Oral Answers to Questions
Emma Reynolds Excerpts(2 weeks ago)
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Harpreet Uppal (Huddersfield) (Lab)
The Economic Secretary to the Treasury (Emma Reynolds)
Lifetime mortgages have been regulated by the FCA since 2004. Those rules provide robust consumer protections, including requiring lenders to engage and provide tailored support to all their customers.
Harpreet Uppal
One of my constituents, a 96-year-old man, took out in 1990 what he thought was a £15,000 loan, but what was actually an interest roll-up lifetime mortgage. Despite paying £40,000 over the years, he now owes over £52,000 due to compound interest. He has been denied redress by the financial ombudsman due to time limits, and my team has also contacted the FCA and the lender without success. My constituent is now left to deal with the consequences. Will the Minister meet me to discuss this case, and how we can better support other people who have been mis-sold those products?
Emma Reynolds
I am really sorry to hear about the circumstances that my hon. Friend’s constituent is facing, and I would be happy to meet her to discuss the issue further. Lifetime mortgages are complex financial products, and I suggest that anyone considering equity release seeks independent financial advice to help ensure those products are suitable for their needs.
Dr Al Pinkerton (Surrey Heath) (LD)
An increasing number of pensioners are reaching the end of their mortgages with outstanding borrowing and finding themselves unable to meet later-life lending criteria, and this is likely to become even more prevalent in years to come as house price rises continue to outstrip earnings. What discussions is the Minister having with lenders and the mortgage industry about expanding those criteria and giving hard-working pensioners who might otherwise be forced to seek council support the opportunity to remain in their own homes?
Emma Reynolds
I thank the hon. Gentleman for raising this important issue. I discuss mortgages with lenders and, indeed, with the Financial Conduct Authority on a weekly basis, and I will ensure that I pass on his comments.
Graham Stuart (Beverley and Holderness) (Con)
Mr Joshua Reynolds (Maidenhead) (LD)
The Economic Secretary to the Treasury (Emma Reynolds)
We are in weekly touch with the Financial Conduct Authority, which regulates mortgages, and under this Government we have seen four interest rate cuts since the election, which is bringing mortgage rates down for hard-working people across the country.
Deirdre Costigan (Ealing Southall) (Lab)
Luke Myer (Middlesbrough South and East Cleveland) (Lab)
Last week I raised with the Minister for Social Security and Disability the case of a local disability charity being hit by increased bank charges, and the Minister committed to work with me on the issue. Will Treasury Ministers do the same so that we can take these banks to task and support fantastic local organisations?
Emma Reynolds
I would be happy to meet my hon. Friend to discuss that issue.
Wendy Chamberlain (North East Fife) (LD)
Access to banking services is a particular issue in North East Fife, where the limitations of the access to cash legislation are becoming clear. Will the financial inclusion committee agree to look at the Financial Services and Markets Act 2023 to ensure that we get the access to banking services that local communities need?
Emma Reynolds
Our Government secured the commitment of the banking industry to roll out 350 banking hubs across the country; 200 have already been agreed and over 150 are open. The financial inclusion committee, which I chair, is looking at financial inclusion, including digital banking and ensuring that people have the bank accounts they need.
Mr Gregory Campbell (East Londonderry) (DUP)
The roll-out of banking hubs is helping to a small degree, but what plans do the Government have to increase the number of banking hubs beyond those in the pipeline?
Emma Reynolds
As I said in my previous answer, we have secured the commitment of the industry to open 350 banking hubs by the end of this Parliament. The FCA keeps the access to cash rules under review. As legislated for under the last Government, it has the power to make rules to ensure that there is access to cash across the country.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Yesterday, there was a lot of coverage of the Chancellor’s comments about the ISA limit. She pledged to keep it at £20,000 but did not specify how much within that would be cash and how much would be investments. Can the Minister reassure me that she is seriously considering the impact on the mortgage-lending market of changing the cash ISA limit?
Emma Reynolds
As we announced in the spring statement, we are looking for options for ISA reform to ensure that we get the balance right between cash and equities. I can reassure my hon. Friend that we understand that cash savings are a vital tool for people and act as a financial buffer for a rainy day.
Esther McVey (Tatton) (Con)
I am sure that the Chancellor subscribes to the basic principle that if the cost of something is put up, we will see less of it. That is why Governments have, over many years, put taxes on things like smoking. Does she accept that the principle also applies to employing people—that the more expensive the Government make employing people, with their jobs tax increasing NICs for employers, the less we will see of that?
Consumer Credit Regulation
Emma Reynolds Excerpts(2 weeks, 1 day ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
Last year marked the 50th anniversary of the passage of the Consumer Credit Act 1974. The way people interact with their finances and the consumer credit market is dramatically different today and the transformation in 50 years has been vast. Digital technology has transformed how people use and take out credit. With that, many new challenges and opportunities have emerged, such as the rapid emergence and growth of buy-now, pay-later products.
Today the Government have announced a package of measures designed to future-proof the regulatory framework of the UK’s £200 billion-plus consumer credit market. These measures aim to allow businesses to innovate effectively and ensure that consumers have access to useful and affordable credit products, and clear rights where things go wrong.
BNPL products have become increasingly popular with many UK consumers. When offered responsibly, they can serve as a useful and affordable credit option. However, these unregulated products carry certain risks, as highlighted in particular by the 2021 Woolard review.
Last October the Government published a consultation setting out their plans to address this by bringing the sector into regulation.[1] Under the proposals, BNPL firms will need to be authorised by the Financial Conduct Authority and will be subject to ongoing supervision. These proposals aim to ensure that people using BNPL products receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise. The Government’s approach will maintain access to these popular products while adding crucial safeguards.
The Government have today published our consultation response, summarising the feedback we received and setting out our final position on the proposals.[2] Respondents expressed a strong desire for action in this area and were generally supportive of the proposed regulatory regime. The Government have also laid the Draft Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025—the affirmative procedure statutory instrument needed for bringing BNPL products into regulation.
Once the SI is approved by Parliament, the FCA will proceed to draft and consult on its rules for BNPL lending. This will give interested parties the opportunity to comment on the rules before they are finalised. Regulation is then expected to come into force in mid-2026.
Alongside this, HM Treasury is also publishing its consultation on phase 1 of CCA reform.[3] The CCA has served the UK well for many decades and continues to provide important protections, but it has failed to keep up with developments in the market and the changing ways in which people engage with credit. As a result, the regime is confusing and burdensome for firms, stifling innovation and is not delivering the best outcomes for consumers.
The consultation sets out the Government’s proposals to move much of the CCA out of regulation so that it sits in the more agile rulebook of the FCA. The proposals aim to create a modern, agile and proportionate regulatory regime for consumer credit that is equipped to provide robust protection for consumers. A further consultation will follow in due course, covering rights and protections, scope and definitions.
Overall, reforming regulation for firms while ensuring robust consumer protection will unlock the full potential of the consumer credit sector. This is an important milestone in delivering the Government’s plan to go further and faster to drive economic growth through the plan for change, by supporting our consumer credit sector to innovate and become a driving force in delivering economic growth and enhancing competitiveness.
[1] https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024'>https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024
[2] https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024'>https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024
[3] https://www.gov.uk/government/consultations/consultation-on-consumer-credit-act-1974-cca-reform.
[HCWS647]
Draft Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025
Emma Reynolds Excerpts(2 weeks, 6 days ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
I beg to move,
That the Committee has considered the draft Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025.
It is a pleasure to serve under your chairmanship, Mr Betts. The draft regulations will remove the time limit on the temporary exemption that pension funds have from clearing over-the-counter derivatives contracts, such as interest rate swaps, through a central counterparty. The exemption will continue indefinitely, ending the need for the Government to renew it every two years if they conclude that it is necessary.
The draft regulations will help UK pensioners by supporting pension funds’ ability to invest in assets that generate returns for their benefit. Maintaining the exemption is also in line with the Government’s priorities to increase productive investment by pension funds to support economic growth.
Central counterparties are a type of financial market infrastructure that firms use to reduce risks when trading on financial markets. They sit between the buyers and sellers of financial instruments, providing assurance that contractual obligations will be fulfilled. They do so by collecting collateral, known as margin, from all their users, which can be used to cover any shortfall if a default occurs. The process of transacting through a CCP is known as clearing.
In 2009, G20 countries agreed that certain standard derivatives contracts should be cleared through CCPs to reduce risks in the financial system. In the EU, this was implemented through legislation and is known as the clearing obligation. At the time, it was decided that pension funds should be exempted from the obligation because of the particular challenges that pension funds would face in meeting CCP margin requirements.
