Demutualisation of Liverpool Victoria

Gareth Thomas Excerpts

Wednesday 15th September 2021 Commons Chamber

[Gareth Thomas (Harrow West) (Lab/Co-op)]

The proposed demutualisation of Liverpool Victoria is the first proposed demutualisation of a major financial services business since the financial crash. If the demutualisation goes ahead, it will see controversial United States private equity giant Bain Capital given ownership of a British customer-owned business with considerable financial assets. The tidal wave of private equity money apparently available for purchases of British firms prompts the inevitable question of whether this proposed demutualisation is a one-off or whether it is the start of another wave of demutualisation.

The all-party parliamentary group for mutuals, which I am fortunate to chair, conducted an inquiry into the proposed demutualisation earlier this year. We interviewed Mark Hartigan, who is the current chief executive of Liverpool Victoria, as well as Matt Popoli of Bain Capital, the regulators, the Association of Financial Mutuals and representatives of other mutuals, and we received submissions from individual consumer-owners of Liverpool Victoria. I am grateful to the hon. Member for Wycombe (Mr Baker), my hon. Friend the Member for Rochdale (Tony Lloyd), the hon. Member for Thirsk and Malton (Kevin Hollinrake), my hon. Friend the Member for Neath (Christina Rees), the hon. Member for Harrow East (Bob Blackman), the noble Lords Curry and Wrigglesworth, and Viscount Trenchard for their assistance and support. We have written subsequently to the Prudential Regulation Authority and the Financial Conduct Authority, and I have also written to the Pensions Regulator.

We concluded that it was very difficult for an individual member of LV= to be able to assess whether the proposed demutualisation was in their interests, given the scarcity of information with which they had been provided. We agreed that, on the basis of the evidence available to us, the leadership of LV= had not been open and transparent with members about its intentions for their business. Indeed, we felt that there had been a notable disregard for the interests of members and a cavalier attitude towards the member governance of the business.

We concluded, too, that the plans would damage the diversity of financial services providers in the UK, and that there had been insufficient policy attention on mutuals in recent times, particularly on the need to be able to raise capital. Lastly, we concluded that regulators needed to have a fundamentally different approach to the threat of demutualisation. Indeed, we were staggered that no lessons had been learned from the pre-crash wave of building society demutualisations.

I believe now that Alan Cook, the chairman of Liverpool Victoria, has a series of questions to answer about the proposed demutualisation and sale to Bain Capital. Earlier this week I formally invited him to Parliament to enable him to do just that.

Since our report was published, and despite many invitations to do so, the leadership of Liverpool Victoria have thus far refused to provide a more open and transparent explanation of their motives and their intentions. First, there has never been a clear, easy-to-understand explanation as to why demutualisation is needed. The business is well capitalised—indeed, it recently sold its general insurance business for over £1 billion—and it has raised significant sums on the capital markets. Both the chairman and the chief executive were arguing that the business was in very good financial shape right up until their plans for putting Liverpool Victoria up for sale were leaked to the media.

So why, really, is this plan being pushed? Why can Liverpool Victoria not survive as a stand-alone business in its own right? Its members, I believe, have a right to know. If, for a moment, we take at face value the idea that the new chief executive spotted a major flaw in the business model of his predecessor, so great that significant investment was needed for Liverpool Victoria’s customers to continue to enjoy the fruits of their investment with LV=, then why did they not choose another mutual? Indeed, there are persistent rumours that a major mutual offered more money than Bain Capital offered. The consumer-owners of Liverpool Victoria have a right to know whether that is true and why, if so, it was turned down.

Secondly, it is difficult to see how the members or owners of Liverpool Victoria will benefit from the demutualisation. Previous demutualisations have always been driven by the chair, chief executive and board, who usually benefit from significantly enhanced remuneration packages. It is time for the board to be honest. For example, by how much more will the chairman and chief executive benefit if this deal goes ahead? Thirdly, the way in which Liverpool Victoria’s chairman and board have gone about the process of demutualising raises the question as to whether—I say this gently—they knowingly misled the regulator and their customer-owners about their plans.

The board of Liverpool Victoria successfully persuaded their members to approve Liverpool Victoria’s conversion from a friendly society to a company limited by guarantee. At the time, they proposed this to their members, the chairman, Mr Cook, explicitly assured members that this would mean no change to the mutual status of Liverpool Victoria. With that assurance, the consumer-owners of LV= approved the conversion to a company limited by guarantee in May 2019. The real significance of that change in legal governance only emerged much later. In LV=’s rulebook, to demutualise, it needs a 50% turnout of the membership in any such vote and 75% of those voting to vote in favour. In short, practically, it is impossible—deliberately so. It was a rule put there to protect future consumer-owners of LV= against the greed of carpetbaggers and directors.

Given the assurances of Mr Cook, the board and the chief executive, one might have assumed that LV=’s mutual future would continue, notwithstanding the change from a friendly society. Under the rules governing companies, however, boards can approach our courts to ask for a scheme of arrangement for permission to ignore a particular rule in their constitution. That is not currently within the friendly society rules. Assuming there is even a small majority voting in favour of demutualisation, this is what LV=’s leadership are now determined to do. Revealingly, in February this year, in a webinar for LV= customers, Mr Cook noted that his plan to demutualise and sell to Bain Capital would not have been possible if they had not converted to a company limited by guarantee. It appears—again, I say this advisedly—that Mr Cook, the chairman of LV=, has been determined to demutualise for some time and has not been straight with the consumer-members of LV=.

What has added to that sense is that the previous chief executive of LV, Richard Rowney, left the organisation in December 2019, and it is difficult not to think that he was fired for not wanting to demutualise. His replacement, Mark Hartigan, was announced just 10 days later, and within less than three months Liverpool Victoria was up for sale—this at a time when assurances of Liverpool Victoria’s continuity as a mutual were being given. Frankly, it is stretching credibility to believe that the decision to sell was the unexpected decision of a strategic review landed by an incoming chief executive with no experience of working for a mutual and after less than three months in the job. What is also remarkable is the decision of the Financial Conduct Authority not to investigate whether members of LV= were deceived into supporting the conversion to a company limited by guarantee.

[Rachael Maskell (York Central) (Lab/Co-op)]

I thank my hon. Friend for the excellent speech he is making. Benenden Health is a significant mutual in my constituency, and it has serious concerns about the ramifications of this demutualisation for the whole mutual sector and its reputation. How does he believe that regulation could be tightened to avoid this kind of situation occurring again?

[Gareth Thomas]

My hon. Friend and Benenden are right to be concerned about whether there are wider implications and we will see other businesses demutualising. The current vice-chair of Yorkshire Building Society sits on the board of Liverpool Victoria and appears to have been actively involved in the demutualisation plans, prompting a rather obvious question about the future of Yorkshire Building Society.

The conversion to a company limited by guarantee and the decision to pursue demutualisation are both fundamental to the treatment of Liverpool Victoria’s consumers. The FCA is refusing to consider both decisions together and to investigate, as I have indicated, whether the chairman in particular and other members of the board knew much earlier than they have been willing to admit thus far that demutualisation was their desired end point. The failure to consider interlinked business decisions in a holistic way was a fundamental failing identified by Dame Elizabeth Gloster in her devastating report on the London Capital & Finance debacle. This appears to be a clear repeat of that mistake, albeit with a very different business.

There are other concerns about the performance of the regulators, the PRA and the FCA. Together, they have admitted that they have had nearly 60 meetings to discuss the demutualisation with the board of LV=, but not one with LV=’s consumers and owners. The FCA should at the very least require the so-called independent experts who have been appointed by LV=’s board, who have been briefed by LV= and who will be paid by LV=, to set up meetings to explain the background to what one presumes will be their inevitable decision to recommend to members a vote for demutualisation and sale to Bain. Will the Minister ask the FCA to make that happen?

[Rachael Maskell]

My hon. Friend is being generous. I also want to ask about the impact the proposals will have on staffing levels. We know that staff are fearful that many could lose their jobs at this time. What guarantees have been given to staff that their jobs will be safe?

[Gareth Thomas]

My hon. Friend will know that when we saw the last wave of building society demutualisations, there were large numbers of job losses. I gently warn those who work for Liverpool Victoria to be wary of any assurances they have been given about their jobs if the sale to Bain and the demutualisation go ahead.

After the financial crash, there was recognition across the House that the wave of demutualisations of building societies had been, at best, a dismal episode, that corporate diversity needed to be encouraged, and that financial mutuals in particular had a crucial role to play in maintaining competition and the interests of consumers. For the Government and this Minister in particular—I welcome him to his place, as I know he is diligent in his interest in the mutual sector—I hope that the demutualisation of Liverpool Victoria will be a further wake-up call to look more seriously at the needs of financial mutuals and specifically their ability to raise capital, and to put into law disincentives to demutualise. We need protections for legacy assets, and we need a review of how financial mutuals are regulated under the Financial Services Act 2012. Certainly representations we had from the Association of Financial Mutuals suggest an urgent review to modernise that Act is overdue.

I hope that the Minister will also ask the chief executive of the FCA to revisit the question of whether the owners of LV=—its consumers—were misled when the conversion to a company by guarantee took place.

This demutualisation is proof that we need again to celebrate and enhance the position of mutuals in our markets. After all—I say this gently and reluctantly—what is being proposed in the demutualisation of LV= is the looting of nearly two centuries of legacy assets. Of course, it is being dressed up as something different, but that is money built up from the working capital of the business over years of transactions, starting with small contributions from the working people who were the original members of the Liverpool Victoria Burial Society, who set the society up to avoid the Victorian scandal of a pauper’s funeral. Over time, those small contributions became a substantial sum, and they were augmented by the funds transferred into the friendly society from a series of mergers with other mutuals. In good faith, those other mutuals brought their assets to share with a broader membership for their common purpose.

Today, we have the spectacle of a demutualisation that looks to be driven by the simple desire to appropriate this money. None of the promoters of the demutualisation has made any contribution to the accumulation of the assets, yet they want to take advantage of them. It seems that the attraction of the assets means that the executives, the board members and the private equity players will do whatever is necessary to appropriate them. Token windfall payments to members in exchange for their vote will, just like in every other demutualisation, transfer the value from those who contributed and their descendants to those who did not. I gently suggest that that can never be fair, and it is wrong that, to date, our legislative and regulatory regime not only permits that to happen but actively facilitates it.

--- Later in debate ---

[Gareth Thomas]

I have two interlinked questions, if I may. First, the Financial Conduct Authority, in its letter to the all-party group of 5 August, made it clear that it had already decided it would not review the interlinkage, or not, of the decision by LV= to convert to a company limited by guarantee and the subsequent proposal to demutualise. I recognise that the Minister cannot intervene with the regulators directly, but he can, as I understand it, because he meets with the chief executive of the FCA, seek an explanation of that decision. Secondly, if the FCA will not engage with that question sufficiently to satisfy me, could he at least ask it to publish the details of the two independent experts appointed by the board of LV= so that customer-owners can begin to make contact with them to ask them questions about what exactly the plans of LV= are?

[John Glen]

I am always ready to look at constructive suggestions and am happy to take this forward. I suspect there may be legal impediments to the publishing of some of that information, but I will certainly ask the questions and seek to relay to the hon. Gentleman the fullest answer that I am able to. I am frequently in my current role in between this place and independent regulators. It is right that our regulators are independent and I see the frustrations that exist within that, but I am happy to take forward a constructive dialogue as far as I can.

I do not think I can add much more at this point. I recognise the sincere commitment of hon. Members who have spoken to this issue, their frustration with what has happened, the apparent unnecessary nature of this transaction, given the history and the apparent change in the direction of travel with little warning, but I am clear that the regulators are very aware of their obligations to safeguard the interests of members and I look forward to the judgments coming forth in the coming weeks and months. I hope that that gives the hon. Gentleman some satisfaction on the matters he has raised this evening.

