Financial Advice and Guidance: Consumer Market

Bim Afolami Excerpts

Tuesday 9th January 2024 Westminster Hall

[The Economic Secretary to the Treasury (Bim Afolami)]

I thank my hon. Friend the Member for West Worcestershire (Harriett Baldwin) for securing today’s debate. I recognise her long-standing commitment to the issue that she has outlined to the House. I am mindful that, as one of my predecessors and Chair of the Treasury Committee, she is watching me keenly to make sure that I do the right thing. I am very glad that she broadly supports the proposals and strongly supports the Edinburgh reform. I want to make it clear that I, as Economic Secretary, share her ambition to ensure that consumers can access the support they need to make good financial decisions. I welcome the opportunity provided by this debate to outline how I intend to achieve that.

My hon. Friend mentioned the importance of the timing of this debate and the proposals. This has never been more important. Too often, people in this country, particularly younger people, feel as though they do not have enough of a stake in our economy and society. They want to make their money work hard, but they do not know where to start.

On the changes to our pension system, she mentioned the success of auto-enrolment. Advances in technology and the cost of living instabilities abroad are just two of the reasons why we increasingly need a financially savvy population. She also mentioned pension freedoms for older people, which give them a lot of economic freedom to make these financially important decisions.

Before I get on to the changes, it is worth recognising the support that current guidance and advice services can offer consumers; those should not be ignored. The Government established the Money and Pensions Service in 2019 to simplify the financial guidance landscape and provide support to consumers on important issues such as benefits, budgeting and pensions. The Government work closely with the FCA to ensure that the financial advice market works well for both firms and consumers. There is always more to do, but I believe that we have made significant progress.

In 2012, the retail distribution review drove up the quality of financial advice, and in 2016, when my hon. Friend was the Minister, the financial advice market review helped firms to support more consumers. However, she is right that further action is needed. Despite the progress made, I share her concern that many consumers still struggle to make critical decisions about saving and investing or accessing their pensions, and to access the right help and support. That is why, in 2022, the Chancellor announced that the Government and the FCA would commence a joint review to examine the regulatory boundary between financial advice and guidance. The review provides a key opportunity—probably the greatest opportunity in the last decade—to rethink the way support is delivered for consumers and to help close the advice gap.

In December, as part of the review, I was pleased to announce that the Government and the FCA had published a joint policy paper setting out the three initial proposals, which it is worth saying can be taken either alone or together. We are still thinking about these proposals. We are developing them and we hope to get them delivered as best we can. They represent real regulatory reform, and we need to act.

First, the paper considers whether changes to the FCA’s regulatory guidance or new rules would allow regulated firms to move closer to the boundary and provide more support for their consumers. One difficulty is that we need to be able to, within the existing rules, give firms more confidence that they can move closer to this boundary and give advice and support in ways that do not require legal changes; they just need to be given the confidence to do that. For example, we need to give greater certainty to firms that want to contact a customer holding savings in cash to warn them of the detriment of inflation, and to pension providers that want to proactively warn customers at risk of receiving an inadequate income in retirement. We need to help firms to give better support to customers in such ways.

Secondly, the paper explores a new and innovative type of support that would allow firms to suggest a product or course of action to their customers. That suggestion would be tailored to targeted group of customers and would be presented as appropriate for “people like you”. Take again, for example, a customer who is saving into a pension at a low rate that could lead to an inadequate income in retirement. Under the second proposal in the paper, based on simple and limited data points such as age and size of the individual pot, the pension provider could offer a straightforward piece of advice that the customer could increase their contributions to a specific rate, depending on their personal circumstances. I am glad that my hon. Friend said that this second proposal was a key proposal.

The final option explores a simplified advice regime that would allow consumers with a specific need to access low-cost financial advice. It is worth saying again that the cost of advice is prohibitive for a lot of people. What we are proposing is not just a regulatory change; we need to make sure that all the options are commercially viable for more people. This final option would provide consumers with a recommendation personalised to their individual circumstances, based on a more limited approach to fact-finding than full holistic advice.

[Harriett Baldwin]

I thank the Minister for summarising the three proposals again. Could he clarify which of them would need a vote in Parliament, and will he commit to bringing forward any necessary legislation with urgency?

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[Bim Afolami]

I thank my hon. Friend for that point. I will need to come back to her on whether a specific vote on primary legislation is required. I think secondary legislation would be needed to deal with certain aspects of the proposals, but I will follow up and write to her on the detail, and I commit to moving forward as quickly as I can. With a year left of this Parliament, I want to get this moved forward as far as possible. I am passionate about doing that.

Under the third proposal, for example—it is important to get these examples on the record—a consumer who has just inherited a small lump sum of, say, £10,000 or £20,000, and wants to invest it but does not know where to start, could receive simplified advice that includes a suitability assessment and a personal recommendation as to how they should invest that sort of inheritance.

The paper will allow us to receive input from stakeholders to inform the details of each proposal as we progress this year. Other things are going on in this area—for example, the NatWest share sale that the Chancellor announced in the autumn statement, which will hopefully be taken forward later this year. With that sort of retail offer to the public, it is very important that we have as good a provision for support, guidance and advice for ordinary people as possible.

I am committed to using my time in office to build the skills and trust of UK consumers to bring back the confidence in our financial system that so many people lost following the financial crash. I am confident that with further input from industry, the hon. Lady, Members of this House and consumer representatives, this paper can help to lay the groundwork for a new regulatory framework that will help firms manage risk, help consumers make good decisions and ultimately build a thriving and healthy financial services sector for us all.

Question put and agreed to.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2023

Bim Afolami Excerpts

Monday 8th January 2024 General Committees

[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) (No. 2) Regulations 2023 (S.I., 2023, No. 1306).

It is a pleasure to serve under your chairmanship, Ms Fovargue. The Government recognise the threat that economic crime poses to the UK and to our international partners, and we are committed to combating money laundering and terrorist financing, which undermine the integrity and stability of our financial sector and reduce opportunities for economic growth and legitimate business in our great country. This Government are bearing down on kleptocrats, criminals and terrorists who abuse our leading financial and services sectors. 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. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which from now on I shall refer to as the money laundering regulations, support our overall efforts. As the UK’s core legislative framework for tackling money laundering and terrorist financing, they set out various measures that businesses must take to protect the UK from illicit financial flows. Under the regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries—countries that are identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes. These checks help to protect the UK financial system from the threat of overseas illicit financial flows.

The statutory instrument before the Committee amends the money laundering regulations to update the UK’s list of high-risk third countries. It removes Albania, the Cayman Islands, Jordan and Panama from the list and adds Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam. Thus, the UK high-risk third countries list will be aligned with the decisions of the Financial Action Task Force—the global standard setter for anti-money laundering and counter-terrorist financing. The UK plays a leading part in the Financial Action Task Force, with an excellent team of officials in the Treasury including people such as Karishma Navsaria. The FATF methodology ensures that countries around the world are subject to expert, robust evaluations of their anti-money laundering and counter-terrorist financing regimes. Where countries are found to have strategic deficiencies, the task force members can agree to add them to one of two lists: jurisdictions under increased monitoring and jurisdictions subject to a call to action. By aligning our own high-risk third countries list under our own legislation with the FATF’s, we ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing.

The Cayman Islands are a very good example of the progress that can be made by engaging with the FATF. The Cayman Islands was listed in February 2021; since then it has made significant progress to reform its regime and strengthen its anti-money laundering defences and competent authorities. It is now one of a very small number of countries around the world to be compliant or largely compliant with all 40 of the task force’s recommendations. I am delighted that it is being removed from the UK’s high-risk countries list as a result of that progress.

This is the eighth SI amending the UK’s list of high-risk third countries in response to evolving risks from third countries. In June last year, schedule 3ZA to the money laundering regulations was amended to remove Cambodia and Morocco after they were delisted, but otherwise updates to the list have been paused since November 2022.

