Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 29th January 2019 Commons Chamber

[Mel Stride]

My hon. Friend raises two issues. On non-tariff barriers, we have made it very clear that we will implement a solution in the event of no deal, for example, that will be as friction-free as possible. But there will be requirements in that scenario for us to handle pre-custom declarations and various checks, which will come with having a border under those circumstances with the EU27. On our tariff policy, we will come to that in due course.

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

Stockpiling by business is at its second highest rate since 1992. The Treasury suggests that new customs paperwork for no deal would cost UK business £13 billion. When will the Minister’s boss, the Chancellor, stop arguing privately against no deal’s staying on the table and publicly take on the scorched-earth fantasists in his own party?

[Mel Stride]

The questions I have just responded to are in a similar vein and all lead back to one conclusion, which is that, if we are to avoid a no-deal scenario, there has, by definition, to be a deal that is agreed with the United Kingdom. We have a very good deal that the Prime Minister has negotiated and will be negotiating further with the European Union. It sees us respecting the outcome of the 2016 referendum but, most importantly, making sure that flows across our borders are as frictionless as possible.

HMRC Estate Transformation

Anneliese Dodds Excerpts

Tuesday 29th January 2019 Commons Chamber

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

I was given advance notice of the contents of this statement while I was in the Chamber for Treasury questions, and therefore time has been limited to prepare for it. I am surprised that we are now discussing this matter given that I and many of my colleagues have repeatedly raised problems with the Building our Future programme and generally been met with one-sentence answers from the Government.

The Minister maintains that this announcement has come today because of the successful securing of sites for 13 regional centres, so I hope that he will indicate to this House which centre was secured yesterday to justify this statement being presented today. When will he publish the list of precise locations of each of these centres, given that he maintains that we have today secured those new places? That would be enormously helpful for us, because without that information we will be forced to conclude that this statement has been made today for reasons other than its newsworthiness.

In July 2014, HMRC published the Building our Future proposals on reforming tax collection services for the next five years. In November 2015, HMRC announced plans to cut the number of offices from 170 to the 13 that are, apparently, having their locations announced today. In January 2017, the National Audit Office published its report on that process. It indicated that that original plan was unrealistic. It stated that the estimate of estate costs over the next 10 years had risen by nearly £600 million—almost a fifth—with more than half of that being due to higher than anticipated running costs for the new buildings. The National Audit Office also forecast a further 5,000 job losses and said that the costs of redundancy and travel had tripled from £17 million to £54 million due to this programme.

So what exactly is happening now among the HMRC workforce as a result of Building our Future? Some 73% of HMRC staff surveyed said that the Building our Future plans will undermine their ability to provide tax collection services. Half of them said that it would actually undermine their ability to clamp down on tax evasion and avoidance. I have to say that that was my assessment as well when I visited a number of current and former HMRC offices right across the country— 10 of them—over the past few months.

The Government say in this statement that

“90% of the staff that”

HMRC

“had at the start of this transformational journey”—

a piece of jargon if ever I heard one—

“will move to a new regional centre or finish their careers in their current offices.”

During the visits that I conducted, I did hear about staff finishing their careers—they were finishing their careers early because they could not travel to the new regional centres that the Minister is trumpeting today. People from Wrexham were being expected to travel every single day to Cardiff or to Liverpool. People from Exeter were being expected to travel to Bristol. These journeys are simply not feasible for people with caring responsibilities and simply not feasible on public transport.

I note that the Minister said that having city centre locations leads to a situation where it will be possible to recruit local graduates, but of course what his Department has forgotten, and what the NAO reminded him of a couple of years ago, is that in many of these city centre locations the labour market is far tighter, so we often find that there is actually an enormous recruitment problem rather than the bonanza that might be suggested to people who read his statement uncritically.

At the end of the statement, the Government accept, it seems, the need to learn from expertise. I will quote the sentence, although it pains me a little to do so given its construction:

“As HMRC gears up to manage the workload resulting from exiting the European Union, it is also providing additional space in regional centre cities”,

which I assume means offices,

“for additional staff and retaining some space for longer so that the planning”—

of what, we do not know—

“can benefit from the knowledge and experience of existing personnel.”

Well, that raises almost as many questions as it answers. The situation is still unclear about where 5,000 extra customs staff will go—a point I will return to later.

None the less, that sentence, as garbled as it is, suggests that HMRC wants to build on existing experience, but that principle is just not being followed in the Building our Future programme. We had within HMRC centres of excellence across a whole range of different specialisms, whether income tax fraud or the different kinds of multifarious problems that taxpayers can have in filling out their self-assessment forms. Many of the staff who were employed in those specialisms have either already left or are thinking of leaving. A great example of this is what we have seen happening in Swindon, which was previously a centre for income tax fraud. There is now a centre of excellence being built up on that in Liverpool, but with none of the same staff and with none of that expertise. It is being built up from scratch, creating huge inefficiency.

The Government have dogmatically refused to reassess the Building our Future programme apart from when they have been forced to do so—as they acknowledge very, very briefly in this statement—and that is exacerbating problems in HMRC. The attrition rate is greater than the hire rate. We saw in 2014 an absolute reduction in staff of over 3,000 and in 2015 an absolute reduction in staff of over 4,000. In 2017, the UK had the second highest attrition rate out of the 55 countries that share data on their tax services. There has also been incredible mismanagement, with the release of 5,600 customer services staff and then, in 2015, the hiring of 2,400 new customer services staff. It is no surprise that morale is at rock bottom in HMRC.

I therefore want to ask some very quick questions of the Minister. Which new regional centre was secured yesterday? When will we have the list of locations of regional centres? If 90% of positions are retained or vacated due to people finishing their careers, does that mean that 10% of people in HMRC are going to be made redundant? Have there been any reviews of these plans in the context of Brexit? Has the Minister thought about the impact of this on the local economies that are so dependent on these jobs, as raised by many of my colleagues?

[Mel Stride]

I thank the hon. Lady for her response. I will pick up on some of the points that she has raised.

The hon. Lady asked why this statement is being delivered today. I think that she partly, at least, supplied the reason for that herself, in that she has shown a very keen interest in these matters, as have many other Members across the House, quite rightly. It is right, as we have always said, that we will be transparent in the roll-out of this transformation programme, and today is part of that process.

Towards the end of the hon. Lady’s remarks, she called for a review of our arrangements in the context of Brexit and the customs arrangements that our country may face. That is the second reason why it is important that we consider these matters. The debate this afternoon will rightly focus on preparedness, among other matters, and HMRC and its transformation programme lies at the heart of the issues that will be debated.

The hon. Lady asked for the locations of these sites. I believe they are all in the public domain, but I am happy to provide her with a list. She also made several observations about the NAO report and value for money. We are still confident that we will meet our roll-out end date of around 2025. In terms of value for money, there will be savings of some £300 million across the 10 years. I remind the hon. Lady that we will be getting out of a substantial number of private finance initiative contracts that the existing offices are engaged with—PFI contracts that were brought in under her party’s Government in 2001. One driver of additional value for money is that we will be able to unpick the unfavourable arrangements that her party’s Government got us into in the first place.

The hon. Lady asked about the cost of redundancy. I said in my opening remarks that some 90% of those who will be impacted by these moves will either conclude their career in their existing offices or relocate to the new regional hub. The overall thrust of these changes is to ensure that we are better equipped at getting in more tax. It is very much a Labour philosophy that every solution has to involve more money and more people, whereas our approach is adjusting with the times and getting offices in place that are fit for the 21st century, often using complicated data-based interrogation techniques, for which large regional hubs are the way forward.

Some of the 170 legacy offices that the hon. Lady seems so intent upon protecting had under 10 staff in them. Most of the processes carried out by those staff were manual in nature rather than technology-driven, so they were far less efficient. For example, over 80% of self-assessment returns are now done in a digital format, which is why it is important that we move to this model.

I turn to the hon. Lady’s remarks about the staff themselves, who have been at the heart of our considerations as we have rolled out this process. All staff are given at least one year’s notice of any proposed change. They are quite rightly given face-to-face meetings with their managers to discuss the changes and assistance that they may require. In determining the locations of the regional hubs, HMRC mapped out the journey to work of the staff who would be impacted, to ensure that that was one of the principles taken into account when assessing where the locations should be. Those who have extended travel arrangements as a consequence of any move may be given assistance with additional travel costs for between three and five years. Transitional offices, which the hon. Lady raised, will provide additional opportunities for continuity of HMRC’s work and the opportunity of employment for those within these arrangements.

There is a purpose to this. It is not just about saving money, closing offices, suggesting that we are ready for the 21st century or making change for the sake of change. The purpose of these changes is to ensure that we continue the excellent work that HMRC is carrying out in clamping down on avoidance, evasion and non-compliance. The proof of the cake is in the eating: some £200 billion has been brought in or protected since 2010, and we have one of the lowest tax gaps in the world at 5.7%. That does not happen by magic; it happens by having an HMRC that is lean, efficient and up to the job. I commend this statement to the House.

Draft Market Abuse (Amendment) (EU Exit) Regulations 2018 Draft Credit Rating Agencies (Amendment, Etc.) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Wednesday 23rd January 2019 General Committees

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

It is a pleasure to serve in this Committee with you in the Chair, Mr Davies. I am grateful to the Minister for those helpful explanatory remarks.

Of course, the Minister and I are here once again to discuss two of the many Treasury statutory instruments that make provision for the financial regulatory framework after Brexit in the event that we crash out without a deal. On each such occasion, my Front-Bench colleagues and I have spelled out our objections to the use of secondary legislation in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation that passes through delegated legislation Committees.

As I mentioned yesterday in relation to another statutory instrument, the Committee takes place in the context of a Government refusal to allow debate on the Floor of the House concerning the exceedingly complex MiFID transposition legislation, and just a couple of days following a Division on statutory instruments to implement a customs union with our Crown dependencies, with little to no indication of how that would interact with our future customs relationship with the EU27. The prospect of no deal looms large, given the Government’s refusal to rule it out, so we must recognise that, on 29 March, instruments considered by delegated legislation Committees such as this may well become what we rely on, especially given the very real risk that the Government are simply running down the clock. Such instruments could represent real and substantial change to the statute book; they need proper scrutiny and in-depth analysis.

[Paul Masterton (East Renfrewshire) (Con)]

I take the hon. Lady’s point, but is it not a bit rich to go on about the necessary scrutiny when half the people on her own side have not turned back up after the Division?

[Anneliese Dodds]

I do not know why other hon. Friends are not here. I am sure they will be coming back soon. It may be because they have been informed that another vote is just about to happen. I apologise if my remarks have to be cut in half as a result, as the Minister’s were.