Question put and agreed to.

DRAFT EUROPEAN UNION (FUTURE RELATIONSHIP) ACT 2020 (REFERENCES TO THE TRADE AND COOPERATION AGREEMENT) REGULATIONS 2021

Gareth Thomas Excerpts

Monday 19th July 2021 General Committees

[The Paymaster General (Penny Mordaunt)]

I beg to move,

That the Committee has considered the draft European Union (Future Relationship) Act 2020 (References to the Trade and Cooperation Agreement) Regulations 2021.

It is a pleasure to serve under your chairmanship, Sir Edward. As hon. Members will be aware, and following the negotiations that took place last year, on 31 December 2020 the process of transition to our future relationship with the European Union was completed. We have recovered our economic and political independence, upholding a key demand of the British people and fulfilling our manifesto commitments. We are now focused on seizing the opportunities of being an independent sovereign nation.

The first trade and cooperation agreement partnership council, which took place in London last month, represented the start of the TCA governance. Both the substantive partnership council agenda items, and the formal launch of the wider governance apparatus, signal a milestone in the future relationship between the UK and EU. The secondary legislation before the Committee is required to help to ensure the future functioning statute book and provide clarity for businesses and citizens alike.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

The Minister might have seen the media story over the weekend about a suggestion that the UK-Ukraine trade deal, which the Prime Minister signed, contained a series of errors apparently still binding the UK to certain EU rules. I wonder whether she could explain what those mistakes were and how they relate to the statutory instrument, or whether we will have to come back to debate another statutory instrument, given those errors.

[Penny Mordaunt]

I do not intend—you will be relieved to hear, Sir Edward—to talk about things outside the scope of the particular correction that we are making this afternoon. I think that all Members should welcome the trade agreements that we are signing. The Department for International Trade has done a sterling job in rolling over agreements, but also in forging new ones. I am sure we want them to be technically accurate. If there are any difficulties, I am sure that both parties—both our Department for International Trade and whomever we are signing that particular deal with—will make those corrections, but I am keen to emphasise that this extremely dry and narrow amendment is technical in nature and is not new policy, as the hon Gentleman will understand. It is simply to ensure that the statute book works coherently and effectively, allowing the legal revision process of the trade and cooperation agreement, as signed by the EU.

The instrument was laid by Lord Frost following the affirmative procedure in exercise of the powers provided for in the European Union (Future Relationship) Act 2020. Those powers allow Ministers to make amendments that they consider appropriate in pursuit of coherence and clarity following the legal revision process envisioned by the Trade and Cooperation Agreement.

[Gareth Thomas]

On the Minister’s point about the need for coherence and clarity, can she explain to the Committee whether the statutory instrument will in any way reduce the extra red tape that the TCA created for businesses, particularly those businesses, say in England, which want to trade with Northern Ireland?

[Penny Mordaunt]

I refer the hon. Gentleman to the debate that took place last week on the Northern Ireland protocol and, indeed, many other such debates that we have had, which are focused on the solutions that we are putting forward to deal with friction—unnecessary friction, as we see it. He will know that many things are going on to address those issues, particularly in relation to trade between Northern Ireland and the rest of the UK, and he will know that we expect further information about that before the summer recess. Again, I can appreciate why he might want to liven up the debate by talking about other issues, but we are making some very technical amendments that do not affect policy in any way. Largely, they are about the numbering of particular articles; he will appreciate the complexity and the flux when producing the innards of the agreement.

I draw the Committee’s attention to the use of the affirmative procedure, which allows colleagues in the House and in the other place, in their respective debates, to scrutinise the instrument and the background to it, which I will now set out. The trade and cooperation agreement, along with the security of information agreement and the nuclear cooperation agreement, was provisionally applied from 23:00 hours on 31 December 2020, in time for the end of the transition period, pending ratification. The Government subsequently agreed to the European Union’s request to extend the original period of provisional application to 30 April 2021, to give it more time to complete those processes. The EU completed the processes before the end of April, and the agreements therefore came into force on 1 May.

Due to the short time available between concluding negotiations and the end of the transition period, it was not possible to complete the necessary legal revision processes before the agreements were provisionally applied on 31 December. Instead, the agreements have since undergone a final process of legal revision. That legal revision process is provided for by article FINPROV.9, now article 780, of the trade and cooperation agreement. The processes identified typographical and other errors in the trade and cooperation agreement, which were corrected, and the articles were renumbered from article 1 through to 783.

I must make it clear that the substance and policy content of the agreement has not changed. Following the legal revision to the trade and cooperation agreement, some of the corresponding numbering and references to the European Union (Future Relationship) Act 2020 must be updated, and that is what this statutory instrument seeks to achieve. The instrument is required to update references in the Act, including numbering and annexes, to ensure that it matches what is contained in the revised trade and co-operation agreement.

It is vital that businesses and citizens are clear about their legal status and obligations. This instrument provides clarity and will allow businesses and citizens to pursue the opportunities of our agreement with confidence. I am sure that hon. Members will have questions about the extent of the changes that this instrument makes. I can confirm that the main changes to the European Union (Future Relationship) Act 2020 as a result of this instrument are the renumbering of the articles and the correction of cross-references to the trade and cooperation agreement in the Act. For example, in section 15(2)(a) of the Act, “Article TBT.9” will now become “Article 96”, to reflect the legally revised version of the trade and cooperation agreement. I will spare hon. Members of further examples, but there are many.

There was engagement with the devolved Administrations prior to the laying of the instrument, and they are content. I am grateful for the opportunity to note our thanks to them for their co-operation on this and, indeed, the wider body of secondary legislation delivered in the past year, carefully ending the transition period. I hope I have provided some helpful background to the instrument and that all members of the Committee agree that it performs a simple but important role in ensuring the certainty and clarity that citizens expect from our statute book.

[Gareth Thomas]

Let me endorse the fact that it is a privilege to serve under your chairmanship, Sir Edward, for this debate on the statutory instrument. Certainly, at first glance, the instrument does not appear particularly contentious, and unless something quite shocking crops up during our debate, we will not try to block its passage. It appears at first glance to be a correction of some 20-plus references in the 2020 Act to the trade and cooperation agreement, although it prompts a number of what I hope the Minister recognises are gentle questions and concerns.

If the Government could not even do a technical revision before the agreement came into force and ensure that the implementing legislation was final, how on earth could they expect businesses to understand the deal and adapt to a new trading relationship, especially as the Government themselves had admitted that the document was signed too late to allow the lawyers to take a proper look at it? That raises another gentle concern about the instrument and the manner of its being required. This seems to be another example of the Government not properly checking the deals that they have signed. Sadly, there is a growing number of such examples.

Let us take the freeports blunder, when the Department for International Trade accidentally ruled out some £35 billion-worth of exports from tariff-free trade for England’s eight new freeports because it included the duty drawback prohibition clauses from those roll-over deals. Then there is of course the Prime Minister’s new yacht. He obviously had had the ambition that only British shipbuilders would bid to make it, yet once again, because Ministers at the Department for International Trade failed to exclude the construction of civilian ships from the list of those contracts that must be open to global competition when it signed the World Trade Organisation’s Government procurement agreement last October, there appear to be some concerns. Imagine, Sir Edward, if—God forbid—the French should win the contract to build the Prime Minister’s new super-yacht because of the failure of the Department for International Trade.

I raised earlier the example of the UK-Ukraine trade deal, which is one of the most sensitive post-Brexit agreements; indeed, it is the only roll-over deal signed by the Prime Minister. As I said in my intervention on the Minister, some of the errors apparently bind the UK to EU rules. Given all the Government’s talk of not wanting to be bound by EU rules, you might have thought, Sir Edward, that Ministers would have checked that part of the agreement particularly carefully.

Then there is the Minister’s own boss, who negotiated the Northern Ireland protocol, admitting that some companies in Great Britain have found it “too much trouble” to trade with Northern Ireland and that he had not fully foreseen the “chilling effect” of the punishing new red tape, which has left many smaller firms facing higher costs.

There is, too, the sense that the statutory instrument represents a bit of a missed opportunity. Ministers could have used it to build on the deal that was done so late and so badly. Perhaps the Minister will give us some clue about where negotiations with Brussels are on a veterinary agreement, for example. Is Lord Frost still determined to reject the EU offer on a veterinary agreement, because it would—apparently—prevent Britain from joining the comprehensive and progressive agreement for trans-Pacific partnership?

I ask that question in the context of the growing concern about the scale of difficulties that British exporters have faced with post-Brexit red tape and disruption at the UK-EU border, particularly around sanitary and phytosanitary controls. That has led to many businesses and their representatives arguing publicly for a veterinary agreement with the EU. Once the Minister has reflected on the debate, I wonder whether she might be willing to acknowledge privately, if not to the Committee now, that some of the other key trade deals that the Government have done are not quite as important as the trade deal that we are discussing today. According to the very best case scenario, the Australia deal will be worth just 0.025% of UK GDP over the next 15 years—and, of course, along the way it will do huge damage to farming, particularly in Scotland and in Wales.

The International Trade Secretary’s top deal, the CPTPP, looks set to yield, at best—again, this is according to independent forecasters—only very marginal economic benefits. Surely, improving the poor deal under discussion, which was so badly negotiated by Ministers, is key to our country’s future economic prospects. How will Ministers help not only musicians and those young people who want to be guides in the ski resorts of our European allies, but, crucially, those in financial service businesses, architects, interpreters, IT installers, management consultants and business traders whose jobs have been made that bit harder and are potentially on the line because Ministers would not do a visa-free trade deal with the European Union?

It is a privilege to have the chance to debate the statutory instrument, but it would not have been necessary if Ministers had negotiated a better deal. Sadly, that reflects a growing pattern of mistakes, particularly by the Department for International Trade in negotiating trade deals. One hopes, for the sake of businesses and jobs in our country, that the Government’s performance improves significantly after the recess. None the less, we will not oppose the instrument.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)

Gareth Thomas Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

[Gareth Thomas (Harrow West) (Lab/Co-op)]

[Mr McFadden]

--- Later in debate ---

The final point covered by the amendment is the question of any limitations on taxpayer exposure.

[Gareth Thomas]

[Mr McFadden]

[Peter Grant (Glenrothes) (SNP)]

[Gareth Thomas]

[Peter Grant]

[Gareth Thomas]

[John Glen]

--- Later in debate ---

[Mr McFadden]

[Gareth Thomas]

[Mr McFadden]

[Peter Grant]

[Gareth Thomas]

[The Chair]

[Gareth Thomas]

[The Chair]

--- Later in debate ---

Finally, another court judgment could change things again, if it were to rule differently and the lawyers then pointed to a number of additional issues related to the ruling that had not yet been clarified. As a result, the pensions sector is still having to work under a degree of uncertainty, and obviously it is a central principle of any wise policy to try to reduce uncertainty. I hope that a report could to some extent alleviate that uncertainty. I appreciate that it would not completely resolve it, but it might be of assistance to businesses in the sector that are providing the services that we value so much, so I hope that the Minister will consider our amendment.

[Gareth Thomas]

[The Chair]

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)

Gareth Thomas Excerpts

Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

Thank you for your guidance, Ms Ghani. Later, I will move amendment 2 and, with your help, my hon. Friend the Member for Reading East will move amendments 3, 5 and 6, which stand in the Opposition’s name.

Amendment 1 relates to the first clause of the Bill, which deals with the compensation scheme relating to the collapse of London Capital & Finance and which is based on the report published by Dame Elizabeth Gloster, on which we took oral evidence this morning.

