Contingencies Fund Advance: Help to Buy ISA

Harriett Baldwin Excerpts

Monday 25th January 2016 Written Statements

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

The Help to Buy: ISA was announced in the March 2015 Budget. Under the scheme first time buyers purchasing a property in the UK will be able to save up to £200 per month in a Help to Buy: ISA and receive a bonus of up to £3,000 The bonus amount is calculated as 25% of the balance in the buyer’s Help to Buy: ISA, (with a minimum of £400 and capped at £3000). The bonus will be paid upon the completion of the purchase of an eligible property.

The Help to Buy: ISA has been available since 1 December 2015 and 200,000 accounts have so far been opened. The first homes to be acquired using the scheme are expected to be purchased in early February 2016.

The resources for the bonus payments will form part of HM Treasury’s supplementary estimate 2015-16, which is expected to achieve Royal Assent in the associated Supply and Appropriation Bill in mid to late March. HM Treasury will therefore be utilising the Contingencies Fund to make the initial bonus payments that become payable prior to Royal Assent.

Parliamentary approval for additional resources of £20,000,000 for this new expenditure will be sought in a supplementary estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £20,000,000 will be met by repayable cash advances from the Contingencies Fund.

[HCWS487]

Domestic Politically Exposed Persons: Money Laundering Rules

Harriett Baldwin Excerpts

Wednesday 20th January 2016 Commons Chamber

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

I warmly congratulate my hon. Friend the Member for Broxbourne (Mr Walker) on securing the debate. His speech featured both the clarity and the oratory that regularly win him awards as a parliamentarian.

My hon. Friend has raised an issue that I know has caused a great deal of frustration and anger with our banks, particularly when not just we but our families, by association, experience the same difficulties. I am grateful to him for putting a range of examples on the record, because I regularly inform my officials and the bank representatives whom I meet that my ears are bent every time I go into the Tea Room or the Lobbies, and now they will know that I am not exaggerating. I hear Members’ frustration loud and clear, and I assure them that, along with my right hon. Friend the Minister for Small Business, Industry and Enterprise, who is present, I am keen to enhance the action that we are already taking to deal with this example of red tape. I shall return to that subject shortly, but let me begin by setting out the broader context of our anti-money laundering and counter-terrorist financing regime, of which the issue of domestic politically exposed persons is just one part.

This year will see the most comprehensive review ever of our regime to deal with illicit finance. At a global level we are taking action to improve our response to the threats of organised crime, international corruption and new and evolving forms of terrorism. As the Prime Minister set out in Singapore last year, that is exactly why he will be hosting a major anti-corruption summit in the UK this May.

The Government are also committed to securing the hard-won growth in our economy. In order to maintain this momentum, we need to create a business environment that fosters innovation and investment and that is supported, not hindered, by regulation. That is why it is so important to get the regulatory regime right, and why we are carrying out a red tape review of our current anti money laundering regime, seeking views from the private sector on areas of the regime that it finds unnecessarily burdensome. The aim of this is to help us to fine-tune our legislation so that we have an effective regime that works for our country. That review will report in the coming months, and I look forward to working with my colleague the Minister for Small Business, Industry and Enterprise and to receiving the analysis.

I turn now to the specific issue of domestic PEPs. I recognise that this is the key concern of the debate, and that it is a concern not only of my hon. Friend the Member for Broxbourne but of many others in this House and the other place. As he states, the current global rules on anti-money laundering require that, in cases of high risk, banks and regulated businesses carry out enhanced due diligence on all PEPs—that is, those individuals entrusted with a prominent public function, be it politicians, high-ranking members of the military, senior members of the judiciary or others. Indeed, I myself got caught by this when I held an account with an American firm. There is solid reasoning behind this when it comes to PEPs outside the European Union, because political corruption is something we have seen time and again across the world on a truly astonishing scale.

Let me give three examples. The first is the James Ibori case. He was a state governor in Nigeria from 1999 to 2007. In that time he stole tens of millions of pounds of public money. With an official salary of £10,000 he was somehow able to buy a £2.2 million house in Hampstead, one in Regent’s Park, a house in Dorset and a flat in St John’s Wood, and it was not just Ibori himself who was ultimately convicted and imprisoned: so was his sister, as well as other associates including his UK solicitor. That is because they conspired with Ibori to conceal the origins of his wealth through a complex web of transactions and shell companies.

Another striking example is that of the former Secretary for Transport and Public Works of Macau. He was convicted of 40 counts of corruption and 13 counts of money laundering and sentenced to 27 years’ imprisonment. Since then the UK alone has recovered over £28 million of his corrupt assets and returned them to Macau.

Another example is that of the late Frederick Chiluba. He was Zambian President between 1991 and 2001. On 4 May 2007 he was found guilty of stealing $46 million of assets in a civil case in the Royal Courts of Justice, and used UK-based solicitors to launder money. In 2008 it was reported that about $60 million had been recovered by the Zambian authorities.

There is therefore a reason that we treat foreign PEPs differently under the existing regulations, and that is why families and close associates are also looked at in more detail.

[Fiona Mactaggart]

All the examples the Minister has cited are of people who had some Executive power. How can Opposition legislators be regarded as having Executive power? I certainly do not feel as though I have any.

[Harriett Baldwin]

The right hon. Lady is right to highlight that, and I will be coming on to it. Clearly the degree of risk in terms of political engagement will vary not only by country, which is one factor that needs to be taken into account, but also with reference to the role of the individual.

We have heard how the regime works currently, but we have also heard from my hon. Friend the Member for Broxbourne that the regime will be changing in the coming year. The overarching framework is set at a global level by the Financial Action Task Force, which is a collection of 36 countries, including the US and Australia. It includes both domestic and foreign politically exposed persons in its standards. The motivation for these global standards is that in many countries domestic PEPs actually present a higher risk than foreign PEPs, and so one person’s domestic PEP is another person’s foreign PEP. The level of risk is not the same for all countries or all individuals, as has been pointed out, which is why the risk-based approach set out in the standards is crucial.

Of course the UK supports a risk-based approach across the EU to identify and deal with PEPs, especially domestic ones. That is why we were supportive of the fourth anti-money laundering directive, which enacts these global standards. We are now faced with transposing the EU directive into UK law by June 2017, and it will extend the regime so that domestic PEPs will also be subject to enhanced due diligence across the board. Despite the fact that the new regime does not come into effect until next year, I know that some banks—we have heard some examples and some names today—particularly international ones, have already chosen to implement these changes. They are very much applying a one-size-fits-all process, as we have seen in the examples we have heard this evening. I know that for some individuals affected this has caused enormous frustration.

Let me be clear: this change should not prevent any Member of this House, or any other individual in this category, from gaining or maintaining a UK bank account. We are looking at exactly how we can encourage the banks to implement these measures domestically in the most risk-based manner possible. My officials discuss this issue with their international partners on a regular basis, and we are seeking views on this as part of our public consultation on the updated money laundering regulations and how we transpose the fourth anti-money laundering directive into UK law. I am already regularly raising this issue with not only the banks but the regulator.

I have already mentioned the red tape review of our current anti-money laundering regime, and today’s debate is helpful in that context. I know this is an issue of significant concern in this House, as we have heard clearly this evening, so I will report back to hon. Members as this work develops over the coming months. My goal is to have a banking system that is hostile to illicit finance and to terrorists, but which allows ordinary law-abiding and law-making citizens to move easily from one bank to another for better rates and better service. This debate has been very valuable for getting on the record the heavy-handed way in which banks are already applying these new rules. I would like to reassure my hon. Friend, and all other colleagues, that I am on his side, and I am grateful to him for bringing this issue to the House’s attention.

