The Economy
Bim Afolami Excerpts(7 months ago)
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The Economic Secretary to the Treasury (Bim Afolami)
With permission, Madam Deputy Speaker, I would like to make a statement on the economy, following the release of inflation data by the Office for National Statistics this morning and the conclusion of the International Monetary Fund’s annual article IV mission to the UK on Tuesday.
The ONS data released today shows that consumer prices index inflation has fallen to 2.3%—a return to normal levels last seen before the pandemic and Russia’s invasion of Ukraine. Earlier this week, the IMF said that the UK economy is “approaching a soft landing”. It upgraded its forecasts for UK growth in 2024, having seen lower inflation accompanied by stronger than expected growth in the first quarter. These developments are proof that the Government’s plan is working, the difficult decisions we have taken are paying off and the UK economy really is beginning to turn the corner.
Let me start with the inflation figures. When the Prime Minister came to office less than two years ago, inflation was over 11%. The fall to 2.3% means that we have seen the fastest fall in inflation in nearly half a century. The UK now has a lower inflation rate than the United States, France and Germany. Food inflation is at its lowest level since November 2021, having fallen for 13 consecutive months, and staples such as milk, cheese and eggs are now cheaper than they were this time last year, although there is more to do. Energy bills have also come down, with the price cap for the typical annual bill now over 25% lower than a year ago, although they are still above where they were in 2021.
The fall in inflation has not happened by accident. The Government have had to make difficult decisions to get us to this point, as well as supporting the Bank of England as it has acted to bring down inflation sustainably. We have reduced borrowing, which is now forecast to fall in every year to 2028-29, and we are acting to boost growth without generating inflation. We have frozen fuel and alcohol duty, which the Office for Budget Responsibility estimates will reduce inflation by 0.2% in this financial year. Moreover, in the face of widespread pressure we have reached fair pay deals for public sector workers, instead of doing what the Labour party would have done: cave in to inflation-busting pay demands. We must always remain vigilant when it comes to inflation, but today’s numbers show the benefits of sticking to our plan. We know that recent years have not been easy for people, but with wages having now grown faster than inflation for 10 months in a row, families around the country will start to see their money go further.
And we are doing more, because on this side of the House we recognise that while the tax rises of recent years may have been necessary at that time of crisis, they should not be permanent. We will do the hard work to bring taxes back down, because we know that to do so will lead to more growth for our economy. My right hon. Friend the Chancellor has already delivered tax cuts worth £900 for the average worker. Since 2010, the effective tax paid by somebody on an average salary has fallen under Conservative Governments from 24% to 19%. Combined with national living wage increases, that means the after-tax income of somebody on the lowest legally payable wage has gone up by 35% in the same period. Labour’s approach is different. All Labour Governments since the 1970s have increased the tax burden in both good times and bad. Given the fiscal rules Labour has set, the only way for it to pay for its spending commitments would be to raise taxes by considerably more than the £20 billion of tax increases they have already outlined.
I will now turn to the IMF’s annual article IV mission to the UK and what it said about the Government’s other economic priority, beyond inflation, to deliver growth and opportunity for the whole United Kingdom. The IMF’s message was, overall, a positive one. We have seen growth of 0.6% in the first quarter of this year that is stronger and more broad-based than many independent forecasters expected, and no other G7 country has grown faster in the first quarter on a quarter-by-quarter basis. The IMF has upgraded its forecast for the whole of this year from 0.5% to 0.7%, and in April said that the UK is expected to see the fastest cumulative growth of any major European economy over the next six years. That is partly the result of our focus on areas that the IMF says are critical to delivering sustainable economic growth: boosting jobs, boosting the labour supply and increasing business investment.
We already have a proud record on jobs. The president of the CBI recently described the UK as a job-creating factory. That is because, over the last 14 years, we have built one of the most flexible, dynamic labour markets in Europe. But we cannot take that for granted and we cannot let the Labour party impose new burdens on employers, which would turn a job-creating factory into a French-style inflexible labour market. Unemployment in France, as it so happens, is nearly double that of the United Kingdom—indeed, not far off where it was in the UK under the last Labour Government. We must not turn the clock back. The OBR estimates that cuts in national insurance will bring the equivalent of 200,000 more people into the workforce—enough to fill nearly a quarter of the vacancies in our economy.
We are reforming welfare. Labour has said it is against welfare sanctions—fair enough, that is its position—but that will mean more people on our welfare rolls, not less. The reforms of the Secretary of State for Work and Pensions will help 1 million people move from welfare into work, at a cost of £2.5 billion. Meanwhile, the introduction of full expensing, the biggest business tax cut in decades, will boost business investment by £15 billion in the coming years and give this country the most generous capital allowances in the OECD.
There is more to do, and the IMF is right to point out that further bold reforms will be needed and that boosting growth and productivity is the key challenge for the United Kingdom. However, in the words of the IMF’s managing director, the UK is in a good place. Inflation is back to more normal levels, growth is picking up, wages are rising and we are cutting taxes. The plan is working, and the difficult decisions that have been taken by the Government are starting to pay off. Now is not the time to change course, because given Labour’s policies on jobs, welfare reform and tax, we know that the difference, if it is elected, will be profound and damaging for every family in the country.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
I thank the Minister for advance sight of his statement.
Of course it is welcome that the rate of inflation is finally slowing after three years of the Government missing every single target, but the tone-deaf victory lap we are seeing from the Government today will feel like a slap in the face to the British people who, after 14 long years of Conservative chaos, are still significantly worse off. While Conservative Ministers are popping champagne corks over the rate of food price rises, the cost of the typical family shop has gone up by nearly £1,000 since 2019—so those families will not be celebrating—and while the Chancellor and the Prime Minister gaslight ordinary British families by suggesting that the cost of living crisis is over, the costs for a two-earner household are more than £150 a week higher than they were before the last election.
The Minister claims that the economy has turned a corner, but in reality the Conservatives’ record on growth has been nothing short of pitiful. If the UK economy had grown at the average rate of the OECD in the last 14 years, it would now be £140 billion larger—that is not just about lines on a graph; it would have meant an additional £50 billion in tax revenues to invest in our public services, and more money in working people’s pockets.
I noted with interest that the Minister quoted selectively from the IMF’s report. In that report, which he cited so triumphantly, the IMF confirmed that under the Conservatives the UK was suffering from the lowest growth in the G7, and just this week the IMF said that the longer-term growth prospects of the UK “remain subdued”. This is the Conservative party’s legacy: a poorer Britain, working people worse off, and the public realm in disarray. I think the Minister may also be slightly confused about his Government’s record on tax. On the Conservatives’ watch, the tax burden is the highest in 70 years, and under the Prime Minister’s tax plans households will, on average, be £870 worse off by 2028. Those are the statistics that the Minister missed out.
