Tax Avoidance
Ann McKechin Excerpts(9 years, 10 months ago)
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Mr Gauke
It is a matter for Lord Green as to what he says. It is clear that the Government have taken the strongest action to deal with tax avoidance and tax evasion. Ministers are responsible for tax law and for resourcing HMRC’s enforcement of that law, so I would suggest that questions about activities that took place between 2005 and 2007 should be directed to those who were Ministers at that time. They might be in a better position to answer them.
Ann McKechin (Glasgow North) (Lab)
The Minister will be aware that in November 2012, a senior HMRC official who was being questioned by the Public Accounts Committee said that 12 prosecutions relating to HSBC cases were in line to be proceeded with. None of those prosecutions has been brought. Has the Minister received any explanation from HMRC as to why? Why did the Minister not, in turn, advise the House and the Public Accounts Committee of the change in tack?
Mr Gauke
Let me address the point about decisions to make a prosecution. First, HMRC determines whether to bring a prosecution and build up a criminal case, and then it is a matter for the Crown Prosecution Service to make a judgment as to whether it is confident that a conviction can be achieved. Rightly—I would hope there is consensus on this point—those decisions are made by HMRC and the CPS, not by politicians. It is very important that that independence be maintained. I do not believe it would be right for politicians to decide how many prosecutions are made, and that has not happened in this particular case.
Financial Conduct Authority Redress Scheme
Ann McKechin Excerpts(10 years ago)
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Sir Edward Garnier
I will not comment on the legalities or illegalities involved in that specific case, but I will say in relation to the case to which I have referred that the bank not only failed to explain the risks of moving into a new loan vehicle fully, properly and candidly, but subsequently sought to hide its own responsibilities for its failures. Such action, besides being—in my view—immoral, lowers not just the trust and confidence that small businesses should have in the retail banking sector, but the collective confidence of Members of Parliament, who should hold the Government to account for those failures if they are such, and if they occurred on the Government’s watch.
Ann McKechin (Glasgow North) (Lab)
Another problem, which has been described to me by a constituent, is the fact that the documents with which the internal reviewer is provided by the bank are not necessarily made available to customers or their own advisers, unless a freedom of information or data request is submitted. The lack of transparency in the way in which the review is carried out, and the inability of customers to correct the information that is given to the reviewer, constitutes another failure in the system.
Sir Edward Garnier
I agree, and that reflects what happened in the case that I have described. If there is anything that ought to be done—and the motion deals with this—the transparency of the banks, and hence their accountability, should be increased. It is no good the independent reviewer saying “Nothing to see, do move on”, because there is plenty to see. It is simply a question of being able to find it, expose it, and reach proper conclusions, either at law or as a matter of reasonable inference from what has gone on.
There is too much lack of candour, too much obfuscation, and too much dissembling. It is high time that the FCA lived up to its responsibilities; it is high time—I must say this to my hon. Friend the Economic Secretary, who has done a sterling job since entering the Government—that the Treasury leant on the FCA rather more heavily than it may have done in the past; and it is high time that the FCA, this new body, stopped pulling its punches with the salespeople, whether they are operating in pubs or in banking offices, in order to ensure that honest dealing is what we get from our banks.
Money Creation and Society
Ann McKechin Excerpts(10 years, 1 month ago)
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Steve Baker
I am grateful to my hon. Friend. What he has said emphasises that the subject that is at issue today goes to the heart of the survival of a free civilisation. That is something that Hayek wrote about, and I think it is absolutely true.
If I were allowed props in the Chamber, I might wave this 100 trillion Zimbabwe dollar note. You can hold bad politics in your hand: that is the truth of the matter. People try to explain that hyperinflation has never happened just through technocratic error, and that it happens in the context of, for example, extremely high debt levels and the inability of politicians to constrain them. In what circumstances do we find ourselves today, when we are still borrowing broadly triple what Labour was borrowing?
Ann McKechin (Glasgow North) (Lab)
I am interested to hear what the hon. Gentleman is saying. He will be aware that the balance between wages and capital has shifted significantly in favour of capital over the past 30 years. Does he agree that the way in which we tax and provide reliefs to capital is key to controlling that balance? Does he also agree that we need to do more to increase wage levels, which have historically been going down in relation to capital over a long period of time?
Steve Baker
I think I hear the echoes of a particularly fashionable economist there. If the hon. Lady is saying that she would like rising real wage levels, of course I agree with her. Who wouldn’t? I want rising real wage levels, but something about which I get incredibly frustrated is the use of that word “capital”. I have heard economists talk about capital when what they really mean is money, and typically what they mean by money is new bank credit, because 97% of the money supply is bank credit. That is not capital; capital is the means of production. There is a lengthy conversation to be had on this subject, but if the hon. Lady will forgive me, I do not want to go into that today. I fear that we have started to label as capital money that has been loaned into existence without any real backing. That might explain why our capital stock has been undermined as we have de-industrialised, and why real wages have dropped. In the end, real wages can rise only if productivity increases, and that means an increase in the real stock of capital.
To return to where I wanted to go: where did all the money that was created as debt go? The sectoral lending figures show that while some of it went into commercial property, and some into personal loans, credit cards and so on, the rise of lending into real productive businesses excluding the financial sector was relatively moderate. Overwhelmingly, the new debt went into mortgages and the financial sector. Exchange and the distribution of wealth are part of the same social process. If I buy an apple, the distribution of apples and money will change. Money is used to buy houses, and we should not be at all surprised that an increased supply of money into house-buying will boost the price of those homes.
Mr Meacher
That is a helpful intervention. Although it is a relatively big part of what I am proposing, it is not for me to suggest exactly what the structure of accountability should be. I would be strongly in favour of increasing it as the hon. Gentleman proposes. Until this House is content that it has a proper channel of accountability which is effective in terms of the way our financial system is run, we should bring in further changes to the structure of accountability as may be necessary, such as along the lines that he suggests.