Clause 1 enables a very significant Government decision to step in and compensate people for the collapse of an investment firm. The estimated cost given by the Treasury for that decision is about £120 million. As the Minister pointed out on Second Reading, it is rare that the Government do that. He told us that there have been only two other cases in recent decades—Barlow Clowes and Equitable Life—and even those decisions did not always bring matters to a close. With Equitable Life, some investors around the country remain dissatisfied with the levels of compensation that have been paid out. There is an all-party parliamentary group in this House, and we have my indefatigable hon. Friend the Member for Harrow West, who has led at least one debate, if not more, on these issues, on the Committee. Such decisions do not always bring the matter to a close.

The focus of the amendment is to try to bring some clarity to Parliament and the public about when the taxpayer should be on the hook for an investment collapse, and when not. This issue was raised in oral evidence this morning by the hon. Member for North East Bedfordshire. He used the well-known phrase “caveat emptor”, or “buyer beware”, which applies those who may buy investment products. The trouble at the heart of this case is that the investors did not think they were making a particularly risky decision. LCF sold mini-bonds on the basis of a guaranteed investment return. When those who suspected something might be wrong phoned the FCA, time after time they were reassured that nothing was wrong. To quote one of the FCA’s call handlers, “This is not a scam”. While the hon. Gentleman was right to raise the principle of caveat emptor, how can we blame the investors if the very regulator looking after the thing was reassuring them that there was nothing to be concerned about?

The Government have judged the level of regulatory failure to be so exceptional and egregious that they have decided that the taxpayer has a responsibility to compensate, or as it is sometimes put, to socialise the losses. The level of compensation set by the Government is 80% of the maximum level allowed by the Financial Services Compensation Fund. That maximum is £85,000, so 80% leaves investors with a maximum pay-out of about £68,000.

There is debate about that 80%. Members of the Committee will have been sent written evidence from various LCF investors who think that level is too low. They do not understand why they have been asked to forfeit 20% of their investment because of what the Government acknowledge to be a particularly egregious regulatory failure. The Government will have to debate that. Their justification for any compensation at all is that LCF is a unique case. Both Ministers spelled that out on Second Reading last week. In his opening speech, the Pensions Minister said:

“While other mini-bond firms have failed, LCF is the only mini-bond firm that was authorised by the FCA and sold bonds in order to on-lend to other companies.”

He went on to say:

“It is…important to emphasise that the circumstances surrounding LCF are unique and exceptional, and the Government cannot and should not be expected to stand behind every failed investment firm.”—[Official Report, 8 June 2021; Vol. 696, c. 905.]

We agree, and that is precisely what the amendment is about: to try to get some clarity on the Government’s thinking when the degree of regulatory failure is so exceptional that it warrants the taxpayer picking up the bill. When that is not the case, whatever losses there may be should be regarded as normal investment market failings.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

My right hon. Friend rightly sets out the scale of regulatory failure. Does he think that one of the other potentially unique circumstances of this case is the apparent legislative lacuna about who had the responsibility for regulating mini-bonds? Dame Elizabeth Gloster set out that, on the one hand, the FCA said it should be Her Majesty’s Revenue and Customs; HMRC was equally clear that it thought it should be the FCA. We do not know whether that legislative lacuna has yet been sorted. Does my right hon. Friend think that was also a factor in the Government’s decision to compensate to the scale they have?

[Mr McFadden]

My hon. Friend is right; the lacuna referred to in the report relates particularly to the allocation of ISA status. We asked Dame Elizabeth about that during the oral evidence session this morning. This is important because if there are two things that gave the mini-bonds the stamp of respectability, it would be that prominent in LCF’s advertising was the statement that it was regulated by the FCA, which at firm level was true but was not true of the mini-bonds being sold, and that they could be placed inside an ISA wrapper. Although it is, of course, true that people who invest in ISAs can lose money, for understandable reasons, the ISA wrapper has a certain cachet and a note of respectability.

Dame Elizabeth confirmed during oral evidence this morning that once the ISA wrapper status was allocated in 2017, the degree of investment in those mini-bonds rose markedly, because people would have thought they were investing in something safe. The adverts spoke, in fact, of a 100% record in paying out, when what we were really dealing with was a pyramid scheme where any pay-outs that did come came from other investors and not normal market returns. People thought they were investing in a safe bond. They did not think they were playing investment roulette.

The Economic Secretary also emphasised the uniqueness of the LCF case in his closing speech on Second Reading. He said:

“LCF is unique in that regard; indeed, it is the only mini-bond issuer that was authorised by the FCA and that sold bonds to on-lend to other companies.”—[Official Report, 8 June 2021; Vol. 696, c. 918.]

That is an exact replica, with both Ministers saying the same thing, and I suspect that that phrase has been very carefully honed inside the Treasury. A case had to be made for the uniqueness of this that could not be applied to other investment failures, so I think that form of words is very carefully chosen. However, the Minister may be able to tell us more when he responds.

The amendment is designed to tease out the following point, which I want to clarify with the Minister. Is it the case that even though a number of mini-bond issuers have collapsed in recent years, LCF is the only one that was authorised and regulated by the FCA? The Minister can intervene now or I am happy to wait. As I said to the Ministers on Second Reading, there must have been a discussion in the Treasury about developing a compensation scheme such as the one set out in clause 1. The question would have been asked: if we did this for LCF, what about investors in the Connaught fund or Blackmore Bond or any of the other investment schemes that were raised either on Second Reading or during the oral evidence session this morning? What was the nature of those discussions at the Treasury and what is it about LCF that makes the Government convinced that compensation is due in this case but not in the others? That is why our amendment calls for a report. Having taken the decision to compensate, we believe it would be in the public interest for the Treasury to set out the circumstances under which the taxpayer might be expected to pay when investors lose money. Is it about a firm being authorised by the FCA? Is it about commissioning a report by an eminent and independent figure such as Dame Elizabeth Gloster?

--- Later in debate ---

The final point covered by the amendment is the question of any limitations on taxpayer exposure.

[Gareth Thomas]

My right hon. Friend is understandably concerned to protect the taxpayer’s interest. Is there not also another dimension as to why the report he seeks is worthwhile? If there is regulatory failure by the FCA in other ways, and not just in the handling of investors’ resources, and if there is no chance of the Government stepping in and offering compensation for that failure, then, for example, if a big financial services company that was not properly regulated by the FCA were to be demutualised, would there not be a reason to offer compensation? Or, if not, would that let the FCA off the hook?

[Mr McFadden]

My hon. Friend raises a very important point. There are many reasons why clarity about the limitations of Government responsibility and taxpayer responsibility, to put it another way, would be extremely helpful. The very fact of producing the Bill will mean that the Government have asked those questions anyway. As I said earlier, the cost in this case is expected to be about £120 million. The costs of clause 2, which we will come to later, are expected to be over £300 million. Over both clauses the cost will therefore be more than £400 million. That is a large sum of public money that will, in the case of clause 2, be recouped over a period of years from pension scheme members.

Of course, it is possible to have investment failings on an even greater scale. Is there any upper limit that the Treasury would see to such taxpayer exposure, or is it always to be on a case-by-case basis? In theory, investment failings could cost billions rather than hundreds of millions. Our amendment seeks to clarify the Government’s thinking on that, which would be beneficial to Parliament and the public.

Those are the reasons why we have tabled this amendment. We think that the compensation scheme and the whole story of the collapse of LCF demands such clarity and that reports such as the one we have called for would be beneficial.

[Peter Grant (Glenrothes) (SNP)]

It is a pleasure to serve under your chairship, Ms Ghani.

I shall speak to amendment 7, in my name, and in support of the official Opposition’s amendment 1.

Both amendments call for the Secretary of State to report back to Parliament on issues that collectively raise many still unanswered questions about the Bill, about the compensation scheme, and about why the scandal of London Capital & Finance was allowed to happen.

By far the biggest criticism of the Bill, which we again heard from witnesses today, is that it has been deliberately framed so narrowly that those questions are in danger of being ignored. I know that the Government will argue that framing it narrowly increases its chances of getting on to the statute book—I accept that argument—but there is a downside to doing that.

The biggest question that is still unanswered is: why do we expect compensation for the victims of one investment mis-selling scandal when so many people have lost so much—possibly a total of more than £1 billion —in other company collapses that share most, and sometimes all, of the key features of London Capital & Finance?

I should make it clear that I am not asking for the setting up of other schemes. We are not asking for approval at this stage, or for other failures to be included in the LCF scheme. All we are asking for is some clear indication that the Government are taking action to look at the wider issues.

The Government’s answer is that London Capital & Finance was regulated by the Financial Conduct Authority and that companies such as Blackmore Bond were not. That smacks of looking for an explanation to justify a decision that has been taken for a completely different reason.

Companies such as Blackmore Bond set out to make prospective investors believe that the FCA had a role in protecting their money. Investors in LCF were misled into believing that its own registration with the FCA would cover their investments. The only difference with other company failures is that investors in those companies were misled into believing that someone else’s registration would cover them—a fine point lost on investors themselves.

The Government’s explanation appear to assume that the only problem, or even the biggest problem, with London Capital & Finance was that it was a regulated company selling unregulated investments. That was certainly part of the problem, but, as the written submissions from a number of investors and as evidence this morning made clear, there were other failings and possibly deliberate malpractice within the company and some of its advisers. Other failings of regulation went well beyond those laid at the feet of the Financial Conduct Authority in relation purely to LCF. If the Government constantly remind us that the sale of mini-bonds was not regulated by the Financial Conduct Authority, surely the elephant in the room is: why on earth not?

The Government will, I know, refer to the principle of caveat emptor. It is correct that anyone making an investment has a responsibility to ensure that the investment meets their needs, but there are hundreds—possibly thousands—of examples in UK regulation where we regulate the market but it is not realistic or fair to expect the emptor to caveat.

We do not expect people to do their own personal survey of a house to make sure it is safe before they buy it. We do not expect people to check the brakes on the bus before buying a ticket. We have regulation to protect public safety, on food standards, on product safety and on a number of financial transactions. It is perfectly possible for the Government to start to look at regulating these investments in future and compensating ordinary men, women and sometimes children who have lost sums that, individually, are not significant to the FCA but are massively significant to their plans for retirement, for paying to support their children at university or for ever.

We must make it clear that we are not asking the Government to approve compensation for every company failure. We are not asking them even to consider the implications of doing that. We are asking them to look specifically at cases where there is clear evidence of the mis-selling of investments, usually to people who the seller knew perfectly well were not suited to that investment. That has been a characteristic of all the cases we have looked at today.

[Gareth Thomas]

I am particularly drawn to proposed subsection 5(b) of amendment 7. I wonder whether the hon. Gentleman shares my view that one measure the Government need to require of the FCA in the future, to prevent further such regulatory failures, is for it to take a more hands-on approach when customers get in contact to raise concerns about particular businesses; and to make it a point of principle that, when a significant number of customers raise concerns about the activities of a firm, the FCA might actually try to meet some of those customers, rather than, as appears to be the case at the moment, only bothering to meet representatives of the board and management of said firm.

[Peter Grant]

The hon. Gentleman makes a valid point. A lot of the issues he raises are covered in Dame Elizabeth Gloster’s report and recommendations. She even pointed out today that possibly the single biggest failing—certainly one of the biggest failings—was that the Financial Conduct Authority had too restrictive a view of its purpose in regulating the market.

