Building Societies Act 1986 (Amendment) Bill
Bim Afolami ExcerptsWednesday 7th February 2024
(3 months ago)
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Julie Elliott
I thank the hon. Gentleman for reminding me of that situation, which affected an awful lot of my constituents, as Northern Rock and the vast majority of its members were based in the north-east. People still tell me on the doorstep today that they lost literally tens of thousands of pounds. The issue of malpractice and bad practice within building societies is separate from what the Bill does. If things are not being run correctly, there are other checks and balances that came in after the Northern Rock crisis to stop that—particularly the protection for deposits up to £85,000. It is a relevant point, but the Bill will not make that possible again; I am quite sure about that.
The specified debt instruments are not named either. Notably, this function is not to introduce risk into the process—it is to help to support building societies to remain comfortably solvent at a time when they need it most. Proposed new subsection 7(3)(e) of the 1986 Act is quite clear about sale and repurchase agreements. Clause 1(3) inserts appropriate new definitions into section 7 of the 1986 Act and gives the Treasury power to make regulations specifying the detail of funds and Prudential Regulation Authority rules. The regulations will be subject to the negative resolution procedure.
The approach has been consulted on by His Majesty’s Treasury and was backed by industry. It is what the sector needs, and this clause has the power to unlock billions. The removal of these considerations from the 50% wholesale funding limit means that building societies that want to can run much closer to the 50:50 ratio than the 70:30 or 80:20 ratios they do now. That is where my point about unlocking billions comes from. When we look at how many people are supported already and what a difference giving that freedom to the building societies can make, we see there is huge potential to help many more people access a mortgage for the first time.
Clause 2 amends schedule 2 of the 1986 Act to modernise the building society sector’s relationship with its members in line with company law. It sets out the possibility of holding and conducting building society meetings in a hybrid way so that persons who are not present together in the same place may attend, speak or vote. First, that is important to allow access to meetings for those who are unable to attend in person due to health or geographical issues. For example, the Nationwide Building Society is, as the label says, nationwide, so having hybrid meetings opens up the ability for more people to attend, because a physical meeting can be held in only one part of the country. The situation may well be different for smaller, local building societies, but the change is still important.
The second main argument behind the clause is simply that the change brings the building society sector into line with businesses and retail banks as defined in the Companies Act 2006. Building societies should not be held to different standards. The important mitigation is that it is down to individual building societies to consider what is best for them; if a particular building society wants to make the change, its members will need to vote on it and agree to it. That means that the clause does not enforce anything, but gives building societies the ability to change if their members want it; it gives more flexibility. I hope that helps any Members who might have worries about the clause. It is about putting building societies on a more level playing field with retail banks, and it is what the sector has asked for.
Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with company law. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.
Finally, clause 4 states the territorial extent of the Bill, which covers all of the UK, and when the Bill will come into force. It also makes it clear that modifications of company law to which assimilation can happen as described in clause 3 cover those made both before and after the Bill comes into force.
The Bill does a lot for a sector that needs it and has asked for it. Building societies support millions of people up and down the country, and are much more adept at supporting first-time buyers than other parts of the sector. The Bill gives them much more flexibility to do exactly that.
The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to speak to the Bill and, as always, to serve under your chairmanship, Mr Hosie. I congratulate the hon. Member for Sunderland Central on introducing it and on reaching Committee stage, which is no mean feat in this place for a private Member’s Bill.
It is clear from the hon. Member’s remarks that the Bill has the noble aim of supporting the future growth and success of the building society sector. As she said, it will do a lot for building societies, which have asked for this legislation—and the Government and the Treasury strongly support them. As my hon. Friend the Member for Mid Norfolk described, building societies are some of the best in the financial services sector for benefiting local connected communities, and that is the sort of activity we want to encourage.
The Bill will help by modernising legislation so that building societies can have more flexibility around their funding and certain corporate governance requirements. That delivers on the key asks from the sector. As the hon. Member for Sunderland Central said, it is rare that something gobbledegook can have a positive impact on people’s lives, but the technical amendments in the Bill—particularly around capital requirements, which I will explain briefly—will have a positive impact on the ability of building societies to contribute to their local communities in all our constituencies.
As member-owned financial institutions, the 42 building societies in this country work to support the financial resilience of communities throughout the length and breadth of the UK, because they encourage savings and responsible lending, and promote financial literacy and inclusion, which often gets lost. They also play a vital role in supporting their members to buy their own homes, and the hon. Member for Sunderland Central has spoken about the potential for the sector to further support first-time buyers. The Bill achieves all that by making provisions in three areas, which she has already set out, so I will give a shortened version.
First, the Bill amends section 7(3) of the 1986 Act. The year 1986 was a very—
Bim Afolami
Exactly—an auspicious year for me.
The Bill amends section 7(3) of the 1986 Act to exclude three specified sources of funding from the 50% wholesale funding limit for building societies. By excluding these sources of funding from the wholesale funding limit, building societies will be able to raise additional wholesale capital, which strengthens their arms to compete with retail banks while promoting competition within the financial services sector.
Mrs Natalie Elphicke (Dover) (Con)
My hon. Friend the Member for Mid Norfolk mentioned Northern Rock, which was a bank, not a building society, when it failed. Does the Minister agree that the provisions being brought in will allow greater access to capital so that building societies can flourish, while keeping in place the checks and balances that have made building societies so much better at being able to respond to the financial crisis than we saw with some of the banks?
Bim Afolami
It is worth explaining the dynamic, because it is not straightforward. In essence, the point of the Bill is to level the playing field between building societies and retail banks in this key area. Resilience, in terms of capital, will not be lower for building societies than for any of the retail banks with which we are all very familiar. That is the first point. The controls that are applied to retail banks by sophisticated people with sophisticated mechanisms will have the same capital requirements as building societies—so I agree with my hon. Friend.
Building societies will still be required to hold specified sources of funding for regulatory purposes. That is the key point. The reason we have the capital limits is that, if a shock happens—however rare or unusual that might be—we need to make sure that there is enough of a buffer of capital so that the building society or, indeed, the retail bank does not go bust. Over the last 15 years, we have been through a huge programme of reform to broadly increase the levels of capital by many multiples of what was required in the 2000s, so that that does not happen. Building societies will adhere to that in the same way as our retail banks. Moreover, building societies will still be required to ensure that at least 50% of their funding comes from their members—again, that is a critical way in which buildings societies are different from a typical retail bank—which ensures that the Bill has no impact on building societies’ important and unique ownership model.
Secondly, the Bill amends the 1986 Act to allow the option of real-time virtual member participation at building societies’ meetings, which, as everybody can appreciate, now happens across the corporate sector—it does not happen in Parliament, but that is for another day. This amendment can help to modernise the day-to-day practices of building societies, promoting wider membership engagement by making such meetings more accessible to a greater number of members. That matters particularly for building societies, because they have a membership model; the point is that members find them accessible and know what is going on.
Given that members can do things digitally and more flexibly in other areas of their lives, this small measure can have quite a big and positive impact on participation, but it is worth stressing that the decision on whether to hold hybrid meetings will be up to the members of each individual building society; the Government are not imposing the requirement for endless Zoom calls. If that is what people want, they can have them—they just have to vote in favour of making the relevant changes to the society’s rules by special resolution, which, if I recall my company law properly, requires passing a 75% threshold.
Thirdly and finally, the Bill will provide the Treasury with the powers to further align the constitutional provisions in part 2 of the 1986 Act that concern common seals and the execution of documents with modifications to company law. I do not need to explain to the Committee that common seals have sort of fallen out of general usage—although I have often fancied having one, because I think it would be rather fun to stamp various documents, rather than sign them. But that is now the past and we are bringing building societies into the modern day, which is positive.
Overall, the Bill will help to deliver important amendments to the Building Societies Act 1986 by modernising the legislation so that building societies can compete with retail banks, better serve their members and, to be perfectly frank, better serve the communities they are set up to support. The Government are fully committed to ensuring that all subsequent secondary legislation, which will be subject to parliamentary timetabling, is enacted as soon as possible. I commend the Bill to the Committee.
Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 (S.I., 2024, NO. 69).
It is a pleasure to serve under your chairmanship, Sir Robert. The Government recognise the threat that economic crime poses to the United Kingdom and are committed to combating money laundering and terrorist financing. Our commitment is recognised around the world. Illicit finance undermines the integrity and stability of our financial sector and can reduce opportunities for economic growth and legitimate business in our great country. The Government are bearing down on kleptocrats, criminals and terrorists who abuse the UK’s financial services sector. The Economic Crime and Corporate Transparency Act 2023 built on the Economic Crime (Transparency and Enforcement) Act 2022 to ensure that the UK has robust, effective defences against illicit finance.