In contrast to the Conservatives, who have consistently failed to explain how they will pay for their £46 billion unfunded commitment to abolish national insurance, we in the Labour party have ensured that all our plans are fully costed. Let me also make it clear that a Labour Government would not be celebrating the inflation target finally being met for the first time in years. We would not be doing a tone-deaf victory lap for overseeing a decade and a half of stagnant growth. Instead, we have pledged to deliver economic stability with tough spending rules so that we can grow our economy and keep taxes, inflation and mortgages as low as possible.
The choice at the next election is clear: five more years of chaos with the Conservatives or stability with a changed Labour party. That is why the Government are running scared. Time after time, they have chosen to bottle it rather than go to the country, but I hope that, today of all days, the Prime Minister will do the right thing. It is time for this exhausted and failing Government to step aside in the national interest, call an election, and let the responsible party take charge.
Bim Afolami
Let me start by welcoming the shadow Minister’s remarks, and by saying that no one on the Government Benches—certainly not me—feels that times are not still tough for many millions of people. We are acutely aware of that, which is why we have worked so hard over the last few years to make the difficult decisions that are required for us to guide the country through the difficulties wrought by covid, the biggest pandemic in 100 years, and by the energy shock from the war in Ukraine. No one on this side of the House minimises the difficulties that people have gone through and that many are still going through.
Let me pick up a couple of points of fact. The hon. Lady quoted the IMF, and she mentioned selective quotations. I am afraid that she wins the prize on that one: the IMF was very clear about the fact that over the next five or six years, the UK will be the fastest-growing country in the G7 apart from North America. She also mentioned confusion. I think that she and her party are the ones who are confused: they are confused on the question of taxes. We have scored Labour’s tax plans, and they amount to an extra £2,094 over four years for the average person. Labour Members say that they want to grow the economy, and they say that they are pro-business—at least, that is what they tell business people outside the House—but they are putting in place a workers plan, led by their deputy leader, that will impose 70 new regulations on small businesses, far more power for trade unions and day-one rights on employment, and will ban flexible working. It will damage many of the things that make small businesses in this country successful.
Let me end by saying this: if we want a Government who will cut inflation further and grow the economy, we should not increase borrowing and increase taxes like the Labour party.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the Chair of the Treasury Committee.
Dame Harriett Baldwin (West Worcestershire) (Con)
I welcome the Minister’s statement, which was crammed with useful facts and statistics. Yesterday, our Committee met representatives of the IMF in private, and we had a very interesting and informative discussion. As for yesterday’s report, the IMF points out that none of this good economic news would be happening had it not been for decisions made in previous Budgets. In particular, it states that the Government
“have delivered several helpful measures over the last three budgets…investment tax reliefs for businesses to boost investment, an expansion of childcare, and active labor market policies.”
This good news is not happening by accident; it is happening because a plan is in place, and the plan is working. Does the Minister agree?
Bim Afolami
I do agree, but let me draw attention to a specific point that is often ignored. The Chancellor’s decisions over the last two fiscal events have set the country up for growth in the future. My hon. Friend mentioned the policy on business expensing; that was a £10 billion tax cut for business. She mentioned childcare policies; those have helped millions of working families up and down the country. It is because of the cumulative effect of a series of important measures that we are able to stand up here today and say that while we are not there yet, the economy is starting to turn a corner.
David Linden (Glasgow East) (SNP)
I, too, thank the Minister for advance sight of his statement.
The Government, understandably, would like to paint the latest inflation figures as a win, but I think the House will forgive me if I do not join them in their victory lap. The reality for numerous households across Scotland, many of whom are continuing to struggle, is that the cost of living crisis is far from over, and people are still feeling the pinch in their pockets. Food bank usage is skyrocketing, and mortgage rates are soaring. For people in Scotland, that is the cost of living with Westminster.
The inflation of the past three years has seen prices rise by 19% when they should have risen by 6%. Of course, falling inflation does not mean that those prices will now fall. With figures like this, it is little surprise, is it not, that polling this week showed that just 9% of people across the UK believe that the cost of living crisis is over?
On Friday, I attended a food bank drive at Asda in Parkhead, where residents were donating in their droves to Glasgow NE Foodbank in recognition of the fact that many of their neighbours simply cannot afford to eat. I have one simple question for the Minister: does he not realise that today’s statement, and all the fantoosherie that goes with it, absolutely flies in the face of the reality for many people who are still struggling today in 21st century Britain?
Bim Afolami
My response to the hon. Gentleman, whom I respect deeply, is twofold. First, we are at an inflection point and the job is not complete. We know that many millions of people are suffering, which is why we are continuing to improve their incomes through cutting their taxes. It is why we are continuing to make sure that small businesses around this country can thrive, and why we are continuing to put more money into our public services and, indeed, to reduce inflation. We know that the job is not done.
Secondly, many people have had to suffer as a result of the difficult decisions that had to be taken over recent years because of the generationally unique shocks that we saw. It has been up to this Government to guide and help the country through that, which is what we will continue to do in the weeks and months ahead.
Sir Liam Fox (North Somerset) (Con)
Inflation is now lower than in France, Germany or the eurozone, growth has been upgraded by the IMF, and Britain has become the world’s fourth biggest exporter, overtaking the Netherlands, France and Germany. Employment is at a historically high level, and the UK is the third biggest destination for inward investment globally. On financial services investment, we are top, attracting 108 projects last year, compared with France’s 39 and Germany’s 38. I wonder whether my hon. Friend can correct me—or did I miss the post-Brexit apocalypse that many, including the Treasury, predicted?
Bim Afolami
My right hon. Friend has put that incredibly well. Very good things have happened to our economy over recent months, particularly in my own area of financial services. I would add that many Members, on both sides of the House, were concerned about the impact of Brexit on the British economy. As he suggested, our record shows that this Government have been able to guide the country through the post-Brexit period and towards better times than ever.
Dawn Butler (Brent Central) (Lab)
Sometimes this House really is a theatre. The Minister has come to the Dispatch Box all jubilant, but my constituents queue outside food banks for hours, from nine o’clock in the morning until nine o’clock at night. Prices are more expensive than when the Tories first took office. This Government have had 14 years and they have destroyed the economy. People are paying £250 more a month on their mortgages, according to the Bank of England. I cannot believe that the Minister is saying that things are going to get better. Ultimately, I hope that, in a few hours, the Prime Minister will be outside No. 10 and call a general election. People can then make a choice and vote Labour.