Question put and agreed to.

Oral Answers to Questions

Harriett Baldwin Excerpts

Tuesday 19th January 2016 Commons Chamber

[Jo Stevens (Cardiff Central) (Lab)]

13. What discussions he has had with the Financial Conduct Authority on its decision to end its review of banking culture.

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

The Financial Conduct Authority is an independent regulator. No Treasury Minister or official had any discussions with the FCA before it took the decision to discontinue the review.

[Dr Huq]

Given that the popular image of bankers right now is probably on a par with used car salesmen or MPs even, does the Minister not agree with the hon. Member for Wyre Forest (Mark Garnier) that to abort the review now, which could have looked at regulating challenger banks as well as historical mis-selling, is a missed opportunity?

[Harriett Baldwin]

I find it hard to take lectures from the Labour party on regulating the financial sector. In fact, since my right hon. Friend became Chancellor, we have set up the Financial Conduct Authority and moved on from the failed regulatory system under the Labour Government. We made it a criminal offence to manipulate the UK’s key benchmark, we brought in the toughest rules on bankers’ pay of any financial centre, and we are bringing in a new criminal offence so that senior managers whose reckless decisions bring down banks can face up to seven years in jail.

[Jo Stevens]

With the terrible impact of bad banking practices highlighted in the Tomlinson report, particularly in commercial lending to small businesses, still unresolved for one of my constituents, does the Minister agree that both the public and small businesses still have significant concerns about the behaviour of many individuals within the banking sector?

[Harriett Baldwin]

I completely agree with the hon. Lady that we need to see the highest levels of conduct from the banking sector. We also need to continue to take steps in terms of our long-term economic plan to secure access to funding for small businesses. That is why we have taken steps to back peer-to-peer lending and extended funding for lending for another two years. We continue to benefit from record low interest rates thanks to our prudent economic management.

[Mark Garnier (Wyre Forest) (Con)]

There has been speculation that the Treasury has influenced the decision by the Financial Conduct Authority. While I think that such speculation is certainly fanciful, it is important to remind the House that the FCA was set up in 2012 as an independent organisation. Does my hon. Friend agree that one way we could underpin the independence of the FCA would be to adopt a similar process to the one we have with the Office for Budget Responsibility, whereby the Treasury Committee can have power of veto over the appointment of the chief executive?

[Harriett Baldwin]

My hon. Friend, who is a very constructive and engaged member of the Treasury Committee, will have the opportunity to ask questions of the acting chief executive and the chair of the FCA on Wednesday. I agree that it is very useful for such a Committee to have pre-appointment hearings with any executive of the FCA.

[Andrew Bridgen (North West Leicestershire) (Con)]

The Symphony interbank communications software, which allows for the permanent deletion of emails, advertises itself as being able to save banks billions of pounds in fines. Will the Minister join my campaign, in conjunction with the Business Secretary, to ensure that the FCA retains the encryption codes for the Symphony software system for seven years, as happens in America?

[Harriett Baldwin]

My hon. Friend asks a salient question. The FCA is investigating this matter, and he will be aware that new rules—the markets in financial instruments directive II—will require firms to keep information for a considerable period, but this is the subject of ongoing discussions.

[Tom Brake (Carshalton and Wallington) (LD)]

23. Will the Minister agree that one of the biggest problems with the banking culture is that banks are too big to fail, and will she consider the issue of diversity in the sector, including, for instance, new lending platforms and market disruptors? In particular, will she consider new primary duties on the FCA to consider the issue of diversity?

[Harriett Baldwin]

I am sure the right hon. Gentleman will welcome the announcement we are expecting on Wednesday from the Bank of England, the FCA and the Prudential Regulation Authority about their working together to back innovation in the financial sector. A key part of our long-term economic plan is to back competition in the banking sector, which is why I am pleased there were eight new entrants to the banking sector in the last Parliament. In this Parliament, we are aiming for 15.

[Richard Burgon (Leeds East) (Lab)]

Mr Speaker,

“interventions by HM Treasury and other bodies have raised questions…regarding the board’s independence”—

not my words but those of an FCA-commissioned external report on the FCA board published last week. How will the Chancellor demonstrate that the appointment of the new chief executive will not be yet another example of an overreaching Chancellor trying to get his own way?

[Harriett Baldwin]

It was good of the hon. Gentleman to turn up for Treasury questions this time—I guess there was not a Stop the War march or a picket line to join today. I can assure him that the Treasury has the power to appoint both the board and the chief executive and to set its remit, but from then on it has operational independence.

[James Heappey (Wells) (Con)]

3. What comparative assessment he has made of the trends in the levels of wage growth and inflation.

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

6. How many staff in his Department earn less than £7.85 per hour.

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

None.

[Alison Thewliss]

I thank the Minister for that answer, but does she not agree that it is important to pay the real living wage, which is £9.40 an hour in London and £8.25 in the rest of the United Kingdom? It is paid by the Scottish Government and by more than 400 employers in Scotland, so it is fair to all employees, particularly those under 25.

[Harriett Baldwin]

I am glad the hon. Lady welcomes the fact that, from April this year, all employees in the United Kingdom who are over 25 will receive a significant pay rise. That is thanks to the strength of employment throughout the United Kingdom, which in turn is thanks to our long-term economic plan.

[Rishi Sunak (Richmond (Yorks)) (Con)]

According to my calculations, someone who earns £7.85 an hour today will benefit from rises in the personal tax allowance and the national living wage, and, by the end of this Parliament, will be more than £1,500 better off. Does my hon. Friend agree that that proves that this Government are committed to making work pay?

[Harriett Baldwin]

My hon. Friend makes an excellent point. In fact, it has been stated that not only will 2.5 million people benefit directly from the change in the national living wage in April, but up to 6 million whose salaries are very close to that hourly rate will benefit as well.

[Mr Jim Cunningham (Coventry South) (Lab)]

When will the Chancellor, and in particular the Minister, give public sector workers a decent pay rise that reflects some of the jobs that they do for us?

[Harriett Baldwin]

We believe that every worker in the country will benefit from the change in the national living wage, which is an important part of the long-term economic plan, but, as the hon. Gentleman will know, this year public sector workers received pay rises that were above inflation.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

The Minister has made important comments about the principle of making work pay. Will she give further consideration to extending the married couples’ tax allowance, so that more families can keep more of what they earn?

[Harriett Baldwin]

I will take that as a Budget submission.

[Mr Alan Mak (Havant) (Con)]

7. What fiscal steps he is taking to support businesses.

--- Later in debate ---

[Nick Smith (Blaenau Gwent) (Lab)]

14. What his plans are for future funding of illegal money lending teams.

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

The Government are exploring options to ensure that the England and Wales illegal money lending teams have the funding they need to ensure that consumers continue to be protected from illegal loan sharks, and are confident of transitional arrangements being agreed.

[Nick Smith]

Too many of my constituents are victims of loan sharks. The illegal money lending team has helped nearly 24,000 victims across the country, yet the Government have treated the service with disdain. Will the cuts to this vital team and to local employment standards not make the poorest more vulnerable?

[Harriett Baldwin]

Far from agreeing with the hon. Gentleman, I must say that the Government are finding ways to put the team on a sustainable basis to continue the valuable work it does to protect people from illegal money lending.

[Gareth Johnson (Dartford) (Con)]

T1. If he will make a statement on his departmental responsibilities.

--- Later in debate ---

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

I am delighted to tell my constituency neighbour that at the end of last year we announced that all the major banks are now able to offer a basic bank account to customers who require one.

