Financial Services Industry

Andrea Leadsom Excerpts

Wednesday 4th March 2015 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

indicated assent.

[Mr Speaker]

The Minister is an accommodating Minister, and therefore a suitable expression of gratitude I know will be forthcoming from the hon. Member for Rochester and Strood, Mr Mark Reckless.

--- Later in debate ---

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I congratulate the hon. Member for Clacton (Douglas Carswell) on securing this debate. I agree with him and the hon. Member for Rochester and Strood (Mark Reckless) that competition and choice are the bedrocks of a free market economy—something that the Government have sought to promote at every opportunity, and nowhere more so than in the financial services sector. Increasing competition means customers have more choice about how they bank and who they bank with, and it means that banks have to work harder to provide the best possible products and services.

More competition will also help to ensure that the industry evolves in a way that meets customers’ wants and needs—and, indeed, predicts them—and supports and harnesses innovation in financial services. It drives home the point that banks work for their customers, and not the other way round. Perhaps if that point had been driven home a little more often in the past, we would not have had some of the mis-selling scandals that have plagued the industry over the past decade. I agree that competition is a key factor in improving behaviour and tackling wrong-doing.

Choice and competition are important across the spectrum of financial services, be it banking, insurance or asset management, and the Government have placed competition and choice at the heart of all our policies relating to financial services, but I want to focus today on competition in personal current accounts and SME banking. The hon. Members will be aware of the Competition and Markets Authority’s investigation into competition in these markets and that the Government wholeheartedly welcome this investigation. We set up the CMA precisely to take action to improve competition where required.

I want to take this opportunity to make clear the Government’s commitment to increasing competition in the market for personal current accounts and SME banking, as in all areas of financial services. We must never again get into a situation where the banks do not seem to be accountable to the people they exist to serve. When we entered office in 2010, at the height of the financial crisis, we inherited a banking system that was broken. It all too easily let the big high street banks consolidate their stranglehold on the market and was far too relaxed about taxpayers picking up the bill when those same banks needed bailing out. There was not enough diversity and innovation, and there was certainly not enough competition. Ultimately, the customer, the taxpayer, lost out.

By making it a key part of the Government’s long-term economic plan to drive far more competition in banking, we have sought to rebuild the UK banking sector and to ensure that customers get a better deal. I have often used a phrase I coined myself—that competition should trump regulation. I genuinely mean that in the sense that regulation can go so far in ensuring that banks that were previously too big to fail are less likely to fail in future, but the real disinfectant is competition. That is what keeps banks honest, keeps them on their toes, keeps them lying awake at night wondering what is happening to their customers.

So what have this Government done? First and very importantly, we have sought to empower customers, shifting the balance of power away from the bank and towards the customer. By driving the delivery of the seven-day switching service, we have made it easier for customers and businesses to switch banks quickly and reliably. That means that they are more able to hold their banks to account and, if necessary, to vote with their feet.

The hon. Member for Clacton asked what switching levels should be. At the moment, it is still true to say that one is more likely to divorce twice than to change one’s bank account, which is an extraordinary fact. I have done neither—neither divorced nor moved my bank account, so I suppose I am a statistic waiting to happen—and, hopefully, I will move my bank account! Switching levels should clearly be significantly higher than that. I hope that will happen through the measures we are taking, and there is already evidence that switching levels have increased.

Very excitingly from April this year—both UKIP Members will be delighted to hear this—the Government’s “midata initiative” will enable customers to review how they use their personal current accounts, and they will receive for the first time a detailed comparison of which bank is best for them. They will be able to download a year’s worth of transactions, upload to a comparison website and see which bank would have been better to use, bearing the transaction flow in mind. It is vital to be able to differentiate between one bank and another bank.

As the hon. Member for Clacton said, I have taken a keen personal interest in an idea that could bring even greater benefit to customers by going further and introducing full account number portability. This is a potential game-changer, and I continue to explore the benefits it could bring and the different ways it could be implemented.

As the House will be aware, I wrote to the chief executives of the Financial Conduct Authority and the Payment Systems Regulator to ask them to consider these issues as part of their review into the effectiveness of the seven-day current account switch service. I look forward to hearing the outcomes of their review in the very near future—within the next week or so—and the PSR will no doubt be keen to take these conclusions on as part of its work on strategy setting in the payments industry, once it formally opens for business on 1 April.

This Government have introduced legislation to enable banks and building societies to introduce “cheque imaging”, which will speed up cheque clearing times in the UK. Again, that is customer-focused and customer-friendly action, so that people will in future be able to photograph a cheque and send it to the bank using a smartphone rather than having to take it into a branch. We saw the introduction in 2014 of mobile payment applications such as Paym, which allows customers to transfer money quickly, easily and securely, using only their mobile phone number as identification. That is the first thing—putting the customer at the heart of innovation.

Secondly and very importantly, we have strengthened the regulatory regime and put competition at its heart. We have created two new stronger regulators—the Financial Conduct Authority and the Prudential Regulatory Authority—each with statutory objectives to promote greater competition; and we have legislated for the new Payment Systems Regulator to make sure that payment systems will operate in future in the best interests of customers and on fair terms for new challenger banks.

Thirdly, we have made it easier for new players to enter the market and compete with incumbents. That means not just challenger banks, but alternative finance providers. We have pressed the regulators to make it quicker and less expensive for potential new banks to get authorised. About 20 banks are currently going through the new mobilisation process, and several of them hope to enter the banking market within a year. That is big news.

As the hon. Gentleman pointed out, Metro bank's full banking licence, which was granted in 2010, was the first to be granted in the United Kingdom for more than 100 years. That is extraordinary, but under the present Government five brand-new banking licences have already been granted, and there will be many more. We are seeing old and new brand names, such as TSB, Virgin, Metro and Aldermore, and Atom is on the way. Each of those banks has a different customer offering, which is very important for competition purposes. As the hon. Gentleman suggested, there may be others—not just traditional banks as we know them, but the likes of Google, Apple and other tech firms.

We have supported and promoted the expansion of the credit union movement, and have helped mutuals to raise new capital for their own expansions. We have supported the growth of peer-to-peer lending by allowing such loans to be included in individual savings accounts, and by channelling investment from the British Business Bank towards peer-to-peer lending. Those are small but important and fast-growing markets. We have supported equity crowdfunding by, for example, offering tax incentives to investors who take the risk of investing in smaller companies through the enterprise investment scheme. We are legislating to open up access to credit data to challenger banks, and requiring the big banks to pass on the details of small and medium-sized enterprises whose loan applications they reject to alternative, willing finance providers. That will help to level the playing field between established banks and alternative providers, and will make it easier for SMEs to secure finance.

We have also have done something on which neither the hon. Member for Clacton nor the hon. Member for Rochester and Strood focused particularly, but which is very important. We have opened the door to innovation in banking and financial services to help to make the UK the global centre for FinTech, which is a vital and fast-growing part of the financial services sector. We are already seeing the start of a sea change in the way in which people access and manage their money. It is now possible to send money overseas at the touch of a button, and much more cheaply than before. It is possible to lend directly to small businesses in the local community online, and it will be possible to clear a cheque by sending an online image to the bank.

However, that is just the start. The Blackett review, which was set up by the Government, will look into where FinTech will lead us over the next decade, and how the United Kingdom can reap the maximum rewards. We have already started to position ourselves. In August last year, the Chancellor announced an additional £100 million of British Business Bank funding to support FinTech and a major programme of work on digital currencies. And we have now concluded a call for evidence on how to deliver an open standard for application programming interfaces in UK banking. That will enable FinTech firms, challenger banks and alternative finance providers to use bank data, on behalf of customers, in a variety of helpful and innovative ways.

The hon. Member for Clacton raised the question of whether European Union rules helped or hindered effective competition. The one thing that I can say specifically is that the capital markets union initiative stands to benefit United Kingdom financial services enormously by opening new markets and making access to finance for small businesses in our economy far easier. We are engaging with that initiative within the EU as hard and as fast as we can in order to guarantee real benefits throughout the EU, but particularly for British businesses and British competition.

The Government have done much to increase competition, but there is more to be done. I shall read the Blackett review of FinTech and await the outcome of the investigation by the Competition and Markets Authority with great interest.

I thank the hon. Member for Clacton again for securing this important debate. I hope that it has given him some confidence that the Government are doing all that they can to facilitate better competition and choice in financial services.

Question put and agreed to.

Future Government Spending

Andrea Leadsom Excerpts

Wednesday 4th March 2015 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

How dare Opposition Members indulge in the sort of scaremongering that we have heard this afternoon! I am sure that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) would like to celebrate the fact that youth unemployment in her constituency has gone down by 43% since 2010 and that overall, unemployment has gone down by 31% over the same period.

[Cathy Jamieson]

rose—

[Andrea Leadsom]

I will not give way to the hon. Lady as she did not give way to my hon. Friends.

Furthermore, does the hon. Lady agree that Labour’s motion today is false? She said that the cuts we have made take us back to the 1930s. In fact, the Office for Budget Responsibility has said that

“by 2019-20, day-to-day spending on public services would be at its lowest level since 2002-03 in real terms.”

And that was when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was in the Government. Does she want to celebrate any of those points with me?

[Cathy Jamieson]

I thank the Minister for eventually giving way. Although I celebrate young people and the long-term unemployed finding work in my constituency, I hope that she will recognise that for many of them, it is zero-hours contracts, low-paid work, and jobs that are not in their chosen careers. They want more from a future Labour Government and they will get it.