[Nigel Mills (Amber Valley) (Con)]

May I ask the Minister a couple of questions? He started by saying that the UK is committed to tackling kleptocrats, so I am a bit surprised that Russia and Belarus are not on the list of countries for which we expect some higher precautions to be taken. Secondly, will he comment on why we have had to add two EU countries—Bulgaria and Croatia—to the list? That is a bit surprising, because I thought the EU had quite a robust anti-money laundering regime. Are we saying that they are not complying with their own laws? I think they are the first two such countries to appear on the list.

[Bim Afolami]

I will take my hon. Friend’s questions in turn. Russia has been suspended from the Financial Action Task Force; it has not attended meetings or played a part in deliberations since the war in Ukraine began. As my hon. Friend and the House know, we are taking a series of measures to counter certain actions of the Russian regime. In relation to the EU countries that he mentioned, I cannot comment on the EU’s decision making in relation to its own rules. The task force has, I believe, about 40 countries in it, so it is a global body, and broader than the EU. This is the collective decision of those countries. It is up to the EU to conduct its own deliberations in relation to its member states.

As I said, this is the eighth SI amending schedule 3ZA. I am aware that many noble Lords have expressed frustration at parliamentary time being taken up in the other place by such relatively routine matters to keep our high-risk third countries list aligned to the task force’s. That is the other place, but it is worth mentioning in this Committee. However, the Economic Crime and Corporate Transparency Act enables the Government to amend the money laundering regulations to create an ambulatory reference to the task force list. That will result in the same legal effect, with regulated businesses being required to apply enhanced due diligence to relevant business relationships and transactions with these countries, but without the need for secondary legislation after every change to the list. The Government will bring forward an SI to implement that provision in the money laundering regulations shortly. In notifying the House of this, I emphasise two things: first, the Government retain the authority and autonomy to deviate from the FATF at any time if the Government so decide; and secondly, that deviating would require further secondary legislation and a debate in both Houses of Parliament.

The instrument will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. It is crucial to protecting UK businesses and the financial system from money launderers and terrorist financers, so I hope that colleagues will join me in supporting it.

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[Bim Afolami]

I thank the shadow Minister for supporting the regulations. It is incumbent on me to make two key points to address her question about the Cayman Islands. First, a country’s being taken off the list reflects that it has now satisfied what the Financial Action Task Force has set out for it, that it has worked hard and has evidenced how it is doing that. The point about ownership lists and whether a legitimate interest is required is a fair and interesting one, but it has not triggered the Financial Action Task Force to say that the Cayman Islands is not largely compliant. That is the first point. The second is that this is always evolving and no country in the world is perfect. Illicit activity is a scourge that we are trying to remove from our financial system, so we continue to work with the Cayman Islands to make sure it does everything it can.

[Tulip Siddiq]

I draw the Minister’s attention to Transparency International’s warning that the requirement to demonstrate a legitimate interest could limit access for civil society organisations and journalists, who in recent years have been key in uncovering corruption and money laundering. That is my point when I ask about access to the registers. Does he share my concerns about that?

[Bim Afolami]

I am happy to look into that. The UK and various overseas territories, not just one in particular but across the whole landscape, have been working at official level technically to improve access and visibility in terms of beneficial ownership. The UK, when Lord Cameron was Prime Minister, was a leader in doing that internationally, and we will continue that work. I am happy to continue discussing with the hon. Lady what more we can do in respect of the Cayman Islands.

I listened carefully to the hon. Lady’s speech, and it is the Government’s view that the amendment will ensure that UK legislation remains up to date and in line with international standards. It is clear that money obtained through corruption or criminality is not welcome in the UK and should not be welcome anywhere. That is why we are playing such a leading part in the Financial Action Task Force.

The new procedure for dealing with the problem will enable regulations to allow the UK to automatically reflect changes agreed by the Financial Action Task Force in our own list. In the event that the Government choose to deviate from the list, such updates will need to proceed through a draft affirmative SI.

[Nigel Mills]

We all remember the Panama papers leaks of a few years ago and the light that they shone on financial crime, so I am intrigued that we are removing Panama from the list. The impact assessment sets out that in a survey of 1,900 respondents in the industry, 19.7% thought Panama was high risk, whereas only 2.2% felt Bulgaria was and for Croatia it was only 1.9%. Is not taking Panama off the list and adding Croatia and Bulgaria a slightly perverse thing to do?

[Bim Afolami]

I thank my hon. Friend for that intervention. Everyone in the House knows about his long-standing interest in these matters and his knowledge and understanding of them. The Financial Action Task Force operates on objective measures that are worked out by experts in their field. They look at this as objectively as they can. The views of certain participants are relevant, but are not determinative. However, the points he makes are good ones and I am happy to discuss them with him separately.

I hope that hon. Members have found today’s sitting informative and that they will join me in supporting the regulations.

Question put and agreed to.

Oral Answers to Questions

Bim Afolami Excerpts

Tuesday 19th December 2023 Commons Chamber

[Jeff Smith (Manchester, Withington) (Lab)]

7. What recent steps he has taken to help ensure people have access to banking services.

[The Economic Secretary to the Treasury (Bim Afolami)]

The Government believe that all customers should have appropriate access to banking services, which is why we have legislated to protect access to cash. We also support the FCA’s bank branch closure guidance as well as industry initiatives to provide in-person access, including shared banking hubs at post offices, and access via digital means.

[Jeff Smith]

More than 5,000 bank branches have closed since 2015. Sadly, the Lloyds bank in Withington village will join the many more branches closing in the coming months and leave Withington without a bank branch, but by the end of the year the industry will have delivered only 30 shared banking hubs. Does the Minister think that the pace and scale of that roll-out is good enough?

[Bim Afolami]

First, it is worth stating that, as the hon. Gentleman knows, the decisions on whether to open or close branches are commercial ones, and the Government do not interfere with that. However, we have legislated to protect access for cash. The banks need to abide by the Financial Conduct Authority’s guidance, with the latest guidance published only last week. In relation to shared banking hubs, we should indeed increase the pace at which they are rolled out, and I am talking with the industry about how to do that.

[Philip Davies (Shipley) (Con)]

It is pretty clear that most legacy banks do not give a stuff about their customers and just want to screw as much money out of people as possible. After the scandal of Coutts’s debanking of Nigel Farage, the Government acted swiftly to try to make that much more difficult for other customers, but many businesses face the same problem. What will the Government do to stop businesses being debanked in the same way as individuals?

[Bim Afolami]

I am not sure that I quite accept my hon. Friend’s characterisation of the banking industry, but I am happy to meet him and discuss the problems he outlined in relation to specific businesses and access to bank accounts.

[Mr Speaker]

I call the shadow Minister.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

Before I ask my question, I want to convey the apologies of the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves). She is delivering the eulogy at Alistair Darling’s funeral today.

I want to say a few words about Alistair Darling—I am sure you will agree, Mr Speaker—a dedicated public servant, who was respected across both Houses. He led the country’s economic response to the global financial crisis with integrity, honesty and sound judgment, and we will all miss him. [Hon. Members: “Hear, hear!”]

As my hon. Friend the Member for Manchester, Withington (Jeff Smith) just said, nearly 6,000 bank branches have closed since 2015, and only 30 banking hubs are up and fully running. That has left countless people financially excluded and affected lots of small businesses. I ask the Minister once again: will he accelerate the roll-out of banking hubs properly? Why are his Government not doing anything to reverse the decline of the great British high street?

[Bim Afolami]

I agree with the hon. Lady’s words about Lord Darling and echo the words of my right hon. Friend the Chancellor.

On bank branches, I will repeat my position: it is important that the Government do not decide when a branch opens and when it closes, but it is a concern when communities are left without appropriate access to cash. That is why we were the first Government to legislate for access to cash, as we did earlier this year, and that is why I believe we should speed up the roll-out of banking hubs. I am working with the industry on ways in which we can do that.

[Tulip Siddiq]

If the Minister is serious about protecting the future of the great British high street, will he back Labour’s pledge, which has been welcomed by Cash Access UK and the wider sector, to guarantee face-to-face banking in every community and give the FCA the powers it needs to roll out hundreds of banking hubs across the country?

[Bim Afolami]

As the hon. Lady knows, the industry leads the roll-out of banking hubs. We are supporting it—I say this again—to speed that up as much as possible. I have not seen the Labour pledge—I suspect that I will not support it—but it is important that the industry hears the views of constituents and Members from across the House and that we speed up the roll-out of banking hubs in communities that need them.