[Margaret Greenwood (Wirral West) (Lab)]

T6. Many of my constituents who watch “Coronation Street” will be following the story of Tyrone Dobbs’ struggle with debt with keen interest. Unsecured lending reached a record high last year, with more than 3 million people in problem debt. The Government promised a review of what breathing space creditors should give to people who are engaged with a debt charity or agency, so that their debts do not continue to spiral out of control while they are working to resolve them. The review was due by the end of 2015. When do the Government now plan to announce it?

[Harriett Baldwin]

In answer to earlier questions I referred to the importance that we place on the team that will tackle illegal money lending. We have continued to support funding for debt advice, including through excellent organisations such as Christians Against Poverty, StepChange and Citizens Advice, to help individuals such as those mentioned by the hon. Lady.

[James Berry (Kingston and Surbiton) (Con)]

On Friday I visited Barclays bank in Kingston to hear about the fantastic Barclays life skills course, which teaches young people financial literacy, among other things. I can see some candidates for the course here today. Does the Minister agree that by making financial education more accessible, we can ensure that the financial sector itself supports young people and people throughout every stage of their lives?

[Harriett Baldwin]

I am delighted that my hon. Friend found his visit to Barclays in his constituency to be so helpful. I know that he, too, will welcome the fact that since 2014 financial education has been part of the national curriculum.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

T7. The Conservative leader of Essex county council has told the Prime Minister that the 2% social care precept will cover only half the council’s increased costs. He has suggested bringing better care funding forward to 2017 and asked for a fairer redistribution of funds. Even Conservative councils cannot wait till 2019 for the funding that the Chancellor has allocated, so will he act now to avoid a further crisis in social care?

--- Later in debate ---

[Mr Robin Walker (Worcester) (Con)]

Credit unions can play a vital role in improving financial inclusion and creating a stronger savings culture. As I know from my work with the all-party credit unions group, they have support in all parts of this House. With the opportunity of the World Council of Credit Unions coming to the UK—to Northern Ireland—later this year, will the Chancellor commit to making sure that we continue to build on the work of the credit union expansion programme and back this vital group?

[Harriett Baldwin]

My other constituency neighbour is a fine advocate for the excellent credit unions industry. As he will know, we have backed the industry with £38 million of investment through the credit union expansion project, and we will continue to seek ways to back credit unions.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

Given that manufacturing remains at 6.1% below pre-crisis levels, with worrying trends in the manufacture of plant and machinery and of pharmaceuticals, will the Chancellor accept that his domestic policy agenda has just as much impact on our performance as the global factors that he is so very keen to blame, and that if the march of the makers is now going backwards, he must bear a measure of responsibility and come forward with proposals to halt the decline?

--- Later in debate ---

[Alison McGovern (Wirral South) (Lab)]

May I return the City Minister to the issue of the cancelled FCA inquiry into banking culture? The Parliamentary Commission on Banking Standards chaired by the right hon. Member for Chichester (Mr Tyrie) pointed to the “Murder on the Orient Express” excuse where everyone was partly responsible but no one was really to blame. The Minister said before that Ministers had no role in the cancellation of that inquiry. Will she say, yes or no, whether any civil servants did?

[Harriett Baldwin]

No.

[Several hon. Members rose—]

Connaught Income Fund

Harriett Baldwin Excerpts

Tuesday 12th January 2016 Commons Chamber

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

I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this debate, chairing the all-party group and raising the serious issues concerning the Connaught Income Fund. His constituents and, clearly, those of many other colleagues have been seriously affected by this event and have written to me many times.

Many investors have lost substantial sums and, indeed, sometimes their life savings as a result of the events involving the Connaught funds. I am very much aware that that has caused real hardship for people across the country. It is important that the FCA and the all-party group get to the bottom of this matter and try to secure the best outcome for investors in these funds. Those who are responsible should face justice for their actions. It is equally important that steps are taken to ensure that this situation does not arise again in the future.

I reassure my hon. Friend and all other Members that the Financial Conduct Authority takes this matter extremely seriously.

[Kirsten Oswald]

rose—

[Harriett Baldwin]

Given the lack of time, I will make a bit of progress. If I have time, I will come back to the hon. Lady.

The FCA also knows that what happened with the Connaught funds has caused serious distress to many investors and continues to work closely on this case to secure the best possible outcome. As my hon. Friend the Member for Aberconwy said, the Connaught funds comprised three separate funds, income series 1, series 2 and series 3. In total, approximately £147 million was invested in the funds, which, as we know, were unregulated collective investment schemes. By definition, such schemes are not subject to direct regulation by the FCA or, previously, by the Financial Services Authority.

In the case of Connaught investment funds, many of the usual protections and safeguards that protect investors in regulated funds were absent, owing to the unregulated nature of some of the entities involved. On this point, I want to touch on two main issues. The first concerns the actions taken by the FCA to try to protect consumers, despite most of the entities involved being unregulated. That includes the ongoing work to secure a fair and proper outcome for investors. The second involves the steps that can be taken to ensure that this sort of situation does not happen again.

First, despite the schemes being unregulated, the FCA has taken a number of significant steps to try to protect customers right from when the first problems arose. In May 2011, the FCA, which was at the time the FSA, altered Tiuta’s permissions on issuing new regulated mortgage lending. Shortly thereafter, it wrote to investors who might have been mis-sold the fund and all financial advisers who sold the fund, asking them to review the sales and to contact customers where there may have been the risk of unsuitable advice. The FCA has continued to provide updates on the situation via its website. Once the funds were suspended and steps were taken to wind them down, the FCA announced on 16 July 2014 that it would support a negotiated settlement to address investor losses.

As hon. Members may know, the FCA initially supported the negotiations between the parties involved, as it believed that doing so was in the best interests of investors. However, having extended the negotiations more than once, in March 2015 the FCA announced its decision to withdraw from them. The FCA decided that a further extension to the negotiation period was not in the best interests of investors. I am sure my hon. Friend will understand that as the negotiations were voluntary and confidential, the FCA cannot provide specific details on what happened during the negotiations.

[Mr David Hanson (Delyn) (Lab)]

Will the Minister give way?

[Harriett Baldwin]

I have so little time.

The FCA is now conducting formal investigations into the activities of the two operators of the fund, Capita Financial Managers Ltd and Blue Gate Capital Ltd. My hon. Friend questions the length of time that the FCA is likely to take in order to conduct and conclude its investigations. Although it is too early to give a reliable estimate of the likely time frame for their conclusion, the FCA has assured me that it intends to progress the investigations efficiently and effectively. The length of time it will take to complete the investigations is affected by, among other things, the level of co-operation received from those under investigation and any related third parties.

As the FCA is in the process of carrying out its investigations it is, of course, not possible to comment on their likely outcome. The FCA is unable to provide any comment on what the level or form of compensation to investors may be if it is found that the operators have contravened any regulatory principles or rules.

[Mr David Nuttall (Bury North) (Con)]

Will my hon. Friend please give way?

[Harriett Baldwin]

I have so little time, but I will try to make progress and then give way.

The FCA is an independent, non-governmental body, so I am sure my hon. Friend the Member for Aberconwy will agree that for me to interfere in its investigations in any way would not be appropriate.

My hon. Friend raised the question of whether the Financial Ombudsman Service has indicated a pre-determination to find against independent financial advisers, regardless of the allegations of fraudulent behaviour within the fund. It is important to note that like the FCA, the Financial Ombudsman Service is an independent, non-governmental body. It provides an independent dispute resolution service for consumers with individual complaints against financial services companies. In view of this independence, it would not be appropriate for the Government to comment or intervene in the Financial Ombudsman Service’s work on complaints against advisers who sold the Connaught Income Fund.