At the centre of the UK’s legislative framework for tackling money laundering and terrorist financing are the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which set out various measures that businesses must take to protect the UK from illicit financial flows, such as conducting enhanced checks on business relationships and transactions with high-risk third countries. The 2023 Act changed how high-risk third countries may be defined under the 2017 regulations, and this statutory instrument implements that change. It removes the separate list of countries from schedule 3ZA and replaces it with an ambulatory reference to those countries listed by the Financial Action Task Force, which is the global standard setter for anti-money laundering and counter-terrorist financing. In practical terms, that means that countries listed by the Financial Action Task Force will automatically be in scope of obligations under these regulations.
By taking this approach, which was passed in the 2023 Act, we will ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing. Where countries have made significant progress to improve their defences against illicit finance, it is equally important that we recognise that and promptly remove such countries from the scope of high-risk countries in UK legislation.
Ahead of this update, the UK and Financial Action Task Force lists were already aligned. Indeed, the Government have always updated the UK list, since its creation in 2021, to reflect changes to the Financial Action Task Force list. The SI does not add or remove any countries from scope or change the obligations of regulated businesses. It delivers on Government policy in a streamlined way, ensuring automatic alignment with the Financial Action Task Force list without the need for frequent, routine secondary legislation coming to Committee Rooms such as this, enjoyable though the process is.
The SI also ensures that firms will be notified in a timely manner of updates to the lists and their obligations, thereby keeping them up to date as risks change. I reassure the Committee that if at any time the Government sees it fit to deviate from the Financial Action Task Force list, we retain the authority and autonomy to do so. In such cases, a statutory instrument will be brought before Parliament for consideration in the normal way. The measures in respect of high-risk countries are an important mechanism to mitigate the risks posed by illicit financial flows from overseas. We will continue to use them and the other tools available to respond to wider and emerging threats from other jurisdictions, including by applying financial sanctions as necessary.
The instrument will enable the 2017 regulations to continue to work as effectively as possible to protect our financial system. It is crucial in protecting British business and the financial system from money launderers and terrorists financers, so I hope colleagues will join me in supporting it.
Bim Afolami
I thank the Committee for its broad support. Let me answer the questions that Members have put to me.
The first question was about how one practically manages the process of including countries or not. Broadly speaking, the Financial Action Task Force is the centrepiece for how most countries—all the G7 countries and many others—deal with illicit finance. We do it in such a collaborative way globally because, frankly, in the modern world we can tackle illicit finance only by working in strong, close partnership with other countries. It is quite important that we have a degree of alignment on how we do that, but we of course retain the right as a sovereign nation, as everybody in the House would agree, to individually put countries on the list if we choose to. The instrument is a common-sense measure that will make it easier and faster to do that, rather than our having to wait for gaps in parliamentary time. Recesses and various other things come up that could mean there is a critical gap and illicit finance could get through defences. That is why we are doing this.
In response to the point made by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East about writing to the House, we will deposit a notice in the Library when we have done so, so that the House is kept fully informed.
On how the change is being communicated to businesses, the Treasury has active and frequent discussions with the private sector on this and many other matters, so Members should rest assured that businesses and financial institutions are kept closely up to date with what is going on. That is in addition to the publication of an advisory notice, which will be made when any countries are or are not put on the list.
I will have to write to the hon. Member for Cardiff South and Penarth on his point about the situation in Iran. I do not want to inadvertently mislead the House in any regard—I want to be very precise in my answer—so I will write to the hon. Gentleman about his questions in that regard.
On the Crown dependencies and overseas territories, we are committed to working with the overseas territories to tackle illicit finance, and we have long engaged with them on ways in which to do that. We continue to engage with the British Virgin Islands for its ongoing mutual evaluation, and we have supported it with its evaluation process. The BVI’s mutual evaluation report will be published after the quality and consistency checks required by the Financial Action Task Force. I cannot comment any further in relation to the BVI, but more broadly we are closely working with the overseas territories and Crown dependencies to ensure that they satisfy all the things that the Financial Action Task Force requires.
Stephen Doughty
In another capacity, I serve as the shadow Minister for the overseas territories. Will the Minister say a little about whether he will publish a list of how exactly the measures apply to all of the overseas territories, where compliance is and what governance mechanisms are in place? OTs and Crown dependencies obviously have different mechanisms for applying UK law; are they doing this by themselves or are we doing it for them? Will the Minister explain that in a bit more detail, perhaps in writing?
Bim Afolami
I am happy to follow that up, but I know that the Crown dependencies and overseas territories are subject to the same rules as any country in relation to the Financial Action Task Force, which is the centrepiece of the whole way in which we tackle this issue, so dealing with them is no different from dealing with any of the countries that are so listed—indeed, I have talked about the BVI. I am happy to follow up in more detail as the hon. Gentleman requires.
In conclusion, the Government are taking focused action to tackle economic crime. We know that the House is united on tackling illicit finance and we strongly support that. I have listened carefully to Members’ contributions, and it is the Government’s view that this statutory instrument will ensure that UK legislation remains up to date and best delivers on policy commitments. The new definition of high-risk third countries means that the UK automatically reflects changes to Financial Action Task Force lists, putting us entirely in lockstep with the international community on this issue while retaining the ability, if we so choose at any time, to put a country on or off our list.
Stephen Doughty
I appreciate the Minister’s generosity in giving way before he sits down. One issue that we have regularly raised regarding our sanctions regimes is the failure to actually prosecute or take forward implementation actions. I do not expect the Minister have the answer in front of him right now, but perhaps he could also outline in writing to the House—to myself and the Library—how many enforcement actions have been brought under the regime to date, and what the implementation mechanism will be for this measure. It is all very well to have the legislation and regulations in place, but unless we provide a deterrent effect against those who would seek to evade such measures, we are not going to be implementing the full picture.
Bim Afolami
I am happy to follow up with the absolute number—again, I do not want to get that wrong in Committee. The Financial Action Task Force takes the approach of working with countries to help to improve their systems. It is not an overtly punitive or aggressive approach; it is an approach that says, “How do we help to support you to make your systems less vulnerable to illicit finance and financial crime?” Of course, when we are dealing with private sector entities that seek to evade rules, they fall under the criminal sanction, as one would expect. I am happy to write to the hon. Gentleman about the precise number that he asks for; I would not want to get it incorrect. With that, I commend the regulations to the Committee.
Question put and agreed to.
Oral Answers to Questions
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Mr Laurence Robertson (Tewkesbury) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
As the House knows, the path to lower interest rates is through lower inflation, which is why the Government are fully committed to supporting the Bank of England to get inflation back down to its 2% target. If mortgage borrowers fall into financial difficulty, our mortgage charter, which covers about 90% of the market, includes new flexibilities to help customers manage their repayments, on top of the Financial Conduct Authority’s rules on how lenders must treat borrowers.
Mr Robertson
Given that a lot of mortgage payers are suffering because of the rapid hike in interest rates, will the Government continue to talk to the Bank of England and mortgage lenders to see what can be done to bring interest rates down? That would help most people.
Bim Afolami
I completely agree on the absolute need to drive mortgage rates down, which is why we are supporting the Bank of England’s independent remit to bring interest rates down. We are also ensuring that we do not do things to make inflation worse, such as adding £28 billion to Government borrowing, which would increase inflation.
Marion Fellows (Motherwell and Wishaw) (SNP)
The rate for a two-year fixed mortgage remains more than double the level of December 2021. More than 900,000 borrowers are set to see their monthly payments rise by £500 or even £1,000 a month. Government Ministers are having to resign because of increasing mortgage payments. How does the Chancellor expect people in Scotland to cope with increased mortgage rates if his Ministers cannot?
Bim Afolami
I would say two things in response to the hon. Lady. First, the best thing we can do is to help people with the cost of living, not increase their taxes, as the SNP in Scotland proposes, and to maintain—[Interruption.] I will not get bored of saying this. Secondly, we maintain our support for the Bank of England driving inflation down. We have more than halved it. We will continue to do that, and interest rates will come right down.
Christine Jardine (Edinburgh West) (LD)
Rushanara Ali (Bethnal Green and Bow) (Lab)
The Economic Secretary to the Treasury (Bim Afolami)
Mortgage interest rates have fallen by more than 100 basis points from their peak in the summer. None the less, the Government have prioritised support for households that are vulnerable to cost of living pressures. We have introduced one of Europe’s largest support packages, and it is partly thanks to those measures that real incomes have proved more resilient than was anticipated. In the third quarter of 2023, real household disposable income per person was just 0.5% lower than in Q4 2019, versus the Office for Budget Responsibility’s autumn statement 2023 forecast that it would be almost 3% lower.
Rushanara Ali
I thank the Minister for his answer, but since his party’s disastrous mini-Budget fiasco under the previous Prime Minister, food prices have soared, extreme damage has been done to the economy and mortgages have skyrocketed. Every month 200,000 people are having to remortgage, the average monthly rate has risen by £240, and 1.6 million people will have to remortgage this year. Overall, after 14 years of a Conservative Government, people are more than £10,000 less well off than they were on pre-2010 trends. Is it not time that the Chancellor and his ministerial team looked again at the possibility of additional support for those who are facing mortgage and other financial distress? The Chancellor is frowning, but it is time that he took further action to support people in distress.