Yesterday, in another Committee, I had a long discussion with the Minister about why an impact assessment had not been produced for the statutory instruments we were considering. I am grateful to him for the clarification he gave me earlier, but although we have an impact assessment for one of the instruments this Committee is considering—the credit rating agencies regulations—we do not have one for the market abuse directive and market abuse regulation transposition regulations. Yesterday, I and other hon. Members indicated our frustration at being required to be prepared to pass legislation without having been provided with an impact assessment, and that remains the case.

I note the comments by the right hon. Member for East Yorkshire about the details of the explanatory memorandum. In yesterday’s Committee, it was intimated in the explanatory memorandum that an impact assessment had been produced. The Minister generously said he had left that statement in the explanatory memorandum to draw the Committee’s attention to the fact that there was not an impact assessment. That was a valiant attempt to explain the situation, but it is my understanding that we have the same situation with the MAD-MAR regulations. I hope that is resolved as soon as possible. We need those impact assessments to be able to understand the potential impact of this significant legislation.

As the Minister explained, the two statutory instruments we are considering relate to important elements of the post-crisis financial architecture. With the Committee’s permission, I will discuss them in reverse order and begin with the credit rating agencies regulations. Regulations were introduced at EU level following credit rating agencies’ failure properly to assess the riskiness of complicated financial instruments—not least those structured finance products, such as collateralised debt obligations, that were backed up by sub-prime mortgages—in the run-up to the financial crisis. We all know the impact of what occurred then, when credit rating agencies were improperly regulated or, indeed, not regulated.

Arguably, credit rating agencies also facilitated the very sudden downgrade of the credit ratings of a number of countries, which obviously had a significant impact on their ability to borrow and on the cost of their doing so. If the Government continue on their current trajectory and we leave the EU without a deal, it will be essential that we do not dilute the regulatory framework for credit rating agencies in the UK, and that any ratings used for regulatory purposes, such as assessing capital adequacy, are robust.

With that in mind, I have a number of questions about the credit rating agencies regulations. First, I would like to push the Minister a bit more on the FCA’s capacity to deal with the new tasks and powers assigned to it by the draft regulations. I believe he said that the FCA now has 158 staff working on Brexit, but of course the draft regulations give it significant new powers with respect to criminal sanctions and investigations. Many of us may feel that such an extension of its role would have been better dealt with through primary legislation. I will come back to that, but there remains an issue with the FCA’s capacity to exercise those no-deal powers.

Yesterday, the Minister maintained that resourcing had not been raised with him at his last meeting with the head of the FCA. The Minister stated previously that the FCA would be able, in extremis, to garner additional resources by raising its levy on market participants. If there is a no-deal Brexit, markets may be operating in conditions of extreme uncertainty and considerable turbulence, so they may not greet an additional levy request from the FCA at that moment with unadulterated joy. I hope the Government are considering that point and what might happen if the FCA needs additional finance but its request is contested by market participants.

Secondly, under the draft regulations, the FCA will have the power to develop regulations relating to credit rating agencies. I am concerned about the scope of the draft regulations and whether they really fall within the powers provided by the withdrawal Act. In particular, regulation 3 states:

“The FCA may make such rules applying to credit rating agencies…(a) with respect to the carrying on of a credit rating activity, or (b) with respect to the carrying on of an activity which is not a credit rating activity, as appear to the FCA to be necessary or expedient for the purpose of advancing one or more of its operational objectives under Part 1A of the Act”—

the Financial Services and Markets Act 2000. That seems a very broad power: it appears to empower the FCA to add to the corpus of law developed by the EU in its regulations on credit rating agencies. It is unclear where the justification for such a power lies. Is it provided for by the withdrawal Act deficiency powers? If so, will the Minister indicate under exactly which circumstances he envisages the power being used? I think the Committee needs that information before it can approve the draft regulations.

I also have a question about co-operation. As the Minister outlined, the draft regulations will remove any obligation to co-operate in processes intended to ensure appropriate regulation of credit rating agencies. Again, that seems like a policy decision rather than a technical one. For example, although in theory it would be possible to participate in the European ratings platform from outside the EU, that appears not to have been envisaged— the draft regulations do not provide the mechanisms to allow even the possibility of it. It would be helpful to understand why not.

Lastly, I am a bit confused by the manner in which the draft regulations have been presented. For example, the background information in the explanatory memorandum focuses on the use of credit ratings for regulatory purposes, but of course the EU’s regulatory machinery for credit rating agencies also imposes a large number of requirements on the agencies themselves, including many requirements to prevent any kind of conflict of interest. They are not allowed to provide advisory services or rate financial instruments without sufficient high-quality information on which to base their ratings, and they have to disclose their models and methodologies and publish an annual transparency report.

There are also a number of requirements that relate to directors on boards. Those goals have not been referred to; I assume that that is because they were already dealt with in the 2009 credit agencies regulation, but I hope that the Minister can confirm that. On my reading, the purpose of the 2009 regulation was to set out the means of implementing those requirements, rather than to provide a level 1 justification, as it would be called in EU parlance.

I have a related concern that it could be difficult to perform functions that relate to the internal operations of CRAs outwith the regulatory colleges that operate at EU level. It would be helpful if the Minister indicated whether, in his view, those controls will be maintained adequately without such co-operation.

Let me move on to the 2018 draft regulations, which implement what is colloquially known as MAD-MAR. MAD-MAR II was implemented in 2014—

--- Later in debate ---

On resuming—

[Anneliese Dodds]

I had just begun to discuss the second SI, which implements what is colloquially known as MAD-MAR—the market abuse directive and the market abuse regulation. As I mentioned, MAD II was implemented in 2014 and contained provisions on insider dealing and the unlawful publication and communication of inside information and market manipulation. As well as empowering national regulatory authorities to investigate and deter those activities, MAR widened the scope of MAD, strengthening the regime for commodity and other derivative markets and banning the manipulation of benchmarks such as LIBOR and reinforcing regulators’ powers.

I have two questions about the instrument. As with the other, it “removes co-operation requirements”—to use the Minister’s terms—but it does not provide a clear legal basis for that co-operation to continue. I am rather concerned about that in the context of the many regulatory developments in that area, particularly where technology is radically changing the channels and methods of communication within financial institutions.

As I am sure the Minister and anybody else who has been covered by those regulations will be aware, a large number of records need to be held by any market participant who needs to disclose on potential insider information for five whole years under MAD-MAR. That includes a list of all people who might be receiving insider information, as well as a record of the conversation that might have relayed that information. If conversations are not recorded, minutes are required. Even the format of those minutes is stipulated in a template set out by ESMA, so the requirements are very detailed. There are various stipulations in the event that minutes are not agreed within five business days and so on and so forth.

An issue with that process is the emergence of modern, Snapchat-type applications, which maintain no record of any conversation. I know that the EU was grappling with that matter and that ESMA is aware and vigilant about it, but I am not aware of any legislative changes to deal with it. I hope that the Minister can assure us that he will work with the FCA to ensure that any undermining of the MAR provisions through the use of new technology would be dealt with firmly, and that he feels satisfied that the FCA would be sufficiently empowered to do so.

Finally, it would be helpful if the Committee had a bit more information about how the Government intend to operate the system of notification of issuers when the issuer is not registered in the UK. Under MAD-MAR, the issuer would need to notify the competent authority of their home member state if they are not from the jurisdiction in which they operate. How will we ensure that issuers, many of whom will be from the EU27, are doing so under this new approach?

Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, Etc., and Transitional Provision) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Tuesday 22nd January 2019 General Committees

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

It is a pleasure to serve on the Committee with you in the Chair, Sir David. It is a pleasure to once again sit across from the Minister. I am grateful to him for his opening comments.

We are yet again in Committee to discuss a Treasury statutory instrument that makes provision for the financial regulatory framework after Brexit in the event that we crash out of the EU without a deal. On each such occasion, I and my Labour Front-Bench colleagues spell out our objections to the use of secondary legislation in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation passing through Committee. The frustration that we must spend time and resources—£4.2 billion—creating a framework that might never be used has already been expressed in Committee. I am sure that hon. Members are aware that yesterday there a Committee divided because of ambiguities over customs arrangements for our Crown dependencies. Just before Christmas, we sought a debate on the Floor of the House concerning the transposition arrangements for MiFID, but were rebuffed by the Government. Today, we are yet again being asked to pass legislation without any impact assessment having been provided and with many aspects of the legislation going unexplained. That is just not good enough.

Because of the dangerous game being played by the Prime Minister and her party, instruments being passed through Committee may well not disappear into the ether on 29 March. They could represent real and substantive changes to the statute book, so they need proper and in-depth scrutiny. Equally, we must bear in mind the stress that financial markets would be under were the Government to allow the no-deal scenario to be realised. This instrument must be considered through that lens.

As the Minister explained, the main purpose of the instrument is to transfer responsibilities from EU institutions to the Bank, PRA and FCA and to establish a temporary intra-group exemption regime. That regime will initially last three years, to ensure that intra-group transactions can continue to be exempted from EMIR requirements. Colleagues will be aware that the EMIR system was created in the wake of the financial crisis to ensure that over the counter derivatives would be logged and cleared—conducted through central clearing counterparties in many cases, as the Minister explained—and, where necessary, that margin would be posted. That was required to provide more market transparency and to prevent the kinds of contagion that were in evidence during the financial crisis. EMIR has not been a completely uncontentious technical package of legislation—quite the opposite. There has been controversy about its scope. When I was a Member of the European Parliament, I was involved in discussions about its scope when applied to non-financial firms.

We must act to secure the future of UK derivatives clearing services. Those services play an important role in helping to increase the resilience of our financial system by decreasing the risk of trading. A no-deal Brexit could pose significant risks to access by European traders to services in the UK, as well as vice versa, so although many elements of these measures would be necessary in the event of no deal, we need to know that there would be reciprocation from the rest of the EU. That means working with our partners in the EU to guarantee that we will be granted equivalence rights for UK clearing services in the case of no deal if the Government insist on not ruling that out. I hope that the Minister will inform us of any assurances that he has received from ESMA and others on that point.

As was echoed in the Minister’s comments, the explanatory memorandum for this instrument states that it is aimed at making

“derivatives markets safer and more transparent”

in the event of no deal, but I have questions about the drafting that I hope the Minister can answer. The first and most significant point is that, yet again, we are in Committee without an impact assessment for the instrument. That contradicts the claim on the first page of the explanatory note for these measures, which states:

“An impact assessment of the effect that this instrument, and other instruments made by HM Treasury under the 2018 Act”—

the European Union (Withdrawal) Act—

“at or about the same time…is available from HM Treasury…and is published alongside this instrument at www.legislation.gov.uk.”