[Andrea Leadsom]

I am sure that there is no need for me to give way to the hon. Lady again so that she can congratulate us on the fact that, on average, 75% of those new jobs are full-time employment. There are some other facts that Opposition Members might like to celebrate. I am talking about the fact that the UK was the fastest growing major economy in 2014; that more than 760,000 private sector businesses have been created over the past four years; and that employment is up by 1.85 million since the last general election—that is 1.85 million more people with the security of bringing home a regular pay packet. She might like to celebrate the fact that wages are rising significantly faster than inflation, and that total pay was up 2.1% in the three months to 2014.

The hon. Lady might like to hear the views of international commentators. Mark Carney, the Governor of the Bank of England, said:

“The sweet spot you want is low, stable predictable inflation. You’re going to get that”—

in 2015. Is the hon. Lady interested in the view of President Obama? He said:

“I would note that Great Britain and the United States are two economies that are standing out at a time when a lot of other countries are having problems. So we must be doing something right.”

Perhaps she would like to hear the views of Christine Lagarde who runs the IMF. She says:

“A few countries, only a few, are driving growth.”

The hon. Lady needs to listen to this. Christine Lagarde is talking about America and the UK. She goes on to say:

“And the UK, where clearly growth is improving, the deficit has been reduced, and where the unemployment is going down…Certainly from a global perspective this is exactly the sort of result that we would like to see.”

There is a word of warning from the OECD. It says:

“Well done so far, Chancellor. But finish the job. Britain has a long term economic plan, but it needs to stick with it.”

That is vital and it is what we intend to do.

Let me turn now to some of the very interesting comments made by colleagues across the House. In particular, my hon. Friend the Member for Braintree (Mr Newmark) gave an excellent talk about the reality of our determination to sort out Labour’s mess. My hon. Friend the Member for Morecambe and Lunesdale (David Morris) told us why the Government have been so good for his constituency and my hon. Friend the Member for Wolverhampton South West (Paul Uppal) spoke about the importance of competition for economic growth. It is absolutely vital.

My hon. Friend the Member for Peterborough (Mr Jackson) contrasted Labour now with Labour in 1997, when the party at least had a vision. He also talked about Labour’s spiteful prejudice against success, and that is right, Mr Deputy Speaker. My hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) pointed out the vital need to invest in infrastructure in his constituency and his fears that Labour would prioritise Scottish over English interests. My hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) pointed out the nonsense of Labour’s motion and the need to ensure that we in this generation do not leave our debts to our children and our grandchildren.

Let me point out to Opposition Members what the IFS recently said about Labour: higher Government borrowing acts to support household incomes in the short run, but the resulting higher levels of Government debt mean that a greater proportion of public spending must be allocated to financing debt interest payments in the long run and potentially leave the UK more vulnerable to large negative shocks in future. Simply borrowing more is just not an option.

The hon. Members for Corby (Andy Sawford) and for Preston (Mark Hendrick) both accused this Government of having done nothing for the NHS, but perhaps they would like to celebrate with me the fact that the health budget has increased in real terms every year during this Parliament, that total health spending has increased by £12.7 billion during this Parliament and that on top of that in the autumn statement the Chancellor announced an additional £2 billion for front-line NHS services in England in 2015-16. The vital point about the NHS is that we cannot have a strong NHS without a strong economy.

Since today we have had a very interesting living standards report from the IFS, I want to give hon. Members some other things to celebrate. The IFS has assessed that average household incomes are now restored to around pre-crisis levels. That is something to celebrate. Wages are up 4.1% in real terms for those in continuous employment. That is fantastic. Inflation is at 0.3%, helping family budgets to stretch further. Let us look at inequality, which is lower than when this Government came to power with, as the IFS has said, pensioner poverty at near record low levels. That is vital in our economy. This Government support fairness and have also ensured, as the IFS has today confirmed, that the richest households have paid the most, with

“larger proportional falls in income for higher-income households.”

That is absolutely vital. Inequality has fallen and the biggest burden has been borne by those with the broadest shoulders.

It is vital that members of the public who have to choose very soon who they want to run the Government for the next five years know that they have the choice between a Government who have been determined to ensure fairness and an Opposition who are completely incoherent and whose lack of facts and plans lead them simply to resort to scaremongering in the hope they can persuade people to accept a non-coherent plan from their Front-Benchers. This Government believe in a fairer society and a fairer society is created by helping the weak get stronger, not by making the strong weaker. We can only have a fair society on the back of a healthy, well-functioning economy and we can only have a healthy, well-functioning economy on the back of sustainable public finances.

The Government’s long-term economic plan is making public finances sustainable for the first time in a great many years. It is delivering economic growth and as the IFS confirmed today it is raising the standards of living across the country. That is vital. We are finally on the right track and now would be the worst time to change direction. Let us keep going, let us finish the job and let us give the people of this country the fair, strong, healthy and vibrant economy that they deserve.

Question put.

Bank Closure (Stone)

Andrea Leadsom Excerpts

Tuesday 3rd March 2015 Westminster Hall

[The Economic Secretary to the Treasury (Andrea Leadsom)]

It is a great to serve under your chairmanship today, Mrs Main. I congratulate my hon. Friend the Member for Stone (Sir William Cash) on securing this debate and on presenting his case as compellingly as he always does. He has made good points to which I am extremely sympathetic. I well understand—I have my own constituency cases on the issue—how people feel when a bank in their area is to be closed. Bank branches are often felt to be at the heart of a local community. I appreciate that, as he said, the people of Eccleshall have produced a petition with close to 800 signatures expressing their concern at the loss of their bank branch. Each of those people, and those in the neighbouring communities in Blythe Bridge, Cheadle and Stone who are losing a branch of the Co-operative bank, will feel, quite rightly, that their town is losing a little piece of its identity.

Eccleshall has had a NatWest branch since 1970, and has had a bank branch operating since the 1870s on what I can well imagine is a well loved local site, so the situation must be unsettling for local people. I am deeply concerned about closures not just in my hon. Friend’s constituency but across the country. I therefore want to tell him a bit about what I and others in the Government have been doing to try to make sense of the situation and to protect the important local access to banking services that so many people need and want.

At the same time, my hon. Friend will appreciate that the way we bank is going through an unprecedented period of change. Customers are reducing their use of high street branches and embracing new online and mobile technology. Although we all recognise that decisions on where branches are located are commercial ones, I assure him that the Government can set the tone, stressing the importance of day-to-day banking services to everyone’s daily life. As Economic Secretary, I have made that a personal priority and have worked hard to make sure that the vital services that the banking industry provides remain as widely available as possible.

NatWest has set out its case that the number of transactions at its Eccleshall branch is low compared with the rest of its branch network, but I absolutely recognise the disappointment felt by customers more broadly in the local area at the news of the closure. People often feel that there is inadequate consultation with the community and local stakeholders who may be affected. NatWest has followed current best practice, giving customers a three-month notice period and contacting its most active and most vulnerable customers to help them find alternative ways to bank. However, if people are to feel that their concerns have been heard, and if local businesses are to feel that the services underpinning their livelihoods are safe, banks must go much further. That is why I have been working to encourage the industry to adopt a new protocol that each bank will undertake to follow so as to mitigate the impact of a local branch closure.

[Sir William Cash]

Did my hon. Friend hear the interview on this morning’s “Today” programme with the chief executive of Barclays bank, in which he talked about the amount of money he is earning and about bank bonuses, which are also under wider discussion? The chief executive and chairman of the Royal Bank of Scotland keep making statements about customer service—we have heard much the same sort of thing from the Co-op—but that does not help my constituents or anyone else in the country. They then find a little edge here or there with regard to the profitability of a particular branch. Does she agree that if banks want a reputation that is worth maintaining, it will involve making sure that people in communities such as Eccleshall have actual access to the kinds of services that the banks say they are offering in their annual reports and in the public arena—on radio and television?

[Andrea Leadsom]

I agree to a great extent with my hon. Friend. There is no doubt that banks are keen to restore their damaged reputations and that the big UK banks in particular are determined to show that they are there for their customers. I therefore agree with what he says about the need to make sure that they are addressing the needs of those customers and not looking only at commercial realities. Equally, however, I know he will agree that it is not for Government to intervene in private businesses to force them to retain completely unviable branches. We need instead to make sure that banks pay careful attention to the balance between commercial realities and the needs of local communities.

[Sir William Cash]

On Government activity, I seem to remember only a few years ago an extensive bail-out for RBS. There are also questions in relation to the Co-op. It seems to me that when banks want help—and by help, I mean monumental bail-outs—it comes from the Government and the taxpayer, yet when they say they are putting customer service first they close small but important branches in places such as Eccleshall, which needs its branch.

[Andrea Leadsom]

I am grateful to my hon. Friend for those further remarks. Again, I completely agree that banks have a long way to go to restore confidence that they mean what they say when they talk about customer service. However, again, he will understand if I do not say that a bank must open a branch in this place or that. Those decisions are commercial ones. The Government need to ensure that banks balance the needs of customers with commercial realities.

I mentioned that I have been urging and encouraging the industry to adopt a protocol that each bank would follow to mitigate the impact of a local branch closure. The protocol should not simply set out a series of steps for individual banks to take before they close a branch, but should raise the game of the industry as a whole, including how it listens to the concerns of its customers, and, crucially, how it responds. I am pleased to say that discussions on the protocol are at an advanced stage, and agreement is expected soon, thanks to the help of the trade body for banks, the British Bankers Association. We are hopeful that we will get something positive that will address some of the issues my hon. Friend raised.