On lending to businesses, the experience that we have had in the past half-decade has been very unsatisfactory. Under a sovereign monetary system, the central bank would be empowered to create money for the express purpose of that funding role. The money would be lent to banks with the requirement that the funds were used for productive purposes, whereas lending for speculative purposes—for example, to purchase pre-existing assets, either financial or property—would not be allowed. The central bank could also create and lend funds to other intermediaries—the hon. Member for Wycombe referred to this—such as regional or publicly owned business banks, which would ensure that a floor could be placed under the level of lending to businesses, which would be a great relief to British business, guaranteeing support for the real economy.
To avoid misunderstanding, I should add that within the limits imposed by the central bank on the broad purposes for which money may be lent, lending decisions would be entirely at the discretion of the lending institutions, not of the Government or the central bank.
I believe that a sovereign monetary system offers very considerable advantages over the current system. First, it would create a better and safer banking system because banks would have an incentive to take lower levels of risk, as there would be no option of a bail-out or rescue from taxpayers and thus moral hazard would be reduced. Secondly, it would increase economic stability because money creation by banks tends to be pro-cyclical, as I explained, whereas money creation by the central bank would be counter-cyclical. Thirdly, sovereign money crucially supports the real economy, whereas under the current system 83% of lending does not at present go into productive investment. I underline that three times.
Ann McKechin
My right hon. Friend said that the aim would be to reduce risk and for banks to be more cautious, but if we are to encourage innovation in manufacturing, would we not require an investment bank at state level that could fund the riskier levels of innovation to ensure that they get to market, because they are not at the point where they would be commercially viable?
Mr Meacher
That is an extremely important point and, again, I strongly support it. The current Secretary of State for Business, Innovation and Skills has been struggling to introduce a Government-supported business investment bank and has recently announced something along those lines. I think that should be greatly expanded. The book by Mariana Mazzucato, which I hope most of us have read, “The Entrepreneurial State”, shows the degree to which funding for major innovation, not just in this country but in many other countries which she cites, has been financed through the state because the private sector was not willing to take on board the risk involved. One understands that, but one does need to recognise that the role of the state is extremely important, and under a Labour Government I would like to see something like this being brought in.
The Economy and Living Standards
Ann McKechin Excerpts(10 years, 6 months ago)
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Stewart Hosie
That is because we would be. Although I welcome the limited growth that we have had, the actions taken by this Government since the last election stifled and strangled the recovery for some years, and that is the underlying problem with their plan.
Let me take Scotland as an example. What the Government are proposing—this was before the Budget—is an 11% fiscal expenditure cut, a 27% cut in capital and a real terms 9.9% cut in the overall budget. This year’s Budget made that position worse, and that applies to spending Departments throughout the UK. Nothing in the Queen’s Speech changes that. Nor does it change the fact that the Chancellor told us that for 2013-14, the current account deficit would be down to 2.3% of GDP, borrowing would be reduced to £60 billion and the net debt would be at 70% of GDP. He was forced to tell us this year that the current account deficit was higher, borrowing was actually £95.5 billion and the net debt was 75% of GDP. The short-term metrics were wrong.
What about the big targets the Chancellor set for himself? They were that the debt would begin to fall as a share of GDP by this year, that the current account would be in balance next year and that the same year borrowing would be down to £20 billion. Presumably, that is what the Prime Minister meant by financial security. Of course, as we know—nothing in the Queen’s Speech changes this—the debt will not fall until 2016-17, two years late. The current account will not be back in the black until 2017-18, two years late. Public sector net borrowing in 2015-16 will not be £20 billion but £68 billion, three and a half times higher.
Although the limited recovery we have seen in the past year is of course to be welcomed—this directly answers the question asked by the hon. Member for Suffolk Coastal (Dr Coffey)—not a single one of the Chancellor’s key targets has been met and his actions, as this is an austerity Government, stifled growth and delayed recovery year on year. No amount of convoluted formulations or warm words about long-term economic plans can change that.
What are the Government planning? It is there in black and white in the Red Book, on page 20 for anybody who wants to have a look. There will be a discretionary consolidation—that is cuts, and tax rises—next year to the tune of £126 billion. That is £2,000 per person in tax rises and cuts. That is what they are planning and that is what they have signed up to.
Ann McKechin (Glasgow North) (Lab)
I am interested in the hon. Gentleman’s comments on achieving growth. Presumably the skill base would need to be increased, so I take it that he agrees that cutting the college budget by £50 million would not be the way to achieve sustainable growth.
Stewart Hosie
When it comes to improving education, having a record number of Scots in full-time college places is excellent; having 25,000 to 26,000 Scots starting apprenticeships every year is first class; having 32,000 Scots start university this year is the way to proceed; and having all the school exam results improve in the way they have is probably a really good start. If the hon. Lady is saying that we can do more and can do better, of course we can—any Government can—but let us not talk down success, particularly when we are trying to hold this Government to account.
The point that I was making is that what we have is not a long-term economic plan. It is certainly not sustainable and it is certainly not a recipe for the growth the economy needs. It is just more Liberal and Tory austerity. It is the same plan that has seen this Government fail on their short-term and long-term targets so far and that will fail again. If it is about financial security, there is no evidence that it will succeed. If it is about growth, the Government are not even talking about that. If it is about delivering on the needs and ambitions of the people, it is woefully inadequate. As the discretionary consolidation laid out in black and white in the Red Book is predicated on a ratio of cuts to tax rises of 4:1, we do not have a long-term economic plan but a Tory Government who seem determined once again to try to balance the books on the backs of the poor. That is not a long-term economic plan; that is a disgrace.
Ann McKechin (Glasgow North) (Lab)
As predicted, the Chancellor’s remarks this afternoon made much of his “long-term economic plan”, but the original 2010 version of an export-led recovery, of increased business investment and of a shift to a new kind of economy has simply not happened. To compensate, the Government have fallen back on a good, old-fashioned, British housing bubble and consumer spend splurge as a recipe to see them through to the general election—pumping up the feel-good factor and praying that nobody notices that living standards are still sliding for huge swathes of our constituencies across the United Kingdom. This form of growth is not sustainable; it is a high-risk strategy.