I wasted quite a bit of time looking for the impact assessment. Incidentally, I also looked for the instrument; it is not on that website, either, from what I can see. Later on in the text of the explanatory memorandum I understood why. Section 12.5 states:

“An Impact Assessment has been prepared and will be published alongside the Explanatory Memorandum on the legislation.gov.uk website, when an opinion from the Regulatory Policy Committee has been received.”

[Maria Eagle (Garston and Halewood) (Lab)]

Does my hon. Friend agree that such statements, whether they were drafted when the intention was to publish a proper impact assessment, as it states, are misleading to the Committee? I have every sympathy with staff rushing to prepare all kinds of statutory instruments, but the fact is that it completely undermines the capacity of the Committee properly to scrutinise this instrument.

[Anneliese Dodds]

I strongly agree. My hon. Friend is absolutely right that our civil servants are being placed under enormous pressure. None of us underestimates the enormous challenge they face, but equally, as Members of this House, we need to be able to scrutinise legislation properly. That requires knowing when we will have those kinds of documents available to us or otherwise.

I am aware that the Minister said to me at the last such Committee that I attended that the Regulatory Policy Committee was looking at a number of the no-deal related Brexit SIs in the round, in terms of impact assessment, but that its processes take some time to work through and we should receive the assessment soon. I understand the challenges facing the Regulatory Policy Committee—it is facing an almost impossible task—but we need those assessments. When does the Minister expect the Regulatory Policy Committee to be finished with its task? Was it the right decision for it to lump together a number of different SIs and conduct the impact assessment collectively? Is that approach being taken to other bodies of legislation? I know that financial services are particularly complex, but presumably we have similar complex constellations in other areas of no-deal planning. Committee members need to have some degree of certainty that more information will become available. Hon. Members are deeply concerned about that.

Secondly:

“Part 2 of this instrument also introduces a power for the FCA to suspend the reporting obligation for a period of up to one year and with the agreement of HM Treasury, in a scenario where there is no registered or recognised UK TR available.”

I was not able to find out before the sitting whether that provision exists within EMIR itself—that the reporting obligation would be suspended if there was no recognised or registered TR at EU level—but it would be helpful to hear from the Minister in what scenario the Government envisage that a UK trading repository would not be available. He said in his comments that this was unlikely, but if this has been identified as a potential issue and if gaps in provision are possible, we should be making provisions now for equivalence, so that there would not be any risk of detriment to UK market participants, but there does not seem to be anything in this SI, which aims towards that.

Five of the registered trading repositories seem to my eye—admittedly non-expert—to have at least some kind of a presence in London, whereas only two of them are based entirely outside the UK, in Poland and Sweden. Therefore, the converse question also applies. What will happen to the EU’s EMIR regime if UK-based trading repositories cannot provide a service to EU27-based traders? I ask specifically about this because it is surely essential that the reporting obligation is maintained so that transparency continues to be a feature of both UK and EU27 derivatives trading. This is a highly internationalised activity.

Thirdly, the statutory instrument states:

“Provisions relating to TR appeals, fines, supervisory fees, penalties and other supervisory requirements are being omitted and replaced with provisions that align with those already contained in the Financial Services and Markets Act 2000 (FSMA) concerning supervision and enforcement”.

However, no indication is provided here of whether these are more or less onerous. Can the Minister enlighten us on that score? Again, there is no clear indication here of the additional resourcing that might be required. That is something we talked about a lot in this Committee until now. This is occurring in a context where the FCA has never before had responsibility for dealing with the supervision of EMIR-related functions.

Finally, the draft regulations transfer powers from the European Commission to the Treasury and from ESMA to the FCA, as with MiFID no-deal transposition, which has already been passed. Most equivalence decisions will be made by the FCA, but as the Minister just confirmed again, those on central counterparty clearing houses will ultimately be made by the Bank of England, so this will not be occurring through the collegiate system that applies currently at the EU level. Will the Minister give us more background? Why is it happening? It sounds like a policy judgment, but we have not been provided with a rationale. As the Opposition have pointed out before in Committee, the Government are effectively trying to transpose the Lamfalussy process into the UK institutional context, but the Commission and ESMA do not interact in the same way as the Treasury interacts with the FCA. There is a different relationship. It is surely inappropriate to port the powers over without any change to supervision. I hope the Minister will give us some assurance on that point. Also, we really need clarity on when the impact assessment will be available if we are to be willing to allow this SI to pass.

--- Later in debate ---

[Anneliese Dodds]

The Minister is being generous with his time and none of us doubts his commitment to ensuring that the process works properly, but will he enlighten us as to the blockages that are preventing that? Is it a matter of resources or policy issues that have to be dealt with? It would be helpful for us to understand, because although it is wonderful to hear he is trying so hard to get it sorted out, the Committee needs more.

[John Glen]

I am happy to give clarification. Essentially the process of gaining approval for the impact assessment demands that we share certain information and provide it in an adequate form. Because of the unusual nature of the process and the volume of material, it is difficult to line up. As I said to the hon. Lady in the last Committee in which we served opposite each other, we submitted a group of SIs together, and are working as hard as we can to resolve that.

As Miles Celic, the chief executive of TheCityUK, said in a letter in November, these are exceptional circumstances, which require a unique response. We are doing everything to reach that, but I would not want the process to be truncated. We have not yet had an impact assessment that does not give us a green rating, and I want to make sure that that is how things will end up. However, I fully accept that the situation is not an optimal one. I take on board the observations of all three hon. Ladies, and all that I can say is that I am doing everything I can. I understand that that is inadequate in itself, and wish I could give a date, but it is not possible.

Draft Double Taxation Relief and International Tax Enforcement (Austria) Order 2018

Anneliese Dodds Excerpts

Monday 21st January 2019 General Committees

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

It is a pleasure to serve with you in the Chair, Mrs Main. As the Minister mentioned, the treaty is one of a number that we have discussed in Committee, and has been introduced following the UK’s ratification of the OECD’s multilateral instrument for double tax treaties.

My hon. Friend the Member for Huddersfield asked a pertinent question—why Austria? We have asked a number of times for an indication of the schedule that the Government are following, having passed the MLI, when negotiating such treaties. That indication would be helpful for us to understand which treaties are still to come before a Committee.

As I just mentioned, the treaty follows on from the ratification of the multilateral instrument. In fact, the explanatory memorandum to the order states that, by broadly adopting the MLI model, the Government have been able to

“encourage and maintain international consensus on the appropriate tax treatment of cross-border economic activity and thus promote international trade and investment.”

There are, however, a number of differences between the treaty and OECD model, and we have not been provided with an explanation of why that is the case. From my reading, it looks like there are about 16 differences between the treaty and what is set out in the MLI. I will not go through exactly which articles those differences crop up in.

Some of those deviations from the OECD model may well be valid, but if that is the case, the rationales are not explained in the notes supplied with the double tax order. I would surmise, for example, that the treaty contains no provisions on withholding taxes applied to interest, because the UK and Austria do not routinely impose such taxes on each other and there is therefore no locus for discussing that within the agreement.

Other alterations could be more problematic. A worrying difference between the double tax agreement and the OECD model is in article 22—the non-discrimination section. The provision in the OECD model relating to stateless persons is not included in the treaty. As with other double tax treaties that we have discussed in Committee, it is not clear whether that was at the request of the UK, because it has adopted a different approach to the OECD in that area, or whether, alternatively, it was at the request of Austria. It would be helpful to know that.

A large number of people now face statelessness, and that number is likely to increase because of violence and conflict in the world. As I am sure the Committee is aware, Austria has become home to quite a large number of people fleeing violence in other parts of the world, so it is quite important those people are not discriminated against in the tax system. The OECD’s model in the article on non-discrimination sets out that people who are stateless should not be subject to additional unfair taxes, but that provision is not in this double tax agreement. It would be helpful if we had an explanation of why that is the case.

Just to be completely clear: quite often when the word “stateless” is used in these discussions, it refers to stateless income. I am not talking about that but about stateless people. It may not be possible for the Minister to respond to that question in detail now, but I hope that, if not, he can do so by letter, please. It would be enormously useful when discussing these kinds of treaties if the Committee had an indication of why some provisions in the OECD model may have been adopted or otherwise, and why certain choices that are available in the OECD model may have been determined one way or the other.

Draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2018

Anneliese Dodds Excerpts

Monday 14th January 2019 General Committees

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

It is a pleasure to serve with you in the Chair, Mr Hosie. I am grateful to the Minister for that helpful explanation of the order. As he explained, it is relatively straightforward, changing the indexing formula for business rates from RPI to CPI, which was announced back in the autumn 2017 Budget.

Initially, that change was anticipated to come into effect in 2020, but as the Minister explained, in the light of the rise in inflation, the Treasury wanted to bring the change forward by two years. That was done for the last financial year—from April 2018—through the 2017 Local Government Finance Act 1988 order, and will occur this year through this order.

As the Minister mentioned, many groups lobbied for the change, which appears to be appropriate given that the retail price index was de-designated as a national statistic in March 2013—many reports and useful sets of evidence have indicated its deficiency. Indeed, the decision seems to be supported across the board, with the Treasury Committee also welcoming the switch, as well as many in the business community.

There are many problems with the Conservatives’ approach to business rates overall, not least the fact that the current system places bricks and mortar firms at a disadvantage compared with those that have an almost purely internet presence. Of course, there is still huge uncertainty on the future of local government funding, which is increasingly based purely on council tax and business rates. Those matters are not at issue here, however, with this relatively technical change. We therefore see no reason to oppose the order.

[The Chair]

Minister Stride?

Draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018 Draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 Draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Wednesday 9th January 2019 General Committees

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

It is a tremendous pleasure to be in the Committee with you in the chair, Mr Sharma. As always, it is a pleasure to sit across from the Minister, and I am sure we will have many more discussions on such SIs this year.

Once again, we are here to discuss Treasury-related statutory instruments that would make provision for the financial regulatory framework after Brexit, in the event that we crash out without a deal. On each previous occasion, my Labour Front-Bench colleagues and I have spelled out our objections to the use of secondary legislation in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation passing through the Committee. We have already pointed to the frustration at the fact that we must spend time and resources creating a framework that might never be used, as well as to the public money that has been spent on planning for what should not be viewed as a potential eventuality.

Anyway, because of the dangerous game currently being played in the Commons, the instruments passing through this Committee may well not disappear into the ether on 29 March, even despite yesterday’s welcome Government defeat. They could represent real and substantive changes to the statute book, and they therefore need proper and in-depth scrutiny. Equally, in the scenario that the Government allow a no-deal situation to materialise, we need to bear in mind the stress that financial markets would be under, so we must consider these three instruments through that lens.