CCPs require certain types of margin to be posted in cash. Pension funds do not usually hold large cash reserves, as they invest a large majority of their resources in assets such as gilts and corporate bonds to provide returns for pension holders, meaning that meeting the requirement to post margin in cash can be more difficult for pension funds than for other firms. Requiring pension funds to clear their derivatives could cause them to increase their cash holdings, reducing their investment in other assets and their ability to generate returns for future pensioners over the longer term.
The UK assimilated the clearing obligation and the exemption into UK domestic law through the European Union (Withdrawal) Act 2018, which was passed under the previous Government. The exemption was initially designed as a temporary measure, but it has since been extended several times. At present, the Government need to lay secondary legislation every two years if they conclude that it is necessary to extend the exemption. The most recent extension was in June 2023, under the previous Government, who noted that
“it would be desirable to put in place a longer-term policy approach and remove the need for future temporary extensions”.
That is what the draft regulations seek to achieve.
The Treasury has since conducted a review of the exemption, working closely with UK financial services regulators and with input gathered from industry stakeholders through a call for evidence, which was launched in November 2023. The review found that requiring pension funds to clear derivatives could bring financial stability benefits, such as reducing counterparty risk, and could enhance resilience to shocks by increasing pension funds’ cash buffers. However, it identified concerns from some market participants that removing the exemption could increase pressure on the liquidity management of pension funds, particularly under stressed market conditions, which could increase risks to financial stability.
The review also found strong evidence that pension funds would need to hold more cash and reduce investment in more productive assets if the exemption were removed. That could reduce their returns, with a potential impact on the retirement benefits of future pensioners; it would also be inconsistent with the objectives of the Government’s wider growth reforms, including the pensions investment review, which seeks to unlock new productive investment by pension funds in things like businesses and infrastructure to support economic growth.
Overall, the Government concluded that there was clear evidence that removing the exemption would reduce pension funds’ ability to invest in productive assets, and that that could have an adverse effect on the retirement benefits of future pensioners, while the extent to which removing the exemption would generate direct financial stability benefits was very unclear. The Government have decided that, on balance, it is appropriate to maintain the exemption for the longer term. However, we will keep the policy under review, in co-ordination with the financial services regulators. If there are changes to market dynamics or wider Government reforms that have a material impact on the value of mandatory clearing for pension funds, the Government may reassess the issue.
The draft regulations will implement that policy decision by removing the time limit on the exemption, preventing it from expiring on 18 June this year, as is currently scheduled. They will also remove the Treasury’s power to extend the exemption by two years at a time if it concludes that that is necessary; as the exemption will have no time limit, that power will obviously no longer be required. Firms will not have to do anything differently as a result of the draft regulations, because they will maintain the status quo. This approach provides longer-term clarity and certainty for market participants on the policy position, which will support planning for their long-term investment strategies.
The regulations will maintain this important exemption for the longer term. They will provide certainty for pension funds and will remove the need for the Government to renew the exemption every two years via secondary legislation. They will support pension funds’ ability to generate returns, which fund the retirement benefits of future pensioners, and align with the Government’s objectives to unlock productive investment to support economic growth. I hope that the Committee feels able to support the draft regulations and their objectives; I commend them to the Committee.
Emma Reynolds
I thank both hon. Members. As I expected, the shadow Minister agrees with the policy of the previous Government. He asked a couple of questions, and I will take them in the wrong order.
The shadow Minister is right that there is a very slight difference between ruling clearing out completely and making the exemption permanent, but the outcome, which is what we are focusing on, is exactly the same. We have said that we will keep the policy under review if we need to, but overall we think that a permanent exemption gives the industry a lot more certainty than having to roll the exemption over every couple of years. I hope that that gives him some comfort.
In a way, the shadow Minister has answered his own question on divergence from the EU. Our pension systems and the UK defined-benefit market are structurally different from those in other jurisdictions such as the US and the European Union, so we think it entirely appropriate to take a different decision on this issue. The Government are committed to maintaining our high standards of regulation and financial services, including adhering to relevant international standards where appropriate, but we do not think that this will create a divergence that is worrying in any way.
I completely concur with the hon. Member for St Albans that the focus should be on pension outcomes. Maintaining the exemption over time will give certainty to those in the industry, so that they can invest, over the longer term, in assets that will produce returns for their members and therefore pay out the defined-benefit pensions that they are contractually obliged to provide for their members. I hope that I have answered all the Committee’s questions.
Question put and agreed to.
Defence Sector Financing
Emma Reynolds Excerpts(3 weeks, 6 days ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
It is a great pleasure to serve under your chairmanship, Sir Edward. I congratulate my hon. Friend the Member for York Outer (Mr Charters) on securing this debate. I also thank the Chair of the Defence Committee, my hon. Friend the Member for Slough (Mr Dhesi), and the hon. Member for Strangford (Jim Shannon) for their contributions.
I am going to embarrass a few people now. I thank my hon. Friend the Member for Wolverhampton North East (Mrs Brackenridge), who is one of my successors in a seat I represented between 2010 and 2019. It was great to hear about the success of Collins Aerospace, which is in that constituency. I also thank my hon. Friends the Members for Stockton North (Chris McDonald) and for Hampstead and Highgate (Tulip Siddiq), as well as the right hon. Member for North East Cambridgeshire (Steve Barclay), for their interventions.
Today’s discussion and the fantastic speech from my hon. Friend the Member for York Outer have highlighted the complexities and challenges we face in ensuring that our defence sector is robust enough to protect our national security and support our growth mission, which is the No. 1 mission of this Government. In recent years, the world has been reshaped by global geopolitical instability, including Russia’s aggression and its illegal invasion of Ukraine—a war on our continent—as well as increasing threats from malign actors. This, combined with the challenging economic and fiscal context, makes it essential that we address the barriers to finance in the defence sector, so I thank my hon. Friend again for securing this debate in Westminster Hall.
National security is the first duty of the Government, as highlighted in our plan for change. We have demonstrated our commitment in recent announcements, such as the Prime Minister committing to reach defence spending of 2.5% of GDP from April 2027. As he said at Prime Minister’s questions today, the last time the UK reached that level of spending was under the last Labour Government. Our ambition is to reach 3% of GDP in the next Parliament, as economic and fiscal conditions allow.
Given that uplift in defence spending and the challenging fiscal and economic context we find ourselves in, this Government want to ensure that the defence sector contributes to achieving our No. 1 mission of economic growth. The Chancellor reiterated that message at the spring statement, when she announced a package of defence and growth-focused measures. That included the creation of a new organisation, UK Defence Innovation, with the explicit aim of supporting the scale-up of SMEs, start-ups and non-traditional defence suppliers, enabling them to grow and thrive, fostering an innovative defence tech ecosystem and crowding in private capital.
As has been discussed in this excellent debate, we have been made aware of a number of financing issues in the defence sector, and I will come on to them shortly. I will first respond to the final part of the speech made by my hon. Friend the Member for York Outer, on the proposals for a multilateral defence bank. I thank him for drawing our attention to these proposals, and I thank Rob Murray, the founder of the multilateral Defence, Security and Resilience bank, who has been liaising with the Government and championing this proposal. We recognise the issues that my hon. Friend raised today. We are looking carefully at the proposals and actively discussing with our allies a range of multilateral options.
My hon. Friend the Member for Hampstead and Highgate mentioned the EU, and I should say that we are looking forward to the UK-EU leaders’ summit on 19 May. We welcome the EU’s efforts to bolster Europe’s defence, including the ambitions set out in the ReArm Europe package and the defence White Paper. We have been clear that we are keen to work with EU allies on common challenges to our shared security. The Chancellor discussed this with counterparts at the G20 in February, and we are discussing the shared challenges with our European partners. I cannot comment in detail on those discussions at this time, but we will continue to work together with our European allies on this incredibly important issue.
My hon. Friend the Member for York Outer talked about some of the spillover effects, and I assure him that the Treasury and the MOD are keen to maximise spillovers and synergies between the civil and military sectors for both economic growth and military reasons. We are considering how to maximise these benefits as we develop the defence industrial strategy.
My hon. Friend mentioned a number of issues to do with defence companies’ access to finance, and I welcome the recent meeting he held with our hon. Friend the Member for Aldershot (Alex Baker) at Guildhall in the City. I know that my right hon. Friend the Minister for Defence Procurement and Industry was present at that meeting, as were representatives of the defence sector and a number of trade associations representing the City and financial services.