[Mrs Flick Drummond (Meon Valley) (Con)]

8. What steps his Department is taking to incentivise pension schemes to invest in the UK.

[The Economic Secretary to the Treasury (Bim Afolami)]

At the autumn statement, we set out a series of measures to improve pension saver returns, increase opportunities for investment and boost the UK’s capital markets and high-growth companies.

[Mrs Drummond]

Merry Christmas, Mr Speaker, and to all those in the House. The UK’s pension funds lag behind their counterparts in the USA, Scandinavia and Australia for investing in technology firms. Can my hon. Friend continue his work on reforms and ensure that more pension fund investment stays in the UK, to boost our tech sector?

[Bim Afolami]

Under the industry-led Mansion House compact, 11 of the UK’s largest defined contribution pension schemes have signed up to the objective of allocating at least 5% of their funds to unlisted equities by 2030. We believe that could unlock £50 billion of investment in high-growth companies and should help increase returns to savers.

[Jim Shannon (Strangford) (DUP)]

The Minister will appreciate that the greatest investment that anyone can make is in themselves and their own country—Northern Ireland and all the United Kingdom. What steps can be taken to ensure UK-wide investment by pensions schemes in cutting edge businesses such as Wrightbus and Thales?

[Bim Afolami]

There are a couple of things that we need to do. We need to ensure that the industry abides by its commitment to the 5% target. Working with the Exchequer Secretary, my hon. Friend the Member for Grantham and Stamford (Gareth Davies), we must present the right investment opportunities so that the capital goes into the UK in the right way.

[Selaine Saxby (North Devon) (Con)]

9. Whether his Department is taking fiscal steps to reduce differences in the levels of taxation between long and short-term lets.

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[Jessica Morden (Newport East) (Lab)]

10. What recent discussions he has had with the Financial Conduct Authority on how creditors contact customers in debt.

[The Economic Secretary to the Treasury (Bim Afolami)]

I was pleased to speak at the launch of the Money and Mental Health Policy Institute’s report on this subject last week, alongside the FCA. It is worth saying that I used to be on the advisory board of that institute. The Government and the FCA will continue to work closely to ensure that consumer protections are fit for purpose, including through our upcoming reform of the Consumer Credit Act 1974.

[Jessica Morden]

A constituent who was a victim of domestic abuse and whose ex-husband fraudulently took out a loan in her name was constantly harassed by creditors as she tried to clear the debt, and, according to a recent report by the organisation that the Minister mentioned, that is an experience shared by others. Will Ministers discuss with the FCA imposing legal limits on arrears communications in cases such as this, as other countries have done?

[Bim Afolami]

Let me say two things. First, I pay tribute to the former Financial Secretary, now the Health Secretary—my right hon. Friend the Member for Louth and Horncastle (Victoria Atkins)—who did a great deal of work in relation to economic abuse. I am committed to continuing that work with the Treasury to ensure that we limit the circumstances in which the incidents described by the hon. Lady can occur. As for the broader question of what the regulator does in such cases, we have put a record level of funding, to the tune of some £93 million, into working with regulators on debt advice. I shall be happy to discuss with the hon. Lady the details of how we can help her constituents in the way that she suggested.

[Rachel Hopkins (Luton South) (Lab)]

11. What recent assessment he has made of the potential impact of changes in mortgage interest rates over the course of this Parliament on household income.

[The Economic Secretary to the Treasury (Bim Afolami)]

As the hon. Lady knows, the path to lower interest rates is through low inflation, and the independent Bank of England has the Government’s full support as it takes action to return inflation to target. The Government’s mortgage charter, brokered by my right hon. Friend the Chancellor earlier in the year, is available to 90% of borrowers. Real disposable income per person is about £800 higher than the Office for Budget Responsibility predicted in its March forecast.

[Rachel Hopkins]

The expiry of 1.5 million fixed-rate mortgage deals next year will mean even more people paying sky high-costs. It comes at a time when many are suffering increased financial hardship and personal debt, which is having an impact on their mental and physical health. Does the Minister think it fair that families are paying hundreds of pounds more each month to cover the costs of the Government’s mini-Budget disaster?

[Bim Afolami]

Mortgage costs and interest rates have gone up throughout the world, and we are in more or less the middle of the pack—they are higher in the United States, for example—but what will definitely make things harder for the hon. Lady’s constituents, and indeed all our constituents, is borrowing an extra £28 billion that will only serve to increase inflation and keep rates higher for longer.

[Kerry McCarthy (Bristol East) (Lab)]

12. What recent assessment he has made of the potential impact of the OBR’s growth forecasts on living standards.

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[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

16. If he will make mandatory the recommendations on reporting of the taskforce on nature-related financial disclosures.

[The Economic Secretary to the Treasury (Bim Afolami)]

This Government have been one of the largest donors to the global market-led taskforce on nature-related financial disclosures—TNFD—initiative. We will consider how best the TNFD’s recommendations should be incorporated into policy and legislative architecture in a manner that is coherent with global sustainability reporting.

[Dr Coffey]

Merry Christmas to you, Mr Speaker, and to the officers, Clerks and staff of the House. I am encouraged by my hon. Friend’s answer. It was a year ago today that the global biodiversity framework was agreed in Montreal, and it was absolutely necessary to restore biodiversity loss. The TNFD initiative was launched by the UK G7 presidency in 2021 and it featured in the green finance strategy that my right hon. Friend the Chancellor and I did the ministerial foreword to earlier this year. He will be aware of the recommendations that were launched in September. I am conscious that there was a lot of support from the Treasury previously and that we should try to accelerate the International Sustainability Standards Board standards so that we can bring in this initiative just as successfully as we have done for the TCFD—the taskforce on climate-related financial disclosures.

[Bim Afolami]

I thank my right hon. Friend for her question. She mentions the Treasury’s green finance strategy, which contains plans to bring forward the sustainability disclosure requirements, building on the global commitments. We have already implemented the climate-related financial disclosures, and we are looking very carefully at the nature-related financial disclosures. We hope to update the House in due course.

[Jack Brereton (Stoke-on-Trent South) (Con)]

17. What steps his Department is taking to help increase the level of business investment.

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[Dave Doogan (Angus) (SNP)]

UK capital requirement regulations mandate a 50% level of capitalisation to be held by lenders for longer terms as opposed to 20% for shorter terms. Car manufacturer banks, such as Renault’s RCI Financial Services, underpin every franchise car dealer across these islands and operate on a seven-day notice period to terminate in order to minimise their capital requirements at 20%. The problem arises when a bank such as RCI maladministers a serious activity report, panics over its obligations under the regulations and terminates an award-winning Renault, Nissan and Dacia dealer such as Mackie Motors in my constituency with seven days’ notice. Will the Chancellor or one of his Ministers meet me to discuss this crisis?

[The Economic Secretary to the Treasury (Bim Afolami)]

I thank the hon. Gentleman for his question. Indeed, I will meet him to discuss the matter to make sure that this regulation does not have the adverse effects that he has outlined.

[Philip Dunne (Ludlow) (Con)]

Since the Prime Minister’s speech on net zero in September, Nissan has announced a £2 billion investment in Sunderland, which comes hot on the heels of Tata’s £4 billion investment in batteries. EDF Masdar has announced an £11 billion investment in offshore wind in Dogger Bank. In his autumn statement, the Chancellor announced a tripling of tidal energy contracts for difference. We had 11 hydrogen projects announced last week. There are six companies bidding for small modular reactors. [Interruption.] Is it not the case that, hot on the heels of yesterday’s announcement of a £6 billion allocation of energy efficiency funding and the carbon border adjustment mechanism—

Money Laundering Regulations: Politically Exposed Persons

Bim Afolami Excerpts

Thursday 14th December 2023 Written Statements

[The Economic Secretary to the Treasury (Bim Afolami)]

My noble Friend Baroness Vere of Norbiton, the Treasury Minister in the House of Lords, has today made the following written ministerial statement.