However, although I cannot provide comment on these details of these investigations, I am assured that the FCA has put considerable resources, time and effort into trying to achieve a good outcome for the investors affected by the failure of the fund, and that it continues to act in the best interests of the investors.

[Mary Robinson (Cheadle) (Con)]

Will my hon. Friend give way?

[Harriett Baldwin]

I shall give way to the hon. Member for East Renfrewshire (Kirsten Oswald) first.

[Kirsten Oswald]

I am grateful to the hon. Lady for giving way. In response to a written question I was referred to the record of ministerial meetings to find out when a Treasury Minister last met representatives of the FCA. Does the Minister understand my astonishment at finding not a single bilateral meeting between the Treasury at ministerial level and the FCA in the two years from October 2013 to September 2015? Does she appreciate that her Government seem to be asleep at the wheel as the FCA fails to clean up the financial services sector?

[Harriett Baldwin]

The hon. Lady has been assiduous in tabling a number of parliamentary questions. I think I am right in saying that they have been put on the record in the Library. I encourage other hon. Members to have a look and see the record that she has managed to get from the FCA in writing.

I am sure that other hon. Members who have constituents who have suffered losses in the Connaught Income Fund will welcome the reassurance that the FCA is doing its utmost to secure the best possible outcome for investors, and that they will support the FCA in its current investigations.

[Mr Nuttall]

I appreciate that the Minister does not want to comment, but given the strength of feeling this evening, will she please pick up the phone in the morning to Tracey McDermott, the interim head of the FCA, and make it absolutely clear that we want some action on behalf of our constituents and we want this matter sorted out now?

[Harriett Baldwin]

I am sure my hon. Friend would not want me to interfere in a number of different FCA matters, but I am quite sure that the FCA will have seen the strength of feeling in the Chamber this evening.

I have one minute left so I will take a quick intervention.

[Mary Robinson]

I am grateful to my hon. Friend. Does she agree that at the heart of this are many elderly people who have done the right thing all their lives, saved for their retirement and gone, like my constituents, to an IFA, and now it is time for the FCA to do the right thing for them?

[Harriett Baldwin]

There clearly is a lot to investigate in this case. As I said, the FCA is doing its utmost to secure the best possible outcome for investors.

I would like to reassure hon. Members about the steps that have been taken to ensure that this situation does not occur again. The FCA has brought in new rules banning the promotion of unregulated collective investment schemes to ordinary retail investors. Independent financial advisers should not be selling unregulated investment schemes to retail investors. The circumstances in which unregulated schemes can be promoted to consumers are generally restricted to certain types of qualifying investors, such as those who have a high level of understanding about investments, or high net worth individuals, for whom those products are likely to be more suitable. That is an important step to take in ensuring that such a situation does not occur in the future.

I thank my hon. Friend the Member for Aberconwy once again for raising these important issues. His all-party group plays an incredibly important role in the parliamentary scrutiny of what the FCA is investigating, and I hope we can move forward and secure redress for his constituents and others.

Question put and agreed to.

Banking Act 2009 Reporting

Harriett Baldwin Excerpts

Thursday 17th December 2015 Written Statements

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

The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 April 2015 to 30 September 2015. Copies of the document are available in the Vote Office and the Printed Paper Office.

[HCWS433]

Financial Services

Harriett Baldwin Excerpts

Tuesday 15th December 2015 Written Statements

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

The Government have today published their response to the consultation on creating a secondary annuity market (CM 9046, March 2015). The response confirms that from 6 April 2017 tax restrictions for people looking to sell their annuity will be removed, giving the 5 million people with an existing annuity, and anyone who purchases an annuity in the future, the freedom to sell their right to future income streams for an upfront cash sum. This will extend the pension freedoms already introduced in April 2015 for those reaching retirement with a pension pot. The consultation sets out further details around how the market will work, including the comprehensive consumer protection regime.

The document has been placed in the Libraries of both Houses.

[HCWS396]

Draft Payment Accounts Regulations 2015

Harriett Baldwin Excerpts

Wednesday 9th December 2015 General Committees

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

I beg to move,

That the Committee has considered the draft Payment Accounts Regulations 2015.

It is a great pleasure to serve under your chairmanship, Mr McCabe. I am pleased to introduce these draft regulations, which aim to ensure the UK’s compliance with the EU payment accounts directive. The directive sets common standards across member states that payment service providers—in this context, principally banks and building societies—must meet.

First, for the accounts that we use for day-to-day transactions—in most cases, a current account—the directive aims to make fees and charges clearer and more comparable. Secondly, the directive seeks to make it easier to switch to another provider of such an account, in order to facilitate competition. Thirdly, the directive creates a right of access to a payment account with basic features—more commonly known as “basic bank accounts” in the UK—for all consumers legally resident within the EU.

The Government supported the directive and have already taken action in many of those areas. Agreements with industry already aim to improve transparency of fees and charges, and we have established the seven-day current account switch service. For more than 10 years, our largest banks have offered basic bank accounts, and they have recently committed to improve that offering even further. The regulations comply with the directive where necessary but minimise negative impacts on industry and customers and preserve structures that are already working well in the UK.

I will start with a few words on the scope of the directive—namely, the definition of the term “payment account”. For the avoidance of doubt, when I refer to a payment account today, I do so in line with the definition used in the draft regulations. The definition of that term in the directive could capture very simple types of payment account, well beyond the types of account used for day-to-day transactions that were discussed in open negotiations. However, the detailed recitals to the directive make it clear that the following should, in principle, be excluded: savings accounts; credit card accounts, into which funds are usually paid for the sole purpose of repaying a credit card debt; current account mortgages; and e-money accounts. The exception to that is where such accounts are used for day-to-day payment transactions.

Accordingly, the Government have defined “payment account” in the draft regulations in a way that describes and clarifies the accounts that will be in scope. It is the Government’s view that the definition should be sufficient to limit the application of the draft regulations to current accounts or accounts that have functionalities directly comparable to those of current accounts in the UK.

The Government have given as much clarification as the text for the directive allows. To go further and entirely exclude some types of account would be to risk a failure to comply with the directive. It will be for firms themselves to determine whether each of their products falls within the scope of the regulations and whether the regulations therefore apply to them. The Financial Conduct Authority will supervise and enforce most of the requirements set out in the draft regulations.

Where firms offer a payment account in line with the draft regulations, they will need to make new documents available to customers: first, a fee information document setting out the fees that may be charged before the consumer decides to enter into a contract; secondly, an annual statement of fees provided each year to explain the fees that have been charged; and thirdly, a glossary to explain the main terms used in the documents and their definitions. Some of the terminology used in those documents and in related contractual, commercial and marketing information will be standardised at European level. The process for carrying out that standardisation is already under way.

As required by the directive, the Financial Conduct Authority has established a provisional national list of the most representative services that are linked to current accounts in the UK and subject to a fee. Each member state has submitted its list to the European Commission and the European Banking Authority, so that they may develop EU standardised terminology for the services that appear on a majority of member states’ national lists.

After the European Commission adopts the EU standardised terminology, the FCA will integrate standardised terminology into its provisional national list, where necessary, and publish the final list for UK payment service providers to use. In addition, the Money Advice Service will operate a comparison website allowing customers to compare at least the fees that appear on the final list.

The directive will also require action on packaged accounts, which are payment accounts that offer an additional service or services such as insurance or car breakdown cover. Customers will now need to be informed whether the account is available without the additional services and, if any of the additional services may be purchased separately from the same firm, how much each of those additional services would cost. Taken together, the measures should help customers understand and compare how much they are charged.