Bim Afolami
This Government have introduced one of Europe’s largest support packages, worth more than £100 billion during 2022 to 2025. That is an average of £3,700 per household. The point about mortgage rates is that they went up everywhere across the world, to a higher level than ours in many jurisdictions such as the United States. I have already mentioned the work that we have done on the mortgage charter, helping hundreds of thousands of people to manage their mortgages, but the critical thing that we need to do is bring inflation down. She needs to talk to her shadow Chancellor and the shadow Treasury team about their plans, which would make inflation higher.
Mr Speaker
Order. I am not sure that “she” is a good word to use to other Members.
Bob Blackman (Harrow East) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
The Government are taking ambitious steps to grow the UK’s world-leading financial services sector, with widespread industry support. To take one example, reforms to Solvency II will help to spur a vibrant, innovative and internationally competitive insurance sector. The reforms will unlock £100 billion-worth of productive investment to grow the economy in every constituency over the next 10 years.
Bob Blackman
I thank my hon. Friend for his answer but, clearly, to grow the financial services industry, investors must have confidence that their money is safe. I have written to him about the Woodford equity scandal, of which there are many thousands of victims across the country. The Financial Conduct Authority refused to intervene, so will he now intervene and take action to ensure that the investors get at least a large part of their money back?
Bim Afolami
I thank my hon. Friend for his question, for writing to me and for standing up for the rights of his constituents. It is important the House knows that over 90% of investors voted to accept the scheme of arrangement. It is now up to the court to decide whether to approve it, and I therefore will not comment on it any further. I am happy to be in constant dialogue with him on this matter, as on many others.
Jim Shannon (Strangford) (DUP)
As the Minister knows, the Northern Ireland Assembly sits for the first time today to make a change for Northern Ireland. We would very much like to be part of the financial services sector, so what can he and the Government do to support the Northern Ireland Assembly in relation to the financial services sector, and to ensure that we in Northern Ireland can be part of this great country of the United Kingdom of Great Britain and Northern Ireland? Always better together.
Bim Afolami
I strongly echo the hon. Gentleman’s sentiments. I am very happy to engage with him and his colleagues from Northern Ireland to see what more I can do in the Treasury to work with him and, indeed, the Northern Ireland Executive, particularly to encourage our financial services institutions to invest more in Northern Ireland. I am very happy to discuss ways in which we can do that.
Daniel Zeichner (Cambridge) (Lab)
Bob Blackman (Harrow East) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
I thank my hon. Friend for his question and I will write to him with the specifics of the answer.
Rebecca Long Bailey (Salford and Eccles) (Lab)
Richard Fuller (North East Bedfordshire) (Con)
Last July, following a debanking scandal, I wrote to the Economic Secretary to the Treasury about the risks of implementing so-called diversity, equity and inclusion policies. Far from being inclusive, their implementation has often been divisive, yet Labour put such policies at the heart of its financing and growth strategy just last week. Will my hon. Friend assure us that he will give clear direction to the Prudential Regulation Authority and the Financial Conduct Authority to avoid all the risks of so-called DEI policies?
Bim Afolami
I thank my hon. Friend for his question. I am studying those policies carefully. I am concerned about certain aspects of what is proposed, and I will be discussing the matter with the PRA and the FCA to make sure that we have sensible policies on this matter.
Peter Dowd (Bootle) (Lab)
Bim Afolami
I thank the hon. Gentleman for his question. Indeed, the Chancellor announced at the autumn statement last year that, over the next 12 months, the Government will consider selling shares in NatWest. That is all subject to value-for-money concerns and other matters, as he will appreciate, and it is market sensitive. Of course value for money will be at the heart of any consideration of the sale of shares, and the House will be kept fully informed over the coming weeks and months.
Martin Vickers (Cleethorpes) (Con)
My right hon. Friend and his colleagues will be aware of the challenges that businesses and households face in coastal communities. As the Budget approaches, may I urge him to be ever mindful of how we maintain the vitality of the economies in our coastal areas?
Living Standards
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The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to spend time with you and serve under your chairmanship, Mr Mundell. I want Members to be clear: I have heard the strength of feeling today. I am grateful for all the contributions. I want to start by saying that the issue is complex. Those who know me in the House know that I always try to take things seriously and think carefully about the issues. I hope to do so in my response.
I thank the hon. Member for Glasgow South (Stewart Malcolm McDonald) for securing today’s debate. I am pleased to have this opportunity to set out the measures that the Government are taking to support people across the United Kingdom during this difficult time and to respond to the points raised.
The shadow Minister, the hon. Member for Rutherglen and Hamilton West (Michael Shanks), speaks with the confidence of someone who has been here for years rather than months, so I commend him on his speech. I say to him gently that economic competence and credibility are key for any Government of any political colour in this country. When he talks about economic competence, he has to address the fact that the whole growth plan of the Labour party is a £28 billion green growth plan. That is a legitimate thing for any party to suggest, but, as the hon. Member for Glasgow South made clear, when a party has its entire economic strategy bound up in such a plan and then seems to flip-flop from one day to another about whether it is doing the plan—whether it is an ambition or a commitment, and when the money is going to be spent—what that says to investors, households and businesses all over the country and abroad is that there will not be economic competence if his party is in government. I ask him to reflect on that point.
I think that all of us in this place recognise the difficult times through which the people of this country and people across the world have lived. Putin’s illegal war in Ukraine caused an energy shock that was the kickstarter for inflation across the globe and created a perfect storm for vulnerable people. The Government have consistently fought back against covid alongside our Ukrainian friends and, critically from a Treasury perspective, against the economic headwinds that resulted from those external shocks. Over the past two years, the Government have provided one of the largest support packages in Europe.
I was struck by a remark from my hon. Friend the Member for Dover (Mrs Elphicke), who, if I may say so, is a fantastic Member of Parliament. If I recall, she mentioned that it was important that the Government were able to explain clearly to members of the public what support has been given in what different ways. She talked about utilities and various other important things across the economy. I agree with my hon. Friend that one of the things that, as the Government, we always have to work on—I will continue to do so, and I am sure that my colleagues will—is much more clearly demonstrating and explaining the support that is out there: the support that is being given. I will take that away and reflect on it very seriously.
This financial year alone, more than 8 million UK households on eligible means- tested benefits, 8 million pensioner households and 6 million people on eligible disability benefits received cost of living payments. That came on top of the significant universal support made available by the Government, as all households were eligible for the energy price guarantee, the £400 energy bills support scheme, the £150 council tax rebate, and fuel and alcohol duty cuts. Energy support alone has paid for almost half of the typical family’s energy bill from October 2022 to June 2023. Almost half—that is considerable support. It is in part thanks to those measures, and strong labour markets delivering robust wage growth, that growth and real incomes have been stronger than expected in the year before.
I know that the hon. Member for Rutherglen and Hamilton West, the shadow Minister, talked about growth and wages, and I want to address him precisely on this point. Aggregate real incomes have outperformed expectations, both from the OBR and independent forecasters, and are now 1.4% above pre-pandemic levels. In per capita terms, between 2010 and 2022, real incomes—so after inflation—have increased more in the UK than in certain major European economies, our competitors, such as both France and Italy.
Wages now are rising at a level ahead of inflation, contrary to what the hon. Member for Glasgow South said. Although we have been through a very tough time, and I do not minimise the difficulties that have occurred—indeed, I will talk about more of those throughout the rest of my speech—we are now at a point where the economy is turning a corner and wages are now growing at a rate faster than that of inflation.
Stewart Malcolm McDonald
I do not know where the Minister gets his figures from, but he should look at the research that came out last week from the Centre for Cities. If we take my home city of Glasgow, if wages had gone up at the rate they went up between 1998 and 2010, the average wage in Glasgow would be £23,500 higher than it is today. Why is that so? Why has it not gone up?
Bim Afolami
I thank the hon. Member for that point. I have not seen the report, but, to take what he has said as read, the reason why, since the financial crisis in 2008-09, economic growth—trend growth—in all the western world, particularly in Europe, is down on where it was before the financial crisis, is due to the financial crisis. Indeed, it was this Government who had to spend years from 2010 clearing up the mess left by the Labour party when they were in office. That is the core explanation for the difference that the hon. Member describes.
Thanks to the efforts of the Bank of England, supported by the Chancellor, inflation is less than half of its peak, falling to 3.9% in November 2023—the lowest rate in more than two years.
But I do not deny that the outlook remains challenging. Nor do the Government. That is why we announced further action in the autumn statement in November to support the most vulnerable. In April, we will raise local housing allowance rates to the 30th percentile of local market rents. That will make 1.6 million low-income households better off, with an average gain of £800 in the 2024-25 financial year.
We will also uprate all working-age benefits in full for 2024-25 by the September 2023 consumer prices index figure of 6.7%. Now, why am I being so precise about that? Because that is three percentage points higher than forecast earnings for ’24-25. This will help to support the most vulnerable while inflation continues to fall; 5.5 million households on universal credit will gain an average of £470—almost £500—in the ’24-25 financial year.