I have to say that it is not only the Financial Conduct Authority that has failed to regulate. What was the registrar of companies at Companies House doing when they got a copy of the audited accounts of Blackmore Bond—the only copy that was ever submitted by that entire group—in which it said, in so many words, that in order to pay the guaranteed interest on money it had already received from investors, it had to keep on getting more and more new investors? It was effectively a Ponzi scheme in all but name. The auditors made similar comments on the accounts but did not seem to be under any obligation or duty to do anything else. Nobody at Companies House, or the registrar of companies, appears to have been under any responsibility to look at the documents submitted to spot the danger signs; nobody anywhere seems to have been responsible for that. Although the Financial Conduct Authority has been rightly and severely criticised for its failure to regulate London Capital & Finance, we are talking about a much wider failure of the regulatory regime. Maybe one of the biggest difficulties is that there are so many people who might be involved and they are quite happy to point fingers at one another, saying that they should be responsible.

I realise I am in danger of wandering off the narrow scope of the Bill. We cannot amend the Bill to set up a more comprehensive compensation scheme just now because of the way it is framed; we cannot even amend it to set up a framework so that the Secretary of State, through statutory instrument, could extend it in the future. However, we can ask the Secretary of State to explain to Parliament not only what the Government are doing to help the victims of this one scandal but what lessons they have learned and what they are doing to make sure these scandals cannot be repeated. I hope the words of the witnesses from the Transparency Task Force this morning are ringing in all our ears. They believe they have evidence that there are other scandals like LCF happening right now and that it is just a matter of time before they collapse and leave yet more investors out of pocket.

Finally, why is it that the Government need to be called to account and asked to explain to Parliament why it is that, while they are supporting the victims of LCF, they are doing nothing to help the thousands of other victims of other scandals that have already come home to roost? For those victims, improvement in regulation alone is far too late.

[Gareth Thomas]

I do not intend to detain the Committee long, because my right hon. Friend the Member for Wolverhampton South East made an excellent speech on this issue; I merely want to underline the point that I made in when intervening on him. There seems to be a degree of risk in the Government’s approach. Again, it would be good to hear from the Minister to better understand why the level of regulatory failure in this particular case should merit Government compensation, whereas if there were to be regulatory failure in, say, the case of the FCA’s handling of the demutualisation of Liverpool Victoria, that would not merit compensation for the 1 million-plus customers and owners of that financial services business.

I also underline the point that I made when intervening on the hon. Member for Glenrothes, who speaks for the Scottish National party, on the need of the FCA to perhaps rethink its approach to consumers more generally. At least one of the regulators in the financial services business case that I have particularly been following—that of Liverpool Victoria—has met representatives of that organisation some 35-plus times but has not met consumers at all. That seems to be an example of the FCA continuing not to have properly thought through where it might need to change its practices going forward. I know the Minister will be looking at this issue, and I gently encourage him to focus particularly on that aspect of the regulatory failure.

My right hon. Friend the Member for Wolverhampton South East underlined the point in Dame Elizabeth Gloster’s report that there have been 600 phone calls from customers about LCF’s poor performance, yet that still did not seem to spur on the FCA to take action quickly. There are almost 10 times as many consumers who are members of Liverpool Victoria as those who invested in LCF, which surely further underlines the need to get right how the FCA handles the consumer interests going forward. I look forward to the Minister’s answers.

--- Later in debate ---

[Mr McFadden]

I beg to move amendment 2, in clause 1, page 1, line 15, at end insert—

“(3A) Within six months of this Act receiving Royal Assent, the Secretary of State shall lay before Parliament a report setting out progress on the implementation of the recommendations in pages 47 to 49 of the Gloster Report.”

This amendment would require the Secretary of State to lay before Parliament a report setting out progress on the implementations of the thirteen recommendations in the Gloster Report.

Amendment 2 concerns the recommendations made in Dame Elizabeth’s report. It is a long report, but I am specifically referring to the series of conclusions and recommendations made on pages 47 to 49. As the Minister said a few moments ago, some of those recommendations are for the FCA and others are for the Government. We heard Dame Elizabeth say this morning that if she reached one overall conclusion that she wanted us to understand, it would be about the degree of culture change necessary for the FCA to fulfil its statutory duties. The fact that she judged that the culture that existed was so inappropriate that it stopped the FCA from doing its statutory job effectively is a serious charge. It is, after all, the body that we depend on to uphold the consumer interest and charged with ensuring proper conduct in the sale and provision of financial services. I do not need to tell anybody on the Committee how important those are, either to everyday life or to the UK economy.

One of the most telling parts of Dame Elizabeth’s report is when she discusses the loss of a letter sent to the FCA by a financial adviser called Neil Liversidge in November 2015, fully three years before the collapse of LCF. The letter warned in fairly graphic language, some of which I read out on Second Reading, what was going on at LCF and the financial adviser’s concern. Dame Elizabeth’s damning conclusion is that even if the letter had not been lost in the FCA, which appears to be what happened, so dysfunctional was the FCA that it would not have done anything about it anyway. She says on page 78 of the report:

“it is unlikely that it would have resulted in any”

action by the FCA. She found that degree of dysfunctionality to be deep and in need of urgent attention, as set out in the recommendations.

Every time there is a public failing, we hear some familiar things being said. In fact, we could almost play word bingo with them. People talk about lessons learned and new systems being put in place, and sometimes there is change of leadership or a change of the management team—all those things. In the report, there was a very well publicised disagreement about the nature of accountability and responsibility involving Dame Elizabeth and the now Governor of the Bank of England, who led the FCA at the time. That was all played out in front of the Treasury Committee over several hearings early this year. I want to focus on the 13 specific recommendations on pages 47 to 49. I am not going to go through them in huge detail, but I will mention a few.

The first recommendation is the desire to treat the regulation of companies holistically; that is, to deal with the halo effect of regulated companies selling unregulated products. That was at the very heart of the regulatory failures over LCF. It was a big part of why the many phone calls to the FCA alerting staff to investor fears about what was going on went unheeded. Indeed, Dame Elizabeth’s report records many instances where calls were not acted on because the mini-bonds concerned were not regulated. There is a whole annex containing the transcripts and I will not delay the Committee with them at the moment, but they are all set out in the report.

The failure to act exposed a major weakness in the FCA’s approach. Even if staff could tick a box that said that a phone call was about something that it did not regulate, the FCA was still on the hook at the end of the day if the firm failed, as the Bill now shows. The recommendation therefore requires a major change in how the FCA thinks about unregulated products.

The next two recommendations are about how the FCA deals with information passed on to it and how it is shared. Again, they highlight a failing in how the LCF information was handled. As we have said, the financial promotions team intervened several times to warn the company about the misleading nature of its promotions as it kept saying that it was regulated by the FCA. However, the financial promotions team did not escalate this information to other parts of the organisation that could have taken action.

The fifth recommendation deals with the financial promotion rules and what to do about breaches when red flags should be raised. Page 49 highlights recommendations more for the Treasury than the FCA. As we discussed a moment ago, the first of those deals with what Dame Elizabeth calls a lacuna in the allocation of the ISA-related responsibilities between the FCA and HMRC. The Minister referred to a working group—I think that is the phrase that he used—and I hope it reaches a conclusion quickly. Such a response is common in the catastrophe word bingo that we often hear. A working group is okay, but it has to deal with the lacuna that has been identified.

Just saying that something is regulated by the FCA gives it an aura of safety and respectability and so does saying that about investments in an ISA wrapper. As the report says, once ISA status was granted to these mini-bonds, investment in them grew markedly. Putting money into an ISA is thought to be a responsible thing to do. People believe that those operating ISAs are respectable companies and not those engaged in what are, in effect, pyramid selling schemes like the one that LCF was operating. That is why this issue is particularly important.

Recommendation 12 is about the optimal remit of the FCA. That matters because the failure of LCF sits so squarely on the boundary of regulated companies selling unregulated products. The FCA’s remit is known in the parlance as the perimeter. The Minister gave evidence to the Treasury Committee a few months ago and he said it was not an issue about the perimeter, but about the failure to use the enforcement and supervision powers that the FCA already had. I understand what he means by that. He is saying that if the FCA had acted on the reports that it had received, a great deal less damage would have been done and the taxpayer would not be faced with the compensation bill set out in the Bill. Even though I understand the point he made, the perimeter is still relevant because it informed attitudes inside the FCA on how alarmed it should be about calls reporting concerns about LCF and whether it should act. That behaviour was influenced by the fact that the calls were about products that were not regulated.

How should the Government and the FCA respond to the issue of regulated companies and unregulated products? In theory, one response could be to say that regulated companies can only sell regulated products, but that would involve a major extension of regulation. That is not to say that that is necessarily wrong, but it would be a big step. For example, foreign exchange trading is not regulated but it is carried out by every high street bank in the country and they are, of course, regulated entities.

If the answer is not a major extension of regulatory responsibilities, what is it? Is it the Government’s position that there is no need to look at this because this was such a one-off event that cannot be repeated? How can we be sure of that? We asked the FCA this morning whether this could happen again and, understandably, the witness from the FCA said that he could not tell us for sure that it could not.

[Gareth Thomas]

My right hon. Friend is rightly dwelling on the issue of the perimeter. May I give him another scenario that suggests that there might still be reasons to be concerned about whether the FCA has got the perimeter point in Dame Elizabeth Gloster’s report? Let us imagine that the FCA had investigated a financial services business that was recommending one thing to its customers but only 12 months later was doing the complete reverse. The FCA, having looked at it initially, says, “We’ve looked at it already. We’re putting a perimeter around that. We’re not going to consider what happened 12 months before in the context of this decision.” Were that to be a live situation, would it not suggest that the FCA had not grasped the perimeter point that Dame Elizabeth Gloster was making?

[Mr McFadden]

My hon. Friend makes a very strong point. The question of the perimeter is inescapable. One of Dame Elizabeth’s recommendations is that the Government consider the FCA’s remit, and the Government have said that they accept all her recommendations. The Minister said in his evidence to the Select Committee that this cannot be pinned on the perimeter, as it were, but as a conclusion of what has happened the perimeter must be considered. The Government have accepted that.

One way to deal with this is to say that regulated firms and regulated products must be brought together—I shall be grateful for the Minister’s response on that—but if that is not deemed to be the right response how will the question of the remit and the perimeter be responded to? At the heart of this failure is the halo effect of a regulated firm selling unregulated products.

Recommendation 13 is about ensuring that the legislative framework keeps pace with the sale of products through technology platforms. This field of activity is growing daily. It is driven by technological innovation—the movement of more and more activity online—and perhaps by the increased time people have had during the lockdowns to invest online. I do not want to try your patience, Ms Ghani, by delving too deeply into that today, but I think that this issue will occupy the House and this Minister in particular over the next couple of years. We will have to return to it again and again in the House, but recommendation 13 is precisely about legislation on selling things through technological platforms, and the Government and the FCA will have to adapt to it or they will fall behind the reality of the market and of financial crime.

Most of these issues have been put in the hands of the new chief executive, Nikhil Rathi, and the trans-formation programme to which the Minister referred on Second Reading. How are we to know that the 13 recommendations have been implemented? It is easy when a report is published to say, “We accept the findings.” The key is: are they followed through and properly implemented?

Dame Elizabeth’s report should be more than a series of individual recommendations. As she said this morning, it should result in a culture change. Much more communication needs to take place between different parts of the FCA while, crucially, not dropping the ball on regulated firms and unregulated products.

It is unfair of any of us, in government or in opposition, to load more responsibilities on to the FCA if it does not have the resources to fulfil them. We are clear in our amendment that the resources of the FCA have to be covered. Does the FCA have the resources to meet the ever-expanding list of responsibilities, including those on-shored as a result of our departure from the EU? It is funded through a levy on the sectors for which it is responsible. Is the levy giving it enough resources?

