reputation for high standards is a good thing, and something we need to work with. We should continue the momentum to review the access for early stage business finance, to expand the scope and remove the potential cliff edge.

Tax incentives and greater digitalisation of capital markets processes can help too. Enterprise management incentives could play a part in widening the opportunity for staff to take a stake. Stamp duty changes are also relevant. We need a new approach to investing at both fund manager and retail level. Current regulations force fund managers towards bonds and Government debt to de-risk, which almost came back to bite us just a little over 12 months ago. Savers have also been encouraged to remove risk. The classification of investments needs to be reviewed, and better research needs to be available, akin to Rachel Kent’s report.

We need to re-engage the retail market in the opportunities of equities. I can recall—as I am sure you can, Ms Nokes—the privatisation of public services in the 1980s and 1990s, and the opportunities that provided for the public to invest. I have already mentioned, “If you see Sid tell him.” Regulations aimed at protecting the public from risk have removed legitimate opportunities like those. It is almost impossible for an adviser to facilitate investments directly into equities, in spite of today’s reduced costs and swifter processes. Proportionate regulations are required, along with further ISA reform. I can well recall the personal equity plans of the ’90s, which had a specific allowance for a single company PEP. That made capital investment accessible and relevant to the masses.

In closing, I want to recognise the changes and reforms that have taken place but to suggest that we need regular—at least annual—reviews of progress and of the impact of change, with all stakeholders involved. That would show the world that we are determined to get it right and to continue to evolve to ever-changing needs. We must always remember that gaining and accessing new capital is essential to growing business and the economy. By getting this right, we can offer greater returns for the public through better pension and investment returns, while maintaining the UK’s prominence in this vital industry.

I started off by talking about Arm, and I want to highlight a quote from Craig Coben, a prominent journalist in the field. He wrote that

“Arm should float in the US not because London has any particular flaws as a listing location, but rather because the scale, scope and depth of American capital markets make it a more compelling venue… Nasdaq-only flotation offers the broadest access to investors without the complications of two primary listings.”

That is just one example of the sort of change that can be brought about. I look to the Minister to continue his positive agenda.

National Insurance Contributions (Reduction in Rates) Bill

Alun Cairns Excerpts

2nd reading
Thursday 30th November 2023 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

Whatever the Chancellor said last week and whatever the Chief Secretary to the Treasury said today, the truth is that the Conservatives cannot hide from the facts when it comes to the level of taxation in Britain today. The inescapable truth facing families across the UK, and the truth that the Government cannot hide from, is that under the Conservatives, the tax burden in Britain is on course to reach its highest level since the second world war. As the Resolution Foundation made clear in its blunt analysis of measures in the autumn statement, personal taxes are going up, not down.

Any cuts to personal taxation announced last week are more than eclipsed by hikes in tax that this Government had announced before; the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. They are not just giving with one hand and taking with the other; it is worse than that. As I said last week, it is as if the Conservatives have nicked someone’s car but then expect them to be grateful when they pay for the bus fare home.

[Alun Cairns (Vale of Glamorgan) (Con)]

Does the hon. Gentleman recognise the context in which the autumn statement was made? Was he not a cheerleader for the furlough scheme and the financial support provided during covid and the energy price shock? Does he recognise that that needed to be recovered but, because of the difficult decisions we have taken, we are now in a position to reduce taxes?

Autumn Statement

Alun Cairns Excerpts

Wednesday 22nd November 2023 Commons Chamber

[Jeremy Hunt]

Having only just delivered the autumn statement I do not want to pre-empt what might be in the spring Budget, but there will be another fiscal event before the end of the financial year in which all these things will be looked at. With respect to orchestras, which are fantastically important to our cultural landscape, I will just say that the typical person playing in an orchestra will get a £450 increase in post-tax pay next year, and that will help them greatly.

[Alun Cairns (Vale of Glamorgan) (Con)]

I congratulate my right hon. Friend on his statement, which will make a significant difference to investment levels, employment and living costs, recognising that it is all in the context of the cost of covid and the energy shock brought about by the conflict in Ukraine—that is something we often forget. May I pass on to him the appreciation of the beer and pub sector? The freeze in duty and continuation of the reduction in business rates is exactly what the sector asked for, and it is an early Christmas present to the many of us who want to celebrate in great style as we approach the festive season. Will my right hon. Friend please continue to engage with those in the sector and listen to what they have to say, so that they can share their investment ambitions?

[Jeremy Hunt]

I commit to my right hon. Friend that I will not just continue to engage with the sector, but continue to enjoy the odd glass of Penderyn, which is my favourite whisky.

Financial Services and Markets Bill

Alun Cairns Excerpts

Consideration of Lords message
Monday 26th June 2023 Commons Chamber

[Sara Britcliffe]

I agree with everything my hon. Friend the Member for North Norfolk (Duncan Baker) said.