We are maintaining the triple lock, too, to support our pensioners, whose hard work helped to build this country. They are on fixed incomes and need to be looked after. The basic state pension, new state pension and pension credit standard minimum guarantee—we need to find a better description of that because it is very wordy—will be uprated in April 2024 in line with wage growth of 8.5% in the usual reference period. Let me give a sense of what that means in cash terms: in the coming financial year of ’24-25, the full yearly amount of the basic state pension will be £3,750 higher than in 2010. To put it more simply, that is about £1,000 more than if it had been uprated in line with prices alone. For individuals needing further support, local authorities in England continue to provide it through the household support fund, which is backed by £1 billion of funding. That means that, from 2022 until 2025, total support to help households with the cost of living will be over £100 billion, which is roughly an average of £3,700 per household.
What is the principle here, because I know that I have just given the House a blizzard of figures? The principle is that this Government believe that the people of this country deserve to keep more of their hard-earned money and that, where we can, we should reduce their burdens, as long as it is fiscally responsible to do so and as long as we are supporting public services as we need to. This is not ideological; it is because it will reduce the cost of living and help to grow our economy. That is why, from the end of January 2024—it is 1 February—millions of employees across the country will see their main national insurance contribution rate cut from 12% to 10%. That means that the average worker on £35,400 will receive an annual tax cut of over £450 a year, and we are also cutting national insurance rates for the self-employed. This tax cut is worth over £9 billion a year, which is the largest ever national insurance cut to employees and the self-employed. I repeat: this helps with the cost of living and helps to grow the economy.
We are also delivering on our commitment to end low hourly pay. Although they may not have agreed with everything I have said, I am sure that Members across the House will support that. From 1 April, the national living wage will increase by almost 10% to £11.44, with the age threshold also lowered from 23 to 21 years old. That represents an increase of over £1,800 to the annual earnings of a full-time worker on the national living wage, and is expected to benefit more than 2.7 million low-paid workers.
These actions must be underpinned by a robust and growing economy. Only a healthy economy can spread jobs and opportunities through the country. Only a healthy economy allows the Government to make the long-term decisions needed to strengthen it. Growth is generated by providing individuals with the freedom to learn, the freedom to innovate and the freedom to succeed. That is why it matters so much to create the right environment for the private sector to thrive. That means prioritising the strengths of the UK and focusing on the biggest opportunities for growth.
How have we done that? We did that in the autumn statement, in which the Government set out plans to drive growth and productivity that the independent OBR has estimated will have increased business investment by £20 billion a year in a decade’s time. The OBR also estimated that the autumn statement would increase real GDP by 0.3%. That is one fiscal event! Key elements of the package include a new £2.5 billion “Back To Work Plan”. In combination with measures from the spring Budget last year, the OBR thinks that will add around 200,000 people to the labour market.
The hon. Member for Glasgow South made an interesting point about immigration and numbers and people and population. What I would say to him is that although one can always have a debate about the right level of migration—to some degree, it depends on the nature of an economy and what gaps need filling in the workforce—I think we can all agree that the primary aim of any Government should be to improve the prosperity of the people in the country by strengthening the economy. However, what we should not do is adopt the ideological position that it is inherently good to have high levels of migration, because we need to make sure that we have the right level for what our economy actually needs. Indeed, that should be the focus of our debate.
Making full expensing permanent represents a tax cut of over £10 billion a year for companies, meaning that they can invest for less—something that more than 200 businesses and trade bodies have called transformational for business investment. That is another example of the Government taking a long-term approach. The hon. Member for Rutherglen and Hamilton West playfully suggested that there are only weeks left of this Parliament, but we still have almost a year to go. I would not pre-judge the timing of any election, but I do think his suggestion may be a little premature. What I will say is that politicians often get accused of doing things for the short term—indeed, sometimes they do—but nobody can accuse this Chancellor and this Government of acting in that way.
Full expensing, a tax cut for businesses to improve their productivity over the long term, is worth about £10 billion a year. This is one of the most transformational long-term measures that will improve our country’s potential growth rate. That is a very good example of the measures I have been talking about. It underpins a strong, growing, robust economy, which allows us to provide the support for the vulnerable that I described at the start of my speech. Indeed, we have provided over £4.5 billion in funding for the UK’s strategic manufacturing sectors.
It is important to note that we are talking about the entire United Kingdom, not just London and the south-east. That is why we used a combination of local growth policy and national economic policy, taking into account the inequalities that exist at all levels of decision making—I do not deny that—to underpin our approach to tackling them. According to the Department for Levelling Up, Housing and Communities, the UK Government provided a package of cost of living measures worth £7 billion in Scotland, more than £3.5 billion in Wales and more than £2 billion in Northern Ireland to help households and businesses weather the impact of soaring energy prices between 2022 and 2024.
I am reminded of the point made by my hon. Friend the Member for Dover that a single Government Department should be responsible for housing and household costs. I do not think that we will do another reorganisation of government, but Ministers and my officials in the Treasury work very closely with DLUHC. I am happy to hear any ideas from her about how we can do that more effectively, but it is important that we do not spend too much time working out how to reorganise Departments, and that we focus on the issues at hand.
Mrs Elphicke
I am grateful to the Minister for addressing that issue directly, but does he acknowledge that the timeframes for the investment and spending settlements are not within the control of the Treasury, but within the control of the regulatory frameworks that are in place? The ability for either DLUHC or, indeed, the Treasury to bring them all together in a meaningful way is currently limited. It was in that spirit that I hoped he would reflect on the impact of all these things on households, and on how they build up for the individual household purse.
Bim Afolami
I thank my hon. Friend for that remark. I am very happy to think about and consider more deeply how we make sure that—whether it is a regulatory impact, is at national policy level or is legislation made in this House—we focus on achieving the right outcomes for the right people at the right time. I can give her that commitment today.
All households in Scotland, Wales, Northern Ireland and England were provided with support, but the poorest households gained the most. The average level of support was most generous in the devolved nations, compared with the UK average. Alongside that, we have announced a comprehensive levelling-up strategy that not only addresses the immediate challenges but lays the groundwork for sustained prosperity. As part of that, we are continuing to support local growth through funds such as the £2.6 billion UK shared prosperity fund and the £3.2 billion towns fund. The shared prosperity fund empowers local leaders who know their areas best to take the action that best meets the needs of their local labour markets. In addition, the refocused investment zones programme will catalyse high-potential knowledge-intensive growth clusters across the UK in our key future sectors, bringing investment into areas that have traditionally underperformed economically.
The three watchwords of the hon. Member for Glasgow South were prosperity, fairness and resilience. He expressed uncharacteristic pessimism about the idea that they would be addressed by this Government or in the coming weeks and months of this Parliament, but I want to make the case for why we are doing that. On prosperity, I mentioned full expensing, tax cuts in national insurance and various other measures that support all regions of the UK. They are designed to build long-term prosperity in our economy. They deal with our economic weaknesses and build on our strengths.
On fairness, I think I have comprehensively set out today the support that is being given to the most vulnerable —indeed, to a majority of households. That is done in order to be fair.
I should not stray out of scope and go into other policy areas, but the fundamentals for resilience are having a robust, sustainable economic growth strategy that, over time, increases the growth rate of our economy. Upon that foundation everything else is based.
In conclusion, these measures are a clear demonstration of the Government’s unwavering commitment to promote living standards and support households up and down the country. We firmly believe that the key to a prosperous future lies in creating opportunities for everybody. The boost to the national living wage and the historic reduction in national insurance are powerful tools in driving employment and improving living standards. By putting more money into the pockets of hard-working people, we are not just bolstering their financial wellbeing but fuelling economic growth.
As always, we need to balance support for households with fiscal sustainability. As I have said, the economic position remains challenging. Inflation has more than halved, but it remains too high: it is not at our 2% target. We are not complacent about that, which is why the Government remain steadfast in our support for the Bank of England as it acts to reduce inflation.
Our long-term objectives are crystal clear—increasing prosperity, improving the long-term growth rate of our country, improving our resilience, levelling up every corner of this country and fostering sustained economic growth. It is through these robust economic policies that we lift communities, create opportunities and enhance the quality of life of all our citizens.
Our commitment to growth is not about numbers in a spreadsheet. It is not for the short term; it is for the long-term, tangible improvements in living standards that result from a thriving economy. We continue to keep all options under review as we take tough decisions to drive down debt and inflation and increase our prosperity. These complex issues affect all our constituents, wherever we call home. I thank all Members for their constructive contributions.
Overseas Funds Regime: EEA Equivalence Assessment
Bim Afolami Excerpts(3 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
Today I am notifying the House about the Government’s decision regarding the equivalence assessment for states in the European economic area, including European Union member states, under the UK’s overseas funds regime.
Asset management makes an invaluable contribution to the health of both the UK economy and individuals’ savings. The UK sector is the second largest globally and manages the savings and pensions of millions of UK citizens. Asset managers often set up their investment funds internationally, marketing their funds to investors in the UK and around the world.
