Draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Monday 26th November 2018 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve on the Committee with you in the Chair, Mr Austin. I am grateful to the Minister for his comments.

As we know, the Government have decided to undertake the bulk of the preparation for our EU withdrawal through secondary legislation. The Opposition have voiced their concerns about that on many occasions. It is an unprecedented transfer of powers to our Executive. I appreciate the work that has been done by the Minister, his staff and the civil service, and their collective efforts to brief us on the process. However, we might ask whether, in a normal environment, a change of such magnitude would be made through primary legislation. It should be, given the scrutiny it demands.

The number of Treasury SIs and the speed with which they are set to unfold are deeply concerning, from the point of view of ensuring that the Government are held fully accountable. The Opposition commit to making every effort to do that, but the task is constitutionally unprecedented and enormously resource-intensive, and leaves room for error. It is also disappointing that we have reached a stage when such no-deal contingency measures, which obviously take up significant time and resource for both Government and Opposition, must be laid before the House. We are, of course, perilously close to the EU exit date.

All that being said, I have one question and one reflection on the Minister’s comments. As I said, I am grateful to him for explaining the Government’s thinking on the measures. The implication from the debate on them in the other place and the Minister’s words is that the regulations will not affect how the FSCS deals with UK-based consumers and deposit holders, but surely the deposit levels within the FSCS have been affected by EU legislation. They were revised downwards in late December 2015 to cohere with the EU-stipulated level of €100,000—that was later than in the rest of the EU, where the introduction date was July 2015. Similarly, the SI suggests a five-year period during which the PRA would assess whether a change was needed in the protected deposit level.

It would be helpful to learn from the Minister about an issue that came up in the other place, and to which the Government response was not clear: do the Government intend to seek at least rough coherence with the EU level of protected deposits in future? Baroness Kramer’s comments were interesting; she noted that in a no-deal Brexit, there could be a large impact on the value of the pound, which could affect the value of UK businesses’ and individuals’ deposits in the rest of the EEA. Will there be sufficient flexibility for the PRA to protect people to the level required if there is that significant change?

My other comment is about the broader context of these kinds of deposit guarantee schemes. They were not brought in in isolation; they were part of a package of EU-level measures intended to improve protection for taxpayers and public finances. They were balanced in the EU by the bail-in mechanism, the system of resolution and the stress-testing system for banks. We in the UK have not been affected by all those measures because we are not in the banking union, but we could say that we have substitutes for many of them, at least at the moment, through independent activity undertaken in the UK.

Will the Minister underline in his concluding remarks that the Government remain committed to ensuring that our regulation will always focus on protecting stability, security and resilience, and, above all, on ensuring that we never again have a situation in which banks and other financial institutions are bailed out by taxpayers? We are not in the banking union anyway, but we could—it sounds like we will—retain the deposit guarantee. Surely it is important to retain the other elements of banking regulation that would prevent the kind of moral hazard that there was during the financial crisis, when the risks were concentrated on consumers and the public purse, while the gains were privatised to a number of people in the financial services sector who did very well out of it.

[John Glen]

I thank the hon. Lady for her comments. All I can do in response to her opening remarks is reiterate my commitment as a Minister to continuing the rigorous process of examining the statutory instruments, bringing them to the Committee in a timely fashion, and being as thorough as possible in our impact assessments.

The hon. Lady raised two issues. First, she referred to the exchange between Baroness Kramer and Lord Bates in the other place on 6 November, concerning the level at which the PRA could set the compensation. The imperative from the directive has been to have a consistent level, and the UK has onshored, essentially, the €100,000. There are no plans to depart from the current level; frankly, there is a significant imperative to keep the levels aligned, regardless of what happens, but that will be a matter for the PRA.

[Anneliese Dodds]

Would that mean that the five-year period could be altered if there were a severe need for a change due to a fluctuating exchange rate?

[John Glen]

In a scenario of unforeseen volatility, there would be an opportunity for the Treasury to ask the PRA to examine that, or vice versa. In such a scenario, we would of course have more immediate discretion on that point.

The second point related to the need to maintain a stable prudential regulatory regime. As the City Minister, I hear lots of representations from different parts of the financial services sector for more flexibility on occasion. This is a matter for the regulator, not me, but in conversations with the PRA, I have made it very clear that the Government do not want to secure competitive advantage based on downsizing our regulatory environment. I agree with the hon. Lady’s sentiments with regard to keeping that as the driving imperative.

To conclude, the statutory instrument is needed to ensure that the rules governing the UK’s deposit guarantee scheme and the other systems covered by the SI function appropriately if the UK leaves the EU without a deal or an implementation period. I hope I have satisfactorily addressed the legitimate points made by the hon. Lady, and that the Committee will support the regulations.

Question put and agreed to.