Access to Banking: Devon
Bim Afolami Excerpts(4 days, 6 hours ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
It is an absolute pleasure to respond to this debate, and I thank my hon. Friend the Member for East Devon (Simon Jupp) for securing it.
We know that our colleagues in this place all work hard for their constituents, but some go the extra mile. I would say that on this subject, like so many others, my hon. Friend is an exemplar of what can be seen in British politics and in this Parliament. His work on securing access to banking services in his constituency is second to none. I appreciate the strength of feeling across the Chamber on this topic. I share the concerns of many Members in light of the more than 600 closure announcements we have seen in the past year. Banks and building societies are essential in people being able to manage their money on a day-to-day basis, and they hold a privileged and important place in our society. As such, firms must ensure that all customers, wherever they live, have appropriate access to banking and cash services.
We need to be grown up about this issue. We all recognise, as my hon. Friend made clear in his remarks, that the world of banking has changed greatly in recent years. Reflecting that shift, customers have increasingly moved towards online and mobile access. That shift is apparent across many areas of the economy and society, not just in banking. Recent Financial Conduct Authority data shows that only 21% of British adults still regularly use a bank branch. In contrast, almost nine in 10 adults banked online or used a mobile app.
It is right that firms continue to innovate in response to changing customer habits and ensure that customers across the UK benefit from the latest developments in technology, but those changes in technology—this is a fundamental point, and I believe my hon. Friend will share my view—do not mean that access to in-person banking and cash services are no longer required. They remain vitally important to many people up and down the country in our constituencies. In times of need, or when more personalised support and services are required, such as in the examples that my hon. Friend mentioned, speaking to a real person face to face can be essential. More broadly, the wider societal benefits to our constituencies, our high streets and our market towns of bank branches are critically important.
In the light of those things, the Government have taken decisive action over recent years to ensure that access to cash is protected through the Financial Services and Markets Act 2023. It places a responsibility on the FCA to seek to ensure reasonable provision of cash withdrawal and deposit facilities, including free services for personal current accounts. Following the passage of that Act, the Government published a policy statement setting out our policies on access to cash. The FCA must have regard to that policy statement as part of its regulatory approach. The statement set out that people and businesses should be no further than 3 miles from a free cash access point.
As my hon. Friend mentioned, the FCA has recently held a consultation on its proposed regulatory regime in this area. Under the proposals, banks and building societies that are designated by the Government will be required to assess and fill gaps or potential gaps in cash access provision that significantly impact consumers and businesses.
As well as access to cash, the FCA has guidance on bank branch closures. While decisions on individual closures are rightly a commercial issue for firms—we do not want Government Ministers deciding where bank branches go, tempted and fascinated as I would be by that process—we expect firms to adhere to the FCA guidance. That guidance is clear that banks and building societies must ensure that they carefully consider the impact of planned closures on their customers.
Where firms fall short of those expectations, the FCA has the power to ask for closures to be paused or for other options to be put in place, and it will do so. It is important to make the point that the industry has made great strides to provide a range of initiatives through alternatives such as agreements with the post office or community outreach programmes in locations such as community centres, libraries and village halls. Shared banking hubs are, as we have heard, another exciting and popular innovation. Banking hubs are a clear example of pioneering, industry-led innovation to protect access in a changing landscape.
As my hon. Friend the Member for Mid Derbyshire (Mrs Latham) made clear, banking hubs can be a lifeline to communities. I am pleased that the Sidmouth hub has been opened, where my hon. Friend the Member for East Devon had the privilege of cutting the ribbon—or whatever they had him cut—but it is important that the House, and indeed everybody, knows that banking hubs can be a modern 21st century way to ensure access to cash and banking services. The Government strongly support this innovation.
These hubs help people and businesses withdraw and deposit cash, pay in cheques, and check their balance over the post office counter, and also provide a community banker who can help people with wider banking services, from making a transfer to providing support for fraud and scam victims. My hon. Friend mentioned victims in his constituency who he has been working with.
Hubs are deployed by Cash Access UK in response to a Link assessment of the community’s cash needs. To ensure there is no gap in the provision of services, the industry has committed that if a hub is recommended, the branch it replaces will not be closed for up to 12 months until that hub is open, and if there is a delay beyond that, a temporary hub will be put in place. To date, over 120 hubs have been announced across the country and 47 are open. This is a welcome programme, and it is a priority to me that the industry continues to deliver on this but speeds it up.
UK Finance, the trade body representing the industry, has recently committed to a total of 225 hubs to be opened in the next 18 months. Like my hon. Friend and many in the House, I will be watching and holding it to account, and making sure that those hubs open as quickly as possible.
Miss Sarah Dines (Derbyshire Dales) (Con)
As the Minister knows, I represent Derbyshire Dales, where we recently had the closure of the last bank, the National Westminster bank, in Bakewell. That was the last bank in the Peak district. My concern is that the criteria for hubs exclude us, because Bakewell is too small: it has only 3,000 to 4,000 people and under the present criteria there have to be 7,000. What might work in Belper or another part of a district or county like Derbyshire, or indeed Devon, might not work elsewhere, meaning that people will be left behind. Will the Government look with the FCA at whether the criteria should be changed to take into account areas that surround a smaller town, where that smaller town might still be vibrant but not big enough on its own to qualify for a hub? What is the future in this area?
Bim Afolami
I thank my hon. Friend for her point and I should not have left her out when talking about the committed Members of Parliament who work on this area. I pay tribute to her for the number of times she has questioned me, badgered me and advocated for her community and constituents on this subject, and today is another good example. If she waits a few minutes, I will address her specific points directly.
It is important that hubs provide a good service to customers and the industry evolves its offer as it learns from the roll-out of the 47 hubs that are already open. Following recent discussions I have held with the UK high street banks and my roundtable with industry representatives and MPs last month, I am pleased that the industry has agreed to improve the services in hubs to ensure they are a genuine alternative to bank branches. My hon. Friend the Member for East Devon referred to some improvements he would like to see in his constituency.
Participating high street banks have committed to a range of improvements to the banking services provided in hubs, such as: first, having an agreed consistent and improved level of service provided by all firms; secondly, ensuring that personal customers do not need to bring their own devices to access services; and, thirdly, trialling various new services such as a customer liaison service and Saturday openings. Those improvements will make a big difference to participation and, indeed, to how welcome banking hubs are. I am grateful for the constructive and positive approach that I have seen from industry in its engagement with His Majesty’s Treasury, recognising the needs of its customers. I have written to all MPs and to the Chair of the Treasury Committee on the package.
I turn to the point made by my hon. Friend the Member for Derbyshire Dales (Miss Dines). Firms have provided me with reassurance that they will continue to revisit the criteria for locations to be eligible for a hub to ensure that they reflect customer needs, and that they will do so in particular following the publication of the FCA’s response to its recent access to cash consultation. That is important, because rural areas and smaller places such as Bakewell sometimes lose out.
I know that the industry will be watching the debate and will take what I am saying seriously. Let us revisit the criteria in a sensible way to ensure that they take account of areas that need banking hub services but are not currently accommodated. That is very important, and I will work with the industry to see what it can do to deliver on what I have just said from the Dispatch Box. I believe that the measures set out in the package mark a significant step forward from industry in ensuring that customer needs are being met, but I reassure the House that I will continue to monitor the roll-out of banking hubs closely.
I am grateful that we have had another chance to discuss this important topic. While branch closures are a commercial decision—and it is right that they are—I strongly believe that all customers, wherever they live and whatever their age, should have access that is appropriate for them to banking and cash services. I am grateful for the engagement I have had from the sector and the FCA on this important issue. I thank again my hon. Friend the Member for East Devon for bringing the debate to the Chamber, and I thank my hon. Friends the Members for Mid Derbyshire and for Derbyshire Dales—Derbyshire is the theme there—for their contributions.
Question put and agreed to.
Draft Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024
Bim Afolami Excerpts(1 week, 6 days ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.
The regulations form part of the Government’s programme to deliver a smarter regulatory framework for financial services, using an approach to regulation that is tailored to the needs of the United Kingdom. Under this programme, the Government are delivering a regulatory framework that is logical, consistent and conducive to economic growth—rather like the Government as a whole—while preserving the robust regulatory standards that are the cornerstone of the attractiveness of UK markets.
The ability of a regulator to flex the application of its rules for individual firms is a useful regulatory tool that can enable a regulator to take into account a firm’s specific circumstances to ensure that rules are applied in ways that achieve the best regulatory outcome. That flexibility is not new; it has long been a feature of the UK’s regulatory regime and is supported by our regulators and the financial services industry as a whole.
Since it was introduced over 20 years ago, the Financial Services and Markets Act 2000, known as FSMA, has included such a tool. However, as part of our work to adapt our regulatory regime for the UK’s new position outside the European Union, the existing tool for flexing the application of rules was reviewed, and it was concluded that, while useful, it was not as effective as it could be.
The existing tool is provided by section 138A of FSMA, which provides that the Prudential Regulation Authority and the Financial Conduct Authority can disapply or modify a rule made under FSMA if a firm has requested it or if the regulator has the consent of the firm. However, section 138A contains a test that must be met before a regulator can do that. The regulator must be satisfied that the rules in question
“would be unduly burdensome or would not achieve the purpose for which the rules were made”.
That requirement in section 138A does not always allow for rules to be flexed, even where appropriate disapplication or modification of such rules would provide a better regulatory outcome.
The Government addressed that issue by introducing a new tool for regulators to flex their rules in a wider range of circumstances, which was legislated for through the Financial Services and Markets Act 2023 and is now set out in section 138BA of FSMA. Under section 138BA, the Treasury may specify regulatory rules that the relevant regulator can then permit a firm to disapply or indeed modify in some way. Section 138BA retains the approach by which a regulator can permit a firm to disapply or modify rules only if the firm requests it or the firm consents.
Adam Afriyie (Windsor) (Con)
On a point of clarity, I chair the all-party parliamentary group on financial technology, and I am conscious that many firms have been very firmly nudged to request the removal of licences, particularly around payments and onboarding of new customers. Just to be clear, are these regulations needed retrospectively to cover a lot of those voluntary submissions of licences, or is this purely a tidying-up exercise for the future?
Bim Afolami
I thank my hon. Friend for that point, and I will respond to him in two ways. First, this is typically about looking prospectively forward, so it is not envisaged that this power will be used retrospectively. However, I will write to him if the position is in any way more nuanced than I have just described. Secondly—I was going to come to this point later in my speech, but I may as well answer it now—it is very important that firms have appropriate dispute resolution mechanisms. Those are set out to make sure that no firm, under any circumstances, will be forced—or nudged—to do anything that it does not think is in its interest.