My hon. Friend mentioned the availability of banking services through local post offices. I completely understand that for customers having a local post office is not the same as having a local bank branch. However, the services available through the Post Office offer most customers a real opportunity to continue to bank locally. We can and must do more to ensure that everybody understands and is comfortable with using the banking services available to them through their post office. For many customers, the Post Office can provide access to their bank account, including the ability to withdraw money, deposit cash and cheques and check their balance at all 11,700 of its branches throughout the UK—a huge network.

In some respects the Post Office can offer wider customer benefits. I know that a number of post offices, including in my constituency, have much longer opening hours than a typical high street bank and provide services seven days a week. Recently, I met the head of the post office network to talk about moves to improve the network, to provide more customer-facing space and more security, and to improve the range of financial services that it offers. The Post Office is working with its postmasters to ensure that facilities are upgraded and that appropriate security is put in place to enable customers to bank safely, and it is determined to do more to ensure that essential banking facilities remain available in as many communities as possible. The Government have committed almost £2 billion to protecting and modernising the post office network.

I believe that we can continue to improve the banking services that the Post Office offers and make them more consistent for customers, which is why I have encouraged the British Bankers Association and the Post Office to look at a standardised approach to counter banking services available through post offices. The Government expect a report on the progress of those talks in the near future.

My hon. Friend raised concerns about the future of banking beyond the traditional branch network, and about the services that will be accessible to all. It is vital that we ensure that vulnerable customers—particularly the elderly and those in rural constituencies—have suitable access. In Eccleshall, I believe that NatWest has made provision for a change to an existing mobile bank route, so a more traditional NatWest presence will still be available in the town.

A whole new world of banking is becoming available, and we should be excited about the opportunities that online and mobile technology can provide. The UK is positioning itself as a world leader in financial technology, and we can already see signs of the benefits that all the developments in financial technology can bring. For example, since April 2014, customers can securely transfer money instantly to other bank accounts using only their mobile phone number as identification, which means that they do not have to access a computer or travel to a branch to make a payment. From 31 July 2016, customers will be able to use their telephone to photograph cheques for payment into their bank account, making life easier for customers in remote areas. Several banks are taking action to help their customers use those new technologies with confidence.

We are also making progress on ATM provision. The number of free-to-use ATMs is at an all-time high, and 97% of withdrawals are now made free of charge. I understand that in Eccleshall NatWest will still provide an ATM in the local community. There are also two other free-to-use ATMs within 1 mile of the branch that is to close.

More generally, it is often the most isolated or disadvantaged communities that have the worst access to free-to-use ATMs, so the Government are working closely with the LINK network’s financial inclusion programme to subsidise free-to-use cash points in more than 1,400 remote and deprived areas across the UK. Importantly, members of the public can nominate their area for inclusion. I believe that the ATM network can play a more important role in addressing some of the concerns voiced by consumers whose local branch is closing.

On a trip to India last year as part of my job as Economic Secretary, I was impressed at the widespread use of smart ATMs, which have far greater functionality than those we tend to have in the UK. They allow customers not only to make withdrawals and deposits and check their balances, but to carry out a wider range of transactions, such as purchasing train tickets and bus passes. Progress in the UK could be made by simply ensuring that ATMs allowed customers to deposit cash. That facility would be particularly beneficial to local small and medium-sized enterprises if it were provided in a way that allowed depositors to feel safe and secure—for example, within the confines of a Post Office, a store or an e-lobby. I have raised that issue with the banking sector, and my officials are engaged with LINK to find a way forward.

In conclusion, although the Government recognise that individual branch closures are commercial decisions and must continue to be so, I fully understand the disappointment felt in Stone and other communities when local bank branches close. There is no doubt that customers’ usage of banking services is going through an unprecedented period of change, but it is vital that we ensure that vulnerable customers—particularly the elderly and those in rural constituencies—have suitable access.

I want to reassure my hon. Friend that it will continue to be my personal priority for the remaining weeks of this Parliament to ensure that the vital services that the banking industry provides remain as widely available as possible, wherever people live. I fully intend to make further progress on the initiatives to get banks to create a new protocol, to look at what services the Post Office provides, and to push further on using technology to provide solutions to businesses and customers in rural areas. Once again, I thank my hon. Friend for raising these important issues in this vital debate.

Question put and agreed to.

Banking Reform

Andrea Leadsom Excerpts

Tuesday 3rd March 2015 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

This Government have taken significant steps to reform the UK’s system of financial regulation.

In the Financial Services (Banking Reform) Act 2013 (“the Act”), we legislated to strengthen the accountability of bank senior management and to raise standards of individual conduct in the banking sector. I am now announcing the timetable for bringing the senior managers and certification regime (SM and CR) created by these reforms into operation. I am also announcing the Government’s plans for applying the SM and CR to foreign banks operating through branches in the UK.

The introduction of the SM and CR will be a major reform with significant implications for the firms concerned—banks, building societies, credit unions and investment firms regulated by the Prudential Regulation Authority (PRA) and for the individuals, particularly senior managers, who work in those firms. The Government have therefore decided, following discussions with the Financial Conduct Authority (FCA) and the PRA, that the SM and CR will come into operation on 7 March 2016. In order to facilitate an orderly transition from the existing approved persons regime, firms will be required to notify the regulators by 8 February 2016 of the approved persons who are to be senior managers under the SM and CR.

The Treasury will make the necessary commencement order (under section 148 of the Act) and a transitional provisions order (under section 146 of the Act) shortly.

The Government issued a consultation on whether to extend the SM and CR to UK branches of foreign institutions on 17 November 2014. The consultation closed on 30 January 2015 and the Government have been considering the responses received.

The Government have now decided to proceed with this measure. It will come into operation on the same date—7 March 2016—as the SM and CR applying to UK firms and foreign institutions will also have until 8 February 2016 to notify the regulators of the approved persons who are to be senior managers in their UK branches.

The Treasury must now make an order—subject to the affirmative procedure—under section 71A of the Financial Services and Markets Act 2000 to implement the measure. The Government intend to arrange the debates as early as possible in the next Parliament.

The PRA and FCA will shortly be consulting on additional SM and CR rules. These rules will help ensure that the SM and CR is applied in an appropriate and proportionate way to foreign institutions operating through branches in the UK.

The commencement order will also bring sections 36 to 38 of the Act into force from 7 March 2016. This means that the new criminal offence relating to decisions causing a financial institution to fail could apply to decisions taken by senior managers in UK banks, building societies and PRA-regulated investment firms—but not credit unions or any foreign institution—on or after that date.

[HCWS336]

Equitable Life

Andrea Leadsom Excerpts

Thursday 26th February 2015 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I add my congratulations to my hon. Friend the Member for Harrow East (Bob Blackman) and the hon. Members for Leeds North East (Fabian Hamilton) and for Eastbourne (Stephen Lloyd) on securing the debate. Their tireless work on this important issue is greatly appreciated by our constituents. Prior to my ministerial appointment, I was a member of the all-party group on Equitable Life policyholders and a number of my constituents have been badly affected, so I am deeply sympathetic to policyholders’ losses in this sorry tale. I shall explain what the Government have done to resolve the long-standing issue of Equitable Life and set the record straight on some of the history.

This situation has been a key priority for the Government. While Equitable remained solvent and continued to pay premiums to its members, its problems caused a great many of its policyholders to suffer significant emotional and financial distress. When we came to office, we made a commitment to implement the ombudsman’s recommendation that the Government should make fair and swift payments to Equitable Life policyholders in recognition of the part that the Government played in Equitable’s problems. Those payments were swift, in that within six months of taking office, we introduced the Bill that became the Equitable Life (Payments) Act 2010, and payments started to be made to policyholders in June 2011, which was within six months of Royal Assent. They were also fair because the scheme’s rules are based on the Government’s full acceptance of the parliamentary ombudsman’s findings of maladministration and, importantly, on the assumption that all policyholders would have decided to invest elsewhere had the maladministration regarding regulatory returns not occurred. Of course, that is a conservative assumption.

The ombudsman did not quantify the relative loss, which is the difference between the amount received by Equitable Life policyholders and what they would have received if they had invested in the same way in a similar company, but this Government assessed the total as £4.1 billion. That was significantly more than the final figure of £340 million that was arrived at under Sir John Chadwick’s methodology, which was based on the previous Government’s limited acceptance of the ombudsman’s findings. In the 2010 spending review, after taking account of the need to be fair to all taxpayers, we announced that up to £1.5 billion would be made available for payment to eligible policyholders.

[Mr Christopher Chope (Christchurch) (Con)]

Is my hon. Friend going to address the part of the motion that calls on the Government to pay full compensation in the next Parliament? The right hon. Member for East Ham (Stephen Timms) did not deal with that point, but our constituents want it to be addressed.

[Andrea Leadsom]

Yes, I am.

In line with representations received, out of that £1.5 billion, we covered the relative losses of the with-profits or trapped annuitants in full. Those annuitants were unable to move their funds elsewhere or to mitigate the impact of their losses by seeking employment. They were also generally the oldest policyholders. The remaining available funding, on the advice of the independent commission, was distributed pro rata to other policyholders, representing 22.4% of their relative loss. I know that that was deeply disappointing to many. These difficult decisions were taken in the light of the position of the public finances and in the interests of overall fairness to all taxpayers.

The motion notes that

“the Parliamentary Ombudsman recommended that policyholders should be put back in the position they would have been in had maladministration not occurred”.

However, the ombudsman went on to say that the impact on the public purse should also be taken into account when considering payment. She also stated that she was acutely conscious of the potential scale of what was recommended. She has subsequently written to the all-party group to say that the Government’s decisions on affordability and eligibility cannot be said to be incompatible with her report.