As a general comment, I am sure it has not escaped the Committee’s attention that, yet again, the Government have failed to publish impact assessments for any of the three instruments before us. It is important for parliamentarians and the public to have access to those impact assessments, as the UK leaving the passporting system is likely to have significant consequences. As I mentioned on the last but one such Committee, we are now seeing a worrying trend in information not being produced in time for it to be taken into consideration before measures are passed.

Indeed, that arguably reached farcical proportions last night, when a new tax break was passed for corporations without any information about how corporation tax revenue would be reduced. We were told that that information would not be produced until after the measure was in place. We in the Opposition cannot fulfil our constitutional role as scrutineers of legislation when such information is not provided to us. Conservative Members also need that information if they are to adequately perform their roles as Ministers or Back Benchers. I hope this will be the last Committee where we are asked to pass new legislation without impact assessments having been produced beforehand.

The alternative investment sector is clearly highly significant for the UK as a whole. There is significant employment in the sector, which was estimated to have around 4,000 people in 2009, and I am sure there are many more now. In addition, the investments the sector permits are essential to the good functioning of our financial system—they have a strong impact on the real economy. On the other hand, of course, weak and in some cases non-existent regulation of this sector was what promoted regulators at EU level to seek to improve accountability and transparency in the wake of the financial crisis, through the regulations that—in theory—are onshored through this set of SIs.

It is therefore essential that we properly scrutinise these measures and, indeed, all the other SIs that have been coming forward in relation to financial and related professional services. I have to say that it was unfortunate that we did not have the chance to discuss the new markets in financial instruments directive arrangements, despite their significance for the UK’s financial market infrastructure, but that is a discussion for another day.

Let me turn now to the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018. Of course, as the Minister set out, this instrument attempts to provide regulatory equivalence between the UK and EU regimes for alternative investment fund managers, or AIFMs as I will call them from now on, by maintaining the level of regulation of AIFMs in the UK, while providing an additional temporary permissions regime that would ensure continuity for EEA AIFMs already operating in the UK.

As eligible AIFs will need to notify the FCA prior to exit day if they wish to join this temporary permissions regime, I hope the Minister can clarify what measures are being put in place at the FCA to deal with those requests. I would be grateful if he could also confirm whether his Department has estimated the cost of this process and whether any extra funds have been set aside for this purpose. Also, it would be useful to know what kind of communication strategy has been developed to inform AIFs about this process.

In addition, and perhaps most substantively, the explanatory memorandum for this instrument states that it forms part of the Treasury’s contingency planning in the event that the UK leaves the EU with no deal. This instrument achieves that in part by maintaining the same level of internal regulation in the UK. However, as the explanatory memorandum goes on to state, if the UK were to leave the EU without a deal, we would no longer be part of the passporting system, which would impact UK financial interests in the rest of the EEA. That is surely the elephant in the room in this discussion.

I hope the Minister can outline what further efforts the Government are making to mitigate the impacts of these changes and to create a deal that would minimise the impact of our exit on financial services. Personally, I find it extraordinary that we seem to have shifted over the last few months from a position whereby passporting was viewed as the default to a situation where that is now seen as an unreachable goal, despite the fact that financial and related professional services employ one in 10 members of the UK workforce and such services are an enormous contributor to tax revenues and so on. These services really need to be allotted importance within these negotiations.

More specifically, as the Minister will be aware, one of the conditions of the alternative investment fund managers directive is that the depositary and fund service provider to the AIF must be an EU-based institution. What provision has been made for AIFs with UK-based depositaries or fund service providers? Will they lose their AIF status? Will they be assessed on an equivalence basis? Who will regulate them? If they need to switch to an EU-based institution and have not done so already, then the timetable is very, very tight for them.

There is another issue related to that. When it comes to the treatment of EEA-based AIFs, I found the Minister’s comments a little confusing. When he first talked about this issue, he said that it was important that those AIFs were not then treated as UCITS, with all the additional requirements, but of course we passed the UCITS-related onshoring measures, as I understand it, on 17 December. So it was not really clear in his comments what the articulation would be between those two onshored regimes. Maybe he could write to me about that.

I find it peculiar that the Minister suggested that things could work the other way round, namely that foreign UCITS could potentially be treated as if they were AIFs, so it would be important to exempt them from regulation. However, they would surely need to be covered by some form of regulation, which, as I say, I thought had been put in place on 17 December. Maybe he can get back to me on that issue, if that is all right.

Similar problems infect the other two SIs we are considering. Of course, social entrepreneurship funds and venture capital funds are now regulated, in practical terms, using a very similar approach to that in the AIF regime. Again, we still have this problem that although these SIs deal with the issue of internal regulation within the UK, we do not have a consideration here of the treatment of UK-based funds within the EEA post exit, and that is surely very important for domestic jobs and financial interests.

--- Later in debate ---

[John Glen]

Let me just finish with the points made by the hon. Member for Oxford East and then I will come to my hon. Friend’s points.

On the point about regulations on UCITS, I think the hon. Member for Oxford East was asking whether removing the AIF-related reporting requirements for the EEA UCITS, despite their being defined as alternative investment funds, will reduce transparency, in essence. It will not. This instrument carves out reporting requirements on alternative investment funds for funds that obtain recognised status from the FCA, to be sold as UK retail investments. As a result of that recognition process, the FCA will already receive all the information necessary for the effective supervision of the funds.

I want to come to the points made by my hon. Friend the Member for Basildon and Billericay. He kindly offered me the device of writing to him by letter, but in essence he set out a series of concerns, which he raised previously in a similar Committee in October, about the distinctions between the investment trust and the unit trust, and the application of key information documents and how they can be misleading. He drew my attention again to the concerns of the different industry bodies. For the edification of the Committee, I wrote to him, as he pointed out on 26 October. In Q1 2019, the FCA will publish its feedback.

My hon. Friend’s point about the obligation of the Government versus the regulator is very fair. I will reflect on his comments and have a regular dialogue. I met the chairman of the FCA this week. I have regular conversations and meetings with the chief executive, and I will make those points to him. That has to be set within the context that I am not licensed by this process to innovate, although I recognise that we must also accept that over the last 10 years we have reached a level of authority and reputation, when it comes to regulatory breadth and depth of oversight, that is commonly welcomed.

My hon. Friend has quite reasonably drawn attention to the lack of familiarity in the EU framework with some of the instruments in some jurisdictions outside the UK, which means that the appropriateness of those conclusions has sometimes been contested. I very much understand the issue.

[Anneliese Dodds]

I am grateful to the Minister for giving way; he is being very generous overall. Might I gently suggest that, as a Committee, we surely need to know whether the Government raised these kinds of issues at any point in their capacity in the Council, in their relations with MEPs in the Parliament or in their relationship with the Commission?

Of course, as the Minister mentioned, this is a separate process that the Government are undertaking. The UK has frequently drawn attention to the specificities of the British financial sector during the creation of many of these regulations; I experienced that regularly as a Member of the European Parliament. I am not clear whether the British Government made any entreaties about how the KIDs were set up and whether they appropriately covered investment trusts, but surely that would have been the stage. If we start to say that they should be changed at this stage, without having made those entreaties, I think that would raise eyebrows—to put it mildly.

[John Glen]

I respect the deep—deeper than my own—personal experience of both hon. Members who have spoken about that matter. In terms of the previous engagement of the British Government through their representations as the documents were constructed, I cannot account for that now, but I am happy to write to the hon. Lady about it.

The point that my hon. Friend the Member for Basildon and Billericay is making is that, in the future, when we leave the EU, we will have to take account of the combination of responsibilities to broadly align with common expectations in like-minded investment communities and to attend to real challenges that lead to perverse investment decisions and outcomes for investors, which my hon. Friend is very familiar with.

I hope that has covered the points raised. If there are other points that I have not answered, I will be happy to write to hon. Members.

Finance (No. 3) Bill

Anneliese Dodds Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 8th January 2019 Commons Chamber

[Mr Speaker]

The hon. Gentleman arrogates to me almost superhuman powers if he thinks that I can advise the media upon the imperative of first checking facts before printing a story. I appreciate his confidence in me, but I fear that he has an assessment of my capabilities that is sadly unmatched by the reality. Nevertheless, he has put his point on the record, and doubtless he will circulate it more widely amongst the people of Nuneaton.

New Clause 2

Review of the effectiveness of entrepreneurs’ relief

“(1) Within twelve months of the passing of this Act, the Chancellor of the Exchequer must review the effectiveness of the changes made to entrepreneurs’ relief by Schedule 15, against the stated policy aims of that relief.

(2) A review under this section must consider—

(a) the overall number of entrepreneurs in the UK,

(b) the annual cost of entrepreneurs’ relief,

(c) the annual number of claimants per year,

(d) the average cost of relief paid per claim, and

(e) the impact on productivity in the UK economy.”—(Anneliese Dodds.)

This new clause would require the Chancellor of the Exchequer to review the effectiveness of the changes made to entrepreneurs’ relief by Schedule 15.

Brought up, and read the First time.

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

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to discuss the following:

New clause 9—Review of changes to entrepreneurs’ relief—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to entrepreneur’s relief by Schedule 15 to this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider—

(a) the effects of the provisions on business investment,

(b) the effects of the provisions on employment, and

(c) the effects of the provisions on productivity.

(3) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

“regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on investment of the changes made to entrepreneurs’ relief which extend the minimum qualifying period from 12 months to 2 years.

New clause 10—Review of geographical effects of provisions of section 9—

“The Chancellor of the Exchequer must review the differential geographical effects of the changes made by section 9 and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This new clause would require a geographical impact assessment of income tax exemptions relating to private use of an emergency vehicle.

New clause 16—Personal allowance—

“The Chancellor of the Exchequer must, no later than 5 April 2019, lay before the House of Commons an analysis of the distributional and other effects of a personal allowance in 2019-20 of £12,750.”

This new clause would require a distributional analysis of increasing the personal allowance to £12,750.

New clause 17—Review of changes to capital allowances—

“(1) The Chancellor of the Exchequer must review the effect of the changes to capital allowances in sections 29 to 34 and Schedule 12 in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment,

(b) employment, and

(c) productivity.

(3) The review must also estimate the effects on the changes if—

(a) the UK leaves the European Union without a negotiated withdrawal agreement

(b) the UK leaves the European Union following a negotiated withdrawal agreement, and remains in the single market and customs union, or

(c) the UK leaves the European Union following a negotiated withdrawal agreement, and does not remain in the single market and customs union.