The regulations do two key things. First, they enable the PRA to permit a firm to disapply or modify any PRA rule. After careful consideration, the Government have concluded that the PRA should have the ability to permit a firm to disapply or modify any rule under section 138BA. That is because flexibility in the application of these rules is particularly important for banks, large investment firms and insurers that are regulated by the PRA. These complex institutions, with highly specialised business models, often require a highly tailored approach to ensure that they are appropriately regulated.
Secondly, the regulations apply certain procedural safeguards to PRA decisions under section 138BA, and this may address my hon. Friend’s point to some extent. When the PRA refuses a firm’s application or imposes conditions on a firm’s permission to disapply or modify rules, the PRA must issue a notice explaining its decision. When a permission to disapply or modify rules is given, the decision notice that the PRA publishes must be clear so that it is public knowledge that a particular firm is subject to tailored regulatory requirements. If an affected firm is aggrieved or somehow disagrees with a PRA decision, the firm may appeal by referring the decision to the upper tribunal, which is part of His Majesty’s Courts and Tribunals Service responsible for hearing appeals against decisions made by various public sector bodies, including the PRA.
In closing, these regulations make use of an important regulatory tool approved by Parliament in FSMA 2023. They provide the PRA with the flexibility needed to ensure that the application of prudential rules to banks, investment firms and insurers can be flexed only where appropriate to ensure that regulation of these large and complex firms is effective. They also ensure that the PRA is appropriately accountable and transparent. I hope the Committee will join me in supporting the regulations, and I commend them to the House.
Bim Afolami
I thank the hon. Lady for her points. In essence, the regulations give the PRA much more flexibility around the entire rulebook to apply to any specific firm. If the question is whether they will give the PRA the ability to change rules in relation to a particular subset of firms, the answer, of course, is yes. However, if the question—she also mentioned this in her remarks—is whether they will somehow speed up or change the pace at which the rules will be made or applied, that is not what they are meant for. So, yes, the regulations will give much more flexibility—and it is a policy question as to whether that is desirable in any particular circumstance—but they do not necessarily increase or decrease the speed at which such rules change.
Tulip Siddiq
I thank the Minister for that answer, and I understand what he is trying to say, but I would like to push this point. If we could speed up the IRB model approvals process for mid-tier banks currently on the standardised approach, that would help our country and the banking market generally, and both sides of the House obviously want to boost competition. I understand that that is not what this particular legislation will do, but have the Minister or the Treasury given any thought to the issue? In the long run, such a change would benefit the financial services sector.
Bim Afolami
In terms of where I agree with the hon. Lady, I did not just read about this in the Financial Times last year; I have met mid-tier banks, and I understand their challenges. Their concerns are valid, and we need to do everything we can to support that part of the sector. The regulations allow the banks to apply to the FCA in the way that the hon. Lady outlines. That is something that, if appropriate, I would be very happy to support. Yes, it is important that we have competition, but it is also important that we enable every type of business and every type of individual to be appropriately served by our financial services industry, and more firms offering more services in a way that is prudentially safe is positive to that.
Question put and agreed to.
Oral Answers to Questions
Bim Afolami Excerpts(1 month, 1 week ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Nick Smith (Blaenau Gwent) (Lab)
The Economic Secretary to the Treasury (Bim Afolami)
I recognise that this has been a very challenging time for Safe Hands customers. The hon. Member will be aware that the FCA, as the independent regulator of the funeral plan sector, is responsible for dealing with specific cases. However, the Treasury and the FCA have worked closely throughout the process of bringing the sector into regulation, as well as during the implementation of the new regulatory framework.
Nick Smith
My experience of the FCA and the Safe Hands funeral plan fiasco is that it took six months to reply to my freedom of information request and pleaded commercial confidentiality to key questions, and that, despite being warned, the Treasury failed to support consumers moving from an unregulated sector into regulation. It appears to me that the Treasury missed opportunities to support consumers and is still shuffling its feet. At least 47,000 people are out of pocket to the tune of £60 million. They were trying to protect their loved ones from expensive funerals at the worst of times. Will the Minister consider an independent review of this matter? A constructive response is needed to ensure that Safe Hands victims can have confidence in a system that for too long has let them down.
Bim Afolami
I share the hon. Member’s anger at how Safe Hands customers have been treated. The business is under criminal investigation by the Serious Fraud Office and its administrators are bringing legal action against the former owner of the Safe Hands business. In the Treasury, we do not believe it is right to use taxpayer money to compensate consumers who lose out due to the conduct of unregulated firms; Safe Hands was not within the regulatory perimeter at that time. However, we have worked with the sector so that the two largest providers of funeral plans have agreed to provide significantly discounted replacement plans for the customers who have found themselves so badly treated.
Chris Stephens (Glasgow South West) (SNP)
Anna Firth (Southend West) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
I thank my hon. Friend for her question. First, it is important to note her consistent championing of this issue for her constituents, for which she deserves huge commendation. To her precise question, it is important that industry, not the Government, makes decisions about bank branches or banking hubs, but she has made her case very ably. I urge her to work with Cash Access UK and LINK to ensure that she has the best chance of securing one of those new 225 banking hubs, as outlined by the industry, in her constituency.
Paul Blomfield (Sheffield Central) (Lab)
Bim Afolami
I am happy to meet the hon. Member to discuss the precise circumstances of his constituent’s case. In general terms, it is a priority for us to ensure that people get access to that money if it is due to them.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I would like to join the Economic Secretary to the Treasury and my hon. Friend the Member for Southend West (Anna Firth) in discussing the closure of banks. Barclays bank, in particular, is both shameful and shameless in this regard. Does my hon. Friend agree that we need full transparency on the decisions made by Link and the Financial Conduct Authority? Something we learned yesterday that may be of interest to those in Chorley, Mr Speaker, is that the criteria take into consideration only the town plus areas within a 1 km circumference. That is not how the rural economy works. Will the Economic Secretary work with me to ensure that the criteria take into account the wider economy?
Bim Afolami
My right hon. Friend is another good example of a Member who is an excellent champion for her constituents, on this issue and so many others. As for her specific point, it is right for the industry to work out how it will increase provision and adapt the criteria for rural areas, but I will work with her to ensure that the banking hubs are rolled out in an equitable way, to rural as well as more urban areas.
Budget Resolutions
Bim Afolami Excerpts(1 month, 2 weeks ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to close these three days of debate on the Government’s spring Budget. Before I get on to more contentious points, I will start on some common ground.
We all know that the last few years have been tough for our country. We all know that this Government have spent more than £400 billion on protecting lives and livelihoods after covid. We all know that Putin’s war in Ukraine sent energy prices to unprecedented highs, and that this has had a huge impact on our economy.
Since 2023 this Government have principally worked to three economic priorities: halving inflation, growing the economy and reducing the national debt. We have made good progress on each of those priorities. [Interruption.] Opposition Members should wait for it. Inflation has more than halved, going from 11% to 4%. Our economy is expected to grow faster than many of our major European neighbours and partners over the medium term. The IMF predicts that over the coming four years we will be the third quickest growing economy in the G7. The OBR has confirmed that national debt is on track to fall in line with our fiscal rules.
Members across the House may say, “A lot done; a lot more to do”, but this prudent and responsible Budget takes us one step closer to tackling the inflation that has harmed the economy, to dealing with the low growth and poor productivity that has hampered us, and towards a brighter future. We have already had much success. That is why we are able to afford to cut national insurance for 29 million people. We will responsibly go further than that, as long as the country can afford it.
Peter Dowd (Bootle) (Lab)
Asked last week about the Government’s commitment to abolish national insurance contributions, the Minister said
“we’d like to continue along that track”—
more of a cul-de-sac, in my humble opinion—but today the Minister has been silent on that plan for a huge £46 billion unfunded tax commitment. Will the Minister tell us if it is still the Prime Minister’s plan to resurrect the Trussonomics mini-Budget package of last year?
Bim Afolami
It is not our plan to resurrect anything from the mini-Budget. We have our plan and we set it out in our Budget.
As the son of a doctor and a pharmacist, as many of us are on the Government Benches, I am mindful that any good doctor will say that in order for the medicine to work, one has to complete the course and stick to the plan. This Budget sticks to the plan we set out in 2023 and has three key objectives: to reward work, to grow the economy and to improve productivity. Before I get on to those points, I will address some of the remarks made by hon. Members during the debate.
The hon. Member for Makerfield (Yvonne Fovargue) made a point about some of the most vulnerable in our country and their access to credit. I commend her long-standing support for her constituents, including the most vulnerable. We are extending the household support fund, as she will know, and we are making it easier to access the debt relief order. The right hon. Member for East Ham (Sir Stephen Timms) welcomed the decision to extend the household support fund. In response to his question about making the fund permanent, that is a decision for the next fiscal event, whenever that will be.
I say to Members of all parties who are concerned for the most vulnerable that this is a Budget and a Government for them. Since 2010, the real income—the take-home pay—of those working full time on the national living wage is 35% greater than it was in 2010. On rewarding work, thanks to the actions that this Government have already taken, falling inflation means that wages in real terms are on the up, even while unemployment is low. In response to the question raised by the hon. Member for Liverpool, Walton (Dan Carden), real household incomes overall have increased by 8% since 2010. But we all know that we can go further. The simplest and most effective way to do so is by reducing people’s taxes and getting rid of the double taxation on work, which means reducing national insurance.
I was listening carefully to the shadow Chief Secretary to the Treasury, who is a man I rather like. [Hon. Members: “Ah!”] I rather admire him. We came to the House at the same time. We are practically the same age—he is about five months younger than me, but let us not go into that. But I was very surprised to hear him say—he can intervene on me if this is not correct—that it was “morally abhorrent” to cut national insurance.
Darren Jones
I always welcome the chance to return to the Dispatch Box. Just to answer the hon. Gentleman’s question, I said that it was morally abhorrent to abolish national insurance contributions at a cut of £46 billion a year with no plan to pay for it. The Minister has the opportunity once again to tell us how he is going to fund the £46 billion.
Bim Afolami
This is great fun, Mr Deputy Speaker. I say to the shadow Chief Secretary that we have been very clear about this. We have cut national insurance by a third in the last two fiscal events. It is our long-term ambition to do so and to eliminate this double taxation on work. If Labour Members do not believe that we should eliminate this double taxation, they should say so.
Bim Afolami
No, I will not give way. I wish to make some progress.
My hon. Friends the Members for St Ives (Derek Thomas), for Broxtowe (Darren Henry), and for North West Norfolk (James Wild) saw the wisdom and the importance of cutting national insurance by a third and what that means for ordinary people. From April this year, we will have taken a third off, which means £900 a year for the average worker. Some Opposition Members sniffed at that. They do not think that that is very much money. We know that, for millions of people across the country, that will make a huge difference to their lives, and we are very proud to support it.