The Chancellor was prodded into talking about productivity, and the hon. Member for Stroud (Neil Carmichael) was quite right to emphasise that should be a priority. The problem is that our productivity gap is now wider than it has been over the last 20 years, following the flatlining of the economy over the last seven years. It is not just the recession that has caused the decline. According to the Office for National Statistics, by comparison with our international competitors, output per hour worked in the UK is 21% lower than the average for the other six members of the G7. This is the biggest productivity shortfall since 1992, and according to an alternative measure, the gap in output per worker is now a horrifying 25%. Although we expect output to pick up this year, poor productivity has stifled earnings growth and squeezed real incomes. That shows what should be the priority in the ever-more competitive world that we face.
UK companies are sitting on some of the largest cash reserves of any western economy, but at the same time, according to a report from the Department for Business, Innovation and Skills, we have a
“sustained, long-term pattern of under-investment in public and private research and development…and publicly funded innovation.”
The UK’s total investment in R and D has been relatively static at 1.8% of GDP. In America, it is 4%, while in France and Germany, it is well over 2% and they are aiming to get to 3%. This is a new world in the 21st century. If we do not innovate and do not develop products, we are going to fall behind and our tax base will go along with it.
The Government will point out that they created a number of industrial forums for debate and decision making, and a series of industrial papers came out last year. The sector councils for the automotive and aerospace industries have been formed for many years and are industry-led, but the other councils have met on only a handful of occasions, do not have public-facing websites and are basically turning into glorified talking-shops. That needs to stop soon.
It is not surprising that the Chancellor refused to give way to me when he began to talk about the housing market, because I might have pointed out to him that the average—mean—annual salaries of those who have been able to take advantage of his second version of the Help to Buy scheme are £80,000 in London and £49,000 nationally. In other words, we are using taxpayers’ money to help those in the top income decile to buy houses that are already overpriced, while pricing more people out of the market. There is no solution for those on the lowest incomes, and no solution for those who are renting; they are still left behind.
We need to hear about a programme that meets the key priorities of the majority, but that has certainly not happened today.
Oral Answers to Questions
Ann McKechin Excerpts(10 years, 7 months ago)
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Ann McKechin (Glasgow North) (Lab)
4. What assessment he has made of the effect of online gambling on vulnerable adults with a gambling addiction.
The Parliamentary Under-Secretary of State for Culture, Media and Sport (Mrs Helen Grant)
Problem gamblers tend to participate in a wide range of gambling rather than one particular form. The Gambling (Licensing and Advertising) Bill will allow consistent consumer protection for all British-based users of online gambling products.
Ann McKechin
I welcome the fact that the Government have now agreed to put in place a one-stop shop system for self-exclusion. Will the Minister confirm when she expects that system to be put in place to protect gamblers?
Mrs Grant
My right hon. Friend makes an excellent point. He is quite right that the level of women’s sport sponsorship deals is very low indeed, compared with all deals; it is at about 2%. Having top-level women’s sports events covered in the media will of course encourage companies to get involved. I congratulate Helena Morrissey and her company, Newton, on their smart decision to sponsor the women’s boat race.
Ann McKechin (Glasgow North) (Lab)
Glasgow’s Commonwealth games will be a marvellous opportunity to highlight excellence in women’s sport, but regrettably, regional TV and radio coverage of women’s sport is woeful in this country. I would be grateful if the Minister confirmed whether she has made any representations to public service providers and commercial radio about the need for women’s sport to be covered in much more volume and detail.
Mrs Grant
The hon. Lady makes a good point. Women’s sport is one of my priorities, and visibility and coverage of women is key to so many things, including sponsorship. We have had a number of meetings with the media and print magazines. Sky and the BBC have certainly upped their game since the 2012 Olympics, through more coverage and dedicated sports programmes focusing on women. Female individuals such as Clare Balding and Barbara Slater are an important part of that process.
amendment of the law
Ann McKechin Excerpts(10 years, 8 months ago)
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Ann McKechin (Glasgow North) (Lab)
I welcome the comments made by my hon. Friend the Member for Blyth Valley (Mr Campbell), who recommended a precautionary approach to the proposed changes to pensions. They are huge changes with many unanswered questions. At the weekend, the Chief Secretary to the Treasury was quoted in the papers as saying that intuitively he did not foresee undue harm to the public purse. Rather than his personal rose-tinted view, we need hard facts and well researched analysis to allow Parliament to make an informed decision about the proposals.
Many questions arise, in particular about the level and quality of the financial advice that will be available to people to enable them to make proper decisions. How will pensioners be protected from the scams that my hon. Friend mentioned? If people choose not to take the annuity route, they will require active management of their investment over a prolonged period, at a time when many of them will experience increasing incapacity. It is vital that we have full consultation on the changes, and that any legislation is considered in draft format by the Work and Pensions Committee before it is presented to the House.
Jonathan Evans
As the hon. Lady will know, on Thursday the Government published a consultation paper and said that the consultation would be open until June. No doubt she will make her proposal as part of the consultation.
Ann McKechin
I welcome the fact that we will have a proper consultation. The depth of it, and the analysis that will be required before people can provide their opinion, will also be vital. I also expect draft legislation to be put before the Work and Pensions Committee to be considered line by line in close detail.
While the Budget focused on pensions, many significant challenges were either ignored completely or—at best—addressed only superficially. To name just a few, they include stagnating incomes; the lack of business investment compared with our international competitors, a matter addressed by the Civitas report published today; high personal debt levels; and a distorted housing market.
The Resolution Foundation’s annual report on living standards, “The State of Living Standards 2014”, points out that
“it has become harder to live a comfortable life on a modest or even typical income in modern Britain”.
The biggest increase in poverty is now among those already in work, trying to make ends meet with average wages consistently falling over the last five years. Before Conservative Members claim that the latest Office for Budget Responsibility figures show that we are coming to the end of that fall in income growth—even though the timeline keeps moving backwards—I should say that the situation is not as positive for a huge swathe of our population. The wage growth figures are based on the CPI index, which excludes housing costs. When the figures are recalibrated on an RPI-adjusted formula, as the Resolution Foundation report shows, the picture is much gloomier. For those on median earnings, there will have been barely any wage growth for more than a decade up to 2018.