In the Financial Services Act 2021, the Government legislated for a new overseas funds regime, to create a more streamlined process for overseas investment funds to be sold to UK investors. Given the importance of funds domiciled in the EEA to the UK market, it was determined that an equivalence assessment of the EEA would be the first to be conducted under this regime.
Today I can confirm that, following a detailed assessment, the Government have found the EEA states, including the EU member states, equivalent under the OFR. To enact this decision, secondary legislation will be required, when parliamentary time allows. The Government do not intend to require the funds assessed to comply with any additional UK requirements as part of this equivalence determination at this time.
This decision will apply to undertakings for the collective investment in transferable securities except those which are also money market funds, as there is ongoing regulatory development in this area.
In accordance with the principles set out in the guidance document for the UK’s equivalence framework for financial services, the UK will monitor this equivalence decision on an ongoing basis, in light of UK and EEA regulatory developments.
Separate to the assessment of the EEA, the Government recognise that there are ongoing regulatory developments in relation to sustainable disclosure requirements. The Government intend to consult on whether to broaden the scope of SDR to include funds recognised under the OFR. The Government will ensure that there is adequate time for industry to adapt to any future requirements.
Currently, EEA funds which were marketing in the UK prior to EU exit are able to continue doing so under temporary arrangements. This arrangement was due to expire at the end of 2025.
Today, I can also confirm the Government’s intention to extend this arrangement until the end of 2026, to ensure funds are able to smoothly transition to the OFR.
Today’s announcements demonstrate the Government’s commitment to maintaining a safe, open and globally integrated financial system, enabling international financial services business by reducing barriers and frictions, where safe and practicable.
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Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024
Bim Afolami Excerpts(3 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Cttee has considered the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024.
This instrument makes an update to financial services legislation to make operating a pension dashboard service a Financial Conduct Authority-regulated activity. Let me begin by saying that the Government have long held the ambition of delivering pension dashboard services to the public. It is very important that individuals can easily access and view data about their pension savings in one place and at their convenience. Executed well, pension dashboards can deliver significant benefits to consumers, providing better access to information about their pensions held in different schemes. These days, people often have many different schemes.
The instrument will bring a step change in how people engage with their pension savings and will finally allow people to have a full picture of those savings. Equipped with that information, individuals will be better able to plan for their retirement, seek financial advice and guidance, find lost pension pots and make informed decisions. The Government are supporting the development of the digital architecture needed to make pension dashboards a reality, as well as facilitating the development of a Government-backed pension dash-board by the Money and Pensions Service. We have also supported the development of multiple private sector pension dashboards. Different individuals will have different needs, and this will ensure that a wider range of platforms exist to suit such needs.
However, we are clear that this multiplicity of providers can only take place with a suitable and robust regulatory framework, recognising that consumers using pension dashboards could be vulnerable to unfair potential harms. During the passage of the Pension Schemes Act 2021, the Government committed to bringing the operation of a pension dashboard service within FCA regulation. This order amends the regulatory perimeter to make operating a pension dashboard service that connects to the Money and Pensions Service’s digital architecture a regulated activity. Once in force, it will mean that anybody choosing to operate a pension dashboard will need to be authorised and regulated by the FCA.
Ian Lavery (Wansbeck) (Lab)
This new legislation refers to a lot of personal data about individuals’ pensions, and the Government have suggested that commercial bodies will also be involved. Can the Minister give guarantees about the protection of the data of individuals concerned?
Bim Afolami
I thank the hon. Gentleman for his point. The whole Committee knows of his strong commitment not only to those in his constituency but those across the country when it comes to protecting people from unfair potential harms. He has illustrated that commitment with his question. I would say two things in response. First, the reason we are making this a regulated activity is precisely to protect individuals, whether it is their data or protecting them from being open to potential scams or anything else. That is why under the regulated activity the FCA will be watching anybody who operates a pension dashboard service. Secondly, the reason we are not just having one Government dashboard service but a multiplicity of private providers is that different people will want different things, and different institutions will operate in different ways. It is important to ensure that we have the right competition, but that competition needs to be underpinned by safety and security. That is why this is being made a regulated activity.
Firms that are authorised by the FCA and are granted permission to undertake the new regulated activity will have to follow the rules set by the FCA. As hon. Members may be aware, the FCA consulted on rules for pension dashboards last year. We will continue to work with the FCA as it develops its response. In conclusion, this instrument delivers an important change to ensure that appropriate consumer protections are in place while progressing our ambitions for pension dashboards. I hope the Committee will join me in supporting this measure, which I commend to the House.
Bim Afolami
A lot of interesting points have been made, and I will address those made by the hon. Member for Hampstead and Kilburn, who raised the broader policy agenda around open banking. In response to her question about whether I will take a holistic view, the answer is yes. It is important to see all of these things in one picture, and I am doing a lot of work with the industry on that.
However, it is important to see that there are fundamental differences between the goals of open banking and pension dashboards—and this also addresses some of the points made by the hon. Member for Glenrothes. Open banking seeks to enable data sharing and increased competition and innovation in the banking market, whereas pension dashboards will help increase consumer awareness and understanding of their pensions. Therefore, in terms of what the purpose of those services are, we are talking about a difference between producers and consumers. One of the key differences is that it would be very unusual for somebody not to know the provider of their bank account, whereas we know that people have lost track of their pensions—often because they have so many different pots.
On the hon. Lady’s question about whether pension dashboards will use the Government’s One Login service, the short answer is that I do not know, but I am happy to write to her on that. I confess that I will have to check that myself, and I thank her for that question. On the hon. Lady’s question about timing, this SI is the beginning of the process whereby, as soon as possible, we will make sure that the architecture is developed safely.
That takes me on to not just the hon. Lady’s point, but also the point made by hon. Member for Glenrothes about minimising the risk of people losing their data. It is important for the Committee to know that no data is stored on pension dashboards. As a result, it is not possible to mass-harvest individuals’ data via dashboards technology. As for the Money and Pensions Service, security standards are designed to ensure that the ecosystem interface of qualifying pension dashboards meet the appropriate level—
Peter Grant
I appreciate the Minister’s reassurances, but he will be aware that it was not possible for anybody at Fujitsu to mess about with the information held on Horizon until somebody discovered that it was possible. Without going into too much detail, at what level of expertise and at what level of independence from the whole project are the assurances of IT security being tested?
Bim Afolami
The hon. Gentleman asks at what level. In terms of the Money and Pensions Service, it is the National Cyber Security Centre that is advising specifically on these. I am happy to talk to him about it in future weeks and months, but that is the level of seriousness with which we take this issue.
When it comes to other private sector providers, as we talked about at the beginning of the debate, the FCA will determine at which point they are able to connect to the technical architecture. There are various dependencies, including the time required for them to familiarise themselves with the rules, when the architecture is ready and various other things, but the FCA will determine that. Why? I go back to the whole purpose of this statutory instrument: the FCA will make sure that this is a regulated activity to address the concerns of the Committee and others, because it is very important, as we all agree.
The SI introduces an important addition to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to ensure that pension dashboard operators are appropriately regulated and that consumers are protected. I am glad that there appears to be broad support from the Committee for the aims of the order. I thank Committee members for this debate, which I hope they have found informative, and I hope that they will join me in supporting this secondary legislation.
Question put and agreed to.
HM Treasury and Bank of England Consultation Response
Bim Afolami Excerpts(3 months, 2 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
The Government have today laid the response to the Bank of England and HM Treasury’s consultation paper, “The digital pound: a new form of money for households and businesses?”—(CP 970).
The Bank of England and HM Treasury have been exploring the concept of a UK retail central bank digital currency (CBDC), or “digital pound”, issued by the Bank of England. A digital pound would be a new form of digital money for use by households and businesses for their everyday payment needs, and a complement to physical cash and other means of payment. However, it is important to stress that no decision has yet been made to build or issue a digital pound, either for corporates or for the public.
Alongside cash, a digital pound would help to ensure that central bank money remains widely available and useful in an ever more digital economy, continuing to support UK monetary and financial stability. It would also provide a public platform for private sector innovation, promoting further competition, efficiency and choice in payments. Many other countries are also exploring the issuance of CBDCs.
No decision has yet been made to build or issue a digital pound, but given changes in money and payments, as well as developments in other countries, we believe there is merit in further preparatory work. This work will allow us to build the necessary skills and put in place the technical capability to introduce a digital pound in a timely manner, were the decision made to do so in the future.
The consultation paper sought feedback from the public on a set of design proposals for the digital pound. The Government and the Bank of England are grateful to everyone who provided their feedback, which will be carefully considered during the ongoing design phase. Respondents from a range of industries and organisations were supportive of the design proposition set out in the consultation paper, while many other respondents raised concerns about the implications of a digital pound for access to cash, users’ privacy, and control of their money. The Government and the Bank of England recognise the critical importance of building the public’s trust in a digital pound.