I rise to speak in favour of amendments 72 to 77 on provision for access to cash. I, like many of my colleagues in this Chamber, understand the need of my constituents to have continued access to cash. This demand is concentrated in, although not exclusively restricted to, more disadvantaged groups who may still use cash for budgeting reasons or because they are not technologically literate.

That is why I have campaigned on this. In my constituency of Hyndburn and Haslingden, the number of free-to-use ATMs has fallen by nearly 40% since January 2021. Also, some towns in my constituency, including Great Harwood, have seen all their high street banks close, severely limiting access to cash compared with even a few years ago.

7 pm

We all understand the challenges. I have met with banks in my constituency and companies like LINK, and I am well aware that the long-term trends in digital payments and card payments are only going one way. But I strongly believe that even in the face of that evidence, we need to protect those individuals and businesses that still use cash.

I was a local business owner in Oswaldtwistle and we had to run between local businesses just to make sure we had the change we needed to run them. This is therefore very important, especially when the post offices close, which happened in Oswaldtwistle. We must make sure that provision is still in place and is easily accessible, especially for the older residents who live in all our constituencies.

Recently, I have been talking to businesses in Great Harwood, where all the high street banks have closed and the impact of the lack of ATMs is severe, especially if a business is cash-only or its card facilities are down. I am speaking to LINK and trying to get a banking hub in Great Harwood, and I am feeding in the issues facing local businesses, some of whom must travel out of the constituency to Blackburn or to Mr Deputy Speaker’s patch of wonderful Ribble Valley.

That is why I welcome the Chancellor accepting the Lords amendments on free access to cash. Having spoken to people across my constituency, I know how important that is. It is great to see the Government standing up for those who would struggle were the stark decline in cash access to continue.

I thank the Minister for his engagement throughout the process. I warmly welcome Lords amendments 72 to 77.

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to have an opportunity to contribute on the amendments made in the other place. I want to speak briefly about the accountability and scrutiny of the regulators, and the crypto and digital assets recognition in the Bill.

Chapter 3 refers in general to the accountability of the regulators and amendments 6 to 9 refer to the obligation to promote growth. The amendments are extremely important and I welcome the Government’s response to them and their setting the tone in accepting and working with such changes early on. International competitiveness is important for all our constituents. As Members have said, it is inevitable that consumer-focused elements in social media drive campaigns that rightly receive attention in the broader media, forcing change from regulators and established institutions, but the regulator must also strike a balance to ensure that businesses and the industry itself are internationally competitive. This is an important sector to the UK economy. As the Minister said in his introductory remarks, all constituencies will be affected by the Bill. There will be hardly a constituency that does not have someone employed in the sector, so amendments 6 to 9 on international competitiveness are important in striking the right balance between consumer demands for cash and ensuring that the sector is competitive so as to be sustainable over the long term.

Scrutiny and accountability of the regulators are also important. My right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) complimented the Treasury Committee, and it is important to do so, but Select Committees have limited capacity to scrutinise the role of all regulators on all occasions. I should probably declare an interest as a member of the regulatory reform group that is working to reform the approach that regulators take, hence my comments on the international competitiveness of sectors in general. The regulatory reform group has highlighted that there could be a role within Parliament for a Joint Committee to scrutinise the activities of regulators, to ensure that measures such as the clauses on international competitiveness are lived up to and met.

Has the Minister formed a view about how the scrutiny referred to in the Bill can best be achieved, because clearly that will be not in the Bill but in regulations thereafter? It is up to the House to decide on how best to scrutinise this, but the Joint Committee as suggested by the regulatory reform group is a good starting point for the debate. Does the Minister recognise that there is a strong need for additional parliamentary scrutiny of the regulators, and not only in financial services, although this Bill enables him to comment on that sector? It is good to see that my hon. Friend the Member for Wimbledon (Stephen Hammond), who also sits on the regulatory reform group, is present. Brexit has provided a great opportunity to deliver for many of our constituents, but it can only do so if the regulators take a different, more proactive and positive approach to supporting industries, rather than, as some might say, restricting them, in addition to the excellent work done by the Treasury Committee and other Select Committees thereafter.

I turn to chapter 2 generally and clauses 21 and 22 and clause 65 referring to cryptoassets and digital assets and distributed ledger technology, or stablecoins as others would refer to them. The Minister will be aware that I have raised cryptoassets and digital assets on a number of occasions and called for strong direction. I pay tribute to the Government, as the Bill gives the framework for a clear policy direction so that regulators can rightly support and offer confidence to those getting involved in the sector. This is also an opportunity to start delivering on some of the calls made in the Kalifa review and to provide the certainty that many seek as they research cryptoassets, digital assets and distributed ledger technology. When can we look forward to the strong policy direction that we need to ensure that the UK is ahead of the curve in this sector and repeats the fantastic success that the fintech sector has had as a result of the clear policy direction and framework given in the past?