I will now set out the approach to account switching. As I have mentioned, the UK already has a world-leading current account switch service, which has been recognised by the European Commission. It is managed and operated by BACS, a not-for-profit organisation. Not all EU member states are in our happy position, however, so the directive sets out some rules that all EU payment service providers must abide by when customers wish to switch to another payment account in their member state.

Where a UK payment service provider is not a member of the current account switch service and it offers a current account-type product, it must at least follow the EU rules. However, for the vast majority of the current account market, the draft regulations allow our current account switch service to continue to work as it does today.

Compared with the switching rules set out in the directive, our current account switch service must meet three simple criteria: it must continue to be in the interest of the consumer; it must present no additional burden to the consumer; and it must be at least as fast. As the directive makes clear, we may maintain existing services where they meet those three criteria.

There is no requirement to mirror the switching rules set out in the directive exactly. The Government’s clear view is that our existing current account switch service exceeds the three criteria. However, the UK’s compliance with the directive should be beyond question, which is why the independent Payment Systems Regulator will be responsible for confirming that the current account switch service meets and continues to deliver against the three criteria.

We have agreed a proportionate set of powers for the Payment Systems Regulator, as a competent authority, to use should they ever become necessary in its limited role. The Payment Systems Regulator will provide further information on the designation and monitoring process in due course.

I will move on to the provisions on basic bank accounts. Such accounts help to ensure that everyone can access essential banking services. They should be fee free and not offer an overdraft or cheque book. The draft regulations on basic bank accounts reflect the UK’s existing basic bank account policy, in particular where that is more advantageous to customers, but they bring the UK into line with the requirements in the directive where necessary.

In December last year, the Government reached a new agreement on basic bank accounts with the nine largest providers of current accounts. That agreement clarifies who should be eligible for a basic bank account and brings to an end the widespread practice of charging basic bank account customers for a failed payment, such as a failed direct debit or standing order.

We have taken action in the draft regulations to ensure that we do not move backwards as a result of implementing the directive. For example, the directive would allow us to establish arrangements less advantageous to UK basic bank account customers by allowing banks to charge fees. However, the Government believe that a basic bank account and its standard services should continue to be provided free of charge, as long as the services are provided in pounds sterling. Nor should basic bank account customers be charged for failed payments or for over-running, given that a key principle underpinning basic accounts in the UK is that they should not be offered with an overdraft.

The directive will allow us to restrict accounts to only the unbanked, but we are clear that basic bank accounts are also necessary for access to banking for those who may already be banked but unable to use their existing account owing to financial difficulty. That is why the eligibility criteria in the draft regulations establish that consumers should be offered at least a basic bank account if they are unbanked or if they do not meet the bank’s stated eligibility criteria for standard current accounts.

We do not want to move backwards, but we have had to ensure that the UK can demonstrate its compliance with the directive. For example, we had to legislate to establish a clear legal right of access to a basic bank account and a right to challenge banks’ decisions before a court. A voluntary agreement could not establish those rights with sufficient legal certainty.

We have also had to limit and make more specific the reasons why a bank may refuse an application for a basic bank account or close one. However—I recognise the concern from the industry on that—no bank is required to open an account or continue to operate one where it would otherwise be unlawful to do so. I hope my words have assured the Committee that the regulations meet the UK’s obligation in implementing the directive in a sensible and pragmatic way and that, therefore, it will support the motion to approve them.

--- Later in debate ---

[Harriett Baldwin]

I welcome the support of Her Majesty’s Opposition, who have acknowledged that the draft regulations simply recognise that we are in the fortunate position, across the whole UK banking sector, of already having in place most of the component parts of the architecture required by the measure. The questions asked by the hon. Member for Leeds East are really more general questions about banking, competition and switching between bank accounts. I am happy to answer those questions but I will first answer the question of my right hon. Friend the Member for Cities of London and Westminster about the requirement for a basic bank account to be provided for any citizen of the EU who comes here and chooses to open one. I reassure him that exactly the same high standards of anti-money-laundering regulations would still apply in those situations so the banks should certainly satisfy themselves that the person whose basic bank account they are being asked to open can legally open one in the UK. Of course, that has come into particularly sharp focus as a result of the terrorist act in Paris recently. We must ensure that rigorous checks are in place.

My right hon. Friend asked whether the banks have enough time. As this is largely already in place in the United Kingdom, I have not had concerns expressed to me about timing. If he has representations that he would like to pass on or if he has specific concerns, I would be interested in hearing them. Our understanding is that, because a basic bank account has been available in the UK for many years, the industry is not concerned about implementing the regulations.

The hon. Member for Leeds East asked about a range of things related to the recent CMA report about bank account competition. That report has had its first publication and is open for consultation and feedback. I encourage him to write in to that. Clearly, we do not think that the directive will prevent us, in any way, from making the changes that we might want to make in the UK as a result of the CMA recommendations. The draft regulations will not prevent the UK from moving ahead on domestic initiatives. They are still being consulted on and they will be published next spring.

The hon. Gentleman is absolutely right to highlight the fact that people in the UK are much more likely to get divorced that to move bank accounts. That is not a very happy statistic. Nevertheless, since the current account switch service came in, we have certainly had a big increase in the number of people using it, because it makes it so much easier for consumers to move all their direct debits and payments across. In fact, 2.25 million people have used the service since it started and it seems only a few months ago that we were celebrating the 2 millionth. Clearly, many people are using it and, importantly, the fact that we have put such an emphasis on banking competition in this country means that consumers have more choice of who they might move to.

A lot of new challenger banks are opening in the UK. In the five years up to 2010, only one new bank opened in the UK. In the previous Parliament, eight new banks opened in the UK, and in this Parliament, we hope that 15 new banks will open in the UK. Of course, the opening of new banks gives consumers more choice and makes for a more competitive marketplace. The rate of change in switching is going up, but we welcome the initial report from the CMA, which is consulting on ways in which we might make it easier for consumers to get a better deal from their bank account.

The hon. Gentleman also asked about the timetable for the Money Advice Service. I can confirm that the Money Advice Service is funded through a levy. We work closely with it and with the FCA on its overall budget but that will clearly form part of its work stream. As for the timetable for that, as I mentioned in my opening remarks, we need to get the final list published by the FCA of the applicable terms to which it would expect the Money Advice Service to link. Once that happens, we expect the FCA to publish that list during the first half of 2017. Obviously, the Money Advice Service may choose to set up its website sooner, but there is no obligation for it to do so until six months after the FCA publishes its final linked services list.

If there are no further questions, I hope that the Committee will now support the draft regulations.

Question put and agreed to.

Financial Services

Harriett Baldwin Excerpts

Friday 4th December 2015 Written Statements

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

Further to the statement provided to the House on 2 June 2015 [HCWS10], the Chancellor has announced that the trading plan to sell part of the Government’s shares in Lloyds Banking Group will be extended. We will stop the plan before the launch of the Government’s retail sale of Lloyds shares.

The extension of the plan is a further step in returning Lloyds to the private sector and reducing our national debt. A statement will be laid before Parliament with further details at the end of the plan.

[HCWS358]

Capital Markets Union

Harriett Baldwin Excerpts

Thursday 3rd December 2015 General Committees

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

It is a genuine delight to serve under your chairmanship this morning, Mr Hanson. I welcome this opportunity to discuss with the Committee the European Commission’s action plan on building a capital markets union.

The capital markets action plan has the full support of the UK Government. We think it represents precisely the sort of work that Europe should be undertaking—work designed to improve EU competitiveness and create jobs and growth. The capital markets action plan sets out a range of initiatives that the Commission will pursue during the rest of its mandate. These will help to increase and diversify access to finance for businesses, create opportunities for investors and savers, and knock down barriers to saving and investment across 28 countries.