The consultation response sets out commitments that the Government and the Bank of England are making in response to the feedback received in the consultation, including that primary legislation would be introduced before any launch of a digital pound. Today, the Government and the Bank of England are committing that this legislation would include measures to guarantee users’ privacy and control over how to spend their money. The response also reiterates the Government and the Bank of England’s commitment to protect access to cash. The digital pound, issued by the Bank of England, would be a complement to cash and not a replacement for it.
This consultation response sets outs the steps we are taking to reinforce public trust in the design of a digital pound before any decision is made:
Before any launch of a digital pound, the Government have committed to introducing primary legislation. This means that the digital pound would only be introduced once Parliament had passed the relevant legislation. A further consultation exercise would be held prior to the introduction of legislation.
Privacy, and preventing Government programmability, would be a core design feature of the digital pound issued by the Bank of England.
The Government and the Bank of England would not access users’ personal data, and legislation introduced by the Government for a digital pound would guarantee users’ privacy. Today, the Bank of England is committing to exploring technological options that would prevent the Bank from accessing any personal data through the Bank’s core infra- structure.
The Government and the Bank of England would not program a digital pound, and legislation introduced by the Government for a digital pound would guarantee this.
The Government have already legislated to safeguard access to cash, ensuring that it would remain available even if a digital pound was introduced.
The feedback to date will help to inform our work on the design of the digital pound. We will continue to engage with parliamentarians, the private sector, civil society, academia and the public to develop our proposals for a digital pound, so that we are prepared, should a decision to build a digital pound be taken in the future.
The document is published online at:
https://www.gov.uk/government/consultations/the-digital-pound-a-new-form-of-money-for-households-and-businesses.
Copies of the document are also available in the Vote Office.
[HCWS210]
Draft Public Offers and Admissions to Trading Regulations 2023
Draft Securitisation Regulations 2023
Draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024
Draft Data Reporting Services Regulations 2023
Bim Afolami Excerpts(3 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Data Reporting Services Regulations 2023.
The Chair
With this, it will be convenient to consider the draft Public Offers and Admissions to Trading Regulations 2023, the draft Securitisation Regulations 2023 and the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024.
Bim Afolami
It is a pleasure to serve under your chairmanship, Mr Vickers.
The draft Securitisation Regulations 2023, the draft Public Offers and Admissions to Trading Regulations 2023, and the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024 are made under powers in the Financial Services and Markets Act 2023, which I shall refer to as FSMA. They form part of the Government’s ambitious programme to deliver a smarter regulatory framework for financial services by replacing assimilated law, formerly known as retained EU law, with an approach to regulation that is tailored to the United Kingdom. As the House will know, they are a key part of the Edinburgh reforms, which are a key part of the programme of the Treasury, the Chancellor and my office. The third of those instruments makes technical changes across the statute book to support the effective implementation of the overseas funds regime and functioning of fund recognition.
The draft Data Reporting Services Regulations 2023 establish a new legislative framework for the regulation of data reporting service providers, or DRSPs, replacing the framework inherited from the European Union. DRSPs report trade data—that is, data relating to trades that happen on financial markets—to either the public or the Financial Conduct Authority. That is essential to ensure that markets are supervised effectively and for them to operate and function properly.
Sir Greg Knight (East Yorkshire) (Con)
The explanatory memorandum states that the FCA will need to make new rules under the new regime, and that the new regime will not come into force until the FCA has consulted on changes to its rules as part of the rule-making process. Can the Minister give us some idea of the timescale involved here?
Bim Afolami
I thank my right hon. Friend for that point, and I shall respond in the following way. Under the smarter regulatory framework, the broad approach is that Parliament—in this instance, this Committee—passes secondary legislation under the auspices of FSMA. Then, the detailed rulebook—which is, believe it or not, more detailed than this statutory instrument—comes in through the operation of the FCA. My right hon. Friend made a point about the consultation process. The consultation process can be long or short. I would expect that, as with various other measures under the Edinburgh reforms, the consultation process for statutory instruments as detailed as these will be quite short. We are looking for it to happen this calendar year. I do not want to be more precise than that, but I expect it to happen this calendar year.
Richard Fuller (North East Bedfordshire) (Con)
I want to follow up on the comment from my right hon. Friend the Member for East Yorkshire on the role of the FCA. The Minister will be aware of the concerns of Members on the Government Back Benches about the speed with which regulators perform their duties, how much we pass on to them, and how much we trust them to fulfil the will not just of Parliament but of our representatives. That applies to the FCA. I do not expect the Minister to comment on that directly, but can he assure the Committee that he will use his position to ensure that the FCA is kept on track in implementing the reforms at pace?
Bim Afolami
I will surprise my hon. Friend by commenting directly on what he has said. Like him, I have spent a long time thinking carefully about the role of the FCA and other regulators and the speed with which they discharge their duties. We give them a lot of work to do, but we also hope that that work is conducted as quickly as possible. The FCA has made improvements in that regard, but it is my job to ensure that it works as quickly as possible. When it comes to the Edinburgh reforms, under which these reforms sit, the Chancellor has been very clear that one of my key jobs is to deliver: not just to say that we are doing things, but to ensure that those things come into practice. I am very focused on that.
There are three types of DRSPs: first, approved reporting mechanisms, which report details about transactions in financial markets to the FCA on behalf of investment firms; secondly, approved publication arrangements, which publish trade reports to the public; and, thirdly, consolidated tape providers, which collate trading data from a variety of sources and publish it in a single live data stream. The draft regulations establish a new framework for the regulation of DRSPs, under which the FCA will make the detailed requirements in its rulebook, as we have discussed.
The instrument also delivers the Edinburgh reforms’ commitment to establish a regulatory framework for a UK consolidated tape. Currently, there are no consolidated tapes in this country, which means that market participants must go to various sources to get a cross-market view of trade data. That makes it expensive, burdensome and difficult for investors to access the data they need to make informed investment decisions in the UK. That is why, as part of the wholesale markets review, the Government consulted on legislative changes to facilitate the emergence of a consolidated tape in this country. There was broad support for the Government’s proposals, which this instrument delivers. A tape that collates data from multiple sources into one continuous live stream will make it easier for market participants to meet best execution requirements and manage risk. That will make UK markets more attractive and competitive.
The draft Securitisation Regulations 2023 establish a new legislative framework that replaces inherited EU law on securitisation. The introduction of the securitisation regulation in 2019 directly addressed financial stability deficiencies that arose after the global financial crisis. The Treasury conducted a review of the securitisation regulation in 2021. The review aimed to bolster securitisation standards, to increase investor protections, and to develop securitisation markets to facilitate real economy lending. The new framework established by the draft regulations will allow the financial services regulators—the FCA and the Prudential Regulation Authority—to make and further reform the firm-facing rules for securitisation with more agility and proportionality. The regulators will consider taking forward reforms in line with the outcomes of their own consultations and the 2021 Treasury securitisation review, which were received positively by industry.
The instrument also takes forward other reforms identified by the 2021 review. Those reforms include boosting the UK securitisation market’s competitiveness by no longer subjecting certain overseas firms to UK requirements when investing in UK securitisation. That will make overseas firms’ requirements more proportionate and increase their incentives to invest in UK securitisations, while also removing extraterritorial supervision issues for the regulators. I want the Committee to be clear on that point. The instrument also facilitates UK firms’ participation in international securitisation markets, which should benefit our industry.
The draft Public Offers and Admissions to Trading Regulations 2023 deliver a key recommendation—perhaps the key recommendation—from Lord Hill’s listings review to fundamentally overhaul the prospectus regime, and they mark a significant step in the Government’s reforms to make our capital markets more competitive. The current prospectus regulation, as outlined by Lord Hill and industry at length in his review, is inflexible and slows the raising of capital, which is the purpose of our capital markets. The instrument creates a new framework that requires companies raising capital to publish information that is relevant and useful for investors, while removing unnecessary barriers to such information. The new regime will mean that companies raising capital are required to publish a prospectus, except where they meet a series of exceptions—for example, where a security is traded on an exchange, or where the offer of securities is fewer than 150 investors. That means that, in practice, we are removing the need for a prospectus to be published in many situations. Just so that colleagues appreciate this, the purpose of that is absolutely not to reduce information for investors but to ensure that the right level of information is appropriate for the right type of investors for the right businesses.
The instrument also establishes a new regime for securities “admitted to trading’” on a regulated market or a multilateral trading facility, and creates a new regulated activity of operating an electronic system for public offers of certain securities that are above £5 million. By removing the €8 million threshold for a prospectus, which effectively acted as a blockage for certain private-capital raising, firms can raise larger amounts of capital more easily and more quickly.
That will allow firms raising money outside of capital markets—for example, through crowdfunding platforms, which has grown in popularity over recent years—to continue to do so, but do so in a more targeted way. The FCA will be given new rule-making responsibilities to set rules that apply directly to firms, such as when a prospectus is required. That will create a simpler and more effective regime.
I will now turn to the final instrument, the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024—I will take away from this the need to perhaps shorten the length of the names of such regulations.