Over and above the national insurance cuts, this Budget sets out a plan that rewards hard-working families. A lifetime of work should support the job of a lifetime: being a parent. For too long, hard-working parents have been unfairly penalised by our tax system—I am very glad that the hon. Member for Richmond Park (Sarah Olney) from the Liberal Democrats recognised that and supported our plans. That is why we are raising the child benefit threshold to £60,000 and increasing the level at which the support is completely withdrawn to £80,000. This is not done out of some ideological fancy. We are doing it because it will encourage growth in the labour market and generate an increase in work hours equivalent to around 10,000 people entering the workforce full time. So this one act on childcare that the Chancellor has put forward will save nearly half a million families an average of around £1,300 per annum in addition to the national insurance cuts.
We also want to support those who make a career out of childcare, which is why, building on our announcement at the last Budget to extend 30 hours of free childcare a week to all children aged nine months and older of working parents, my right hon. Friend the Chancellor said that the Government will guarantee the hourly rate to ensure that private childcare providers can step up to deliver this offer.
Secondly, as many Members across the House have noted, this is a Budget for long-term growth. Growth means more opportunity. Growth means greater prosperity for families and firms. And, yes, growth means higher funding for our public services.
Alan Brown
The Minister knows full well that the autumn statement had £20 billion of future cuts to public services and this Budget bakes it in. The Institute for Fiscal Studies has called it a conspiracy of silence from both Labour and the Conservatives. He talks about long-term growth and an increase in public services, but will he come clean about that £20 billion cut and what the Government will do about it?
Bim Afolami
I thank the hon. Gentleman for that point. If he looks in the Red Book, he will see that the forecast for the next spending review period is that real-terms spending on public services—the whole House should hear this, because I have heard lots of discussion from Opposition Members about cuts and slashing—will go up every year by 1% in addition to inflation. We are building on a stable foundation for that growth. Against the backdrop of economic uncertainty, business investment—one of the chronic difficulties for our economy for generations—grew last year, and will be about 11% of our GDP this year.
At the Budget, we outlined next steps on the autumn statement’s £4.5 billion funding package for strategic manufacturing, which many Members mentioned, particularly the hon. Member for Birmingham, Edgbaston (Preet Kaur Gill). That delivers the next stage of expansion for our high-growth industries.
To complement that, we are committed to ensuring the UK has the most attractive investment tax regime of any G7 or large European country. We have the lowest corporation tax rate in the G7. At the autumn statement, to complement that support for business and for growth, we announced that we would introduce permanent full expensing, which allows companies to claim, in the first year, 100% capital allowances on qualifying investments. At this Budget, the Chancellor confirmed that draft legislation on extending full expensing further to assets for leasing will be published shortly. I am very glad that my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) and the hon. Member for Gordon (Richard Thomson) supported that investment.
The theme of today’s debate—improving productivity—was barely mentioned by Opposition Members. I echo what the Chief Secretary to the Treasury, my right hon. Friend the Member for Sevenoaks (Laura Trott), said in her opening speech: when it comes to our public services, what the public care about is whether their services improve. That means focusing on outcomes, not just inputs. Opposition Members are very, very fond of talking about inputs and how there are apparently there are all these cuts—this slashing and burning of public services—but they are not very fond of talking about our productivity plan and how we are investing to improve outcomes. I will tell you a secret, Mr Deputy Speaker: the reason they are not fond of it is that they know it would upset their union paymasters. That is why they do not want to talk about it. They do not believe in better public services, which would mean better value for money for the taxpayer, because they do not believe in better value for money. They do not believe in better support for frontline workers to actually do their jobs properly because they just want more money for their union paymasters. They do not believe in better results. They talk the talk but refuse to walk the walk, because they do not understand what it is to take any tough decisions.
I agree with something that the hon. Member for Ilford South (Sam Tarry) said. He said that we cannot cut our way to prosperity, and I agree. That is why we are investing in our productivity plan and investing comprehensively in the NHS, as my hon. Friend the Member for Watford (Dean Russell) set out compassionately and powerfully.
Bim Afolami
I will make some progress, and then I will give way.
From upgrading computer systems to using artificial intelligence to automate tasks, we will upgrade the NHS’s technology for the 21st century. That is only part of our programme of reform to bring the whole of Government into the digital era and generate productivity improvements, including through structural investment—and what a win it would be. The National Audit Office and the Office for Budget Responsibility, bodies that Opposition Members are always terribly keen to quote—[Interruption.] They should listen to what they have said about productivity and outcomes. The OBR says:
“Raising public sector productivity by 5 per cent”,
which will bring us back to where we were before the pandemic,
“would be the equivalent of around £20 billion extra in funding”.
That is why we are doing it. That is why the work that my right hon. Friend the Chief Secretary is doing is so important.
Before I conclude, I think we can all agree, including Opposition Back Benchers, that it is impossible to know where the Labour party stands on anything these days. We used to know where it stood. The sad thing about the one concrete plan that it did have is that there was a document listing all the projects under the £28 billion and going through every constituency. That was the only plan they had, but they have dropped it. They should talk to the right hon. Member for Doncaster North (Edward Miliband) as to whether he is happy about that.
Labour Members are confused and I feel sorry for them. [Interruption.] The hon. Member for Hampstead and Kilburn (Tulip Siddiq) is chuntering from a sedentary position, but I am coming to her next, don’t worry. Labour is so confused that, by the way she was going on, one would think that she was a disciple of Peter Thorneycroft and Nigel Lawson. She was so keen on low taxes and sound money that I almost wanted to invite her to join us on the Government Benches. But then I remembered something: in one of her first acts as a Labour MP, she decided to mount the barricades and nominate the right hon. Member for Islington North (Jeremy Corbyn) for leadership of the Labour party. I wonder whether she has told the Leader of the Opposition that that is where her heart lies.
Look, I do not want to be mean spirited—it does not suit me very well. It might surprise you, Mr Deputy Speaker, to learn that I actually rather admire the right hon. Member for Islington North. He believes in things and has ideas, unlike the shadow Treasury team, who do not even have the semblance of a coherent plan or any beliefs at all, as it turns out.
We know that this will not bother the shadow Chancellor. Where is she, by the way? She is probably too busy on her smoked salmon offensive in the City of London, pretending to love bankers, to have time to think of any new ideas.
The Secretary of State for Levelling Up, Housing and Communities (Michael Gove)
She is on Wikipedia, cutting and pasting.
Bim Afolami
She is cutting and pasting. I cannot see her, but if she needs ideas and is happy to come in, there is always the option—and she has done it before—to cut and paste from someone else. I do not want to mislead the House, Mr Deputy Speaker, but the shadow Chancellor does have one aspect to her economic plan—forgive me for forgetting about it—and, as the deputy leader of the Labour party knows, it is called the workers’ plan. True to form, the shadow Chancellor has cut and pasted this plan from the trade unions to such a degree that it might as well be called the unions’ plan. It gives sweeping licence to unions over our whole economy, which will kill jobs, hurt our productivity and undo the good work of this Budget and this Chancellor.
This Budget is a plan for the future, a plan for jobs, a plan for growth, a plan for productivity, a plan on the side of working people, and I commend it to the House.
Question put.
Authorised Push Payment Fraud
Bim Afolami Excerpts(1 month, 2 weeks ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
The Government take the issue of fraud very seriously and are dedicated to protecting the public from this devastating crime. According to UK Finance, in the first half of 2023 alone there were 116,324 cases of authorised push payment (APP) fraud, where a payer is deceived or defrauded into authorising a payment to a criminal.
To help combat fraud, the Government are working with industry to remove the vulnerabilities that fraudsters exploit; with intelligence agencies to shut down fraudulent infrastructure; with law enforcement to identify and bring the most harmful offenders to justice; and with all partners to ensure that the public have the advice and support they need.
Today, the Government have published draft legislation setting out their approach to allowing payment service providers to delay the processing of authorised push payments executed within the UK in sterling in circumstances where it appears there has been fraud or dishonesty. This fulfils a commitment in our ambitious fraud strategy to investigate this issue.
Currently, for most transactions, the Payment Services Regulations 2017 require that an outbound payment is processed by the end of the business day following the time of receipt of the payment order. The draft statutory instrument published today sets out that the Government intend to allow payment service providers to delay the processing of in-scope payments by up to four business days from the time of receiving the payment order. This will only be permissible where there are reasonable grounds to suspect a payment order from a payer has been placed subsequent to fraud or dishonesty perpetrated by someone else—excluding the payer—and those grounds are established by no later than the end of the next business day following receipt of the payment order. The delay may only be used where the provider requires further time to contact the customer or a third party, such as law enforcement, to establish whether to execute the payment.
Payment service providers will be required to inform customers of any delays, the reasons behind their decision to delay the payment, and what information or actions are needed to help the payment service provider decide whether to execute the order. However, this will not be required when doing so would be unlawful—for example, when doing so will contravene obligations under anti-money laundering or economic crime law.
The thresholds for any delay will ensure that payment service providers must have an evidential basis to delay a payment, while ensuring that suspicious payments are properly investigated and rejected as required. To help ensure that consumers and businesses do not incur any costs as a result of any delays to their payments, payment service providers will be liable for any interest or charges incurred by the payer resulting from a delay.
This measure applies only to authorised push payments executed within the UK in sterling. Small, medium and large businesses, which may have numerous obligations to make timely payments to suppliers, will be able to opt out of these provisions with the mutual agreement of their payment service provider.
To monitor the impact of this legislation and ensure it is used in a proportionate manner, the FCA will engage with payment service providers over reporting requirements in respect of compliance with the new provisions.
This legislation does not make any changes to the Payment Services Regulations 2017 with regard to inbound payments, whereby a payment service provider receives a payment from another payment service provider. This is because there are already obligations under financial crime legislation for payment service providers to delay inbound payments in certain circumstances. Therefore, the Government consider that legislative change for inbound payments is not required.
The Government welcome feedback on the drafting of this statutory instrument by 12 April 2024 and will engage with the financial services industry on this. The Government will then lay these regulations before Parliament in summer 2024. It is intended that these regulations will come into force by 7 October 2024 to align with the Payment Systems Regulator’s timelines for the introduction of mandatory reimbursement for APP scams.
The draft legislation and an accompanying policy note can be found at the below link https://www.gov.uk/government/publications/the-payment-services-amendment-regulations-2024-policy-note
[HCWS335]
Draft Bank of England Levy (Amount of Levy Payable) Regulations 2024
Bim Afolami Excerpts(2 months, 1 week ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Bank of England Levy (Amount of Levy Payable) Regulations 2024.
It is a pleasure to serve under your chairmanship, Ms Bardell. The Bank of England undertakes vital work in pursuit of its monetary policy and financial stability objectives, in line with primary legislation. To ensure that the Bank can recover fully and efficiently the costs of funding its important functions, it is necessary that the mechanism it employs to do so is reliable and stable.