[Stephen Hammond (Wimbledon) (Con)]

As many colleagues across the House have said, the Bill addresses one of our most important industries and therefore is one of the most important Bills we will be considering in this Session. At the outset the Government said their aim with the Bill was to make UK regulation appropriate and proportionate, to be internationally competitive, to boost growth and to enable better outcomes for consumers and business, and those themes come through strongly in the Lords amendments. I should have said at the outset that I refer the House to my entry in the Register of Members’ Financial Interests.

It was a pleasure to serve on the Bill Committee, which the Minister conducted in a constructive way, listening to a number of comments about accountability and transparency, which I shall come on to later. In Committee we spent a lot of time discussing financial inclusion, and the hon. Member for Glenrothes (Peter Grant) was critical of the Minister and rejected the proposal for having arrived late. Actually, that guard for financial inclusion is already in the substance of the consumer duty being digested and implemented by the FCA. Much as I am sometimes cautious about what a regulator says, the fact of the matter is that the regulator says that it has those powers already.

I will not detain the House on the work that the Minister has done on deforestation, because my right hon. Friend the Member for Epsom and Ewell (Chris Grayling) has spoken about that more eloquently. I ask the House to think carefully and to support the Government’s amendments in lieu on the net zero objective, because the amendments in lieu sensibly ensure not only that the Bill builds on the Climate Change Act 2008 and the Environment Act 2021, but that regulators consider the exercise of their functions “relevant” to the making of such contributions. At I said at the outset, the Government intended the Bill to be both appropriate and proportionate, and for regulators conducting functions in this area, “relevant” seems to be a key point.

The Minister will know that throughout Committee, I was keen to discuss the secondary competitive objective and ensuring transparency and accountability. Throughout Committee, my hon. Friend the Member for North Warwickshire (Craig Tracey) and I raised issues about membership of panels, metrics and the need for reports, and I congratulate the Minister on listening, because, with some of the amendments that he proposed on Report and the tranche of Government amendments coming from the Lords, the Bill has a lot of good. Much as I agree with my right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) that a Joint Committee of the House to scrutinise and hold the regulator transparent would be the perfect solution, I do not think we should let perfect get in the way of good, and there is a lot of good in this Bill, particularly with a number of the amendments that create a need for a report. I also congratulate the Minister on looking at the membership of panels. Far too often, there is a temptation of regulators to mark their own homework, and we must ensure that does not happen if the regulator is to be accountable and, therefore, regarded as effective.

It is clear that the secondary objective is a secondary objective, but if we are to have a thriving financial services industry in the future, this jurisdiction must enjoy international confidence and be internationally competitive. It has been said any number of times, but the costs of becoming a new entrant—with new applications, in some cases—are 14 times more than in other jurisdictions. That cannot be right. The movement in this Bill to sort that out and place a burden on the regulator for international competitiveness is key.

My final point, the Minister will not be surprised to hear, is that I am pleased to see what amendments 37 and 38 do. They seem utterly sensible and in line with the need, first, to be transparent, as in amendment 37, and secondly, to be appropriate and proportionate, as in amendment 38. When the Government produce the secondary legislation, I am keen that they define carefully the metrics for how the reports that the regulator produces are judged, to consist of operational effectiveness, the health of the market and the regulatory burden, as well as international comparisons, because that will be the key test of the Bill. I know he will take those things on board in future discussions. I look forward to supporting the Government this evening.

Finance (No. 2) Bill

Alun Cairns Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

[James Murray]

I thank the right hon. Gentleman for his comments, but I feel he is misguided in claiming that it is somehow only Labour calling for a doctors-only pension scheme to be investigated. I referred to the Chair of the Treasury Committee, but I could also refer to the current Chancellor—the current Chancellor—who less than a year ago suggested that we should go for a doctors-only scheme. All we are asking is for the current Chancellor to do what he told himself to do less than a year ago and investigate the possibilities. That is important, because that is how we spend public money wisely.

To return to air passenger duty, Ministers may try to point out, when we discuss it later in the debate, that the lower rate of domestic air passenger duty has been accompanied by the introduction of an ultra long-haul rate. But when taken together, the air passenger duty changes in the Bill are set to cost the taxpayer an additional £35 million a year. That cannot be the right priority for spending public money. In Committee, we tried to get to the bottom of why this tax cut is being prioritised.

[Alun Cairns (Vale of Glamorgan) (Con)]

I am grateful to the hon. Gentleman for giving way on that point. How does the shadow Minister square his comments with those made by the Welsh Government calling for air passenger duty to be devolved and abolished to support Cardiff Airport, which they have purchased?

[James Murray]

I will leave matters for the Welsh Government to the Welsh Government to set out their position. We are trying to challenge the position of the UK Government on air passenger duty.

Whatever the UK Government say, the reasoning behind air passenger duty changes have been hard to come by. In Committee, we wanted to understand why the cost of domestic flights is so high up the agenda of this Government under this Prime Minister. I asked the Minister whether, if someone were to travel by helicopter around the UK, for instance from London and Southampton, that would be subject to air passenger duty. I could equally have asked if that would be the case if someone were to get a helicopter ride from London to Dover. At the time, the Minister clarified that there is no air passenger duty other than on fixed-wing aircraft, so that anyone wanting to make short hops in a helicopter can rest assured that this tax would not apply.