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

“regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on investment, employment and productivity of the changes to capital allowance in the event of: Brexit with no deal; Brexit with single market and customs union membership; Brexit without single market and customs union membership.

New clause 24—Review of changes to capital allowances (No. 2)—

“(1) The Chancellor of the Exchequer must review the effects of the changes made by sections 29 and 30 of this Act within six months of the passing of this Act.

(2) A review under this section must include an assessment of—

(a) the cost to the Exchequer of these changes,

(b) changes to business behaviour that are likely to arise as result from these changes, including (but not limited to) levels of business investment in buildings, plant and machinery, and

(c) the impact of these changes on businesses in regions of England.

(3) A review under this section must compare these assessments, so far as practicable, with an assessment of the impact of replacing non-domestic rates in England with a tax on the value of commercial land.

(4) In this section, “regions of England” has the same meaning as that used by the Office of National Statistics.”

This new clause would require the Government to assess the effects on businesses and the public finances of new capital reliefs introduced by this Act and require the Government to compare these reliefs with replacing business rates with a tax on commercial land values.

Amendment 12, in clause 5, page 2, line 24, leave out subsection (4)

This amendment would delete provisions removing the legal link between the personal allowance and the national minimum wage.

Government amendment 2.

Amendment 34, in schedule 15, page 297, line 42, leave out “29 October 2018” and insert “6 April 2019”.

Amendment 34, along with Amendment 35, would remove the retrospective effect of the new qualifying conditions for entrepreneurs relief.

Government amendment 3.

Amendment 35, in schedule 15, page 298, line 10, at end insert—

“(6) In relation to disposals on or after 29 October 2018, the amendments made by this Schedule to the definition of “personal company” do not apply in relation to any day before 29 October 2018.”

See Amendment 34.

New clause 4—Review of late payment interest rates in respect of promoters of tax avoidance schemes—

“(1) The Chancellor of the Exchequer must review the viability of increasing any relevant interest rate charged by virtue of the specified provisions on the late payment of penalties for the promoters of tax avoidance schemes to 6.1% per annum and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) In this section, “the specified provisions” means—

(a) section 178 of FA 1989, and

(b) sections 101 to 103 of FA 2009.”

This new clause would require the Chancellor of the Exchequer to review the viability of increasing interest rates on the late payment of penalties for the promoters of tax avoidance schemes to 6.1%.

New clause 15—Report on consultation on certain provisions of this Act (No. 4)—

“(1) No later than two months after the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the consultation undertaken on the provisions in subsection (2).

(2) Those provisions are—

(a) section 15 and Schedule 3,

(b) section 16 and Schedule 4,

(c) sections 19 and 20,

(d) section 22 and Schedule 7,

(e) section 23 and Schedule 8,

(f) sections 46 and 47,

(g) section 83.

(3) A report under this section must specify in respect of each provision listed in subsection (2)—

(a) whether a version of the provision was published in draft,

(b) if so, whether changes were made as a result of consultation on the draft, (c) if not, the reasons why the provision was not published in draft and any consultation which took place on the proposed provision in the absence of such a draft.”

This new clause would require a report on the consultation undertaken on certain provisions of the Bill – alongside New Clause 11, New Clause 13 and New Clause 14.

Government new clause 6—Intangible fixed assets: restrictions on goodwill and certain other assets.

New clause 8—Review of changes to Oil activities and petroleum revenue tax—

“(1) The Chancellor of the Exchequer must review the effect of the changes to Oil activities and petroleum revenue tax in sections 36 and 37 and Schedule 14 in Scotland and the United Kingdom as a whole and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment,

(b) employment, and

(c) productivity.”

This new clause would require the Government to review and publish a report on the investment, employment and productivity impact of the Bill’s fiscal measures on the North Sea sector.

New clause 11—Report on consultation on certain provisions of this Act—

“(1) No later than two months after the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the consultation undertaken on the provisions in subsection (2).

(2) Those provisions are—

(a) section 5,

(b) section 6,

(c) section 8,

(d) section 9,

(e) section 10,

(f) Schedule 15,

(g) section 39,

(h) section 40,

(i) section 41, and

(j) section 42.

(3) A report under this section must specify in respect of each provision listed in subsection (2)—

(a) whether a version of the provision was published in draft,

(b) if so, whether changes were made as a result of consultation on the draft, and

(c) if not, the reasons why the provision was not published in draft and any consultation which took place on the proposed provision in the absence of such a draft.”

This new clause would require a report on the consultation undertaken on certain provisions of the Bill – alongside New Clause 13, New Clause 14 and New Clause 15.

New clause 14—Report on consultation on certain provisions of this Act (No. 3)—

“(1) No later than two months after the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the consultation undertaken on the provisions in subsection (2).

(2) Those provisions are—

(a) section 61, and

(b) Schedule 18.

(3) A report under this section must specify in respect of each provision listed in subsection (2)—

(a) whether a version of the provision was published in draft,

(b) if so, whether changes were made as a result of consultation on the draft,

(c) if not, the reasons why the provision was not published in draft and any consultation which took place on the proposed provision in the absence of such a draft.”

This new clause would require a report on the consultation undertaken on certain provisions of the Bill – alongside New Clause 11, New Clause 13 and New Clause 15.

New clause 23—Review of income tax revenue—

“(1) The Office for Budget Responsibility must review the revenue raised by income tax within six months of the passing of this Act.

(2) A review under this section must consider revenue raised by—

(a) the rates of income tax specified in sections 3 and 4, combined with

(b) the basic rate limit and personal allowance specified in section 5.

(3) A review under this section must also consider the effect on revenue of—

(a) raising each of the rates of income tax specified in sections 3 and 4 by one percentage point, and

(b) setting the basic rate limit for the tax years 2019-20 and 2020-21 at £33,850.

(4) A review under this section must also include a distributional analysis of the effect of introducing the policies specified in paragraphs (3)(a) and (3)(b).

(5) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”

This new clause would require the OBR to estimate how much money would be raised by increasing all rates of income tax by 1p and freezing the higher rate threshold.

New clause 26—Review of changes made by sections 79 and 80—

“(1) The Chancellor of the Exchequer must review the effects of the changes made by sections 79 and 80 to TMA 1970, and lay a report on that review before the House of Commons not later than 30 March 2019.

(2) The review under this section must include a comparison of the time limit on proceedings for the recovery of lost tax that involves an offshore matter with other time limits on proceedings for the recovery of lost tax, including, but not limited to, those provided for by Schedules 11 and 12 to the Finance (No. 2) Act 2017.

(3) The review under this section must also consider the extent to which provisions equivalent to section 36A(7)(b) of TMA 1970 (relating to reasonable expectations) apply to the application of other time limits.”

This new clause would require the Treasury to review the effect of the changes made by sections 79 and 80 and compare them with other legislation relating to the recovery of lost tax including specifically the loan charge provisions of Schedules 11 and 12 to the Finance (No. 2) Act 2017.

Government new schedule 1—Intangible fixed assets: restrictions on goodwill and certain other assets.

Government amendments 4 to 6.

Amendment 22, in clause 53, page 34, line 14, at end insert—

“(5) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of the revised rates on cider and wine on public health.

Amendment 23, in clause 60, page 44, line 17, at end insert—

“(3) The Chancellor of the Exchequer must review the effects of a reduction in air passenger duty rates from 1 April 2020 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(4) A review under subsection (3) must in consider the effects of a reduction on—

(a) airlines,

(b) airport operators,

(c) other businesses, and

(d) passengers.”

This amendment would require the Chancellor of the Exchequer to review the effects of a reduction in air passenger duty.

Amendment 36, in clause 79, page 52, line 24, leave out “12 years” and insert “8 years”.

Amendments 36 to 45 would reduce the time limits HMRC have to make an assessment of income tax or capital gains tax (Clause 79) and inheritance tax (Clause 80) to eight years, rather than 12 years, where there is non-deliberate offshore tax non-compliance.

Amendment 37, page 52, line 27, at end insert—

“(2A) Where the loss of tax is brought about carelessly by the taxpayer, an assessment may be made at any time not more than 12 years after the end of the year of assessment to which the lost tax relates. This is subject to section 36(1A) above and any other provision of the Taxes Acts allowing a longer period.”

See Amendment 36.

Amendment 38, page 53, line 22, after “(2)” insert “or (2A)”.

See Amendment 36.

Amendment 39, page 53, line 28, at end insert—

“(7A) An assessment may also not be made under subsection (2) or (2A) if—

(a) before the time limit that would otherwise apply for making the assessment, information is made available to HMRC by the taxpayer on the basis of which HMRC could reasonably have been expected to become aware of the lost tax, and

(b) it was reasonable to expect the assessment to be made before that time limit.”

See Amendment 36.

Amendment 40, page 53, line 34, at end insert—

“(8A) Subsection (7A) will not apply in cases where the taxpayer is subsequently found to have failed to provide all relevant information available to HMRC, or to have provided misleading information.

(8B) For the purposes of subsection (7A), whether information has been made available to HMRC is to be determined in line with section 29(6) above.”

See Amendment 36.

Amendment 41, page 53, line 35, after “(2)” insert “or (2A)”.

See Amendment 36.

Amendment 25, page 54, line 1, leave out “2013-14” and insert “2019-20”.

This amendment, alongside Amendment 26, would mean that new section 36A of the Taxes Management Act 1970 did not apply retrospectively.

Amendment 26, page 54, line 5, leave out “2015-16” and insert “2019-20”.

This amendment, alongside Amendment 25, would mean that new section 36A of the Taxes Management Act 1970 did not apply retrospectively.

Amendment 42, in clause 80, page 54, line 19, leave out “12 years” and insert “8 years”.

See Amendment 36.

Amendment 43, page 54, line 20, at end insert—

“(2A) Where the loss of tax is brought about carelessly by a person liable for the tax (or a person acting on behalf of such a person), proceedings for the recovery of the lost tax may be brought at any time not more than 12 years after the later of the dates in section 240(2)(a) and (b).”

See Amendment 36.

Amendment 44, page 55, line 2, at end insert—

“(7A) Proceedings may also not be brought under this section if—

(a) before the last date on which the proceedings could otherwise be brought, information is made available to HMRC by a person liable for the tax (or a person acting on behalf of such a person) on the basis of which HMRC could reasonably have been expected to become aware of the lost tax, and

(b) it was reasonable to expect the proceedings to be brought before that date.”

See Amendment 36.

Amendment 45, page 55, line 8, at end insert—

“(8A) Subsection (7A) will not apply in cases where a person liable for the tax (or a person acting on behalf of such a person) is subsequently found to have failed to provide all relevant information available to HMRC, or to have provided misleading information.