I congratulate all Members who contributed to the debate. It is clear that they have been assiduous in representing their constituents and have done an excellent job. My hon. Friend the Member for Southend West (Sir David Amess) talked about Ernst and Young as the auditors of Equitable, so he might be interested to note that in 2010, for its part in Equitable Life, it was fined £500,000, plus costs of £2.4 million, and received a reprimand by the accountants’ joint disciplinary scheme.

The hon. Member for Airdrie and Shotts (Pamela Nash) asked for a regional breakdown of amounts paid. No breakdown by region has yet been compiled, although we could produce a basic one if that would be particularly helpful. However, I assure her that regionality does not influence the scheme’s operation in any way.

My hon. Friend the Member for Harrow East, as well as the hon. Member for Coventry North West (Mr Robinson) and my hon. Friend the Member for Southend West, talked about the situation for the pre-1992 annuitants and the fact that they are elderly and financially vulnerable. The first regulatory return from Equitable Life that would have been different had there been no maladministration was that of 1991. This was available on request from Equitable Life from mid-1992 and could not, therefore, have been expected to influence investor decisions before late 1992. Therefore no relative loss was suffered by this group. However, as hon. Members have recognised, the Government agreed that this group of pre-1992 annuitants, although they are not affected by maladministration, have suffered significantly from a loss of income that they would have expected. For this reason the Government made an exceptional ex gratia payment of £5,000 to this group, with a further £5,000 to those on pension credit, in December 2013.

The hon. Member for Leeds North East and the right hon. Member for Knowsley (Mr Howarth) raised the question of compensation for the Icelandic bank savers in Icesave and why Equitable Life savers are being treated differently. The ex gratia payments to UK depositors in Icelandic banks were made as a result of a decision by the previous Government to guarantee all qualifying retail deposits specifically to protect the financial stability of the UK. The financial compensation scheme was simply the agent for these payments and we expect to recover all those sums from the Icelandic banks and are continuing to do so.

Specifically in the case of failed banks and why they receive compensation, the Financial Services Compensation Scheme is funded by a levy on financial services firms, so again those compensations do not come from the public purse.

In answer to the hon. Members for Moray (Angus Robertson) and for Airdrie and Shotts who asked when the scheme stops tracing people, all policyholders are either written to at their last known address or put through electronic tracing methods, such as looking them up against the electoral roll. Attempts are made through the Department for Work and Pensions to trace those owed more than £250. I should tell hon. Members that about 50% of the remaining policyholders are due less than £100.

My hon. Friend the Member for Poole (Mr Syms) asked whether we could re-allocate the remaining £500 million. That remaining £500 million is to make ongoing payments to annuitants for the duration of their annuity. Finally, the hon. Member for Stretford and Urmston (Kate Green) and my hon. Friends the Members for Bromley and Chislehurst (Robert Neill) and for Southend West asked what we had done to ensure that people were not put off the idea of saving for their retirement. As hon. Members know, the Government have undertaken a fundamental reform of the regulatory system, and put in place the Financial Services Act 2012 to establish a new system of specialised and focused financial services regulators. They abolished the FSA and set up new regulators within the Bank of England and the independent conduct of business regulator, the Financial Conduct Authority. These reforms are designed to ensure that the conduct of firms, and with it the interests of consumers and participants in our financial markets, are at the heart of the regulatory system and are given the priority that they deserve.

The recent news on the improvements that this economy has made since 2010 is to be welcomed and shows that this Government’s long-term economic plan is working, but we have a long way to go to restore the public finances, and the public purse remains very constrained. It is right that we have taken action on the Equitable issue, but we must balance this with the need to continue to address the difficult position of the public finances and the impact on fairness to all taxpayers. That is why this Government have no plans to change the funding available to the payment scheme. Our focus is rather to complete the small number of remaining payments. We have continued to make excellent progress with the scheme itself. Only this week I was pleased to report that over £1 billion has been paid to nearly 900,000 eligible policyholders.

In conclusion, I genuinely have deep sympathy with those who carefully saved for retirement and are not receiving the income they expected. Resolving the Equitable Life issue, and doing so swiftly and in a way that was fair to all taxpayers, has been a priority for the Government.

Bankers’ Bonuses and the Banking Industry

Andrea Leadsom Excerpts

Wednesday 25th February 2015 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I have to say that I am extremely disappointed by the remarks of the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). I find it absolutely astonishing that Labour Members have the courage to raise the issue of bankers’ bonuses. Perhaps they have forgotten that it was under their light-touch regulatory regime that the worst excesses of the banking sector were allowed to flourish. I wonder whether she regrets the fact that the shadow Chancellor is not in the House today. Does she suspect that he regrets saying, as City Minister in June 2006, that

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

Does she think that he regrets presiding over a system under which £66 billion was paid out in bonuses on his watch?

[Cathy Jamieson]

I wonder whether the Minister heard what I said when I was challenged about whether the shadow Chancellor ought to be in the Chamber. I noted that the Chancellor is not present, and I raised the question of what Conservative Members had done on light-touch regulation. Were they not arguing for it? Can she give me an example from that time when her party proposed something different?

[Andrea Leadsom]

That is just another typical Opposition ploy. At that point, the Conservative party was in opposition and the Labour party was in government. It is absolutely unconscionable for the Labour party to suggest that the Opposition of the day should have saved the Labour Government from their own excesses.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

Will the Minister give way?

[Charlie Elphicke]

Will the Minister give way?

[Andrea Leadsom]

I give way to my hon. Friend.

[Charlie Elphicke]

Does my hon. Friend not think that the last intervention is reminiscent of arsonists throwing rocks at the firefighters who have worked so hard to put out the fire the arsonists started?

[Andrea Leadsom]

My hon. Friend is quite right. It is extraordinary that Labour Members have the cheek to come to the House and suggest that Conservative Members are somehow responsible.

I want to draw to the House’s attention the very prescient quote from the former Prime Minister when, representing the previous Government, he addressed the City in his Mansion House speech in 2002:

“What you as the City of London have done for financial services, we as a Government aim to do for the economy as a whole.”

And didn’t they just? It is absolutely extraordinary that under the “intensely relaxed” Labour Administration, bankers were rewarded for taking excessive risk, and if they failed, were allowed to get away with it—heads they win, tails the taxpayer loses.

[Debbie Abrahams]

Will the Minister give way?

[Mr Stewart Jackson (Peterborough) (Con)]

Will the Minister give way?

[Andrea Leadsom]

I give way to my hon. Friend.

[Mr Jackson]

Is not this debate a displacement activity for a party that does not have any coherent narrative to deal with jobs, growth and the economy? Is it not reckless of Her Majesty’s Opposition to keep recycling the tax on bankers’ bonuses—10 times over—without ever having to account for where that money will actually go?

[Andrea Leadsom]

My hon. Friend is exactly right that the Opposition are simply trying to recycle something as a distraction. I am truly delighted that the motion gives me the opportunity to set out the wide-ranging measures that this Government have taken to sort out the appalling legacy of the Labour party on banks and remuneration. We have taken an extraordinarily wide-ranging set of measures to sort out a mess left, once again, by a Labour Government.

[Debbie Abrahams]

I am grateful to the hon. Lady for ultimately giving way. Will she remind the House how much more the Government are borrowing now compared with 2010?

[Andrea Leadsom]

The hon. Lady will know that the Government have taken steps to bring down significantly the amount we are borrowing each year to get our economy on the road to recovery after the disaster caused by the Labour party.

To return to the point of this debate, the real fact is that the public are absolutely right to be furious about the behaviour and misconduct of banks. It still feels as though there are fresh examples every day of the shameful practices that went on in the bad old days. The public will want to know what this Government have done to sort out the mess left by the previous Government.

I can tell the House that, under this Government, we have the toughest remuneration regime of any major financial centre in the world; we are making banks raise their standards, rebuild their reputation and get back to the job they used to do prudently and respectably for centuries; and we are making sure that we never go back to the bad old days of banking.

[Guy Opperman]

Will the Minister give way?

[Mr Marcus Jones]

Will the Minister give way?

[Andrea Leadsom]

I will give way in a moment, but I want to be very clear at this point. In such debates, there is always a sense that somehow all bankers are terrible people. The truth is that the vast majority of the up to 2 million people employed in financial services do an honest day’s work and always have done. They would not seek to rip anybody off, or distort anything they do. They are honest, decent people. I want to pay tribute to the work of financial services not just in oiling the wheels of our economy, but in contributing so much to our economy as a whole. Notwithstanding the very real misconduct issues, which have disgusted all of us right across the country, it is true that only a small number of people are responsible for such wrongdoing. I will talk about what we have done to put that right after I have given way.

[Guy Opperman]

Will my hon. Friend also make the point that this Government have ensured that LIBOR funds, which were not previously given to good causes, have benefited air ambulances—my hon. Friends and I supported them at No. 11 Downing street last night—and 96 military charities? This Government have brought in a magnificent innovation that supports wonderful charities.

[Andrea Leadsom]

I am very grateful to my hon. Friend for raising that point. The Government are extremely proud that fines for misconduct go to good causes, unlike under the Labour party, when any fines for misconduct were passed straight back into the hands of the people who committed it. The LIBOR fines have gone to military charities and air ambulances, as he pointed out, and the fines for the appalling foreign exchange rigging will support the NHS and GP surgeries in particular.

[Helen Goodman (Bishop Auckland) (Lab)]

The hon. Lady is a well-informed Minister. Will she tell the House what she did in her years as a banker at BZW and Barclays and, latterly, as a head of corporate governance to lobby for tighter financial regulation?