The Bank’s current monetary policy and financial stability functions are funded by what is known as the cash ratio deposit scheme. Under the scheme, banks and building societies with eligible liabilities greater than £600 million are required to place a proportion of their deposit base with the Bank on a non-interest bearing basis. The Bank then invests those funds in gilts, and the income generated from such gilts is used to meet the cost of its monetary policy and financial stability functions. The scheme has resulted in significantly higher deposit sizes than were initially forecast and a lack of predictability for payers of a cash ratio deposit. Deposit sizes change in line with gilt yields, which have been lower than expected, meaning that the cash ratio deposit scheme has not been able to generate its target income from the investment of deposits and has therefore failed to fund fully the Bank’s policy functions. The shortfall to date has been funded from the Bank’s capital and reserves, meaning that it has not paid a dividend to the Treasury as Bank capital levels have fallen below target.
Following a review of the scheme in 2021, the Government set out their intent to replace the scheme with a Bank of England levy to provide greater certainty to firms on their contributions and to create a simpler and more transparent funding mechanism for the Bank. Sections 70 and 71 of the Financial Services and Markets Act 2023 made provision for that. The regulations before us make provision under the auspices of FSMA for the eligible institutions that do not have to pay a levy on how the cost is apportioned between eligible institutions that must pay a levy and how appropriate adjustments will be made for years in which a new levy is paid.
The Bank of England levy aims to create a simpler and more stable funding mechanism for the Bank’s policy functions. Under the new levy, for each year the Bank will estimate the amount that it needs to meet its policy costs; it will add any shortfall from the previous year and deduct any surplus. That is the anticipated levy requirement. The Bank will require institutions to submit data about their eligible liabilities and will usually take an average of the data provided between 1 October and 31 December in the previous year to calculate an institution’s eligible liabilities. The three-month reference period mirrors that used for the Prudential Regulation Authority levy, ensuring greater consistency across the levies and a simplification of the process for recovering the Bank’s costs. That is simpler for the institutions involved.
As under the cash ratio deposit scheme, if an institution has an average liability base up to and including £600 million, it will not pay any levy that year. If an institution’s average liability base exceeds £600 million, it will pay the levy. That ensures that the payment mechanism is fair, as only the largest institutions that benefit most significantly from the Bank’s monetary policy and financial stability functions will pay the levy. The cost paid by an institution under the levy will be apportioned according to the size of an institution’s eligible liabilities, meaning that larger institutions will pay a larger share of the costs. That is the same as under the cash ratio deposit scheme, so introducing the new levy does not mean that there will be relative winners or losers between the institutions that pay.
If an institution did not meet the threshold for paying the levy in the previous year, but it meets the threshold in a new year, the regulations deal with that as well. They stipulate that the firm would be treated as a new levy payer. This statutory instrument allows the Bank to treat new levy payers differently so that they contribute to the estimated policy costs for the specific year and do not have to contribute to any shortfall from the previous year or gain any benefit from surplus from the previous year. I hope the Committee will agree that that is a fair and proportionate approach.
The regulations will replace the cash ratio deposit scheme with a Bank of England levy—a simpler and more stable funding mechanism—while ensuring that no changes are made to the threshold at which firms will pay the levy or the broader important principle that larger firms will pay more.
Sir Robert Syms (Poole) (Con)
Presumably there could be an argument over whether someone has to pay the levy or what levy they have to pay. Is there an appeal process?
Bim Afolami
I thank my hon. Friend for that question. It is my understanding that there is not an appeal process, but the reason for that is that there is an agreed formula for when it occurs; the amount of levy that people will pay is not an art, but a science. As I say, it will depend on the size of the institution, just as the cash ratio deposit levy did, but this system is simpler and more stable. I hope colleagues will join me in supporting the regulations and I commend them to the Committee.
Bim Afolami
I shall do my best to answer the hon. Lady’s questions in the Committee. On her first question, there is no current plan to introduce non-bank financial institutions as part of this process; of course such questions are always under review, but I want to be clear with the Committee that there is no current plan in that regard. On the five-year budgetary plan, I will write to her, because I want to be precise with the answer but I am not equipped to answer right now. On the question of when the SI will come into force, I do not want to commit to a precise time, but I can assure her that we wish to that to happen at the earliest possible time.
If there are no more questions, I thank colleagues for this useful debate and I commend the regulations to the Committee.
Question put and agreed to.
Draft Bank of England Levy (Amount of Levy) Regulations 2024
Bim Afolami Excerpts(2 months, 1 week ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Bank of England Levy (Amount of Levy Payable) Regulations 2024.
It is a pleasure to serve under your chairmanship, Ms Bardell. The Bank of England undertakes vital work in pursuit of its monetary policy and financial stability objectives, in line with primary legislation. To ensure that the Bank can recover fully and efficiently the costs of funding its important functions, it is necessary that the mechanism it employs to do so is reliable and stable.
The Bank’s current monetary policy and financial stability functions are funded by what is known as the cash ratio deposit scheme. Under the scheme, banks and building societies with eligible liabilities greater than £600 million are required to place a proportion of their deposit base with the Bank on a non-interest bearing basis. The Bank then invests those funds in gilts, and the income generated from such gilts is used to meet the cost of its monetary policy and financial stability functions. The scheme has resulted in significantly higher deposit sizes than were initially forecast and a lack of predictability for payers of a cash ratio deposit. Deposit sizes change in line with gilt yields, which have been lower than expected, meaning that the cash ratio deposit scheme has not been able to generate its target income from the investment of deposits and has therefore failed to fund fully the Bank’s policy functions. The shortfall to date has been funded from the Bank’s capital and reserves, meaning that it has not paid a dividend to the Treasury as Bank capital levels have fallen below target.
Following a review of the scheme in 2021, the Government set out their intent to replace the scheme with a Bank of England levy to provide greater certainty to firms on their contributions and to create a simpler and more transparent funding mechanism for the Bank. Sections 70 and 71 of the Financial Services and Markets Act 2023 made provision for that. The regulations before us make provision under the auspices of FSMA for the eligible institutions that do not have to pay a levy on how the cost is apportioned between eligible institutions that must pay a levy and how appropriate adjustments will be made for years in which a new levy is paid.
The Bank of England levy aims to create a simpler and more stable funding mechanism for the Bank’s policy functions. Under the new levy, for each year the Bank will estimate the amount that it needs to meet its policy costs; it will add any shortfall from the previous year and deduct any surplus. That is the anticipated levy requirement. The Bank will require institutions to submit data about their eligible liabilities and will usually take an average of the data provided between 1 October and 31 December in the previous year to calculate an institution’s eligible liabilities. The three-month reference period mirrors that used for the Prudential Regulation Authority levy, ensuring greater consistency across the levies and a simplification of the process for recovering the Bank’s costs. That is simpler for the institutions involved.
As under the cash ratio deposit scheme, if an institution has an average liability base up to and including £600 million, it will not pay any levy that year. If an institution’s average liability base exceeds £600 million, it will pay the levy. That ensures that the payment mechanism is fair, as only the largest institutions that benefit most significantly from the Bank’s monetary policy and financial stability functions will pay the levy. The cost paid by an institution under the levy will be apportioned according to the size of an institution’s eligible liabilities, meaning that larger institutions will pay a larger share of the costs. That is the same as under the cash ratio deposit scheme, so introducing the new levy does not mean that there will be relative winners or losers between the institutions that pay.
If an institution did not meet the threshold for paying the levy in the previous year, but it meets the threshold in a new year, the regulations deal with that as well. They stipulate that the firm would be treated as a new levy payer. This statutory instrument allows the Bank to treat new levy payers differently so that they contribute to the estimated policy costs for the specific year and do not have to contribute to any shortfall from the previous year or gain any benefit from surplus from the previous year. I hope the Committee will agree that that is a fair and proportionate approach.
The regulations will replace the cash ratio deposit scheme with a Bank of England levy—a simpler and more stable funding mechanism—while ensuring that no changes are made to the threshold at which firms will pay the levy or the broader important principle that larger firms will pay more.
Sir Robert Syms (Poole) (Con)
Presumably there could be an argument over whether someone has to pay the levy or what levy they have to pay. Is there an appeal process?
Bim Afolami
I thank my hon. Friend for that question. It is my understanding that there is not an appeal process, but the reason for that is that there is an agreed formula for when it occurs; the amount of levy that people will pay is not an art, but a science. As I say, it will depend on the size of the institution, just as the cash ratio deposit levy did, but this system is simpler and more stable. I hope colleagues will join me in supporting the regulations and I commend them to the Committee.
Bim Afolami
I shall do my best to answer the hon. Lady’s questions in the Committee. On her first question, there is no current plan to introduce non-bank financial institutions as part of this process; of course such questions are always under review, but I want to be clear with the Committee that there is no current plan in that regard. On the five-year budgetary plan, I will write to her, because I want to be precise with the answer but I am not equipped to answer right now. On the question of when the SI will come into force, I do not want to commit to a precise time, but I can assure her that we wish to that to happen at the earliest possible time.
If there are no more questions, I thank colleagues for this useful debate and I commend the regulations to the Committee.
Question put and agreed to.
UK Economy
Bim Afolami Excerpts(2 months, 1 week ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Rachel Reeves (Leeds West) (Lab)
(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on the UK economy entering recession.
The Economic Secretary to the Treasury (Bim Afolami)
High inflation remains the biggest barrier to growth, which is why halving it is still our top priority. Thanks to decisive action supported by the Government, inflation has fallen from over 11% to 4%. The Bank of England is forecasting that it will fall to around 2% by early summer, in only a matter of months, which is much faster than previously thought.
It is important to put all this in context. Just over a year ago, the Bank of England was forecasting the longest recession in 100 years. That has not happened, and the British economy has proved resilient in the face of unprecedented shocks. Forecasters, including the Bank of England and the International Monetary Fund, agree that growth will strengthen over the next few years, with the IMF forecasting that we will grow faster than Japan, Germany, France, Italy and many others, on average, over the next five years. Wages have been higher than inflation for six months in a row, unemployment remains very low, and we are backing British business by delivering the biggest business tax cut in modern British history and rewarding work by cutting taxes for working people.
These are all reasons to be positive about the economy turning a corner. If we stick to our plan, we can be confident of seeing pressures reduce for families and of achieving healthy economic growth. At the autumn statement, we unveiled 110 growth measures, including unlocking £20 billion of business investment. This includes a substantial labour market package, delivering a tax cut to national insurance for 27 million people, as well as reforming pensions and extending investment zones. The real risk to economic growth and prosperity in this country is the fact that the Labour party has no plan for growth—no plan at all. While they may pretend that they have abandoned their £28 billion pledge, they are still committed to their damaging 2030 energy policy, which, as the Leader of the Opposition has said, costs £28 billion. All of us across this House know what that means: higher taxes and lower growth with Labour.
