Contingencies Fund Advance: UK Government Investments Ltd

Harriett Baldwin Excerpts

Thursday 24th March 2016 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

In May 2015 the Chancellor announced that the Shareholder Executive (ShEx) and UK Financial Investments (UKFI) were to be brought together under a single holding company, UK Government Investments (UKGI). UKGI was incorporated on 11 September 2015 and will commence operations from 1 April 2016.

The resources and cash to finance UKGI’s spending will form part of HM Treasury’s main estimate for 2016-17. Parliamentary authority enabling UKGI to be funded is included in the Enterprise Bill which is currently before Parliament but is yet to receive Royal Assent.

Parliamentary approval for resources of £12,100,000 for this new service will be sought in the main estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £2,400,000 will be met by repayable cash advances from the Contingencies Fund.

[HCWS662]

Financial Services Update

Harriett Baldwin Excerpts

Thursday 24th March 2016 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I can today confirm that I have laid a Treasury Minute informing the House of a reduction in HM Treasury’s contingent liabilities to Bradford & Bingley.

The Treasury Minute concerns the guarantee arrangements announced on 29 September 2008 that put in place arrangements in relation to wholesale borrowings and deposits. At March 2015 the maximum contingent liability to HM Treasury on this guarantee arrangement was £2.4 billion.

I can confirm that, following the repurchase of two outstanding Bradford & Bingley covered bonds, the maximum exposure to HM Treasury under this guarantee arrangement has fallen to around £1.5 billion.

If the remaining liability is called, provision for any payment will be sought through the normal supply procedure.

I will update the House of any further changes to Bradford & Bingley associated guarantee arrangements as necessary.

[HCWS663]

Budget Resolutions and Economic Situation

Harriett Baldwin Excerpts

Monday 21st March 2016 Commons Chamber

[The Economic Secretary to the Treasury (Harriett Baldwin)]

The right hon. Member for Wentworth and Dearne (John Healey) had certainly prepared his soundbites earlier.

In every region of the United Kingdom, the policies announced in the Budget will bring the economic security that Britain needs. They are the commitments that we set out in our manifesto last year, and the Budget will help to deliver them. Over the past six years, we have worked hard and made the tough decisions. That has brought our country’s economy back from the brink, and growth and jobs are now delivering greater economic security for everyone. Today, I am proud that, here in the United Kingdom, a record number of people are in work, the deficit is down by two thirds and we are well on the path to surplus. Our whole economy is set to grow faster next year than any other major advanced economy in the world. However, with the pace of growth in the global economy showing signs of weakening, now is the time to redouble our efforts, and that is precisely what the Budget does.

Today’s debate is about devolution and local government. The foundations of our long-term success are laid in each and every corner of this country. Every region makes a distinctive contribution to the UK’s economic success and every region benefits from this Budget’s programme for growth. Hon. Members should listen to the facts. Employment is growing quickest in Wales, and it is a shame that we did not hear Welsh voices today. Youth unemployment is falling quickest in the west midlands. The right hon. Member for Birmingham, Hodge Hill (Liam Byrne) said that we were not delivering a budget for the next generation, but the next generation is finding work in the west midlands, which I am sure he will welcome. The number of people claiming unemployment benefits is falling fastest in Yorkshire and the Humber. Through a combination of greater devolution, greater investment and targeted support, the Budget will allow our regions to continue growing from strength to strength.

The Budget also delivers for the devolved Administrations. To help Scotland, there are tax breaks worth more than £1 billion to support the North sea oil and gas industry through challenging times and a freeze in duty on Scotch whisky. The Scottish National party had three demands for the Budget—action on oil and gas, action on fuel duty and action on Scotch whisky—and we have delivered on all three fronts. To help Wales, there is a £1.2 billion deal for the Cardiff capital region and a 50% reduction in tolls on the River Severn crossings in 2018. To help Northern Ireland, there will be enhanced capital allowances for investors in the Northern Ireland Executive’s pilot enterprise zone near Coleraine. For all three of our devolved Administrations, the Budget delivers the benefits of being part of a strong, successful United Kingdom, with the opportunities that come with devolution.

For the cities and regions of England, this is a Budget that creates fresh opportunities and opens new doors. For the north, there is greater devolution to Liverpool and Manchester, a schools strategy for the northern powerhouse, more than £700 million extra for flood repairs and resilience, and the go-ahead for HS3, bringing Leeds and Manchester closer together. For the midlands, the midlands engine investment fund will get £250 million, and there is a new devolution deal for Greater Lincolnshire and a strong statutory body to help provide the transport that the midlands needs.

For East Anglia, we have another new devolution deal, and I can confirm to my hon. Friend the Member for North West Norfolk (Sir Henry Bellingham) that the £30 million is indeed new money and that an elected mayor will be the single point of accountability. I can also confirm to my hon. Friend the Member for Milton Keynes South (Iain Stewart) that we plan to make the most of the Oxford-Cambridge-Milton Keynes corridor. For the south-west, almost £20 million will help young families on to the housing ladder. For London, the green light has been given for Crossrail 2. In addition, policies such as the cut to businesses rates and our reform of commercial stamp duty will revitalise high streets up and down the country, including those in Bury South.

This is a Budget for a nation of shopkeepers whether they are in Cardiff or Cornwall, or Chester or Chelmsford. We have heard from 27 Back Benchers from all over the country in tonight’s debate: North West Norfolk, Glasgow Central, Rugby, Jarrow, Telford, Sheffield South East, Blackpool North and Cleveleys, Bury South, Poole, Batley and Spen, Milton Keynes South, Copeland, Bolton West, and Birmingham, Hodge Hill.

[Mr Betts]

Will the Minister give way?

[Harriett Baldwin]

I will not as I have very little time, but I will get to the hon. Gentleman’s point. The list continues: Chesham and Amersham, Henley, Harrow West, Wealden, as well as Southampton, Test, and Bromley and Chislehurst, Washington and Sunderland West, Hazel Grove, North Norfolk, Warrington South, Dulwich and West Norwood, and Aberdeen North. A number of common themes came up in those speeches. Almost everybody welcomes the business rates cut and the help for the self-employed. This is a Budget that puts our small business job creators front and centre. Many points were made about northern infrastructure, so I draw everyone’s attention to page 77 of the Red Book. I am not referring to Mao’s little red book on this occasion. Page 77 gives a list of projects, including £130 million of road repair funds to deal with the damage caused by Storm Eva and Storm Desmond, in Cumbria and elsewhere.

A number of colleagues mentioned devolution and the impact on business rates. I can confirm that local government will be compensated for the loss of income as a result of the business rates measures announced in the Budget with a section 31 grant. The impact will be considered as part of the Government’s consultations on the implementation of 100% business rate retention in summer 2016.

[Mrs Gillan]

Will the Minister give way?

[Harriett Baldwin]

I would love to give way, but I have not got time to do so. The NHS was discussed by a number of colleagues, and I am sure that they welcome the record amount of cash going into our NHS, thanks to our strong economy. A number of colleagues welcomed the fairer funding for schools and the ultimate devolution of power to academies. I can confirm that an extra £1.6 billion is going into schools, with no change at all to the special educational needs obligations on schools. [Interruption.] We have heard a fair number of rants, whinges and lectures from the Opposition tonight, but we will take no lectures from the party that crashed the economy in the first place. We will take no lectures from the Labour party, whose plans, had we followed them, would have led to—

[Mrs Gillan]

On a point of order, Mr Speaker. I wonder whether you could advise me on something. I have asked the Minister, who is speaking so ably and fluently at the Dispatch Box about a Budget, certain elements of which have been well welcomed on both sides of the House. I have asked her to give way on two specific points that I raised in my contribution to this debate. Could you advise me whether it is in order for the Minister to decline, on account of the amount of time left for speaking, when a considerable number of minutes are left until 10 o’clock?

[Mr Speaker]

It is a matter for the judgment of the Minister, but the discontent of a former Cabinet Minister has been registered.

[Harriett Baldwin]

In that case, I will simply commend this Budget to the House.

Ordered, That the debate be now adjourned.—(Julian Smith.)

Debate to be resumed tomorrow.

[Mrs Gillan]

On a point of order, Mr Speaker. I wish to seek your guidance on the next item on tonight’s Order Paper. I gather that Standing Order No. 9(6), which deals with sittings of the House, states:

“After the business under consideration at the moment of interruption has been disposed of, no opposed business shall be taken, save as provided in Standing Order No. 15 (Exempted business).”

As I read it, the Order Paper contains a sittings motion on the business of the House on the High Speed Rail (London - West Midlands) Bill and if it comes to the Floor of the House after 10 pm, it does not have to be debated. It is possible to object to that business of the House. Of course, Mr Speaker, you will appreciate that I raised a point of order earlier—[Interruption.]

draft Financial Services and Markets Act 2000 (Regulated Activities) (amendment) order 2016

Harriett Baldwin Excerpts

Monday 7th March 2016 General Committees

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I beg to move,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016.

It is a pleasure to be here under your chairmanship this evening, Ms Buck. The draft order makes changes to the respective regulatory frameworks for mortgage and peer-to-peer lending. I will talk about the provisions on the regulatory framework for mortgages first.

In March 2015, Parliament approved the Mortgage Credit Directive Order 2015, which ensures that the UK implements the EU mortgage credit directive on time and with a limited impact on the UK mortgage market. The order is due to come into effect on 21 March this year. Since that order was made, the Government have been monitoring the progress of the mortgage industry towards implementation. In that ongoing monitoring, it came to light that in some areas the order did not achieve what was intended, or could be improved on. The Government acted quickly and laid a statutory instrument, which was made in November 2015. It made a small number of amendments to the scope of regulation, to ensure that the regulatory framework continued to operate as intended.

Today’s draft order makes further changes designed to ensure that the legislation delivers on previously agreed policy. It clarifies the regulatory status of a number of categories of loan entered into before April 2014. Specifically, it clarifies that the regulatory status of the loans depends on their regulatory status under the consumer credit regime before the transfer of regulatory oversight to the Financial Conduct Authority.

Since the transfer of the consumer credit regime from the Office of Fair Trading to the FCA in 2014, much of the industry has assumed that the legislation applied the principle of “once regulated, always regulated” to loans entered into before April 2014. That is a different test from the one generally applied under the FCA regulatory regime, where regulation is applied to ongoing activities with the regulatory status of those activities changing over time. Following engagement with the industry and the FCA, we have been made aware of the ambiguity about which test now applies to loans entered into before April 2014. There is also ambiguity about the loans that are to be moved across to the mortgages regime when the mortgage credit directive comes into force on 21 March. The draft order removes that ambiguity.

Providing clarity as to the regulatory status of the loans will also ensure that the holders of the loans are able to assess accurately what regulatory permissions they require. Furthermore, it will ensure the continuation of consumer protections, preventing consumers from inadvertently losing regulatory protections that they had at the point they took out a loan.

In 2014, the Government removed English and Scottish housing associations’ new second-charge mortgage lending from the scope of conduct regulation. The draft order also exempts second-charge mortgage loans made from April 2014 by Northern Irish and Welsh housing associations.

The peer-to-peer lending-related amendments in the draft order extend the scope of the regulated activities relating to the operation of peer-to-peer lending platforms and providing advice on lending through such platforms. In changes to the provision of advice on peer-to-peer loans, the Government are committed to supporting savers and to increasing the choice available to ISA savers. To support that aim, the Government announced at Budget 2014 that loans made through peer-to-peer platforms will become ISA-qualifying investments. From 6 April repayments of interest and capital made to lenders on new peer-to-peer loans will qualify for tax advantages where such loans are held in a new type of ISA, the innovative finance ISA. The Government anticipate that that could significantly increase the provision of advice to investors on peer-to-peer lending.

The draft order aligns the treatment of advice on peer-to-peer loans with advice on other ISA-qualifying investments by making the provision of advice to lenders on entering into a peer-to-peer loan a regulated activity. The consultation on the changes identified broad, industry-wide support for that change, which will ensure that the FCA is able to make rules to ensure that firms providing advice to investors on peer-to-peer loans act properly and in the best interests of their customers. That will mitigate the risk of unregulated firms setting up and acting improperly in providing advice to consumers.

The draft order also extends the scope of the peer-to-peer regulation to ensure that all the relevant activities are included within this framework. In particular, it brings the activity of facilitating the transfer of rights under a peer-to-peer loan between lenders on a secondary market within scope of article 36H regulated activity. That will mean that a peer-to-peer loan brought on the secondary market is subject to the same regulatory framework as new loans originated by peer-to-peer platforms.

The draft order also clarifies the definition of an article 36H agreement, or peer-to-peer loan. The change clarifies that if the peer-to-peer platform is the lender or borrower on its own platform, the agreement is not a peer-to-peer loan. That ensures that peer-to-peer lending remains exactly that—peer to peer. These amendments are an example of the Government’s proportionate and flexible regime in action, providing the space for peer-to-peer platforms to grow and providing competition to the major banks, while maintaining the right level of protection for consumers.