(8B) For the purposes of subsection (7A), whether information has been made available to HMRC is to be determined in line with section 29(6) TMA 1970.”

See Amendment 36.

Amendment 27, in clause 82, page 58, line 9, leave out from “section” to “may” in line 10.

This amendment would provide for all regulations under the new power (EU double taxation directive) to be subject to the affirmative procedure.

Amendment 28, page 58, leave out lines 13 to 17.

See Amendment 27.

Amendment 18, in schedule 1, page 148, line 34, at end insert—

“21A The Chancellor of the Exchequer must review the expected revenue effects of the changes made to TCGA 1992 in this Schedule, along with an estimate of the difference between the amount of tax required to be paid to the Commissioners under those provisions and the amount paid, and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 1.

Amendment 17, in schedule 2, page 177, line 21, at end insert—

“Part 1A

Review of effects on public finances

17A The Chancellor of the Exchequer must review the expected revenue effects of the changes made to capital gains tax returns and payments on account in this in this Schedule, along with an estimate of the difference between the amount of tax required to be paid to the Commissioners under those provisions and the amount paid, and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 2.

Amendment 29, page 177, line 42, at end insert

“unless the amendment relates to a disposal of an asset or assets resulting in a capital loss between the completion date of the disposal in respect of which the return is made and the end of the tax year in which the disposal is made.

(2A) In that case, an amendment may be made to take into account any capital losses which have arisen after the completion date and within the same tax year.”

This amendment would allow UK residents to submit an amended residential property return where a capital loss on non-residential assets is incurred after the completion of the residential disposal and within the same tax year.

Amendment 19, in schedule 5, page 211, line 45, at end insert—

“Part 2A

Review of effects on public finances

34A (1) The Chancellor of the Exchequer must review the revenue effects of this Schedule and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) The review under sub-paragraph (1) must consider—

(a) the expected change in corporation tax paid attributable to the provisions in this Schedule, and

(b) an estimate of any change, attributable to the provisions in this Schedule, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.”

This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Schedule 5.

Amendment 21, in schedule 6, page 221, line 26, at end insert—

“13 The Chancellor of the Exchequer must review the expected change to payments of Diverted Profits Tax and any associated changes to overall payments made to the Commissioners arising from the provisions of this Schedule, and lay a report of that review before the House of Commons within 6 months of the passing of this Act.’

This amendment would require the Chancellor of the Exchequer to review the effect on public finances of the diverted profits tax provisions in the Bill.

[Anneliese Dodds]

As my hon. Friends have set out a number of times already today, this is a Finance Bill that continues the Government’s previous programme of austerity for the many while the very best-off people are protected. This Conservative Government chose to tie the hands of this House with regard to amending the Bill, so there are very few means we can adopt to have an impact on any of these measures. None the less, new clauses 2 and 4 would require the Government to at least review their regressive policy approach. I realise that I need to compress my remarks, so I will speak briefly to each of those new clauses and then to new clause 26, which pushes in the same direction, and new schedule 1, which in many respects exemplifies this Government’s slipshod approach, particularly to tax policy making.

--- Later in debate ---

[Anna Turley (Redcar) (Lab/Co-op)]

Will my hon. Friend give way?

[Anneliese Dodds]

I do not believe I can, as I have been told that I have to proceed quickly.

For many years, the Government failed to take action, before clamping down purely on taxpayers and doing little to nothing to the enablers of this form of tax avoidance. I hope the Minister will be clear about this. He has talked about the promotion of defective schemes. When taxpayers are described as having done something illegal, which is what HMRC has said about the behaviour of those subject to the loan charge, why will the Government not say that those who promoted those schemes also promoted something illegal? They use this language about defective systems. I am sorry, but that is pusillanimous. Those who were unwittingly led into schemes that are now described as illegal must themselves be able to take action against those who wrongly advised them.

I hope that the Minister will look at that very carefully and accept the new clause. If he does not, I hope that he will accept my backstop, to coin a phrase, and have a meeting with me. I am glad he has intimated that he may be willing to do so to talk about how we can better help people who have ended up in a very difficult situation—some of them with their eyes wide open, but many of them not realising the impact of these schemes.

[Nicky Morgan]

I rise to speak briefly—I know time is short in this debate—about new clause 26. For the avoidance of doubt among those on the Treasury Bench, I will not be supporting the new clause, but, as Chair of the Treasury Committee, I want to put on the record some concerns about the loan charge on behalf of the many individuals who have contacted the Committee and of the Committee members who have expressed concerns about it. I hope that Ministers will listen and engage with MPs across the House on this issue.

The Committee has raised concerns about the loan charge in evidence sessions with my right hon. Friend the Chancellor, and with HMRC and the Chartered Institute of Taxation. As the hon. Member for Oxford East (Anneliese Dodds) said, it is right that people should pay their fair share of tax on their earnings, and we do not support anything that seeks to get around that. It is right that HMRC should act swiftly and firmly to close down such avoidance schemes.

However, tax law sets out time limits within which HMRC can open inquiries and make tax assessments. Normally, those time limits take account of whether a taxpayer has taken reasonable care to comply with their tax obligations, has been careless or has deliberately decided not to comply. They are seen as valuable taxpayer protections, giving a degree of certainty that takes appropriate account of taxpayer behaviour.

It is certainly concerning to me—I am not sure I can speak on behalf of the whole Committee, but I think it is fair to say that I speak on behalf of many of its members—that HMRC’s contractor loan settlement opportunity requires people who want to put their affairs straight to waive those protections, with the threat of the loan charge looming over them. It is not clear why it is necessary for that settlement opportunity to pressure people into paying tax for years that HMRC calls “not protected”—years where HMRC is out of time—even though it may have had the information it needed to open inquiries or raise assessments at the proper time.

--- Later in debate ---

[Anneliese Dodds]

This has been a Finance Bill of highs and lows. One high was the Government finally listening, albeit only when they were pushed to do so by the prospect of losing a vote, as we have just seen in relation to the loan charge. Another high was the fact that we saw the House seize the initiative to act to protect our country from the negative consequences of a no-deal Brexit for our economy and for our safety and resilience, as set out by the right hon. Member for West Dorset (Sir Oliver Letwin) in what I thought was an extraordinary speech.

I understand that the vote a couple of hours ago on the amendment tabled by my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) was the first time that a Government have been defeated at this late stage of a Finance Bill since the summer of 1978. At that stage I was only four months old, so I cannot exactly say that this is the only time I have seen a Government defeat on a Finance Bill in my lifetime, but I suspect it was the first time for many other Members. It was an appropriate defeat, because it shows that this House has adopted responsibility when our Government have sadly been unwilling to do so.

All this has happened in a context where Government have systematically attempted to reduce the opportunities for this House to influence the Finance Bill. Conservative Ministers’ decisions over recent years to prevent the House from substantively amending Finance Bills have been unprecedented. They have become a new norm and reflect the lack of confidence that this Government have in arguing their convictions. Surely that, above all, is the case with the Government’s approach in this Finance Bill, which preserves austerity for the many while the very best-off people and profitable corporations continue to benefit, our productivity gap yawns, regional inequalities widen and we see the creation of unprecedented phenomena in this country, such as the fact that getting into work is no longer the ticket out of poverty that it once was.

We have seen this Government’s unwillingness even to gather the figures and evidence about how their measures will affect child poverty or public health, in a context where life expectancy is for the first time going down in some of our communities. We have seen them bowing to lobbying pressure and introducing loopholes to protect many overseas investors from measures intended to level the playing field between them and domestic investors. Finally, we have seen the extraordinary contortion of a new schedule being inserted into the Bill just before Christmas to introduce a new tax relief for profitable corporations, not only very late in the day but without any information whatsoever about the cost that it will pose to the public purse. Indeed, we will not get that information before the measure is implemented.

The Government are spendthrift when it comes to profitable companies and the very best off, but miserly when it comes to the worst off. I see those on the Government Front Bench adopting a rather pantomime-style response to that. I am sorry to say that the overall package in this Finance Bill supports that contention, as do the figures, if only we could have them in front of us now.

Despite the considerable problems with this Bill, given the fact that it now contains provisions that militate against a no-deal scenario—surely the most significant risk currently to our economy and indeed to our security—we cannot and will not oppose it. I want to end by thanking all the civil servants and indeed staff of this House who have worked so hard on this Bill, and who have helped us in the Opposition—[Interruption.] I see that the Minister wants to thank them, too. I also want to thank all my hon. Friends who have contributed to our debates on this Bill.

Draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Tuesday 8th January 2019 General Committees

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

It is a pleasure to see you in the Chair, Ms McDonagh. May I wish everyone on the Committee a happy new year?

Once again, I must say that it feels a little like groundhog day: we are here again to discuss a Treasury statutory instrument that would make provisions for the financial regulatory framework after Brexit in the event that we crash out without a deal. On each such occasion, my Labour Front-Bench colleagues and I have spelled out our objections to secondary legislation being used in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation that passes through Delegated Legislation Committees. We have expressed many times our frustration about having to spend time and resources creating a framework that might never be used, and about the public money that has been spent on planning for what should not be viewed as a potential eventuality.

Because of the dangerous game now being played, statutory instruments considered by Committees such as this may not disappear into the ether on 29 March. They could represent real and substantive changes to the statute book, so they need proper and in-depth scrutiny. Equally, we must bear in mind the stress that financial markets would be under in the scenario that the Government allowed such a situation to materialise. Such instruments must be considered through that lens.

The draft regulations follow on from the Sanctions and Anti-Money Laundering Act 2018. I do not want to rerun the many issues of contention that were debated during the passage of that Act, but I think a few significant points that relate to the draft regulations bear further scrutiny, and I hope the Minister will respond to them.

First, it would be helpful to have further information about how the FCA will assess equivalence of third countries’ legislation, compared with that of EU countries, following the fourth money laundering directive. Will it use the Commission’s list initially and then expand or contract it in the future? If so, what methodology and resources will be used to undertake that? Such a process could obviously be very resource-intensive—a point that I shall come back to later.

Secondly, and relatedly, the existing legislation refers to the Commission’s high-risk third country list. The draft regulations would onshore the EU list as of exit day and then commit the UK to updating the list. I understand from debates in the other place that that would be undertaken via the affirmative procedure for reasons of speed.

Has the Government’s thinking developed on enabling parliamentary scrutiny of changes to that list? Clearly, there is a need for speed, but that surely has to be balanced with appropriate oversight. As with sanctions policy, it would surely make sense to co-ordinate this with the EU, even if it is not done formally, given the potential resource implications of having to research many different jurisdictions speedily. We do not have an indication in the accompanying notes of how that process would occur.