Rachel Reeves
The Chancellor should be here explaining why Britain has fallen into recession. Will the Minister explain why he has been left to answer these questions, and where exactly the Chancellor is? The Chancellor should be accountable to MPs and to our constituents, and answer for his failure in the House. What an insult to all those people who go to work every day and experience the reality of 14 years of Conservative economic failure that he has simply failed to turn up.
Does the Minister accept that the Prime Minister’s promise to grow the economy is now in tatters? Will the Minister explain why the economy is now smaller than when the current Prime Minister entered 10 Downing Street? Does the Minister accept the misery that this Government have caused homeowners with their kamikaze Budget, leaving a typical family renewing their mortgage paying an additional £240 every single month?
The Chief Secretary is also notable for her absence today, and was last seen refusing or simply failing to recognise that their target measure of debt as a share of GDP is rising, not falling. Following her rebuke this morning from the chair of the UK Statistics Authority about misleading the public, can the Minister inform the House whether the Chief Secretary will again be relying on incompetence as her best defence?
It is not good enough. The whole country knows that the economy is not working for working people under the Conservatives. It is time for change. If the Government seriously think everything is fine, why do they not take their record of failure and let the British people decide?
Bim Afolami
I am coming to that.
The right hon. Lady started by talking about the Chancellor; as Economic Secretary, I am perfectly entitled to answer on behalf of the Department and I will do so today. The main thrust of her remarks was on growth; let me deal with that in detail.
The first point to recognise is the international context that we all find ourselves in. [Interruption.] It happens to be true. For example—to describe that international context—10 EU countries were in recession in 2023. In relation to forecasts, the Office for Budget Responsibility’s original forecast was that there would be a contraction of 1.5% in the economy; we have significantly outperformed that. As I have said, the Bank of England forecast the longest recession in 100 years; we have significantly outperformed that. On wages, I think this is the sixth month in a row when wages have been higher than inflation, which, as I have said, we have more than halved.
On the Chief Secretary, what she was explaining is that we were and are meeting our fiscal rule, which is that debt will be falling in the fifth year of the forecast excluding the Bank of England. That is what she explained, and that is what I am reiterating for the House. [Interruption.]
Labour Members do not like hearing this, but they have absolutely no plan on the economy. We have been clear about our plan, and it is starting to bear fruit with wages, with cutting taxes for working people starting in January, with higher business investment as a result of our full expensing in the autumn statement. The shadow Chancellor does not have to take it from me; the Office for Budget Responsibility said that the two fiscal events in 2023—the Budget and the autumn statement—would represent the largest increase to GDP that it has ever scored. What I say to her and the House is this: our plan is working; stick with the plan and do not throw it away with the Opposition.
John Redwood (Wokingham) (Con)
It is good news that unemployment has stayed low by European standards, and the economy is still generating plenty of job vacancies. Will the Government take more steps to help more people into those jobs, so that we can get faster growth, bring down the benefit bill and boost their incomes?
Bim Afolami
The whole House knows that my right hon. Friend is somewhat of an expert on matters relating to the economy. To answer his point specifically, the national insurance tax cut was scored at the last fiscal event—the autumn statement—as significantly increasing the number of people in work. Although I will not speculate on fiscal events, that point has been very much noted by me and the whole Treasury.
Stewart Hosie (Dundee East) (SNP)
The Minister spoke about resilience, but the fourth quarter contraction in the economy was the biggest quarterly fall since early 2021 at the height of the covid pandemic, so I am not sure he is quite right about resilience. He also spoke about growth, but the Government told us in November that growth is not forecast to exceed 2% in any year in the forecast period. How modest the Minister’s ambitions are.
National debt is still approaching 100% of GDP—£3 trillion. The consequences of Brexit are suppressing growth, and that poses a challenge to the UK Government’s fiscal targets. Although it is welcome that inflation has fallen, prices remain high. Prices are not falling; they are simply going up slightly less steeply than they were a month or two ago. It is obvious that what the economy needs is growth, and the investment to generate that growth, but given that business investment, according to the Government, is forecast down this year by 5.6%, private dwelling investment is forecast down this year by 6%, and flat at 0% next year, and general Government investment is forecast down in ’25, ’26, ’27 and ’28, where will the investment for growth come from?
Bim Afolami
I deeply respect the right hon. Gentleman, and I will take his points one by one. On resilience, the way we get resilience for ordinary people and for households is to ensure that real household incomes increase. Since 2010, they are up 12%. We are trying to increase business resilience with our full expensing regime, which is revolutionary in the advanced world. Full expensing will enable more businesses to invest and will deal with the chronic weakness of the British economy, which is weak investment. That is why we are doing that.
The right hon. Gentleman mentioned growth. Growth is not as high as we would like, and that is the case across the whole of Europe and the whole of the industrialised world. That is why the Chancellor in the last fiscal event put in place 110 growth measures. We have a plan for growth over the long term, and we will deliver it. The right hon. Gentleman mentioned debt. To repeat the point I made to the shadow Chancellor, debt is falling in the fifth year of the forecast according to our fiscal rule, which excludes the Bank of England. That is not just the fiscal rule now; it has always been the fiscal rule.
The right hon. Gentleman makes the fair point that lower inflation does not mean that prices are falling. Indeed, lower inflation is a lower rate of increase. We all know that in this House. That is why bringing down inflation is so important, and the Opposition, with their plan to recklessly jack up borrowing and taxes to the extent of £28 billion, will increase inflation.
I repeat that investment has been a long-term weakness of the British economy. We are taking long-term measures to deal with it, and I hope that in the next fiscal event—the Budget—we will continue in that vein.
Sir Jacob Rees-Mogg (North East Somerset) (Con)
May I thank my hon. Friend for his distinguished service as a voice of His Majesty’s Government? I refer him to what the former chief economist of the Bank of England, Andrew Haldane, said today, referring to a “double blow” to the credibility of the Bank of England, which was late to put interest rates up and missed inflation, and has been slow to reduce them, hammering the economy. Does my hon. Friend agree that the Bank of England is no longer showing itself to be competent and that its independence must be questioned?
Bim Afolami
I do not think that I will quite agree with my right hon. Friend. It is very important that we leave the Bank of England to do its work and respect its independent mandate, but that, from the Treasury, we do what we can to bring inflation down and support it in that mandate. As I said, the Labour party’s plans—whether it claims to have dropped them or not—will lead to an increase in borrowing or an increase in taxes, which will significantly damage that aim.
Dame Angela Eagle (Wallasey) (Lab)
I think the Minister is failing the audition. Labour will not take lectures from him about borrowing, which was at 67% of GDP when we left office and is now nearly 100%. He is claiming that somehow growth is happening, but we are actually in a recession, which means that there is no growth; in fact, there is negative growth. GDP per capita fell in every quarter of last year, meaning that everybody is getting worse off under his appalling stewardship of the economy. Is it not time that the junior Minister went back to his boss and told him, “It’s all over. Time’s up. Call the general election.”?
Bim Afolami
It is definitely above my pay grade to call elections. In relation to GDP per capita statistics, which are important—the point of them is to try to get a sense of what is happening to individuals or to individual households and families—I would say—[Interruption.] Let me—[Interruption.] I wish the shadow Chancellor would allow me to respond. Real household incomes, which are as good a measure as any to see what is happening to individuals and families in our economy, are up 12% since 2010. If we are looking at people at the bottom of the income scale, the rise in the national living wage that comes in in April will mean a rise since 2010 of about 30% in real terms for people on full-time minimum wages. Those two statistics are examples of what has happened to real people on the ground.
Rachel Maclean (Redditch) (Con)
I thank the Minister for updating the House. Does he agree that people in Redditch and elsewhere are concerned about negative economic news—although it almost always turns out to be wrong? Most of all, does he agree that the greatest risk to my constituents in Redditch and those across the country is a Labour Government? Labour has said it can somehow magically get £28 billion of green growth benefits without paying for them. We all know that my constituents will be paying for that through extra borrowing and higher taxes.
Stella Creasy (Walthamstow) (Lab/Co-op)
The Minister says the Government’s priority is backing British business, cutting inflation and reducing the pressure on British families. When the Government admit this measure will increase inflation, when British business is tearing its hair out at the chaos caused by not knowing what the charge will be and who will pay it—with less than 10 weeks to go—and when British consumers will find that it causes food shortages and an increase in food prices, why on earth are the Government going ahead with the Brexit border tax? Will the Minister commit here and now to cancelling it, so that we can stop this inflationary measure—yes or no?
Bim Afolami
I thank the hon. Lady for focusing on inflation. She is right that it is critical, and bringing it down is a focus for the Government. The House has heard her point about the European Union, but I would add that we have a clear plan for bringing down inflation, which we will continue to carry out. She has to ask those on her Front Bench why they do not have one.
Sir Edward Leigh (Gainsborough) (Con)
For too long, too many people in the Treasury—not my hon. Friend, who is an excellent Minister—have thought that the best way to grow the economy is to fill the country with more and more people. Will the Government recommit to insisting that anyone who comes here to work should earn the average UK earnings of around £33,000 a year? That means no shortage schemes and no exemption for care workers or the NHS, but that in those sectors we pay proper wages, we get people off benefits—too many people are on them, dragging down our economy—and we seriously cut mass legal migration; and, by the way, if there is a general election, let us give our people something to vote for.
Bim Afolami
My right hon. Friend makes an important point about migration. I completely agree that we need higher earnings for British people, not an economy where we import too many people and keep earnings down. That is why we have been focusing on raising the national living wage and ensuring that ordinary household incomes will go up as a result of this Government’s policies, as I have explained. It is worth pointing out that certain things happened last year, such as people fleeing Ukraine and Hong Kong, which meant that the immigration numbers were particularly high. The broad thrust of what my right hon. Friend said is correct: we want a high-skill, high-wage economy.
Emma Hardy (Kingston upon Hull West and Hessle) (Lab)
I do not know whether the Minister realises quite how infuriating people find watching his Government tell them, “Everything is fine”, “It is all going really well” and “There’s nothing to see here”, when every day they feel poorer and small businesses are closing. If the Prime Minister and the Chancellor cannot face reality, how on earth can anyone trust them to solve the economic crisis that their Government created?
Bim Afolami
Let me be clear with the hon. Lady, whom I have a huge amount of time for as a very good Member of Parliament: it is not our position that everything is okay. There has been a challenging international context: a once-in-100-years pandemic, and an energy crisis caused by Putin’s war in Ukraine. This Government have done everything we possibly can to build an economy for growth, and I hope we have her support.
Sir Desmond Swayne (New Forest West) (Con)
What distinguishes this recession is the 800 jobs that have been created every day since this Government came to power in 2010—the very antithesis of anything ever achieved by a Labour Government, who have always left unemployment higher than they found it—is it not?