Bim Afolami
My response is that this Parliament has seen an unprecedented hit to people’s living standards because of covid—a once-in-100-years impact. Might I remind the House that this Government spent £450 billion in supporting the economy? We supported people through programmes such as furlough, supported small businesses through discretionary grants, and supported the NHS. There are so many things that were opposed by the Opposition.
Labour Members mention borrowing and taxes. If it had been up to them, we would have been in lockdown for longer. If it had been up to them, we would have borrowed more. If it had been up to them, they would not have made the decisions that we had to make—tough decisions on public sector pay that meant that, by working in partnership with the Bank of England, we could bring inflation down. We are at an inflection point and not everything is complete—we are not there yet—but the economy is starting to turn a corner through the leadership of this Government.
Sir Robert Syms (Poole) (Con)
Over recent months, we have had a number of statistics on the economy that have been unalloyed good news for this country. It is good news that the economy is doing better, that inflation is down, that growth is up and that trade is up. That makes us all richer, and provides more jobs and employment, which should be rejoiced in by everybody in this House, including the Opposition, who might actually end up in government and inherit the benefits of some of the things that this Government are doing. In truth, I am always a little surprised by how miserable the Opposition get when good news comes along.
Bim Afolami
My hon. Friend makes an important point about those on the Labour Benches. I must admit that I disagree with him on one key point: the idea that they might inherit this. We are not complete yet. We know that the economy still needs to continue to turn and that inflation needs to come down. We hope that that will lead to falling interest rates in due course, and that the measures we have put in place will come to fruition over the next Parliament.
Patricia Gibson (North Ayrshire and Arran) (SNP)
The UK economy is smaller now, and living standards are lower now, than at the start of this Parliament—the first time this has ever happened. Does the Minister agree that it is a sign of the Tories’ increasing desperation that they consider it a cause for celebration that the UK economy has stopped shrinking? Growth is still lower than in Europe, Asia, the Americas and Australia, and we continue to pay the price of Brexit and Tory incompetence.
Bim Afolami
I am afraid I disagree with the hon. Lady on points of fact. I have already set out so many statistics that show that things are significantly improving in the economy, and at a faster rate than that experienced by most of our competitors in Europe. I completely disagree with her assessment.
Richard Fuller (North East Bedfordshire) (Con)
The Minister was right to update the House on the positive progress that we are making with inflation; right to make the point that people are continuing to find economic difficulties, and that we need to stick with the Prime Minister’s plan; right to point out the terrible risks to the economy posed by the Labour party’s polices on labour markets and taxes; and right to say that there have been external factors, and that policies to tackle one-off external factors are different from one’s policies looking forward.
This Government have ended the period of quantitative easing, or printing money, and moved to quantitative tightening, or paying back money. The IMF’s report says that, by 2025, the balance sheet for the Bank of England should be settled. Will the Minister look at the longer-range forecasts that the Office for Budget Responsibility has put out, and see what flexibility they provide for the Government to cut taxes or increase expenditure?
Bim Afolami
I thank my hon. Friend for a characteristically thoughtful and informed question. I will indeed look at what he said about the Bank of England’s balance sheet being settled by 2025, and I will talk to him about that in due course.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
Like the Chancellor, the Minister likes to talk about the difficult decisions that Conservative Administrations have made. The cost of a family shop has risen by £1,000 since the last election. The difficult decisions are the ones that families in Newcastle have to make every time they go to a supermarket. Is it not the case that the decisions that his party has chosen to make—austerity, stealth taxes on working people, and crushing growth out of the economy before crashing it altogether—are why my constituents are worse off?
Bim Afolami
I am afraid I disagree with the hon. Lady. It is very important that this House recognises and admits that, because there was a once-in-a-generation pandemic that cost the Government over £400 billion in supporting people, it was necessary for the tax burden to rise for a time to help pay for that. That was a difficult and responsible decision. Now that we have moved into a period of relative calm, there is choice about what we want the economy and our fiscal position to look like over the medium term. On this side of the House, we choose high business investment, high growth and lower taxes on working people, whereas the Opposition choose more union power, higher borrowing and higher taxes. I think the British public are going to stick with us.
Mr Louie French (Old Bexley and Sidcup) (Con)
The latest UK economic data is welcome news, with inflation falling again, real wages rising and the UK forecast to grow faster than many of its peers. The International Monetary Fund is now recommending that the Bank of England cut interest rates, and I agree. What does the Minister think of the IMF’s view?
Bim Afolami
As my hon. Friend knows, it is for the Monetary Policy Committee of the Bank of England to determine the policy on interest rates, but we hope that working in partnership with the Bank of England to cut inflation will mean that at some point later in the year interest rates will start to come down, as the IMF has suggested, as a result of inflation being at target.
Florence Eshalomi (Vauxhall) (Lab/Co-op)
In response to the Minister’s last reply, even if interest rates are cut later this year, that will not make an impact for a number of my constituents in Vauxhall. According to the Bank of England, people have seen their mortgage and rent go up by over £240 a month, as my hon. Friend the Member for Brent Central (Dawn Butler) said. Over 10.1 million people are falling behind on their bills, according to research by Stop the Squeeze. The Resolution Foundation has found that annual bills in 2024 are now 67% higher in real terms than in 2021. This is not a time to celebrate. I know that, at my advice surgery in a week’s time, my constituents are going to come to me raising these issues. The fact is that they cannot afford to heat their home or keep up with their bills. Yes, these statistics may look good, but will the Minister accept that for real people this is another slap in the face?
Bim Afolami
What I will certainly accept is that there are millions of people in this country for whom the cost of living crisis is still real. That is why we are taking the action that we are taking. That is why working people—[Interruption.] As a result of cutting national insurance, a person on an average salary is £900 better off than they would have been a year ago. That is why we are focusing hard on making sure we bring down borrowing, rather than increase borrowing as planned by the Labour party. What I would say to the hon. Lady’s constituents if I were to speak to them at her surgery is that the economy is on the right track, that we are at the point where the economy is starting to turn the corner and that, if they go with Labour’s leadership, things are going to get a lot worse. That is why we need to keep on the plan that we have set out.
Dr Neil Hudson (Penrith and The Border) (Con)
I thank the Minister for the encouraging economic update. It is so disappointing when we get good news on the economy and it is talked down by the Opposition. Inflation coming down to 2.3% really shows that the economic plan from this Government is working. With national insurance reductions, pensions increases, boosting jobs and a growing economy, does he agree that it is only the Conservatives that can be trusted to manage the economy soundly?
Bim Afolami
I agree with my hon. Friend, who is a fantastic champion for his constituents in this House, as everybody in this House knows. The only thing I would add to what he has said is that we on this side of the House know what it is to take responsible decisions and take them for the long term.