I also asked the Minister whether, if someone travelled on a private jet around the UK from, say, London to Blackpool, what rate of air passenger duty would apply in that case. The Minister confirmed that private jets will not benefit from the domestic air passenger duty cut—something the Chancellor may want to let his neighbour on Downing Street know. Finally, I asked the Minister what rate of air passenger duty would apply if someone lived in the UK but was travelling to another home of theirs, let us say in Santa Monica, California. The Minister did not say at the time whether such a flight would attract the ultra long-haul rate, but my understanding is that it would not, so anyone on the Government Benches who needs to fly to their Los Angeles home will not be hit.

It is clear from the Tories’ approach that they have no idea how to spend public money wisely, and that their judgment over what to prioritise is at odds with the British people. Under the Conservatives in this Parliament alone, people across Britain have faced 25 tax rises and 12 interest rate rises. Yet the Tories think the priorities for taxpayers’ money in the middle of a cost of living crisis should be tax cuts for frequent flyers and for those with the very largest pension pots. The truth is that under the Conservatives, working people always end up paying the bill.

--- Later in debate ---

[Stewart Hosie]

Before I turn to the new clauses and amendments before us, it is worth reminding ourselves briefly about the debate so far, not least that the Bill was derived from a Budget that had the stated intention of seeing the debt, borrowing and inflation all fall. As the Financial Secretary has said previously, debt servicing costs are down, and indeed they are—they are down from last November, but massively up from the previous year. She said that the fiscal targets are to be met. Again, indeed they are. The debt target in particular is forecast to be met in five years’ time measured against the fiscal charter, but it will be at 0.2% of GDP. That is £6 billion out of a GDP approaching £3 trillion. As I have said before, these are very fine margins.

Although it is true that having a weather eye on debt and deficit—the big macro-economic indicators—is important, so too is immediate help for families suffering from high inflation, high energy prices and spiralling mortgage costs. Those things, however, are all sadly absent from the Bill. That is important because the OBR has told us that living standards will fall by 6% over this fiscal year. That will be the largest two-year fall since Office for National Statistics records began in the 1950s. It is important because inflation is still at 8.7%, and it is far worse for certain essentials such as sugar, at nearly 50%. Remember that inflation was forecast to fall to 2.9% by the end of this year. Since then, it has been revised up to 5% by the end of this year. That means that the forecasts and the pain keep rising.

We know that real pay is not keeping pace with inflation. Troublingly, the Government are keeping their head in the sand regarding the inflationary impact of Brexit, ignoring even the former Bank of England Governor, Mark Carney, who could not have been clearer about the contribution Brexit has made to the soaring inflation we face.

I turn to the amendments and new clauses we are considering on Report. New clause 1 calls for a review of alternatives to the abolition of the lifetime allowance, and amendments 1 to 6 delete clauses associated with the abolition. On Second Reading, I suggested the need to probe this matter in Committee. The decision to remove the cap on lifetime pension allowances, which will cost around £3 billion, will benefit a tiny number of already pretty comfortably off or very well-off people. I also suggested that, if the measure was genuinely designed to lift certain categories of worker—doctors in particular—out of a pension and employment trap, the Government should, to be brutally honest, have come up with a much better and far narrower solution.

My hon. Friend the Member for Aberdeen North (Kirsty Blackman) also raised the matter in the Committee upstairs. She made the point that a significant number of questions have been raised in the House and elsewhere about the lifetime allowance and the problem it has caused, particularly for NHS doctors, but went on to quote Torsten Bell of the Resolution Foundation, who noted that 20% of those who will benefit from the change in the lifetime allowance work in the finance industry, meaning that nearly as many bankers as doctors will benefit. That surely cannot have been the intention. We are pleased to support new clause 1, because it seeks not simply a review, but a review that will make recommendations about how a more focused alternative could be delivered.

Amendment 7 seeks to remove entirely the abolition of the Office of Tax Simplification, and new clause 2 seeks reports based on metrics to measure the performance of tax simplification. We will support both if they are voted upon. My hon. Friend the Member for Dunfermline and West Fife (Douglas Chapman) provided some excellent context in Committee, arguing that

“the OTS achieved a significant amount during its 12 years of existence and, with greater ministerial support for its proposals, could have achieved much more.”—[Official Report, Finance (No. 2) Public Bill Committee, 18 May 2023; c. 136.]

He also quoted George Crozier of the Chartered Institute of Taxation, as many have done over many years, who said that there had been

“useful reforms to employee expenses and inheritance tax reporting,”

and that

“every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”

My hon. Friend also made the rather important point that it was the independence of the Office of Tax Simplification that made it stand out from anything that can be provided in-house. We will back amendment 7 and new clause 2 if they are pressed to a Division.