[Andrea Leadsom]

I am very grateful to the hon. Lady for giving me the opportunity to say that for the last 10 years of my career at Invesco Perpetual, I was responsible for writing a quantitative bonus scheme that measured the performance of fund managers over three, five and 10 years according to the performance of the team, the business and the individual, which involved clawbacks, as appropriate. I started that work in 1999 and finished it in 2009, so I can say with confidence that I did my bit on remuneration.

What have the Government done that we are so proud of? First, we have brought down the quantum of bonuses. City bonuses are now a fifth of what they were under Labour. The banks that were bailed out by the taxpayer have been a key focus for the Government, so let me inform the House about what is happening with bonuses at RBS. We will ensure that the total bonus pool comes down again, both in total and per head. That will continue the reductions that made last year’s bonuses more than two-thirds lower than those in 2009. The bonus pool at the investment bank will come down too in total and per head. We are continuing to restrict cash bonuses to £2,000, and no executive director will receive a bonus.

Let me also tell the House what is happening at Lloyds. This week, we announced that we are getting back another half a billion pounds for taxpayers—money that they had to put in. We can do that because since the crisis Lloyds has gone from failure to being a strong, profitable bank that is helping to drive the UK recovery and is contributing £230 million a year through the bank levy. We will ensure that Lloyds sees its bonus pool reduce this year and we are continuing to restrict cash bonuses to £2,000.

Let us compare that with the Labour party, which presided over a system that paid Fred Goodwin a cash bonus of £2.9 million in 2007. It is now calling for a 10-year clawback on bonuses—once again asking us to clear up the mess that it left—and has spent its bank tax proposal 10 times over.

The Government have made the link between bonuses and performance crystal clear. Bankers should be in no doubt that their bonuses are at risk should misbehaviour occur. Under this Government, highly paid bankers and those who are liable for big decisions have their bonuses deferred over at least three years, and at least 60% must be deferred for senior managers. Bonuses are now clearly linked to the performance of banks, since 50% of any bonus must be paid in shares or similar instruments. Deferred bonuses can be subject to cancellation in the future. Since the start of this year, bonuses can be clawed back up to seven years after they are paid out when misconduct or serious performance issues come to light. Guaranteed bonuses, which were commonplace under the previous Government, are banned in all but the most exceptional circumstances.

We have taken the lead in ensuring that there is transparency in senior executives’ pay arrangements. We have ensured that all the top 15 banks have signed up to the strengthened code of practice, which is a notable improvement on the two that had signed up when Labour left office. Our reforms to company law mean that shareholders are guaranteed a binding vote on pay policy.

We are not stopping there. The Parliamentary Commission on Banking Standards, which was attended so ably by my hon. Friend the Member for Wyre Forest (Mark Garnier), made strong recommendations on bankers’ pay.

[David Mowat]

The Minister is right to say that the level of bonuses has reduced hugely in the past few years. However, does she agree that the real issue with banking is not the bonus level, but the level of absolute remuneration, which the Labour party’s policy does not address? Why does she think banks require so many people to earn more than £1 million a year, in a way that oil companies and pharmaceutical companies do not? The issue is the absolute level of remuneration.

[Andrea Leadsom]

Philosophically, I agree entirely with my hon. Friend. Many people across the country will agree that the absolute level of remuneration in financial services needs to be clearly justified. Although the Conservative party truly believes that wealth creation, which creates jobs, tax revenue for the Exchequer and growth for our economy, should be properly remunerated, we want to give as much power as possible to shareholders to ensure that they can take decisions that make it absolutely clear that remuneration should reflect the contribution of the individual, and not just some norm in the industry.

We have agreed with the recommendations of the Parliamentary Commission on Banking Standards and asked the financial services regulators to look into implementing them, in particular the extension of clawback to 10 years when an investigation into an individual is ongoing and the extension of deferral to seven years for senior managers, which is a significant increase from the current three years. The regulators are due to publish final rules in response to the consultation shortly. I am sure that hon. Members will agree that we want to keep our independent regulators independent, so that they act in the best interests of our economy and not in the interests of a political party.

[Mr Marcus Jones]

My hon. Friend has mentioned power for shareholders and political interference. Does she agree that it is not right for the Government to intervene in certain situations, such as in the financial crash, when the last Prime Minister effectively pushed Lloyds TSB and RBS into a shotgun marriage?

[Andrea Leadsom]

I agree with my hon. Friend in principle. We want to see the market working properly, shareholders taking the decisions on remuneration and businesses acting fairly in the interests of all their stakeholders. That is why we have been so determined to sort out transparency, fairness and the binding votes that boards have in regard to the actions of the banks.

Our desire to see a lack of political intervention is why we have opposed and continue to oppose the deeply flawed and politically motivated EU cap on bonuses. My right hon. Friend the Chancellor, the Governor of the Bank of England and the head of the Prudential Regulation Authority agree that it will not control bankers’ pay, but instead push up fixed pay, make it more difficult to claw back earnings when things go wrong, weaken financial stability and make it more likely that the taxpayer, rather than the banker, pays the cost of mistakes. We continue to believe that the cap is fundamentally flawed. Members will know that we have, however, withdrawn our legal challenge to the cap and are instead looking at how else we can build a system of pay in global banking that encourages responsibility, rather than undermines it.

[Helen Goodman]

Will the hon. Lady explain to the House and the country why it is wrong to cap bankers’ bonuses but right to cap nurses’ pay?

[Andrea Leadsom]

The point that we have made about the bankers bonus cap is that bankers will find other ways to remunerate themselves in fixed pay, rather than in variable pay. The hon. Lady smiles, but she perhaps fails to understand that the whole point of the regime we have put in place is to ensure that bankers are accountable. The way for them to be accountable is through variable pay, which is performance related, unlike fixed pay. The problem with the cap on bonuses is that it will put up fixed pay.

[Helen Goodman]

rose—

[Andrea Leadsom]

I will not take another intervention on that point because I have explained it twice and would like to move on.

The cap remains fundamentally flawed, so we are looking at other ways to ensure that there is accountability. We do, however, fear that fixed pay is going up and there is some evidence of that. Last November, the Chancellor wrote to the Governor of the Bank of England to ask him to encourage this work in his role as chairman of the Financial Stability Board. Such methods at a global level might include standards that ensure that non-bonus or fixed pay is also put at risk, maximising clawback or paying senior staff in performance-related bonds. Any such solution must be international in nature to be effective. That is why we are pushing the Financial Stability Board, which is uniquely well placed, to pursue these issues with urgency.

[James Morris (Halesowen and Rowley Regis) (Con)]

I welcome all the action that the Government have taken to clamp down on excessive banking bonuses, but it is not the case that, as my hon. Friend said earlier, more than 2 million people are employed in the financial services industry in Britain, and not all of them are millionaires? It is important that we take into account the fact that there are people in the banking sector on relatively low pay. Not every banker is earning £1 million or more a year.

[Andrea Leadsom]

I am glad that my hon. Friend has raised that point, and I am happy to reiterate my remark that the financial services sector employs up to 2 million in this country, most of them outside the City and many of them doing regular jobs in banks and call centres, or even in places such as a new dealing room that has been set up outside Birmingham, which I recently had the pleasure of visiting. All those people are as mortified as the rest of us at the behaviour of a few, so it is always important to remember that we are talking about the behaviour of a few, not of the many.

The third thing that the Government have done is to improve the accountability of bankers. I hope hon. Members will agree that the vast majority of people in the financial sector are decent people who have played by the rules and just want to get on with providing a valued and trusted service to their customers. We must have high standards in banking, because that is what will help the UK to continue to thrive as a leading and trusted financial centre. The sector remains a huge asset to the British economy, contributing almost an eighth of the total tax receipts and giving us a trade surplus of £16 billion last year.

Banking oils the wheels of the economy, helps our businesses grow, fosters investment and boosts aspiration. When bankers get it right, it is a driver of this country’s growth. When they get it wrong, the damage is consequentially enormous, because it threatens the livelihood of millions of people in this country, as we saw during the financial crisis.

The public will want to know that this Government have made reckless misconduct leading to bank failure a criminal offence, and overseen banks being fined heavily for their worst excesses. There have been £450 million of fines for the disgraceful rigging of LIBOR and £1.1 billion of fines for the manipulation of foreign exchange rates—disgusting and unacceptable behaviour. I know that all Members will be reassured to know that the Serious Fraud Office has opened investigations into a number of individuals in relation to the manipulation of LIBOR and forex. Of course, many firms have sacked and dismissed staff found guilty as part of their own internal investigations.

[Richard Fuller]

My hon. Friend is now stressing one point that the everyday people feel is most important about the reform of our banking system—that when bankers do wrong, they should face criminal prosecution and the prospect of jail. Is she satisfied that we now have the right measures in place—measures that the last Government did not put in place—and will she assure the House that she will ensure that the Government use all their powers to enforce the regulations as far as possible?

[Andrea Leadsom]

That is an important point. This Government have taken every step we can think of to ensure accountability, prevent future wrongdoing and improve standards in banking. We are always open to new suggestions, but it is our genuine belief that we have fundamentally changed the underlying systems that banks work with. I can certainly reassure my hon. Friend that when I speak to the chief executives of banks, as I do regularly, they assure me that they, too, take the matter extremely seriously and have put in place checks so that they can indentify wrongdoing and punish the offenders under their own steam, as hon. Members will have seen in the press today.

[Helen Goodman]

Will the Minister give way?

[Andrea Leadsom]

I will not give way again; I am just coming to the end of my speech, and I want to give other Members the chance to contribute.