[Kirsty Blackman (Aberdeen North) (SNP)]

I was going to ask a question in a similar vein about the high-risk countries. I would have less concern if the same list as the EU was used on day one. However, looking for comfort in the future, if the list is going to be changed, and particularly if it will diverge from the EU’s list, parliamentary scrutiny should be brought to bear on that.

[Anneliese Dodds]

I absolutely agree with the hon. Lady. We have seen a lot of contention around the definition of which countries go on the list. There have been criticisms, even at EU level, of how transparent or otherwise that process has been for countries going on or coming off the list. It is therefore important that we get it right if we end up adopting this process in the UK. We need to make sure that it is fully transparent and accountable. It can have a significant impact on the jurisdictions that are affected, so I am grateful to the hon. Lady for raising that point.

Thirdly, I hope the Government will make clear what our co-operation with the EU on anti-money laundering efforts will look like in the future. Currently, we only seem to have the ubiquitous phrase that on this issue the Government are seeking a “deep and special” future relationship with the EU. The Minister provided us with a little more in his comments, saying that we would continue to engage with international processes—I am sorry I did not catch his exact wording.

We need more detail on this. That is important, given the current developments with the recast of the EU’s anti-money laundering machinery, including its decision to implement more transparency for trusts. The UK’s trust register, as I understand it, is not yet complete and it is not publicly available, even to the limited extent that is proposed in the reform of the anti-money laundering regime. That reform would cover business-like trusts and enable their beneficial owners—or the people who would benefit from their proceeds—to be viewable by those who could prove a legitimate interest in knowing about them, for example journalists as well as law enforcement agencies. That would go beyond the UK regime. It would be helpful to know how we, as a nation, envisage co-ordinating with that process.

We also need more information, given the continuing role of UK-based structures in facilitating hidden transactions. I was astonished to see, in response to a parliamentary question I tabled, that the Government’s loudly promoted crackdown on Scottish limited partnerships has been anything but. In October 2018, there were no less than 3,542 SLPs that said they could not reveal ownership information—which is, of course, now required by law—because of their own failure to obtain that information, and more than 600 that said they could not provide it because, despite knowing who their people of significant control were, they had not been able to collect the required particulars from them. Those figures had only reduced by almost a third and 12% respectively over the previous year, so there really has not been a crackdown in this area, despite what was promised. That is problematic, particularly when other countries are looking nervously at what is happening in relation to these shell companies in our jurisdiction, including EU countries.

Fourthly, I am unclear about one element of drafting. Regulation 8(b)(i) changes an emphatic “must” to a weak “may”, to coin a phrase—I am sorry, I could not help myself. Specifically, the amended regulations will state that the commissioners—HMRC—may, rather than must,

“make arrangements to ensure that the NCA are able to use information on the register to respond promptly to a request for information about the persons referred to in”

different regulations. It is not clear to me why that change has occurred. It seems to weaken the language and there is no explanation of it in the memorandum. Surely the parameters for such co-ordination are critical, especially in a context in which we lack any indication from the Government of when they will introduce their promised offence of failure to prevent economic crime, despite the consultation on the subject having ended many months ago.

Fifthly, and perhaps most substantially, there is—as with so many recent statutory instruments—a question about resourcing. Regulation 5(3)(b) grants the FCA the power to make further technical standards relating to the area. FCA funding has been increased by £5 million to cover withdrawal work, but as far as I can see, that is just to aid the transition; there does not seem to be any commitment to maintain increased funding to allow it to use the new powers that it has been given via such instruments. The FCA’s annual business plan includes the following statement about EU withdrawal:

“Although our Annual Funding Requirement has increased by £5m to cover EU Withdrawal work, we have still made difficult and challenging decisions about our priority activities across all business areas that are not related to work on EU Withdrawal, including limiting the number of new initiatives we’ve taken on. We recognise the particular significance of EU Withdrawal on wholesale financial markets, investment management and the general insurance sectors, and our decisions have been driven by our recognition of the capacity of industry to absorb change.”

Just yesterday, I discussed with the Thames Valley police and crime commissioner his concerns about resourcing for the FCA with respect to adequately identifying and prosecuting fraud—not an area that is covered by the EU withdrawal process, but one that needs to be provided for appropriately. There still seems to be a lack of recognition from the Government about the impact of this SI and others on the FCA’s existing work programme. The FCA’s activity was criticised in FATF’s assessment last month for having cited only eight firms and collected just £254 million in penalties for anti-money laundering violations over the past five years. The Minister mentioned OPBAS; I am sure that he will be aware that the supervision of professions, which was meant to be tightened up, streamlined and made more coherent through OPBAS, was another area criticised in FATF’s assessment.

Interestingly, the draft regulations make no mention of the National Crime Agency, despite concerns expressed in the FATF report about the lack of resources for the NCA, particularly its financial intelligence unit. The Committee may be aware that there has been considerable debate in the specialist press about whether the UK’s glowing assessment by FATF was warranted, particularly given the lack of action to better resource the NCA—an issue highlighted in FATF’s last evaluation in 2007, which stated that

“the UK financial intelligence unit needs a substantial increase in its resources and the suspicious activity reporting regime needs to be modernised and reformed.”

FATF also flagged continuing problems with the lack of verification of data on the Companies House register, a subject that I have repeatedly raised in the House. Because of the FIU’s lack of resources, FATF concluded that it

“misses the opportunity to search for criminal activity that might otherwise be missed by”

investigators who

“mine the SARs database for issues linked to their own geographical or operational remits.”

I understand that the UK assigns only nine employees to analyse hundreds of thousands of suspicious activity reports, or SARs, each year.

Back in 2007, the UK pledged that it would significantly increase the staffing level of the FIU to 200, but press reports from last October suggested that it has only 80 full-time employees and that the unit has actually lost one in five of its staff over the past 11 years. Apparently, the Government have committed to increasing staffing in this area, so it would be enormously helpful if the Minister provided some assurances on that score. It is not just the FCA that works on money-laundering issues, but the FIU in the NCA, so we need to know that it will be adequately resourced.

--- Later in debate ---

[John Glen]

It is a pleasure to respond to the hon. Members for Oxford East and for Aberdeen North, who raised a series of thoughtful questions. I have to say at the outset that the draft regulations are about creating the functioning regime that we will need in a no-deal situation. A whole range of points that were raised were discussed during the passage of the Sanctions and Anti-Money Laundering Act 2018, but I will seek to respond to them.

The hon. Member for Oxford East raised concerns about the EU’s high-risk third country list. I can confirm that we will use the Sanctions and Anti-Money Laundering Act to update the high-risk register. We will use the affirmative procedure, which will enable Parliament to vote on any changes. International standards will be considered as part of any updates.

The hon. Lady also raised the Financial Action Task Force and its recommendations, and I will come on to some of those around the resourcing of the FIU. However, it is important for the Committee to understand that the comprehensive review of the UK regime that took place last year, which is done on a 10-year basis, judged the UK to be in the best state of all 60 countries that have been evaluated. However, I acknowledge that there are pieces of work that need to be undertaken to improve it.

There has been an 80% reduction in Scottish limited partnerships.[Official Report, 17 January 2019; Vol. 652, c. 9MC.] The Department for Business, Energy and Industrial Strategy, which leads on this area, published a report in December that set out a series of elements, including tighter regulation, the need for a firmer connection to the UK, increased transparency of information and giving the registrar the power to strike off dormant partnerships. I accept that there is work to be done, but progress is being made.

The hon. Members for Oxford East and for Aberdeen North raised the issue of co-operation with the EU. Paragraph 84 of the political declaration explicitly sets out that the UK and the EU should co-operate on anti-money laundering. I am not able to give chapter and verse on specific mechanisms, but it is important to remind the Committee that the UK is known as a world leader in setting the agenda in this area and it is inconceivable that the Government would not wish to continue to take a lead in driving forward these standards.

Obviously in a no-deal scenario, work would have to take place to establish how the FCA’s relationship with the EU would work, in the context of a thorough and holistic piece of legislation on financial services. The Treasury, working across Government with the Home Office and the Ministry of Justice, takes its responsibilities in this area very seriously. I gave evidence to the Treasury Committee’s inquiry on economic crime and we look forward to its report, which will guide us and to which we will respond.

The Home Office leads on the resourcing of the FIU and the SARs reform work, so I am not able to give a detailed answer, but shall write to the hon. Member for Oxford East.

[Anneliese Dodds]

Would the Minister mind also writing to me to indicate when the Government will release their response to the consultation on creating an offence of failure to prevent economic crime?

[John Glen]

I would be happy to respond on that matter as well.

A point that often comes up in these discussions is the resourcing of the FCA. I acknowledge the great work that it has done over the last 18 months in helping the Government to prepare these SIs. It is funded by an industry levy and has set out in its business plan the resources involved in working towards exit. The Government are confident that the FCA has made adequate preparations ahead of leaving. If additional resources are needed in the event of no deal, it would be able to raise those funds very quickly, but we would all be in a situation where we would have to do things that we had not anticipated. This programme of SIs is about getting to the basic starting point that allows us to have confidence in the regulatory regime, but I do not deny that a considerable amount of work would need to take place.

On maintenance of standards and equivalence with the EU on anti-money laundering, the hon. Member for Oxford East discussed the use of the word “may” versus “must”. I want to clarify that what we have removed is the obligation to report in a specific way, as per the legislation. It is not our intention to remove ourselves from either the spirit or substance of that obligation; it is just that it would be inappropriate to leave a legal obligation to an entity when we are a third party. That is the only way that I can describe it.

To expand further on future co-operation, through the bilateral agreement with the EU, we expect to have an expansive relationship that would have a wide scope of cross-border activity. The changes in the SIs do not preclude deep co-operation between UK and EU regulators in the future. It is desirable to have that co-operation.

The hon. Member for Aberdeen North raised the burden on banks’ IT systems. When one makes a transfer between one bank and another, if it is in an unfamiliar, non-mainstream destination in Africa—I will not name an individual country for fear of getting a letter from its ambassador—some checks would be done, because the bank would then obviously receive those funds. A check would be done on that, but because that sort of transaction is inherently risky, the same degree of checking will need to take place—and does take place in practice in the banking industry—with countries in the EU that are more familiar to us. Broadly, there is harmony on that matter anyway.

I mentioned the SARs reform, which the Home Office leads on. We anticipate that new IT will provide a more user-friendly portal for reporters from all sectors and that improved data processing, storage, analytics and distribution will be required. Work is being done across the Treasury, the Home Office and the MOJ to look at how we can refine that.[Official Report, 17 January 2019; Vol. 652, c. 10MC.] At the moment, the basic problem is that there is a high volume of SARs and we could better interrogate that data pool.