Finally, the draft order makes a minor amendment to the Small and Medium Sized Business (Finance Platforms) Regulations 2015, which set out the circumstances in which designated banks must refer unsuccessful SMEs that have applied for finance to online platforms, to assist in finding other sources of finance. The amendment clarifies that when a small business is already using a broker to seek finance on its behalf, unsuccessful applications by that broker do not need to be referred to finance platforms.

Taken together, the changes in the draft order are another important step to ensuring that the UK’s financial system is competitive, resilient and works for the good of the country. I hope that hon. Members will therefore support the order.

--- Later in debate ---

[Harriett Baldwin]

I note that the shadow Minister started with the second section, on peer-to-peer ISAs. I was not clear from his remarks whether he welcomes the development of peer-to-peer lending in this country and the introduction of the innovative finance ISA, but it is worth stressing how important the Government believe this area of lending is to consumers and small and medium-sized businesses. It offers them a potential alternative source of funding locally. I am sure he shares my aspiration for a competitive and diverse range of funding to be available to growing companies in this country.

If I may, I will plug my own local peer-to-peer lending platform in Worcestershire. It is called ThinCats.com —the antithesis of the fat cats in the banking industry that so aggravate the hon. Gentleman occasionally. He is right that this is a nascent market. We are expecting that, as of the date in April when it becomes possible to invest in an innovative finance ISA, there will be seven firms available in which consumers can invest their ISA allowance, and that is on top of the range of different peer-to-peer lending platforms already growing in this country.

The hon. Gentleman asked about the perimeter of regulation in terms of peer-to-peer lending, the Financial Services Compensation Scheme and whether we ought to consider guaranteeing the first £75,000 invested in peer-to-peer platforms, just as the FSCS guarantees the first £75,000 put in a bank. We think it is important that the peer-to-peer lending industry falls within the perimeter of regulation. That is much better for consumers and for the long-term success of the industry, but the extent of the regulation is fairly light, in the sense that if people invest in such platforms, they can lose the amount that they invest. Obviously, most platforms will compete on diversification of investments, the allocation that they hold back to withstand losses and so on, and on making that transparent to consumers, but it is definitely an alternative source of funding in an innovative area where the market is developing a range of solutions.

I gently correct the hon. Gentleman: Adair Turner is not the former Governor of the Bank of England; he was the chairman of the Financial Services Authority. He was right to highlight to consumers that this is a different kind of investment from investments in a bank, which are guaranteed up to £75,000—that is why the returns are higher—but to pour scorn on it and deter informed investors from investing in such platforms would be wrong. Obviously, we have worked closely with Christine Farnish, whom the hon. Gentleman mentioned, and the peer-to-peer industry on supporting the aspiration for the industry to be regulated and for consumers to be given clear information when they make such investments.

The hon. Gentleman also asked questions about the mortgage credit directive, along with a question about when second-charge mortgages will come into regulation, asking, “If not, why not?” As he will understand, it has been pretty clear for some time that the European mortgage credit directive will include second-charge mortgages, so it makes sense to wait for that regulation to come into force to include second-charge mortgages, which is why there has been a timing difference in bringing the regulation of second-charge mortgages into line with that for first-charge mortgages. We did not want to disrupt firms and customers excessively by predating regulations that are clearly on their way.

The hon. Gentleman asked about the treatment of advice and whether it will be subject to a future review—that was with reference to peer-to-peer regulations. Of course, we will continue to keep that under review in the light of developments. He asked about the risk of misidentification of consumers or businesses in the buy-to-let regulations, and it will be for lenders and brokers to identify the type of lending. That means that lenders and brokers will need a system in place to collect the relevant information from the borrower but, with the main implementing order having been in place for a year, they will have had time to do so, which is the benefit of our publishing the regulations last March and being able to work with the industry during the transition period to ensure that, by the time we get to implementation day on 21 March, all the questions that the hon. Gentleman rightly asked today have been answered.

I trust that answers all the hon. Gentleman’s questions. I commend the draft order to the Committee.

Question put and agreed to.

Oral Answers to Questions

Harriett Baldwin Excerpts

Tuesday 1st March 2016 Commons Chamber

[Mr Laurence Robertson (Tewkesbury) (Con)]

9. If he will reopen the compensation scheme for Equitable Life policyholders.

[The Economic Secretary to the Treasury (Harriett Baldwin)]

The Equitable Life payment scheme has now successfully traced and paid 90% of eligible policyholders. Payments to with-profits annuitants will continue for the life of these annuities. The scheme is now closed to new claims.

[Mr Robertson]

I thank the Minister for that response, but given that many policyholders lost out because of a failure of regulation, which should be overseen by not just this Government but any Government, is it not fair that those policyholders should receive compensation? If they do not, how can any investor have any confidence in the regulatory system that is put in place?

[Harriett Baldwin]

The Chancellor has done more than anyone else to tackle the regulatory failure of the 1990s with regard to Equitable Life. For example, with-profits annuitants will receive full compensation for the life of the annuity, pre-1992 annuitants have received ex gratia payments of up to £10,000, and £775 million has been paid out tax-free to others, despite the constrained public finances. Those on pensions credit got a doubling of their payment just before Christmas.

[John Pugh (Southport) (LD)]

Will the Minister clarify how much of the £1.5 billion promised by the Government has been delivered and handed over?

[Harriett Baldwin]

I regularly update Parliament on the precise figures. So far, we are at almost £1 billion. Of course, the payments for the annuitants will continue for the rest of their lives.

[Neil Carmichael (Stroud) (Con)]

10. What fiscal steps he is taking to encourage small businesses to grow.

--- Later in debate ---

[Craig Tracey (North Warwickshire) (Con)]

I welcome the fact that my constituents have been given more control over their finances, thanks to changes implemented by the Government. Can the Minister advise me on what steps have been taken to ensure that the regulation applied to small high street financial advisers and insurance brokers is both fair and proportionate, given the important service that they provide?

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I thank my hon. Friend for raising this point. We have launched something called the financial advice market review, which will be reporting around the time of the Budget. We will be looking at how to make financial advice more affordable and more available, and also at how to get the right kind of regulatory balance for smaller firms.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

T6. Following reports that Hinkley Point C faces further delays, will the Chancellor revisit his decision effectively to write the French an extremely generous long-dated option and instead bring forward fall-back options?

--- Later in debate ---

[Byron Davies (Gower) (Con)]

The Chancellor will be aware that debates have been held and questions asked in the House regarding serious allegations of collusion between banks and valuers in order to deliberately undervalue and seize assets. Has he considered the current regulations on such banks and valuers, and whether there needs to be a broader remit for the Serious Fraud Office and other organisations to investigate these serious allegations, whose number is growing?

[Harriett Baldwin]

I am aware of the points my hon. Friend has raised in Westminster Hall and obviously I am keen for our system to have a tough set of rules on conduct in the banking system. I would welcome the opportunity to meet him to discuss these specific allegations in more detail.

[Nic Dakin (Scunthorpe) (Lab)]

T10. If the Chancellor believes that a strong steel sector is fundamental to a strong northern powerhouse, what steps is he taking to level the playing field for the steel industry, the foundation of our manufacturing and defence industries, so that it can have a prosperous future to match its prosperous past?

UK’s Counter-terrorist Asset Freezing Regime

Harriett Baldwin Excerpts

Wednesday 24th February 2016 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

Under the Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010), the Treasury is required to report to Parliament, quarterly, on its operation of the UK’s asset freezing regime mandated by UN Security Council Resolution 1373.

This is the 17th report under the Act and it covers the period from 1 October 2015 to 31 December 2015¹. This report also covers the UK implementation of the UN Al-Qaida asset freezing regime and the operation of the EU asset freezing regime in the UK under EU regulation (EC) 2580/2001 which implements UNSCR 1373 against external terrorist threats to the EU. Under the UN Al-Qaida asset freezing regime, the UN has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under the Al-Qaida (Asset-Freezing) Regulations 2011. Under EU regulation 2580/2001, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

Annexes A and B to this statement provide a breakdown, by name, of all those designated by the UK and the EU in pursuance of UN Security Council resolution 1373. The two individuals subject to designations, which have been notified on a restricted and confidential basis, under sections 3 and 10 of TAFA 2010 are denoted by A and B.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 31 December 2015:

Bank of England and Financial Services Bill [ Lords ] (Fifth sitting)

Harriett Baldwin Excerpts

Tuesday 23rd February 2016 Public Bill Committees

[The Chair]

If the Committee wishes, I am happy to take all the clauses individually. I propose that we take clause 26 on its own, and then perhaps clauses 27 to 37 as a group.

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I am happy either way, Mr Brady. It might also be worth touching upon Government amendment 7 to clause 38 as I go through the provisions.

[The Chair]

Thank you, Ms Baldwin. That amendment comes separately in any case. Shall we see how we go?

Clause 26

Enforceability of agreements relating to credit

Question proposed, That the clause stand part of the Bill.

[Harriett Baldwin]

It is a delight to be back here, again on a sunny Tuesday, to continue our scrutiny of the Bill under your chairmanship, Mr Brady.

The Government have fundamentally reformed consumer credit regulation, transferring responsibility from the Office of Fair Trading to the Financial Conduct Authority with effect from 1 April 2014. Clause 26 supports the effective operation of the FCA’s regime through minor amendments to the Financial Services and Markets Act 2000 in relation to the regulation of consumer credit. It is a technical clause and concerns the application of provisions relating to the enforceability of credit agreements. It makes it clear that when a person acting on behalf of a lender can lawfully undertake the relevant credit-related regulated activity in relation to the agreement, either by administering the agreement in relation to section 26A(4), or by taking steps to procure the payment of debts under it in relation to section 26A(5), they are also able to enforce the agreement.

[Rob Marris]

It is a pleasure to be here with you again, Mr Brady. I thank the Minister for her explanation—that is great.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

[The Chair]

We now come to clauses 27 to 37. I suggest that we allow all of them to be commented upon as a group.

Clause 27

Enforceability of credit agreements made through unauthorised persons

Question proposed, That the clause stand part of the Bill.

[Harriett Baldwin]

For the benefit of the Committee, I will highlight each of the clauses as I go through them, while grouping my speaking notes.

Clause 27 also supports the effective operation of the FCA’s regime by amending section 27 of the 2000 Act, which deals with agreements made through unauthorised persons, to ensure that it has a proportionate effect on consumer credit and consumer hire providers. Section 27(1) of that Act provides that an agreement made by an authorised person carrying on a regulated activity is unenforceable when it is made in consequence of something said or done by a third party in circumstances in which that third party should have had, but did not have, permission. The clause narrows the circumstances in which a credit agreement or consumer hire agreement is unenforceable under this section and ensures that this will only be the case when the provider of credit knows, before the agreement is made, that a third party had some involvement in the making of the agreement or in matters preparatory to it being made.

Clause 28 introduces a power into the 2000 Act for the Treasury to make regulations relating to transformer vehicles. Transformer vehicles—you may be wondering, Mr Brady—are used for risk mitigation purposes in insurance markets, particularly in the insurance and reinsurance industry. The Government plan to use this power to implement a new framework for insurance-linked securities business. Insurance-linked securities are now an important and growing part of the global specialist reinsurance market. The Government are working closely with the London market and the financial regulators to implement a fit-for-purpose regulatory regime for insurance-linked securities business. This will help the UK to maintain its competitive edge as a global reinsurance hub.

Clause 29 extends the definition of pensions guidance within section 333A of the 2000 Act to include the provision of guidance to consumers interested in assigning or surrendering—in other words, selling—rights to payments under an annuity on the secondary market. It also closes an unintended gap in guidance provision, ensuring that individuals whose schemes have transferred into the pension protection fund are able to access Pension Wise guidance—the free and impartial Government- supported guidance service.

In the March 2015 Budget, the Government announced our intention to remove the tax restrictions that deter pensioners from selling their annuities. This reform will enable retirees who were unable to take advantage of the Government’s new pension freedoms to convert their annuity into a lump sum, or another investment product if they choose, giving those who have worked hard and saved for their retirement choice over their financial arrangements.

The Government are committed to implementing the new secondary market in annuities in April 2017. The new market will offer consumers new freedoms but will involve potentially complex choices for them. The Government want to ensure that consumers are empowered and equipped to make the most of their assets. The offer of free, high-quality and impartial guidance through Pension Wise is a key part of providing the consumer with the relevant information to make the necessary decisions. That is why the Government are extending the Pension Wise service to provide guidance to those who will be able to sell their annuities on the secondary market, and to any dependants or beneficiaries with rights to payments under an annuity contract.

Pension Wise was launched in March 2015 to give impartial guidance to individuals with new flexibilities under pension freedoms. It has been a successful service, with high levels of consumer satisfaction, more than 2.2 million visits to the website and more than 50,000 individual appointments. In response to the Government’s consultation on allowing consumers to sell their annuities, there was strong support for expanding Pension Wise, both from consumer groups and from industry.