My hon. Friend the Member for York Outer brings to this House a great wealth of experience in financial services, from both a firm and a regulatory perspective, so he will know that decisions regarding the provision of financial services to businesses are a commercial matter; banks and insurers need to make an assessment of the relevant risks and conduct appropriate due diligence. However, we are very clear that no company should be denied access to financial services purely on the basis that it works in defence. I encourage all defence firms to read the very helpful guidance published by UK Finance and ADA Group. It is excellent to see the trade associations coming together, working from the different perspectives of the defence sector and finance, to produce that guidance.
Gavin Robinson (Belfast East) (DUP)
The proposal for a multilateral bank is a fascinating, but part of this debate has been to focus on some of the inhibitors on providing private finance and investment in the United Kingdom. The situation is getting worse with large-scale pension funds. My hon. Friend the Member for Strangford (Jim Shannon) mentioned the parliamentary pension fund, but it pales into insignificance when we consider that Aviva, Royal London and the National Employment Savings Trust are all divesting from defence in our own country. That contrasts with the efforts that this Government and previous Governments have made to invest in this space.
Will the Minister consider—perhaps through FCA guidance—strengthening the fiduciary duty that the trustees of these funds have to increase the coffers and increase growth? That would show that Government are prepared to do more than just issue guidance, but that they will challenge and encourage investment in this vital sector in our country.
Emma Reynolds
We have been clear that there is no contradiction between ESG considerations and investment in defence, and that investing in our defence industry is a way to protect our democracy and borders, and to work in solidarity with our European neighbours. I will write to the hon. Gentleman about the specifics, but I know that various accusations have been levelled at some of the companies he mentions and others. We need to be very careful about that.
I heard what the hon. Member for Strangford said about our own pension funds. There is huge potential in our pensions industry. We should ensure that that industry is in a position to leverage the great returns that can come from defence companies, but there is a lot of muddying the waters around certain firms and what they are doing. I do not want to name particular companies, but I am happy to discuss it with the hon. Gentleman in detail after the debate. Aspersions have been cast against certain companies managing pension funds that are not absolutely accurate when it comes to ESG. A lot of things are piled under the ESG banner. We are very keen that opaque ESG ratings should not impede the attractiveness of the defence sector.
I am running out of time. I believe that the Member who moved the motion replies?
Emma Reynolds
I have a bit more time then.
My hon. Friend the Member for York Outer talked about access to finance for defence companies with regard to bank accounts. That is a commercial decision. He also mentioned access to credit, loans and cash flow, where we know defence SMEs often face challenges. We want to work across the Government, with SMEs in the defence sector and with the main players in financial services to ensure that we bring down some of the barriers to finance. My hon. Friend suggested a Government-backed growth guarantee scheme, and made a strong, thoughtful and compelling case for that. With other interventions, that is being considered as part of the defence industrial strategy.
I look forward to working with my hon. Friend and other Members with a keen interest in this vital sector. We want to see a thriving UK defence sector, with both large defence firms and SMEs in the supply chain, that provides security for the United Kingdom and helps to deliver the economic growth that the country needs to raise living standards across the country.
Question put and agreed to.
Bank Resolution (Recapitalisation) Bill [Lords]
Emma Reynolds ExcerptsThursday 24th April 2025
(1 month, 1 week ago)
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Clive Jones (Wokingham) (LD)
The Liberal Democrats are supportive of the Bill, because the last thing taxpayers need to worry about are the consequences of an under-regulated banking sector. I have brought amendment 3 back from Committee, because the size of banks eligible for the new mechanism has been a key debate through the Bill’s passage.
The Minister has regularly set out that the Bill’s stated aim is to enhance the resolution regime, so that we can respond to the failure of small banks. However, the Bill does not restrict the regime to small or medium-sized banks. If applied to large banks, it would create high costs for banks and customers. The costs would persist for many years, adding a significant long-term burden on the banking sector and consumers. Amendment 3 would ensure that the Bill does not apply to banks that have reached the end-state minimum requirement for own funds and eligible liabilities—put more simply, the largest UK banks. That would mean that only small and medium-sized banks could be supported by the mechanism. That would protect consumers and the banking sector from unnecessary financial burden.
Amendment 4 has also been brought back from Committee. It would place a further objective on the Bank of England to consider the competitiveness and growth of the market before directing the recapitalisation of a failing small bank through a levy on the banking sector. We believe that further consideration of the effect on the competitiveness and growth of the market is important before directing the recapitalisation of failing small banks.
To conclude, I would be grateful if the Minister could expand on the remarks made in Committee and explain how precisely the amendment would complicate the process of managing a bank failure.
The Economic Secretary to the Treasury (Emma Reynolds)
It is always a pleasure to serve under your chairmanship, Mrs Cummins. I thank the hon. Members for Wyre Forest (Mark Garnier) and for Wokingham (Clive Jones) for their amendments and their constructive engagement throughout the Bill’s passage. The Bill will ensure that the Bank of England remains equipped with the necessary tools to effectively manage bank failures in a way that minimises risk to the taxpayer and to UK financial stability, protecting the taxpayer.
While there may be some disagreements on the finer detail of the Bill, what we have heard today, and on Second Reading and in Committee, demonstrates that there is cross-party support for the principles and overall objectives of the Bill. I thank the hon. Member for Wyre Forest and the hon. Member for Wokingham for supporting those.
The amendments cover a broad range of issues, and I will explain the Government’s position on them in turn, but first I thank my hon. Friend the Member for Hendon (David Pinto-Duschinsky) for setting out his experience of the banking crisis and stressing that the mechanism we are seeking to provide through the Bill must allow the Bank of England, in close consultation with the Treasury and other financial services regulators, to act with speed and flexibility at times of crisis. There are hours, not days, in which to make decisions during crises, and at the forefront of our minds when discussing the Bill should be that they often happen over the weekend, as happened under the previous Government with Silicon Valley Bank. I will turn to that example shortly, but I wanted to thank my hon. Friend the Member for Hendon for setting out his concerns about the amendments that would essentially stymie the effectiveness of the Bill.
I note that the shadow Minister, the hon. Member for Wyre Forest, raised a number of issues on new clause 3, on the Bill’s impact on credit unions. Some were not strictly relevant to the Bill, but I will come on to them. As he noted, the Government absolutely support credit unions. They play a vital role in providing saving products and affordable credit in local communities across the country. However, they are not in scope of the resolution regime that we are discussing, and therefore not in scope of the new recapitalisation payment mechanism introduced by the Bill. That is a benefit to the credit union sector. Indeed, it asked the Government to ensure that it was not included in the payment mechanism. Credit unions will therefore not be liable to pay towards the cost of a failure where the mechanism is used.
Jim Shannon (Strangford) (DUP)
I support wholeheartedly what the Minister has said about credit unions, because credit unions have a big role to play in Northern Ireland, as they do in other parts of the United Kingdom. My concern when it comes to crises in banks is that credit unions belong to their members, but banks have a different hierarchy—they have chief executives and directors to pay. I believe it is unfair for bankers to retain their bonuses while the pensioner who has saved his pennies all his life suffers. No matter what the crisis is, the executives still get their dividends and bonuses. I have a simple question: within this legislation and the rules we have here, can we be assured that the bankers—the ones at the top who may be responsible for the banks, or certainly act responsible for them—will find that their bonuses are not delivered to them?
Emma Reynolds
The hon. Gentleman draws me on something that is not pertinent to the amendments, but I understand why he has asked the question. When a bank fails, there is a hierarchy of creditors. I can write to him with that hierarchy, as I do not have it in my head at the moment. The hierarchy ensures that if, for example, the bank is bailed in, those who have already invested in the bank become stakeholders, although it depends on the resolution scenario and where they are in that process. The people who have deposits in the bank—in more simple language, people who have bank accounts—are protected up to £85,000. Soon that will increase in the way that the shadow Minister suggested.
Amendments 1 and 3 in the names of shadow Minister, the hon. Member for Wyre Forest, and the hon. Member for Wokingham respectively both relate to the scope of the Bill, which has been discussed at length during the Bill’s passage through this House and in the other place. The Government’s position remains that the mechanism in the Bill is not intended to support the resolution of the largest banks. The hon. Member for Wyre Forest set that out in his speech, as did the hon. Member for Wokingham. The largest banks will continue to be required to hold MREL to self-insure against their own failure. For banks that are required to hold MREL, the Bank of England should in the first instance use those resources to recapitalise such a firm in resolution rather than resorting to the new mechanism in the Bill. It is right that shareholders and investors in the firm should bear losses before anyone else, which goes to the point made by the hon. Member for Strangford (Jim Shannon).