This instrument amends the statute book to support the implementation of the overseas funds regime, which is a new route allowing overseas funds from equivalent countries or territories to be recognised for the purposes of marketing participation in such funds to UK retail investors. This instrument ensures that, where appropriate, funds recognised under the overseas funds regime are treated in the same way as other recognised funds. These changes are technical, but they are necessary to allow the overseas funds regime to operate as policy intends, ahead of the first funds being recognised under it. This will be critical to continue to support a competitive funds sector for UK investors.
In closing, the first three of these SIs replace key parts of assimilated EU law, putting in place new frameworks tailored to the UK as the Government deliver a smarter regulatory framework in financial services. The final instrument, as I have outlined, makes technical changes across the statute book to support the effective implementation of the overseas funds regime and the functioning of fund recognition. I hope that the Committee will join me in supporting these regulations, and I commend them to the House.
Bim Afolami
It will be a pleasure to answer the questions of the hon. Member for Hampstead and Kilburn. I will take them in turn, but before I get to them I will say that I have very much noted the comments of the hon. Lady and those of my right hon. and hon. Friends about the speed of implementation and that being key to what the House and the Committee want to see so that we get the changes we all need.
On the prospectus rules coming into force in 2025, the hon. Member for Hampstead and Kilburn will appreciate that this is a complicated set of changes. The Treasury and industry needed to ensure that what we are doing, when that is such a comprehensive piece of work, was the right thing and had the broad support of industry. We have got that, but I repeat that I will be working very hard to make sure that we implement these as quickly as possible. We are closely engaging with the FCA while it is beginning the complex process of reviewing its rules and changing them. The FCA is committed to completing this by the first half of 2025—not just completing the work but actually having new rules published. I will increase the speed of that if humanly possible.
On the point from the hon. Member for Hampstead and Kilburn about securitisation, I am always keen to talk with European Union friends and colleagues across a range of matters. Indeed, I will be visiting Brussels soon in order to discuss these issues and a range of others. I am happy to continue to do that. She also mentioned the legacy transactions point that was brought up by the Association for Financial Markets. We are confident that the regulations are appropriate, but I am very happy to meet with the Association if it would like to discuss any of its concerns.
On the OFR and the equivalence judgments, the answer is: very soon, I hope. I will be updating the hon. Lady and the House as soon as I possibly can, because I recognise that this is important. In relation to the consolidated tape, lots of different competitor jurisdictions are trying to do this work, which is part of the evidence that we are doing the right thing. I am confident that we are going to do this faster and more effectively than our competitors.
Tulip Siddiq
I appreciate the Minister’s responses, but the EU does not recognise the UK STS securitisations. Has the Minister made an assessment of that? He says that he is going to Brussels to speak to them, but has he not already started speaking to them, or is this the first time? That is quite an oversight, considering that they do not recognise those securitisations.
Bim Afolami
The hon. Lady will appreciate that across a range of different issues there are often political reasons why the European Union may or may not do things. We are committed to making sure that it operates in a sensible way when it comes to the UK, because we know that the UK’s financial services ecosystem, regulatory regime and market make it the leading financial services centre. But I will continue to engage with the EU on that basis. To her precise point, there are a range of different issues we are talking to the European Union about at all levels of Government. Financial services is included in that, and I will continue to have those conversations.
Tulip Siddiq
Can I ask the Minister to write to me after his visit to Brussels?
Bim Afolami
Of course.
Question put and agreed to.
DRAFT SECURITISATION REGULATIONS 2023
Resolved,
That the Committee has considered the draft Securitisation Regulations 2023.—(Bim Afolami.)
DRAFT FINANCIAL SERVICES ACT 2021 (OVERSEAS FUNDS REGIME AND RECOGNITION OF PARTS OF SCHEMES) (AMENDMENT AND MODIFICATION) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024.—(Bim Afolami.)
dRAFT DATA REPORTING SERVICES REGULATIONS 2023
Resolved,
That the Committee has considered the draft Data Reporting Services Regulations 2023.—(Bim Afolami)
Public Sector Pay 2024-25
Bim Afolami Excerpts(3 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I thank the hon. Member for Cynon Valley (Beth Winter) for securing this debate and for her opening remarks. I echo her comments and those of many others about a dear friend of the House, Tony Lloyd, and his passing. As was evidently the case with so many other Members, ever since I came to the House, he was unfailingly kind to me. But he was not just kind; he was also knowledgeable and thoughtful, and he knew a huge amount about governance, about Manchester, and about this House and how it works. He will be sorely missed, particularly by Opposition Members.
I am grateful for this opportunity to set out the Government’s appreciation of our public sector workforces and the spirit of public service that lies behind the vital work that they do up and down the country.
Before I get to the meat of my remarks, let me say that many comments have been made in this debate about how, as a result of inflation, the real spending power of wages decreases. That is completely correct; it is true. That is why halving inflation has been the Prime Minister’s No.1 priority since he took office, and we have focused so strongly on doing that. Having more than halved inflation—although we have not yet finished the job—we are now able to pay our public sector workers more. I will explain that a bit further.
As Members know, pay for most frontline workers is set through an independent pay review body process. These independent bodies consider a range of evidence when forming their recommendations. It is important to note that the process is independent of the Government, but Members should be in no doubt that this Government wholeheartedly appreciate the public sector workers who play a vital role in delivering our world-class public services.
Richard Burgon
I am listening very carefully to what the Minister is saying. Why does he think that nursing staff are leaving the profession in droves? Does he agree that it is because they are underpaid and overworked, or does he think there is some other reason? If he thinks there is some other reason, could he enlighten the House on that now?
Bim Afolami
Although this a debate about public sector pay, I will say this in relation to nurses: we have more nurses now than we had at the beginning of the Parliament. There are problems with the retention and recruitment of nurses, which we are addressing, but those problems are receding and those who leave do so for a range of reasons. We are working with the Health Secretary and across Government to ensure that we retain high-quality staff across our public services. Pay is of course part of that consideration, as it is for us all.
The Government strongly believe that dedication to public service should be appropriately rewarded, which is why for the 2023-24 pay round we accepted the headline pay recommendations of the public sector review bodies in full—for the armed forces, teachers, prison officers, the police, the judiciary, medical workforces and senior civil servants. What precisely does that mean for those professions? To answer, I will give three clear examples.
First, it means that policemen and policewomen received a 7% uplift that rightly recognises the risk that those brave men and women take at work. Secondly, teachers, who have been mentioned today, have received a 6.5% uplift and an increase in starting salary for newly qualified teachers to £30,000—significantly above the median wage in this country—which helps to ensure that we can continue to attract the brightest and best to safeguard our children’s education. Thirdly, NHS consultants, doctors, dentists and GPs have received uplifts of 6%, with junior doctors receiving an enhanced pay increase that averaged 8.8%.
Alongside those headline pay awards, we have since agreed offers with the unions representing senior medical workforces, including consultants, which covered reforms to their pay structures. The junior doctors strike has come up in this debate, as one would expect. We were in talks with the British Medical Association’s junior doctors committee, but they unfortunately chose to walk away. I am saddened by the strike because, frankly, it is having an impact on all our constituents. Nobody in this House should want the strike to continue. We urge the junior doctors committee to reconsider its decision, call off the strikes and come back to the table so that we can make further progress. Its demand of a 35% salary increase is unreasonable, and I hope the committee is reflecting on that and will come back to the table as soon as possible.
The pay settlements I mentioned appropriately reward the key role that staff play in safeguarding public health and the health of our NHS.
Beth Winter
The Minister has spoken a lot about the pay increase, but in preparation for the debate we received a number of submissions from trade unions, including the RCN, Unison and the NEU, which made two points that the Minister has not addressed and on which I will table questions. The first was regarding the independent review bodies’ concerns about terms of appointments and reference terms for multi-year deals. I did raise that specific question, but the Minister failed to respond.
The unions’ second point was the pay restoration argument. The figures are staggering, but I will just pick out a couple: nurses have seen a 27% decline in the value of their pay since 2009; social workers have seen a decline of 28%; and all that the junior doctors—who the Minister just mentioned—are asking for is pay restoration back to those 2010 pay award levels. Surely they are entitled to that, and it is not too much to ask. The strikers I was with on the frontline on Monday were having to cut heating and food; they were struggling. They do not want to be on the picket line. All they want is pay restoration. I really hope the Minister addresses that issue.
Bim Afolami
Median pay in the public sector in 2023 was 9% greater than in the private sector, which is broadly in line with the gap between the two sectors over the past decade, so I do not fully accept the situation described by the hon. Lady. To repeat the point I made at the beginning of my remarks: inflation does erode the spending power of wages, which is why it is so important to focus on bringing down inflation.
Let me address another point that the hon. Lady made—as did the hon. Member for Liverpool, West Derby—about health in Wales. As everybody in the House knows, health is fully devolved in Wales; the Welsh Government set health worker pay in Wales, just as the Scottish Government do in Scotland.
Let me answer the question about when the devolved Governments will know their final budgets, which was asked by either the hon. Member for Glasgow South West (Chris Stephens) or the hon. Member for Strangford (Jim Shannon): they will do so following the conclusion of the supplementary documents process, which I believe is published after the Budget. That information will come.