The expanded service will be similar in nature to the existing Pension Wise service, but it will need to be adapted to ensure that the content and service delivery are appropriate for this new group of consumers. By legislating at this time, the Government are ensuring that there is enough time to implement the expansion of Pension Wise before the secondary market in annuities opens in 2017. At present, Pension Wise can provide guidance only to a member, or the survivor of a member, of a pension scheme. As the pension protection fund is a compensation fund, not a pension scheme, individuals whose schemes have transferred into the pension protection fund are currently unable to obtain guidance from Pension Wise. Pension Wise should be available to all those who wish and are able to take advantage of pension freedom reforms, so it is right that we are taking action now to ensure that all have equal access to the service.

Clause 30 places an obligation on the Financial Conduct Authority to set rules requiring specified firms to check that relevant annuity holders have received appropriate advice before processing the transfer of an annuity. In practice, this will introduce a requirement for individuals to receive financial advice before selling their rights to an annuity income stream, where that annuity is valued higher than a threshold to be set in secondary legislation. The Government are committed to implementing the new secondary market in annuities in April 2017, removing the barriers that prevent people from making their own choices over how they use their retirement savings. However, we recognise that the regular income stream provided by an annuity is a valuable asset and that for the majority of individuals it will be in their best interests to keep their annuity. It is therefore important that annuity holders understand the value of their annuity and are informed about their options.

The Government have consulted on the consumer support measures that should be introduced for the secondary market in annuities. Elsewhere in the Bill, the Pension Wise guidance service is expanded to provide information and guidance for those with a relevant interest in an annuity that can be sold in the secondary market. As a further measure to support consumers, the Government believe that, for those with a higher value annuity, there is a real benefit to having a bespoke recommendation before they make the decision to sell their annuity income. By introducing a requirement to receive financial advice, the Government are ensuring that those consumers receive a recommendation tailored to their individual circumstances and risk appetite.

However, although the Government believe that all individuals would benefit from financial advice, we recognise that the cost of advice for those with small annuities might be disproportionate. That is why, in legislating for this advice requirement, the Government have taken a power to specify in regulations which annuities will be subject to the requirement, for example by introducing a threshold. That would mean that only individuals with higher value annuities will be required to take financial advice. That approach was broadly supported by both industry and consumer groups in the Government’s consultation last year. The Government will determine the threshold, along with other details of the advice requirement for this market, through secondary legislation, which will be consulted on later this year.

Clause 31 is technical in nature and allows appointed representatives of authorised financial advisers to advise on the conversion and transfer of safeguarded benefits. Safeguarded benefits are the special valuable features of certain pensions, such as defined-benefit pensions, and pensions with guaranteed annuity rates, which are defined for the purposes of the advice safeguard established in sections 48 and 51 of the Pension Schemes Act 2015. The changes to sections 48 and 51 amend the definition of authorised independent adviser to include appointed representatives. As a result, they will be able to give appropriate independent advice in order to satisfy the advice safeguard. The clause also makes changes to the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001, to the same end. Subsection 3 of the clause extends the change to Northern Ireland.

Around two thirds of financial advisers are appointed representatives who have a specific contract to provide services on behalf of their principal, who will be an authorised financial adviser regulated by the FCA. That measure puts the eligibility of appointed representatives to advise on these transactions beyond doubt. The clause extends eligibility to advise on these transactions only to the appointed representatives of financial advisers. What it will not do is reduce consumer protections or weaken the accountability of financial advisers or their appointed representatives. Where an appointed representative advises on these transactions, the directly authorised firm, as the principal, takes full responsibility for the quality of the advice and compliance with FCA rules. The pension freedoms that came into effect in April have given people real freedom and choice in how they access and spend their income at retirement. This change will help to ensure that they operate as intended for customers with safeguarded benefits.

Clause 32 refers to the duty of the Bank of England to provide information to the Treasury. As hon. Members will know, the financial crisis of 2008-09 exposed significant failures in the old tripartite system of regulation. Since then, the Government have implemented, and continue to implement, major reforms to address those problems of the past and make the financial sector safer and more stable. These include a number of measures designed to ensure that bank failure can be managed in a way that protects the wider economy and financial sector, without relying on taxpayer bail-outs.

Under the old tripartite regime of regulation, there was no single institution with responsibility, authority or powers to oversee the financial system as a whole. The Banking Act 2009 addressed that by putting the Bank of England firmly in the driving seat for managing a financial crisis, and the Financial Services Act 2012 overhauled the regulatory architecture in the UK, including making provision for collaboration between the Treasury and the Bank of England in relation to crisis management. Clause 32 builds on those important reforms while, crucially, leaving unchanged the clearly defined roles of the Treasury and the Bank, as established in the 2009 and 2012 Acts.

The clause also seeks to ensure that the correct arrangements are in place for the Bank and the Treasury to fulfil their respective roles as effectively as possible. It does that by providing the Treasury with two new powers to receive information from the Bank, as part of understanding the public funds risk associated with firm failure. First, it creates a duty on the Bank to provide the Treasury with the resolution plans and certain supporting information for firms that the Bank considers it may need to resolve using the stabilisation powers in the 2009 Act. That will ensure that the Treasury can understand well in advance of a crisis scenario the public funds risk associated with a firm failing. Secondly, it gives the Treasury the power to obtain any extra information from the Bank that it considers material to the Bank’s assessment of that risk.

The clause relates solely to information sharing and co-ordination between the Bank and the Treasury, as part of their fulfilling their respective roles. It serves to formalise the productive working arrangements that have developed between the two bodies since the 2012 Act, and it ensures that the framework for co-ordination reflects developments in best practice, both domestically and internationally.

Clause 33 corrects an error in the National Savings Regulations 2015. The regulations revoked a number of statutory instruments with effect from 6 April 2015 and the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001 was included by mistake. The 2001 Order was used to make most of the consequential amendments and repeals that were required to give effect to the 2000 Act. It amended a range of primary and secondary legislation, including the Companies Acts, the Bank of England Act 1998, the Building Societies Act 1986, pensions legislation and other legislation relating to financial services. Some of the amendments made by the 2001 Order have been superseded by subsequent legislative developments, such as the consolidation of the various Companies Acts in the Companies Act 2006, but in many cases the amendments are still necessary and the repeal of the instrument making them has left the law in a state of considerable uncertainty. The clause removes that uncertainty by providing that the revocation shall be treated as not having been made, restoring the law to what it was before the accidental revocation of the 2001 Order.

Clause 34 makes changes to the legislative framework governing the issuance of Scottish and Northern Ireland bank notes. It gives the Treasury power to make regulations authorising a bank in the same group as an existing issuer to issue bank notes in place of that issuer. That will increase banks’ flexibility to restructure their operations, while preserving the long-standing tradition of certain banks in Scotland and Northern Ireland issuing their own notes. This is a particular issue at the current time, as some banking groups will be adjusting their group structure in order to ring-fence their retail banking operations.

Clause 35 enables the Treasury to make amendments consequential to the Bill, and any statutory instruments made under it, to other primary and secondary legislation. For example, the power is likely to be used to amend references to the PRA in other legislation where necessary to reflect the fact that the authority is no longer a separate legal entity from the Bank. The power can be used only in certain circumstances. The Treasury can make regulations under the power only if it is necessary to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation that is made before the Bill is passed, or in the same parliamentary Session.

--- Later in debate ---

[George Kerevan (East Lothian) (SNP)]

I just want to make some remarks about clause 28, on transformer vehicles, which is one of the most important elements of the Bill, even though it is somewhat technical.

I commend the Minister on her rapid and very clear presentation of the clauses, but she said something about clause 28 that caused me to worry, and I would like to press her on it. She seemed to imply that the clause is being introduced to ensure that the regulation of transformer vehicles will maintain, and in fact increase, the City’s competitive edge. I worry that we are enacting regulatory provisions that could be used to facilitate transformer vehicles, which are rather toxic.

Transformer vehicles have been around for a while—since the start of the millennium—but they began to grow rapidly in the reinsurance market in the past decade. The danger is that they are under-capitalised. The existing reinsurance market is well capitalised, and the risks are well catered for. The existing major insurers traditionally do not reinsure all of their risk. They keep some of it and capitalise for it, which is good, and pass on the bulk, but not all, to separate or wholesale reinsurers, which are heavily capitalised in case anything goes wrong. The companies use actuarial tables to make profit and invest, but if anything goes wrong—if there is a systemic crisis in the market—they are capitalised in both the insurance and the reinsurance parts of the market to cover that risk.

The point about transformer vehicles is that in the past decade we have moved away from a capitalised reinsurance market to one in which the risks are hedged by selling credit default swaps. If used sensibly, that is not a problem, because if an individual insurance policy runs into trouble a credit default swap can be called in. But as we saw with the mortgage-backed securities at the end of the first decade of the millennium, if there is a systemic crisis and the entire mortgage market goes, the credit default swaps cannot be up because everybody loses money. The worry is that if our reinsurance model is based wholly on hedging, individual transformer vehicles can pay up, but if there is a general crisis—if there is a massive weather crisis or a nuclear power station, such as Hinkley Point C, blows up—the credit default market will not be able to repay everybody. That is why we need to regulate it.

If we are introducing these regulations to put in place an easier approach to hedging, rather than a properly capitalised reinsurance market, and to ensure that the hedging is here rather than New York, we are creating a problem. The Minister could become famous. If she ensures that the regulations that are introduced by the Treasury, the PRA and the FCA are used to make the market work sensibly, we will avoid a crisis. But if we introduce regulations that move the market further towards hedging and away from proper capitalisation, her name will be on the crisis when it occurs.

I want to clarify what these regulations are for. Are they for ensuring discipline in the market and the capitalisation of reinsurance, or are they a way of evading capitalisation? That is where the problem would begin.

[Harriett Baldwin]

I will try to keep my response in order, Mr Brady, but forgive me if I occasionally slip out of order. The hon. Member for Wolverhampton South West started by asking about clause 27, which he described as “see no evil”. I want to reassure him that the change addresses an issue that arises as a result of the transfer of the regulation of consumer credit from the Office of Fair Trading to the Financial Conduct Authority and the consequent application of the Financial Services and Markets Act 2000 to the consumer credit market. The issue addressed by the clause, whether relating to a chain or third party, arises particularly in the context of consumer credit and the activity of credit broking.

We are confident that the change to section 27 of the Financial Services and Markets Act addresses the issue with regard to consumer credit, ensuring that the section is more proportionate on consumer credit firms, without unduly affecting the protections available to consumers in the market. That is in line with our broader policy intent for the consumer credit market, where the reforms that the Government have made balance the need to provide strong consumer protections with ensuring that the burdens placed on a diverse market that includes thousands of small businesses is proportionate. I reassure the hon. Member for Wolverhampton South West that firms remain under a regulatory duty, imposed by the FCA, to take reasonable steps to satisfy themselves that the firms that they deal with are authorised, where that is appropriate. The clause strikes the right balance between protecting consumers and placing a proportionate burden on firms that are lending to consumers.

We share with the hon. Gentleman an aspiration to simplify some of the legislation. I very much welcome his words of support for my dream goal in this post, which is to simplify and reduce some of the complexity not only of this regulation but of the FCA’s own rulebook, which has become quite a significant barrier to entry to sensible organisations that may want to move into, for example, the debt advice space. I welcome his support for any progress I am able to make to simplify some of that.

Clause 27 simply narrows the circumstances in which a credit agreement or a consumer hire agreement is unenforceable. I think that the hon. Gentleman will welcome that. Both he and the hon. Member for East Lothian mentioned transformer vehicles, which are not those fun toys that appeal to consumers but something completely different that, I assure Members, are not for the consumer market. Only sophisticated or institutional investors will be permitted to invest in insurance-linked vehicles.

From a policy perspective, it is important that London have the ability to establish insurance special purpose vehicles. London is the largest insurance market in Europe and is a centre for specialist insurance activity. Whether we like it or not, all Members face risks in their lives—indeed, all businesses face a range of risks. Insurance is a way to bring that risk down to a manageable level. London should be able to compete and innovate in new forms of risk mitigation. If London is able to offer a full range of innovative solutions, insurance entities will continue to come to London to meet their risk mitigation needs. I heartily hope that all Committee members support that.

Insurance-linked securities use a range of specialist skills and services to arrange the deals, including underwriting, risk modelling, brokerage, legal and capital market expertise. Nevertheless, Members are right to express concerns about the transparency and manageability of the risks, as well as about the importance of their being arranged by regulated entities, so it is important that I set out that insurance-linked securities business will be prudently regulated in the UK.