If I may say a few words about Government new clause 4 and Government amendments 9 to 13, they appear to come under the category of tidying up and clarification. New clause 4 in particular ensures that both domestic and international top-up taxes commence at the same time, and the other amendments ensure that reliefs and charges operate as intended.

However, I am rather less sanguine about Government new clause 5. Ostensibly, it is required to deal with the situation where

“financial institutions are regarded as telecommunications or postal operators”.

For example, subsection (5) of Government new clause 5 suggests that paragraph 19(4) and (5) of schedule 36 to the Finance Act 2008 be removed, but paragraph (19)(4) says:

“An information notice does not require a telecommunications operator or postal operator to provide or produce communications data.”

That is a protection against the requirement to produce data in certain circumstances. Paragraph 19(5) defines “communications data”, “postal operator” and “telecommunications operator” as per the Investigatory Powers Act 2016—the very legislation that inserted those protections into schedule 36 to the Finance Act 2008 in the first place. Government new clause 5 not only affects the financial institutions regarded as telecoms or postal operators but, it would appear on my reading, removes protections in the Act for all telecommunications and postal operators not to be required to provide certain information in certain circumstances.

The Financial Secretary said she would answer questions at the end in her summing-up, and my questions are rather simple. What problem is Government new clause 5 designed to address? Why has a potentially significant amendment such as this come so late in the day? Is it even remotely appropriate that a criminal justice measure, the Investigatory Powers Act, should be amended in a potentially significant way through a late-delivered new clause on Report of a Finance Bill?

New clauses 3 and 8 to 14 call for reviews or reports of one form or another on the public health and poverty effects of the Bill, the oil and gas profits levy allowance, the impact of those with non-dom status, the bands and rates of air passenger duty, the impact of tax changes on households, and the effect of the Bill on the affordability of food and on small businesses. We are happy to look on those positively, although I am not certain that new clause 12 should really be opening the door to reducing the electricity generator levy. The Lib Dems have disappeared, but I would have said to the hon. Member for Tiverton and Honiton (Richard Foord), had he been in this place, that if one opens the door to a tax cut to the Tories, they by and large take it.

We will also support new clause 7, which requires a statement of progress on the pillar 2 reforms, seeking

“to extend and strengthen the global minimum corporate tax framework”.

It is important that we have a global minimum corporate tax framework, and I am not convinced by the arguments made by the right hon. Member for Witham (Priti Patel) about offering the opportunity for implementation to be delayed.

Again, the Lib Dems are not in their place, but I am also not yet convinced by new clause 15 because, while there are issues with the Government’s research and development framework, which I have raised before—namely, the stated intention to limit attributable expenditure for data and cloud computing licences—the new clause seeks to make the regime more restrictive and introduces the extraordinarily subjective viability clause in subsection (2)(a).

It is, however, true that none or few of the amendments and new clauses tabled substantially alter the Bill. It is also sadly true that none of the Government changes offer any hope of substantial help for the cost of living crisis any time soon. I fear that the Bill, and the Budget it derived from, will go down in the missed opportunity category.

[Alun Cairns]

I will speak to part 2 of the Bill, clauses 46 to 60, to which Government amendments 15 and 16 refer. In general, they relate to duty rates and any exemptions that apply thereafter. The Government’s objectives have been to simplify the system, to have an emphasis on health and healthy consumption, and, of course, to support pubs. In general, these are significant changes that have a positive impact on the hospitality sector.

When the Exchequer Secretary’s predecessor, my hon. Friend the Member for South Suffolk (James Cartlidge), said at the Dispatch Box that the Bill delivers the Brexit pub guarantee, there was significant enthusiasm within the sector to recognise and interpret a long-term commitment. There are two elements that immediately stem from that. The first is that these are changes that can be delivered as a result of Brexit; there were difficulties, challenges and nonsensical structures in the sector that could not be amended while we were a member of the EU. That is a major positive impact. However, the significance of the Brexit pub guarantee is that it will be long-term and we look for it to be ever extended.

I pay tribute to the Exchequer Secretary, who has engaged with me on some of the points that I have already made, but also to his predecessor, to the Chancellor, and to the Prime Minister when he was Chancellor, for recognising the opportunities to amend duty rates. That can genuinely help the hospitality sector, particularly pubs.

The original draft duty relief, which was in the Budget two years ago, was set to be 5% and to come into force this year. This year’s Budget and the Bill increased that to 9.1%, which will make a real difference. It follows the theme, all being well, of a continuing differential between rates that apply to the off-licence trade and those that apply to pubs and the general hospitality sector. The Government have therefore taken important, positive steps, which are welcomed far and wide.

Oral Answers to Questions

Alun Cairns Excerpts

Tuesday 20th June 2023 Commons Chamber

[Jeremy Hunt]

We will always look at Labour policies, but they are normally not right.