Currently, the bounce we are witnessing is based primarily on increased consumer spending and greater levels of personal debt. Scottish Widows reported only last week that there are now 1 million more people than last year who have no savings at all—9 million people. Given the slow to negligible wage growth, that level of spending cannot continue forever. We risk returning to the problems that were at the root of the global collapse in 2008. Putting an extra 17p on the minimum wage rate and having approximately 1 million workers stuck on zero-hours contracts is not the way to increase incomes. That will simply push more people into a debt that will become increasingly unaffordable when interest rates start rising again.
The biggest omission in the Budget is the complete failure to tackle the causes of the housing crisis. Land prices are still far too high in comparison with average incomes and they take money away from our productive economy, yet the Government are perfectly happy to advertise in the Red Book, on page 107, that they forecast house prices to increase by 8.6% in the next year against an inflation rate of 1.8%. You would never guess, Madam Deputy Speaker, that an election was due.
Week after week, I hear from desperate young people, often with young children, about their fruitless search for stable and affordable housing. Last month, I met a young mother with two children who was looking for her fourth private tenancy in as many years. It was not that she wanted to move—either the landlords wanted their houses back to live in or to sell on, or, in the latest case, they had failed to pay their own mortgage. She is currently in overcrowded housing simply to ensure that her eldest child can remain in the same school. She faces a sector with perverse incentives, such as Help to Buy, which in its latest format is not even linked to house building. No attention has been given to reconstructing a rapidly growing but highly fragmented private rental market that could provide greater security of tenure and better service levels. The stubborn failure to boost house building, which is now at pre-war levels, is made worse by the slashing of investment in social housing, with the result that prices are kept high.
The right hon. Member for Mid Sussex (Nicholas Soames) made some very good comments on the rapid changes occurring in the manufacturing sector. If we make the right choices now, we can benefit from the revolution in manufacturing; I agree entirely with his comments. We need to invest in skills, not just for young people but for the existing work force. In too many factories across the land, we will find Jimmy and Johnny aged 69 or 70-plus, because companies have no one younger with the right skill sets. The Government continue to be complacent about the rise in inequality and about wasting talent.
Currency in Scotland after 2014
Ann McKechin Excerpts(10 years, 10 months ago)
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Ann McKechin (Glasgow North) (Lab)
I congratulate my hon. Friend on the debate. He will be aware that the Deputy First Minister has indicated in the broadcast media today that the Scottish Government are now minded to default on their debt in the event of a yes vote. Can my hon. Friend give any indication of what he thinks the interest rates would be on our residents’ mortgages or on debts and savings if such a scenario occurred?
Ian Murray
That is a very timely intervention, because there is no doubt about this. Everyone in this room, everyone watching this debate and everyone in Scotland and the rest of the United Kingdom will know what happens when people do not pay their bills. When people default on their bills, they end up in a situation whereby the bills get higher. Interest and credit get higher and more difficult to get. Indeed, they are punished for ever more with an incredibly bad credit rating. In the context of an economy and a country, that is devastating for jobs and public services at the very least.
Mr McCann
Absolutely. We have been in this Union for 307 years. It has served us well, and I want to make sure that it continues after 18 September 2014. We have loads of statements about what will not change and all the contradictions: we have the Queen and we have NATO; we want to be a member of NATO, but we do not want nuclear weapons. We had the fiasco over Europe: we will waltz in—presumably a Vienna waltz—and we will keep our rebate, and be delighted when everyone welcomes us in as a member of the European Union.
Ann McKechin
My hon. Friend will be aware that the Scottish Government said that universities in Scotland will be better off under separation, but the EU education commissioner has confirmed today that their proposed policy on tuition fees for students in the rest of the United Kingdom is illegal. Does my hon. Friend believe that yet again they have been proven unsuccessful?
Mr McCann
Absolutely. It is a significant nail in the case for separation. All those things make a mockery of the debate, because people in Scotland want a truly open and honest debate with all the big issues discussed, flaws and all, but we do not get it. It reminds me of the quote from Groucho Marx, who said:
“I don’t want to belong to any club that will accept me as a member.”
Alex Salmond says that he has to set the rules before he decides to join the NATO, European Union or currency clubs. In terms of what happens in the street and what people talk about, we should simply retrace our steps in the currency debate.
Alex Salmond’s first position on the euro made a lot of sense when he presented it, because we would leave the United Kingdom, become a separate state, apply for membership of the EU, and, as part of applying for membership as a new state, we would have to accept the euro as our currency. However, as we know—my hon. Friend the Member for Edinburgh South (Ian Murray) exposed the argument cruelly—the debate on the euro currency caved in when the crisis came. The arguments have been well set out by my hon. Friend. The SNP then brought us back to the pound as our currency, which, as has been mentioned, Alex Salmond had described as a millstone round Scotland’s neck.
If Scots vote for independence, there will be massive uncertainty, because negotiations will be required on all those issues. At the moment, we have the pound as our currency. The Bank of England is our lender of last resort, which means that when we pool and share risk, interest rates will be the same in Land’s End as in John O’Groats. We know that the SNP proposed that we have the currency of a foreign state and we know that there will be no political and fiscal union, so, in the event of separation, Scotland then becomes—this is really important for the man and woman on the streets of Scotland—a higher risk. As a result, our interest rates will increase, which means that we will have to spend more money on mortgages, loans, and credit cards. The cultural nationalists will accept that, because they will pay any price for separation, but most canny Scots will not.