I return to the primary purpose of the Bill, which is to protect the taxpayer. Bank failures are by their nature highly unpredictable, as my hon. Friend the Member for Hendon said. In the unlikely circumstances where a top-up is needed to resolve a bank once all its MREL resources have been used, hon. Members must consider whether they want those costs to be borne by the taxpayer. It is the Government’s belief that the taxpayer should not be on the hook for those costs.
I made the point in Committee, and do so again today, that safeguards are in place to prevent inappropriate use of the mechanism. The Treasury, for example, is involved in the exercise of any resolution powers through being consulted about whether conditions for resolution have been met. It would also need to approve any resolution action with implications for public funds. If the Bank of England requested a large sum from the Financial Services Compensation Scheme that the scheme could not provide through its own resources, additional amounts would need to be borrowed from the Treasury and would therefore require the Treasury’s approval. Therefore, in practice, Treasury consent would be required if the Bank of England had requested a large sum.
The shadow Minister attempted to draw me into many different subjects related to MREL. You rightly reminded him, Madam Deputy Speaker, of the scope of the Bill and the amendments under discussion. I will always be happy to have those discussions with him—as he knows, the Bank of England recently consulted on the thresholds—and I note what he said before he was called to order. He also tried to draw me into questions about the Financial Services Compensation Scheme, which are also for a different day; as he said, there will soon be increases.
Matt Rodda (Reading Central) (Lab)
I appreciate that the Bill’s scope is limited, and the Minister is making an excellent case for the Government. I realise that bank collapses are unusual and that the Government take a range of steps to try to protect the interests of consumers, but could she write to reassure me on the related point of bank branches there were a bank collapse?
Emma Reynolds
Perhaps my hon. Friend and I could have a discussion outside the Chamber so that I can better understand his question. The mechanism in the Bill is about what happens when the resolution regime is triggered. Four different conditions have to be met for that to happen. The Bill seeks to continue the work that the Opposition started to take forward when they were in government before the election about what we do in cases like that of Silicon Valley Bank. In that case, there was not any recourse to public funds, but this is about how we protect the taxpayer in a scenario where there is. Perhaps we can have a discussion about bank branch closures, which is obviously of great concern to Members across the House.
I appreciate that amendment 3, tabled by the hon. Member for Wokingham, aims to introduce an additional safeguard by permitting the Bank of England to use its new power on the largest banks only if the Treasury permits that through regulations. He talked about that in his speech. However, there may be risks associated with that approach, particularly if the Bank of England needed to take a decision at pace in a crisis. Indeed, my hon. Friend the Member for Hendon was in the Treasury when many such situations arose. [Interruption.] Well, let us not rake over the history. We discussed some of these issues in Committee.
As the shadow Minister suggested, we are trying to avoid a window of uncertainty during which a statutory instrument would be laid. The Bank of England, working in close partnership and consultation with the Treasury and the other financial services regulators, needs to be able to act swiftly and decisively—often over the weekend. I ask hon. Members, and the hon. Member for Wokingham in particular, to cast our minds back to the weekend when Silicon Valley Bank UK was failing. The Bill derives from the lessons learned from that event.
What we saw from that incident is how quickly the authorities—the Bank of England in consultation with the Treasury, the PRA and the FCA—must move to find a solution before markets open and resolve a failing firm in a way that protects financial stability, depositors and the taxpayer. That has to be at the forefront of our minds when we are thinking about the amendments.
Amendment 3 could add a further stage to that process, whereby the Treasury must lay regulations to enable the Bank of England to act. That may well—it is most likely that it would—hamper those efforts to implement a solution swiftly to achieve those objectives. Had Silicon Valley Bank UK been caught by such requirements, that certainly would have made achieving the solution by Monday morning, before the markets opened, much more challenging. Again, the priority is to protect the depositors and to protect financial stability.
Overall, the Government firmly believe that it is better to leave flexibility for the Bank, noting the safeguards in place that I have already mentioned. On the basis of those points, I hope that hon. Members will be persuaded to support the Government’s position on this matter; I know that it is an issue of some contention.
Amendment 4, also in the name of the hon. Member for Wokingham, is on whether the Bank of England should have a growth and competitiveness objective when exercising its new power—another topic that we have discussed previously during the Bill’s passage. Growth and competitiveness are fundamental priorities for the Government, and as I stated in Committee, a disorderly bank failure could pose a serious risk to the growth and competitiveness of the sector and to the UK economy. The Bill seeks to mitigate that risk.
Bearing that in mind, the Government do not believe that they should impose a requirement on the Bank of England to consider growth and competitiveness when it is taking urgent crisis management action in relation to an individual distressed or failing firm. At such a time, the situation that it would have to manage would be challenging enough without an additional broad objective of that kind. The resolution objectives set out in the Banking Act 2009 already provide a solid basis on which it must make its decisions, including protecting financial stability, protecting covered depositors and protecting the taxpayer. As my hon. Friend the Member for Hendon reminded us, the Bank of England, in close partnership with the Treasury and the other financial services regulators, needs to act with speed and flexibility to maintain financial stability. Those considerations are very different from those that the PRA and the FCA make in their policymaking roles. The Government strongly support the existence of their secondary objective on facilitating growth and competitiveness.
I note and accept that there is a broader question about how the Bank of England can support growth and competitiveness, but this is a complex matter, and one that is well beyond the scope of the Bill. We will be resisting the amendment for those reasons.
Finally—[Interruption.] I see that our debate has attracted quite a lot of discussion around the edges; if I could hear myself think, it would be nice. I turn briefly to amendment 2, tabled by the shadow Minister. First, I reiterate that the Government have made clear their strong commitment to support the mutual sector, and I reassure him that we take our commitment in the manifesto to double the size of the mutual and co-operative sector very seriously. Many hon. Members on the Government Benches who serve as Labour and Co-operative MPs have a great interest in this matter, as has been demonstrated.
I also direct the shadow Minister—to be fair, he referred to a couple of them—to the package of measures that the Chancellor set out at Mansion House, which included the consultation on the potential to reform common bonds for credit unions in Great Britain. The Chancellor asked the Financial Conduct Authority and the Prudential Regulation Authority to produce a report on the mutuals landscape by the end of the year. She also welcomed the establishment of an industry-led mutual and co-operative business council, the first meeting of which I attended earlier this year.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
Will the Minister give way?
Emma Reynolds
I am afraid I am being urged to wrap up. I remind Members that the Bill is fundamentally about protecting the taxpayer—
Emma Reynolds
We have not come to that yet; my hon. Friend can intervene on Third Reading. [Laughter.]
Taking what I was saying into account, although the Government appreciate the point raised by the sector and by the shadow Minister, we do not believe it is necessary to hardwire in legislation a requirement to update the code of practice on this matter. I understand, however, that the mutual sector feels strongly about this issue, and my officials and I will continue to engage with the sector on it. I commend to the House our position on the new clauses and amendments, which is to resist them.
Mark Garnier
With the leave of the House, I wish to address one or two of the points made in the debate. The hon. Member for Hendon (David Pinto-Duschinsky) is an incredibly valuable contributor to the debate because of his experience back in the days of the 2008 financial crisis. If I remember correctly, that was largely a result of the Financial Services and Markets Act 2000, which almost compounded the problem by having a tripartite regime that looked after the banking sector at the time. If I remember rightly, the Chancellor of the Exchequer at the time found it so scary that his eyebrows nearly turned white. One of the surprising things about that crisis was that just 10 years earlier we had seen the Asian banking crisis, which basically laid the groundwork for what subsequently happened in the west. Perhaps we in the west were too arrogant to believe that it could happen to us, yet it sure did.
In my role as a member of the Treasury Committee from 2010 to 2016, and on the Parliamentary Commission on Banking Standards, I looked at all these issues very extensively. It is incredibly important that we resolve the issue. As it has turned out, the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013 have worked well in respect of some of this resolution.
On the point about LDIs and the financial crisis as a result of the Budget, we dealt with the problem pretty swiftly and pretty brutally. When one of our leaders gets it wrong, we get rid of them fairly quickly. I suggest to the Labour party that if Government Front Benchers get things wrong, it is worth cauterising the problem and moving on.
On credit unions and mutuals, we absolutely recognise the point about the mutual sector. We are not asking for demutualisation to be ruled out; we are asking for the prospect of avoiding demutualisation to be part of that very swift process. That is why we will press amendment 2 to a Division. I met the credit unions yesterday, and they are keen that the principle of new clause 3 is voted on, so we will press that as well.