[Alun Cairns (Vale of Glamorgan) (Con)]

Clear policy direction and a strong regulatory framework have led to the UK being the world’s leading centre in financial technology. Does my hon. Friend agree that the crypto industry offers the same opportunity for the UK to exploit?

[Andrew Griffith]

My right hon. Friend is absolutely right. I was pleased to join him in a Westminster Hall debate about the regulation of the cryptoassets sector. I commend the work done in this House by the crypto and digital assets all-party parliamentary group. He might join me in welcoming the decision by Andreessen Horowitz, one of the world’s largest technology companies, to locate its only international office outside of San Francisco here in the UK and to run its 2024 cryptoassets school here.

Cryptocurrency Regulation

Alun Cairns Excerpts

Tuesday 13th June 2023 Westminster Hall

[Dr Cameron]

I thank the hon. Member for his contribution. Yes, much of this will be led by the Treasury, and I imagine that regulation will be streamlined right across the United Kingdom. I am pleased to hear about developments in Northern Ireland; there have been many in Scotland, too. I spoke to Scotcoin not that long ago. This area has enthused and motivated people right across the United Kingdom, and it is important that we collaborate in order to realise its potential.

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to serve under your chairmanship for the first time, Mrs Harris. I congratulate the hon. Lady on her work with the crypto and digital assets all-party parliamentary group and on its excellent report; it is a privilege to work with her. Some years ago, the UK became the world’s leading fintech centre because the regulatory environment was established with a clear direction from Government, which allowed businesses to invest and regulators to lean positively towards the sector’s development. Does she agree that if the positive record of the Government of that time is replicated with cryptocurrency, the UK will have a similar opportunity to be a leading nation in this sector, as well as in other financial technologies?

[Dr Cameron]

I thank the right hon. Member for his valuable contribution. I totally agree. I saw some research from PitchBook last month that suggested that since the EU produced its regulatory framework on markets in cryptoassets—MiCA—investment in the EU has increased substantially. With a regulatory pathway over the next 12 to 18 months at the maximum, the UK could harness a leadership position in this sector. That will be essential because of the digital revolution that is happening. The next generation is a digital generation already. This is the way that things are moving in the world, and the UK must be at the forefront. I am pleased that the Minister is harnessing his skills and endeavours to ensure that happens.

We heard that without comprehensive regulation there are considerable risks in the industry, particularly regarding consumer protection, economic crime and financial stability, which I will speak about later. While there are clearly legitimate concerns about the potential risk posed by cryptocurrency and digital assets, it is important to acknowledge a number of positive use cases that show the potential benefits of the new technology.

One such example is the use of cryptocurrency at the frontline of the conflict in Ukraine. Many may not know this, but following the Russian invasion, the Ukrainian Government appealed for cryptocurrency donations and received millions of dollars in cryptocurrency to support military and humanitarian efforts on the frontline. Ukraine’s Deputy Minister of Digital Transformation, Alex Bornyakov, has said that cryptocurrency has been “essential” to Ukraine’s response to the Russian invasion. I am delighted to welcome Minister Bornyakov and his team, who are in the Public Gallery. We are delighted to have them here today.

Our inquiry heard that the growth of the sector suggests that cryptocurrency is here to stay. The latest research by the Financial Conduct Authority shows that cryptocurrency ownership has almost doubled in the last year, with almost one in 10 people surveyed owning cryptocurrency in 2022. That highlights the need for proper, clear regulation to protect consumers and support the industry’s growth in a reasonable way. As countries around the world move quickly to develop regulatory frameworks, we feel that the UK must move within the next 12 to 18 months to harness the industry’s potential in order not to lose out to other jurisdictions.

Throughout our inquiry, we heard that there are potential barriers to the UK’s realising its vision, which we set out in the report. We heard that the process for cryptoasset businesses to enter the UK is very lengthy, with limited engagement at times, and that many businesses ultimately choose to invest outside the UK. While the Government have said that they are open for business and for companies in the sector to set up and scale up, we heard that that has not been the experience of many companies seeking to obtain licences to operate in the UK. They have seen very lengthy delays and, in many cases, had their applications rejected. That is fine, because we do not want a race to the bottom, but it often happens without a clear explanation and with limited communication throughout the process.

To date, only 41 firms have been approved to operate in the UK. Will the Minister say what more the Government can do to ensure that legitimate and responsible firms that want to set up and scale up here are able to do so? What steps are the Government taking to ensure that regulators have the resources they need to deliver on their responsibility to process applications?

--- Later in debate ---

[The Economic Secretary to the Treasury (Andrew Griffith)]

It is a pleasure for me to serve under your chairmanship, Mrs Harris; congratulations on your first time chairing our proceedings in Westminster Hall. I congratulate the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) on once again securing a debate in Parliament on crypto regulation. It is particularly apposite to do so during London Tech Week. I would also like to extend a welcome to Minister Bornyakov and his team, who are watching this debate from the Public Gallery.