All special purpose vehicles will require Prudential Regulation Authority authorisation. All the wording in terms of the contracts must be clear and robust, and importantly risks cannot be bundled together in the way that the hon. Member for East Lothian feared. We require all special purpose vehicles to be fully funded to cover the full extent of the risk they take on, so we are not talking about the kind of very leveraged structures that he rightly said were so instrumental in the last financial crash.

I have said that only sophisticated or institutional investors will be permitted to invest in the vehicles. Of course, if they are arranged prudently—when someone is able to manage their risks prudently—those transactions will contribute to financial stability. They increase the capacity of the reinsurance markets. They provide investments that are not correlated with the economic cycle, and therefore they provide investors with good diversification characteristics. I hope that I have reassured hon. Members of the importance of clarifying the rules on transformer vehicles, but I sense that the hon. Gentleman has a further question on the issue.

[Rob Marris]

I am somewhat reassured by what the Minister has said. However, I would caution her about her remarks about innovation and the attractiveness of London, because I sat—either in this room or Committee Room 10—on the Finance Bill Committee when her predecessor, Ed Balls, was saying the same thing in 2006 and saying, “We are grateful that London is now the financial capital of the world, over New York, because we don’t have the millstone of Sarbanes-Oxley.” Look where that ended. Therefore, yes to innovation, and yes to London being the major financial centre in Europe, if not the world, but I urge the Government to be careful that we do not go round the same crazy merry-go-round that my Government let us go round in the past.

[Harriett Baldwin]

The hon. Gentleman and I agree on the importance of making sure that we try to strike the right balance. We must ensure that the UK retains the ability to innovate. I am sure that none of us would want to see that ability being reduced, but it should do that within the boundaries of sensible and prudent regulation, so that we do not commit the alternative policy error, which would be to throw up our hands in horror at the kinds of innovations that have happened and so harm consumers by not allowing that kind of innovation. It would harm jobs in the UK if such innovation were not allowed to happen here. I welcome hiss questions—he is absolutely right to ask them—but I hope that I have convinced him that, in this instance, we have got the balance right and that these are simply useful instruments that will be well regulated and certainly available only to sophisticated institutional investors.

Although there are no Government proposals to consolidate the Financial Services and Markets Act at the moment, consolidated versions—for the ease of reference of members of the Committee and members of the public who are following our discussions with such avid interest—are available on commercial databases, such as LEXIS, and the Government statute law database—legislation.gov.uk—is working to make up-to-date Acts of Parliament available free of charge on a consolidated basis to everybody.

I will move on to the questions that were asked about Pension Wise and pension guidance, and the important steps that we are taking to bring pension freedoms to those who are no longer required to buy an annuity but to extend them to people who have bought an annuity and who may decide in retrospect that it was not the right thing for them. We are promoting a secondary market in those pension freedoms.

To be clear, regarding the rules on beneficiaries—I am thinking of a situation where a spouse remains a beneficiary and there is a remaining annuity after the death of the primary annuitant—there might need to be the ability to provide Pension Wise guidance and other support to people in that circumstance. The exact characteristics of who is entitled to use the service will be set out in regulation in due course, as will the definition of a “relevant interest” and what a relevant annuity is.

--- Later in debate ---

[Rob Marris]

I am grateful. The statistics might be available on the website, but although I am an averagely competent user of websites I could not find them. They are therefore not readily available.

[Harriett Baldwin]

We have made huge strides with the gov.uk website, which is a lot clearer and simpler than it used to be, but let me be the first to agree with the hon. Gentleman that such things can always be made clearer. I have put on the record the most recent example of management information available, which is that 2.2 million people have clicked on the website, with more than 50,000 people having some sort of face-to-face interaction. Also, in the summer Budget last year we extended the ability of people from 50 onwards to use the face-to-face service.

[Rob Marris]

It is 2.2 million plus one, as of this morning.

[Harriett Baldwin]

The website is well used. The feedback on face-to-face interactions has also been positive.

[John Mann (Bassetlaw) (Lab)]

Is not the clause a huge wasted opportunity? I can confidently predict that this will be the next major mis-selling scandal, which in five to 10 years’ time will come to haunt us for failing properly to enact effective legislation. People will have thrown away their pensions, mis-sold to them by the industry for short-term gain. The advice, people have told me, is that they are liable to die so they had better get the money quickly in order to spend it before it disappears. That is the kind of mis-selling that is going on. The clause is a huge missed opportunity, is it not?

[Harriett Baldwin]

I sense that the hon. Gentleman does not welcome the freedoms that the Government are proud to have given British retirees. We no longer require them—this was the case for so long—to purchase an obligatory product that might not be right for them at the time. Indeed, the evidence suggests that two thirds of people were not shopping around to get the right price, so I accept that awareness and education are an important part of the reforms. I cannot agree with him that the reforms have not made a huge step forward in trusting people who have worked hard all their lives, saving their money, and they now have more freedom to do what they want with it.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

I have some sympathy with the comments of the hon. Member for Bassetlaw. May I press the Minister on the numbers she quoted? She said that 2.2 million people have accessed the website, leading to in excess of 50,000 to follow through with more detailed face-to-face guidance. If my arithmetic is correct, that is a conversion rate of only 2%. That is a matter of concern to a lot of people. The type of advice being made available at a detailed level means that we are not adequately helping the numbers of people seeking to use the freedoms. There is concern that many people are cashing in early for different reasons with a lack of understanding of the long-term implications.

[Harriett Baldwin]

Again, I could not agree more that we need to take a long, hard look at the provision of advice in this country. As the hon. Gentleman is aware, the financial advice market review was launched last summer and the consultation closed at the end of December. A large range of people have been supportive of the aspirations set out in the review to make advice more widely available and more affordable for all our constituents. It is an ongoing piece of work, and he should wait for more exciting announcements—[Interruption.] He and I share excitement about many things, including the leptokurtic distributions that came up the last time we were on a Committee together. Clause 27 is narrowly focused on extending the Pension Wise service to those who are going to be accessing the additional freedoms that will come into force next April in relation to the secondary market in annuities.

People have rightly asked me about scams, and I want to put it on the record that there is absolutely no complacency about the potential for scams. However, the numbers thus far do not support the case that there has been an increase. Some people have a constant desire to take advantage of people, particularly the vulnerable elderly, in many ways. Nobody should ever accept a telephone call about pensions from anybody unless they have a pre-booked appointment for such a discussion. The single most important thing that we can do to alert people to the horrendous activities of people who prey on the elderly is to get that message out in our constituencies. The over-65s are the victims of some 80% of all attempts at financial crime. They are less familiar with the technology and more vulnerable when someone sounds plausible on the telephone. If any Member wants to work with me to spread the message more widely in their constituencies, I will be wholeheartedly in favour.

[John Mann]

Will the Minister give way?

[Harriett Baldwin]

I will give way in a moment, but I first want to mention the National Crime Agency’s Project Bloom, a taskforce that includes the regulators, anti-fraud groups, Action Fraud and police forces. The FCA also runs ScamSmart and the Pensions Regulator has its Scorpion campaign, both of which give advice to businesses and consumers in writing about how to protect against scams. Action Fraud is the UK’s national reporting centre for fraud and internet crime. I am keen to work with hon. Members to see how we can get information disseminated widely in our areas.

[John Mann]

I thank the Minister for the offer to help her get the word out. We may be occupied with other things over the next four months, but, even beyond then, is it not Parliament’s role to legislate for regulation? Anyone who is a conduit to information or puts out information should be effectively regulated. Instead of hoping that the word will somehow get out, the Minister should be introducing legislative changes in regulation to improve the system. A gentleman came to see me and said that he had less than a year to live and wanted to get hold of his pension. He came back a year later, having survived through the NHS, and was doubtless reassured that he did not need to fritter his pension away, hoping to spend it on trips around the world because he was about to die. We do not need to get the word out; we need regulation. Will the Minister come back with additional proposals?

[Harriett Baldwin]

Clearly, it is regrettable that although we often pass regulations in this House—this is a very regulated area—people still choose to prey on the vulnerable, particularly older people, and do things that are illegal and completely against the regulations. We ought to combine regulation with informing people about the regulations and when they should have their antennae twigged to the fact that something might not be a good idea.

The hon. Member for Wolverhampton South West raised a range of important points about auto-enrolment, the reports in The Times today and master trusts. I can let him into a little secret on that: the Government will bring in legislation on master trusts and on the points he raised as soon as practically possible. We had considered bringing it in as part of this piece of legislation, but we felt that since the Bill had gone through the House of Lords it would be very late on in the legislative process to introduce something as extensive as that. That was my judgment, and I hope that he will support me on that. However, we aspire to find very soon the first appropriate vehicle that could be scrutinised by both Chambers to bring in the regulations relating to master trusts and auto-enrolment.

[Rob Marris]

I thank the Minister very much for that swift response to my plea. It is perhaps one of my first successes, and now she has indeed set my pulse racing.

[Harriett Baldwin]

No comment, Mr Brady, on that. I am making sure that I cover all the points that were raised by members of the Committee. I am shocked—deeply shocked—that the hon. Member for Wolverhampton South West is not aware that the Royal Mint is in Cardiff and that it continues to produce all our coins. Indeed, Wales plays a very important role in the issuance of our currency. It does not play a role at the moment in the production of bank notes. Obviously, that lapsed when the last issuing bank in Wales was taken over by either HSBC or Lloyds—I cannot remember which—and got subsumed into that bank, and the bank lost this ability at that point.

To answer the hon. Gentleman’s other questions about clause 31 and the reason for subsection (7), this provision is included in order to confirm that the amendments to the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001—a very catchy title—can be subject to further amendment by the Treasury if it comes to revise those regulations. That is to say that the fact that this secondary legislation is amended in the Bill does not narrow the scope of the Treasury’s powers in the Financial Services and Markets Act. I hope that that is as clear as day for the hon. Gentleman. I would also like to clarify that the amendments set out in clause 31 are intended to remove any doubt on this question by making it clear that financial advisers who are appointed representatives of authorised firms are eligible to advise on the conversion or transfer of safeguarded benefits.

The hon. Gentleman also asked some extensive questions about what the definition of a bank in insolvency should be. The wider fact is that here we are establishing a gateway for the transfer of what might be extremely sensitive material—non-public information about the financial health of a particular bank—into the Treasury to ensure that the Treasury can fulfil its important public role of understanding where or when there might be a risk to public funds. That is what we are trying to establish here. It is right to probe the word “insolvency”, because what we are really talking about is a bank in trouble. “In trouble” is a rather difficult phrase to define in legislation, but I think we both know it when we see it.

I was also asked whether the Treasury can request information in advance of a bank failing. The answer to that is clearly yes. The only condition would be that the Treasury considers the information to be material to the Bank’s assessment of the likelihood of a bank, building society, credit union or investment firm failing. This assessment would be done in advance. It influences the resolution plan that the Bank adopts in preparation for a possible failure of the institution in future.

I think that I have now touched on all the points that were raised about this section. I hope that I have satisfied hon. Members of the wisdom of these clauses and that they will join me in supporting their inclusion in the Bill.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

[The Chair]

I propose that, with the leave of the Committee, we take clauses 28 to 37 stand part as a single opportunity.

Clauses 28 to 37 ordered to stand part of the Bill.

Clause 38

Short title

[Harriett Baldwin]

I beg to move amendment 7, on page 33, line 25, leave out subsection (2).

The amendment removes the privilege amendment set out in subsection (2). As hon. Members will be aware, this provision is inserted into any Bills that start in the other place and have implications for taxes or public funds. This recognises that it is the right of this House to control any charges on the people and on public funds. By providing that nothing in the Bill imposes such a charge, subsection (2) ensured that the House of Lords did not infringe the financial privilege of this House. However, that is no longer necessary when the Bill passes to this House, so the usual practice is for the provision to be removed by amendment in Committee in this House—I love this job; I learn something new every day. I commend the amendment to the Committee.

--- Later in debate ---

[The Chair]

We now come to new clauses, some of which have already been debated in our proceedings, but new clause 1 has not.

New Clause 1

Illegal money lending

(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) After Part 20A insert—

“Part 20B

Illegal Money Lending

333S Financial assistance for action against illegal money lending

(1) The Treasury may make grants or loans, or give any other form of financial assistance, to any person for the purpose of taking action against illegal money lending.

(2) Taking action against illegal money lending includes—

(a) investigating illegal money lending and offences connected with illegal money lending;

(b) prosecuting, or taking other enforcement action in respect of, illegal money lending and offences connected with illegal money lending;

(c) providing education, information and advice about illegal money lending, and providing support to victims of illegal money lending;

(d) undertaking or commissioning research into the effectiveness of activities of the kind described in paragraphs (a) to (c);

(e) providing advice, assistance and support (including financial support) to, and oversight of, persons engaged in activities of the kind described in paragraphs (a) to (c).

(3) A grant, loan or other form of financial assistance under subsection (1) may be made or given on such terms as the Treasury consider appropriate.

(4) ‘Illegal money lending’ means carrying on a regulated activity within Article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (regulated credit agreements) in circumstances which constitute an authorisation offence.