Debt Advice (FCA Levy)
Ann McKechin Excerpts(10 years, 11 months ago)
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Ann McKechin (Glasgow North) (Lab)
In the consensual and time-disciplined way in which other hon. Members have spoken this morning, I simply want to support my friend the hon. Member for Worcester (Mr Walker) in his call for the FCA to consider ring-fencing the levy. As other colleagues have mentioned, the need for increased debt advice is clear, because personal debt in this country is increasing and bringing with it increasingly complex problems. I share the concerns expressed by my hon. Friend the Member for Makerfield (Yvonne Fovargue) and the hon. Member for Worcester about the lack of debate between the FCA and the Money Advice Service about the demand for advice services and how best to use the additional funding, which I very much support, from payday lenders. I think it was the hon. Member for East Hampshire (Damian Hinds) who said, correctly, that for the welfare rights officers, citizens advice bureaux and StepChange, other funding avenues are becoming much more restricted.
My constituency benefits enormously from the work of the Maryhill citizens advice bureau, as well as from experienced welfare rights officers in our housing associations. Housing associations are also finding restrictions in their budget—the bedroom tax is having a direct impact, and arrears have increased—but the demand for their services is becoming ever greater. Last summer, I conducted some research in my constituency on a range of issues. A CAB worker there told me the following:
“Huge, huge changes have occurred as a result of the welfare reforms. We have much more cases where we have to help clients with appeals on benefit sanctions and ESA. There are many more people coming in angered, frustrated and desperate because of this. This puts a lot of strain on us. Furthermore a lot of people are coming in confused about how the new system works, including ourselves!
There is a big problem with sanctions from the job centre. They are being much tougher on families. More people are coming in with mental health issues—depression being a major one—caused by debt, unemployment and the stress of things like benefit sanctions.
There has also been a large increase in exploitative employers in this area…the rise in zero hour contracts.
Clients are coming in with more complex problems. All sorts of issues—and they’re all intertwined. We (the CAB) are definitely going to be facing much more problems in the near future with the changes to universal credit and it all going online.”
That fact is that debt is not the only issue that advisers are dealing with on the ground in our communities. They are having to deal with huge changes in the welfare system, the increase of insecure work—we discussed that in the debate last night, Mr Hollobone—and the increasing use of high-cost credit. All those are interlinked together. Basic training for a Citizens Advice volunteer takes 10 weeks—it is an intensive course. The people who have been working as welfare rights officers in my area have been doing so for many years. We benefit from their high level of experience, but it does not come cheap. We must train more people in the years ahead to be able to meet the demand, which is coming from a much wider range of our population.
I was interested to hear the hon. Members for North Swindon (Justin Tomlinson) and for East Hampshire talking about a range of people who had secure jobs but were now having great difficulty trying to manage their finances. The demand spans from people like that down to those in my constituency, where in some areas people are living on very reduced incomes and always have been. They are now finding their income even more stretched, and real incomes have declined significantly.
The need is utterly apparent. I hope that the FCA and the MAS will respond positively to this debate, and that when the Minister responds he will be a friend in persuading those institutions of the need to reconsider how they are going to use the levy in future.
Cathy Jamieson
Again, the hon. Gentleman makes a valid point. It reminds me of a previous career, when I was in another Parliament and worked closely with the predecessor of my hon. Friend the Member for Makerfield on tackling some of the illegal loan sharks and trying to ensure that they were brought to justice.
Of course, it is important that we consider everything we can do to establish the principle—I think it was referred to as “the polluter pays” principle—whereby the people who cause the problem have a social responsibility and, in this context, a financial responsibility to provide some of the funding to pay for the resources we need to tackle the problem.
My hon. Friend the Member for Glasgow North (Ann McKechin) asked if there has been a lack of discussion between MAS and the FCA. Again, I hope that the Minister can enlighten us on that issue, perhaps giving us some more information about the involvement of the two organisations. Also, can he say whether or not he can ensure at this crucial stage that all the organisations are brought together for further discussion? I am almost hesitant to say this again, but, as I have already said, there is sometimes a danger that people involved on the Treasury side would perhaps look in isolation at this issue; they would look at the money flows, the funding streams and so on, without necessarily looking at the people involved. In this context, it is very important to look at the people involved.
Ann McKechin
Does my hon. Friend agree that because the FCA is such a massive organisation—in terms of its scale and what it is intended to cover—compared with MAS and because it is just getting off the ground, trying to set some parameters for what the FCA and other organisations need to consider is an important part of the Treasury’s function?
Cathy Jamieson
Again, my hon. Friend makes a valuable point. In bringing my remarks to a conclusion, I want to reiterate some of the points that were made in the debate in the main Chamber last night. As she said, the FCA is a new organisation and it has been given a wide-ranging remit. It has consulted on a number of issues and new rules will be introduced for a range of things, but I would not like to see the specific issue of the levy slip through the net. My hon. Friend the Member for West Bromwich West referred to the recommendation for a levy in the Business, Innovation and Skills Committee report as the recommendation that has almost gone “under the radar”. Hopefully it is no longer “under the radar”; as I say, I certainly do not want it to slip through the net because of the FCA’s wide range of responsibilities.
The Minister, who has been listening intently, will have heard the view expressed in both debates on this subject—last night and today—that there is a genuine consensus across the House on this issue, and hopefully people from the FCA and MAS have heard that too. There may be other areas where we would disagree, but there has been a genuine consensus on this issue, which has built up during months, if not years, of campaigning by individuals who have been very committed to tackling this problem and by organisations that have been absolutely at the sharp end and see it every day. Those individuals and organisations have the ideas both to deal with the problems when they are identified and—crucially—to put in place preventive measures. There was some discussion of those measures last night, which include, for example, action on advertising, education and so on, so that we can try to prevent people getting into debt in the first place. However, if they do get into debt, the correct services must be there for them, not only to point them in a direction to get a bit of information but to help them to work their way out of debt, including making some of the lifestyle changes that are perhaps associated with getting out of debt.
The Financial Secretary to the Treasury (Sajid Javid)
I welcome you to the Chair, Mr Hollobone; it is always a pleasure to serve under your chairmanship. I congratulate my hon. Friends the Members for Worcester (Mr Walker) and for East Hampshire (Damian Hinds) on securing the debate. I listened carefully to them and the other hon. Members who contributed, and I thank all hon. Members for their contributions. I think that I am right in saying that each of them contributed to yesterday’s important debate on the payday lending sector in general. Once again, they shared thoughtful and well-balanced comments.