Fourthly, in our efforts to rebuild this vital industry, we have put in place the regulatory reforms necessary to improve bankers’ conduct and make banks serve their clients better, whether they are small and medium-sized enterprises or members of the public. We have legislated for a new senior managers and certification regime, to strengthen the accountability of senior management and raise the standards of individual conduct. We also launched an enforcement review, which recommended improvements to how regulators make decisions relating to enforcement.

We have promoted choice and competition in the retail banking sector, putting it at the heart of our regulatory system. By making it easier for customers to switch banks we are incentivising banks to look after their customers better, and by opening the door for new and smaller banks to compete with the established names we are ensuring that the entire sector ups its game, not least in helping our small and medium-sized businesses grow and expand. That is good for the customer, good for the sector and good for the wider economy.

Reforming remuneration for bankers has been a major priority for this Government. We are sorting out the mess left by the Labour party. It is not a pleasant spectacle when you lend someone your car, and they crash it and then criticise you for not repairing it quickly enough. I totally reject the proposals for changes that the hon. Member for Kilmarnock and Loudoun made. This Government are doing the work needed to ensure that the UK’s financial services are fit for the 21st century and that we put the bad old days of banking behind us.

Equitable Life Payment Scheme

Andrea Leadsom Excerpts

Tuesday 24th February 2015 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

As of 31 January 2015, the scheme has now issued payments surpassing £1 billion to 896,367 policyholders.

The figures are broken down as follows:

412,445 payments to individual investors have been issued totalling £560.3 million. 37,764 with-profits annuitants (WPAs) or their estates have been issued payments by the scheme. These initial and subsequent payments total £271.4 million.

446,158 payments totalling £169.3 million have been issued to those who bought their policy through their company pension scheme.

There are now approximately 142,000 policyholders who are due a payment but where the scheme has not yet been able to trace or validate their address.

The scheme has gone to significant lengths to trace eligible policyholders. It remains committed to tracing and paying as many eligible policyholders as possible, and will continue to consider all proportionate actions it can take to do this, including working with the Department for Work and Pensions.

The scheme encourages any policyholders who believe themselves to be eligible to call the scheme on: 0300 0200 150. The scheme can verify the identity of most policyholders on the telephone, which means any payment due can usually be received within two weeks.

[HCWS298]

Time Stamps (Foreign Exchange)

Andrea Leadsom Excerpts

Tuesday 3rd February 2015 Westminster Hall

[The Economic Secretary to the Treasury (Andrea Leadsom)]

It is a pleasure to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Great Grimsby (Austin Mitchell) on securing this debate on the incredibly important subject of foreign exchange manipulation. He will have been as disgusted as I was to learn about the benchmark rigging that has gone on in financial markets and the various tales of banking misconduct that have shocked and disgusted everyone. I assure him that I do not think that the Treasury or the Bank of England are naive in their determination to weed out bad practice.

By way of background, the foreign exchange market underpins the global financial system. It enables international trade in goods and services, cross-border investment and monetary policy, so it is critical to ensure that it is well functioning and fair for the benefit of countries, businesses and consumers. As the hon. Gentleman pointed out, the UK is the largest single market for foreign exchange trading. In 2013, more than 40% of global foreign exchange trading took place in the UK, supporting an enormous number of jobs and enormous investment in this country.

The foreign exchange market is one of the most deep and liquid markets. It has contributed to efficient wholesale markets in which the turnover can be as high as $2 trillion a day in the UK alone. However, it is vital that all end users can benefit from the market, so we welcome the growth of specialist foreign exchange providers that compete with existing banks for the foreign exchange business of smaller businesses and retail consumers.

On tackling market misconduct, we expect firms operating in foreign exchange markets to adhere to the highest standards of conduct. Where they do not do so, we will take action to prevent and punish bad behaviour, as shown by the recent enforcement actions taken by the Financial Conduct Authority against five banks. The attempts by some banks to manipulate certain foreign exchange benchmarks were totally unacceptable and disgraceful. The Government and the regulators have taken tough action to punish such behaviour and prevent such scandals from happening in the future. The hon. Gentleman will know that the Serious Fraud Office has opened criminal investigations into certain types of market misconduct, and those investigations are ongoing.

First, the Government established the FCA with a specific remit of focusing on the conduct of our financial sector. Secondly, we have laid before Parliament a statutory instrument to extend regulation to the key foreign exchange benchmark: the WM/Reuters London 4 pm closing spot rate. The manipulation of that and six further financial benchmarks will be a criminal offence from 1 April 2015. Thirdly, we have established the fair and effective markets review to conduct a comprehensive and forward-looking assessment of how wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high-profile abuses, and to influence the international debate on trading practices. The review will examine in particular how the wholesale fixed-income, currency and commodity financial markets operate. It will provide recommendations on how the fairness and effectiveness of such markets can be improved.

The Government recognise that market structure and transparency play an important role in making markets more effective. Although the foreign exchange market is predominately an over-the-counter market in which transactions occur bilaterally between market participants, over the past 10 years it has been at the forefront of the electronic trading revolution. The electronic trading side now accounts for more than 60% of foreign exchange trading in spot markets, which has brought significant improvements in efficiency and transparency to market participants.

The use of electronic trading is most prevalent in the wholesale market, however, so it is right for us to consider whether the process of technological development has gone far enough to improve the fairness and effectiveness of markets, or whether we need to take further steps. The principle that how a transaction will be priced should be understood by market participants at the time when they enter into the transaction should always apply.

To deal specifically with time-stamping, the hon. Gentleman argued that if firms were required to provide time stamps for foreign exchange transactions that do not occur at the time of any agreement to enter into such a transaction, it could bring additional transparency to the market. He is of course right that time-stamping would prove the point at which the trade was done. High-quality record keeping is integral to how all financial services firms, including foreign exchange dealers, should organise themselves and operate, so I agree that it is important for firms to keep appropriate records of transactions with clients.

Time-stamping, however, presents some practical challenges. First, the key one is that market participants can use the time stamp only if they have access to a data feed of foreign exchange market prices, but such reference data are not publicly available other than at significant cost. Furthermore, as transactions are undertaken bilaterally, there is no central market for all foreign exchange transactions, so any consolidated tape of transactions would capture only a part of the market. The price of such transactions would also not necessarily be directly comparable. In foreign exchange, the price of each transaction may take into account a range of factors specific to that transaction, such as assessments of creditworthiness.

Secondly, when the foreign exchange dealer acted as agent, market participants would need to understand how the transaction had been priced to understand whether they were charged accurately. The interbank rate cannot be expected to be available to all market participants, for example.

Thirdly, when the foreign exchange dealer acts as principal, it could be argued that what is more important than a time stamp is access to a range of competitive quotes, which indicates that the issue of time-stamping transactions needs to be considered in the wider context of market structure and competition.

Clearly, the main purpose of a time stamp would be to create an audit trail for a market participant to detect mispricing of foreign exchange transactions. We should be clear, however, that if clients were misled about the pricing of foreign exchange transactions, such an act would be fraudulent.

I will talk a bit more about the fair and effective markets review, which I hope will give the hon. Gentleman some comfort.

[Austin Mitchell]

I am grateful to the Minister for her reply, but the difficulties that she has posed are not insuperable—they can be overcome. A time stamp is easier with electronic trading than with other forms of trading, but it should be used in all kinds of trades, because if there is a time stamp the client has the ability to look at the price range that day. The client might not know the total trading, but he can look at the price range and see what time the transaction was made, so he will know whether he was getting a fair deal and a proper price. That is the important thing—to put the knowledge in the hands of the consumer. The difficulties can easily be got around with a will to do so. The question is, why has the Bank of England been allowed to drag its feet on the issue for so long? Why not put that in straight away?

[Andrea Leadsom]

All I can do is repeat what I said, which is that the interbank price is one price, but that will not be the price for a retail investor, such as someone going on holiday or a small business. If we time-stamp a transaction, we will have to have the specific price of that transaction at a given time, and that information is simply not available. For the time stamp to be useful, we would have to know what the market was at that precise time. As the hon. Gentleman pointed out himself, a few basis points make a world of difference to the profits for the trader, so if one were minded to rig the price for a consumer or a business, even a sizeable one, and to commit fraud, even a time stamp need not prevent the fraudulent activity, simply because it would be difficult to pin down what the actual price should have been.

The Government established the fair and effective markets review so that careful analysis of the fixed-income, currency and commodity markets could be undertaken. Part of the review will be to consider whether there should be further regulatory tools available in foreign exchange markets, including whether there is a need for further criminal sanctions. The review will also consider the market structure and whether it can be improved through regulatory intervention or market-led action. Obviously the Government cannot prejudge the outcome of the review, but those conducting it will be well aware of the issues raised by the hon. Gentleman and will be taking his views into account. The Government will consider the recommendations of the review once it reports in June and will provide a response.

In conclusion, the time-stamping of transactions needs to be considered in the context of improving the overall fairness and effectiveness of the foreign exchange market. Foreign exchange markets are by their nature the most global of all the financial markets, so a consistent international approach to their regulation is essential. Where action is warranted, the UK should definitely lead the way in calling for and delivering it. I hope that I have reassured the hon. Gentleman of our commitment to ensure a fair and effective foreign exchange market—one that protects the customer while keeping the UK’s leading position internationally.

Question put and agreed to.