Today the Government have laid the Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (SI 2023/1371), a statutory instrument to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the regulations”) in relation to the treatment of politically exposed persons (PEPs) who are entrusted with prominent public functions by the UK (known as “domestic PEPs”).

The amendment makes clear that under the regulations the starting point for banks and other regulated firms in their treatment of domestic PEPs, or a family member or known close associate of a domestic PEP, must be to treat them as inherently lower risk than non-domestic PEPs. Accordingly, regulated firms must apply a lower level of enhanced due diligence to domestic PEPs compared to non-domestic PEPs, unless other risk factors are present.

The Government are making this change in order to ensure that banks and other regulated firms take a proportionate and risk-based approach to the treatment of domestic PEPs, in line with the Government’s broader approach to anti-money laundering and counter-terrorism financing (AML/CTF) controls. While the new requirements have featured for some time in Financial Conduct Authority guidance on the treatment of PEPs, legitimate concerns continue to be raised that a number of holders of prominent public positions have encountered problems accessing financial services due to their status as politically exposed persons under the regulations, as have their family members. Often, this takes the form of potentially disproportionate or overly frequent requests for information about personal financial matters and affects both PEPs themselves and family members or close associates. The Government are fully committed to tackling money laundering, terrorist financing and corruption, but they will always work to ensure this is done in a proportionate, risk-based way that avoids undue burdens on law-abiding citizens.

SI 2023/1371 fulfils the Government’s commitment set out in section 77 of the Financial Services and Markets Act 2023 (“the Act”) to amend the regulations to make it clear that the starting point for AML/CTF-regulated firms when considering their treatment of domestic PEPs and their relations and close associates should be to treat them as inherently lower-risk than non-domestic PEPs.

Section 78 of the Act also committed the Financial Conduct Authority to conduct, and publish the conclusions of, a review into how financial institutions are following its guidance. This review will consider whether the FCA’s guidance on PEPs remains appropriate, and the FCA will be required to amend its guidance if the review finds it necessary to do so. If the FCA finds that the guidance is no longer appropriate, it will publish draft revised guidance for consultation, taking into account the Treasury’s amendment to the regulations, within the 12-month timeframe given for the review (i.e. by 29 June 2024). Given the strength of concern on this issue, the Government expect that the FCA will prioritise this important review over the coming months.

The Government would like to thank again those who have taken the time to raise these issues, and those who have engaged with the FCA’s review.

[HCWS134]

Bank Profits: Windfall Tax

Bim Afolami Excerpts

Wednesday 6th December 2023 Commons Chamber

[The Economic Secretary to the Treasury (Bim Afolami)]

I congratulate the hon. Member for Leeds East (Richard Burgon) on securing this debate. He is an assiduous attender in the House, he cares a lot about these issues and I respect him deeply. In particular, I love his conversion, like that of his very good friend the Leader of the Opposition, to quoting and loving Margaret Thatcher. I cannot wait to hear the reports of how that goes down when he visits his local Labour party at the end of the week.

I am pleased that this debate provides me with an opportunity to set out the measures that the Government have already taken to ensure that banks make a fair and sustainable tax contribution, but before I get on to that, I cannot resist dealing with some of the points that the hon. Gentleman made about the economic context in which this country finds itself. He mentioned economic growth. It is important that he recognises that when they assessed the autumn statement that the Chancellor recently delivered to the House, the Office for Budget Responsibility and independent forecasters said that the pro-growth measures it contained represented the largest boost to economic growth over the forecast period of any fiscal event in a generation.

I think the hon. Gentleman said that austerity and public sector cuts were somehow inevitable, and that somehow the Treasury, Chancellor and Government felt that that was a good thing. We completely reject that characterisation. All I would say is that borrowing an extra £28 billion, as proposed by his Front-Bench team and the shadow Chancellor—I do not know whether it is the hon. Gentleman’s idea or proposal—will end up raising inflation and raising interest rates, which is what makes austerity and cuts more likely.

Let me deal with the real substance of the hon. Gentleman’s remarks on the banks and a windfall tax. First, it is important to highlight that financial and related professional services are a vital part of the UK economy. They employ nearly 2.5 million people, two thirds of them outside London. Indeed, I am sure that the hon. Gentleman has many members of Leeds’ thriving financial and professional services sector in his constituency.

As I laid out to TheCityUK’s national conference earlier this month, I am committed to delivering the Chancellor’s vision for a financial services sector that is open, sustainable, innovative and competitive, while also acting—this is very important—in the interests of communities, people and citizens all across our four nations. I urge the hon. Gentleman to consider my view and the Government’s view that such ambitions do not contradict each other; rather, it is the UK’s globally competitive financial services sector that supports jobs throughout this country and underpins access to finance—for individuals if they want to buy a home, for households, for businesses that need to borrow to expand and invest, and for consumers throughout the country.

Before we consider the potential merits of a bank windfall tax, I want to reflect on some of the bigger picture in respect of the health of the UK banking sector as a whole. We should be encouraged to see a strong, well-capitalised and competitive banking sector in the UK, in no small part owing to the significant regulatory and market reforms that have been implemented since the global financial crisis. Banks are the most important source of credit, providing individuals and businesses with the financial resources to succeed. For example, in 2022 banks lent a total of £65.1 billion to small and medium-sized businesses, which make up the majority of businesses in our country, and helped 370,000 first-time buyers on to the property ladder. That illustrates that these institutions are not in the pockets of fat cats; they serve the nation. They serve ordinary working people and early-stage entrepreneurs and businesspeople.

In addition, the retail savings market currently offers a range of competitive options to savers, who can now access the highest rates in recent years on a variety of instant-access and fixed-term products. The hon. Members for Strangford (Jim Shannon) and for Leeds East brought up the issue of bank branches, and I share their view that we need to maintain access to cash for rural communities. Indeed, the hon. Member for Leeds East will see from me and this Government that we believe we should speed up and spread banking hubs throughout as many of our communities as possible.

[Richard Foord]

I opened one of those banking hubs a fortnight ago in Axminster. I agree with the Minister that it is fantastic to see those facilities and I know my constituents are very grateful. When will we see the opening of the next tranche, such as a banking hub for Sidmouth?

[Bim Afolami]

This is a rolling programme. We are trying to speed it up and in due course there will, of course, be changes and updates to it.

It is equally important that banks make an equitable and sustainable tax contribution, and the Government have taken significant steps since 2010 to ensure that. First, as the hon. Member for Leeds East knows, we introduced the bank levy in the wake of the financial crisis. It was designed to encourage banks to move away from risky funding models and ensure that they make a fair contribution. The levy has raised vital revenue to help fund the public services we all rely on—over £28 billion so far—and, long after the financial crisis, it continues to bring in over £1 billion a year.

Secondly, in 2016 we introduced the bank corporation tax surcharge. Banks currently pay an additional 3% rate of tax on their profits, which, when combined with standard corporation tax, means that banks pay more tax on their profits—we would not know it from the hon. Gentleman’s speech—than most other businesses, and a higher overall rate than when the surcharge was at 8%. The surcharge has raised over £13 billion and continues to bring in over £1.3 billion a year. We have also taken action to prevent banks from claiming tax relief on losses incurred during the financial crisis or on compensation payments for payment protection insurance and other cases of misconduct.

This money is the public’s money. These measures help to support the needs and ambitions of our country’s citizens when it is appropriate for the state to do so. I know that that is why the hon. Gentleman is so keen to see a windfall tax introduced. I share his concern for supporting the interests of his fellow citizens, but the measures I have outlined demonstrate how the Government already ensure that banks make a fair and sustainable tax contribution.

Having outlined how our current approach has generated significant tax revenue for the UK, I want to conclude by turning to how deviating from the approach I have set out—for example, by adopting a windfall tax as the hon. Gentleman suggests—would carry significant risk for the health and competitiveness of our banking sector, which in and of itself would be a significant risk for the health and competitiveness of our economy.

A jurisdiction’s overall tax burden clearly informs decisions made by internationally active banks about where to operate. It is also clear that other international financial centres, which are our competitors, recognise that too. I want to be very clear that a higher level of bank taxation in the UK would significantly worsen our competitive position in relation to key global financial hubs in the US, Asia and Europe. It would have a threefold negative impact. First, it would put existing jobs at risk. Secondly, it would damage the chances of future jobs being created through new activity being set up. Finally, rather than raising significant yield for the Exchequer, I fear that it would have the opposite effect; it would jeopardise the considerable tax revenue that is already generated by the banking sector.