James Sunderland (Bracknell) (Con)
Given the global macro-shocks faced during this Parliament, particularly the pandemic and the Russian invasion of Ukraine, it is quite remarkable that we have got inflation back down to 2.3%. It is testament to good fiscal policy, and we are leading the way within the G7. Does the Minister agree that, for those constituents living in Bracknell Forest who want low inflation, higher employment, higher wages and higher growth, sticking to the plan is absolutely the right thing to do?
Bim Afolami
My hon. Friend is a brilliant champion for Bracknell Forest, a part of the country that I know well, and I completely agree with his remarks.
Jack Brereton (Stoke-on-Trent South) (Con)
This positive economic news is extremely welcome, and I have also welcomed the action taken by the Government to reduce the amount of tax on working families. Given this positive economic outlook, will my hon. Friend speak to the Chancellor about increasing the personal tax allowance, particularly to help working families but also to take more pensioners out of paying tax?
Bim Afolami
As my hon. Friend knows, the Chancellor keeps all taxes under review. I will ensure that he has heard my hon. Friend’s comments and pleas.
Sir Christopher Chope (Christchurch) (Con)
Does my hon. Friend accept that today’s good news would have been even better if the Government had implemented the public sector exit payments restrictions that were legislated for in 2016 and were the subject of a consultation that ended 17 months ago, in respect of which they are apparently unable to agree a response? Surely the Government should be able to do something about this and save the £2 billion that this has so far cost. Is not this an example of a proposal being sabotaged by the civil service?
Bim Afolami
I have been in correspondence with my hon. Friend a few months ago on this very question, and I would be happy to engage with him on it again.
Madam Deputy Speaker (Dame Rosie Winterton)
I thank the Minister for his statement.
Royal Bank of Scotland Branch Closures
Bim Afolami Excerpts(7 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I commend the hon. Member for Edinburgh North and Leith (Deidre Brock) on securing this debate. I know this subject is important to many of her constituents, and indeed to those of many other Members.
Just two weeks ago, I responded to an Adjournment debate on branch closures. I want the House to understand that I have been working on this issue a lot in my brief, so I am very familiar with the issues that have been brought up. As I said then, and say again today:
“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.”—[Official Report, 24 April 2024; Vol. 748, c. 1111.]
We all recognise that banking has changed significantly in recent years, as the hon. Member outlined. The shift towards online and mobile access, although not complete, is significant, and it has given customers many more ways to access banking services conveniently and securely. Customers have clearly taken up those opportunities. Recent FCA data shows that almost nine in 10 adults banked online or used a mobile app. By contrast, roughly a fifth of adults regularly use a bank branch. That fifth is very important—I do not want the House to misunderstand me—but it is important to set out the scale of the change we have seen in quite a small number of years.
That does not mean that we should do away with in-person banking services, which remain critically important for many people, not just for access for cash, which I will talk about, but because of the intangible social role they play in the high street. I recognise that, as do the Government. The Government have taken steps in law to protect access to cash—indeed, we are the first Government to do so. The Financial Services and Markets Act 2023 established the FCA as the lead regulator to deliver that, and gives powers to the FCA to ensure the reasonable provision of cash withdrawal and deposit facilities, including free services, to individuals. Following that, the Government published a policy statement setting out their policies on access to cash. The FCA must have regard to that as part of a regulatory approach. That statement sets out that people and businesses should be no further than three miles from a free cash access point.
The FCA recently held a consultation on its proposed regulatory regime. Under the proposals, designated banks and building societies will be required to assess and fill gaps, or potential gaps, in cash access provision that significantly impact consumers and businesses.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
The Minister makes the point about the distance that people have to travel to get to their branches. The county of Sutherland is 2,028 square miles, and we have only one branch. My plea is very simple. Governments come and go, in both Edinburgh and London, and I wish the Minister well on a personal level; I just ask that officials in the Treasury are made aware of that statistic about Sutherland, and that they bear it in mind when they think about branch closures, whatever happens in the future.
Bim Afolami
I appreciate that intervention from the hon. Member. I will say to him, very directly, something that I was going to say later in my speech. In the case of rural constituencies—he mentioned his very rural constituency—I think that the assessment criteria used by Link for banking hubs, working with Cash Access UK and looking at this whole issue of access to cash, need to be amended. I have communicated that to the industry, and I hope that, over the coming weeks and months, that will happen. It is clearly not working, in a relatively small number of instances in rural areas, where the rules do not appear to be flexible enough. I think that would be useful.
Carla Lockhart (Upper Bann) (DUP)
Since 2020, 50 banks in Northern Ireland have closed and only one banking hub has opened. Does the Minister agree that that is just not acceptable? The criteria do need changing. We have heard great plans from the Government to help to change it, but when will that happen? When will the criteria change, and when will the Government take this on board?
Bim Afolami
I am very happy to speak with the hon. Lady about the challenges that Northern Ireland has in this regard—the statistic she outlined speaks for itself. In relation to the criteria, this is an industry-led set of rules—the Government do not determine which banks’ branches open or shut—but there is definitely much more work that we can do, working with the industry, to see whether we can improve things.
The industry has come out, through UK Finance, and said that, over the next 18 months, more than 225 banking hubs will be opened. That will mean a rapid increase in the speed at which banking hubs will open compared with recent years, and the industry is committed to that. However, I am very happy to have a conversation with the hon. Lady about Northern Ireland in particular.
To respond to the hon. Member for Edinburgh North and Leith regarding the Equality Act 2010, like all service providers, banks and building societies are indeed bound by the Act, and it is not our judgment that they have somehow contravened it. They are bound to make reasonable adjustments, where necessary, in the way that they deliver their services.
In the time remaining to me, I would like to talk a little bit about banking hubs in particular, because I think they have been a unique proposition and have proved, in most cases, very popular where they have appeared. The issue has been, “Let’s get them faster and let’s have more of them.”
Sarah Dyke
I have already mentioned that, in my constituency, many banks have been closing and many market towns have been left without a bank, but many businesses are also really concerned about the lack of banks in their areas. People still want to use cash, and businesses are still taking cash, but they now need to travel many miles across the constituency at the end of the working day to deposit their cash safely. Will the Minister comment on how his Department proposes to manage the negative impacts on some of our vibrant businesses—such as those in my constituency—that make up our villages and towns, which will now have to travel much further to deposit their cash safely?
Bim Afolami
My response is, in part, to repeat what I have already said, which is that we were the first Government to legislate on access to cash in law, through the Financial Services and Markets Act 2023. That sets out that people should be no more than three miles away from access to cash. In relation to banking hubs and the ability of small businesses to use bank branches or a banking hub, that is why banking hubs are so important. These hubs help people and businesses to withdraw and deposit cash, pay in cheques, and check their balances through the post office counter. They 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.