The hon. Member for Oxford East mentioned the concerns raised by the Thames Valley police and crime commissioner. He has also raised them with me and I will get in touch with him about them. Obviously, we do not rest on our laurels with respect to the FATF evaluation. I have mentioned the concerns that the Government have acknowledged in terms of the FIU, and the improvements to SARs and to the Companies House register, on which we expect a Government report in Q1 or Q2 of this year.

The statutory instrument is needed to ensure that the UK’s anti-money laundering and counter-terrorism financing regime operates effectively and that the legislation functions appropriately if the UK leaves without a deal. I hope that I have adequately responded to the points raised.

Draft Payment Accounts (Amendment) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Wednesday 19th December 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Rosindell. I am grateful to the Minister for his helpful explanation.

Once again, we are in a Delegated Legislation Committee debating a Treasury-related statutory instrument that makes provision for the financial regulatory framework after Brexit in the event that we crash out without a deal. In each of those debates—there have already been many—I and my Labour Front-Bench colleagues have spelled out our objections to the use of secondary legislation in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation that is being passed. We have expressed frustration many times that we must spend time and resources creating a framework that might never be used. The fact that, as of last night, an additional £2 billion will be spent on no-deal planning, all for the sake of a dangerous game of brinkmanship, is not lost on those whose schools, hospitals and other public services are struggling.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

It is disappointing to hear the tone the hon. Lady is striking. Does she not see that this is sensible contingency planning, as the Minister set out? We need to be ready for all eventualities, and that is exactly what we are doing. I look forward to her constructive comments on this measure.

[Anneliese Dodds]

I have spoken in many of these Committees, and I will go on to speak constructively about the details of the measure. However, I reiterate that there is considerable concern in the nation about what is happening. To many of us, the prospect of no deal appears closer than it has in recent days, and that is enormously concerning. If we cannot reflect on that concern in this House, I do not know where we can. I believe we do a service to our constituents—businesses as well as individuals—by expressing their worries. [Interruption.] I beg your pardon? I think the hon. Gentleman wants to say something.

[Michael Tomlinson]

I said we just need to be ready for it.

[Anneliese Dodds]

I absolutely agree—of course we need to be ready for it. That is why the Opposition have spent so much time going through, to the extent of our abilities, every piece of delegated legislation that has been delivered to us. There will be up to 70 pieces of delegated legislation relating to financial services, so that has been a challenge. Much of that legislation has been delivered at the last minute, without the appropriate documents alongside it and so on, but we are doing our very best to make sure that we are as prepared as we can be in the event of no deal, given the considerable disruption it would create for us all.

Much of this particular piece of delegated legislation is straightforward and merely amends existing legislation to create regulatory equivalence. None the less, I have a number of questions for the Minister. The first issue is the gap in reporting between the potential no-deal date and 2022. I am unclear why regulation 13(b) will omit regulation 43(1)(b) of the Payment Accounts Regulations 2015, which commits the FCA to reporting back to the Treasury every two years on

“compliance by the Money Advice Service with the requirements of regulation 12”

of the 2015 regulations. Regulation 12 states:

“The Money Advice Service must provide consumers with access, free of charge, to a website comparing fees charged by payment service providers”.

There is no indication in the 2015 regulations, or in the draft regulations we are considering, why that is in any way necessary or in keeping with the rest of the measures. Perhaps the Minister will explain that.

I note that Baroness Drake raised the issue of the transparency of fees and charges in the other place, but the Minister there did not respond to her question, although he responded to other issues she raised. Will this Minister explain why an alteration is being made in that regard when, in theory, as he said in his introduction, this measure is meant to be a simple transposition of responsibility?

The second issue is that, at least as of this lunch time, the impact assessment has still not been published, despite the fact that this SI was debated by the Lords last week. Will the Minister explain why it has not been published and why we are being expected to pass a measure when we have not even seen an impact assessment? That approach is becoming common across Government, and it is a worrying development. Just last night, we saw that, in relation to the most fundamental power of a Government—the ability to deprive people of their liberty; in that case, people who are mentally incapacitated—an impact assessment was provided only the day before, and it was already out of date.

We have procedures in this House to prevent the passage of flawed legislation and ensure democratic scrutiny. The Opposition are well aware of the pressure that our civil servants are under. They are working in incredibly difficult circumstances, which the Government created. We cannot stand by and let our capacity to scrutinise measures be reduced by information not being made available to us. I hope the Minister will inform us when the impact assessment will be provided and explain why it was not available before the Committee sat or the Lords considered this measure.

Baroness Drake pushed the Minister in the other place on the impact this SI may have on UK citizens resident in other EU countries. We are all aware of the necessity of bank accounts for everyday activities. Even with the two months’ notice period that the Government have stressed applies to this measure, it is worrying that banks could close accounts in the event of no deal. The Minister in the other place seemed to suggest that would be a commercial decision, and this Minister suggested it would be at the discretion of banks—I think that was his terminology. Will he provide deeper assurances that the Government will consider the people who may be negatively affected? I appreciate that there have been conversations—to use his language—but we need something stronger.

In the other place, we were informed that only a very small number of people would be affected, but the impact could be very significant. As my counterpart in the other place, Lord Tunnicliffe, rightly stated,

“for the people it affects, it affects them 100%. If you cannot get a basic bank account, that is pretty close to catastrophic in the modern world”—[Official Report, House of Lords, 12 December 2018; Vol. 794, c. GC88.]

I am not sure about the situation in the UK, as I have not been in that situation myself, but in other countries it is difficult to conduct certain transactions without a domestic bank account. Paying Government bills or bills to public service providers can get very complicated without a domestic bank account. Even with the international bank account number system, it is still very difficult.

I can imagine a UK citizen resident in an EU27 country needing a UK bank account to pay for services or goods consumed by an elderly parent—almost like an emergency bank account. If that account were closed, the UK citizen would have the hassle of searching around to find another bank that was capable of providing an account to them. Presumably, they would have to do that on their own—they would need to shop around themselves, potentially at a time when they were nervous about their ability to use their existing account over the next two months and about needing to get a new one to pay for the items their parent required.

Will the Minister consider asking the FCA or another body, if such circumstances arise, to ensure that people who are affected by closure of their account can at least access information about which other providers may be willing to provide such an account to them as residents in the EU27? Will he look at ensuring that there is some continuing availability if all the banks decide that, commercially, it is not worth the candle and they do not want to provide an account? That may be the outcome.

The Minister in the other place stated that, although there had not been a formal consultation process about these measures with consumer associations beyond sending them the SI and accompanying information, he suspected that there might have been some contact from consumer organisations following the debate in the other place seven days ago. Will the Minister tell us whether there has been contact with consumer organisations? If so, what was their feedback? Are they happy with the change? We need that kind of information before we can be happy with this measure.

--- Later in debate ---

[Robert Jenrick]

Well, let me answer the questions asked by the hon. Member for Oxford East. She mentioned the gap in reporting between exit day and 2022. That is because the Money Advice Service reports to the Treasury, which then reports to the European Commission, and it is that provision that is deficient. I assure the hon. Lady that there are no changes to the requirement for the Money Advice Service to host a price comparison website—that has already been launched—so to answer the question that she perfectly understably asked, there should not be an issue.

There is no reduction in the requirement for transparency on fees. The only change is that the FCA is taking over responsibility for the regulation of the documents from the European Banking Authority. We have of course worked with the FCA, so I can say in answer to the hon. Member for Glasgow Central that it is willing and ready to take on those responsibilities.

On the wider question about UK citizens living in the EU27, we expect the number of individuals affected by the measure to be very small. We have had conversations with banks on the arrangements that we will put in place; the hon. Member for Oxford East mentioned the subject. It is worth remembering, as I said in my opening remarks, that any individual legally resident in an EU27 country will have the right, under EU law, to access a basic bank account in that country. If they had been using their basic bank account from the United Kingdom solely, and then no longer had access to that—an unlikely scenario, and one that would affect a very small number of individuals—they could, as of right, open a basic bank account in the country in which they are legally resident. We see no reason why they would not be able to do that.

[Anneliese Dodds]

I am grateful to the Minister for that explanation, but surely the question is not whether certain people would become completely unbanked as a result of the changes, but whether they could still carry out the kind of transactions that are very difficult to do, in whatever country, unless one has a domestic bank account. If one does not, it can be very difficult to pay certain kinds of bills and make certain kinds of transactions and so on—and there are normally additional charges involved.

[Robert Jenrick]

Those people would be able to open a bank account in the UK at the commercial discretion of a UK bank. We do not think there will be many, if any, examples of individuals having their bank account withdrawn, but of course it is technically possible that a bank might choose to do that. We think it is unlikely that these individuals would continue to use their UK-based bank account as their sole current account. If, say, a Spanish student came to study in the United Kingdom, opened a UK basic bank account and then returned to Spain, it would be a costly bank account for them to continue to use as their current account, because they would have to pay currency charges whenever they transferred money. The situation that the hon. Lady alludes to would apply only in a limited number of circumstances. I take her point that there could be such circumstances, but we do not think there will be a substantial number.

It is worth remembering that our duty in this instance—I am sure the hon. Lady would support this—is to maintain equivalence, not make policy changes. We are ensuring that any individual resident in the UK will have access to a basic bank account, but we are not making a change to ensure that UK citizens resident in third countries can have access to a UK basic bank account; that would be a policy change, because it would of course be applicable beyond the EU27 to any country in the world in which a UK citizen might choose to reside. I hope that she is reassured that our intention is to act within the confines of the law—not to go beyond it and take action that might apply to a British citizen resident in, for example, Canada or the United States who wished to maintain or open a UK basic bank account.

The hon. Lady also asked a question about consumer organisations and industry consultation. In drafting the statutory instrument, the Treasury engaged confidentially with industry representatives to make them aware of these changes, and to allow them the opportunity to comment on any of them. We have not received any queries or comments on the proposed changes from those groups, or from any consumer groups, since publication, so we can only assume that they are content, but of course we will continue to work, and to be open to comments, should any come forward in the weeks and months ahead.

I think that I have answered most of the questions posed by the—

[Anneliese Dodds]

The Minister is being very generous with his time. I believe that I asked when the impact assessment would be forthcoming.

[Robert Jenrick]

The hon. Lady is absolutely right, and I will come on to that as my final comment. First, I will answer what I think was the final comment from the hon. Member for Glasgow Central, in respect of potential discrimination against EU nationals resident in the UK. What she suggests is not the case under this statutory instrument. Any resident of the United Kingdom who is legally resident in the United Kingdom will have access to a basic bank account, just as they would if they were living elsewhere in the EU.