The banking sector’s contribution to the UK’s economy should not be underestimated. The amount of tax paid by banks is rightly proportionate to that contribution. Let me be clear: the Government still maintain that the sector should continue to make a fair and sustainable tax contribution. We have taken steps since 2010 to ensure that. It is no contradiction to say that we need a strong and competitive banking sector that supports individuals, households and businesses, because that has foundational importance to our economy.

Question put and agreed to.

Draft Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 Draft Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 Draft Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023

Bim Afolami Excerpts

Tuesday 5th December 2023 General Committees

[The Economic Secretary to the Treasury (Bim Afolami)]

I beg to move,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023.

[The Chair]

With this it will be convenient to consider the draft Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 and the draft Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023.

[Bim Afolami]

In addition to being snappily names, each of these three statutory instruments makes updates to financial services regulation to ensure that it remains effective. Let me first turn to the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023. This instrument amends the exemptions from the financial promotion regime for both high net-worth individuals and self-certified sophisticated investors. The purpose of these exemptions is to help small and medium-sized businesses to raise finance from high net-worth individuals and sophisticated private investors—often known as business angels—without the cost of having to comply with the financial promotion regime. This is a long-standing way we have operated in respect of financial services. The exemptions were last substantively updated in 2005, even before I ever dealt with this in the City, before I came to this House, so it was a very long time ago.

Economic, social and technological changes since then mean that many more consumers now fall within the eligibility criteria to use the exemptions. In addition, there have been concerns about misuse of the exemptions, including the risk of businesses using them to market investments inappropriately to less sophisticated ordinary retail investors because of the drift, since 2005, of the thresholds.

The Treasury Committee therefore recommended that the Government re-evaluate the exemptions, and this instrument raises the monetary thresholds to qualify for the exemptions to £170,000 for income and £430,000 for net assets, which takes account of inflation over the past two decades. The instrument also amends other eligibility criteria to reduce the risk of capturing ordinary consumers. This should all ensure a better understanding of the protections that individuals lose when receiving financial promotions under these exemptions.

Furthermore, the instrument amends separate exemptions to the financial promotions gateway, ensuring that those exemptions apply as intended. To sum up, the changes being made by this instrument should reduce the risk of consumer detriment, while ensuring that small and medium-sized businesses can continue to raise capital as a result of financial promotions made under these exemptions.

I will move on to the other two instruments, both of which are made under powers in the Financial Services and Markets Act 2023, which, to avoid the risk of garbling it, I will now refer to as FSMA 2023. The Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023, which I will now refer to as the benchmarks and capital requirements SI, make two targeted changes to financial services retained EU law. As you know, Mr Dowd, FSMA 2023 repeals retained EU law in respect of financial services, allowing the Government to deliver a smarter regulatory framework for the United Kingdom. The repeal of each individual piece of retained EU law will commence once the Government and the regulators have made appropriate arrangements to replace it with our own rules or, indeed, determined that no regulation is necessary. While that process is under way, FSMA 2023 ensures that retained EU law can be kept up to date and effective.

I said that there were two changes. The first change made by this instrument reintroduces a discount factor into the UK capital requirements regulation. “What is the purpose of the discount factor?”, I can hear you thinking, Mr Dowd. I can tell you: the discount factor reduces the amount of capital that small and medium-sized financial services firms are required to hold for certain derivatives activity. Derivatives activity might include, for example, a foreign exchange product. The Government removed the discount factor in April 2021 through the Financial Services Act 2021. The EU also removed the discount factor from its own version of the capital requirements regulation.

After industry raised concerns with the Government about the discount factor not being in UK law, the Government acted to address the issue through this instrument. This will align UK legislation with best practice globally and reduce uncertainty for our firms. The instrument also amends article 51(5) of the benchmarks regulation, extending the transitional period for the third-country benchmarks regime to the end of 2030. It is currently 2025 and will be extended to 2030.

UK users currently have continued access to non-UK benchmarks—continued since we were in the European Union—without administrators of the benchmarks having to pass through one of the three access routes, broadly summarised as: equivalence, recognition or endorsement. There is a variety of issues with the current third-country regime. Indeed, the European Union itself has not yet brought its equivalent regime into force in its own jurisdiction.

If the transitional period were to end with the third-country regime in its current form, many administrators might be unable or unwilling to use the regime for continued UK market access. That is something that we are trying to avoid. It would risk reducing the number and variety of important benchmarks available in the UK that are used by many of our businesses. Losing access to third-country benchmarks could undermine the UK’s position as a centre for global foreign exchange and derivatives markets, and have further repercussions, so we are extending the transitional period, as I said, from 2025 to 2030.

The final SI, the Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023, makes a number of consequential amendments arising from FSMA 2023. When I say “consequential”, I do not mean of huge import, but in terms of following on from the consequences of FSMA 2023. These are provisions that do a series of relatively small tidying-up things. They make consequential changes that are needed as a result of the repeal of a number of pieces of retained EU law. Secondly, they update a particular cross-reference in FSMA 2023—an oversight—to align the Bank of England’s reporting requirements with its remit and responsibilities.

Thirdly, this instrument amends the Payment Card Interchange Fee Regulations 2015 to apply certain sections of the Financial Services (Banking Reform) Act 2013 to a new direction-making power, which was given to the Payment Systems Regulator. These are consequential changes, as I have said, resulting from the passage of FSMA 2023.

To sum up, the SIs deliver important changes to ensure that the financial services regulatory framework continues to function effectively for consumers and businesses alike. I hope the Committee and my wonderful shadow Minister will join me in supporting the regulations, which I commend to the Committee.

[The Chair]

Thank you. You had, indeed, read my mind.

--- Later in debate ---

[Bim Afolami]

I thank the hon. Lady for her questions and for her support.

In essence, what we are doing here is completely separate to what is going on in Basel 3.1, which is due to be implemented in July 2025. These are separate matters, and I confirm that this measure is not intended to be superseded. The draft regulations are not something that the PRA will supersede. As I say, there is a legitimate debate about Basel, but that is separate from the SI changes. I am happy, as I always am, to talk to the hon. Lady about such issues, but I reassure her and the Committee that the changes are separate to those under Basel 3.1.

The three draft SIs bring forward important changes to ensure that financial services regulation continues to operate effectively. I am glad that the Opposition support them, and I hope that the whole Committee will do so as well.

Question put and agreed to.

Draft Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023.—(Bim Afolami.)

Draft Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023.—(Bim Afolami.)

Draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023 Draft Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023 Draft Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023

Bim Afolami Excerpts

Tuesday 28th November 2023 General Committees

[The Economic Secretary to the Treasury (Bim Afolami)]

I beg to move,

That the Committee has considered the draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023.

[The Chair]

With this it will be convenient to consider the draft Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023 and the draft Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023.

[Bim Afolami]

I will lay out three sets of draft regulations. First, I will address the two statutory instruments that relate to the expanded resolution regime for central counterparties, otherwise known as CCPs, which is how I will refer to them. The regulations make necessary technical and consequential legislative changes and provide legal protection for certain contractual arrangements to ensure that the regime operates as intended.

Resolution is the framework for managing the failure of certain financial institutions. Within that framework, the Bank of England is the UK’s resolution authority and leads on resolution processes once instigated. The UK’s existing resolution regime for banks and building societies was introduced in 2009. That was partially extended to CCPs in 2014. A new bespoke and expanded regime for CCPs was created this year under schedule 11 to the Financial Services and Markets Act 2023, recently passed in this House.

CCPs are firms that provide clearing services for large volumes of financial trading activity. They sit between buyers and sellers and guarantee the terms of a trade. They are systemically important pieces of market infrastructure. Without them, the financial system cannot function effectively. The failure of a CCP, and the resulting loss of its clearing services, could lead to serious consequences for financial markets, financial stability and public funds.