The failure of LCF exposed such a degree of dysfunctionality that it prompted the question: can the FCA really do its job? If not, the Government have to act because the public need the protection of a powerful regulator. The imbalance of information between the sellers of financial services products and the buyers absolutely demands that. This amendment is aimed at our receiving a report on the 13 recommendations and on their implementation by both the FCA and the Treasury. Its acceptance would provide Parliament and the public with a mechanism to ensure that statements saying that the recommendations had been accepted had actually been followed through and action taken.

[Peter Grant]

I am pleased to speak in support of the amendment. There are two questions if the Government wish to reject it. Assuming that no one has any objection to the idea that somebody should keep an eye on what the Government are doing in response to the Gloster report—that would be a good idea—the questions are who should they report back to and when should they report back. Their response to those questions might provide the only grounds on which they could object to the amendment.

There can be no doubt that the Government must report back to the House of Commons and to Parliament. I know I might not look it—perhaps I do—but I am old enough to remember cases like Polly Peck, one of the great corporate scandals of earlier generations. In response to that, we had the Cadbury report that, in effect, invented the concept of corporate governance. It seems obvious now, but one of the key principles that came out of the report is that once the directors who are supposed to be in charge of a company have taken a decision for something to happen, they cannot just walk away. They have to put a process in place by which they, as the directors, individually and personally, can be satisfied that what they say should happen does happen.

The House of Commons in the UK Parliament is not a board of directors as such, but we still have to take responsibility—all 650 of us, individually and collectively—for making sure that, having had assurances from the Government that they will act either directly or indirectly through agencies such as the FCA, they will do things to sort out a £1 billion scandal. We are the ones who ultimately have to hold them to account for that.

I am not saying that a report or a statement to Parliament is the best possible way of holding the Government to account. Frankly, it is a joke of a holding to account, but it is the best that we are allowed in this place. That is why it is included in many of our amendments. Any argument from the Government that any way of reporting back on such vital recommendations that is anything less than regular statements to the full House of Commons and making themselves available to take questions from, if we are lucky, just 5% of all elected MPs, is just not acceptable.

Secondly, when should the Government report back? That is why I made a point of asking Dame Elizabeth whether six months from now—12 months from the original recommendations—is a reasonable time in which to expect significant progress. Dame Elizabeth made it clear that she cannot tell us about parliamentary procedure and all the rest of it, and I accept that. However, her view was clear that, in six months from now, it would be reasonable to expect there to be significant progress on a significant number of the recommendations. At that point, the House of Commons should get a report back from the Minister to explain what has happened and if it has not happened yet, when it will happen. Most importantly, he will explain why what has not happened has not happened. We have had far too many examples of Ministers giving assurances in good faith but of things not happening or, if they did happen, of their taking far longer than they should have done.

Time matters. None of us knows whether there is another London Capital & Finance already happening, and we heard from witnesses who are convinced that it is. There could be another Blackmore Bond, Basset & Gold or you name the corporate investment mis-selling scandal. It could be happening again right now. We do not know how many of them are on the go just now already swallowing up people’s pensions and savings. If the Minister is not prepared to commit to giving an update within six months, will he tell us what timescale he thinks is reasonable for us to expect real change? “In due course” is just not good enough for people who might be losing their investments now even while we dither and dally about what to do next.

[Gareth Thomas]

I rise to support amendment 2, in the name of my right hon. Friend the Member for Wolverhampton South East. I share some of the frustration that the hon. Member for Glenrothes aired: this is the only route available to the Opposition to signal to the Government and the FCA the need to provide a continuing update on their progress in implementing the lessons that have been learned from the LCF scandal. My right hon. Friend the Member for Wolverhampton South East went through some of the many issues and recommendations that Dame Elizabeth Gloster’s report highlighted, but let me pick out five in particular.

First, the FCA failed to consider LCF holistically. Indeed, as my right hon. Friend pointed out, we got Dame Elizabeth to emphasise again in the evidence session today that the most significant issue was a very restricted approach to the regulatory perimeter. I will come back to that point.

Secondly, the FCA’s policy documents were unclear on the handling of key questions. Thirdly, its staff had not been trained sufficiently in various key and crucial matters. Fourthly, there was a series of gaps in the law that needed fixing in order to enable proper regulation. Fifthly, the issue that my right hon. Friend touched on last was the FCA’s scope and capacity to intervene effectively on consumers’ behalf—did it have sufficient powers?

Let me turn to the first of those concerns—the restricted approach to the regulatory perimeter and whether the FCA has learned to consider issues to do with consumers holistically. The example that I gave when I intervened on my right hon. Friend was that of a financial service business that has recommended to its customers something that the FCA has approved, only for it to come down the line, 12 months later, and suggest the reverse approach. That is effectively what is happening in the case of Liverpool Victoria. I do not want to test your patience too much, Ms Ghani, but let me clarify that example very briefly.

Liverpool Victoria converted to a company limited by guarantee from a friendly society two years ago. The FCA looked at it—

[The Chair]

I am curious as to how the hon. Gentleman will keep this in scope, but I am listening attentively.

[Gareth Thomas]

I am grateful for your patience, Ms Ghani, and I will not test it much more.

The FCA looked at that two years ago and approved it. Crucially, at the time, the chair and the leadership of LV said, “This has got nothing to do with demutualisation.” Where the regulatory perimeter issue comes in is that the FCA will not look at what happened two years ago in the context of what Liverpool Victoria is now trying to do. It is surely legitimate to be concerned about Dame Elizabeth Gloster’s crucial finding that the FCA had not worked out a way to handle decisions being taken by businesses holistically. That has not been properly grasped, and I gently suggest that Liverpool Victoria is the key evidence in that respect.

On the question of the FCA’s policy documents, the way they were used by staff, and whether they were appropriate to LCF’s challenges, they clearly were not up to the job, but at least there was a policy document. In the case of Liverpool Victoria, there does not appear to be any policy document on the FCA’s handling of the demutualisation. That raises a bunch of serious questions, albeit not within the scope of our conversations today.

Clearly, there is a question as to whether staff have been trained appropriately to handle the 600-plus phone calls that customers of LCF made to the FCA, raising their concerns about the products that were on offer, and that they had invested in and were buying. Again, one would have thought that the FCA would have grasped that concern and made sure that staff were trained properly on the big issues of the day affecting the FCA.

Again, I am surprised. I use the example of Liverpool Victoria again. There has been no looking back at previous demutualisations and at how the consumers’ interest was protected in that respect. So even if the FCA has highly capable staff, as I am sure it has, given that they have not looked back, one wonders how they can possibly be trained to think through properly all the key questions.

One of the issues that I raised in an intervention on the hon. Member for Glenrothes was about the extent to which the FCA has learned from the LCF scandal that perhaps it needs not to be quite so close to the boards and management of financial services businesses. Perhaps it needs to move just a little bit more towards having a little more scepticism on behalf of the consumer.

So imagine my concern when I discovered that one of the regulators involved in handling the consumer interest in the Liverpool Victoria case has met the management of LV 35 times and not once with any consumers of the company. That would seem to suggest that they have not learned the lessons.

Lastly, I just want to suggest that there is a series of gaps in the law that need fixing. My right hon. Friend the Member for Wolverhampton South East rightly drew attention to the concern in the LCF case about who regulates mini-bonds. It is gratifying to hear that there is a working group looking at the relationship between HMRC and the FCA in this regard. However, the Minister will not be surprised to learn that I think there is a series of legislative gaps regarding how consumers are handled during the demutualisation of a major financial services business, but I would tempt your patience, Ms Ghani, were I to go down that route. Fortunately, as the all-party parliamentary group for mutuals is meeting the Minister, it will have an opportunity to go through those issues and I very much look forward to that occasion.

[The Chair]

Beautifully put, Mr Thomas. I now call the Minister to respond.

--- Later in debate ---

Finally, another court judgment could change things again, if it were to rule differently and the lawyers then pointed to a number of additional issues related to the ruling that had not yet been clarified. As a result, the pensions sector is still having to work under a degree of uncertainty, and obviously it is a central principle of any wise policy to try to reduce uncertainty. I hope that a report could to some extent alleviate that uncertainty. I appreciate that it would not completely resolve it, but it might be of assistance to businesses in the sector that are providing the services that we value so much, so I hope that the Minister will consider our amendment.

[Gareth Thomas]

On a point of order, Ms Ghani. You were very good at the end of the evidence session with the FCA to point out that the director, who was present, agreed to provide two pieces of written correspondence to me and to the whole Committee. As I understand it, that has not yet arrived. I have some sympathy for the FCA, given the timetable on which we were asking it to provide that information, but I wonder whether the Clerk might gently press the FCA for that information at some point this week.

[The Chair]

Thank you, Mr Thomas; your point of order is duly noted. I believe that the Clerk will indeed be pressing for that data as soon as possible.

Better Jobs and a Fair Deal at Work

Gareth Thomas Excerpts

Wednesday 12th May 2021 Commons Chamber

[Rishi Sunak]

The Government and I strongly believe that firing and rehiring should not be used as a negotiating tactic by companies; that is absolutely right. The hon. Gentleman will know that the Secretary of State for Business, Energy and Industrial Strategy has asked ACAS to look into this matter. It is currently doing so, and we await its findings.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Will the Chancellor of the Exchequer give way?

[Rishi Sunak]

I will make some progress.

Before I turn to the details of the Queen’s Speech, let me first update the House on the improving economic context. A year ago today, I stood at this Dispatch Box and told the House and the country that I and this Conservative Government believe in the nobility of work, and that we would stand behind Britain’s workers throughout the crisis and beyond. Judge our commitment to those values by our record. When the furlough scheme ends in September, we will have helped to pay people’s wages for a year and a half, supporting, at its peak, the jobs of almost 9 million people. We have protected the incomes of more than 2.7 million self-employed people; backed businesses to keep people in work with tens of billions of pounds of loans, grants and tax cuts; and supported the most vulnerable through the crisis with a strengthened safety net, increased funding for local authorities and public services, and help for the charity sector.

[Gareth Thomas]

I notice that the Chancellor of the Exchequer did not mention young people. Recent figures reveal that the kickstart scheme is helping only 5% of unemployed young people who were made redundant during the financial crisis. Given that there are over 600,000 young people out of work at the moment, why did the Queen’s Speech not contain more measures to help tackle youth unemployment? Did he just forget?

[Rishi Sunak]

With the greatest respect, I am only one minute into my speech, so perhaps the hon. Gentleman will forgive me for not mentioning everything in the first 30 seconds. I completely agree with him. As I have said repeatedly from this Dispatch Box, not only are jobs my highest economic priority, but I have, from the very beginning, highlighted the particular impact that this crisis has had on young people because many of them work in the sectors that are most affected, particularly in the hospitality industry, which is why the Government have taken steps to support that industry. As I will come on to say later, the kickstart scheme is a key part of our way to help those young people find work. It is one of many things we are doing, whether it is traineeships, apprenticeships or the Prime Minister’s lifetime skills guarantee, and we will continue to focus on that.

--- Later in debate ---

[Gareth Thomas (Harrow West) (Lab/Co-op)]

It is a pleasure to follow the right hon. Member for Sutton Coldfield (Mr Mitchell). I strongly share the view that the decision to move away from 0.7% of our national income being spent on development is the wrong one. Not only is it damaging for Britain’s reputation abroad and for numerous programmes such as the girls’ education programme that he highlighted, but ultimately, in the context of covid, it is self-defeating. We will not be able to be to feel secure in a world free from the risk of covid unless we help to build up other countries’ ability to fight covid. Aid is part of that solution.