Lord Hill, the Commissioner with responsibility for financial services, has been clear that creating a capital markets union will be a step-by-step, consultative process and that decisions on the design of reforms will be evidence-based and subject to rigorous economic impact analysis. That will enable us to work with other member states to iron out issues in the detail. If we are to make the European Union more competitive, we need a true single market in capital. Delivery of a capital markets union forms part of the Government’s agenda for a more competitive European Union, and it was included by my right hon. Friend the Prime Minister in his letter to Donald Tusk on the subject of renegotiation.

At this stage, I would like briefly to remind the Committee of the letter I sent earlier this week to my hon. Friend the Member for Stone (Sir William Cash), apologising for the fact that Government support for the draft Council conclusions on the capital markets union action plan was given while the action plan was still subject to this process of parliamentary scrutiny. That was the result of a lapse in due process. I assure hon. Members that we are reviewing our internal procedures in the light of that oversight to ensure that it does not happen again.

Also at the end of September, the European Commission published proposals for a revised regulatory framework for securitisations. The Government strongly welcomed that timely and necessary initiative, which will open up an important funding channel to help European economies, ultimately supporting jobs and growth. Diversity in funding channels is highly desirable, as it increases the resilience of economies to shocks, as well as supporting them to recover more quickly. Securitisations can help to spread risk across the entire financial sector and offer an additional investment opportunity for pension funds and long-term savers. However, securitisations can be a source of instability if not done within a robust regulatory framework, so we will seek to provide for a clear, workable and legally robust framework for market participants as a further necessary precondition for getting these markets going again.

The Government believe that these proposals provide a sound foundation on which to restart safely the European securitisation markets. Based on the joint work by the Bank of England and the European Central Bank, they focus on defining standards of simplicity, transparency and disclosure to allow market participants to understand the risk that they are taking on and to price it appropriately. We are consulting a wide range of market participants and practitioners to inform our contributions in the negotiations, which will once again involve building partnerships to work our way through some of the issues noted by my hon. Friend the Member for Rochester and Strood, including the justice and home affairs issue.

I hope that hon. Members will therefore support today’s motion to note the Government’s support for the capital markets union action plan and the publication of proposals to set out a robust framework for securitisations in the European Union. Together, these proposals will help to provide an additional funding boost to the economy and jobs and growth. I welcome this opportunity to answer questions from the Committee.

[The Chair]

Hon. Members now have until 12.34 pm at the latest to ask questions, subject to my discretion.

[Mark Garnier (Wyre Forest) (Con)]

I thank my hon. Friend the Minister for her statement and I welcome the initiatives that are coming with the capital markets union action plan, but I would like her to reassure the Committee on a number of issues. Clearly what we are discussing is a very good thing, but is there any risk that it might expose us to negative factors, such as a financial transaction tax, which we might have to levy as part of a capital markets union across the whole EU? In addition, there are issues such as the location of clearing houses. Other important factors also need to be considered, such as how this issue relates to our proposals to secure our interest outside, not inside the eurozone and what effect the initiative might have on negotiations ahead of the referendum next year.

[Harriett Baldwin]

Let me take those points in turn. As a distinguished member of the Select Committee on the Treasury, my hon. Friend knows that the UK does not object in principle to financial transaction taxes. The UK has a financial transaction tax on stocks that are bought in the UK. However, the Government are concerned about the application of a financial transaction tax on instruments that could be traded elsewhere in the world, because if it were applied to something that is easily mobile and can be moved quickly to another jurisdiction, that is what would happen. There are no proposals in the capital markets union steps outlined today to harmonise taxation in any way. The Government stand strongly on our belief that taxation is a matter for member states and we continue to argue that case.

On the more general points about renegotiation and the Prime Minister’s letter to Donald Tusk, it is clear that the European Union needs to address the fact that nine countries continue to have their own currencies and 19 have chosen to adopt the euro. There is absolutely no prospect of the UK ever joining the euro, so as part of the renegotiation we need to make it clear across the 28 EU countries that positive initiatives such as this on capital markets must reflect the fact that this is a multi-currency single market for capital. We will fight vigorously against any proposals that threaten that. That is a key part of the renegotiation.

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

It is a pleasure, Mr Hanson, to serve under your chairmanship for the first time. My question is on a fairly narrow point. On a number of occasions the Minister has mentioned risk, and some of the documents refer to risk. She will know that there is no unit of measurement for risk. I often think that Governments would be well advised to disaggregate risk into its different components so that they can be clearer about measuring probabilities and chances, and negative outcomes in financial terms, for example. I would like to hear her remarks about whether that would be worth while. I am asking because I was pleased to hear her remark about a rigorous impact assessment. It strikes me that in such an assessment particular care will have to be taken about how risk is measured.

[Harriett Baldwin]

I welcome the hon. Gentleman’s question about risk and I draw his attention to this incredibly thorough document. With his academic interest in such subjects, he will want to read the academic articles cited in this weighty tome. He will know that there are of course many risks in capital markets. Not only is there market risk, there is credit risk, regulatory risk and, in a multi-currency single market, currency risk. In a previous life, I specialised in this subject, so perhaps he and I could go for a drink some time and talk about leptokurtic distributions and other such esoteric matters, which might not fascinate the rest of the Committee as much as us.

[The Chair]

As long as I don’t have to chair it.

[Harriett Baldwin]

As far as the proposals before us are concerned, the important point about risk is that, following the crisis in 2007, the market for securitised transactions—which were a source of incredibly un-transparent risk in the financial sector, with incredibly harmful impacts throughout European Union—was so bad that it has now dried up almost completely in the EU. The purpose of moving so rapidly, which the Government support, is to bring back what we would call the good risk of simple transactions to securitise basic lending across the European Union. That is why the speed at which this is moving is welcome. The simplicity and transparency of the securitisations proposed secure the benefit of those good ways of reducing risk on bank balance sheets, freeing up lending that the banks can do in the real economy to support jobs and growth, which is an important function. That is why we think this simple approach to securitisation is a good way of managing the risks, and we are opposed to the kind of complex securitisations and opaque risks that contributed to the crisis.

[The Chair]

If no more Members wish to ask questions, we will proceed to the debate.

[Harriett Baldwin]

I beg to move,

That the Committee takes note of European Union Documents No. 12263/15 and Addenda 1 and 2, a Commission Communication: Action Plan on Building a Capital Markets Union, No. 12601/15 and Addenda 1 and 2, a Commission Proposal for a Regulation laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No. 1060/2009 and (EU) No. 648/2012, and No. 12603/15, a Commission Proposal for a Regulation amending Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms; also notes that the Government supports the Commission's efforts to ensure that the Capital Markets Union action plan supports jobs and growth, and in particular that the Government welcomes the focus on helping small and medium-sized enterprises (SMEs) get the funding they need to grow and succeed; and further notes that the Government welcomes the Commission's proposals on securitisation, which provide a framework for the revitalisation of securitisation markets in a prudent and sound fashion, in order to improve access to finance across the wider economy and help to deliver on the objectives of Capital Markets Union.

I shall probably fall into the trap of using a three-letter acronym, which is something the Treasury likes to do, and refer to the CMU action plan. At the end of September the European Commission published the action plan, which has the Government’s full support because it represents precisely the sort of work that Europe should be undertaking. Following the wave of regulation put in place in response to the financial crisis, the Commission has now turned its attention, in a welcome way, to generating jobs and growth in the European Union. The capital markets action plan represents the beginning of that process and sets out a range of work streams that the Commission will pursue over the rest of its mandate. They will help to increase and diversify access to finance for business and will create opportunities for Europe’s investors.