333T Funding of action against illegal money lending

(1) The Treasury must, from time to time, notify the FCA of the amount of the Treasury’s illegal money lending costs.

(2) The FCA must make rules requiring authorised persons, or any specified class of authorised person, to pay to the FCA specified amounts, or amounts calculated in a specified way, with a view to recovering the amount notified under subsection (1).

(3) The amounts to be paid under the rules may include a component to recover the expenses of the FCA in collecting the payments (‘collection costs’).

(4) Before the FCA publishes a draft of the rules it must consult the Treasury.

(5) The rules may be made only with the consent of the Treasury.

(6) The Treasury may notify the FCA of matters that they will take into account when deciding whether or not to give consent for the purposes of subsection (5).

(7) The FCA must have regard to any matters notified under subsection (6) before publishing a draft of rules to be made under this section.

(8) The FCA must pay to the Treasury the amounts that it receives under rules made under this section apart from amounts in respect of its collection costs (which it may keep).

(9) The Treasury must pay into the Consolidated Fund the amounts received by them under subsection (8).

(10) In this section the ‘Treasury’s illegal money lending costs’ means the expenses incurred, or expected to be incurred, by the Treasury—

(a) in connection with providing grants, loans, or other financial assistance to any person (under section 333S or otherwise) for the purpose of taking action against illegal money lending;

(b) in undertaking or commissioning research relating to taking action against illegal money lending.

(11) The Treasury may by regulations amend the definition of the ‘Treasury’s illegal money lending costs’.

(12) In this section ‘illegal money lending’ and ‘taking action against illegal money lending’ have the same meaning as in section 333S.”

(3) In section 138F (notification of rules), for “or 333R” substitute “, 333R or 333T”.

(4) In section 138I (consultation by FCA)—

(a) in subsection (6), after paragraph (cb) insert—

“(cc) section 333T;”;

(b) in subsection (10)(a), for “or 333R” substitute “, 333R or 333T”.

(5) In section 429(2) (regulations subject to affirmative procedure), for “or 333R”

substitute “, 333R or 333T”.

(6) In paragraph 23 of Schedule 1ZA (FCA fees rules)—

(a) in sub-paragraph (1) for “and 333R” substitute “, 333R and 333T”;

(b) in sub-paragraph (2ZA)(b) for “section 333R” substitute “sections 333R and 333T”.—(Harriett Baldwin.)

This new clause gives the Treasury power to make grants and loans, and provide other financial assistance, for the purpose of taking action against illegal money lending. It provides for certain Treasury costs relating to illegal money lending to be recovered from authorised persons by a new levy, administered by the FCA.

Brought up, and read the First time.

[Harriett Baldwin]

I beg to move, That the clause be read a Second time.

The new clause gives the Treasury a power to provide financial assistance to bodies for the purpose of taking action against illegal money lending. It also gives the Financial Conduct Authority an obligation to raise a levy, which will apply to consumer credit firms, in order to fund that assistance. Illegal moneylenders prey on some of the most vulnerable people in society. The new clause will ensure that the perimeter of the consumer credit market continues to be enforced effectively, and that vulnerable consumers remain protected from loan sharks.

The Government have fundamentally reformed consumer credit regulation, transferring the responsibility from the Office of Fair Trading to the Financial Conduct Authority, and we have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. The FCA regime is already having a substantial positive impact, which is helping to deliver the Government’s vision for an effective and sustainable consumer credit market that meets consumer needs. However, the FCA is not best placed to investigate and enforce certain types of illegal money lending such as the type practised by loan sharks.

Loan sharks are currently investigated and prosecuted by the England and Wales illegal money lending teams and the Scottish Illegal Money Lending Unit. Those teams are made up of local trading standards officers who accordingly have broader powers than the FCA to prosecute the particular criminality that loan sharks are involved with, and relevant expertise in educating vulnerable consumers. They are also able to draw on geographically dispersed community intelligence officers who are crucial in identifying localised illegal lenders. The teams work alongside the FCA in policing the regulatory perimeter specifically to target loan sharks and to provide support and advice to the victims of illegal moneylenders. They also help educate local communities about the dangers of borrowing money from loan sharks.

The teams have been identified as the most efficient and effective way of combating loan sharks and they have a proven track record. The England and Wales teams have secured hundreds of prosecutions for illegal money lending and related activity and have written off £55 million-worth of illegal debt, helping nearly 24,000 people in the process.

Funding will be provided by the Treasury via a levy on consumer credit firms, which will be collected by the FCA. The Government believe that all participants in the consumer credit market benefit from the teams’ work and the credibility that comes from keeping illegal moneylenders out of the market. The current cost of the enforcement regime is about £4.7 million a year, so the cost to individual firms in the £200 billion consumer credit market is anticipated to be small. The FCA will consult on how the levy will be collected in its annual fees consultation.

The Government want a safe and fair regulatory framework for consumer credit that protects consumers from harm. As part of that, it is important that the market’s boundary is adequately policed. The illegal money lending teams provide crucial support to the FCA’s work in effective enforcement in the regulatory perimeter, which boosts confidence in the market. The new clause will ensure that funding for the enforcement of rules against illegal money lending is given a sustainable framework for the future and that the illegal money lending teams will continue to receive the funding they need to do their work. I hope that all hon. Members will support this move

[John Mann]

This is a most excellent new clause, which I hope my hon. Friend the Member for Leeds East and I will be able to use against those who may be doing illegal money lending in sports in the Leeds area. It prompts an interesting question, because the powers on claims handlers—the other side of consumer protection—are not vested in the Treasury. We would not expect them to be. They are vested in the Ministry of Justice, but here we see a power grab by the Treasury. We have the Chancellor versus the Justice Secretary, with the two battling for power. I appreciate that that may cause some concern and divided loyalty. It is essential, in supporting this new clause, that I give my wholehearted support to the Chancellor in his power grab. The Treasury, not the Ministry of Justice, is the best place for powers such as this to be vested in.

Should the Bill become law, I hope that the Minister will go back to the Treasury team and look at other powers that have been grabbed by the Ministry of Justice under previous Governments and used appallingly badly in protecting the people, from my experience—the coalminers’ compensation claim scandal being the prime, but certainly not the only, example. Let us have the Treasury take on those who fleece our constituents out of money, with the full might of the Chancellor, strongly supported by his party’s Back Benches—he is even more strongly supported on some matters these days by the Labour Benches. On this occasion, he has my entire endorsement in his battle against the Justice Secretary.

--- Later in debate ---

Will the Minister explain what “otherwise” in that context might be?

[Harriett Baldwin]

Mr Brady, you were here when the hon. Member for Bassetlaw agreed with something that I said. I am sure you will go home and remark on that historic moment in your diary tonight. He is absolutely right in his support for this approach to putting the funding for these important teams on a more sustainable footing. I do not want to be in the least bit confrontational on this historic occasion, but I will gently correct him.

The funding for the teams that tackle illegal money lending has previously come, because it is a trading enforcement matter, through BIS, so they were paid for out of general taxation through the BIS budget. We took the view, as we went through the different alternatives in terms of the comprehensive spending review for the autumn statement, that that meant the funding for a very important activity was constantly being questioned. One year it was funded from the Treasury reserve as well. So the levy is a way of putting the funding for this important activity on a sustainable footing in a way that will be spread judiciously across the wide range of different consumer credit firms. The hon. Gentleman argues that it does not seem fair, given that they are regulated, for them to have to pay the costs of enforcement against illegal moneylenders, but all regulated firms benefit from the fact that they are within the regulated perimeter, and that the perimeter itself is robustly enforced.

We do not anticipate that there will be anything other than widespread acclaim, as we have heard this morning in Committee, for putting these incredibly important and valuable teams out of that perennial uncertainty that they have had in terms of funding and into a more sustained and clear source of funding. I commend the new clause.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

New Clause 7

Early exit pension charges

(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) After section 137FBA (as inserted by section 30) insert—

“137FBB FCA general rules: early exit pension charges

(1) The FCA must make general rules prohibiting authorised persons from—

(a) imposing specified early exit charges on members of relevant pension schemes, and

(b) including in relevant pension schemes provision for the imposition of specified early exit charges on members of such schemes.

(2) The rules must be made with a view to securing, so far as is reasonably possible, an appropriate degree of protection for members of relevant pension schemes against early exit charges being a deterrent on taking, converting or transferring benefits under the schemes.

(3) The rules may specify early exit charges by reference to charges of a specified class or description, or by reference to charges which exceed a specified amount.

(4) The rules made by virtue of subsection (1)(a) must prohibit the imposition of the charges after those rules come into force, whether the relevant pension scheme was established before or after those rules (or this section) came into force.

(5) In relation to a charge which is imposed, or provision for the imposition of a charge which is included in a pension scheme, in contravention of the rules, the rules may (amongst other things)—

(a) provide for the obligation to pay the charge to be unenforceable or unenforceable to a specified extent;

(b) provide for the recovery of amounts paid in respect of the charge;

(c) provide for the payment of compensation for any losses incurred as a result of paying amounts in respect of the charge.

(6) Subject to subsection (8) an early exit charge, in relation to a member of a pension scheme, is a charge which—

(a) is imposed under the scheme when a member who has reached normal minimum pension age takes the action mentioned in subsection (7), but

(b) is only imposed, or only imposed to that extent, if the member takes that action before the member’s expected retirement date.

(7) The action is the member taking benefits under the scheme, converting benefits under the scheme into different benefits or transferring benefits under the scheme to another pension scheme.

(8) The Treasury may by regulations specify matters that are not to be treated as early exit charges for the purposes of this section.

(9) For the purposes of this section—

‘charge’, in relation to a member of a pension scheme, includes a reduction in the value of the member’s benefits under the scheme;

‘expected retirement date’, in relation to a member of a pension scheme, means the date determined by, or in accordance with, the scheme as the date on which the member’s benefits under the scheme are expected to be taken;

‘normal minimum pension age’ has the same meaning as in section 279(1) of the Finance Act 2004;

‘relevant pension scheme’ has the same meaning as in section 137FB;

and a reference to benefits includes all or any part of those benefits.”

(3) In section 138E(3) (contravention of rules which may make transaction void or unenforceable)—

(a) omit the “or” at the end of paragraph (a);

(b) at the end of paragraph (b) insert “or

(c) rules made by the FCA under section 137FBB.”.—(Harriett Baldwin.)

This new Clause requires the Financial Conduct Authority to make rules prohibiting specified charges from being imposed on members of pension schemes who take, convert or transfer pension benefits after they have reached normal minimum pension age but before their expected retirement date.

Brought up, and read the First time.

[Harriett Baldwin]

I beg to move, That the clause be read a Second time.

Government new clause 7 places a duty on the Financial Conduct Authority to limit early exit charges, which act as a deterrent to people accessing their pensions early under the new pension freedoms, thus fulfilling a commitment that the Chancellor of the Exchequer made recently.

The Government introduced the pension freedoms in April 2015 because we believe that people who have worked hard and saved their entire life should be free to spend their retirement savings as they want. At that time, the Government wanted to ensure that everyone who was eligible could access their pension flexibly under the new freedoms, and they therefore strengthened the statutory right of members in defined contribution schemes so that people could, in all cases, transfer their pension savings from one scheme to another.

Following the introduction of the freedoms, it became increasingly clear that other barriers, including early exit charges and long transfer times, were preventing some people from using them. Evidence gathered for the Government by the FCA has shown a small but nevertheless significant cohort in contract-based schemes for whom early exit charges pose a barrier to their use of the freedoms. Some 670,000 people in FCA-regulated schemes face an exit charge, and for 66,000 of them—one in 10—the charge would exceed 10% of the value of their pension pot. In some cases, the charges could be high enough to make it uneconomical for an individual to access their pension flexibly, while in others the presence of an early exit charge could act to discourage individuals from accessing their pension, when that might be the best thing to do in their circumstances. It is therefore clear that the Government’s objective of ensuring that everyone who is eligible is able to access their pension savings flexibly is not being met, and that action is needed to ensure that all consumers are able to make use of the freedoms.

To ensure that the cap benefits current consumers who are eligible to use the freedoms now, the Government will ensure that any cap applies equally to existing arrangements and to those entered into in the future. The Government have not taken the decision to pursue legislation with retrospective effect lightly, and we recognise industry concerns about interference with existing contractual agreements. We have already made it clear that market value reductions should not be subject to the cap on early exit charges. However, in the Government’s view it is unfair that a significant minority of individuals have been deterred from accessing their pensions flexibly because of contractual terms they entered into long before the freedoms were introduced. Indeed, some providers have conceded that industry practices have moved on, and that the introduction of the pension freedoms means that the charges pose a much more significant barrier now than when they were first agreed. Fairness is not determined solely by reference to whether it was acceptable to include a term in a pension contract many decades ago; it should also be assessed in light of the reforms and changes in market practice over time.