Britain’s financial services industry is world leading. It generates huge wealth for our country, creates thousands of jobs and delivers considerable soft power in its wake. Hidden in plain sight in the City and beyond are financial mutuals: friendly societies, building societies, credit unions. They are like the steel girders in the Shard; they are not glamorous but their role is critical. Their savings products, life assurance, pensions, mortgages and other products are rarely beaten for value, and as a result they make a huge difference to the quality of life of so many of our constituents. They play another critical role: they keep traditional financial businesses such as banks—shareholder and investor owned—from the temptation to take ever more value from customers’ savings. The City and the financial services industry, as this House knows only too well, have seen enough stories of excessive fees, ridiculous levels of executive remuneration and excessive profit taking. Without mutuals—without that corporate diversity—the industry would be even more open to the consequences of excessive market power.

Sadly, little has changed since the Competition and Markets Authority investigated the banks back in 2016. For all the talk of challenger banks, the big banks that swallowed up all the building societies that demutualised before the financial crash still dominate. Given the obvious lack of appetite for taking on the banks, that market power will not abate any time soon, but Ministers could have used the Queen’s Speech at least to prevent the situation from getting worse. First, they could take the needs of financial mutuals even more seriously by modernising the rules by which they are governed, helping the smaller mutuals to raise capital more easily. Australia is a great case study, as the Economic Secretary is aware. Why on earth has the long-promised deregulation of credit unions not happened?

Secondly, Ministers should investigate the takeover of Liverpool Victoria. The former managing director of the Post Office, Alan Cook, now the chairman of Liverpool Victoria, is selling this 178-year-old friendly society, which was originally founded to help working people in Liverpool to avoid the Victorian scandal of a pauper’s funeral. Presumably Mr Cook expects to make millions from the deal. It is the first major demutualisation of a financial mutual since before the financial crash. Mr Cook cleverly proposed the conversion of LV= to a company limited by guarantee and got the Financial Conduct Authority to agree, all the while telling his owners—his customers—that he was not going to demutualise Liverpool Victoria. Remarkably, that is exactly what he is now proposing to do.

To be fair, the FCA did make it clear to the all-party parliamentary group on mutuals that there would be some boxes it needed to tick as the sale of LV= proceeded. Serious questions are now being asked about the FCA. It was asleep at the wheel when London Capital and Finance was collapsing, again asleep at the wheel when Greensill tottered into insolvency, and now seems determined to take sleeping tablets as a thriving, well-capitalised British success story is being handed over lock, stock and barrel to one of America’s most controversial private equity giants. I urge Ministers to take the opportunity to investigate.

I share the concerns, too, about the proposed complete overhaul of the English planning system. It will drastically reduce the role of councils and communities, such as those in my constituency, in our ability to stop inappropriate development. It will make it harder for councils to make sure that the right sorts of homes are built to the right standard and in the right sorts of places. I urge the Government to think again.

Financial and Social Emergency Support Package

Gareth Thomas Excerpts

Wednesday 25th March 2020 Commons Chamber

[Jeremy Corbyn]

It was not so long ago that I was making lengthy speeches about those subjects, and I am quite prepared to hand a copy of our manifesto over to the Government. They are already being forced to implement a great deal of it because of the crisis and because of the deficiency in public services that we exposed during the election campaign.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

On a much more granular point, a care home owner has been in touch with me to say that he is increasingly short-staffed because of infection among staff, yet he is aware of staff from overseas who have the qualifications but are unable to work because the Home Office has not moved quickly enough to allow him to give them jobs and to sort out the sponsorship requirements. Will my right hon. Friend encourage the Minister to get this issue looked at quickly by the Home Office? I will write to the Home Office, but it would be good to flag that now.

[Jeremy Corbyn]

My hon. Friend makes a very strong point. Indeed, that has been raised by my right hon. Friend the shadow Home Secretary and others on many occasions. It is absurd that we have highly skilled people in our society who are awaiting a letter from the Home Office before they are able to contribute to our society. We are talking care workers, doctors, social workers—all sorts of highly skilled people. They want to contribute to help us out, so I absolutely agree with my hon. Friend and I strongly support the view that he is putting forward to the Home Secretary.

We should also take a moment to say thank you to civil servants in the Department of Health and Social Care and other Departments. They are putting in incredibly long hours. I talk to local government workers in my local authority who are working really hard to try to ensure that the community and society are safe.

We should thank teachers who are having to go into school to ensure that there are some facilities and teaching available for the children of essential care workers, as well as for children who have very special needs. Let us value them and the work they do, and thank the National Education Union and the other teaching unions for the work that they have put in to ensure that that takes place.

Let us also thank those who deliver stuff—delivery workers, delivery riders and delivery companies, and also our postal workers—for what they do. Our postal workers suspended their industrial action—their wholly justified industrial action, I might say—to ensure that essential deliveries can carry on throughout this crisis. We should say thank you to the Communication Workers Union and to those workers for all of that.

When we talk about key workers, it is not only those I have mentioned who keep society going. On Monday, the Minister for Crime and Policing, the hon. Member for North West Hampshire (Kit Malthouse), said that

“when we emerge from the crisis…there will be a general reassessment of who is important in this country and what a ‘key worker’ means.”—[Official Report, 23 March 2020; Vol. 674, c. 15.]

He is absolutely right. We can all now see that jobs that are never celebrated are absolutely essential to keep our society going. Think of the refuse workers, the supermarket shelf stackers, the delivery drivers, the cleaners—those grades of work are often dismissed as low skilled. I ask the House: who are we least able to do without in a crisis—the refuse collector or the billionaire hedge fund manager? Who is actually doing more for our society at this very moment? Let us value people for the contribution that they make and respect the skill of the cleaner, the refuse worker, the postal delivery worker and all those others. Let us have respect for those who are part of the glue of our society. Right now, they need our help, and I hope that, as we look beyond this crisis, they will continue to get our respect, because people we respect should not be treated in the way they have been treated throughout the past decade of austerity.

Right now, we must guarantee for our NHS staff the personal protective equipment that they are crying out for. There must be no excuses: get it there and deliver it for NHS staff, care staff and all the others. Doctors have said they have had to go along to Screwfix to buy face masks. They need visors, long gloves, surgical gowns and hand sanitisers—and they need them now. It is not as if this crisis happened yesterday; the coronavirus broke out in China some months ago and has spread rapidly across the whole world. One doctor was quoted as saying:

“I feel totally abandoned. We don’t have the protective equipment that we desperately need and our children are being treated like orphans and sent off to care camps.”

NHS staff are putting themselves on the line for the rest of us; we must not let them down for a moment longer. It is a matter of their safety and the safety of their patients. For the same reasons, let us test all our NHS staff for the virus as quickly as possible. It is an absolute requirement to accelerate testing throughout the population—“test, test, test”, as Dr Tedros Adhanom Ghebreyesus, the head of the World Health Organisation, instructed us all to do quite some time ago. I pay tribute to him and the World Health Organisation for their steadfast and calm leadership during this crisis, and for pointing out that a world pandemic is going on and some countries are better able to cope with it than others.

As we look beyond this crisis, our NHS staff should be treated with respect, which means ensuring that the health service in which they work is well funded; bringing down their levels of stress, which are enormous; and ending the threat of the privatisation of their jobs and the outsourcing of services in NHS hospitals. Right now, can we ensure that our social care workers have the very best protective equipment that they need, and can we also have full testing for them? They also need financial security, an issue I raised at Prime Minister’s Question Time four weeks ago. A quarter of social care workers are on zero-hours contracts. Their job is, as we know, to travel from house to house, making contact with those often at the highest risk of death from this virus. They sometimes see 12 or more clients a day, spending time in their homes and potentially passing on the virus from one home to another and another. A lack of testing increases that danger all the time, so it is not just urgent, it is super urgent—like today, it has to be done. They need to be given the security to know that they can afford to stay off work if they have symptoms, yet none of them are included in the Chancellor’s scheme to pay 80% of wages. That must be addressed immediately. I pointed out in Prime Minister’s Question Time the situation for construction workers, and exactly the same applies to care workers.

As we look beyond the crisis, we need to learn the lesson and end the scandal of paying so little to those entrusted with the care of our loved ones. Let us end the disgrace of 1.4 million people being denied the social care that they need. Right now, the Government can give peace of mind to all self-employed and insecure workers with an income protection scheme equivalent to the one devised for employees. The Prime Minister said he would work on this very quickly, and it has to be done very, very quickly indeed; otherwise, we are all put at greater risk and danger.

Freelancers, workers on zero-hours contracts and those with no recourse to public funds still have no support. From cabbies to childminders, actors to plumbers, people are being told to do something absolutely extraordinary: to stop earning a living. Having made that demand, the Government—yes, the Government—have an awesome responsibility to ensure that these people do not fall immediately into hardship and that they are able to do what is necessary for public health.

Lloyds, HBOS and the Cranston Review

Gareth Thomas Excerpts

Tuesday 4th February 2020 Westminster Hall

[Kevin Hollinrake]

I absolutely agree with the hon. Lady. This is not just about Lloyds. A number of independent reviews have taken place, but they have been undertaken by the relevant banks. That simply cannot be right, in terms of justice for victims or their feeling that justice has been done. Justice being seen to be done is a basic principle that, it seems, the banking sector does not have to adhere to.

When the APPG was initially talking about future redress, it proposed a financial services tribunal, similar to an employment tribunal, where there would be no adverse costs, so a claim could be taken forward more easily. That would help to reduce the power imbalance between banks and businesses. A comment that came back from one of those commissioning the review on behalf of UK Finance, the banking representative organisation, was that the courts were not the right place for banking disputes to be settled. Well, they are the right place for the rest of us to settle disputes—that is what our system is built upon.

We need impartial, independent processes. I will talk about the right process for that moving forward, because there is an obvious new alternative approach we can take.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I pay tribute to the hon. Gentleman for the way in which he has championed justice for those wronged by Lloyds. He is right to describe this case as one of the worst examples of corporate abuse that many of us in this House can remember. Would he be attracted by the consumer ombudsman model? In this case it was not consumers who were primarily affected, but consumer ombudsmen in other countries—crucially, those with class action powers—can bring actions against big businesses that are guilty of the type of behaviour that the hon. Gentleman describes, on behalf of both consumers and small businesses. Would that not be a powerful addition to the regulatory field and help to hold big banks to justice?

[Kevin Hollinrake]

The hon. Gentleman makes an interesting point, although that is not a model I am familiar with. Class actions are definitely opportunities that are not well exploited the UK because of our legal system. I would be keen to talk to him further about that approach.

Within our system we have the Financial Ombudsman Service, which does not necessarily have the best reputation, although I know the hon. Gentleman is talking about something different. It is a problem that whoever is overseeing cases has to be competent and have the right understanding, because there are complex cases that take into account issues around complicated banking products. We have to ensure that the calibre of arbitration or adjudication is at the right level—I will say more about that shortly. We certainly need reform. Moving forward, we think we have a good solution, but we need to continue to improve on that.

This is not just about Lloyds. There are a number of other redress schemes for banking malpractice and mistreatment that have already been conducted by relevant banks. Banks were the principal arbiters of deciding how much compensation people were allowed to have relating to the interest rate swaps schemes and interest rate hedging products, many of which had a devastating effect on businesses. The debates that we have had about the Royal Bank of Scotland, over the past months and years, have raised similar problems about the mistreatment of small businesses. There are problems with their review process and with others, as other hon. Members have said.

I will describe cases that put that into perspective. The first person to write to me about a business banking dispute was Jon Welsby from Filey, when I first became a Member of Parliament. He showed me a huge file of evidence about his business, but the dispute came down to quite a simple problem. He had been sold a swap by Lloyds bank—they were sold by many different banks—that had had a devastating effect on the interest rates he had to pay. The amount he had to pay rose from about £5,000 a month to £17,000—perversely, as interest rates fell, as that was the way swaps worked. He was given direct losses, but he was not assessed as being due any consequential losses by the bank-led review. He was able to gather together the resources to take his claim to court. It was a £10 million claim, although I am not clear exactly how much he received, as he settled out of court. He was able to settle the claim, whereas most people cannot get the money together to take their claim to court. He had had his claim assessed by the bank and was not happy with it, but because he had the money to get to court, it was settled for a much higher figure. It cannot be right that the only people accessing justice are those with the wherewithal to get to court. Given that imbalance of power, people would need millions of pounds to take a bank to court. It is simply unfair.