Insurance Bill [Lords]

Andrea Leadsom Excerpts

Tuesday 3rd February 2015 Commons Chamber

Question proposed, That the clause stand part of the Bill.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

Part 1 sets out some definitions for the Bill and is purely technical but, with your indulgence, Mr Chope, may I say again that this is a non-controversial Law Commission Bill, on which we had a constructive debate last week in the Second Reading Committee, and which has been scrutinised by a special Public Bill Committee in the other House? I hope that we can agree that clause 1 should stand part and move on to discuss the substantive clauses, taking each part in turn.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

As the Minister has outlined, this is a non-controversial Bill overall, and we did indeed debate and discuss it last week. I have no issue with clause 1 and think that it is important to get on to the other areas of the Bill on which the Minister might wish to answer some questions.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Application and interpretation

Question proposed, That the clause stand part of the Bill.

[The Temporary Chair (Mr Christopher Chope)]

With this it will be convenient to discuss the following:

Clauses 3 to 8 stand part.

That schedule 1 be the First schedule to the Bill.

[Andrea Leadsom]

As I explained to the Second Reading Committee, part 2 concerns the duty on prospective policyholders to disclose information to the insurer, which allows the insurer to assess and price the risk accurately. However, the existing law can be difficult to understand and even more difficult to comply with fully. A failure to provide all material information allows the insurer to refuse all claims under the contract.

Under the Bill, policyholders still have a duty to disclose information, and they should make an active search for relevant information, but insurers might need to ask the policyholder questions if they require further clarification. If a policyholder fails to make a fair presentation of the risk, there is a new system of proportionate remedies for the insurer, under schedule 1 to the Bill, based on what the insurer would have done had the failure not occurred.

--- Later in debate ---

[The Temporary Chair (Mr Christopher Chope)]

With this it will be convenient to discuss clauses 10 and 11 stand part.

[Andrea Leadsom]

Part 3 deals with insurance warranties and similar terms. An insurance warranty is typically a promise by the policyholder to do something that mitigates the risk. Under the current law, any breach of warranty completely discharges the insurer from liability from the point of breach. That is so even if the breach is remedied before any loss is suffered and if the breached term had nothing to do with the loss. The insurer’s remedy therefore often seems unsuitable and too punitive. The Bill provides that an insurer will be liable for insured losses arising after a breach of warranty has been remedied. It also prevents an insurer from refusing payment on the basis of a breached term that could have had no bearing on the risk of the loss that actually occurred, such as where a warranty concerning a fire alarm is breached and the insured then suffers a flood in the insured property. The Bill also abolishes “basis of the contract” clauses. These clauses convert every statement made by a policyholder on a proposal form into a warranty.

[Cathy Jamieson]

Again, it has been helpful to hear the Minister’s comments. We have no difficulty with these clauses.

On clause 9, under the current law, an insurer may add a declaration to a non- consumer insurance proposal form or policy, stating that the insured warrants the accuracy of all the answers given or that such answers form the “basis of the contract”. That has the legal effect of converting representations into warranties. The insurer is discharged from liability for claims if the insured made any misrepresentation, even if it was immaterial and did not induce the insurer to enter into the contract. The Law Commission gave the example of a claim for flooding being refused, as the Minister suggested, because the insured had failed to install the right model of burglar alarm. The clause seeks to put an end to this practice by abolishing “basis of the contract” clauses in non-consumer insurance. Clause 10 replaces the existing remedy for breach of a warranty in an insurance contract.

Clause 11 was initially not included in the Bill. That gave rise to the introduction in the other place of a new clause that replicated a similar clause originally included by the Law Commission pertaining to situations in which an insured had breached a term of contract but could show that

“its breach of the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.”

In the Lords Committee, some expressed the view that this omission was an error. The Minister, Lord Newby, explained that the clause as originally drafted was

“too controversial to go through the special procedure for uncontroversial Law Commission Bills.”

He did, however, admit that it was

“difficult to argue against the policy and to say that insurers should be entitled to refuse liability for a loss that is of a completely different nature from that contemplated by the breached term.”

At the Government’s prompting, the Law Commission submitted a new draft, which became the current clause 11 and which was

“intended to minimise the uncertainty inherent in the first formulation”.

The clause acts to rectify the situation prior to the Bill when the actual nature of a breach of term was irrelevant. This has been a helpful process to ensure that that piece of tidying up was done. On that basis, we have no problem with these clauses.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clauses 10 and 11 ordered to stand part of the Bill.

Clause 12

Remedies for fraudulent claims

Question proposed, That the clause stand part of the Bill.

[The Temporary Chair (Mr Christopher Chope)]

With this it will be convenient to discuss clause 13 stand part.

[Andrea Leadsom]

Fraud is a serious and expensive problem for insurers and innocent policyholders alike. According to industry statistics, policyholders currently pay an additional £50 on every insurance policy because of the cost of fraud to insurers. The Bill therefore strengthens and clarifies the civil law aspect of the Government’s drive to combat fraudulent claims by policyholders. The Bill sets out clear statutory remedies for the insurer where the policyholder has made a fraudulent claim. It affirms the common law position that the policyholder forfeits the fraudulent claim. The insurer has no liability to pay any element of it and can reclaim anything it paid before it knew about the fraud.

The Bill also clarifies an area of uncertainty, in that the insurer may choose to refuse any claim arising after the fraudulent act. However, previous valid claims should be paid in full. Finally, the Bill gives the insurer the equivalent remedies against a fraudulent member of a group insurance policy.

[Cathy Jamieson]

The Minister has again clearly outlined what the clauses do. As she said, clause 12 sets out the insurer’s remedies where the insured makes a fraudulent claim. It puts the common law rule of forfeiture on a statutory footing. Where the insured commits a fraud against the insurer, the insurer is not liable to pay the insurance claim to which the fraud relates. Where the insurer has already paid out insurance moneys on the claim and later discovers the fraud, the insurer may recover those moneys from the insured. As we have heard, that provides the insurer with a further remedy giving it an option to treat the contract as if it had been terminated at the time of the “fraudulent act”. That does not apply where a third party commits a fraud against the insurer or the insured, such as where a fraudulent claim is made against an insured party who seeks recovery from its insurer under a liability policy.

Clause 13 gives the insurer the remedies where there is fraud by one member of a group scheme. Again, we have no difficulty with these clauses standing part of the Bill.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13 ordered to stand part of the Bill.

Clause 14

Good Faith

Question proposed, That the clause stand part of the Bill.

[The Temporary Chair (Mr Christopher Chope)]

With this it will convenient to discuss clauses 15 to 18 stand part.

[Andrea Leadsom]

Part 5 deals with two separate matters: the principle of good faith and the ability of parties to contract out of the provisions of the Bill.

Clause 14 retains the statutory and common law principle that a contract of insurance is one predicated on good faith. However, the clause abolishes avoidance of the contract as the remedy for breach, recognising that avoidance is capable of operating very harshly against policyholders.

The provisions are a default regime for business insurance contracts. They are expected to be appropriate for the majority of insurance contracts, but there may be circumstances when parties prefer to set out their own bespoke arrangements. However, if an insurer wishes to rely on a term that will operate more harshly against the policyholder than the Bill otherwise provides, clauses 16 and 17 require it to act transparently when the contract is made, by ensuring that the meaning of the alternative provision is clear, and by drawing the attention of the policyholder to it. In so far as the Bill applies to consumers rather than businesses, it is a mandatory regime. Insurers are not entitled to contract out of its provisions to the detriment of consumers.

[Cathy Jamieson]

Under the Marine Insurance Act 1906, insurance contracts are ones of “utmost good faith”. Clause 14 removes avoidance of the contract as a remedy for breach of that duty of good faith, both from the 1906 Act and at common law. The intention of clause 14 is that good faith will remain an interpretative principle, with section 17 of the 1906 Act and the common law continuing to provide that insurance contracts are contracts of good faith.

Clauses 15 and 16 prohibit insurers from inserting in an insurance contract terms that would leave the insured—be they a consumer or a non-consumer—in a worse position than that required by the Bill.

Clause 16 defines transparency in respect of what an insurer must do to draw the insured’s attention to the disadvantageous terms of the contract. Clause 17 sets out the transparency requirements. For example, the insurer should take sufficient steps to draw disadvantageous terms to the insured’s attention within a reasonable time frame prior to their entering into the contract, but when an insured has knowledge of the term, they may not claim that the insurer has not brought it to their attention. Clause 18 deals with the insurer’s remedies where a member of a group insurance contract makes a fraudulent claim. Again, we do not think that these clauses are controversial and we are content for them to stand part of the Bill.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clauses 15 to 18 ordered to stand part of the Bill.

Clause 19

Power to change meaning of “relevant person” for purposes of 2010 Act

Question proposed, That the clause stand part of the Bill.

[The Temporary Chair (Mr Christopher Chope)]

With this it will be convenient to consider clause 20 and schedule 2 stand part.

[Andrea Leadsom]

Part 6 covers a topic that is distinct from insurance contract law. It amends the Third Parties (Rights against Insurers) Act 2010 and will assist injured parties who have claims against parties that are now defunct where insurance was in place to cover such claims. As I said in the Second Reading Committee, part 6 will make it easier for mesothelioma sufferers to obtain compensation due from insolvent employers.

The Bill allows the Secretary of State, by regulations, to add or remove circumstances in which a person will fall within the provisions of the 2010 Act. The intention in the first instance is to use this power to add insolvency and other similar events to the 2010 Act. Draft regulations are being prepared by the Ministry of Justice. Once the first set of regulations are made, the 2010 Act can be commenced. The Government are committed to bringing the 2010 Act into force as soon as practicable.

[Cathy Jamieson]

In the Second Reading Committee, I welcomed the fact that part 6 gives mesothelioma sufferers the opportunity to be dealt with in a timely fashion and to receive the justice they deserve. It is a terrible condition that many people have suffered as a work-related illness. We should do everything possible to support them.