European savings levels are quite good, but people lack options to invest their savings in growing firms throughout the single market, because at the moment traditional bank lending to business is stifled and because the many costs of investing money across national borders in the European Union mean that savers have a strong tendency to invest only in their home member state. Importantly, the Commission is not only tackling a problem that we have been advocating should be addressed for some time, but doing so in a way that is firmly rooted in the better regulation agenda for which the Prime Minister and others have been calling. Furthermore, to date there has been no presumption that legislative action is the best course. The Commission has made clear its commitment to consider all options. The action plan fully embodies that approach.

Delivery of a CMU forms part of the Government’s agenda for a more competitive EU. If we are to make Europe more competitive, we need a true single market in capital, because that will break down the barriers that stop flows between member states and will help businesses to access the finance that they need to grow and succeed. As Committee members will have seen from the documents, the action plan is thematic, identifying six key areas for reform: financing for innovation; start-ups and non-listed companies; making it easier for firms to access and use public markets; measures on long-term infrastructure and sustainable investment; fostering retail and institutional investment; leveraging bank capacity; and facilitating cross-border investment. The Commission has also identified a set of priority measures for immediate action, which include today’s proposals on securitisation, revisions to current EU legislation on venture capital and prospectuses, and a call for evidence on the cumulative impact of current EU financial services legislation. These are all priorities that the Government support.

Although the Government have prioritised helping our small and medium-sized firms, we know that such firms can still find it hard to access finance. The CMU will help by giving them access to more investors across the single market by pooling investment resources, helping venture capitalists and angel investors, and making it easier to list on public markets. From our perspective, it is not just our smaller firms that will benefit; breaking down barriers across the single market will help British firms to diversify their investments at a lower cost and to offer our competitive products to savers across the single market.

The European Commission has also published its proposals for a revised regulatory framework for securitisations. The impact of the global financial crisis was severe and has reduced the market for European securitisations, with the end result that that source of funding for the real economy was almost entirely shut down. Some in the industry believe that the EU securitisation market is now slowly dying, with new issuances at only a fraction of the pre-crisis level. Unless market participants are given a clear signal that securitisation markets have a long-term future in the EU, we risk losing the experience and the necessary expertise in such instruments altogether, making it difficult to restart these markets.

As I said earlier in answer to questions, securitisations can also be a source of instability if they are not done within a robust regulatory framework. A vital objective for such a framework is to restore trust in the information provided in respect of these products, which will, of course, help to address the lack of confidence stemming from the many unpleasant surprises that investors experienced with regard mainly to US-originated securitisations, where complex structures made it difficult for investors to judge the risk involved and where issuers were able to hide behind credit rating agencies. If we want to get these markets going again, it is important that an appropriate balance is found between the responsibilities and corresponding incentives for issuers as well as investors.

The Government believe that these proposals provide a sound foundation on which safely to restart European securitisation markets. We also believe that a self-certification approach attesting to the quality of securitisation is needed in order to avoid the moral hazards that we saw in the past. We believe this regime can be made to work, provided that the criteria for securitisation to qualify as simple and transparent are very clear and unambiguous and that there is clarity for all participants, whatever their roles and responsibilities.

The UK’s overriding objective during the negotiations is to get these markets going again in a prudentially sound way. Provided that the overall approach is robust, it is also appropriate to recalibrate the prudential requirements in a more risk-sensitive fashion. We are working closely with the Bank of England to seek an outcome that addresses financial stability concerns but also provides the necessary incentives to encourage simple, transparent securitisation and to discourage less transparent and unduly complex structures. We are consulting a wide range of market participants and practitioners to inform our contributions to the negotiations.

I hope hon. Members will support today’s motion and note

“that the Government supports the Commission’s efforts to ensure that the Capital Markets Union action plan supports jobs and growth, and in particular…helping small and medium-sized enterprises…get the funding they need to grow”.

--- Later in debate ---

[Harriett Baldwin]

I thank the European Scrutiny Committee for putting forward this important initiative on capital markets union for scrutiny in this debate. I will respond to some of the points made by the hon. Members for Leeds East and for Kirkcaldy and Cowdenbeath. It is important to re-emphasise that the capital markets union initiative is designed purely to have long-term benefits for savers, for small, medium and large businesses and for investors in hon. Members’ constituencies. We must focus on that as the objective of the action plan.

The hon. Member for Kirkcaldy and Cowdenbeath said that he appreciated the simplicity of my opening remarks. I tried deliberately to make them simple, because I know that, even if he gets the materials in time, it can sometimes be hard to see the simplicity in them. However, the concept actually is simple: we want to ensure that a business starting in Leeds East has access to a wider range of funding sources for growth than it does at present. Today, it can go to a small range of banks. As the hon. Member for Kirkcaldy and Cowdenbeath knows, we are trying to expand the range of banks active in the UK. In the five years to 2010, only one new bank started in the UK; in the last Parliament, eight new banks did. In this Parliament, we would like 15 new banks to do so, but we also want businesses in Leeds East and Kirkcaldy to be able to access finances from other sources.

If a venture capitalist in Estonia wants to put money into a high-risk but exciting investment in Kirkcaldy or Leeds East, we want that to be feasible. The capital markets action plan is about trying to make it easier by having common rules, so that a saver in Bulgaria can save through a peer-to-peer lending platform started in the UK. All those kinds of thing will help people, businesses, savers and investors, and that is the vision that can sometimes be obscured behind a lot of acronyms.

I appreciate the support that Members have articulated for the principles we are aiming for. I reiterate my apology to the Committee for the fact that the Government’s support of the action plan is so wholehearted that things have moved more rapidly than anticipated in the sometimes slow-moving corridors of the Commission. Therefore, we inadvertently went faster than we should have done before the scrutiny of this Committee, which we value so much. In addition to apologising for that in a letter to my hon. Friend the Member for Stone, I have personally telephoned him to offer my humble apologies for the fact that, on this occasion, things in Europe went faster than we anticipated. We will try to prevent that from happening again.

The hon. Member for Leeds East also asked about the second letter that we wrote, and the fact that we have now discovered some justice and home affairs issues to do with the file. In their briefing, my officials said that that was entirely their fault, but I am happy to take all the blame myself. I am sure that the Committee, in considering the files initially, would not immediately have thought that such a measure would have justice and home affairs implications, but they arise from the fact that some of the 28 countries of the European Union have a criminal approach to securities fraud that is not necessarily the same as the UK’s. When we did the ministerial write-round, it was brought to our attention that there were some justice and home affairs issues, which is why we have written to the European Scrutiny Committee. We welcome the Committee’s thoughts on whether the UK would be well served by opting in, or whether the UK should exercise its opt-out. The briefings that we have seen do not show a clear impact on the UK one way or the other, so it would be interesting to hear the Committee’s views.

The hon. Member for Leeds East mentioned the Bank of England’s stress test this week, and there are reports from the Financial Policy Committee. I hope he welcomes, as I do, the new rigour in that process. We now have a Financial Policy Committee looking at the potential for the build-up of risks in the system. It looks closely at the characteristics of lending to businesses, to buy-to-let investors, to people who want to buy a home, and so on. There is close scrutiny of what is happening and of the impact on banks’ capital bases were a shock of a particular kind to happen to the world economy. That important improvement to the regulatory system in this country is a result of the changes we made in the last Parliament.