Dr Poulter
The Minister might also remind the Chamber that the Welsh Parliament has had its own income tax-raising powers since 2019. I do not think that is on dividends or savings, but there are other mechanisms available in Wales to meet funding commitments that the Welsh Government may wish to make. Indeed, they may wish to make commitments with the unions to end the strikes in Wales.
I have one question for the Minister. I believe in the importance of the pay review body process, which, as he has rightly said, is independent. If the pay review bodies make a recommendation this year for public sector pay, will the Government adhere to that recommendation?
Bim Afolami
What I can say at the moment is that the Treasury will look at and seriously consider it. We hope to accept it in full, but I cannot make a commitment now. Obviously, I have not seen the recommendation.
Hywel Williams
I will be very brief on a slightly tangential point. The Tories here have already spent the extra income tax that Wales could raise many, many times over—this time on junior doctors’ pay.
Bim Afolami
I thank the hon. Member for his point.
Having described the commitments we have already undertaken on public sector pay, I will outline the next steps we plan to take on this important issue. The Government have now asked the independent pay review bodies to consider and make recommendations on the pay of the workforces for the 2024-25 financial year. The Government hope to strike a balance on pay awards this year. On one hand, those awards should provide a fair, reasonable and proportionate offer for our public sector workers. At the same time, it is paramount that they deliver value for the taxpayer, particularly given the wider economic situation and the implications for the public finances.
Members will be eager to know what the pay award is going to be. Additionally, I know that for many people beyond this Chamber, particularly public servants and those who work for unions, the decision is important and keenly anticipated. I hear them, as do the Government and the Treasury. Given the recent economic picture, we understand that the outcome of the pay review process is not just academic or intellectual; it has real-world impacts on real people, including through mortgage payments, rents, schooling and healthcare. It is about how people plan their lives and how they take care of their loved ones. We hear their concerns and are considering the pay award carefully. The pay review process is independent and will take time. At this early stage, I hope people grant us their patience while we allow the process to take its course.
In conclusion, I thank the hon. Member for Cynon Valley and all Members who have spoken for playing their part in this valuable, interesting and important exchange of views.
Cost of Living Support: Carshalton and Wallington
Bim Afolami Excerpts(4 months ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I congratulate my hon. Friend the Member for Carshalton and Wallington (Elliot Colburn) on securing this debate. He is an asset to his constituents, who I am sure are pleased to be represented by him in the admirable way he has done so this evening. He is decent and has a clever mind, but most importantly he has a good heart, and that heart is in Carshalton and Wallington.
I think all of us in this place recognise the difficult times through which the people of this country, and indeed people around the world, have lived over the past couple of years. We have had the covid pandemic, Putin’s illegal war in Ukraine, and long-gathering inflationary clouds that have created a perfect storm for us all, but particularly for vulnerable people. However, this Government and this country have consistently fought back—against the virus, alongside our Ukrainian friends and, critically, from the perspective of the Treasury Benches, against the economic headwinds. As my hon. Friend outlined, this Government have provided one of the largest support packages in Europe over the past two years, in contrast to the damaging actions taken in his area by the London Mayor and my hon. Friend’s local Liberal Democrat council.
Some 11,300 households in Carshalton and Wallington were eligible for means-tested cost of living payments this financial year, and 8,500 individuals were eligible for the disability cost of living payment. Those households —my hon. Friend mentioned 30,500 properties in his constituency—along with all their neighbours, would have been eligible for the energy price guarantee, the £400 energy bills support scheme and the £150 council tax rebate, along with fuel and alcohol duty cuts. Energy support alone has paid for almost half of the typical family’s energy bill from October 2022 to June 2023 through both the energy price guarantee and the energy bill support scheme.
It is in part thanks to those measures that growth and real incomes have been stronger than expected this year—not just stronger than expected by the Office for Budget Responsibility, but stronger than expected by international economic forecasters. Inflation has also come down significantly to less than half its 2022 peak, and in November it fell to 3.9%, which is the lowest rate in over two years. Again, that was not forecast by the OBR or international forecasters. I do not deny that the outlook for real incomes remains challenging—it remains very challenging for many people, particularly vulnerable people in my hon. Friend’s constituency and across the country—as does inflation, but that is why we announced further support in the autumn statement in November to support the most vulnerable.
The Government will raise local housing allowance rates to the 30th percentile of local market rents in April 2024. In plain English, what does that mean? It means that 1.6 million low-income households will be better off to the tune of about £800 on average in 2024-25. Some, particularly Opposition Members, often say that that is not a lot of money, but I can tell the House that, for those 1.6 million low-income households, it is considerable support that they will welcome, as they will in my hon. Friend’s constituency.
The Government will also uprate all working-age benefits in full by the September 2023 consumer prices index rate of 6.7%, which is considerably higher than inflation, to make sure that working-age people on benefits are supported properly. That is 3 percentage points higher than forecast earnings for 2024-25 and, again, it will help support the most vulnerable while inflation continues to fall, with 5.5 million households on universal credit gaining £470 on average in the 2024-25 financial year.
My hon. Friend mentioned in his speech that 15,000 of his constituents are over 65, and we are maintaining the triple lock in support of those people and pensioners across this country, who have helped to build this country and have worked hard over years gone by. The basic state pension, new state pension and pension credit standard minimum guarantee will be uprated in April 2024 in line with wage growth of 8.5% in the usual reference period. In 2024-25, the full yearly amount of the basic state pension will be £3,750 higher in cash terms than in 2010 or, to put it more simply, £995 more —almost £1,000 more—than if it had been uprated by prices alone.
That comes on top of cost of living payments this year that are helping more than 8 million households on eligible means-tested benefits, 8 million pensioner households and 6 million people across the UK on eligible disability benefits. For individuals needing further support, local authorities in England continue to provide support through the household support fund, which is backed by £1 billion of funding. This allows local authorities up and down England to provide crisis support for the vulnerable households that need it the most, such as through supermarket or food bank vouchers. This means that, from 2022 to 2025, total support to help households with the cost of living will be over £100 billion—£104 billion—at an average of £3,700 per UK household.
However, I and the Government know that relatively short-term help is not enough. The only sustainable way to help vulnerable people in this country, including in my hon. Friend’s constituency, and to improve the living standards is to build a more prosperous future while remaining fiscally responsible. The best way to do that is to grow the economy and get more people into better paid jobs.
On growing the economy, this is not the time for more statistics, but I will say this: taken together, the measures in the autumn statement and the 2023 Budget represented the biggest upgrade in the GDP forecast that the Office for Budget Responsibility has ever scored. That shows the Government’s commitment to and delivery of a growing economy, which gives us all a better future.
When it comes to getting people into better paid jobs, from 1 April 2024, the Government are increasing the national living wage by 9.8% to £11.44 an hour for eligible workers aged 21 or over. That represents an increase of more than £1,800 in the earnings of a full-time worker on the national living wage and will benefit over 2.7 million low-paid workers. Just this month, employees’ main national insurance contribution rate has been cut by about 17%—that is, cut from 12% to 10%—and from April the main rate of class 4 national insurance for self-employed people will be reduced similarly, from 9% to 8%. That tax cut is worth £9 billion a year and is the largest ever cut to employee and self-employed national insurance.
The OBR expects that the measures announced at the spring Budget and autumn statement, taken together, will support nearly 200,000 additional people into work by the end of the forecast period. We do not do this for academic reasons or for fun; we do this because we know that giving people more of their own money—allowing them to keep more of their own money—improves their living standards, and we can do this while increasing funding for public services. Despite the difficulties of the last couple of years, over the course of this Parliament public services will benefit from the public purse by an increase above inflation of over 3%. We are doing this while supporting public services, while bringing down the deficit and bringing down the debt, and we can do all of it because of our careful management of the economy. That will benefit the vulnerable people in my hon. Friend’s constituency of Carshalton and Wallington and people across the country.
These measures underscore the Government’s unwavering commitment to supporting households up and down the country. We firmly believe that the key to a prosperous future lies in creating opportunities for everyone. The boost to the national living wage and the historic reductions in national insurance contributions are powerful tools in driving employment. Getting more people into work is not just good for them; it is good for our economy and for improving living standards, and it is clear evidence of a Government who have been willing to act to the tune of over £100 billion over the last three years. By putting more money into the pockets of hardworking people, we are not only bolstering their financial wellbeing but fuelling economic growth.
As always, we need to balance support for households with fiscal sustainability. The economic position remains challenging. We continue to keep options under review as we take tough decisions to drive down debt, drive down inflation and increase prosperity in every part of the United Kingdom. These are complex issues that affect all our constituents, wherever we call home.
I thank all hon. Members, but particularly you, Mr Deputy Speaker, because you are very kind, and my hon. Friend the Member for Carshalton and Wallington. He cares deeply for his constituents for whom he is a brilliant advocate in this place, and it is an honour to respond to him today.
Mr Deputy Speaker (Mr Nigel Evans)
Thank you for your kind words.
Question put and agreed to.