Question put, That the clause be read a Second time.
Emma Reynolds
I beg to move, That the Bill be now read the Third time.
We can hopefully do Third Reading in a more relaxed fashion. As we have discussed through the Bill’s passage, the Bank Resolution (Recapitalisation) Bill will strengthen the UK’s bank resolution regime by providing the Bank of England with a more flexible toolkit for responding to the failure of banking institutions.
As volatility over recent weeks has shown, global uncertainty can have a real impact on financial markets across the world. That is why it is important that the UK remains equipped with an effective financial stability toolkit. The primary objective of the recapitalisation mechanism introduced by the Bill is to protect the taxpayer; it will provide more comprehensive protection for public funds when banks fail. I think both sides of the House can agree that this is of vital importance to ensure that our constituents are not left on the hook when a bank collapses. The Bill achieves that without placing new up-front costs on the banking sector, and therefore strikes the right balance between protecting financial stability and supporting the Government’s No. 1 priority of driving economic growth.
I would like to thank all those in this House and the other place who have contributed to the scrutiny of the Bill. In particular, I would like to thank the Opposition for their constructive engagement. As I said on Report, there is broad agreement on the primary objectives and principles of the Bill, but differing views have been expressed on the scope of the mechanism and certain finer details. I reiterate the Government’s position: it is important to learn the lessons from the case of Silicon Valley Bank UK, which demonstrates that the implications of a firm’s failure cannot always be anticipated, and things move very quickly. It is important that the legislation avoids overly restricting the Bank of England’s ability to use the mechanism in unpredictable and fast-moving failure scenarios, and can achieve its primary objective of protecting the taxpayer. I hope that those in the other place will agree with the Government’s position when the Bill returns there for their consideration.
I thank the shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), the hon. Members for Dorking and Horley (Chris Coghlan) and for Wokingham (Clive Jones), and others who were on the Committee. I thank the right hon. Member for North West Hampshire (Kit Malthouse), and the hon. Members for St Albans (Daisy Cooper) and for Bridgwater (Sir Ashley Fox), for their contributions on Second Reading. I thank the Minister with responsibility for pensions, my hon. Friend the Member for Swansea West (Torsten Bell), who assisted me on Second Reading, and my hon. Friend the Member for Newcastle-under-Lyme (Adam Jogee) for his input. I thank my hon. Friend the Member for Hendon (David Pinto-Duschinsky) for his speech on Report.
I would like to extend my gratitude to my officials in the Treasury for their hard work in developing this highly technical Bill, which could not easily be rushed, and for supporting me throughout the Bill’s passage. I am also grateful to the House staff, parliamentary counsel and all other officials involved in the passage of the Bill.
This Bill supports the UK economy’s resilience to the risks posed by bank failures. We all remember the damage caused by the financial crisis, and the Bill, alongside other measures that allow failures to be managed in an orderly way, upholds the economic and financial stability that will deliver on the Government’s growth mission. I am pleased that the Bill has received broad cross-party support in this House and the other place, and I look forward to its enactment. I commend it to the House.
Retail Investment
Emma Reynolds Excerpts(1 month, 1 week ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
It is a great pleasure to serve under your chairmanship, Mrs Hobhouse; congratulations on your appointment to the Panel. Thank you for presiding over this very good-natured Westminster Hall debate. I wish everybody a happy Easter—I do not know about everybody else, but for me, it is the first day back from a nice Easter break. I hope people got some rest over recess, and lots of Easter eggs to boot.
I start by congratulating my hon. Friend the Member for Buckingham and Bletchley (Callum Anderson) on securing this debate. He brings great expertise to the House on the issue and many others, and it is great to respond to his thoughtful contribution. He was right to draw attention to the benefits of retail investors to consumers and the country as a whole. As he said, it is a win-win situation: if we get this right, it will benefit savers, who will get better returns, and it will bring benefits to British business by unlocking more capital to boost economic growth. I will shortly respond to the four points that he raised.
Before I do that, I thank my hon. Friend the Member for Hexham (Joe Morris) for his thoughtful contribution. He spoke about the lack of financial education and targeted support for entrepreneurs in rural areas. Like him, I want to ensure that our Government, in our drive to increase economic growth, pursue that in a way that brings about inclusive growth, across the country, in urban and rural areas. I heard what he said about access to cash; I was not in the privileged position of Minister when he secured his Adjournment debate on that issue, but if he would like to meet to discuss it, I would be happy to do that, because it is obviously a concern in his constituency.
I also pay tribute to an excellent speech, as ever, from my hon. Friend the Member for Vale of Glamorgan (Kanishka Narayan), who talked about five categories; I will not go through them all, but I am passionate about the pensions dashboard, having worked on it in my previous ministerial position. It could be game changing in terms of ensuring greater visibility. He rightly said that many people, even if they are not directly invested in the stock market, are invested via their pensions. The dashboard will give them much greater awareness of what they are invested in, what their likely pension income will be in the future, and what they might need to do to top that pension up. I was interested to hear what he said about that and about the culture of investing in North America—but I have a section about that at the end of my speech, so I will not pre-empt it.
I thank the hon. Member for St Albans (Daisy Cooper), who rightly said that London and the UK are a strong international financial centre. We should celebrate the fact that we attract a lot of investment from international investors, including international pension funds and others. She and my hon. Friend the Member for Buckingham and Bletchley both noted that the amount that our own pension funds and investors invest in the UK has decreased, which is worrying.
I thank the hon. Member for Wyre Forest (Mark Garnier) for his many, many questions—I am giving some thought to them as I proceed. He was absolutely correct to say that people think there is a risk to investing in stocks and shares, but particularly in a high-inflation environment—we are not in one now, but in recent memory inflation got as high as 11%—holding savings in cash is not a risk-free option, because inflation will erode the value of the money over time. If people have additional cash above the rainy day savings that the hon. Member for St Albans talked about, there is some merit to looking at what they might do to invest for the long term. Members from across the House talked about long-term investing.
My hon. Friend the Member for Buckingham and Bletchley set out the scale of the challenge and the potential opportunities. As he noted, the UK is an outlier compared with our international peers. He rightly said that the UK is the third worst in the G7—that is probably the simplest way of putting it—in terms of the amount of money that people hold in cash, over everything else. We are behind only Germany and Japan in terms of the amount of cash that people hold in savings. Do not get me wrong; we know there is a role for cash savings, but we have to look at the balance between saving in cash and investing in equities. The research by Aberdeen found that, within the G7, UK consumers have the lowest appetite for investing, which is very concerning.
Many of us hold all or almost all of our savings in cash. The Financial Conduct Authority reported in 2023 that almost 12 million consumers had more than £10,000 in investible assets held mostly or entirely in cash. Of that group, more than 5 million indicated some appetite to invest. I suppose our job as a Government, and as parliamentarians, is to look at what we can do to give people confidence to take that first step into investing.
Of course, the Government understand that people need cash savings for a rainy day buffer. Many of us have those; I lost my seat in 2019, and thankfully I had a cash buffer at that time. Beyond that, there are risks to holding more savings in cash, as I have suggested, given the impact of inflation, and there is an opportunity cost of holding money in cash savings when there are higher returns to be had from investing, and particularly investing in the long term, if that is open to individuals.
The Government want more people to take part in capital markets. The hon. Member for St Albans talked about democratising capital markets—I like that phrase; it is a good thing that we can all agree on—and about the benefits from the returns and long-term financial security that investing in those markets can provide. To make that happen, we need to build a stronger investment environment in this country, and a better investment culture that helps people to engage confidently with investing.
My hon. Friend the Member for Buckingham and Bletchley made four policy suggestions, which were also mentioned by other hon. Members. I will address in turn. First, he called for reform of the ISA system. There was some debate across the House; there was mostly cross-party support for that proposal, but it was nice to see some discussion and constructive disagreement between the Liberal Democrats and my hon. Friend. He suggested that we should consolidate and simplify ISAs, while the hon. Member for St Albans suggested that we should ensure the choice remains available.
We said in the spring statement that we are looking at options for reforming ISAs to get the balance right between cash and equities. I cannot comment on any tax changes or changes to the ISA or savings landscape today, but I can say to the hon. Lady that we will take representations into account very seriously. I will say—I think for the third time in this speech—that cash savings obviously play an important role in ensuring that people have a financial buffer in case something goes wrong.