I know that the hon. Member for East Kilbride, Strathaven and Lesmahagow shares with me and this Government a desire for the UK to be a leader in this space; that is our vision. I thank her and the crypto and digital assets all-party parliamentary group, which she chairs, for its excellent recent report, which is timely and adds to the growing canon of work. It is a good read, and I commend it to all parliamentarians and policymakers. One of the valuable functions that that group performs is to raise the level of understanding of this exciting but sometimes challenging new domain.

Let me be clear. The Government’s goal is simple: it is for the UK to be an open, well-regulated and technologically advanced society. The extraordinary technology under- pinning distributed ledger technology, or DLT, could have profound and positive impacts across multiple sectors in the UK, including more efficient trading, cheaper payments across borders, more choice for consumers and, as the hon. Member for East Kilbride, Strathaven and Lesmahagow said, the benefit for financial inclusion. Beyond that, it is part of the wider Web3 decentralised movement that is leading to a radical rethink about what the future of the internet might look like and who—which sort of organisations—determines that. McKinsey research suggests that this could be

“a paradigm shift in the business model…by making disintermediation a core element”,

while a research analytics firm estimates that the global market size of Web3 could reach $81.5 billion by 2030.

[Alun Cairns]

I congratulate my hon. Friend the Minister on pressing ahead with the digital pound that is under consideration in order to ensure that the UK is at the forefront of digital currencies. But is he confident that all the regulators—within the Bank of England for the digital pound, but also the Financial Conduct Authority and others—have the capacity and expertise necessary to deliver the vision that the all-party group and the Government are seeking to set out? Does he agree that it is worrying that many crypto companies find it challenging to open bank accounts simply to conduct their business?

[Andrew Griffith]

I pay tribute to my right hon. Friend for the points that he made about how important it is that we lean into this space. He used the excellent and apposite example of fintech—a flourishing industry, for which the UK is genuinely one of the leading centres in the world. I share his concern about the availability of bank accounts. As he understands—I am sure he would not wish it otherwise—that is a commercial decision for organisations, but to the extent that the regulatory framework, or indeed the regulatory culture, is a contributing factor, Parliament will bring cryptocurrency into the regulated domain and decide that it is a lawful activity that could reap many benefits for the United Kingdom. It would, of course, be a concern if those who take part in this lawful and well-regulated activity were unable to procure bank accounts, so I can undertake to keep a close eye on that. I do not plan to make an immediate intervention, but he and other colleagues have raised the issue, as has the APPG. I will undertake to keep a close eye on it, and I am open to hearing examples of where people cannot open bank accounts.

The hon. Member for Strangford (Jim Shannon) has left the room, but I can give him the assurances he seeks. As a proud Unionist, it is a delight to have such a diverse set of representatives from across all parts of the Union. It is wonderful to have contributions from all parts of the Union today, but financial services is a reserved matter, and the Treasury and Parliament will bring forward the right regulations. The regulators have hitherto been clear about some of the risks in this domain, and we seek to strike the appropriate balance between not regulating and introducing appropriate regulations while recognising the potential consumer harms and making sure that we have effective, clear, proportionate and timely regulation. Those seem to be entirely desirable attributes.

Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023

Alun Cairns Excerpts

Monday 27th March 2023 General Committees

[The Economic Secretary to the Treasury (Andrew Griffith)]

I beg to move,

That the Committee has considered the Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023 (S.I. 2023, No. 319).

It is a pleasure to serve with you in the Chair, Mr Hollobone.

As right hon. and hon. Members will be aware, Silicon Valley Bank UK Ltd was sold on Monday 13 March to HSBC. Customers of SVB UK are now able to access their deposits and banking services as normal. The transaction was facilitated by the Bank of England, in consultation with the Treasury, using powers granted to it by Parliament through the Banking Act 2009. In doing so, we limited risk to our tech and life sciences sector and safeguarded some of the UK’s most promising companies, protecting customers, financial stability and the taxpayer. The solution was a win for taxpayers, customers and the banking system.

SVB UK has become a subsidiary of HSBC’s ringfenced bank. Ringfencing requires banking groups that hold over £25 billion of retail deposits to separate their retail banking from their investment banking activities. The regime provides for a four-year transition period for an entity acquired as part of the resolution process before it becomes subject to ringfencing requirements. As a result of that existing legislation, SVB UK is not currently subject to ringfencing requirements. However, HSBC UK, the parent company of SVB UK, remains subject to the ringfencing regime.

To facilitate the transaction, we laid in both Houses of Parliament on Monday 13 March a statutory instrument, using powers under the Banking Act 2009, to broaden an existing exemption in ringfencing legislation with regard to HSBC’s purchase of SVB UK. The exemption allows HSBC’s ringfenced bank to provide below market rate intra-group funding to SVB UK. That was crucial for the success of HSBC’s takeover of SVB UK, because it ensured that HSBC was able to provide the necessary funds to its newly acquired subsidiary.