Bim Afolami
It is—and I would add something else: the figures for home repossession were much higher when there was a recession under the Labour Government in 2008-09, in comparison with our record now, and unemployment now is much lower than it was then. Though we are in challenging times, the economy is turning a corner. Our record compares very favourably Labour’s.
Keir Mather (Selby and Ainsty) (Lab)
The Chancellor said last May that he was comfortable with the prospect of a recession. Now that my constituents in Selby and Ainsty are suffering under that recession’s effects, would the Minister chalk it up as a job well done?
Bim Afolami
The hon. Gentleman will do well. There is nobody on the Government Benches who welcomes adverse economic situations for anybody. That is why we are doing everything we can—straining every sinew—to grow the economy. All the measures I have laid out will continue, but they would be put at risk by those on his Front Bench being in office.
Duncan Baker (North Norfolk) (Con)
Before I came to this House, I was a director of quite a large retail group in North Norfolk. No one has made the point that in the last quarter of the year the country saw Babet, Ciaran, Debi, Elin, Fergus and Gerrit—six major storms and floods. How many were there in the previous year? Absolutely none at all. Will the Economic Secretary tell everybody that of course the economy will not function properly in the grip of storms and floods every fortnight? We are not in recession, but the more we talk it up, the more we will be.
Bim Afolami
I thank my hon. Friend for that question—I would say that the loss of large retail groups in Norfolk is the House’s gain. His point about the international context is serious and important. Although Labour Members do not like to hear it, facing a once-in-100-years pandemic and Putin’s illegal war in Ukraine, which caused energy prices to skyrocket, will have adverse impacts on the economy. The country understands that and the House understands that; the Labour Front Bench should also understand it.
Wera Hobhouse (Bath) (LD)
This recession is a direct result of the choices that this Government have made. Years of potential growth have been missed, and the Government have failed particularly to capitalise on the green transition. Green investment will be worth £1 trillion globally by 2030, including half a million jobs in this country. When will the Government bring forward a green investment programme to match the ones in the US or in Europe?
Bim Afolami
First, our record on decarbonisation beats anywhere else in the G7, so we do not take lessons from the United States or any other country in that regard. In relation to the green investment plan by 2030, the hon. Lady should direct her ire at those on the Labour Front Bench for not being clear as to what their plan is. The Leader of the Opposition says—[Interruption.] Well, it is important because politics is a contest of ideas, as indeed it is a contest between two parties. If Labour Members believe they can spend an extra £28 billion without that having an impact on taxes and borrowing, they are trying to pull the wool over the eyes of the British people.
Vicky Ford (Chelmsford) (Con)
The past couple of years have been very difficult economically, and I certainly do not treat the state of our economy as the giggle-fest that Labour Members seem to be having today. Over the past few weeks, I have met many businesses in my constituency—large and small—and a number have told me that they feel conditions are getting better, demand is growing and orders are coming back. Constituents have also told me that they have noticed food prices dropping in our supermarkets. Does the Minister agree that the most damaging thing that could happen to our economy now would be for those on the Labour Benches to continue to talk our economy down?
Bim Afolami
My right hon. Friend is correct that things are starting to get better for many people across the country, including small businesses. We have more than halved inflation, which is now down below 4%; we think that in the coming months it will go to 2%, which is the target. Of course, once it hits that target, we hope that interest rates will also start coming down, which will make a big difference to ordinary people up and down the country.
Sir Stephen Timms (East Ham) (Lab)
I applaud the Minister’s willingness to take on this unenviable assignment, unlike his right hon. Friends. The international context that he refers to is that Japan and the UK are the only G7 countries in recession. Inflation in the UK, which he has referred to, is the highest in the whole G7. Why is the UK economy doing so much worse than comparable economies elsewhere?
Bim Afolami
The right hon. Gentleman makes an interesting point, but I would say that our economy entered difficult times at a different point in the cycle from certain other economies. To fully assess the performance of all economies, we have to wait for the end of this whole period, so I would not prejudge exactly at this stage. I simply say that the difficulties we are facing have affected every single economy, although the nature of different economies means that they are affected at different times. We are putting in place comprehensive growth measures and comprehensive measures to bring inflation down. I also note that UK interest rates are roughly middle-of-the-pack compared with other countries of comparable size. We will keep all this under review and, at the next fiscal event, will take further measures to increase our potential growth rate over the long term.
Alexander Stafford (Rother Valley) (Con)
Does the Minister welcome the news that the South Yorkshire Mayor has finally recognised the economic importance of Doncaster-Sheffield Airport and is at last starting to use the powers given to him to begin the process of getting it up and running again? Does he agree that that has taken far too long—it is years since the airport closed —and that the South Yorkshire Mayor should have used his powers years ago, rather than waiting until nine weeks before he is re-elected?
Bim Afolami
I thank my hon. Friend for pointing out once again what a brilliant champion he is for his constituency. I am sure his constituents have heard that comment, and that he will continue to make that point.
Sir Chris Bryant (Rhondda) (Lab)
Lordy, lordy! It is like listening to the Red Queen in “Alice Through the Looking Glass”, who invented six impossible things before breakfast! How on earth can we have confidence in what the Minister says when the UK Statistics Authority had to tell off the Chief Secretary to the Treasury, the right hon. Member for Sevenoaks (Laura Trott), for making false claims about tax cuts; when Evan Davis had to school her at length and she refused even to understand how wrong she was about debt falling as a percentage of GDP, when it is going up; and when the Minister himself actually said that the NHS accounts for 42% to 43% of everything the Government spend, when it is only 15%? Can he confirm one fact: these two years will see the biggest fall in living standards since records began? That is why people are going to vote the Government out, isn’t it?
Bim Afolami
I have already explained the Chief Secretary’s comments. In relation to my own, I was referring to current spending and not overall spending. I clarified that as well. Look, there have been difficulties for so many millions of people across the country and, as the hon. Gentleman knows, I have never sought to minimise that from this position or from any other position in the House. We have faced once-in-a-hundred-years challenges. The Government have faced them and taken the right action to deal with them. The cost of living support package is worth over £100 billion, to the tune of more than £3,700 per person. We have dealt with those challenges and we have a plan now to grow the economy to grow our way out of them. I am afraid that Labour Members and the Labour Front Bench do not have that sort of plan, which is why I would not make the assumption that he makes about the election.
Scott Benton (Blackpool South) (Ind)
The number of those who are on long-term sickness benefits in Blackpool has increased fourfold over the last few decades. That represents an enormous loss of potential, and it is also hurting economic growth and productivity. The Government’s proposed reforms in this area are to be welcomed, but rather than delaying them until next year, what is preventing the Government from bringing them in this year?
Bim Afolami
I will take that point away. I think the hon. Gentleman is referring to the next financial year. At the next fiscal event, the Budget, the Chancellor will bear what he has said in mind.
Barbara Keeley (Worsley and Eccles South) (Lab)
Fourteen years of Conservative mismanagement of the economy are having disastrous impacts on working people. For example, musicians are waiting months to be paid because HMRC is failing to process A1 forms on time for musicians touring in Europe. The trade body LIVE—Live music, Industry Venues and Entertainment—told me that in one case 26 musicians, performers and sound engineers were not paid for more than three months after their tour to Spain, due to delays in processing A1 forms. Even worse, in response to written questions, I have been told that service standards for those forms will not be met by HMRC until at least April 2024. Does the Minister agree that those delays are totally unacceptable, particularly when our musicians are already having to cope with a challenging financial landscape, made worse now by the news of a recession?
Bim Afolami
I agree that we need to speed up the processing of A1 forms, as the hon. Lady describes. I am sure the Treasury heard that point and I will ensure my ministerial colleagues take what she says very seriously indeed.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
Whatever spin the Government may put on it, forecasts show that the economy has officially entered a recession. However, people out there have been suffering grinding economic pressure for years. Average energy bills are 59% higher than they were in 2022, and more than 600,000 Welsh households are in fuel poverty. Meanwhile, the profits of energy companies such as British Gas have increased tenfold to £750 million. This is the Minister’s chance to make a difference to every household. He has referred to the next fiscal event. Will he act to extend and backdate the windfall tax on energy companies that are currently profiteering from households everywhere?
Bim Afolami
The right hon. Lady is right that many people have had very challenging times over the last couple of years. Let me correct something that I previously said to the House: the increase in real household incomes since 2010 is actually 8%, while the increase in GDP per capita is 12%. I wanted to put that on the record. As for taxes, I cannot speculate about what will happen at the next fiscal event.
Clive Efford (Eltham) (Lab)
According to the forecast, in five years’ time debt will be higher than it is now. Is this a reasonable time to be talking about tax cuts, and does their doing so not suggest that the Government have learnt nothing from the Budget of September 2022?
Bim Afolami
I assure the hon. Gentleman that this Chancellor and this Government are very different from those in September 2022 to which he refers. As for debt, I repeat that we are keeping to our fiscal rule, which is and has always been that debt will be falling in the fifth year of the forecast—falling, once we exclude the Bank of England. That has always been our position, and it will continue to be the case.
Kenny MacAskill (East Lothian) (Alba)
The Minister has made no mention of the importance to the UK Treasury of North sea oil, and indeed the danger to the Scottish economy of the closure of Grangemouth Refinery. Given that the UK Treasury received £8 billion in revenues from the North sea last year and is expected to receive £6.1 billion this year, can it not find the tens of millions—not the tens of billions that it will receive in revenue—to ensure that the HydroCracker can be restarted and the profitability of the refinery increased threefold?
Bim Afolami
I will take away the hon. Gentleman’s specific point and ensure that the Treasury gets back to him, but his broader point about offshore oil and gas in the North sea is very important. It is critical that we support the oil and gas sector, not just for the tax revenues but for the livelihoods and prosperity of the United Kingdom, and this Government stand four-square behind it.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
There is overwhelming evidence that the lower the economic inequalities, the higher economic growth will be. We know from the Office for National Statistics that between 2021 and 2022 the disposable incomes of the poorest fifth of households shrank by 3.4% while those of the richest fifth increased by 3.3%, and that reflected the position in the preceding 10 years. What assessment has the Minister, or the Chancellor, undertaken to estimate the impacts of these increasing inequalities on our shrinking growth?
Bim Afolami
When we are talking about people at the bottom end of the income scale, it is important to note that those on the full-time national living wage—which we will be increasing by the largest ever amount in April this year—will be 30% better off than they were in 2010.
Charlotte Nichols (Warrington North) (Lab)
News that the UK is officially in recession comes as no surprise to my constituents, who have been battered by this Tory cost of living crisis. Food inflation is still double the headline rate of inflation, and that is not only affecting the price of the weekly shop but having a hugely negative effect on my local pub and hospitality sector, with many businesses on the brink. Instead of their fantasyland spinning that everything is going fine, what measures will the Government introduce to bring food inflation down?