The hubs are deployed by Cash Access UK—the company owned and funded by nine major high street banking providers—in response to an assessment of the community’s cash needs by Link, the co-ordinating body that sets the criteria. As I have already explained, I think that in many instances that criterion needs to be changed by the industry, and I hope that it will do so. To ensure that there is no gap in the provision of services, industry has committed that, if a hub is recommended, it will not close the branch that it replaces for up to 12 months, until that hub is open. If there is a delay beyond that, a temporary hub will be put in its place.
Christine Jardine
I appreciate that there is an internal logic to what the Minister is saying about the banking hubs, and even mobile banks, but it does not reflect the actuality. When I was informed about the branch closure in Newbridge, which I mentioned earlier, it was stated that there was a post office 1.7 miles away where cash could be obtained. That post office was closing, and even if it were not, anyone without a car will have no way of getting there.
Bim Afolami
I thank the hon. Lady for her point. On the notification of closures, banks and building societies are required to provide customers with at least 12 weeks’ notice, a summary of the firm’s analysis of customer needs —including those who use the branch—and information on how to continue accessing services after the closure. Firms should also provide the support that customers will need to transition to channels such as digital or telephone services. I want to be clear that the support is not just saying, “You need to go and do this.” Firms are meant to provide support, and the impact of any planned closures on their customers must be carefully considered. Any firm that does not adhere to that is not doing its duty.
Michael Shanks
I wonder if the Minister could look at the statistics, because I think some of the statistics used by the banks have been quite misleading. On the question of banking hubs, we have one in Cambuslang in my constituency, which is a fantastic resource, but it is there because all the banks closed. When the Royal Bank of Scotland in Rutherglen closes, I want to avoid all the other branches closing. Banking hubs are a useful tool to have in the community, but does the Minister agree that keeping the branches open would be even better for people?
Bim Afolami
The answer is that sometimes keeping branches open makes sense and sometimes it does not. I cannot say from the Dispatch Box that in every instance it is right to keep all branches open, because the rate at which people are moving online is very rapid. Sometimes it does not make sense, but sometimes of course it does. It is that judgment that the firms have to make independently and commercially. We do not want to live in a world where Government Ministers determine which branches close and open across the country—I do not think that is sensible. It is important that those are independent commercial decisions.
Deidre Brock
The Minister says that it is not appropriate for Ministers to get involved with individual branch closures, but will he tell us what discussions he has had with the banking industry about bank closures and what the response has been?
Bim Afolami
I am happy to talk to the hon. Lady about that in more detail outside the Chamber. On the record, I will say that I have had many discussions about branch closures with UK Finance, the body that represents all the banks, and have worked with it to see if we can speed up the roll-out of banking hubs.
In the remaining time that I have, I will restate that just a few weeks ago the 50th banking hub opened, and Link has recommended over 70 more so far. That includes 15 hubs that have already been announced across Scotland. It is a priority for me that industry continues to deliver, to ensure that customers maintain appropriate access. UK Finance has committed to 225 hub locations to be announced by the end of 2024, up from 120 currently.
To conclude, it is important that those hubs provide a good service to customers. Following my recent discussions with high street banks, I am pleased that industry has agreed to improve the services in hubs to ensure that customers have a positive experience. I communicated those in a “Dear colleague” letter to Members of the House, and I have written to the Chair of the Treasury Committee. We are not in a completely perfect place, but things are improving. Taken together, the measures represent a significant step forward from industry to ensure that all customer needs are appropriately met. I will continue to monitor the roll-out of future banking hubs closely, as I will the whole issue.
Question put and agreed to.
Draft Securitisation (Amendment) Regulations 2024
Bim Afolami Excerpts(7 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Securitisation (Amendment) Regulations 2024.
This statutory instrument forms part of the Government’s programme to deliver a smarter regulatory framework for financial services and replace areas of retained EU law in financial services with an approach to regulation that is tailored properly to the UK. That includes the EU law relating to securitisation.
In January 2024, Parliament agreed to establish a new legislative framework to replace the assimilated securitisation regulation 2017. This included revoking regulations from UK legislation to enable the UK financial services regulators, the Prudential Regulation Authority and the Financial Conduct Authority, to make rules for securitisation. This framework will come into effect from 1 November 2024.
Occupational pension schemes—an issue of huge importance to you, Madam Chair, and to the whole House—are also subject to securitisation due diligence rules. Occupational pension schemes are supervised, not by the PRA or the FCA, but by the Pensions Regulator. However, the Pensions Regulator does not have equivalent statutory rule-making powers to the PRA and the FCA, and so cannot make the necessary rules for occupational pension schemes themselves. These rules need to be created in legislation instead. Therefore, this instrument, the Securitisation (Amendment) Regulations 2024, restates due diligence requirements for occupational pension schemes that invest in securitisations.
The Treasury’s approach is necessary to avoid a regulatory gap after the coming into force of the revocation of securitisation regulation 2017, and to ensure consistency in due diligence requirements for institutional investors, whether those investors are subject to forthcoming FCA and PRA rules or supervised by the Pensions Regulator. This instrument maintains the Government’s existing approach, where most rules governing occupational pension schemes’ investors are set through legislation.
Legislating for these changes now has allowed the Government to reflect the outcome of the regulators’ consultations and final policy views on these due diligence requirements for other financial services firms. The approach also ensures that occupational pension schemes face the same rules as other firms. These restated due diligence requirements include targeted adjustments to ensure that they are more principles-based and proportionate, and they clarify responsibility for due diligence requirements where investment decisions are delegated. This should overall reduce regulatory burdens on occupational pension schemes and support their participation in the UK securitisation market.
This SI designates the FCA as responsible for supervising any occupational pension schemes that are acting as originators, sponsors or special purpose entities for securitisations, which aligns the supervision of occupational pension schemes with other firms that are undertaking these activities. But in practice the Treasury envisages that the impact will be minimal, as neither my Department nor the regulators are aware of any occupational pension schemes currently engaged in these activities. However, as is, I think, good practice in all legislation, the Government wish to anticipate the possibility for such involvement and deal with it now.
This SI also makes two changes to make the investor protection framework in the UK more effective and competitive, restating the prohibition on transacting securitisations through special purpose entities in high-risk jurisdictions. These high-risk jurisdictions are the three jurisdictions subject to Financial Action Task Force measures, namely the countries Iran, Myanmar and North Korea. The SI modifies the prohibition in two ways. It expands this restriction to investors in such securitisations, as well as the originators and sponsors of the securitisations. However, it also streamlines the requirement, reducing regulatory burdens by removing a redundant prohibition on engaging in securitisations in jurisdictions that do not comply with certain OECD model tax agreements. This also removes ambiguity from the requirement.