The hon. Gentleman also asked about the UK’s position on supervision. We learned the lesson from the financial crisis that having the supervisor as close to the markets as possible is an important part of a regulatory regime, which is why we have given back that responsibility to the Bank of England. The Bank is closest to the day-to-day goings on in the market, and it can observe problems earlier than anyone else. We believe in subsidiarity on supervision, which is an important principle. We will fight those who think that there should be a pan-EU supervisor, because we think that would create far too much distance from what is actually going on in the real world.

The hon. Gentleman also said that he does not think that there are any credit supply issues; I beg to differ. It is true that we are now seeing improvement in small-business lending, which has reached positive territory, but he will know how difficult it has been for small businesses to access finance over the past five years. He will also know that small-business lending has benefited from a range of policy measures, such as the funding for lending scheme and the British Business Bank’s ENABLE scheme. He will therefore appreciate that, although things look as though they are beginning to improve, it still makes sense for us to consider other ways in which we can improve access to finance and improve competition so that small businesses can secure extra funding in order to grow.

The hon. Gentleman also asked about ring-fencing, and these initiatives will not have any impact on UK legislation. The Financial Services (Banking Reform) Act 2013 is on track to implement ring-fencing in the UK, and he will know that the European Union has not yet come up with an agreed pan-European approach. We are continuing to implement our own approach.

I was also asked about private pensions, and obviously the UK has a much more developed private pension market than some of the other 27 EU countries. There are extensive differences between each country, and we therefore see many obstacles to implementing any kind of cross-border pensions system, particularly with regard to the harmonisation of tax treatment, which is rightfully a member state competence. However, there are some initial suggestions for a potential opt-in to a common approach for people who work in different countries across the European Union over their lifetime. We retain an open mind on that approach, but we would be very resistant to anything that in any way undermines the UK’s approach to its private pensions sector.

The hon. Member for Kirkcaldy and Cowdenbeath asked why we object to binding mediation. We think it would be a real risk to the UK’s sovereignty if things were to be put into binding mediation too soon, so we want that to be a last resort. That is the kind of compromise that we have reached. He asked about long-term investment, and there are other initiatives in the capital markets union action plan on investing in infrastructure and on ensuring that lessons are learned from regimes such as ours in the UK, where insolvency works well, to allow wider infrastructure investment in parts of the EU where significant improvements could be made to insolvency regimes. There are also initiatives on venture capital and simplified prospectuses so that businesses can access capital markets more easily. Those are some of the other examples in this file of the kinds of things that will help long-term investment.

I hope that I have been able to address the many points raised by hon. Members and that the Committee will support the motion noting our support for

“the Commission’s efforts to ensure that the Capital Markets Union action plan supports jobs and growth, and in particular…helping small and medium-sized enterprises…get the funding they need to grow and succeed”.

Question put and agreed to.

Oral Answers to Questions

Harriett Baldwin Excerpts

Tuesday 1st December 2015 Commons Chamber

[Glyn Davies (Montgomeryshire) (Con)]

4. What assessment he has made of the potential effect of the national living wage on wage growth.

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

The national living wage will mean that a full-time minimum wage worker will earn more than £4,700 more by 2020—a 40% pay rise. Additionally, owing to the ripple effect of higher wages, up to a quarter of workers will see some benefit. Economy-wide wages are expected to be, on average, 0.4% higher in 2020.

[Glyn Davies]

There has been a widespread welcome for the Chancellor’s national minimum wage announcement. Inevitably, the minimum wage has a major effect on traditionally low-wage sectors, especially social and residential care. Does my hon. Friend accept that the Government and local councils must be mindful of the fact that fees will need to be adjusted to ensure the viability of these hugely important services?

[Harriett Baldwin]

My hon. Friend is right that many of the 900,000 workers in the social care sector will benefit from the new national living wage, including many working in residential care. That is why last week in the autumn statement we made an announcement that councils will have the power over the course of this Parliament to access money that they may need to increase the amount that they pay for social and residential care, with new revenue streams for social care worth up to £3.5 billion by 2020.

[Peter Kyle (Hove) (Lab)]

As the Minister will be aware, the national living wage does not apply to people who are self-employed, whose wages have been stagnating and whose pension contributions have fallen every year for the past five years. Why were self-employed people not mentioned once in the productivity plan, and what does she intend to do to tackle low pay and conditions among the self-employed?

[Harriett Baldwin]

The hon. Gentleman speaks powerfully of the importance of the self-employed to our economy. We pay tribute to the excellent work that so many self-employed people, including many in my family, do to generate economic growth in this country. He is right that, as wages across the economy grow and as we put more spending power into budgets for social and residential care, we expect that to be passed on to those who are self-employed.

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[Mrs Emma Lewell-Buck (South Shields) (Lab)]

14. What recent estimate he has made of the level of household debt.

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

Since the financial crisis, households’ financial positions have improved. Household debt as a proportion of income has fallen to 144% in the second quarter of 2015, down from a peak of 168% in the first quarter of 2008.

[Mrs Lewell-Buck]

I thank the Minister for her response, but a large number of my constituents have been alarmed that mistaken overpayments of working tax credits made by Her Majesty’s Revenue and Customs have been recovered, without warning, from their child tax credit entitlements. Is the Department’s policy now to push people into poverty and debt by punishing them for HMRC’s mistakes?

[Harriett Baldwin]

The hon. Lady might remember the terrible roll-out of working tax credits that occurred when the Labour Government were in power. I can assure her that we will continue to improve the administration of tax credits. When her party was in power, people could have a £25,000 change in their income without it affecting their tax credits. We have brought the figure down to £2,500.

[Several hon. Members rose—]

[Mr Alan Mak (Havant) (Con)]

Thank you, Mr Speaker. Household debt will be kept low, thanks to the Government’s support for savers, including the Help to Buy ISA that was launched today. Will the Minister join me in encouraging first-time buyers and young savers to take advantage of this new Government support, which is part of the Government’s long-term economic plan?

[Harriett Baldwin]

I am delighted that, on behalf of his constituents in Havant, my hon. Friend has noticed that the Help to Buy ISA scheme launches today. Fourteen financial institutions are already offering this exciting new opportunity to save for a home, and I hope that many of his constituents will take advantage of it.

[Margaret Greenwood (Wirral West) (Lab)]

22. Citizens Advice has noted that household bills are now the chief source of the problem debt that people are seeking its help with. What will the Government do to ensure that guarantor and logbook loans are properly regulated, so that they do not simply replace payday loans as a source of poorly regulated credit that exploits the low-paid and the vulnerable?

[Harriett Baldwin]

I am sure the hon. Lady will welcome the fact that, in the last Parliament, we took steps to bring credit under the regulation of the Financial Conduct Authority. As a result of that, payday lending has dropped sharply. We are also backing credit unions in many different ways in this country, and we want to ensure that people have an opportunity to save through their workplace credit union. If she will work with me, I can assure her that we will continue to ensure that households that have the lowest proportion of debt at the moment in their repayments will continue to see their financial positions—

[Mr Speaker]

Order. We are enormously grateful to the Minister. We could not be more grateful.

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[Craig Tracey (North Warwickshire) (Con)]

T7. As chair of the all-party parliamentary group on women and enterprise, I welcome the fact that more women than ever are working in Britain today. One of the barriers to forming a cohesive forward strategy for creating more female business owners is a lack of reliable data on how many there currently are. Will my hon. Friend meet me to discuss that issue and consider possible solutions such as the collection of data on HMRC returns?

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

I congratulate my hon. Friend on his appointment to the APPG, and I look forward to working closely with him to provide the data that he seeks.

[Mr David Hanson (Delyn) (Lab)]

By what date do the Government expect to pay the national living wage to all their employees and all the contractors they employ?