Bim Afolami
As I have said many times this afternoon, inflation is a target for this Government: we aim to ensure that we continue to bring it down, and indeed we expect it to get to 2% in the coming months. In relation to food inflation specifically, at the last fiscal event we introduced full expensing, which will enable food manufacturers, supermarkets and others to increase their investment hugely, because it completely nets off against their tax—100% of the cost of their investment is netted off. The impact will be increased investment that will reduce their costs and reduce the cost of food in our shops. That is one of many measures that we are introducing to reduce food inflation.
Matt Rodda (Reading East) (Lab)
The Prime Minister said he was going to grow the economy and he has obviously failed: we are now in recession. In my constituency, families and small businesses are under severe pressure. Can the Minister possibly explain how he is going to address these very serious problems?
Bim Afolami
All I would say to the hon. Gentleman is that we are in a very challenging international context and we have performed better than the international forecasts. We had high inflation, which really bedevilled this economy a couple of years ago, but we have more than halved it. We have a plan to grow our way out of this, as was shown by the last fiscal event, where we unveiled, I think, 110 growth measures. That is our plan. The Labour Opposition do not have a plan. If this country sticks with our plan, we will grow our economy significantly over the coming months and years.
Patrick Grady (Glasgow North) (SNP)
The Minister keeps trying to hide behind the war in Ukraine and the impact of the pandemic, but the reality is that those are affecting every country in the world. Would he not admit that the exacerbating factor—the thing that has led most to economic decline, to massive labour shortages and to rampant inflation here in the UK—is Brexit?
Dame Diana Johnson (Kingston upon Hull North) (Lab)
The economy is in recession and the consequences for the public finances are not the fault of those people infected and affected through the contaminated blood scandal, the largest treatment disaster in the NHS. I was hoping to ask the Chancellor this question, but can the Minister confirm whether money has already been ringfenced to pay compensation to those people, as set out in the final recommendations on compensation by Sir Brian Langstaff in April 2023?
Bim Afolami
I believe that the right hon. Lady asked a similar question of the Chancellor at the last Treasury questions, and the Chancellor responded by saying that he was absolutely clear about the need to compensate people in the way that she has described. He will update the House in due course and indeed update her with further details in response to her question.
Dame Nia Griffith (Llanelli) (Lab)
The Prime Minister has failed to get growth and industry has completely lost confidence in this Government. With projects cancelled, HS2 cancelled, Building Schools for the Future cancelled, hospitals never built and an absolute failure to bring down high energy prices, it is no wonder that business investment forecasts are down. With the US and the EU incentivising investment, what is the Minister now going to do to get the investment we need in the green manufacturing industries of the future?
Bim Afolami
To increase investment we brought in full expensing at the last fiscal event, which should represent an increase over the forecast period of £14 billion of investment and deal with the chronic weakness of our economy over generations. That is what we are doing to increase investment. In relation to green investment in particular, what we are not doing is having a huge unfunded £28 billion plan—or maybe now it is not Labour’s plan; maybe it is a secret plan or maybe the Labour Front Benchers have stopped their plan. We have a responsible costed plan to increase investment; the Opposition do not have one.
Christian Wakeford (Bury South) (Lab)
Let’s try this again. Public sector net debt is set to rise from 89% of GDP this year to 92.8% of GDP in 2028-29, according to the most recent Office for Budget Responsibility forecast. In case the Minister does not understand, that number is higher than today’s. The Prime Minister promised to reduce debt, but it is increasing. The plan isn’t working, is it?
Bim Afolami
The Prime Minister and the whole Government are committed to reducing debt as we get to the end of this economic forecast period, which is what we are doing.
Justin Madders (Ellesmere Port and Neston) (Lab)
The Minister’s rosy picture of the economy shows a complete lack of awareness of what is actually going on in this country. He claims that the Labour party is somehow a risk to growth, but it is his party that has taken the country into recession. That shows a complete lack of self-awareness, too. That is the nub of the matter.
We are in a recession, yet the Chancellor is nowhere to be seen. I would have thought this was important enough for him to be here to answer questions. Given that growing the economy is yet another of the Prime Minister’s pledges that has not been met, who does the Minister think should carry the can for this failure: the Prime Minister or the Chancellor?
Bim Afolami
I will have to take the hon. Gentleman’s criticism of my self-awareness on the chin, but his broader point is serious. He is asking whether the Government and I are light-hearted or think that everything in the economy is absolutely fantastic, but it is not. That is why we have taken the measures that we have. It is why we cut tax for working people, beginning in January. It is why we are increasing business investment. It is why we had a more than £100-billion package of cost of living support, because we know how much many ordinary people in this country are suffering. And it is why we are trying to grow our economy overall, because that will result in greater prosperity for the country and more money for our public services. The Labour party puts all that at risk.
Janet Daby (Lewisham East) (Lab)
The Government are failing. An 81-year-old constituent told me that he cannot remember the economy and living standards ever being this bad. Can the Minister not see that, under his Government, Britain is worse off?
Bim Afolami
I do not agree with the hon. Lady. I will not repeat everything I just said to the hon. Member for Ellesmere Port and Neston (Justin Madders), but this Government and this Treasury are sticking to our plan for growth. That is all put at risk by the Labour party.
Richard Foord (Tiverton and Honiton) (LD)
The Office for Budget Responsibility assessed Boris Johnson’s trade and co-operation agreement, which sets out the trading relationship between the UK and the EU, at the beginning of last year, and it said that the TCA has reduced long-run productivity by 4%. Why does the Minister think that is?
Bim Afolami
We built on the trade and co-operation agreement through the Windsor framework, and the Opposition do not propose to change it. Indeed, the TCA is fundamental to the stability of our relationship with the European Union, and I do not think the country would benefit from unpicking it once again.
Jim Shannon (Strangford) (DUP)
I thank the Minister for all his answers. The questions have not been easy. The Office for National Statistics has revealed that there was a 0.3% decline in GDP between October and December 2023. Given that the strength of the economy was, and still is, the subject of one of the Prime Minister’s pledges, what steps is the Minister taking to reverse this decline, and to re-instil confidence in the Government’s economic plans?
Bim Afolami
I have already laid out the steps that we are taking, and there is a critical need to make sure that all the regions of our country benefit from those steps. That is one of the reasons why we put so much effort and focus into investment zones over the last couple of years. We hope that these investment zones will continue to increase growth in the economy, not only at a macro level, but for people in every region of this country—particularly in Northern Ireland and the other regions that perhaps did not benefit from this country’s previous growth. We are committed to strengthening that regionally.
Building Societies Act 1986 (Amendment) Bill
Bim Afolami ExcerptsWednesday 7th February 2024
(2 months, 3 weeks ago)
Public Bill CommitteesRead Full debate Building Societies Act 1986 (Amendment) Bill 2023-24 View all Building Societies Act 1986 (Amendment) Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts
Julie Elliott
I thank the hon. Gentleman for reminding me of that situation, which affected an awful lot of my constituents, as Northern Rock and the vast majority of its members were based in the north-east. People still tell me on the doorstep today that they lost literally tens of thousands of pounds. The issue of malpractice and bad practice within building societies is separate from what the Bill does. If things are not being run correctly, there are other checks and balances that came in after the Northern Rock crisis to stop that—particularly the protection for deposits up to £85,000. It is a relevant point, but the Bill will not make that possible again; I am quite sure about that.
The specified debt instruments are not named either. Notably, this function is not to introduce risk into the process—it is to help to support building societies to remain comfortably solvent at a time when they need it most. Proposed new subsection 7(3)(e) of the 1986 Act is quite clear about sale and repurchase agreements. Clause 1(3) inserts appropriate new definitions into section 7 of the 1986 Act and gives the Treasury power to make regulations specifying the detail of funds and Prudential Regulation Authority rules. The regulations will be subject to the negative resolution procedure.
The approach has been consulted on by His Majesty’s Treasury and was backed by industry. It is what the sector needs, and this clause has the power to unlock billions. The removal of these considerations from the 50% wholesale funding limit means that building societies that want to can run much closer to the 50:50 ratio than the 70:30 or 80:20 ratios they do now. That is where my point about unlocking billions comes from. When we look at how many people are supported already and what a difference giving that freedom to the building societies can make, we see there is huge potential to help many more people access a mortgage for the first time.
Clause 2 amends schedule 2 of the 1986 Act to modernise the building society sector’s relationship with its members in line with company law. It sets out the possibility of holding and conducting building society meetings in a hybrid way so that persons who are not present together in the same place may attend, speak or vote. First, that is important to allow access to meetings for those who are unable to attend in person due to health or geographical issues. For example, the Nationwide Building Society is, as the label says, nationwide, so having hybrid meetings opens up the ability for more people to attend, because a physical meeting can be held in only one part of the country. The situation may well be different for smaller, local building societies, but the change is still important.
The second main argument behind the clause is simply that the change brings the building society sector into line with businesses and retail banks as defined in the Companies Act 2006. Building societies should not be held to different standards. The important mitigation is that it is down to individual building societies to consider what is best for them; if a particular building society wants to make the change, its members will need to vote on it and agree to it. That means that the clause does not enforce anything, but gives building societies the ability to change if their members want it; it gives more flexibility. I hope that helps any Members who might have worries about the clause. It is about putting building societies on a more level playing field with retail banks, and it is what the sector has asked for.
Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with company law. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.
Finally, clause 4 states the territorial extent of the Bill, which covers all of the UK, and when the Bill will come into force. It also makes it clear that modifications of company law to which assimilation can happen as described in clause 3 cover those made both before and after the Bill comes into force.
The Bill does a lot for a sector that needs it and has asked for it. Building societies support millions of people up and down the country, and are much more adept at supporting first-time buyers than other parts of the sector. The Bill gives them much more flexibility to do exactly that.
The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to speak to the Bill and, as always, to serve under your chairmanship, Mr Hosie. I congratulate the hon. Member for Sunderland Central on introducing it and on reaching Committee stage, which is no mean feat in this place for a private Member’s Bill.
It is clear from the hon. Member’s remarks that the Bill has the noble aim of supporting the future growth and success of the building society sector. As she said, it will do a lot for building societies, which have asked for this legislation—and the Government and the Treasury strongly support them. As my hon. Friend the Member for Mid Norfolk described, building societies are some of the best in the financial services sector for benefiting local connected communities, and that is the sort of activity we want to encourage.
The Bill will help by modernising legislation so that building societies can have more flexibility around their funding and certain corporate governance requirements. That delivers on the key asks from the sector. As the hon. Member for Sunderland Central said, it is rare that something gobbledegook can have a positive impact on people’s lives, but the technical amendments in the Bill—particularly around capital requirements, which I will explain briefly—will have a positive impact on the ability of building societies to contribute to their local communities in all our constituencies.