Clause 19 inserts a new section into the 2010 Act. It enables the Secretary of State to make regulations adding or removing circumstances in which a person is a “relevant person” for the purposes of the Act, provided that the Secretary of State considers that the proposed circumstances involve dissolution, insolvency or financial difficulty, or are similar to those for the time being prescribed in sections 4 to 7 of the 2010 Act. That seems sensible and we have no problem with the clauses or the schedule standing part of the Bill.

[Sir Greg Knight (East Yorkshire) (Con)]

I refer the Committee to my entry in the Register of Members’ Financial Interests.

Will the provision affect third-party cover under the Road Traffic Act 1988 and the level of insurance premiums taken out for motor insurance? May I also ask the Minister, en passant, to pay tribute to the Law Commission, on whose work this Bill is based?

[Andrea Leadsom]

My right hon. Friend will appreciate that this part of the Bill is designed to assist those who have insurance claims against parties that are now defunct, where insurance was originally in place to cover such claims. In theory, that could cover a motor insurance claim, but it is certainly not designed specifically to that end. Likewise, the cost of motor insurance will be determined by claims by the insurance companies themselves, so it is not envisaged that this will affect the cost of motor insurance.

I entirely agree with my right hon. Friend that the Law Commission has done an excellent job. Essentially, the Bill makes the insurance market more effective and fairer.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Clause 21

Provision consequential on Part 2

Question proposed, That the clause stand part of the Bill.

[The Temporary Chair]

With this it will be convenient to discuss clauses 22 and 23 stand part.

[Andrea Leadsom]

Part 7 deals with technical matters such as commencement, territorial extent and consequential amendments to existing legislation. The Bill repeals or amends various sections of the Marine Insurance Act 1906, which are superseded by provisions in parts 2 and 3. Clause 23 provides that the Bill extends to the whole of the United Kingdom, and that the provisions on insurance contract law will come into force 18 months after Royal Assent.

From a practical perspective, the new provisions will not apply to existing insurance contracts, but rather to new contracts and variations agreed after the Bill comes into effect. The regulation-making power on the Third Parties (Rights against Insurers) Act 2010 will come into force two months after Royal Assent.

[Cathy Jamieson]

As the Minister has said, clause 21 makes provisions consequential on part 2 and amends or repeals various sections of the Marine Insurance Act 1906, the Road Traffic Act 1988 and the Road Traffic (Northern Ireland) Order 1981, as well as the Consumer Insurance (Disclosure and Representations) Act 2012. She has also confirmed that clause 22 ensures that those provisions relating to fair presentation and good faith apply only to insurance contracts entered into after the end of the period of 18 months from the Bill’s entry into force. Clause 23 ensures that the Bill extends to the whole of the UK, apart from consequential provisions in clause 21 relating to Northern Ireland. Again, we are happy for these clauses to stand part of the Bill.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clauses 22 and 23 ordered to stand part of the Bill.

Schedules 1 and 2 agreed to.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Third Reading

[Andrea Leadsom]

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

I am grateful to hon. Members for the useful debates on the Bill, and glad to have taken it forward based on proposals by the Law Commission and the Scottish Law Commission, to whom I reiterate my thanks. The Bill was rigorously scrutinised in the other place, and demonstrates the usefulness of the special parliamentary procedure for Law Commission Bills.

Together with the Consumer Insurance (Disclosure and Representations) Act 2012 that preceded it, the Bill marks the biggest reform to insurance contract law in more than a century. It is the product of careful consultation and consideration, and as a result it is well supported. It demonstrates the Government’s commitment to maintaining and growing the UK’s insurance industry both at home and abroad. I am grateful to all insurers, businesses and others who have supported the Bill, and to those who have participated in the Law Commission’s project and the legislative process. I am also grateful for the contribution made by the Opposition in both Houses towards the smooth passage of the Bill.

--- Later in debate ---

[Andrea Leadsom]

I am grateful to the hon. Lady for giving me the chance to put on the record the fact that the Government support the principle that insurers should make payment of valid claims within a reasonable time, and that they should be liable for compensation where appropriate should they fail to do so. The Government are always looking at ways to support and improve the position of the UK insurance industry, and it is hoped that legislative opportunities will arise to include that measure with other insurance-related provisions.

As the hon. Lady will know, the Government undertook a targeted consultation of insurance industry stakeholders in summer 2014 to assess support for the Bill and for a provision on late payment. The results of the consultation suggested that the late payment provision was not suitable for a Bill going through Parliament under the special procedure reserved for uncontroversial Law Commission Bills. The main arguments against such a provision were that it could lead to speculative litigation, or have the unwelcome effect of being used to exert undue pressure to expedite claim settlement, and those costs have not yet been quantified. Furthermore, adequate customer protections already exist, so the problems of late payment are worse in theory than in practice. The Financial Conduct Authority is currently undertaking a thematic review of the handling of commercial claims, and the issue is being considered from a regulatory angle.

As the hon. Lady recognised, not all recommendations made by the Law Commission are suitable for the special procedure for non-controversial Bills, and that provision was omitted from the Bill specifically to ensure that the special procedure was not abused. I repeat, however, that the Government support the principle that insurers should make payment of valid claims within a reasonable time.

Question put and agreed to.

Bill accordingly read the Third time and passed.

National Insurance cOntributions Bill (Money)

Queen’s recommendation signified.

Resolved,

That, for the purposes of any Act resulting from the National Insurance Contributions Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mark Lancaster)

National Insurance Contributions bill (programme) (No.2)

Ordered,

That the following provisions shall apply to the National Insurance Contributions Bill for the purpose of supplementing the Order of 8 September 2014 (National Insurance Contributions Bill (Programme)):

Consideration of Lords Amendments

(1) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion two hours after their commencement at today’s sitting.

Subsequent stages

(2) Any further Message from the Lords may be considered forthwith without any Question being put.

(3) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Mark Lancaster).

Oral Answers to Questions

Andrea Leadsom Excerpts

Tuesday 27th January 2015 Commons Chamber

[Kerry McCarthy (Bristol East) (Lab)]

2. What recent representations he has made to the EU on the cap on bank bonuses.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

The Government keep their opposition to the EU-wide cap on bonuses, but we withdrew our legal challenge in November 2014 after it became clear that it was not likely to succeed. We believe that the cap is flawed, and will just serve to put up fixed salaries, but instead of pursuing the legal challenge we are looking at other ways of building a system of pay in the banking system that only rewards excellence and clearly promotes responsibility.

[Kerry McCarthy]

Can the Minister tell the House how much the Chancellor spent on legal fees alone in that failed legal challenge? Was that not a huge waste of money when the priority should have been to help those people most in need?

[Andrea Leadsom]

No. The amount spent was £43,000. The Government believe fundamentally that we need to have the toughest regime in the world of any global financial centre on pay, and that is what we have. We have ensured that bankers will be remunerated in future on performance and that pay can be clawed back. We have put in place a system that is far better and far more accountable than anything that the previous Government attempted.

[Mark Garnier (Wyre Forest) (Con)]

In the light of all the hard work by the Government to ensure that bonuses are held back by banks to secure better behaviour by staff and greater stability for banks, is not the bonus cap a crude measure that will increase bank instability and bad behaviour by bankers?

[Andrea Leadsom]

My hon. Friend is exactly right. The Government wanted to challenge that cap because it would push up fixed pay, which means bankers being paid not for performing but for simply turning up and raises prudential risks associated with higher fixed costs. It was vital to the interests of this important sector to the UK that we introduced a better regime, and I am delighted that the Chancellor has written to the Governor of the Bank of England in his role on the Financial Stability Board to ask him to look at other ways of ensuring accountability.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

8. What assessment he has made of the further steps which are necessary to ensure the fair treatment of defined contribution pension customers in response to the recent market reports published by the Financial Conduct Authority; and if he will make an assessment of the potential merits of introducing a second line of defence protection for such pension schemes.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

We welcome the Financial Conduct Authority’s announcement yesterday that it will introduce new rules in April to protect consumers accessing their pension pot. The rules will introduce a second line of defence, with pension providers required to give consumers wanting to access their pension pot very clear risk warnings and to highlight the fact that guidance from Pension Wise or regulated advice can help them to avoid making a poorly informed decision.

[Nigel Mills]

I thank the Minister for that answer. I welcome the fact that the FCA, perhaps at the last minute, recognised there was an issue and took the right action yesterday. What more will she do to ensure that when people make free choices about their investments after April, they buy the right thing, not make a terrible mistake?

[Andrea Leadsom]

I congratulate my hon. Friend on expressing the importance of a second line of defence. The Government are determined to give pensioners the opportunity to make their own decisions about what to do with their pension savings. Nevertheless, it is vital to ensure that they have reasonable protections.

[Sheila Gilmore (Edinburgh East) (Lab)]

There were reports yesterday that some people who exercise these rights might face large tax bills that they did not know about. Will the Minister be absolutely clear about what measures will be put in place to ensure that people are not disadvantaged, because she knows, as I do, that people are already being approached informally to get them to exercise these rights?

[Andrea Leadsom]

I reassure the hon. Lady that we have sought to give people the opportunity to make their own decisions about what to do with their lifelong savings. That is far better than in the past, when they were effectively told, “You buy an annuity and that’s that.” We are putting in place clear protections, with a criminal measure on scamming and on pretending to be the Government’s pensions guidance service, and there will be proper guidance, with fully qualified guiders who are able to help people through the process. There is now a further line of defence, because pension providers will be required to point out to people the vital importance of taking guidance or regulated advice.

[Mark Hunter (Cheadle) (LD)]

9. What assessment he has made of the implications for his policies of recent trends in unemployment figures.