The UK’s expanded resolution regime will enhance the Bank of England’s resolution powers, and ensure that the UK is aligned with international standards on CCP resolution. To implement the expanded CCP resolution regime fully, the Government must lay a number of statutory instruments, two of which are in Committee today.

The draft regulations on the modified application of corporate law and consequential amendments make the necessary changes to certain existing legislation to ensure that the expanded CCP resolution regime can function as intended. The modifications have two principal impacts. First, they mirror changes to company law that apply within the bank resolution regime. Secondly, they make wider consequential amendments broadly to ensure that certain consequences for CCPs in the resolution process are consistent across the existing and expanded regime. That maintains continuity with the existing resolution regime for CCPs.

Turning to the second set of draft CCP regulations, schedule 11 to the Act gives the Bank of England the power to make partial property transfer and write-down instruments when resolving a CCP. The partial property transfers and safeguarding of protected arrangements regulations will ensure that the statutory instruments do not affect protected arrangements that underpin the effective operation of financial markets, including set-off and netting arrangements.

Netting is one of the mechanisms through which a CCP reduces risk in financial markets. Multiple financial obligations are aggregated to calculate a net obligation amount. That means that losses in one position, on one trade, can be offset with gains in another position, in another trade. Given the importance of that function to the operation of clearing services, the draft safeguarding regulations ensure that set-off and netting arrangements are protected when the Bank of England uses its property transfer powers. That is particularly relevant for partial property transfers, where the Bank of England can transfer all or some of the rights and liabilities of a CCP.

The Bank of England also has the power to write down liabilities, meaning that it can cancel, modify or change a security, or the form of an unsecured liability owed to the CCP. The draft safeguarding regulations also restrict the Bank of England in making write-down instruments in cases where there are protected arrangements, such as those relating to netting. In doing so, the regulations ensure that usual market practice continues and that disruption to financial markets is minimised when the Bank of England takes action, while also providing certainty for market participants as to how they will be treated during resolution proceedings. Together, these regulations ensure that a resolution can be conducted as effectively as possible, while reducing the impact on normal market functions.

Now I come to the third and final set of regulations. These regulations, which relate to the payment and electronic money institutions special administration regime, otherwise catchily known as PSAR, will expand the application of the existing insolvency arrangements for electronic money and payment institutions, so that they apply to firms in Northern Ireland and Scottish limited liability partnerships, otherwise known as LLPs, as they already do in England and Wales, as well as for companies in Scotland.

The payments and e-money sectors have expanded rapidly over the last decade. As the sector has grown, the Government have become concerned that the application of standard insolvency procedures to the failure of these firms was leading to negative outcomes for customers. In order to manage these risks, in 2021 the Government legislated for a special administration regime to provide for the prompt return of client assets should such a firm fail. This regime was delivered through the Payment and Electronic Money Institution Insolvency Regulations 2021 and the accompanying rules. Those regulations established the special administration regime in England and Wales, and for companies in Scotland.

This regime created special administration objectives, which an administrator will have to follow when conducting an administration of a payment or electronic money institution. These objectives are to ensure the return of customer funds as soon as practicable, ensure timely engagement with payment systems operators, the Payment Systems Regulator, the Treasury, the Financial Conduct Authority and the Bank of England, either to rescue the institution as a going concern or to wind it up.

One further statutory instrument is required to ensure that the regime can effectively apply to Scottish LLPs and to firms in Northern Ireland. The distinct nature of both Scottish and Northern Irish insolvency law required this SI to be prepared to a different timetable than the original regulations—so, this is effectively a tidying-up measure in that regard—in order to ensure that the regime can operate effectively under both legal frameworks.

In conclusion, by expanding the application of the regime to the relevant firms in Northern Ireland and to Scottish LLPS, these regulations will ensure that we have robust arrangements to manage the potential insolvency of payments and electronic money firms throughout the United Kingdom.

--- Later in debate ---

[Bim Afolami]

I thank all hon. Members for their consideration of the regulations. To address the points made by the hon. Member for Ealing North, in relation to accountability and proportionality, which are a summary of his points, it is important for the Committee to recognise that, in conceptual terms, the regulations do two principal things. First, it is a tidying up exercise to bring together an intention passed as part of the Financial Services and Markets Act 2023 under schedule 11 and to deliver on that. That has the support. Secondly, it is to do that as a last, backstop measure, because we hope the powers will never need to be used. It is done as a means of making absolutely sure, in the event that it was critically necessary, that the Bank of England has the relevant powers. That is its purpose.

In relation to the broader points around accountability, I look forward to working with the hon. Member in my time in post to broadly strengthen Parliament’s accountability over all regulators, as he set out. As for proportionality, it is worth saying that there is a requirement, when the powers are in place, for the Bank of England to consult and work with the Treasury in the rare event that they would be used.

Question put and agreed to.

DRAFT FINANCIAL SERVICES AND MARKETS ACT 2023 (RESOLUTION OF CENTRAL COUNTERPARTIES: PARTIAL PROPERTY TRANSFERS AND SAFEGUARDING OF PROTECTED ARRANGEMENTS) REGULATIONS 2023

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023.—(Bim Afolami.)

DRAFT PAYMENT AND ELECTRONIC MONEY INSTITUTION INSOLVENCY (AMENDMENT) REGULATIONS 2023

Resolved,

That the Committee has considered the draft Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023.—(Bim Afolami.)

Contingent Liability Notification: Mortgage Guarantee Scheme

Bim Afolami Excerpts

Wednesday 22nd November 2023 Written Statements

[The Economic Secretary to the Treasury (Bim Afolami)]

At this year’s autumn statement, the Chancellor announced that the mortgage guarantee scheme will be extended by an additional 18 months to continue to support homebuyers and movers with smaller deposits. The scheme will now remain open to new accounts until 30 June 2025.

HM Treasury launched the mortgage guarantee scheme in April 2021. The scheme provides a guarantee to participating lenders across the UK who offer mortgages to first-time buyers and existing homeowners with a deposit as small as 5% on homes with a value of up to £600,000. The Government know that access to a deposit can be the largest barrier facing first-time buyers. Since its launch, the scheme has successfully restored the availability of 91% to 95% loan-to-value mortgage products, directly supporting over 37,000 households to buy their homes, overwhelmingly first-time buyers.

While the scheme was due to close to new mortgage applications on 31 December 2023, HM Treasury has decided to extend the scheme by an additional 18 months to continue to provide lenders with the confidence to offer low-deposit mortgages to consumers.

Guarantees issued under the scheme are valid for up to seven years after the mortgage is originated. Participating lenders pay HM Treasury a fee for each mortgage entered into the scheme. This is set so that expected claims against the guarantee should be covered by revenue from the fee.

To continue to provide lenders with confidence, HM Treasury will therefore be extending the duration of the Government’s contingent liability for an additional 18 months beyond the scheme’s planned closing date of 31 December 2023. HM Treasury judges the risk of incurring losses through the scheme to be low, which would only materialise if the sum of commercial fees paid by lenders was not sufficient to cover calls on the guarantee.

Authority for any expenditure required under this liability will be sought through the normal procedure. HM Treasury has approved this proposal in principle. A departmental minute has been laid in Parliament today. If, during the period of 14 parliamentary sitting days, a Member signifies an objection by giving notice of a parliamentary question or by otherwise raising the matter in Parliament, final approval to proceed with incurring the liability will be withheld pending an examination of the objection.

[HCWS66]

Autumn Statement Resolutions

Bim Afolami Excerpts

Wednesday 22nd November 2023 Commons Chamber

[The Economic Secretary to the Treasury (Bim Afolami)]

I am delighted to bring today’s debate on the measures in the autumn statement to a close, and also to pay tribute to my shadow, my good friend the hon. Member for Hampstead and Kilburn (Tulip Siddiq). I am very glad to follow in the footsteps of Members as eminent and as good at this job as my right hon. Friend the Member for Salisbury (John Glen). He was excellent in his job, and I am happy to follow his example.

[Tulip Siddiq]

I miss him!

[Bim Afolami]

Don’t miss him; he’s still here.