Together, the changes made by this SI will ensure consistency and integrity of UK securitisation regulation for institutional investors in securitisation, whether subject to regulator rules or restated provisions. The changes also ensure that the UK’s requirements are more proportionate, streamlined and principles-based, whether for due diligence requirements on occupational pension schemes as institutional investors or for compliance with prohibitions on securitisations in the high-risk jurisdictions that I named.
I hope that the Committee will join me in supporting these regulations, and I commend them to the Committee.
Bim Afolami
I thank the shadow Minister for her remarks. In response to her first question in relation to the concerns from some that there is some uncertainty in the SI, I do not recognise that, but I am happy to work with anybody in industry who feels that that is the case. I felt that the PRA had dealt adequately with the concerns that had been raised.
On the second point in relation to risk retention and credit granting, that is not something that has been brought up with me, but I am very happy to work with the hon. Lady and any others in industry who feel that that still needs to be addressed.
On the third and critical point around timing of rules being put in place by the PRA and the FCA, I am very confident that both Q4 and Q1 will be adhered to because, unlike this place, they will continue working in the event of a dissolution of Parliament.
Question put and agreed to.
Draft International Monetary Fund (Increase in Subscription) Order 2024
Bim Afolami Excerpts(7 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft International Monetary Fund (Increase in Subscription) Order 2024.
It is a pleasure to serve under your chairmanship, Sir Graham. The International Monetary Fund marks its 80th anniversary this year, and the UK is a founding member. It plays a key role in what is known as the global financial safety net, ensuring global economic stability, facilitating long-term economic growth and prosperity, and supporting poverty reduction around the world.
The IMF operates as a global lender of last resort, providing crucial financial assistance to countries in crisis and supporting their return to a stable economic footing. This helps to prevent economic instability overseas from spilling over into the British economy. The IMF’s wider role in providing regular economic and financial monitoring, macroeconomic policy advice and capacity development on critical issues facing the global economy, such as the green transition, digitalisation and artificial intelligence, is welcomed by its many members.
As a major open economy, the UK gets significant value from the IMF’s independent assessment and policy advice. That does not mean that we always agree, but open discussions and an exchange of views on the state of the UK economy are vital for both sides. Indeed, the Government look forward to the IMF’s managing director visiting London next week as part of the fund’s latest fact-finding mission.
It is critical to the IMF’s ability to act as the world’s lender of last resort that it remains adequately resourced. In December, as part of our efforts to reinforce the role of the IMF at the centre of the global financial safety net, the IMF board of governors, on which the Chancellor of the Exchequer is the UK governor, agreed to reduce the fund’s reliance on borrowed resources and restore the primary role of quotas in its lending capacity.
I will explain how this works. The money that the IMF loans to its members comes from member countries through their payment of quotas and borrowed resources. A member’s quota reflects its size and relative position in the world economy, and borrowed resources are bilateral agreements between individual members and the fund.
Under the agreement by the board of governors, IMF resources will be maintained at current levels by increasing quotas by 50% while decreasing borrowed resources—formally called new arrangements to borrow and bilateral borrowing agreements—by the same amount. The UK has a responsibility to implement this agreement alongside the other IMF members by 15 November 2024 at the latest.
The UK’s subscription to the IMF is denominated in the IMF’s unit of account, known as special drawing rights. This draft order will increase the UK’s current quota subscription to the IMF by SDR 10 billion, ensuring that we deliver on our share of the overall quota increase. Once in effect, the proposed quota increase will replace the bilateral borrowing agreements.
The overall net increase in the UK’s commitment to the IMF will be SDR 3 billion, given the UK’s proportionately higher quota share compared with the borrowed resource that the UK currently extends to the IMF. In recent years, the IMF has been at the centre of the international response to many crises with a significant economic impact, such as Russia’s illegal war in Ukraine and the covid pandemic. Demands for financial assistance from the IMF remain at record levels, with more than 32 active IMF programmes.
The UK’s maximum commitment and legislative ceiling to IMF quota stands at SDR 20.155 billion, which is approximately £21.94 billion at today’s exchange rate. The draft order will raise the UK’s ceiling for lending to the IMF to SDR 30.2 billion, equivalent to £31.64 billion. I want to make it clear—it is crucial that all hon. Members understand this aspect—that an increase in the UK’s quota subscription to the IMF does not represent an up-front financing commitment; rather, it simply increases the potential amount of financing from the UK that the IMF can call on via quota subscriptions.
The increase in quota has no direct impact on public borrowing or debt, because quotas are loans and can be refunded at short notice if needed. A loan to the IMF is a loan to the most creditworthy institution in the world, because the IMF holds preferred creditor status. In essence, that means that the IMF will be repaid by those it has made loans to even if every other creditor is not. When the IMF calls for financing from the UK, we swap some of our assets for a claim on the IMF. That amounts, in effect, to exchanging one class of safe asset for another. Lending to the IMF therefore does not —I repeat, does not—represent public spending and such loans do not detract from money that is needed in the UK.
It is essential that the UK plays its part and fulfils its responsibility to strengthen the multilateral system in a more crisis-prone world by increasing its ceiling for lending to the IMF via quota. In so doing, we are implementing our international agreements. I hope that hon. Members will join me in supporting the draft order, which I commend to the Committee.
Oral Answers to Questions
Bim Afolami Excerpts(7 months, 2 weeks ago)
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Jim McMahon (Oldham West and Royton) (Lab/Co-op)
The Economic Secretary to the Treasury (Bim Afolami)
The Government acknowledge the vital contribution that co-operatives make to the economy. The “Co-operative and Mutual Economy 2023” report found that co-operatives generated a combined annual turnover of £41 billion, a 3.7% increase from 2022 levels.
Jim McMahon
As the Minister outlines, co-operatives are worth £41 billion to the UK economy; moreover, they are, on average, 10% more productive than other businesses, twice as likely to survive the first five years of trading, and have higher rates of investment than other private businesses. What more can the Government do to encourage more co-operatives to thrive? Does he believe, as I do, that the creation of co-operative development agencies in every region has to be part of that?
Bim Afolami
I thank the hon. Gentleman for his point. I note his long-held interest in the co-operative sector, and the work that he does on it. So, what are the Government doing? They are doing two things specifically. First, they recently took the further step of backing the Co-operatives, Mutuals and Friendly Societies Act 2023; they also commissioned the Law Commission to review the Co-operative and Community Benefit Societies Act 2014 to make sure that co-operatives can do as much as possible to benefit the wider economy.