As member-owned financial institutions, the 42 building societies in this country work to support the financial resilience of communities throughout the length and breadth of the UK, because they encourage savings and responsible lending, and promote financial literacy and inclusion, which often gets lost. They also play a vital role in supporting their members to buy their own homes, and the hon. Member for Sunderland Central has spoken about the potential for the sector to further support first-time buyers. The Bill achieves all that by making provisions in three areas, which she has already set out, so I will give a shortened version.
First, the Bill amends section 7(3) of the 1986 Act. The year 1986 was a very—
Bim Afolami
Exactly—an auspicious year for me.
The Bill amends section 7(3) of the 1986 Act to exclude three specified sources of funding from the 50% wholesale funding limit for building societies. By excluding these sources of funding from the wholesale funding limit, building societies will be able to raise additional wholesale capital, which strengthens their arms to compete with retail banks while promoting competition within the financial services sector.
Mrs Natalie Elphicke (Dover) (Con)
My hon. Friend the Member for Mid Norfolk mentioned Northern Rock, which was a bank, not a building society, when it failed. Does the Minister agree that the provisions being brought in will allow greater access to capital so that building societies can flourish, while keeping in place the checks and balances that have made building societies so much better at being able to respond to the financial crisis than we saw with some of the banks?
Bim Afolami
It is worth explaining the dynamic, because it is not straightforward. In essence, the point of the Bill is to level the playing field between building societies and retail banks in this key area. Resilience, in terms of capital, will not be lower for building societies than for any of the retail banks with which we are all very familiar. That is the first point. The controls that are applied to retail banks by sophisticated people with sophisticated mechanisms will have the same capital requirements as building societies—so I agree with my hon. Friend.
Building societies will still be required to hold specified sources of funding for regulatory purposes. That is the key point. The reason we have the capital limits is that, if a shock happens—however rare or unusual that might be—we need to make sure that there is enough of a buffer of capital so that the building society or, indeed, the retail bank does not go bust. Over the last 15 years, we have been through a huge programme of reform to broadly increase the levels of capital by many multiples of what was required in the 2000s, so that that does not happen. Building societies will adhere to that in the same way as our retail banks. Moreover, building societies will still be required to ensure that at least 50% of their funding comes from their members—again, that is a critical way in which buildings societies are different from a typical retail bank—which ensures that the Bill has no impact on building societies’ important and unique ownership model.
Secondly, the Bill amends the 1986 Act to allow the option of real-time virtual member participation at building societies’ meetings, which, as everybody can appreciate, now happens across the corporate sector—it does not happen in Parliament, but that is for another day. This amendment can help to modernise the day-to-day practices of building societies, promoting wider membership engagement by making such meetings more accessible to a greater number of members. That matters particularly for building societies, because they have a membership model; the point is that members find them accessible and know what is going on.
Given that members can do things digitally and more flexibly in other areas of their lives, this small measure can have quite a big and positive impact on participation, but it is worth stressing that the decision on whether to hold hybrid meetings will be up to the members of each individual building society; the Government are not imposing the requirement for endless Zoom calls. If that is what people want, they can have them—they just have to vote in favour of making the relevant changes to the society’s rules by special resolution, which, if I recall my company law properly, requires passing a 75% threshold.
Thirdly and finally, the Bill will provide the Treasury with the powers to further align the constitutional provisions in part 2 of the 1986 Act that concern common seals and the execution of documents with modifications to company law. I do not need to explain to the Committee that common seals have sort of fallen out of general usage—although I have often fancied having one, because I think it would be rather fun to stamp various documents, rather than sign them. But that is now the past and we are bringing building societies into the modern day, which is positive.
Overall, the Bill will help to deliver important amendments to the Building Societies Act 1986 by modernising the legislation so that building societies can compete with retail banks, better serve their members and, to be perfectly frank, better serve the communities they are set up to support. The Government are fully committed to ensuring that all subsequent secondary legislation, which will be subject to parliamentary timetabling, is enacted as soon as possible. I commend the Bill to the Committee.
Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024
Bim Afolami Excerpts(2 months, 3 weeks ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 (S.I., 2024, NO. 69).
It is a pleasure to serve under your chairmanship, Sir Robert. The Government recognise the threat that economic crime poses to the United Kingdom and are committed to combating money laundering and terrorist financing. Our commitment is recognised around the world. Illicit finance undermines the integrity and stability of our financial sector and can reduce opportunities for economic growth and legitimate business in our great country. The Government are bearing down on kleptocrats, criminals and terrorists who abuse the UK’s financial services sector. The Economic Crime and Corporate Transparency Act 2023 built on the Economic Crime (Transparency and Enforcement) Act 2022 to ensure that the UK has robust, effective defences against illicit finance.
At the centre of the UK’s legislative framework for tackling money laundering and terrorist financing are the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which set out various measures that businesses must take to protect the UK from illicit financial flows, such as conducting enhanced checks on business relationships and transactions with high-risk third countries. The 2023 Act changed how high-risk third countries may be defined under the 2017 regulations, and this statutory instrument implements that change. It removes the separate list of countries from schedule 3ZA and replaces it with an ambulatory reference to those countries listed by the Financial Action Task Force, which is the global standard setter for anti-money laundering and counter-terrorist financing. In practical terms, that means that countries listed by the Financial Action Task Force will automatically be in scope of obligations under these regulations.
By taking this approach, which was passed in the 2023 Act, we will ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing. Where countries have made significant progress to improve their defences against illicit finance, it is equally important that we recognise that and promptly remove such countries from the scope of high-risk countries in UK legislation.
Ahead of this update, the UK and Financial Action Task Force lists were already aligned. Indeed, the Government have always updated the UK list, since its creation in 2021, to reflect changes to the Financial Action Task Force list. The SI does not add or remove any countries from scope or change the obligations of regulated businesses. It delivers on Government policy in a streamlined way, ensuring automatic alignment with the Financial Action Task Force list without the need for frequent, routine secondary legislation coming to Committee Rooms such as this, enjoyable though the process is.
The SI also ensures that firms will be notified in a timely manner of updates to the lists and their obligations, thereby keeping them up to date as risks change. I reassure the Committee that if at any time the Government sees it fit to deviate from the Financial Action Task Force list, we retain the authority and autonomy to do so. In such cases, a statutory instrument will be brought before Parliament for consideration in the normal way. The measures in respect of high-risk countries are an important mechanism to mitigate the risks posed by illicit financial flows from overseas. We will continue to use them and the other tools available to respond to wider and emerging threats from other jurisdictions, including by applying financial sanctions as necessary.
The instrument will enable the 2017 regulations to continue to work as effectively as possible to protect our financial system. It is crucial in protecting British business and the financial system from money launderers and terrorists financers, so I hope colleagues will join me in supporting it.
Bim Afolami
I thank the Committee for its broad support. Let me answer the questions that Members have put to me.
The first question was about how one practically manages the process of including countries or not. Broadly speaking, the Financial Action Task Force is the centrepiece for how most countries—all the G7 countries and many others—deal with illicit finance. We do it in such a collaborative way globally because, frankly, in the modern world we can tackle illicit finance only by working in strong, close partnership with other countries. It is quite important that we have a degree of alignment on how we do that, but we of course retain the right as a sovereign nation, as everybody in the House would agree, to individually put countries on the list if we choose to. The instrument is a common-sense measure that will make it easier and faster to do that, rather than our having to wait for gaps in parliamentary time. Recesses and various other things come up that could mean there is a critical gap and illicit finance could get through defences. That is why we are doing this.
In response to the point made by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East about writing to the House, we will deposit a notice in the Library when we have done so, so that the House is kept fully informed.
On how the change is being communicated to businesses, the Treasury has active and frequent discussions with the private sector on this and many other matters, so Members should rest assured that businesses and financial institutions are kept closely up to date with what is going on. That is in addition to the publication of an advisory notice, which will be made when any countries are or are not put on the list.
I will have to write to the hon. Member for Cardiff South and Penarth on his point about the situation in Iran. I do not want to inadvertently mislead the House in any regard—I want to be very precise in my answer—so I will write to the hon. Gentleman about his questions in that regard.
On the Crown dependencies and overseas territories, we are committed to working with the overseas territories to tackle illicit finance, and we have long engaged with them on ways in which to do that. We continue to engage with the British Virgin Islands for its ongoing mutual evaluation, and we have supported it with its evaluation process. The BVI’s mutual evaluation report will be published after the quality and consistency checks required by the Financial Action Task Force. I cannot comment any further in relation to the BVI, but more broadly we are closely working with the overseas territories and Crown dependencies to ensure that they satisfy all the things that the Financial Action Task Force requires.
Stephen Doughty
In another capacity, I serve as the shadow Minister for the overseas territories. Will the Minister say a little about whether he will publish a list of how exactly the measures apply to all of the overseas territories, where compliance is and what governance mechanisms are in place? OTs and Crown dependencies obviously have different mechanisms for applying UK law; are they doing this by themselves or are we doing it for them? Will the Minister explain that in a bit more detail, perhaps in writing?
Bim Afolami
I am happy to follow that up, but I know that the Crown dependencies and overseas territories are subject to the same rules as any country in relation to the Financial Action Task Force, which is the centrepiece of the whole way in which we tackle this issue, so dealing with them is no different from dealing with any of the countries that are so listed—indeed, I have talked about the BVI. I am happy to follow up in more detail as the hon. Gentleman requires.
In conclusion, the Government are taking focused action to tackle economic crime. We know that the House is united on tackling illicit finance and we strongly support that. I have listened carefully to Members’ contributions, and it is the Government’s view that this statutory instrument will ensure that UK legislation remains up to date and best delivers on policy commitments. The new definition of high-risk third countries means that the UK automatically reflects changes to Financial Action Task Force lists, putting us entirely in lockstep with the international community on this issue while retaining the ability, if we so choose at any time, to put a country on or off our list.
Stephen Doughty
I appreciate the Minister’s generosity in giving way before he sits down. One issue that we have regularly raised regarding our sanctions regimes is the failure to actually prosecute or take forward implementation actions. I do not expect the Minister have the answer in front of him right now, but perhaps he could also outline in writing to the House—to myself and the Library—how many enforcement actions have been brought under the regime to date, and what the implementation mechanism will be for this measure. It is all very well to have the legislation and regulations in place, but unless we provide a deterrent effect against those who would seek to evade such measures, we are not going to be implementing the full picture.
Bim Afolami
I am happy to follow up with the absolute number—again, I do not want to get that wrong in Committee. The Financial Action Task Force takes the approach of working with countries to help to improve their systems. It is not an overtly punitive or aggressive approach; it is an approach that says, “How do we help to support you to make your systems less vulnerable to illicit finance and financial crime?” Of course, when we are dealing with private sector entities that seek to evade rules, they fall under the criminal sanction, as one would expect. I am happy to write to the hon. Gentleman about the precise number that he asks for; I would not want to get it incorrect. With that, I commend the regulations to the Committee.
Question put and agreed to.