The Government believe that consumers should have access to free, independent money and debt advice. The Money Advice Service has the important job of ensuring that consumers get that advice. The Government want to empower consumers to manage their money well and to make responsible financial decisions, which is where MAS’s money advice role comes in. However, as we have heard, for consumers facing difficulties with debts, the first step in getting those debts under control is debt advice, and MAS also has a role to play in that regard. Money advice can help consumers to keep on top of their finances and stop them getting into problems in the first place.
Let me say something about payday lending generally, because it is connected to consumer detriment issues, which we heard about both yesterday and today. As well as giving MAS responsibility for ensuring that consumers have access to debt advice, the Government are tackling the root causes of spiralling debt. We are fundamentally reforming the regulatory system that governs lenders and we are, in particular, clamping down on payday lenders.
The Financial Conduct Authority takes on its consumer credit responsibilities from the Office of Fair Trading in April. The FCA will have far stronger powers over lenders than the OFT has, and it will be more nimble, meaning it is able to keep pace with a fast-moving market. The FCA is already flexing its regulatory muscle in advance of taking on regulatory responsibility for high street lenders. It plans to cap roll-overs, hold payday lenders to account on affordability assessments, curb the misuse of continuous payment authorities, and mandate risk warnings on payday lending adverts that signpost borrowers to the advice and help that MAS can provide.
The Government have taken decisive action to tackle the harm caused by the cost of payday loans. In the Financial Services (Banking Reform) Act 2013, we gave the FCA a clear mandate and duty to put a cap on the cost of payday loans by the beginning of 2015. This is not just an interest rate cap, but a cap on all fees and charges associated with a payday loan including, of course, default charges and roll-overs.
As we have heard—I agree with hon. Members about this—the provision of debt advice is vital. Free debt advice is currently funded by a levy on financial services lenders, which stand to benefit from advice that helps borrowers to get back on their feet and in control of their borrowing again. Once the responsibility for consumer credit transfers to the FCA, it is absolutely right that the levy begins to apply to consumer credit firms including, of course, payday lenders.
I welcome the focus of my hon. Friend the Member for Worcester and the Business, Innovation and Skills Committee on this issue. We all agree that payday lenders must pay their fair share towards the provision of advice. However, although I listened carefully to points made by my hon. Friend and other hon. Members, I am not yet persuaded that the levy collected from payday lenders should be ring-fenced for debt advice only and used to top up funding for front-line debt advice, and I shall now explain why.
We should not consider debt advice separately from money advice. The two go hand in hand to help consumers to get back in control and to give them budgeting skills and financial awareness to help them to stay out of problem debt, which is crucial, as my hon. Friend the Member for Gosport (Caroline Dinenage)said. We also should not forget that money advice can be vital in helping those on the brink of taking out a payday loan. It can help them to understand what they are getting into, how to borrow responsibly, how to find out whether there are better and cheaper options available, and whether they should be turning to payday loans at all. As money advice could help to stop people from getting into trouble with payday loans in the first place, it is right that payday lenders contribute to funding free money advice and debt advice services. The Money Advice Service has a statutory objective to provide money advice and debt advice.
Ann McKechin
I have listened carefully to what the Minister has said about money advice. The Money Advice Service primarily uses a website to provide access to money advice. In Glasgow, less than 30% of those on the lowest incomes have broadband access in their house, so the people who need advice the most are the least able to access it. It is not just about giving money advice; it is about how that is delivered. I have to say that, in my experience, it is poorly delivered.
Sajid Javid
I listened carefully to what the hon. Lady said, and others have also made that point. When I visited MAS’s office in London last week, I looked much more closely at how it provides money advice. The hon. Lady is right to say that it relies considerably on a website, but it is more than just a website—there are individuals involved. I listened to a lengthy recorded call that was an example of how people who wanted money advice before entering into a financial transaction could be guided through the process. I saw for myself how that was adding value. Although that was obviously a phone call and not face-to-face advice, it was more than just web advice. The hon. Lady highlights the importance of MAS continuing to consider how it can continue to improve its service and ensure that it is providing appropriate advice.
Payday Loan Companies
Ann McKechin Excerpts(10 years, 11 months ago)
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Ann McKechin (Glasgow North) (Lab)
The fact that this is the second time in two years that the Business, Innovation and Skills Committee has reported on this issue reflects the enormous public interest in the matter and the concern about the impact of the sector on our communities as well as on individual borrowers. To date, the regulatory authorities have being running behind the curve, and it is important that the Financial Conduct Authority should start ahead of the game. The regulators initially gave little priority to protecting the poorest borrowers on the basis that the total lending represented just a small percentage of the total in the financial services sector. They failed to take proper account of the problems that had already beset other international jurisdictions, to which the hon. Member for Dover (Charlie Elphicke) has referred. The Government’s response to our first report was simply to try to shift the problem further down the time line, with an instruction for further reviews and reports. The transition to regulation by the FCA was used as the main reason for not taking immediate action.
In my own city of Glasgow, the council reported last year that its citizens borrowed £57 million annually through high-cost credit, including payday lending. Given that 49% of our residents are within the bottom 20% of the income quartile, it is not surprising that the council estimates that a staggering 100,000 residents are using non-standard credit and that a high percentage of that number are finding it difficult, if not impossible, to repay their loans.
In 2013, the regulatory authorities and the Government realised that a policy of laissez-faire was not going to work. The findings of the Office of Fair Trading’s damning report showed the scale of contraventions in the sector, and the growing amount of strong evidence from agencies like Citizens Advice, StepChange and Which? could not be ignored. The sector itself had rapidly increased from £900 million in 2008-09 to £2.2 billion in 2011-12. Wonga had become a household name and, even more worryingly, the level of personal debt in this country was beginning to rise again, potentially threatening any increase in growth.