In the context of the new pension freedoms, it is unfair that some individuals are being deterred from accessing their pensions flexibly because of terms in contracts from before the pension freedoms were introduced. Those people would not have been in a position to make an informed decision about potential early exit charges when they signed up, and that is why we have introduced the clause, to limit the charges and remove the deterrent.

In giving the FCA, as the relevant regulator, the flexibility to determine the precise level of the cap, we are ensuring that fairness is built into the setting of any cap. The FCA is best placed to determine how best to apply any cap, to ensure that early exit charges are not a deterrent to individuals using the freedoms. The new clause will provide consumers in contract-based pension schemes with genuine protection when exercising the pension freedoms, by ensuring that they are not deterred by early exit charges. Alongside that measure, which will apply to FCA-regulated pension schemes, the Department for Work and Pensions and the Pensions Regulator will work to ensure that any relevant concerns are appropriately addressed for trust-based schemes. We will ensure that all pension scheme members are protected against excessive early exit fees, regardless of the type of pension scheme they are in. I commend the new clause to the Committee.

[Rob Marris]

I am glad that the Chancellor has come on board fully. The Prime Minister did so yesterday; he came on board with Labour’s manifesto commitments on the European Union—good for him. The 2015 Labour manifesto said:

“We will reform the pensions market so that pension providers put savers first, and protect consumers from retirement rip-offs. We support greater flexibility for those drawing down their pension pots, but there must be proper guidance for people to avoid mis-selling.”

We have already discussed pension guidance and the welcome amendments on Pension Wise.

I have several issues to raise with the Minister. Paragraph 2.16 of the Government’s response to the consultation document on pension transfers and early exit charges referred to “further cost-benefit analysis” from the FCA

“in relation to the appropriate level of any cap.”

Can the Minister tell me—my research has not extended this far—whether the FCA has done that research? I gather from her remarks that it has not yet done so, but I may have misunderstood her. If it has done it, when was it done and published? If it has not, when does she anticipate that it will be done?

Can the Minister say something—again, I may have missed this in her remarks—about what she anticipates the level of the cap will be? She referred to the shocking 10% charges that some people have unfortunately been asked for on requesting a transfer. A press release from a couple of weeks ago referred to speeding up the process and to things being done “quickly and accurately”. I do not see any reference in new clause 7 to the timescale, although there is a reference to the cap, so I hope the Minister can elucidate that.

The bigger issue—again, this may be my reading of new clause 7—is that the Government seem to be conflating two things in the wording of the new clause. The Minister’s remarks did not reassure me about that. The first is the penalty for moving. One of the reasons why I signed up to Equitable Life years ago—what a great deal that was—is that it had what was then called an open-market option, which was unusual in defined purchase schemes at that time. It was attractive because it meant that decades down the road I would have the option of buying an annuity from a provider other than Equitable Life. It was not the only provider to offer such a scheme, but it was unusual; it was in the minority. That was back in the ’80s, when I was a very young man. Some schemes had a ban on moving—that has effectively been statutorily overridden—and others had penalties.

The other thing, which I fear that the Government have conflated with the first in their wording—perhaps the Minister can reassure me about this—is what in the trade used to be called an actuarial reduction. In other words, if the normal retirement age for the pension scheme is 65, as it is in the House of Commons scheme, to which many hon. Members have signed up, but someone takes it at 60—above the statutory age of 55; it used to be 50—in round terms they take a 50% reduction in the annual pension. Keeping it simple, instead of getting £10,000 a year from the age of 65, they get £5,000 a year from the age of 60 because they are getting it for an extra five years. It is not exactly 50%, but as a rule of thumb it is about 5% a year for taking it early, so if someone takes it at 55 they lose 50% of their pension. That is not, to most people’s minds, a penalty. Because people get the dosh for longer, they get a smaller annual amount. We could have a debate about whether 5% a year is mathematically accurate, with life expectancy and so on, but in terms of the principle and the concept that people lose pension because they have started to take it below the normal retirement age there is that actuarial reduction.

--- Later in debate ---

[John Mann]

May I disagree with my Front-Bench colleagues on their analysis? I have exactly the same question, but I am anticipating that this is a listening Chancellor—not least to the very point I made to him in the Treasury Committee three years ago, which he rebuffed in his stylistic way in giving a non-answer. I am seeking to clarify whether he is the listening Chancellor and that this is a bit of a roll, so that I can back him again, because he has listened to me on the issue, which I raised in some detail, including in correspondence and in other questions. At the time I did not get a sufficiently satisfactory response. This could be a significant moment. I am hoping that the Minister will clarify that the power being given to the FCA will be all-encompassing and include all ways of ripping off our pensioners, including the couple from Clayworth in Bassetlaw who first raised the issue with me some three and a half years ago.

[Harriett Baldwin]

I want to put on record that of course the Chancellor is a listening Chancellor. I am delighted that some of that listening includes listening to the hon. Gentleman, whose views on pasties I remember the Chancellor also listened to at one time. I see why his Whips put him on the Committee—because of his extensive and deep knowledge of so many of these things.

Let us face it, the topic of pensions can cause people’s eyes to glaze over—not of course those of hon. Members in Committee, but potentially those of people avidly reading the record in Hansard—so I want to clarify that the pension freedoms apply to defined contribution schemes. Those regulated by the FCA are covered by the new clause. The hon. Member for Wolverhampton South West asked about actuarial reductions, but schemes such as those that most Members of Parliament are members of are in the defined benefit section of the market. That is presumably why he has not found the language clear enough; the new clause does not apply to defined benefit schemes. In cases where actuarial reductions might be applied unfairly, we think it is important for the FCA to be given flexibility in the new clause.

The hon. Gentleman asked about the level of the cap. It is important to emphasise how well and constructively the industry has been working with the new pension freedoms to enable hundreds of thousands of people to take advantage of the freedoms. It is worth citing how excellent, innovative and adaptive many firms have been with the new freedoms, which came in with a degree of rapidity. However, there were some cases—I cited the example of a 10% cap—where charges were clearly egregious. The FCA will do further work in this area, in terms of its cost-benefit analysis process, but there have been efforts to collect evidence of the scale of the charges. In the vast majority of cases—I think that I am right in saying, off the top of my head, more than 90%—the charges have been under 2%. The industry, by and large, has worked very well with the reforms; I do not want people to get the impression that it has not. However, we think that where there are unreasonable barriers, in terms of charges that we would all regard as outrageous, the FCA is right to have these powers.

There will be cases in which, when someone removes their pension, the provider is right to apply a market value reduction, to readjust the value of the fund properly to reflect the performance of the market. Not all funds mark to market on a daily basis. We would not regard that as an early exit charge. It is right that market value reductions are specifically excluded from the new clause.

I hope that by answering all those questions, I have satisfied the Committee that this is another excellent clause from a listening Chancellor, and I commend it to the Committee.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

New Clause 3

Nomination of the Chief Executive Officer of the Prudential Regulation Authority: parliamentary oversight

“The Chancellor of the Exchequer shall not nominate a person as Chief Executive Officer of the Prudential Regulation Authority without the consent of the Treasury Committee of the House of Commons.”—(George Kerevan.)

Brought up, and read the First time.

[George Kerevan]

I beg to move, That the clause be read a Second time.

We on the SNP Benches believe that senior regulators and those charged with supplying independent advice to Government should be independent of the Executive and that the best way of achieving that is to have their appointments confirmed by Parliament. In the case of the PRA, we are suggesting that that should be done through the Treasury Committee. The principle has already been conceded by Government. The head of the Office for Budget Responsibility is confirmed by the Treasury Committee, so in a sense we are simply trying to widen that remit. We have chosen to begin with the head of the PRA, because major changes in the Bill involve the Bank and its relationship to the PRA. Also, Mr Andrew Bailey, the current head of the PRA, is moving on to the FCA, so sometime this year we will indeed be appointing a new head of the PRA.

The principle is simple. This is about the way in which we guarantee the independence of the regulator from the Executive. We accept that the Executive—the Chancellor, in this case—is the correct person to make the nomination, but the way we guarantee the independence of the regulator is to give them a wider base through confirmation by Parliament. Then, if there is ever a conflict between the regulator and the Executive, the regulator can fall back on the fact that they are there, having been confirmed by Parliament. That simple principle is accepted all round the world and, as I said, is already accepted with regard to the OBR.

I hope that the Government will accept this proposal; I hope that the principle is a broad enough one, but I stress that the aim is not to make the regulator in any sense a political figure, but to go in the opposite direction.

We have had some concerns in the last few months regarding the independence of the FCA. We will say no more about that. The point is that the issue of the independence of regulators is in the public arena. The best way for the Government to allay some of those fears is to accept the new clause.

Bank of England and Financial Services Bill [ Lords ] (Sixth sitting)

Harriett Baldwin Excerpts

Tuesday 23rd February 2016 Public Bill Committees

[Richard Burgon (Leeds East) (Lab)]

I would like to express my hearty support for new clause 3. Select Committees have routinely held pre-appointment hearings for a number of public appointments since 2008, with a number of candidates not approved. The previous coalition Government did develop the scrutiny agenda somewhat when the Chancellor agreed to the Treasury Committee having a power of veto over appointments to the Office for Budget Responsibility in 2010.

The Public Accounts Committee has a veto over the appointment of the Comptroller and Auditor General. Appointments to the Monetary Policy Committee and the Financial Policy Committee of the Bank of England are made by the Chancellor of the Exchequer and are then subject to a confirmation hearing by the Treasury Committee. The Treasury Committee has power over the chair and board members of the Office for Budget Responsibility, an arrangement that the Chancellor told the Treasury Committee he would put in place

“because I want there to be absolutely no doubt that this is an independent body”.

The Minister will be aware that, when it examined the proposals for the future Financial Conduct Authority in 2013, the Treasury Committee made a number of recommendations on the accountability of the new body to Parliament, including that the legislation provided that the chief executive of the FCA be subject to pre-appointment scrutiny by the Treasury Committee. The Treasury Committee was disappointed by the Government’s response, particularly in view of the deficiencies in the accountability mechanisms for the Financial Services Authority.

I would like to express support not only for the new clause tabled by the Scottish National party, but for the view of the Treasury Committee, as set out by its Chair, the right hon. Member for Chichester (Mr Tyrie), in his letter to the Chancellor of the Exchequer on 26 January, following the appointment of the current Prudential Regulation Authority chief executive, Andrew Bailey, to be the next leader of the FCA. In that letter the right hon. Gentleman set out his Committee’s view that it should have a veto over the appointment and dismissal of the chief executives of both the FCA and the PRA. Indeed, the letter said that the FCA’s chair, John Griffith-Jones, told the Committee that there was merit in that proposal when he met its members on 20 January.

It would be helpful to know whether the Chancellor has responded to that letter, and whether the Minister can share with us now the Treasury’s thinking on extending pre-appointment hearings and the power of veto to those two positions. I thank the hon. Member for East Lothian for flagging up this issue with his new clause, which we support and will consider returning to on Report, if the Government are not on board with it.

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I am going to convince Opposition Members that this new clause is not necessary. I will give them an updated response on the Chancellor’s views and the process of recruitment for the new chief executive of the PRA, the deputy governor for prudential regulation. That newsworthy notification to the world is taking place in front of a large crowd, as we can see.

My understanding of the proposed new clause is that it would give the Treasury Committee a statutory veto over the appointment of the chief executive of the PRA, which is soon to be the Prudential Regulation Committee. I am well aware that the Treasury Committee, of which the hon. Members for East Lothian and for Bassetlaw are members, has proposed this measure. Last month, following the announcement of the appointment of Andrew Bailey as chief executive of the FCA, we received a letter from my right hon. Friend the Member for Chichester (Mr Tyrie), in which he argued that the Treasury Committee should have a veto over both the appointment and the removal of the chief executives of the FCA and the PRA. The Chancellor has replied to the Treasury Committee in a letter, which normally would be published by the Committee—I imagine that it has been published already. We believe that such an arrangement is neither necessary nor appropriate for the financial regulators, and I will articulate the reasons why.

First, such an arrangement is not necessary to protect the independence of the FCA and the PRA or of their chief executives. The model of independent regulation that we have in the UK gives the regulator a clear statutory framework of objectives and duties and ensures that regulatory decisions are taken in an objective and impartial way. Importantly, this legislative framework protects the independence of the PRA and the FCA chief executives. It includes provisions that require the terms of appointment to be such that the appointee is not subject to the direction of the Treasury or of any person.

We agree that it is important that the Treasury Committee holds a pre-commencement hearing before the new PRA CEO takes up their post. However, we believe that it is important that the Chancellor remains the person who is fully accountable for deciding on the right person for the job. Pre-appointment hearings are not common for chief executive posts. Hon. Members will understand that such a process would potentially introduce scope for delay and public disagreement, which would not help to recruit good candidates. For example, candidates who are otherwise very good might not want to disclose their interest to their current employer in advance of confirmation of the appointment.