Make no mistake, Madam Deputy Speaker: this is an autumn statement for growth—one that supports entrepreneurs, cuts business tax, rewards work and brings prosperity to every corner of our wonderful country, and one that the OBR says will permanently increase the size of our economy. [Interruption.] That is what the OBR says. As my right hon. Friend the Chancellor said this afternoon, the Government understand that a successful economy depends less on the decisions and diktats of Ministers than on the “energy and enterprise” of its people, and that is the thrust of this autumn statement. It is about a Government taking action that reduces the burdens on businesses, while also empowering people and getting Great Britain growing and moving again.

But the context really matters. We are only able to pursue these policies now because of what the Government, under our Prime Minister, have achieved up to this point. We have brought inflation down from 11.1% to 4.6%, meeting the Prime Minister’s pledge, and we are on track to meet the 2% target by the middle of 2025. The OBR has confirmed that the measures announced today will make inflation next year lower than it would otherwise have been. We have achieved this while growing our economy, which is already bigger than it was pre-pandemic, contrary to what was often said on the Opposition Benches in debates in recent weeks and months. Our economy has grown faster than many of our competitors since 2010, which is when this Government first came into office.

[Ian Blackford]

I welcome the Minister to his position. Will he not acknowledge that, under the current plans, it will take until 2028 for wages to get back to their 1998 levels in real terms—a 20-year absence? That is the reality.

[Bim Afolami]

The measures here are designed to grow the economy, to make us more prosperous, to make businesses invest more and to cut taxes for working people, so I am confident that that prediction will not be borne out in the way that the right hon. Gentleman suggests. This autumn statement provides the foundation for the next decade of growth—not just for next year or the year after that. Next year, just as a start, the economy will be 2% higher—that is worth around £40 billion—than was forecast only in March this year. That is a result of the actions we have taken today.

I have been hearing about what the shadow Chancellor said to the parliamentary Labour party earlier this week. I am told that this is what she said, but I am happy to be intervened on if it is incorrect. She said that the next election would be a fight on the economy, a fight on fiscal responsibility, a fight on making working people better off and a fight on who would be the party to show that it backed British business. This autumn statement firmly shows that this Government and this party are the only choice for the British people and the British economy on these measures—[Interruption.] I see chuntering among Opposition Front Benchers. If they and the shadow Chancellor wish to fight an election on those matters, I say bring it on.

Let us talk about fiscal responsibility—[Interruption.] The Opposition do not want to hear about that. This Government have brought inflation down by half. Debt is falling by the end of this forecast period. We have the second lowest debt in the G7. We are only able to have this sort of growth Budget because of the prudence and careful measures that we have so far undertaken. Indeed, if I may use language that the Opposition might understand, this is prudence with a purpose. Let us contrast that with the record of the Labour party and Opposition Members. They are still saying that, on top of everything we have heard today, they are going to borrow an extra £28 billion. That will lead to higher debt, because they are borrowing, and higher inflation, which will lead to high interest rates for longer.

[Dame Angela Eagle]

I also welcome the Minister to his position. Does he not distinguish between borrowing for capital investment and borrowing for current expenditure? If he does not, he has a very peculiar view of the national accounts.

[Bim Afolami]

Of course I understand that distinction, but that does not take away from the fact that if we are borrowing, it has to be paid for. Unless the Labour party can show how it is going to raise that money—[Interruption.] Look, the non-dom tax has been used about 15 times to pay for 15 different things; that is not going to cut it. Unless the Labour party can say how it is going to pay for that extra £28 billion, it is not fiscally responsible. So on that measure, I say bring it on.

Let us look at whether working people will be better off as a result of this autumn statement. My right hon. Friend the Member for North Somerset (Dr Fox) talked about the need to responsibly bring down taxes for working people, and that is what we have done. The cut in the national insurance rate, worth £450 to the average worker, will benefit 29 million people. That matters to my constituents and to all the constituents we represent in this House. That is what this autumn statement delivers. The national living wage is up 30% in real terms—30% after inflation—in this Parliament. Again, that is what this autumn statement delivers. As a result of the measures on the local housing allowance, 1.6 million of the most vulnerable households in this country are all going to get an extra £800.

Contrast that with the record of the Labour party. Do not let them fool you, Madam Deputy Speaker; Labour Members do not believe in tax cuts. They do not believe in low tax. They are trying to pretend that they do, but we all know that they do not. They believe—and it is a reasonable, principled position—in ever greater, ever expanding Government control, debt and tax. That is their position.

Those of us on this side of the House and this Government have a different philosophy and a different policy. We believe in backing British business. We believe in backing the British people. We believe in cutting taxes for working people. We faced a once-in-a-lifetime pandemic earlier in the Parliament, and we spent over £450 billion supporting the lives, jobs and health of our constituents. That has led to an increase in our tax burden. But that is why this autumn statement is so important—because we are turning the corner.

[Dame Meg Hillier]

Will the Minister give way?

[Bim Afolami]

I will not.

Members may wonder how we are able to cut taxes and bring our debt down at the same time in a fiscally responsible way. We are able to do it because we back British business. There are over 100 growth measures in this autumn statement. The policy of full expensing means that for every pound that our businesses are able to invest, they will get 25p off their tax bill. There are measures to protect small businesses on business rates; on R&D tax credits, we are reducing the rate at which the credit is taxed from 25% to 19%; and we have introduced investment zones across huge swathes of our country. A few years ago, I co-authored with the Chief Secretary to the Treasury a policy on accelerator zones. These have been ideas on this side of the House for a long time, and this autumn statement puts them into practice. My good friend and constituency neighbour, my hon. Friend the Member for North East Bedfordshire (Richard Fuller), knows that I share his view that we need to make sure that regulators adhere to the need to focus on growth and competitiveness.

It would be remiss of me not to address some of the comments made during the debate. The Chair of the Public Accounts Committee, the hon. Member for Hackney South and Shoreditch (Dame Meg Hillier), addressed many points. I listened carefully to her concerns about the welfare measures, which were shared by the Chair of the Work and Pensions Committee, the right hon. Member for East Ham (Sir Stephen Timms). I say gently to them both that what we are trying to do with the back to work plan and reform of the work capability assessment is to support the most vulnerable while making sure that taxpayers’ money is used sensibly and that only those who need it are given that support.

My right hon. Friend the Member for Witham (Priti Patel), who is a good friend, focused in her excellent speech on the need for a low-tax economy. She said that she would like to see some more “cheeky measures”—her words, not mine—to get personal tax down. I assure her that I will constantly listen to her and take her advice. Given her great experience, I am sure others on the Treasury Bench will do so too.

This country is full of potential, with the most innovative industries in Europe and the best minds in the world. With this autumn statement, this Government are backing this country. Labour do not have a plan. They do not understand the economy. They want to borrow £28 billion extra, yet they want to take everything in the autumn statement. How are they going to pay for it? We have a plan; they do not. I commend the autumn statement to the House.

Ordered, That the debate be now adjourned.—(Mark Fletcher.)

Debate to be resumed tomorrow.

Oral Answers to Questions

Bim Afolami Excerpts

Tuesday 14th November 2023 Commons Chamber

[Alexander Stafford (Rother Valley) (Con)]

8. What steps his Department is taking to help mitigate the potential impact of environmental, social and governance practices of financial institutions on levels of investment in the defence sector.

[The Economic Secretary to the Treasury (Bim Afolami)]

The Secretary of State for Defence and my predecessor, my hon. Friend the Member for Arundel and South Downs (Andrew Griffith), recently set out that the values within ESG practices of financial institutions should never undermine capabilities developed to help us preserve peace and security. The Treasury recently consulted on a potential regulatory framework for ESG ratings providers, which aims to improve transparency and promote good conduct. I hope this will address some of the issues that defence companies have raised.

[Alexander Stafford]

ESG is so vital when it comes to investing in all our services, including defence. We were promised that the “Greening Finance” road map would come out at the end of 2022. Then we were told that the consultation would come out by autumn this year. It is still just about autumn, and it is yet to come out. Why are the Government kicking ESG down the road? Why have they stopped caring about ESG, and when will we have the consultation to get a UK green taxonomy sorted?