The sector now has a shop in every high street, it dominates the advertising schedules and it has been allowed the freedom of a wild west market to achieve rapid growth and massive profits. Many of its victims now populate the ever-growing food banks and our debt courts. It should be abundantly clear that this issue cannot exist in a vacuum, devoid of political direction. The statutory independence of a regulatory authority to act should not be a barrier to setting a framework and priorities that it needs to address; nor should it be a way to sidestep the will of Parliament, which on numerous occasions over the past three years has expressed exactly the concerns that are being raised today. The level of cross-party agreement and civic support for tougher regulation is overwhelming.
Wider issues have intensified the interest in this sector. The hon. Member for Dover referred to the lack of provision in the mainstream credit sector, but other issues include the squeeze on real incomes, and the above-inflation rises in essential costs—energy, transport, housing and food. The demand for unsecured lending continues to expand, but we also have a rapidly changing financial services sector that often lacks adequate transparency not just in short-term lending, which adds to consumers’ confusion in making the best decisions to suit their needs.
I believe the major players in this sector well know that the current era of weak regulation ripe for exploitation will one day come to an end, but if they can extend that period or find a new avenue for profit, they will happily go for the bottom line. They have achieved their aim of being a ubiquitous presence. The Chair of the Select Committee on Business, Innovation and Skills, my hon. Friend the Member for West Bromwich West (Mr Bailey), has referred to the evidence from the money expert Martin Lewis, who brutally exposed the scale of this insidious influence. He said:
“14% of parents of under-10s, when they have said, ‘No, you cannot have your toy,’…have had a payday loan company quoted to borrow the money from.”
We have also heard about scale and the Ofcom research on advertising, which found that there were 17,000 payday lending adverts in 2008 whereas there were 397,000 in 2012. That equates to each adult in the UK seeing an average of 152 payday loan adverts a year. Given that level of market penetration, some of the biggest firms barely need ever to advertise again. That is why our Committee believes that our modest recommendation on curbing TV advertising is important, but we should not believe that it will cure the cultural influence.
Caroline Dinenage (Gosport) (Con)
Does the hon. Lady agree that it is not just the volume of TV advertising, but the nature of it that is concerning? These companies are often advertised via cuddly, humorous characters, such as knitted grannies and granddads. That is worrying it lulls people into a false sense of security about the nature of the product in which they are investing.
Ann McKechin
I absolutely concur with what the hon. Lady, a Committee colleague, says. The advertising is very clear and insidious, and it is targeted at younger people and children in particular. There is no debate about that; it has happened and continues to occur.
I want to deal now with the real-time recording of credit information. If credit information is to work, it needs to be both accurate and comprehensive; otherwise, there is little point to it. Unsurprisingly, the industry was quick to downplay the significance of this potential regulatory step, and again it is regrettable that the authorities have not been faster to respond, preferring instead an approach of wait and see. I commend the sustained pressure from agencies like as Citizens Advice and StepChange, but the cloud lifted when BBC’s “Newsnight” programme and others reported at the end of last year on the potential impact on mortgage lending. If there is no real-time recording in the payday lending sector, the existing credit recording systems become increasingly unreliable and inaccurate, particularly in respect of younger borrowers, who form the bulk of this sector’s customers. Lenders in the mainstream sector have now decided, in their world of lower risk, to dismiss payday borrowers entirely from their eligibility test—and hey presto, this month we have the announcement from Wonga and some others that a real-time recording system is going to be put in place later this year. Call me a cynic, but I suspect that the potential hit on their client base, who were increasingly worried about future access to mainstream lending and to mortgages, acted as a greater incentive than the dialogue with the FCA.
Mr Andrew Love (Edmonton) (Lab/Co-op)
My hon. Friend will be aware that only four payday lenders have entered into this real-time conglomerate. The FCA has indicated that it will take action if the sector does not get its act under way. Do we not need to get action from the FCA to make sure this happens?
Ann McKechin
My hon. Friend has taken the next sentence from my speech, because that is what the FCA absolutely needs to do and it is what we have recommended. Unless we have a recording system that is properly comprehensive, we will not have a solution and we will not stop lenders making non-compliant loans. The current proposal contains no requirement to report to the FCA; it still relies on voluntary reporting, and we know that many of the same lenders were found wanting in last year’s OFT investigation. As colleagues have done, I urge the FCA not to rely on the industry to provide the solutions, but to ensure that the public’s protection is paramount. Given that no one trade organisation represents the sector and that new entrants are likely, albeit in smaller numbers than before, we need a regulated and transparent system of recording which will have the trust of borrowers and lenders alike, and which will do the work it needs to do to allow our constituents to obtain legitimate credit. The FCA should quickly impose such a system, rather than allowing a not very satisfactory alternative to emerge in fits and starts.
Our Committee has further requested that in the light of the disturbing evidence we received of continued abuses of the present regulatory system, all companies should resubmit their affordability tests to the FCA for approval. Like some other hon. Members here today, I received whistleblowing evidence this weekend from a former senior employee of a major payday lender. It portrays an endemic culture of avoidance, from the senior managers down to shop-floor staff, and I trust it will receive the urgent and serious attention it deserves from the regulators. This is not just about a company bending the rules to suit its own profit line; it is about full-scale lending to people the company knows will be unable to repay in full or part, with the misery that goes along with it. I do not believe this is an isolated example, and as the Chair of our Committee has stated, the evidence before us challenges regulators to make sure that their enforcement systems are going to work. As this evidence suggests, there may be a move by some lenders to have long-term lending simply to bypass regulatory attempts. To be fair to the FCA, I know it appreciates that the challenge on effectiveness will be in trying to cope with changes in the market and how it shifts over months and years. I believe it is important for the Government to have a strong response to our Committee’s report, to accept our recommendations and to make sure that public protection is always paramount in our considerations.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
This is a timely debate. The issue has captured the public’s imagination because people cannot understand why apparently high and exploitative interest rates are charged on short-term loans, and the Government have faced mounting pressure. It is important to pay tribute to Members on both sides of the House, but particularly my hon. Friends the Members for Sheffield Central (Paul Blomfield) and for Walthamstow (Stella Creasy). Their work, in combination with the public’s feeling that this is somehow unfair and wrong, has brought the issue to the Government’s attention. The Government have recently crossed the Rubicon in announcing that an intervention in this market would be justified. They said not only that the FCA now has the power to impose a cap on the total cost of credit, but that they feel that that will happen.