The constituent of my hon. Friend the Member for Beckenham (Bob Stewart), Dean D’Eye, came to us about the RBS Global Restructuring Group scheme. He had a property development business and loans to the value of around 60%. He never missed a payment to RBS. He was sold a swap, which damaged his business, but the key moment came when money from a property sale he had made, to add cash flow to his current account, was taken away by the bank and used to reduce debt. According to Mr D’Eye, that broke the agreement and had a devastating impact on his business.

Oral Answers to Questions

Gareth Thomas Excerpts

Tuesday 2nd July 2019 Commons Chamber

[John Glen]

I acknowledge the difficult situation that my hon. Friend has in Bungay. The Government-established Payment Systems Regulator is closely monitoring developments in ATM provision and, as I said, there are mechanisms in place to intervene. I am very happy to meet him to discuss the application of those to the situation in Bungay.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Given that post offices and credit unions provide easy access to cash, is it not now time to offer business rates relief to both to enhance the provision of cash and other affordable financial services?

[John Glen]

Of course small businesses receive that relief. The Chancellor will have heard that representation for the next fiscal event, but it is not a matter that I can comment on specifically at this point.

Co-operative and Mutual Businesses

Gareth Thomas Excerpts

Thursday 27th June 2019 Commons Chamber

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I beg to move,

That this House welcomes the contribution of co-operative and mutual businesses to the UK economy; notes that they provide substantial jobs in Britain, generate significant tax revenues and involve consumers and employees in decision making; and calls on the Government to review what further steps it can take to help grow that sector.

It is a pleasure to move the motion in this, the first week of Co-operatives Fortnight. Co-operative and mutual businesses—from retail giants such as John Lewis, Nationwide and the Co-operative Group through to social enterprises, credit unions, energy co-ops, community banks, childcare co-ops, friendly insurers and housing co-operatives—offer a route map to a more democratic and fairer economy. Co-ops and mutuals exist already in every sector of the economy, from financial services to housing, food retailing, public services and sport, supplying affordable and sustainable services to consumers, providing rewarding work and strengthening community enterprise.

[Chris Elmore (Ogmore) (Lab)]

My hon. Friend has mentioned financial services. Does he agree that building societies in particular provide an excellent service on the high street? High street banks have vacated many communities en masse, but building societies are a mainstay, and are gaining more business and better understanding from consumers because they are there to support them week in, week out.

[Gareth Thomas]

That is an extremely good point. Building societies are one part of a co-op and mutual movement that already has a combined income of more than £133 billion, with assets worth many billions more. It is a serious and significant part of our economy, yet all too often Government, regulators, policy makers and thinkers dismiss its huge potential for expansion—expansion that could help to challenge wage stagnation, widening inequality and our growing environmental crisis.

Co-ops and mutuals put economic power in the hands of ordinary people, and, remarkably, those ordinary people, supported by skilful management, can be entrepreneurial, highly productive, and visionary—who knew? There are those on the right who criticise co-ops and mutuals for being some sort of left-wing throwback to the 1970s, and dangerously radical; and there are those on the hard left who think that they are not public ownership at its best, but just a front for business as usual. More generous critics take a benevolent, paternalistic approach, tolerating co-ops and mutuals until bigger, more serious players in the City or the unions enter the room.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

My hon. Friend is making an excellent start to what I am sure is going to be a great speech, but may I suggest to him that co-ops are, in fact, dangerous? They undermine the existing order, and empower people to take charge of their own lives. They are dangerous, and they should be.

--- Later in debate ---

[Gareth Thomas]

I was about to say something that I hope my hon. Friend will be able to support even more wholeheartedly. I have always believed that co-ops and mutuals are the future: that they spread wealth and power more fairly, that they strengthen British-owned business, that they provide competition and choice for consumers in a range of critical markets, that they create diversity and enterprise, that they take a long-term view, and that they are a counter to the short-termist, riskier business models loved by City editors. We in this great Chamber should surely be able to allow our communities to direct and influence the economies that surround them and on which they depend.

[Kerry McCarthy (Bristol East) (Lab)]

Will my hon. Friend join me in supporting agricultural co-operatives, which play an important role in trying to bring about more sustainable, locally connected food and farming systems? Does he share my disappointment that countries such as the Netherlands and France have far more of them than we currently have in the UK?

[Gareth Thomas]

I absolutely endorse my hon. Friend’s comments. I know that fisheries co-ops are another part of the sector in which she is interested. They, too, make a huge contribution, and could do a lot more with a little more help.

The economy is not some separate space to be run only by so-called management experts on grotesque levels of pay who can continue to ignore the rest of the country. Why should our neighbours, our friends and those we see at the school gate not have a say in how businesses and services on which they depend are run? They are allowed a say in political decision making, so why should they not be allowed a say in the businesses that they work in or depend on? Co-ops and mutuals can be life-changing and transformative, and the Government and the other Opposition parties should join Labour in committing themselves to double the size of the sector from between 4% and 5% of GDP to 10%.

The Oxo Tower on London’s South Bank was redeveloped by the enterprise Coin Street Community Builders. It now contains five floors of social housing run by Redwood Housing Co-op, subject to some of the lowest rents in the capital while being in one of London’s prime spots. Armed forces credit unions are another powerful example of the difference that co-ops can make. They were established after a long campaign by the Co-operative party, and are helping to combat the problem of payday lenders who prey on our armed forces personnel. Those are two remarkable stories, in my view, but much more is possible. Access to capital, further legislative reform, better Government funding, more Whitehall efforts to raise awareness and more expertise on the sector in the civil service are the key asks of Britain’s co-op and mutual sector.

I appreciate that finance is not an issue or problem reserved to co-ops and mutuals, but because of their different ownership models they often have real difficulty in accessing finance for expansion, and indeed for getting started. Big corporations can access large investment through debt funding or, crucially, can create capital by selling shares. Co-operatives and mutuals cannot at the moment do the latter without demutualising. Clearly we need to protect this unique governance model but also allow mutuals to issue permanent investment shares— that is to say, create indivisible reserves—which cannot be distributed to members even beyond the lifetime of the mutual. The European Union states offer this already in their mutual and co-operative legal set-ups, and a further five EU states have it in a slightly different form, yet in the UK we do not offer this route to raising significant finance for co-ops and mutuals.

Such a form of co-op and mutual share capital would offer stronger protection against demutualisation and therefore maintain and enhance corporate diversity. Above all else it would allow co-ops and mutuals to compete in the marketplace with other big businesses without one hand tied behind their back. In the UK building societies have a version of this already, called core capital deferred shares, which allows them to access capital markets without risking their mutual nature, but other financial mutuals and co-ops in the UK do not have anything like that.

Outside the EU, Desjardins in Quebec has raised more than $4 billion through this route, and Australia passed legislation on 5 April this year allowing its co-ops and mutuals to issue share capital while protecting their co-operative and mutual nature. If the Australians can do it, if most of Europe can do it, and if British building societies have it already, why should not British co-operatives and other mutuals also be allowed to raise finance in this way?

I recognise that the Minister and his officials have looked at this once already in the light of Lord Naseby’s successful Bill in the other place, and indeed my own and mutuals’ representations, but I hope he might be persuaded, particularly given that similar legislation is now on the statute book in Australia, to bring key experts in this area together with officials again to try to find a resolution to the problems that have stopped this method of raising finance being allowed in the UK. The Co-operative Group, other retail co-op societies, Co-operatives UK, friendly insurers and the Building Societies Association all support progress on this issue, and I urge the Minister, who has been sympathetic to co-operatives and mutuals in the past, to be willing to take a fresh look at this.

Britain’s co-op and mutual movement suffers from a lack of dedicated banking funds. Across Europe, dedicated mutual or co-op banks exist, are highly profitable and have been around for ages. I have long thought that the Royal Bank of Scotland could and should be converted into a mutual to help address this gap in the UK and to challenge the continuing big banking monopoly in the City. The Minister may not yet be ready to join me in making that jump, so perhaps I can ask him to explore whether the British Business Bank might begin to have a dedicated mutual growth fund to encourage the setting up of new mutuals.

Responsible Finance, an excellent organisation that champions Britain’s existing community banks, highlights the need for dedicated finance for start-up worker co-ops. There is at present an absence of patient capital or capital blended with grants to reduce investment risk for start-up worker co-ops. A dedicated fund would enable specialist co-op lenders to take a higher level of risk in this area and mean that more capital would be available.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Does my hon. Friend agree that almost all start-up businesses have difficulty in accessing finance but that, ironically, it is more difficult for co-ops, notwithstanding the fact that the survival rate of starter co-ops over five years is almost double that of other businesses? That is an anomaly that we would reasonably expect the financial services market to correct.

[Gareth Thomas]

My hon. Friend is absolutely right. I pay tribute to the work of programmes such as Co-op UK’s Hive programme, the resources that are available from Stir to Action, some of the local measures that we have seen in Manchester and Preston, and Social Investment Business’s mutual Reach Fund, but these are all relatively small-scale and need to be scaled up.

The Minister will not be surprised to hear me—and, I suspect, other hon. Members—urge the introduction of further legislative reform to help credit unions offer more services to their members and enable them to invest their members’ money in an expanded range of ways to generate a return for savers. Credit unions are the most active, responsible lenders to the poorest and most financially vulnerable and excluded people in the UK, but they are held back from doing more by outdated legislation and a digital approach to regulation by the Financial Conduct Authority.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

I declare my interest as a former director of the Staffordshire credit union, which sadly went bump because the FCA’s misunderstanding of the difference between the capital reserves we had to hold and the sustainability of our loan book meant that we could never meet its ever increasing targets and thresholds. That has left a number of former consumers unable to access even the basic banking arrangements that we offered, and I wholeheartedly agree with my hon. Friend’s comments about the way in which the FCA regulates. It needs to better understand what credit unions are, and how they differ from commercial high street banks.

[Gareth Thomas]

My hon. Friend makes a powerful point. There needs to be a significant culture change in the FCA’s approach to credit unions and other financial mutuals. I recognise that there has been some Government support—indeed, the Minister has been helpful in ensuring more support for credit unions—but wholesale reform of the objects and powers of credit unions through primary legislation, providing a clear basis for innovation and development in the sector, is overdue.

[Mr Sheerman]

I do not usually stand up for the Financial Conduct Authority, but is it not in the interesting position where the rise of digital currencies, crowdfunding and all the new opportunities opening up to co-operatives mean that we are in a challenging and innovative but quite unstable situation?

[Gareth Thomas]

My hon. Friend seems to have gone from being dangerously radical earlier to being conservative within the space of about 10 minutes. He makes a reasonable general point about the changing landscape, but I am struck by the number of credit unions that have stories to tell of their difficulties with the FCA, and I believe that the point that my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) and I have made about the need for cultural change in the FCA’s approach to mutuals is justified.

As the Association of British Credit Unions Ltd and the Building Societies Association have noted, new primary legislation for credit unions could allow them the chance to offer additional services at an affordable price in areas such as house insurance, where consumers often pay a premium if they pay on a monthly basis. Under the Credit Unions Act 1979, credit unions are permitted to offer credit to their members in the form of a loan, but the Financial Conduct Authority has taken a strict and literal view of this, limiting credit unions to offering cash loans. ABCUL and credit unions such as Plane Saver and London Mutual have noted that credit unions could provide an affordable and responsible alternative to a number of other consumer credit markets, such as secured car lending. Indeed, one credit union highlighted to me that the FCA had effectively stopped it offering an alternative to the high-cost credit that BrightHouse locks its customers into when they cannot afford to pay outright for basics such as cookers and fridges.