Daisy Cooper
I recognise that the Minister will not accept my invitation to divulge more information about the Government’s thinking on this issue, but I would be grateful if she could at least confirm that the Government’s position is that they are not ruling out a phased approach to introducing whatever they may introduce. It is important that our constituents who are anxious and worried about their money and what they should be doing with it, and who are currently consulting with financial advisers and whatnot, are given the reassurance they need that whatever changes the Government introduce will be phased in a way that makes it easy for them to make decisions, and that they should not make snap decisions now.
Emma Reynolds
I have heard the hon. Lady’s representation, and I am sure that people in the Treasury hear that representation. I would mention to her more broadly that we have committed to one fiscal event a year, rather than the two or three that we might have seen from the previous Government—we might have got a third one in September, had we not had an early election. I hope that gives her some reassurance.
The hon. Member for Wyre Forest mentioned the issue of building societies, which he also raised with me in the House in Treasury questions. I am in close touch with the building societies and will be speaking at their conference in Birmingham—he might be too, as a west midlands MP; I do not know. I can reassure him that we are in close engagement with them and that we understand and appreciate the valuable role that they play in providing mortgages and other financial assistance to their members. Many of us in this place will be members of and have investments in different building societies.
Anna Dixon
Constituents of mine value the role of the credit union, and the Bradford credit union in particular, for small savers on low incomes. Does the Minister see a role for credit unions alongside building societies in helping to encourage not only saving, but making early steps into investment, as we have discussed in this debate, for some of our poorest constituents?
Emma Reynolds
Credit unions, mutuals and co-operatives play a hugely important role in our economy and our society. That is why the Government—as my hon. Friend will know, given that she stood on the same Labour manifesto as me—promised in our manifesto to double the size of the mutuals sector, why the Chancellor asked the FCA and the Prudential Regulation Authority to look at the mutuals landscape in the Mansion House speech in November and why we have supported the establishment of the co-operatives and mutuals council—I actually went to the first meeting. As my hon. Friend said, credit unions play an important role in encouraging savings, particularly for those on low incomes. We have also launched a consultation on whether the common bond needs to be more flexible so that more people can benefit from credit unions, and that is also in train.
Coming back to the issue of ISA reform, the hon. Member for St Albans rightly said that there has been some market volatility recently. I will not comment on the day-to-day movement in markets, but I will say—I think she was also making this point—that if people are in a position where they can invest in stocks and shares in our stock market or other forms of investment, they need to take a long-term view of that. Often, that investment gives better returns than just putting something away into a cash account.
Analysis by AJ Bell from February this year suggests that someone who put away £1,000 in an average-performing cash ISA every April since their introduction in 1999 would now hold about £34,000. If their savings had instead kept up with inflation, they would now have £38,000, so that person would have lost out on £4,000. That goes to show how inflation can reduce the value of cash savings over time. In contrast, if that same individual had decided to invest in a stocks and shares ISA, they could now have around £83,000—over twice as much as their cash savings would have been. That demonstrates that if someone has the confidence and the ability—we are not talking about everybody here—to invest for the longer term, they will most likely get a better return. We need to ensure that people have the confidence and ability to engage with investing, and thus to benefit from the financial security and greater returns that investing can often provide.
My hon. Friend the Member for Vale of Glamorgan talked about people on lower incomes. On that, I will take the opportunity to say something about the help to save scheme, which is targeted at working households on low incomes. It offers a 50% Government bonus on savings of up to £50 a month over four years. The Government announced at the autumn Budget last year that the help to save scheme has been extended until April 2027. From 6 April this year, we have extended eligibility for help to save to all universal credit claimants in work as well.
The second issue raised by my hon. Friend the Member for Buckingham and Bletchley was about financial education. In fact, most hon. Members who spoke talked about its importance. One of the major barriers to investing for consumers is a lack of support to make financial decisions. We know that only 8% of adults received regulated financial advice in the 12 months to May 2022, but guidance does not often go far enough to help consumers feel confident to make a decision. We have a big advice/guidance boundary gap. Many of our constituents are therefore not getting the help they need to make their money go further. Some keep a lot of their money in savings, losing out on potential returns, and others do not regularly review their investments, or invest in products that do not meet their risk appetite.
Together with the FCA, the Government are developing a new regime called targeted support, which would allow regulated firms to provide suggestions appropriate to consumers with similar characteristics. For instance, the regime would enable firms to suggest that an individual with substantial savings could consider opening a stocks and shares ISA. It would also enable firms to suggest options for how to generate an income from an individual’s pension pot, appropriate to consumers with similar needs. The FCA will consult on the rules that will underpin targeted support in the first half of this year. Getting those reforms right will help consumers make better-informed decisions, engage in capital markets, and ultimately to be in a position to get better returns on their savings in the longer term.
My hon. Friend the Member for Buckingham and Bletchley reflected on how financial education can help level the playing field for those from less wealthy backgrounds. I really liked how he expressed in his speech the asymmetry between those who already come from a wealthy background, where this might even be discussed at the dinner table, and those in a less privileged position, who are not aware of some of the opportunities. If they are not aware, even if they were given the opportunity they would not have the confidence to take it.
In England, the independent curriculum and assessment review is considering how to ensure that he curriculum is fit for purpose. The shadow Minister, the hon. Member for Wyre Forest, talked about the importance of financial education. I cannot give him any guarantees right now, because as he will know, although we have had the interim report of the curriculum review, we are still working through some of the details. I met the Minister for School Standards to discuss this work and to make sure that my work on financial inclusion and the work of the curriculum review go hand in hand. I cannot give him any guarantees on private Member’s Bills right now, but I can take the question back to the Government Whips, who will tell me where we are. As I understand it, the private Member’s Bill on financial education that he talked about is not due to be introduced until 11 July.
We are working with the Department for Education, and the Department for Education is working across Government on how we can ensure that the curriculum review improves financial education for our young people, which I would like to see. Indeed, it was striking that in the interim review parents and pupils said that finance and budgeting was the top area they would like to see more focus on in schools; that was encouraging.
Thirdly, my hon. Friend the Member for Buckingham and Bletchley asked for action to make it easier for our citizens to engage with our capital markets. The importance of UK capital markets was mentioned by many speakers, but particularly by the hon. Member for St Albans, my hon. Friend the Member for Vale of Glamorgan and the shadow Minister. We want to make UK capital markets as attractive as possible to retail investors. Our capital markets are already among the strongest and deepest globally. I know some concerns have been raised, but more than £25 billion of equity capital was raised in London last year, more than in the next three European exchanges combined. I am keen that we do not talk ourselves down. Of course, we must recognise challenges where they arise, but we must also recognise our strengths. We are the world’s largest international bond market, with more than 16,000 active bonds traded on our markets, representing over £4.1 trillion across 55 currencies.
We want to go further to reinvigorate capital markets to ensure that they support both UK and global growth. We are currently developing a financial services growth and competitiveness strategy, and have identified capital markets, and retail participation within those markets, as a priority growth opportunity in that strategy. That strategy will come later this year, and I am sure the hon. Member for Wyre Forest will quiz me about it in the weeks and months to come.
The Government are focused on making our markets more competitive, including by supporting the FCA’s work to reform the UK’s prospectus regime to give investors access to better quality information to support their decision making, and supporting the FCA’s proposals to cut red tape for corporate bond issuance, which will encourage companies listed on stock exchanges to offer bonds in smaller sizes to improve investment opportunities for retail investors. The Government have also legislated to enable the FCA to reform the UK’s retail disclosure regime to ensure that consumers have access to the most useful information to support their investment decisions. The FCA’s consultation has just closed and the Government look forward to seeing its final rules later this year.
My hon. Friend the Member for Buckingham and Bletchley also raised the work of the industry-led digitisation taskforce, which is looking at how we can improve the system of share ownership in this country and, as part of that work, at how we can remove all paper shares. The taskforce is currently finalising its final report—my hon. Friend will have seen the interim report—and the Government look forward to receiving it, and will respond in due course.
Finally, my hon. Friend the Member for Buckingham and Bletchley called for a fundamental shift in how we think about investing in our country. He is right to say that investing should not be for just the wealthy, or those with expertise; we need to build an investment culture that enables newcomers to invest confidently and grow their financial resilience. I want to deliver that change but I know that the Government, and indeed parliamentarians, cannot deliver that shift on our own. We need to work closely with regulators and industry and, as my hon. Friend suggests, make the case to consumers for investing. I thank my hon. Friend for outlining his proposal for how we could do that.