The hon. Member for East Lothian has argued that the arrangements for the appointment of the chief executives of the FCA and PRA should mirror those for the senior leadership position at the Office for Budget Responsibility; that appointment requires the consent of the Treasury Committee. However, the financial regulators are materially different from the OBR. The OBR was established to examine and report on the sustainability of public finances and, by doing so, to help Parliament hold the Government to account for their fiscal policy decisions—the same argument applies to the Comptroller and Auditor General—and as such the OBR has a unique model of dual accountability to the Government and to Parliament.

The previous Government proposed the statutory veto of the Treasury Committee over appointments to provide an assurance of independence and to ensure that those individuals at the OBR have the support and approval of the Select Committee. However, we do not believe that that model of dual accountability is appropriate when regulators are independently carrying out executive functions of the state, such as regulating and supervising the financial services industry. As I have said before, I would welcome the Treasury Committee holding a pre-commencement hearing with the chief executives of the PRA and the FCA. That would provide an important opportunity for Parliament to scrutinise new appointees to those offices before they take up their posts.

Let me update the Committee on the process for appointing the next chief executive of the PRA, who will take over from Andrew Bailey. The Government are running an open competition. The post was advertised on Friday 19 February, which was last week, and the closing date for applications is 4 March—the window is still open should any members of the Committee wish to apply. The appointment is made by the Queen, on the recommendation of the Prime Minister and the Chancellor. Interviews will be conducted in mid-March by a panel chaired by Sir Nicholas Macpherson, together with the second permanent secretary, the chair of the court and one of the other deputy governors. It is expected that the new chief executive will take up the position as soon as possible, but by 1 July 2016 at the latest. You see, Mr Brady, we have all the breaking news after 2 pm in this Committee.

There is another argument that is not in my speaking notes, but which I strongly believe is the case. Let us hypothesise that whoever is appointed through that process then goes through the pre-commencement hearing with the Treasury Committee that we have agreed, and that Committee produces a report that is extremely unfavourable to the person nominated by the Government. I think we can all see that, from a practical point of view, that would be as powerful as having a pre-appointment hearing.

Let us look back at the recent examples of Andrew Bailey’s move to the FCA and, for those of us with slightly longer memories, the appointment in the previous Parliament of Mark Carney as the new Governor of the Bank of England. The Chancellor invested a lot of personal time in those appointment processes, persuading individuals to come across. Imagine if he had had to say, “It is not actually in my power to offer you these jobs; it is in the power of the Treasury Committee.” Would we have seen candidates of such quality prepared to put their names forward? I submit that we would not.

I therefore think that the Government have made the right judgment in agreeing to a pre-commencement hearing. I hope that I have explained to the Committee why I do not believe it would be appropriate to accept the new clause, and I hope that the hon. Member for East Lothian will withdraw it, or that the Committee will vote it down.

[John Mann (Bassetlaw) (Lab)]

Dear, oh dear. Democracy only goes so far. The United States, with all its systems, must be appointing terrible people, seeing as elected politicians there have a whole range of conferments or otherwise, from the top of the judiciary downwards. Not to give an august body such as the Treasury Committee, which is elected on a cross-party basis by Parliament, the ability to reject an unsuitable applicant demonstrates the fundamental weakness of the last few Chancellors and of the current one, in the style of his predecessor but one—Mr Brown was an example, and Mr Osborne closely mirrors him in every way. Chancellors perceive that they have all the wisdom, yet they are not confident enough to trust a cross-party Committee that would rarely even contemplate criticising, never mind vetoing.

Having sat on that Committee at four different times with a range of Members—indeed, I seem to recall that you, Mr Brady, were one of its leading members when I was first on it—I know that there has never been an instance when it has misused its powers on a partisan basis. Of course, there may be exchanges, particularly with Chancellors and Ministers, where one senses and smells more of a partisan element. However, there has never once been an inkling of that in decision making.

For the Executive to hold in these powers is dangerous for the Executive and for Parliament. The power is simply with a single name; there is no choice or selection process. The proposal from the hon. Members for East Lothian and for Kirkcaldy and Cowdenbeath, which is the same one unanimously put forward by the Treasury Committee in this Parliament, is for the ability to interview and, if necessary, vote against an applicant. That focuses on what the Government want from the post holder and the skills that the post holder will bring. It scopes out precisely how that remit is seen by Parliament. We are the elected representatives. Therefore, in exactly the same way, very successfully, Parliaments past brought in the Select Committee system and further democratised that process through elections to Select Committees. That is popular inside the House and, as time will show, it is increasingly popular outside, as the general public understand how it has strengthened our democracy.

--- Later in debate ---

I feared that there was an element of that weakness when Mr Brown was Chancellor. It was weakness, rather than strength, in trying to hold on to too much of the decision making. I fear that the current Chancellor is of the same mould and does not have the confidence to trust his own judgment. Therefore, I believe that there should be, now and in future, the opportunity to vote on this if the Government are too foolhardy and choose to embarrass their Back Benchers by reiterating the weakness of the Chancellor, which is demonstrated by what the Minister has outlined this afternoon.

[Harriett Baldwin]

If I may, I will come back on some of the points made by the hon. Member for Bassetlaw, who seems, I submit, to prefer American democracy to British democracy. I do not know whether this is a preference he has publicly stated, but it certainly seems to be his revealed preference, judging by his comments before lunch on the second Chamber and his comments now. American democracy is very different from ours, it is true, and I am sure that each has different advantages and disadvantages. In America, the judges are elected, for example. That is not something that we have chosen to do in this country. In America, obviously, their second Chamber is directly elected. That is not something that this Parliament has yet chosen to do.

Obviously, the power of the Executive in the British system of democracy is considerably greater when it comes to Budget matters than in America, where for a long time they were unable actually to pass a Budget. In America, where the Senate must confirm presidential nominations for many public appointments, there have been significant delays in filling vacancies. At the end of 2010, for example, 22%—over one fifth—of Senate-confirmed positions remained unfilled or temporarily filled by acting officials. Introducing scope for delay and public disagreement could impede the recruitment of good candidates to these positions. These are Executive posts and, as I said previously, candidates may not wish to reveal their interest to a current employer in advance of being confirmed in the appointment process.

[George Kerevan (East Lothian) (SNP)]

I remind the Committee that for most of last year the Treasury Committee was in touch with the Chancellor, who was very dilatory in making a fresh appointment to the head of the FCA. Delays can occur even when the Executive are in charge.

[Harriett Baldwin]

Again, I have to disagree with the hon. Gentleman. There has been a very capable and competent acting chief executive at the FCA throughout this time. I submit that the hon. Member for Bassetlaw would rather that Bassetlaw were in America, from what he has said.

[John Mann]

Will the Minister give way?

[Harriett Baldwin]

I will allow the hon. Gentleman to rebut that calumny.

[John Mann]

The Minister should know her history. The Pilgrim Fathers and the pilgrim contract that created western democracy in the style of the United States originate from Bassetlaw, as does the Great Reform Act of 1832. The writer of the Great Reform Act lived in my house at the time. Bassetlaw and American democracy therefore go together, but we are English. We are part of the United Kingdom. We want our Parliaments to be confident enough to make decisions. If it is not good enough for the Monetary Policy Committee and the OBR, is the Minister really saying that we are not getting people of suitable calibre for those posts?

[Harriett Baldwin]

The Minister really is saying that. I am saying that these are Executive roles, which the Executive should continue to be able to appoint, obviously with a pre-commencement hearing by the Treasury Committee. I fear that the hon. Member for Bassetlaw’s ancestor’s ticket for this voyage must have got lost, but it was very interesting to hear about the connection with his constituency. Without more ado, I urge the Committee to reject this amendment.

[George Kerevan]

I normally have a great deal of respect for the Minister’s judgment, but I detected something in her tone which said that even she did not fully agree with her position. On the first point, she argued that statute guarantees the independence of the regulators. If there is anyone is this room, including the Minister, who can put their hand on their heart and truly say that no regulator has ever been leant on by a Minister of any party, then I will accept where the Minister is going. I am a tiny, wee bit cynical that sometimes, despite statute, Ministers of all parties and all jurisdictions tend to lean. We should try to tempt them away from that by giving a parliamentary underpinning to the role and the position of the regulator. That is at the heart of this.

The Minister also cites the problem that might arise from dual accountability to the Executive and to Parliament. If there is conflict, I am always happy for Parliament to triumph over the Executive, but maybe the Minister wants this to be the other way round—indeed, she has said as much. My point is that we already have a degree of dual accountability. The Treasury Committee, standing for Parliament as a whole, questions the regulators on a regular basis to make sure that they are fulfilling their brief. The Committee is not questioning them on policy, but to make sure of their independence. The actual accountability already exists. We are just making it clearer here.

The Minister says that as an alternative there could be a pre-commencement interview. If there is a problem with confusion of lines of responsibility, that is actually a worse way to go than making it clear that the Committee, standing in for Parliament, does have the role of confirming the appointment.

My final point is that this would interfere with the quality of the candidates we might get. I remind the Minister that every single member of this Bill Committee had to stand for election. We put ourselves before the electorate; that is democracy. All we are arguing for is the principle of democratic accountability. If there are candidates for senior Executive positions who are frightened of democracy, they do not deserve the job.

Question put, That the clause be read a Second time.

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[Harriett Baldwin]

Members on the Opposition Benches have highlighted in a nutshell the essence of this debate and made some of the points I was going to make. The Bank of England as an entity predates the United Kingdom itself: it was founded in 1694, before the Union, and in the intervening 322 years it has built a globally prestigious brand, if I dare call it a brand. It is well known around the world and has a worldwide reputation as a strong and independent central bank, although independence obviously came quite a bit later. The hon. Gentleman’s amendment would not change this and it is not something we should dismiss lightly, but I think that people would still carry on referring to it as the Bank of England.

The Bank exists to serve the entire population of the United Kingdom. Its mission statement is:

“to promote the good of the people of the United Kingdom by maintaining monetary and financial stability”,

but I can understand from his political allegiance why the hon. Gentleman did not propose in his amendment that it be renamed the Bank of the United Kingdom, because his party’s aspiration is that we become a disunited kingdom, although we all sincerely hope that that never comes to pass.

I remember that in the referendum campaign there was some talk, not only of whether the euro would become the currency of Scotland, but of the groat becoming the currency of Scotland. I think that not answering that question was one of the real problems that the nationalists encountered in the 2014 referendum. It is worth reminding the Committee that the Bank has a clear framework for ensuring it understands the economic picture across England, Scotland, Northern Ireland and Wales, through 12 agencies located in the regions and countries of the UK. Naturally, Scotland, Northern Ireland and Wales all have their own individual Bank agencies, as do the regions of England, and the agents in these branches and across the rest of the country meet with some 9,000 contacts a year from a range of sectors, which provides a wealth of economic and financial intelligence to the Bank’s policy committees.

That vital source of information helps the Bank’s policy committees to understand both the financial and non-financial conditions for businesses in all four parts of the United Kingdom, whether it is a business’s ability to access credit, the condition of the housing market or the level of output. The Bank actively seeks to understand economic and financial conditions in all corners of the United Kingdom in order to set appropriate monetary policy in the United Kingdom.

It is not only the Bank’s agents who are the external face of the Bank. Members of the MPC, the FPC and the PRA board regularly make speeches and meet with businesses across the United Kingdom. In fact, in 2014-15, members of those three organisations conducted 54 visits in different parts of the UK. Engagement in the different countries and regions of the UK is clearly important at the highest levels of the Bank.

The Bank of England is known as the central bank of the United Kingdom. The hon. Gentleman’s new clause would make no practical difference on the ground. He himself referred to the name being a “minor irritation”. Changing a name steeped in more than 300 years of history, particularly to the name that he suggests, would be to the detriment of the institution. It has become internationally renowned and respected with that name, and the value of that recognition should not be underestimated. International confidence in the Bank of England helps to support international confidence in our economy. Changing the Bank’s name would undermine that international recognition of it as a world-class central bank, and I therefore gently urge the hon. Gentleman to withdraw his new clause.

[George Kerevan]

Any change to the Bank’s name would not affect coins because the Bank’s name does not appear on coinage, as far as I remember. It does, however, appear on notes. If there was ever an agreement to change the name of the Bank of England, that would have a knock-on effect on notes, but a sensible solution would be simply to let the notes wear out, as they do quickly, and then change them. I am certainly not proposing any name change that would have a major cost; I would not want that.

Members on both sides of the Committee raised the issue of what would happen if Scotland were to become independent. If I gather correctly the drift of the contributions, Members are worried that if Scotland becomes independent post Brexit, the name would have to be changed back. I am glad that Members are still alive to the fact that the independence issue is alive and well north of the border. I will not tempt the Chair’s patience by going too far into that; we will cross that road when we come to it, but I am glad Members are aware that the issue has not gone away.