HSBC has since stated publicly that it has provided approximately £2 billion of liquidity to SVB UK—money that it required to continue to meet the needs of its customers, and which this instrument facilitated. The Bank of England and the Prudential Regulation Authority are fully supportive of this modification to the ringfencing regime as a necessary step to facilitate the sale.

In view of the urgency, and given that this statutory instrument was crucial in enabling the sale, the Treasury determined that it was necessary to lay the instrument using the made affirmative procedure, under its powers in the Banking Act 2009. Parliament provided the Treasury with those powers for exactly such situations, recognising that exceptional circumstances can arise when the Government must take emergency action in the interests of financial stability, depositors and taxpayers.

The statutory instrument also makes a number of modifications to the Financial Services and Markets Act 2000 in relation to the rule-making powers of the PRA and the Financial Conduct Authority. Specifically, the rule-making powers are modified to ensure that regulators can exercise them effectively when they relate to the Bank of England’s transfer of SVB UK to HSBC, and the write-down of SVB’s UK shareholders and certain bondholders. The statutory instrument also waives the requirement for the regulators to consult on certain rule changes related to the sale.

In addition to today’s measure, the Government will in due course lay another statutory instrument to make further changes to the ringfencing regime with regard to HSBC’s purchase of SVB UK.

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Minister and the Treasury for the way in which they moved swiftly to facilitate the acquisition of SVB UK by HSBC.

My hon. Friend will be aware of the questionable confidence in some banks around the world. Has he made an assessment of whether he will need to come before Parliament again to propose similar adjustments to regulations for other banks that might find themselves in the same situation as SVB UK, or should we be confident that the UK banking sector in the UK is sufficiently robust?

[Andrew Griffith]

I thank my right hon. Friend for his question. Primacy for financial stability sits within the Bank of England and the Financial Policy Committee. All I can say is that the Governor of the Bank of England has confirmed that, in his view, the UK banking system remains

“safe, sound and well capitalised”.

I hope that my right hon. Friend understands that it would not be right for me to step outside those words.

Oral Answers to Questions

Alun Cairns Excerpts

Tuesday 21st March 2023 Commons Chamber

[Andrew Griffith]

Interest rates are not only falling but are still below the level at which they peaked under the last Labour Government, despite the fact that we have had a covid pandemic and war in Ukraine. I welcome the news last week from the Office for Budget Responsibility that the country is on track to avoid a recession, and we must never forget the words of the right hon. Member for Birmingham, Hodge Hill (Liam Byrne): there is no money left.

[Alun Cairns (Vale of Glamorgan) (Con)]

A competitive and viable banking sector is essential to offer competitive mortgages to constituents right across the country. What assessment has my hon. Friend made of the treatment of additional tier 1 bonds in relation to the Credit Suisse takeover, which could well undermine the sector elsewhere, and what assessment has he made of the value of those bonds here in the UK?

[Andrew Griffith]

I thank my right hon. Friend for his comments. The Government join the Bank of England in welcoming the comprehensive set of actions taken yesterday by the Swiss authorities to ensure financial stability. It would not be for me to talk from the Dispatch Box about the treatment of creditors, but the UK’s bank resolution framework has a clear statutory order in which shareholders and creditors would bear losses in a resolution or insolvency scenario.

Digital Pound

Alun Cairns Excerpts

Tuesday 7th February 2023 Commons Chamber

[Andrew Griffith]

The right hon. Gentleman might usefully and productively have a conversation with his own Labour Front Benchers, who only a moment ago were accusing us of moving too fast. The two points show that the financial regulators have in this particular case got the balance about right in their approach to cryptoassets. He will also know that last week we published a proposal for the regulation of cryptoassets more generally. This is not a cryptoasset; this is a digital pound. He makes a point that others have also made to me about the speed with which our financial regulators reach their conclusion. I understand that point. Whatever conclusion they reach, it would be desirable that they do so in a way that is as effective as possible and gives as much certainty as possible. It is one reason why there are powers in the Financial Services and Markets Bill, which he will know is going through the other place at the moment, that will compel the financial regulators to publish more of their operating statistics, so that he and I will be able to see how they discharge their duty to regulate in an effective manner.

[Alun Cairns (Vale of Glamorgan) (Con)]

Digital currencies in a whole range of formats are part of a fast-moving and dynamic sector of an emerging economy. To date, the regulators have struggled to keep up with the skills and capacity to bring about appropriate and effective regulation of the sector. What plans does my hon. Friend have to develop capacity within the regulators to give confidence in the marketplace that the digital pound, as well as other digital currencies, will have confidence among users?

[Andrew Griffith]

My right hon. Friend makes an important point. To govern is to choose and we ask our regulators to make choices to prioritise. It is one reason why we are looking at reform of long-standing areas, such as the 40-year-old Consumer Credit Act 1974, to see if we can modernise it and make it more fit for purpose, deliver better customer outcomes, and potentially free up the regulatory environment so they can make choices to focus on the new and emerging threats and opportunities that this domain represents.