We are thinking carefully about these matters and look forward to working with my hon. Friend and others across the House to help build the strong investment culture that we want. As part of that work, we are of course looking at international examples; the shadow Minister mentioned the importance of that. Many hon. Members will be familiar with how Americans talk a lot about their 401(k)—or so I am told—and how Australians talk a lot about their supers. A few months ago, I was talking to a financial services senior leader who told me that when she lived in Australia, her cleaner often looked at her super on her phone, and tracked the return on her investment. I would love to see that sort of inclusive, democratic access to investment opportunities in the UK. I am not being patronising—I have a fantastic cleaner too, and I would like to see her in that position. We want to ensure that people across society get these opportunities. We also want people to engage with their pensions more closely, as I have already mentioned in response to my hon. Friend the Member for Vale of Glamorgan.
If I do not get to all the questions raised by the hon. Member for Wyre Forest then I am sure that I can write to him, or we can have a discussion after the debate.
My hon. Friend the Member for Vale of Glamorgan talked about what the Government could do to promote employee share ownership. The previous Government launched a call for evidence on the save as you earn and share incentive plan schemes. The Government will use that call for evidence to consider opportunities to improve those schemes, and I thank my hon. Friend for his interest in that.
The hon. Member for St Albans talked about advertising on social media. She will know that under the Online Safety Act 2023 large internet platforms will be required to put in place systems and controls to avoid fraudulent advertising appearing on those platforms. We also welcome Ofcom’s work to bring forward codes of practice on what actions firms should be considering. However, she is right to raise the issue as a matter of concern; the Government are concerned about it.
I have answered the question from the hon. Member for Wyre Forest about the private Member’s Bill on financial education, but I am sure that he asked me other questions that I have not quite got round to; I beg his forgiveness. I also answered his question on what we can do together to ensure that people know there are risks involved with holding cash above certain levels, and about the erosion of people’s cash savings by inflation, but if he wants to repeat any of the other questions, I am happy to respond.
Mark Garnier
I think the Minister has covered most of my questions, but I will review and we can perhaps have a conversation later.
Emma Reynolds
Such great cross-party working—do not tell anyone else about it! It is really good to work with the hon. Gentleman. I remember fondly—well, not that fondly—being a shadow Minister and having very good, if different, working relationships with the Ministers who I shadowed. I very much welcome the constructive way in which he has contributed to the debate and I look forward to Thursday, when we will debate the Bank Resolution (Recapitalisation) Bill.
I thank my hon. Friend the Member for Buckingham and Bletchley for securing this debate and I also thank all the hon. Members who spoke. It has been a very constructive and interesting debate, certainly from my perspective, and I thank all hon. Members for their contributions. The Government are determined to make the UK’s retail investing environment more attractive and to boost the UK’s investment culture, and I will reflect carefully on the points raised.
Oral Answers to Questions
Emma Reynolds Excerpts(1 month, 3 weeks ago)
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Emma Foody (Cramlington and Killingworth) (Lab/Co-op)
The Economic Secretary to the Treasury (Emma Reynolds)
Securing economic growth across the country is the Government’s No. 1 mission. We are working in partnership with the Mayor of the North East, providing the North East combined authority with an integrated funding settlement from ’26-27, and working with it on its local growth plan.
Emma Foody
The combined authority has identified a key growth corridor sweeping across my constituency, but a historical lack of investment to upgrade the Moor Farm and Seaton Burn roundabouts causes relentless disruption and holds back growth, investment and opportunity. There is a business plan in the north-east growth plan and in the road investment strategy. Does the Minister agree that that is exactly the sort of scheme that this Labour Government should support to boost economic growth in every region?
Emma Reynolds
The Government are committed to improving roads. We agreed a £4.8 billion settlement for National Highways and funded a £500 million uplift for local roads in this financial year. Funding for the RIS3 programme, which my hon. Friend mentioned, will be considered in phase 2 of the spending review, and I encourage her to continue to engage with the Minister for roads on this issue.
John Lamont
This Government decided to cancel the A1 upgrade, which will harm the economy not just in the north-east of England, but in the south of Scotland. What economic impact assessment did the Government make before deciding to cancel that vital road link?
Emma Reynolds
Nice try. In terms of north-east growth, I have already said that we are working very closely with the Mayor of the North East combined authority. I suggest that the hon. Gentleman asks questions about roads relevant to his part of the country at Transport questions.
Mr Speaker
I now call the Minister to answer Alistair Carmichael’s question on the potential impact of changes to agricultural property relief and business property relief on farmers, which was omitted in error from earlier versions of the Order Paper.
Callum Anderson (Buckingham and Bletchley) (Lab)
The Economic Secretary to the Treasury (Emma Reynolds)
We have heard from UK businesses that our regulatory system often holds back growth and investment. We recently published a regulation action plan, and committed to cutting the administrative costs of regulation for businesses by 25% by the end of this Parliament. We are going further, faster than ever before to streamline regulation and make Britain the best place in the world to do business.
Callum Anderson
The Minister will know that both domestic and international investors are often influenced by decisions taken by multiple agencies, regulators, and indeed Government Departments, which is why consistency is key. Can the Minister update the House on how the Treasury is supporting a whole-of-Government and whole-of-regulator approach to delivering coherent UK regulatory frameworks that strike a balance between protecting consumers and boosting the global competitiveness of the UK economy?
Emma Reynolds
This is a whole-of-Government approach, and we have secured 60 commitments from key regulators to improving the business environment. The Government are streamlining regulation and stripping back its duplication, to ultimately deliver a regulatory system that encourages new investment, innovation and growth.
Dave Doogan (Angus and Perthshire Glens) (SNP)
Inward investment projects in Scotland grew by 12.7% in 2023, compared with 6% across the rest of the United Kingdom. 2023 saw record investment in Scotland, which maintained its position as the top-performing area of the UK for the ninth year running. International businesses want to locate in Scotland because they understand that GDP per person in Scotland has grown by 10.5%, compared with 6.5% in the rest of the UK, since 2007. What impact does the Chancellor think her fiscal interventions since October will have on the attractiveness of Scotland as a destination, and what discussions has she had with the Scottish Government about the jeopardy that she has placed our economy in?
Emma Reynolds
The Chancellor delivered the biggest ever settlement for Scotland in October 2024, and I think the answer is “thank you”.
Mark Garnier (Wyre Forest) (Con)
There is a great deal of speculation about the future of the cash individual savings account. As we know, it is an important savings mechanism for many savers across the country, all of whom will be dismayed at the loss of a significant cash savings opportunity. Just as importantly, cutting cash ISAs will deprive building societies of important funds for their balance sheets, reducing the amount of capital available for the residential mortgage market. This point has been raised with me by the mutual societies. Given that the loss of the cash ISA would have a profound effect on mutuals’ ability to raise debt capital, what research have the Government undertaken to establish the extent of the damage that such a measure might inflict on the residential mortgage market, which is not just important for all our constituents, but crucial for the 1.5 million new homes that the Government propose building?
Emma Reynolds
I work closely with the mutuals and other financial services firms, and I think the hon. Member is slightly jumping the gun, if he does not mind my saying so. We are considering options to reform ISAs, but we need to get the balance right between cash and equities. We know that many people have investments in cash ISAs who could think about investing in our capital markets, which would be a win for them through higher returns, and also for the economy. However, we absolutely understand the role that cash savings play in people having money for a rainy day.
Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)
Lewis Cocking (Broxbourne) (Con)
The Economic Secretary to the Treasury (Emma Reynolds)
The Government understand the importance of in-person banking to communities and are working closely with the industry to roll out 350 banking hubs across the UK. More than 220 hubs have already been announced, of which more than 135 are already open.
Sir Julian Smith
Rural communities such as Settle in North Yorkshire are really struggling with the loss of face-to-face banking services. Link hubs are one route for them to replace the banks that are closing. I urge Ministers to do what they can with Link—I accept that it is an independent organisation—to help it to relax the criteria for rural communities, allowing them more face-to-face banking services.
Emma Reynolds
I would be very happy to meet the right hon. Gentleman if he wanted to discuss a specific banking hub that is being considered. We work very closely with Link. As he will know, his Government passed the Financial Services and Markets Act 2023, under which the Financial Conduct Authority, Link and the financial services sector ultimately have power over the criteria, which is not something we are planning to change.
Lewis Cocking
How does the Minister plan to make it easier to establish banking hubs in communities that have lost all of their banks? I did have a meeting set up with the previous Minister, but she left Government before that meeting could take place. Will this Minister agree to meet me so that I can discuss the establishment of a banking hub in the town of Cheshunt in my Broxbourne constituency?
Emma Reynolds
I am always happy to meet colleagues and will be happy to meet the hon. Gentleman.