The Minister’s final suggestion was that if there were to be a name change, it would be better to change it to something such as the Bank of the United Kingdom, and that I am being in some way devious by proposing this longer name. There was discussion about what the new name would be. I have tried to alert Members that that debate is going on in other parties within the House. I have heard suggestions such as the Sterling Central Bank. It seems to me that the longer form I propose is the least change and is therefore most able to encompass the Minister’s last point—we want to retain some of the tradition of the Bank, which was founded initially by a Scots person.

This is a live issue. The name will be changed at some point. Once a debate such as this emerges, it can only go in one direction. It would be better to choose a name that we can all agree on in the here and now. If the Minister rejects that on the basis of some grand tradition of the Bank of England, that undermines the essence of the Bill, which is to modernise the Bank and make it one that works for the whole of the nation as it is presently constituted. She and her Government are hiding behind the notion of modernity but they actually want to maintain a Bank which is run by the Executive, and which is not anywhere near as efficient as she thinks it is in terms of managing the prudential aspects of the economy.

Question put, That the clause be read a Second time.

--- Later in debate ---

The proposal should be accepted and there is no reason why it should not. People outside would welcome this as a signal that we want the Bank of England to be accessible, transparent and moving into the modern age.

[Harriett Baldwin]

What is in a word? The hon. Gentleman has set out the case for changing the name of the court. I do not know about you, Mr Brady, but I rather like some of our old traditions in this country.

The court has existed since the Bank’s inception in 1694. The composition and structure have obviously changed over its long history. Initially, there were 26 individuals on the court, while today it is much smaller, with the executives and non-executives, and is much more characteristic of a modern, unitary board. The term supervisory board, used by the hon. Gentleman, is more redolent of the German approach to corporate governance than the British one. I am sure he will provide me with examples. It is not the Americans this time, but the Germans.

For me, there is charm in the term “court”, which is rooted in this long history. It has no particular mystery about it; it merely refers to the Bank’s governing body, which does indeed operate like a modern board. I do not feel we should argue over semantics. We should look at how the court functions. As the Committee has already heard, the court is now far smaller and far more effective than it was historically. There is a clear division between the role of the chief executive and the non-executive chair. The court is comprised of a majority of independent non-executive directors, and there are formal, transparent appointment procedures for executive and non-executive directors alike.

The changes in the Bill, which we have discussed at such great length, will further enhance the role of the court, making it a stronger decision-making body. In particular, to remind the Committee, we are making the oversight functions the responsibility of the whole court, ensuring that every member of the court—executive and non-executive—can be held to account for the use of these functions.

This brings the court into line with the recommendations in the Treasury Committee report. My view and that of the Government on the amendment is clear. Changing the name of the court would make absolutely no difference to how it operates in practice. It is the provisions in the Bill that will do that. I oppose the suggestion to change the name from the rather quaint and old-fashioned term of “court”, which has for me some charm.

[Richard Burgon]

That was indeed a charming oration from the Minister about how things were done in the past and continue to be done to this day. As much as I like many aspects of the history of this country, I am not persuaded that we should not press the matter to a vote. In the name of modernity, I seek to divide the Committee on this issue.

Question put, That the clause be read a Second time.

--- Later in debate ---

Question proposed, That the Chair do report the Bill, as amended, to the House.

[Harriett Baldwin]

Mr Brady, as we come to the final question of our proceedings, I put on record the Committee’s gratitude to you and Mr Wilson for having chaired our sittings so effectively. I also thank the Clerks and the Hansard reporters. For their incredibly diligent work behind the scenes—so often it is unsung—I also thank the Treasury officials, the Treasury legal team and, in this case, the Bank of England’s legal team. I put those thanks and that gratitude on the record. I also thank all members of the Committee for the care and attention that they have given to the line-by-line scrutiny of the Bill.

[Richard Burgon]

I echo the sentiments expressed by the Minister. I thank you, Mr Brady, and Mr Wilson, the co-Chair of the Committee, for your chairmanship. I thank the Clerks and the staff. I thank the Minister for her patience and courtesy and for the detailed responses she has given throughout our proceedings. I also thank my hon. Friends and all members of the Committee. We have no objection to the Bill being reported to the House.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Andrey Lugovoy and Dmitri Kovtun Freezing Order 2016

Harriett Baldwin Excerpts

Monday 22nd February 2016 General Committees

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I beg to move,

That the Committee has considered the Andrey Lugovoy and Dmitri Kovtun Freezing Order 2016 (S.I. 2016, No. 67).

It is a pleasure to serve under your chairmanship, Mr Pritchard. I would like to make the Committee aware that some minor errors were made when the order was laid; they did not impact on the substance of the order and have now been corrected by way of a correction slip.

The order was laid before the House on 22 January, in response to the Litvinenko inquiry report published on 21 January. As Members will be aware, Alexander Litvinenko was a former officer of the Russian Federal Security Service and a British citizen. He was killed in London in 2006, and the Litvinenko inquiry was the independent inquiry into his death. I am sure Members will echo my right hon. Friend the Home Secretary’s thanks to Sir Robert Owen, the chairman of the inquiry. His conclusions were clear yet deeply disturbing, and I would like to highlight some of those conclusions today, as they provide essential background to this debate.

One of the inquiry’s key findings was that Mr Litvinenko was deliberately poisoned by two Russian nationals: Andrey Lugovoy and Dmitri Kovtun. Those individuals killed him using polonium-210, a radioactive isotope. The Litvinenko inquiry also found that the killing of Mr Litvinenko was probably authorised by Nikolai Patrushev, head of the Russian Federal Security Service at the time, and by President Putin.

In response to those conclusions, the Treasury imposed an asset freeze on Mr Lugovoy and Mr Kovtun, the two individuals directly implicated in Mr Litvinenko’s tragic death. That was done by making an order under the Anti-terrorism, Crime and Security Act 2001. The order was debated in the other place on 10 February. I would like to set out again why that was an appropriate and proportionate response and why this House should also approve the order.

The Metropolitan police launched a murder investigation shortly following Mr Litvinenko’s death. Mr Lugovoy and Mr Kovtun are the prime suspects in that investigation. The Crown Prosecution Service has sought extradition of the chief suspect, Mr Lugovoy, from Russia, but Russia has consistently refused to comply with that request. There are now Interpol notices and European arrest warrants against them, and the Metropolitan police investigation is still open.

However, in response to Sir Robert Owen’s unequivocal finding that Mr Lugovoy and Mr Kovtun killed Mr Litvinenko, the Government took the view that it was appropriate to take further steps. That is why the Home Secretary wrote to the independent Director of Public Prosecutions, asking her to consider whether further action could be taken. That is also why, following the inquiry’s report, the Treasury moved swiftly to impose an asset freeze on the two individuals responsible for Mr Litvinenko’s death. The Treasury was satisfied that Mr Lugovoy’s and Mr Kovtun’s roles in Mr Litvinenko’s death clearly fulfilled the criteria under the 2001 Act that give the Treasury powers, including making a freezing order, when a threat to the life of a UK national has been or is likely to be taken by non-UK residents.

We believe that the order will be a deterrent and a signal that this Government will not tolerate such activity on British soil. The asset freeze prohibits UK persons from making funds available to Mr Lugovoy and Mr Kovtun and denies the men access to the UK financial system. In circumstances where it is necessary for frozen funds to be used, those wishing to do so must seek a licence from the Treasury.

I am sure all hon. Members will agree that the ideal response to the killing of a British citizen on the streets of London is to bring those responsible to trial in a British court. However, until that can be done, the asset freeze, together with the other measures that the Government have already taken, sends a clear message that we will defend our national security and rule of law.

Some people responded to the inquiry’s conclusions with calls for us to radically reform our relationship with Russia, yet as the Home Secretary set out, the findings of the report do not come as a surprise. Indeed, the roles of Mr Lugovoy and Mr Kovtun and the probable involvement of the Russian state are consistent with the long-held assessments of successive UK Governments. Those assessments informed the response by the then Government in 2007, which included visa restrictions and the expulsion of certain officials from the Russian embassy in London. The conclusions of the inquiry confirm that successive Governments have been right to keep those measures in force to date.

This is not business as usual with Russia; our relationship with the Russian state is heavily conditioned. The Government have reinforced that message. Following the publication of the inquiry’s report, we made very clear to the Moscow Government our profound concerns, and the Russian ambassador was summoned to the Foreign Office in London. We will continue to demand that the Russian Government do more to co-operate with the investigation into Mr Litvinenko’s death. Such co-operation must include the extradition of the main suspects and the provision of satisfactory answers, and Russia must account for the role of its security services.

We are clear about the wider threats that Russia poses, which the Government have outlined in the national security strategy. In particular, we have long been aware of Russia’s disregard for international norms and principles, which is why we led the call in the EU for sanctions in relation to Russia’s actions in Crimea and eastern Ukraine. That is why, when we engage with Russia on a variety of issues, including the fight against Daesh, we do so guardedly and with our eyes wide open.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

The Minister is making a strong case for the order, which I completely support. She mentioned the EU and political co-operation on targeting some of Russia’s behaviour in Europe, but the order refers to actions on European economic area firms and relevant institutions. Will she explain how we are going to co-operate across Europe to deal with these two individuals and prevent them from behaving as they have been throughout Europe, not just in the UK?

[Harriett Baldwin]

My right hon. Friend the Home Secretary has written to her counterparts in all 27 EU member states, so that they are also aware of the conclusions in this important report and are able take action accordingly should these gentlemen appear in their jurisdictions.

I hope that my words have assured the Committee that the asset freeze imposed on Mr Lugovoy and Mr Kovtun is an appropriate and proportionate response to their role in Alexander Litvinenko’s death. The Government believe that, in addition to the steps taken in 2007, the order is a proportionate measure that is necessary to send a clear message to those who might wish to undertake similar acts in future. I commend the order to the Committee and hope that all Members support the motion.

--- Later in debate ---

[Harriett Baldwin]

I am grateful to the Opposition for their support. They rightly asked a range of questions that I will be happy to update them on.

The hon. Member for Leeds East asked about the order’s impact. I think its primary impact is to send a strong message to deter people from taking such steps on UK soil. The specific impact of the freezing order is to prohibit UK persons from making funds available to the two gentlemen named in the order. The order effectively freezes any assets that individuals hold in the UK, or any UK-incorporated entities. It also prevents them from any effective links with the UK financial system.

In terms of the duration of the order, the hon. Gentleman is absolutely right that it lasts for two years and it will be subject to potential renewal at that point. He also asked whether there is any evidence of asset flight. So far we have not received any reports from the financial sector about funds frozen under the order or about movement of funds immediately before its implementation.

The hon. Gentleman and the hon. Member for Cardiff South and Penarth asked about other related matters concerning the EU. It is probably worth highlighting that EU sanctions related to action in eastern Ukraine cover almost 150 individuals.

The hon. Member for Leeds East asked about the letter that Mrs Litvinenko sent to the Home Secretary asking whether she will consider extending such measures to other individuals. I can confirm that, at this point, the Government have not responded to Mrs Litvinenko’s letter. The Home Secretary met Mrs Litvinenko with the Foreign Office Minister and her legal advisers on 28 January, and she is now giving detailed consideration to the issues raised in Mrs Litvinenko’s letter. I anticipate that she will respond soon, but I do not have a precise date for that.

I think I have answered all the hon. Gentleman’s questions. I am glad that everyone here seems to support our case for imposing the order. Until such time as the individuals responsible for Mr Litvinenko’s death are brought to justice, freezing their assets sends a clear signal about how profoundly we disapprove of their actions. I believe that we met both the tests required under the Anti-terrorism, Crime and Security Act 2001 in introducing this order. I am grateful for hon. Members’ constructive engagement with this matter. I commend the order to the Committee.

Question put and agreed to.

Financial Services

Harriett Baldwin Excerpts

Thursday 11th February 2016 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I can today confirm that I have laid a Treasury minute informing the House of a reduction in HM Treasury’s contingent liabilities to NRAM plc (formerly Northern Rock (Asset Management) plc).

The Treasury minute concerns the guarantee arrangements announced on 8 December 2009 that put in place arrangements in relation to certain borrowings and derivative transactions of, and certain wholesale deposits held in accounts with, NRAM plc. At March 2015 the maximum contingent liability to HM Treasury on this guarantee arrangement was £6.5 billion.

The reduction is a result of the sale announcement on 13 November that UK Asset Resolution (UKAR), the holding company of NRAM (formerly Northern Rock Asset Management) had sold £13 billion of mortgages, consequently HM Treasury’s contingent liabilities have reduced as securities associated with the Granite securitisation vehicle have been extinguished. As a result of this the HM Treasury exposure under this guarantee arrangement has fallen to around £270 million.

I will update the House of any further changes to UKAR associated guarantee arrangements as necessary.

If the remaining liability is called, provision for any payment will be sought through the normal supply procedure.

[HCWS538]