[Bim Afolami]

I thank my hon. Friend for his question. [Interruption.] I do; I know how much he cares about these issues and campaigns on them frequently in the House, and I commend him for it. The Government are committed to delivering on a UK green taxonomy to provide investors with clarity on which economic activity should be labelled as green. We expect to consult this autumn. The green taxonomy will provide an important tool for enabling the supply of relevant and reliable sustainability information for the market, and information will come in due course.

[Jim Shannon (Strangford) (DUP)]

One of the things that concern Northern Ireland MPs is the fact that when it comes to defence jobs and getting contracts, Northern Ireland falls behind. The Minister will be aware that Thales, on the border of my constituency, was recently able to secure its workforce. What steps can he take to ensure that each region of the United Kingdom, but especially Northern Ireland, can benefit from defence spending for the workforce? We can do the job the same as everywhere else; we just need the opportunity.

[Bim Afolami]

I thank the hon. Member for his question, which is incredibly important. As he knows, this Government are absolutely committed to ensuring that jobs in the defence sector, within an ESG framework, are protected. I am happy to meet him to discuss further the issues relating to his constituency and Northern Ireland.

[Mr Laurence Robertson (Tewkesbury) (Con)]

9. What assessment he has made of the potential impact of inflation on the ability of graduates to repay student loans.

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[Steve McCabe (Birmingham, Selly Oak) (Lab)]

21. What recent assessment he has made of the potential impact of changes in mortgage interest rates over the course of this Parliament on household incomes.

[The Economic Secretary to the Treasury (Bim Afolami)]

The path to lower mortgage rates, as everybody in this House knows, is through lower inflation, which is why the Prime Minister and the Chancellor made halving inflation one of our five priorities for this year. The latest Bank of England forecast shows that we are on track for that. In June, lenders representing more than 90% of the mortgage market agreed to our new mortgage charter, which includes new flexibilities to help customers manage their repayments, backed up by UK Finance’s advertising campaign encouraging anyone worried about their repayments to contact their lender.

[Nick Fletcher]

Does the Minister agree that the best way we can help the next generation of homeowners is to increase the supply of homes, bring back the help to buy ISA and stop the 35-year mortgage shared-ownership models, which only increase house prices?

[Bim Afolami]

I thank my hon. Friend for his question. On his first point, we are increasing the number of homes and we are optimistic that we will reach our target of delivering 1 million new homes over this Parliament. Secondly, the help to buy ISA was closed to new accounts in 2019, but existing holders can continue to save into their accounts. On his third point about stopping 35-year mortgages, it is important to have choice in the market and for people to make those choices for themselves. As a Government we are committed to supporting people doing just that.

[Steve McCabe]

According to the Centre for Economics and Business Research, mortgage increases are expected to cost UK households £9 billion this year and next. How on earth do the Government defend that?

[Bim Afolami]

As the hon. Member knows, the reason why we are in this position is that there is a global phenomenon. We are doing what we can. We are working closely with the Bank of England and, over time, due to the policies of the Chancellor, the Prime Minister and this Government, interest rates will come down.

[James Murray (Ealing North) (Lab/Co-op)]

I welcome the hon. Member for Mid Worcestershire (Nigel Huddleston) to his post as Financial Secretary.

It has been a year since the Conservatives crashed the economy. In 2023 so far, 1.5 million fixed-term mortgages have expired, leaving working people facing sky-high increases in their mortgage costs. For people living in Wellingborough, for example, this Tory mortgage penalty means that households are paying another £190 a month on top of everything else in a cost of living crisis. The truth is that working people are paying the price for the Conservatives crashing the economy last autumn. Does the Economic Secretary think that is fair?

[Bim Afolami]

I thank the shadow Minister for his kind words, at least in relation to me.

It is important to recognise that in the eurozone, the United States and the UK there have been broadly similar increases in inflation and interest rates. We as a Government are confident that our policies will bring those down in due course.

[Michael Shanks (Rutherglen and Hamilton West) (Lab)]

17. Whether he has had recent discussions with the Secretary of State for Scotland on the impact of increases in the cost of living on the Scottish economy.

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[John Mc Nally (Falkirk) (SNP)]

19. What recent assessment he has made of the implications for his policies of trends in the level of mortgage interest rates.

[The Economic Secretary to the Treasury (Bim Afolami)]

The Government’s mortgage charter is providing support to vulnerable households, and arrears and repossessions remain at historic lows. Government support has helped real household incomes rise by 2.7% year on year in the latest data.

[John Mc Nally]

With the economy flatlining and interest rates remaining at 5.25% and more than likely to remain above 5% next year, it simply follows that households’ disposable incomes will continue to be squeezed throughout 2024. Surely the Chancellor agrees that mortgage interest tax relief must be reintroduced to support households facing high interest rates alongside inflation.

[Bim Afolami]

As the hon. Member has already heard from the Chancellor, the economy is still growing. The latest labour market data shows that incomes are going up at a higher rate than inflation, so I do not recognise the picture that he paints.

[Ben Lake (Ceredigion) (PC)]

22. What assessment he has made of the financial position of households during winter 2023-24.

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[Priti Patel (Witham) (Con)]

23. What steps he is taking to support economic growth in Essex.

[The Economic Secretary to the Treasury (Bim Afolami)]

As my right hon. Friend knows, the Government are committed to supporting economic growth all over the country, but particularly in the wonderful county of Essex. The recently announced £1.1 billion long-term plan for towns will, for example, provide £20 million of flexible funding over 10 years to Clacton, and there are many other measures.

[Priti Patel]

I welcome my hon. Friend to his new role. I hope that he will know not only that the only way is Essex, but that Essex is a net contributor to the Treasury. We want more economic growth in Essex. In a week’s time, we will have the autumn statement, so may I give a message to those on the Treasury Front Bench? May I appeal to the Chancellor in particular to look at lowering the rates of personal and business taxation, particularly the areas of business rates, corporation tax and all aspects to do with enabling people to keep more of the money they earn?

[Bim Afolami]

My right hon. Friend tempts me to make tax policy. What I will say to her is that she will know that the Chancellor always keeps these things under review, as do the Government. Indeed, we have a fiscal event shortly.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Can I ask the Minister why he said he wants particularly to support investment and growth in Sussex? [Interruption.] Is that the Tories reverting to type in terms of the blue wall?

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[Richard Burgon (Leeds East) (Lab)]

T6. Banks are taking advantage of higher interest rates to make bumper profits. A new poll shows that people have had enough, with big support for a one-off windfall tax on bank profits, yet the Government have chosen to slash the surcharge on bank profits. Is it not time for a windfall tax on excess bank profits to help people who are hit hard by this crisis?

[The Economic Secretary to the Treasury (Bim Afolami)]

There are two things I would say in response to that. First, it is important, when we talk about banks, that we have a globally broadly competitive tax regime, and we do not apologise for that in the Treasury. Secondly, the hon. Gentleman should bear in mind that the reduction he talks about in terms of the levy on banks was offset by rising corporation tax.

[Peter Gibson (Darlington) (Con)]

I thank the Exchequer Secretary to the Treasury, my hon. Friend the Member for Grantham and Stamford (Gareth Davies) for his recent visit to Darlington, where he opened a new branch of Darlington Building Society. He will know from that visit the impact that Treasury jobs are having locally, including an additional £80 million of spending in our local economy. Does he agree with me that Darlington Economic Campus is a fantastic levelling-up project, ensuring that people can stay local but go far?

[Stephanie Peacock (Barnsley East) (Lab)]

T8. More than 3 million households in the UK owe an estimated £2.7 billion in the unregulated buy now, pay later sector. The Labour party has set out plans for urgent regulation of the sector. Can the Minister confirm when the Government will do the same?

[Bim Afolami]

This is a complicated area of regulation and we are looking at it very closely. The consultation closed in April and we are working on it because it is very important we get it right, but I hear the hon. Lady’s concerns and will update the House in due course.

[Jonathan Gullis (Stoke-on-Trent North) (Con)]

While the shadow Chancellor was busy scrolling through Wikipedia to copy and paste, the actual Chancellor has to look no further than the New Conservatives tax plan, which outlines scrapping the IR35 reforms, increasing the VAT registration threshold to £250,000, and delivering on the Prime Minister’s pledge when he was Chancellor to bring a 1p cut in income tax in 2024.