Clive Efford (Eltham and Chislehurst) (Lab)
The criteria applied by Link are too strict, and banks are being able to walk away from their customers. In Eltham, we have had a salami-slicing process of banks gradually leaving the high street, but, because we have a building society, we cannot ask for a hub. Will the Minister undertake to review Link’s approach, because it is making it difficult for customers to carry out their banking business?
Emma Reynolds
As I said in my previous answer, we do not have any plans to change the Link criteria; those are a matter for Link. However, there are some flexibilities in the way that it applies the criteria, depending on the local population, travel times to nearby bank branches and, indeed, the number of small businesses in an area. I would be happy to meet my hon. Friend if that is of concern to him.
Douglas McAllister (West Dunbartonshire) (Lab)
Oral Answers to Questions
Emma Reynolds Excerpts(2 months, 4 weeks ago)
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Alex Mayer (Dunstable and Leighton Buzzard) (Lab)
The Economic Secretary to the Treasury (Emma Reynolds)
The Government are committed to supporting people to save and invest, and we want to build a better investment culture. Currently, 85% of people with savings income do not pay tax on it. As we announced at the Budget from next month, we will expand the help to save scheme to all universal credit claimants in work.
Alex Mayer
The nation’s favourite way to save is through premium bonds. Does the Minister think that they are good for the country and a valuable way of encouraging saving? For everyone who has them, they are quite exciting every month.
Emma Reynolds
I think that premium bonds do provide excitement, not least in my parents’ household, where they are very popular. They are already well promoted and popular, and we have seen annual investments in premium bonds increase by more than 50% since March 2019. The funds raised through them go towards supporting vital public services.
John Glen (Salisbury) (Con)
I warmly welcome the Government’s commitment to extend the help to save scheme, which has been running for seven years. Martin Lewis describes it as
“a very clever scheme and one that will work for many people.”
May I urge the Minister to look at what needs to be done to raise awareness of it, because the actual uptake is very low, given that the Government have been giving £1,200 over four years? It is critical that the right investment in promoting it happens, because it is such a brilliant scheme.
Emma Reynolds
I could not agree with one of my predecessors more. The right hon. Gentleman is absolutely correct. It is a great scheme and now that we are expanding it, we will take that opportunity to promote it better.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
We all know how important it is to encourage savings, because so many people are a paycheque away from poverty, but there has been a lot of discussion about lazy capital in cash-only ISAs, for example, and other savings accounts. I know there is a drive by Government to see greater investment. Would the Minister like to expand on the Government’s thoughts on that? In particular, can she make any comments about the security of the cash ISA?
Emma Reynolds
Cash savings provide a vital source of savings for a rainy day, and we recognise that. Equally, we want to build a better investment culture in our society, so that it is not just the 8% of people who can afford financial advice who can have the opportunity of better rewards by investing in British companies and others in our economy.
Mr Peter Bedford (Mid Leicestershire) (Con)
On that point, it has been widely reported that the Chancellor is planning to slash the amount of cash that savers can save in ISAs from £20,000 to £4,000 a year. Will the Chancellor rule out this punitive measure, which will see savings drop and push even more people into income tax?
Emma Reynolds
We are committed to promoting savings and investment, as I said in an earlier answer. One measure we are looking at is the Financial Conduct Authority’s review of the advice guidance boundary. As I said in a previous answer, I do not want it just to be the 8% of people who can afford financial advice who reap the rewards of investing in our economy. We keep all taxes under review.
Mark Garnier (Wyre Forest) (Con)
The City of London has been a leader of innovation in the world of finance and savings for a few hundred years now, and it has been successful because it has always seized opportunities and innovation when presented. In that spirit, we are pleased that the Chancellor in her Mansion House speech embraced the concept of securities tokenisation, but we now find that the catalyst for this innovation in the UK—a pilot for the digital gilt instrument known as DIGIT—has found itself in a two-year black hole. Innovation is not something that can hang around for two years, so will the Minister give assurances that she will do everything she can to deliver DIGIT as soon as possible?
Emma Reynolds
That sounds like a criticism of the previous Government. I can reassure the hon. Gentleman that we are committed to innovation and to DIGIT.
Louise Jones (North East Derbyshire) (Lab)
The Economic Secretary to the Treasury (Emma Reynolds)
My hon. Friend is a fantastic campaigner for the breweries in his constituency. We want the drinks sector to go from strength to strength. We are reviewing the responses to the consultation on the threshold that my hon. Friend mentioned.
Freddie van Mierlo (Henley and Thame) (LD)
Chris Vince (Harlow) (Lab/Co-op)
What are this Government doing to ensure innovation in UK tech companies, such as Kao Park in my constituency, so that they can drive economic growth as part of world-class AI computer ecosystems?
Emma Reynolds
Harlow is home to one of the UK’s largest supercomputers. We are taking forward the AI action plan and we also have the tech adoption review, which will look at how we can unlock the potential of AI in our high-growth sectors.
Sir Oliver Dowden (Hertsmere) (Con)
Wera Hobhouse (Bath) (LD)
My constituent is one of hundreds of people who suffered from the collapse of Collateral. While the Financial Conduct Authority has apologised to investors for failing to act faster to stop Collateral’s fraudulent activities, I am concerned that, without internal changes, the FCA will make similar mistakes again. Should there not be an investigation into the FCA’s handling of the case?
Emma Reynolds
I am happy to meet the hon. Lady and look at the case she mentions, because I need to get more detail.
Ruth Cadbury (Brentford and Isleworth) (Lab)
The Transport Committee has looked at the economic growth case for the Heathrow expansion and has heard conflicting evidence on the project’s growth impact on regions away from London and the south-east, and also on other carbon-using sectors. Will the Chancellor ask Heathrow Airport to release the full text of the Frontier Economics report on which she made her decision to expand Heathrow?
Contingencies Fund Advance: National Savings and Investments
Emma Reynolds Excerpts(3 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
HM Treasury has agreed additional resource DEL and capital DEL funding of £88,414,000 for National Savings and Investments (NS&I) as part of spending review 2025 phase 1 during the 2024 autumn Budget. The additional resource supports NS&I’s business transformation programme which will see it transition to a modernised operating model, with multiple service delivery partners. The funding also supports the capital DEL requirements for NS&I’s moving between offices in London.
Parliamentary approval for additional resource of £40,630,000 and capital of £17,120,000 has been sought in a supplementary estimate for NS&I. Pending that approval, urgent expenditure estimated at £57,750,000 will be met by repayable cash advances from the Contingencies Fund.
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Bank of England and Treasury: Financial Relationship
Emma Reynolds Excerpts(3 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
I can announce today the conclusion of a Bank of England and HM Treasury five-yearly review of the Bank’s capital framework parameters, as set out in section 2B of the Bank and HM Treasury financial relationship memorandum of understanding.
The review concluded that:
The capital framework has been effective in delivering its intended objectives at inception in 2018: to ensure that the Bank is equipped with capital resources consistent with the monetary and financial stability remits it has been given by Parliament.
The existing parameters of the capital framework remain adequate to support the Bank’s balance sheet.[1]
The existing Bank-HMT financial arrangements, as set out in the MoU, are sufficient to support the bank’s planned transition to a demand-driven operating framework fully backed by repo.[2]
The Bank and HM Treasury will keep these arrangements under review during the Bank’s balance sheet transition to a new steady state in coming years, ensuring close engagement as per the existing governance and information sharing channels set out in the MoU.
The Bank and HM Treasury have updated the MoU accordingly, and this can be accessed at https://www.gov.uk/government/publications/memorandum-of-understanding-between-hm-treasury-and-the-bank-of-england-2025
[1] The parameters of the capital framework include a target, a floor, and a ceiling. As set out in the 2018 letter from the Governor of the Bank of England to the Chancellor, the values of the capital parameters are £0.5 billion for the floor, £3.5 billion for the target and £5.5 billion for the ceiling. This letter can be accessed at https://www.bankofengland.co.uk/-/media/boe/files/letter/2018/governor-letter-210618.pdf
[2] Further detail on the transition of the Bank’s operating framework can be accessed through the following attachments:
“Transitioning to a repo-led operating framework”—Bank of England https://www.bankofengland.co.uk/paper/2024/dp/transitioning-to-a-repo-led-operating-framework
“The importance of central bank reserves”—lecture by Andrew Bailey https://www.bankofengland.co.uk/speech/2024/may/andrew-bailey-lecture-london-school-of-economics-charles-goodhart
“Let’s get ready to repo”—speech by Victoria Saporta https://www.bankofengland.co.uk/speech/2024/july/victoria-saporta-speech-at-afme-seminar
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