Alexander Stafford (Rother Valley) (Con)
Over the past two years, Rotherham Council has spent £240,000 promoting co-operatives and employee ownership. Does the Minister agree that this huge amount of money would be better spent on fixing potholes and opening youth clubs, rather than on an ideological viewpoint, with no measurable outcome for the people of Rotherham?
Bim Afolami
I do not wish to comment specifically on Rotherham, but the best way of promoting co-operatives in general is to allow them to thrive as best they can, and to support their members in doing what they do best, which is to help their local economies—not necessarily through huge amounts of public subsidy, but through doing what the co-operative movement was founded to do, which is, as I have said, to support local economies and local people.
Kerry McCarthy (Bristol East) (Lab)
Vicky Foxcroft (Lewisham, Deptford) (Lab)
The Economic Secretary to the Treasury (Bim Afolami)
On 9 June 2023, the Ministry of Justice launched a programme to raise awareness of the Mental Capacity Act 2005 in relation to how and when to access child trust funds. The first part of this programme is a new toolkit. The Ministry of Justice will continue that programme of work to raise awareness of how to obtain legal authority to access a child trust fund, for which a court fee waiver is available.
Vicky Foxcroft
The only way for parents of young people without capacity to access their child trust fund is through a deputyship order. After consulting on the introduction of a mental capacity small payment scheme, which would allow a suitable person temporary access to release the funds, Ministers opted not to legislate, and instead introduced a toolkit, as has been said. Over 80,000 young people in England and Wales remain locked out of their child trust fund, so would the Minister agree to look at this again?
Bim Afolami
I thank the hon. Lady for her question, and I know how avidly she campaigns in this area. The House should know—and you should know, Mr Speaker—that I recently met my right hon. Friend the Member for Horsham (Sir Jeremy Quin) and the hon. Member for Sheffield Central (Paul Blomfield) to discuss this very issue. I am very happy to meet the hon. Lady as well to discuss it and to see if we can get a solution, because we do want to get this problem fixed.
Sir Jeremy Quin (Horsham) (Con)
I am grateful to the Minister for the meeting to which he referred. Will he compliment financial institutions that are doing their utmost to make it easier for their disabled customers to access their child trust funds and, if his ministerial colleagues can find a way of making that easier across the board, would that have his support and that of his colleagues in the Treasury?
Bim Afolami
I thank my right hon. Friend for his question. Indeed, working with not just the Ministry of Justice, but the Department for Work and Pensions is key to deliver this, as is working with the Financial Conduct Authority to ensure that any financial institution that does the right thing does not lose out or face any regulatory issues. That is indeed something that has my support and that of the Treasury, and we will work across Government to get this right.
Andrew Rosindell (Romford) (Con)
Dr Thérèse Coffey (Suffolk Coastal) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
My right hon. Friend is right that this issue is critical. I am pleased that the ISSB recently announced its intention to commence a research project on a nature thematic standard, carefully considering the TNFD’s recommendations. His Majesty’s Government have established a formal mechanism to assess the ISSB standards for suitability for the UK to ensure that with a general sustainability standard, and more specifically with a climate sustainability standard, we are doing the right thing for the UK. The Government will publish an implementation update on sustainability disclosure requirements shortly to provide further information for industry—watch this space.
Richard Burgon (Leeds East) (Lab)
Sir Jacob Rees-Mogg (North East Somerset) (Con)
The Bank of England has said that quantitative tightening is not an official part of its monetary policy targeting, yet it is at risk of costing, fiscally, £179 billion in losses underwritten by the Treasury. That is having a major effect on the fiscal situation of the country. Will His Majesty’s Government encourage the Bank of England to hold these bonds to maturity, taking the carry cost rather than taking the hit from selling them in the market and crystallising an enormous loss?
Bim Afolami
In relation to the asset purchase facility and how that has worked over recent years, it is not His Majesty’s Government’s—or indeed the Treasury’s—intention to change the way in which that works with the Bank of England, but as with all measures, the Chancellor keeps everything under close review.
Kerry McCarthy (Bristol East) (Lab)
Nick Fletcher (Don Valley) (Con)
The best way for a business to thrive and for customers to receive a great service is for companies to employ individuals on merit. Does the Chancellor agree that the recent overreach by the Financial Conduct Authority and the Prudential Regulation Authority regarding their equality, diversity and inclusion policies is a step too far, and that it is inevitable that those policies will have a negative effect on us all?
Bim Afolami
My hon. Friend makes an important point. It is important that the FCA bears in mind that it should not be distracted from its core focus on conduct and regulation by things that are more marginal for the people and businesses it oversees. I urge the FCA to take into account the representations made by my hon. Friend and by industry in that regard and many others.
Sir Jeremy Quin (Horsham) (Con)
The lifetime ISA is a positive instrument, but I understand that under its terms there are circumstances under which savers lose not only the benefits of the ISA but also part of their capital investment. That does not seem right; will the Minister please meet me to discuss it?
Bim Afolami
I am happy to meet my right hon. Friend to discuss the lifetime ISA, which is a fantastic product brought in by this Government to help young people to get on the housing ladder. I am happy to meet him to discuss ways in which we can make it more accessible for more people in more circumstances.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
On a point of order, Mr Speaker.
Financial Conduct Authority: Accountability
Bim Afolami Excerpts(7 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to be here. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for raising this extremely important issue for debate. Neither he nor the House will be surprised to hear that the Government agree—and I very strongly agree—that accountability for the financial services regulators is of the utmost importance. Before I was in my current post, I set up, chaired and ran the Regulatory Reform Group, which brought together over a dozen Members of this House to think about how we reform the regulatory and accountability structures in this country. I have thought and been concerned about that issue for many years.
The right hon. Member for Orkney and Shetland and other Members will be aware that the FCA is operationally independent and must act to advance the objectives that Parliament has set for it. Independence of the regulators, however, must be balanced with clear accountability; appropriate democratic input, for which this debate is one forum; and transparent oversight. That is why the FCA is fully accountable to Parliament and the Treasury for how it discharges its functions.
To ensure that the regulators consider the financial services sector’s critical role in supporting the British economy, as the right hon. Gentleman pointed out, last summer we gave the regulators new secondary objectives to facilitate the international competitiveness of the UK economy and its growth for the medium to long term. By putting growth and competitiveness at the heart of our regulatory system, while retaining the primacy of protecting the safety and soundness for financial services firms and the wider system, we will ensure that the sector remains at the forefront of the global economy. It is vital that we hold the FCA to account for delivering on those objectives; I take that responsibility very seriously.