In a moment, I will draw an analogy with the pensions market, which I know something about. I was struck by the fact that the hon. Member for East Hampshire (Damian Hinds) said that Conservatives were against caps in general, but that this was an exceptional case. I am sure that he is aware that the Government are consulting on a pension price cap for somewhat similar reasons, particularly the fact that consumers in the marketplace are not sovereign because they do not know what they are being charged.
A few reasons have been given for why we find this to be such an issue in 21st century Britain. My hon. Friend the Member for Glasgow North (Ann McKechin) noted the extraordinary growth in short-term loans being taken out. Members on both sides of the House have suggested that that is something to do with either bank overdraft charges or, perhaps more fundamentally, the growth of a low-wage economy. The latter is absolutely true. We cannot understand this problem without reference to the growth of low-wage employment. However, it is important to refer not only to low wages but to irregular and insecure employment.
What we see in the 21st century phenomenon of payday loans is something that we commonly found 100 years ago in the form of the pawnbroker: the debt-credit cycle, which appears in economies and contexts where low pay and insecure and irregular employment are a reality. One hundred years ago, the pawnbroker was ubiquitous for a simple and straightforward reason: weekly wages did not cover outgoings. Therefore, in a world where weekly wages could not meet the cost of living, what was the rational response of people in that position, of whom there were many millions? The rational response was to pawn their good claithes at the point in the week when their wages were exhausted and then to redeem their good claithes—that is, clothes, for non-Scottish Members of Parliament—when their wages were paid. That continued week after week. They pawned when their weekly wages were exhausted but their outgoings had not been met, and they redeemed when they were paid—over and again, week after week.
Of course, the world has changed enormously in the past 100 years. Everyone’s standard of living has increased significantly. I would argue that it is not coincidental that that happened at the same time as the Labour party was formed to advance the interests of people in those situations. [Interruption.] Government Members are laughing. I did not even think that that would be a point of controversy. Surely, the past 100 years have seen a significant—[Interruption.] The hon. Member for Brigg and Goole (Andrew Percy) shouts something. The point is that, 100 years ago, the pawnbroker was a reality; in the 21st century, the payday lender is a reality. The standard of living is much higher of course, but we find this problem emerging once again. It used to be a weekly problem; it now might be a monthly, six-weekly or bi-monthly problem.
Ann McKechin
There is one advantage of the pawnbroker: at least, the debt could only go so far—the amount of credit that someone put up. The problem with payday lending is that interest rates keep increasing and people are caught in a vicious cycle of debt, which is why it is becoming even more difficult for ordinary people to cope with it.
Gregg McClymont
My hon. Friend takes the words right out of my mouth. That, indeed, is the big difference. This is a much more exploitative form of lending than pawnbroking.
The hon. Member for East Hampshire, in a thoughtful speech, got on quickly to what sort of cap one should look to the Government to construct. I mentioned that the Government are consulting on a pension cap, and my involvement in that from the Labour side leads me to make a couple of observations that might seem obvious. The most obvious is that one must be absolutely clear about what one is encompassing in the cap—a point that he made very well—while being clear about when the cap will be introduced. As things stand, we have an undertaking from the Government to move towards a cap on the total cost of credit, but until we are clear what the total cost of credit includes, the dangers of leakage are significant.
Alongside that, we must be clear about what the objective of regulation is in that context. It must be to end the exploitation that is widely thought to be taking place—Members on both sides of the House feel that, and the public certainly do—but at the same time to ensure that legitimate access can be maintained to short-term loans that are not exploitative. That is the principle from which the Government must proceed.
However, to pick up on a point made by more than one Government Member today, when all that is done and exploitation through payday loans has been reduced, or hopefully ended, we will still not solve the problem unless we can build securer and more regular forms of employment with a higher wage. My hon. Friend the Member for Glasgow North is absolutely right that that form of lending can be much more exploitative than pawnbroking has been over the past 150 years, but the lesson from the era when pawnbroking was ubiquitous in working class communities is straightforward: as long as there is low pay and irregular and insecure employment, it is rational for people to have to find a way to make ends meet.
We welcome the view that the Government have taken on regulation. It is fair to say that they are moving on to the territory that the Opposition have staked out, but I think that we can agree—we might disagree about the method of achieving it—that unless we can a securer and more regular employment economy with a higher wage, the problem will not disappear.
Oral Answers to Questions
Ann McKechin Excerpts(11 years ago)
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Sajid Javid
I have to say that I do not recognise the description that the hon. Lady has attached to the banking Bill. When she refers to Labour being right all along on banking regulation, perhaps she is referring to the changes that Labour made 13 years ago, which my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), then shadow Chancellor, described at the time as “a field day” for “spivs and crooks”.
Ann McKechin (Glasgow North) (Lab)
13. What representations he has made to the EU on the proposed cap on bank bonuses.
The Financial Secretary to the Treasury (Sajid Javid)
In September, the Government launched a legal challenge to specific remuneration rules under the EU capital requirements directive IV. These rules, rushed through without any assessment of their impact, will undermine the significant progress we have made to align remuneration with risk by pushing up fixed remuneration rather than pushing it down. In our view, regulating remuneration in this way goes beyond what is permitted under the EU treaty.
Ann McKechin
I am grateful to the Minister for his answer, but does he not agree that rather than using taxpayers’ money to protect the incomes of investment bankers earning more than £1 million per annum, that money would be better spent on enforcing our minimum wage legislation?
Sajid Javid
I am not going to take any lectures from the Labour party on bankers’ bonuses. Under Labour, bankers’ bonuses went up fivefold and peaked at £11.5 billion in 2007-08. At the very same time, the Labour Government were using taxpayers’ money to carry out the world’s biggest banking bail-out. Last year, the bonuses were down 85%.