There should be a legal right for payroll deduction to join a credit union to be available to an employee if they desire it. I hope the Minister will ask his officials to check that every branch of the Government offers payroll deduction to join a credit union if civil servants want that facility. There should also be a requirement for the Department for Work and Pensions, local authorities and housing associations to signpost those in need to credit unions to help them avoid the payday loan companies and illegal lenders who prey on our most vulnerable people. Further help to allow credit unions to invest in new technology, so that they can provide a good digital offer, is key.

Greater understanding of the needs of the co-op and mutual sector by the civil service, and across all parts of Government, is important, and the Treasury is in a good position to facilitate such an awareness-raising effort. In Homes England, for example, a dedicated group of staff could promote and help housing co-operatives. A co-operative development agency could be tasked with promoting interest in co-ops and mutual entrepreneurialism across the country. The Treasury should be able to check that Government funding announcements do not discriminate against co-operative and mutual models. Co-op schools and energy co-ops have not been helped at key moments. Finally, why oh why are the Government not doing more to promote employee ownership trusts—a move they announced in the 2014 Budget—as a way of enabling the owners of companies to get the exit they want, realising the value of their business while securing its ethos, values and employees for the future?

The Government have sought to dispose of unwanted buildings and other land, but some of that should be allocated for sale or transfer for co-operative housing. We need more community land trusts to lock down ownership of land for those who need it most, and I will give just one example, with Armed Forces Day this Saturday in mind. In the US, homeless veterans are being helped into homes built on donated Government land, subsidised by Government funding and run as housing co-operatives. That has given veterans the chance to take control of the environment, rules, regulations and rents that they live by and pay, while getting proper support to rebuild their lives.

[Dr David Drew (Stroud) (Lab/Co-op)]

My hon. Friend is making an excellent speech. Does he accept that community land trusts have a particular benefit in rural areas, where they can provide cheaper or affordable housing? Does he agree that we need to examine how planning rules can encourage, rather than disadvantage, community land trusts in such settings?

[Gareth Thomas]

I do agree, and I hope that my hon. Friend will catch your eye, Madam Deputy Speaker, to develop that point further.

Soldier On, a US veterans charity, opened the Gordon H. Mansfield veterans community in the autumn of 2017, with 51 homeless veterans moving in. Those veterans received not just the keys to their own apartment in a housing co-operative, but the keys to a new life away from the danger and insecurity of the streets. Soldier On has 14 new units under construction and is looking to develop 100 more units in New York and a further 70 in New Jersey. That model of housing co-ops on, probably, donated Government land could work in the UK and should be happening here. I gently ask the Treasury to encourage the Ministry of Defence to stop some of the sales of the almost 50 empty properties of which it is trying to dispose.

Co-operatives and mutuals are a great British success story, but they could be an even bigger one. I urge the House and the Government to embrace the sector and to champion the doubling in size of its contribution to our economy.

--- Later in debate ---

[Jim Shannon (Strangford) (DUP)]

It is a pleasure to speak in support of the motion standing in the names of the hon. Members for Harrow West (Gareth Thomas) and for Wycombe (Mr Baker). I thank the hon. Member for Harrow West, in particular, for the massive contribution he has made, over the time I have been here but also long before that, to support co-operatives and mutuals. We all appreciate that greatly. I concur completely with the sentiments set out in the motion, especially those relating to the contribution that co-operatives and mutuals play in the economy of the United Kingdom, which I believe is much under-appreciated. I therefore want to add my support to co-operatives and mutuals, with a particular focus on credit unions, which I know best, as they feature greatly in my constituency.

Recent years have witnessed an increase in the number of co-operative and mutual businesses being set up in Northern Ireland, after many years when none was established. Analysis by Co-operatives UK in the early part of this decade found that co-operative enterprises in Northern Ireland contributed £35.6 billion to the UK economy—that is over a period of time, but it is still a massive amount of money.

I want to highlight a couple of examples to showcase the growing strength and vibrancy of the co-operative and mutual sector in Northern Ireland, because sometimes society does not appreciate what co-operatives do. The hon. Member for Stroud (Dr Drew) referred to agriculture. As a Member who represents a largely rural constituency, I know how crucial co-operatives have been to the size and success of our local dairy industry. One example is Lakeland Dairies, which has a factory in Newtownards, the main town in my constituency, and employs more than 220 people there. It is part of a cross-border co-operative business that processes 1.8 billion litres of milk a year. It has two factories in Northern Ireland and two in southern Ireland. The co-operative model has served the farmers, who are its members, well down through the years—they contribute to its policy and vision—providing them with an outlet for their production and, importantly, a say in the overall direction of the business. All that experience and knowledge points to the direction we need to go in.

Perhaps the single best example of the increasingly strong and vibrant co-operative and mutual sector in Northern Ireland is our credit union movement, which is massive. I will give some figures because I am not sure that all Members realise just how important credit unions are in Northern Ireland or the massive contribution they make. Credit unions are, of course, common to all parts of our United Kingdom, but they have woven themselves into the fabric of society in Northern Ireland in a way that has not happened elsewhere across our nation. Credit unions are a feature of my constituency, as we now have three or four of them. When one of the branches closed down in Greyabbey, a village just down the road from where I live—I opened accounts there for my three boys many years ago—it integrated with the branch in Newtownards.

People such as my old running mate Tommy Jeffers in Dundonald have given a lifetime of hard work to establish, run and expand credit unions across Northern Ireland. He was the instigation and strength behind that credit union, and although he is now in his mid-70s and no longer a councillor—that is how I first got to know him, as well as through party connections—he is still involved in it. The movement has been built by hundreds and hundreds of hours of work by volunteers. They have made a massive contribution.

[Gareth Thomas]

One credit union that spoke to me ahead of the debate wants to open more branches on the high street, to help plug the gap left by mainstream bank branch closures, and it wonders aloud whether the Government might be sympathetic to the idea of extending business rates relief to credit unions seeking to open business branches. Does the hon. Gentleman think that could also help facilitate the greater spread of the credit union movement in Northern Ireland?

[Jim Shannon]

I thank my honourable colleague for that intervention. I am sure that the Minister is listening and hope that he will take on board that suggestion, which could be very helpful. I wholeheartedly support that suggestion. This is not the Minister’s responsibility, but I have had discussions with other Ministers about help with high street rates.

It should be borne in mind that credit unions are for their members. The members invest their money to lend their money. It is a fantastic opportunity, and a fantastic example of how lending should be looked upon. The big banks should note that example. It should not be all about dividends for shareholders; it should be about the customers—those who are involved.

The Northern Ireland movement is massive in comparison with its counterparts in Great Britain. Statistics collated by the Bank of England in each quarter show the scale of credit unions in Northern Ireland in comparison with that of their counterparts in the rest of the United Kingdom. Of the 437 registered credit unions in the UK, 145 are located in Northern Ireland. A third of all adult credit union members in the UK are in Northern Ireland, and four in 10 juvenile members are from Northern Ireland. We are encouraging our young people to open accounts early—although, to be fair, that will probably be done by their parents or, perhaps, by their grandparents, who open accounts for them to start them off. It is good to encourage young people to be part of a bank, to save money, and thereby to see the benefits of credit unions. As I have said, it is a fantastic opportunity. If Members have not had an opportunity to investigate or gain knowledge of what is happening in Northern Ireland, I suggest that they should.

--- Later in debate ---

[Gareth Thomas]

I am grateful for the opportunity to wind up this debate and, in particular, to thank the Minister for three specific things. First, the winners of the additional funding to offer new credit union services will be delighted by his support for their work. I also welcome his interest in further proposals for the legislative reform of credit unions to help them expand, as well as his willingness to look again at finding a solution to help co-operatives and mutuals to raise new share capital.

Nobody would suggest that the hon. Member for Wycombe (Mr Baker) and I constitute any sort of dream team, but I am genuinely grateful for his support in making this debate happen. He, my hon. Friend the Member for Huddersfield (Mr Sheerman) and the hon. Members for Stafford (Jeremy Lefroy) and for Motherwell and Wishaw (Marion Fellows) rightly talked about how the philosophy of co-operation could help to address the loss of faith in markets and politics, as well as re-energising employees, exciting customers and helping to rebuild or build the social fabric of our country, which we all know is under pressure.

My hon. Friend the Member for West Bromwich West (Mr Bailey) rightly alluded to the considerably greater contribution made by co-ops and mutuals in America and Germany, and he also began to explore, as others did, the barriers in the UK to enabling the sector here to be as big and widespread.

My hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) rightly praised the Co-operative Group’s leadership on modern slavery, on preventing retail crime and on addressing the hunger in too many of our communities. It is good to hear the hon. Members for Argyll and Bute (Brendan O’Hara) and for Strangford (Jim Shannon) talk about the contribution of co-ops and mutuals in Scotland and Northern Ireland. I say in passing that I hope both Members and, indeed, the hon. Member for Motherwell and Wishaw are able to support my plan to turn RBS into a mutual.

My south-west Co-operative party allies, my hon. Friends the Members for Plymouth, Sutton and Devonport (Luke Pollard) and for Stroud (Dr Drew), along with my hon. Friend the Member for Oldham West and Royton (Jim McMahon), highlighted the huge potential of energy, agricultural and food co-ops.

Lastly, I welcome the contribution of my hon. Friend the Member for Redcar (Anna Turley), who I have no doubt will be a star as chair of the Co-operative party in pushing a co-op development agency. Time prevents me from referencing the huge contribution of my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds), who is a current star of the co-op movement.

Question put and agreed to.

Resolved,

That this House welcomes the contribution of co-operative and mutual businesses to the UK economy; notes that they provide substantial jobs in Britain, generate significant tax revenues and involve consumers and employees in decision making; and calls on the Government to review what further steps it can take to help grow that sector.

Financial Exclusion: Access to Cash

Gareth Thomas Excerpts

Tuesday 21st May 2019 Westminster Hall

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I congratulate my hon. Friend the Member for Feltham and Heston (Seema Malhotra) on securing this debate. I will echo one of her points, and then throw in two other issues.

First, credit unions represent a potential solution to financial exclusion, but they suffer from regulatory handicaps at the moment: they cannot offer a series of products that are clearly in demand, including car lending, insurance and credit card services, and they often cannot offer services to small businesses. It would be helpful to hear from the Minister what action the Government will take to sort out the problems in this area, which I know he is familiar with. Credit unions have been lobbying for some time for legislative changes, and to get a more sympathetic regulator. From what I can see, nobody on the FCA board has any credit union experience whatever. There was someone in the past, but there does not seem to be anyone with any awareness of credit unions, and that may explain why the FCA has interpreted the Credit Union Act 1979 in a particularly restrictive way to date.

We have to accept that there is a significant market failure in the provision of financial services, but we should also accept that the big banks still have a responsibility to help tackle the problem. They should be held to account for who they are lending to and in which districts. In that sense, they should support a campaign that the Centre for Responsible Credit is particularly vociferous in. It demands that banks publish what they lend down to postcode level in an anonymous way. Through that, we could track the areas that are genuinely being supported by the bigger players in the financial services industry and the areas with a need for charitable activity or more support for credit unions.

Lastly, if someone is looking for financial services products in media and advertising terms, they are deluged with services offered by the big banks or the payday lenders. Credit unions and other charitable and not-for-profit lenders are not given anything like the same attention. There needs to be a significant effort by Government at all levels to promote alternative sources of lending, with a particular focus on credit unions.