I will come on to some of the remarks made by the right hon. Gentleman, in no particular order. What comes to my mind first is that he mentioned the FCA’s so-called naming and shaming proposals, which have been covered in the media and elsewhere. The Chancellor has been publicly clear that he thinks the FCA should rethink that approach, and I share his view completely. I am particularly interested in, and strongly support, the remark made by the right hon. Gentleman that it is most often the small players that see the sharp end of that approach. What that does to innovation, competition and actual money for individuals invested in those small players, be they customers or shareholders, is very significant. The right hon. Gentleman explained eloquently that the impact of being named and shamed very early could be significant. I want to put on record, following up on what the Chancellor has said publicly, that I believe the FCA should rethink that and rethink it quickly.
Wendy Chamberlain
That is my concern, given what I have heard today in relation to access to cash. One real concern of communities is that banks rush to leave town and leave one bank standing. When we think about banking hubs and communities, we are thinking about ensuring that the most vulnerable have access, so it is really important those bigger players are held to account. Does the Minister agree?
Bim Afolami
The hon. Lady makes an important and fair point. I agree with her that access to cash—which, as she knows, this Government legislated for—needs primacy in the way she has described. Banking hubs are a replacement when several banks have shut in a town or large village, and I believe that the assessment criteria relating to where they come in and the speed of the roll-out should be looked at again. To be fair, that is not down to the FCA. The expected timeframe for it to finish its consultation on access to cash is the third quarter of this year, and although the FCA is part of that process, it is worth saying that it is not the primary driver; the primary driver is the industry.
Let me come to a case that I know is close to heart of the right hon. Member for Orkney and Shetland: the failure of Midas Financial Solutions. Mr Alistair Greig perpetrated a large-scale fraud over a period of several years, lying to those who trusted him with their pensions and life savings. Those were people who had done the right thing in their lives—they had done everything right—and because of the fraud of that individual and his company, they lost out. The FCA intervened in 2014, following the receipt of intelligence related to the Midas scheme. The Financial Services Compensation Scheme was subsequently able to compensate eligible customers for a significant portion of what was lost, and Mr Greig was charged, found guilty of fraud and imprisoned.
It is imperative that the FCA continues to robustly enforce its rules and standards, not just against firms that are carrying out blatantly fraudulent activity as in the case of Midas, but to ensure that all the firms it supervises meet high standards and deliver high-quality outcomes. The FCA operates a risk-based approach, not a zero-failure regime. It is important Ministers say this: we are not in a world—nor should we aim to be in one—where it is impossible for anything to go wrong ever. What we have to do is say to the FCA, “Your job is to maintain a high standard and high quality in the market for all the firms you supervise.”
Mr Carmichael
I have absolutely no argument with the Minister on that point—it is absolutely sensible—but the fact of the matter is that the regulator was told not once, not twice, but three times, and each time it failed to take the appropriate action. It was sometimes just as basic as putting people through to the wrong extension when they phoned. The truth of the matter is that if my constituent and the 94 others who took legal action had not stuck with it, nobody would have got any compensation from the FCA. That is why there is surely a basic point of fairness and justice here: having been the ones who got the money for everyone, the money that they spent getting that compensation should be recognised.
Bim Afolami
I thank the right hon. Member for that point, which I will consider carefully while I discuss the accountability of the FCA to Parliament and the Treasury. The Financial Services and Markets Act 2000 establishes multiple ways for the Government, Parliament and the public to scrutinise the FCA—through, for example, its annual reports, which must set out how it has advanced its objectives. This year, down to the proposals of this Government and this Treasury, the FCA will for the first time report on how it has embedded its new growth and competitiveness objective. The Treasury can direct the FCA to include extra things in its reports. The FCA also regularly publishes a large amount of data on its performance—for example, on the time taken to respond to applications for authorisation—which demonstrates to the public whether it is meeting its targets. Indeed, the Treasury can shape the focus of the FCA by writing to it to set out which aspects of Government economic policy it should have regard to when advancing its objectives and carrying out its functions.
The right hon. Member mentioned concerns that had been shared with him about the internal culture, and pay decisions by the FCA. It is not appropriate for a Minister to pronounce on those things, beyond saying that I will be with him in scrutinising the annual report when it comes out to see in which areas those things are addressed. I am happy to discuss that with him, as well as the methods for accountability in that regard. It is also important that we set out through the Financial Services and Markets Act 2023 that the regulators are now required to respond annually to the recommendation letters. This provides greater transparency about how the regulators respond to Government recommendations.
The Treasury also has a range of powers to direct the FCA in certain exceptional circumstances. For example, it can require the FCA to conduct an investigation of relevant events where it is in the public interest. That happened once in relation to the FCA; in 2019, the Treasury directed the FCA to review the events relating to the failure of London Capital & Finance. After that report was done, the FCA subsequently accepted and implemented all recommendations, which included a significant overhaul of its operations through its transformation programme.
In addition to the Government and the Treasury, Parliament also has a vital role in scrutinising the actions and performance of the FCA. We have the Treasury Committee, and there is a new House of Lords Financial Services Regulation Committee, which regularly examines the work of the FCA. I would add that it is important that we think more about how we scrutinise in the most effective way. I fear that sometimes when it comes to the FCA, there are so many methods of accountability that it almost appears that there are none. They are so disparate, bitty and numerous that it is time consuming and expensive for the FCA, and often difficult to follow for Members of Parliament.
There is more work that we can do to streamline the process of accountability to ensure that it is rock solid and firm, and focused on not just consumer outcomes but ensuring the market works—and to do so in a way that makes sense for both Houses of Parliament. For example, between December 2019 and March this year, the FCA provided oral evidence to Select Committees on 36 occasions. That is a lot. In addition, there is constant discussion between Members of this House and the FCA. I think there is accountability, but we need to find ways to ensure that it is streamlined and more focused.
I hope I have reassured the right hon. Member for Orkney and Shetland that the Government take holding the FCA to account very seriously—I know that I do in particular. The legislative framework is designed to strike the right balance between the independence of the regulators and ensuring that they are held properly accountable. The Government have built on that accountability through the Financial Services and Markets Act 2023. This House, and Parliament as a whole, will be able to judge the FCA’s progress through things such as the upcoming report on how it has advanced its new secondary growth and competitiveness objective since it came into effect last year, and whether it takes account of the view of this House and the Chancellor on its naming and shaming proposals.
Question put and agreed to.
Access to Banking: Devon
Bim Afolami Excerpts(7 months, 4 weeks ago)
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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(8 months, 1 week ago)
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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(9 months ago)
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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.
Authorised Push Payment Fraud
Bim Afolami Excerpts(9 months, 1 week ago)
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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
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