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.

--- Later in debate ---

[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.

--- Later in debate ---

[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?

The Economy

Harriett Baldwin Excerpts

Wednesday 18th November 2015 Commons Chamber

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

I start by associating myself with the sentiments expressed by the hon. Member for Hayes and Harlington (John McDonnell) about the French atrocities and the importance of our security forces. I and other Treasury Ministers yesterday signed the book of condolence at the French embassy.

The economic policy of Her Majesty’s Opposition is now represented by a man who wants to overthrow capitalism, nationalise businesses without compensation, and who answers to Len McCluskey. He is a man who thinks that printing money, and triggering the inflation that hurts the poor and the elderly the most, is a good thing. He thinks that a budget surplus is “barmy”, and that we can balance the books by avoiding “any cuts whatsoever”. He is a high-tax, high-inflation, high-unemployment socialist who draws his economic inspiration from the Venezuelan economy and Syriza in Greece. The Government will not take economic lectures from him on how to run our policies, and we will do everything in our power to keep him in opposition.

[George Kerevan (East Lothian) (SNP)]

Will the Minister remind the House how many pound notes the Bank of England has printed through quantitative easing?

[Harriett Baldwin]

Monetary policy has been run by the Bank of England independently, and I am sure that the Scottish National party will continue to support the Bank’s independence against the inflationary tendencies of the hon. Member for Hayes and Harlington. I am pleased to have the opportunity to remind the House once again of how this Government’s long-term economic plan is delivering for the working people of the United Kingdom.

[Mr Hanson]

May I bring the Minister back to reality? Reality for my constituents is the £1,300 cut to working families tax credits which, if it goes ahead in April next year, will mean that £58 million is taken out of our local economy from the poorest people in my constituency, three quarters of whom are in work. Does she think that is right, and will she commit to review that today?

[Harriett Baldwin]

The right hon. Gentleman will have to wait until my right hon. Friend the Chancellor announces his autumn statement next week. Because of the difficult decisions that we have been prepared to take since 2010, the country’s economy for the right hon. Gentleman’s constituents in north Wales is going from strength to strength, and the overall UK economy is now 12% larger than it was when we took over from the Labour Government. As we reach calmer economic waters, it is worrying that some seem to have forgotten the lessons that the crash of 2008 taught us.

In recent months we have seen the resurgence of familiar but dangerous ideas. First—we heard it here today—is the idea that the deficit does not really matter, that it should not be a priority to rein in unsustainable public spending, and that it is fine to kick difficult decisions down the line. Those views were put to the British electorate in May, and the electorate rejected them overwhelmingly. People looked at the 1,000 jobs that the UK economy had created every day since 2010, and at the highest growth figure in the G7 for the last two years in a row. They looked at rising wages, rising living standards, and falling inequality, and they said, “Your long-term economic plan is working, so we want you to continue the job.” Since the election, national debt has been forecast to fall this year as a share of GDP for the first time in more than a decade.

[Wayne David (Caerphilly) (Lab)]

Is the Minister pleased with the appalling level of productivity in this country under her Government?

[Harriett Baldwin]

The hon. Gentleman knows that productivity has been a long-term issue for the British economy, and I shall be talking in more detail about our productivity plans in a moment.

[Mrs Main]

Does my hon. Friend have any figures associated with the cost of renationalisation that the Labour party seems to want to embark on? I have not heard any figure recently.

[Harriett Baldwin]

My hon. Friend is right. The bottomless pit of money from the magic money tree has been brought into service a lot over recent days, and we should focus instead on the good news about the UK economy. The employment rate has reached a record high—

[Geraint Davies]

rose—

[Harriett Baldwin]

Is the hon. Gentleman going to welcome that fact? I do not think he is. Wages have risen by more than 3% this year. Will he welcome that? For people in continuous employment, wages are up by more than 4%—[Interruption.]

[Mr Speaker]

Order. We cannot have hon. Members freelancing, or at least not any more than they are already accustomed to doing. The hon. Member for Swansea West (Geraint Davies) can seek to intervene, and the Minister must decide whether to respond. However, since the hon. Gentleman claims to have a point of order, I am keen to discover whether it is a point of order or a point of frustration, so perhaps we can hear from him.

[Mr Speaker]

My ruling on that, for the benefit of the hon. Gentleman and the House, is that any Member who has the Floor should indicate clearly whether he or she is giving way, and if so, to whom. Any gesticulation that obscures rather than clarifies, although not disorderly, is unhelpful.

[Harriett Baldwin]

I will give way to the hon. Gentleman when he starts to welcome some of the positive economic facts that I was mentioning, but if he does not know whether he is coming or going, I have a hunch that he is in the right party.

The Government absolutely reject the Opposition’s accusation that we are failing to deliver for working people. Not only have we brought greater economic security, we have also delivered more growth, more jobs, and higher wages. That is what people working across this country asked us to deliver, and that is what we are doing.

[Suella Fernandes]

I echo and salute the track record and results that the Minister is outlining. A former Prime Minister, who is credited with reviving a failing economy, once said:

“The problem with socialism is that you eventually run out of other people’s money.”

Does my hon. Friend agree that what we are hearing from the Opposition Benches is a reheating of simple 1980s socialism where the results are only failure?

[Harriett Baldwin]

My hon. Friend is right to remind us of two important facts. First, no Labour Government have ever left office with the public finances in a better state than when they came to power, and secondly, no Labour Government have left office without leaving more people unemployed than there were when they came to office.

Do we agree with the other points made by the Labour party?

[Geraint Davies]

rose—

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

rose—

[Harriett Baldwin]

I will not give way because I want to make a bit of progress and take each of the points in the motion in turn.

I am delighted that the Labour party has remembered to mention the deficit in the motion, although it is not the budget deficit but the current account deficit. Let me remind the House about progress on the budget deficit which, as a share of the economy, has fallen by more than half from its peak in 2009-10 to 4.9% at the end of last year. We forecast that we will be in surplus by the end of this Parliament. That is what the British people asked for, and that is what we are doing.

[Jonathan Reynolds]

rose—

[Harriett Baldwin]

Will the hon. Gentleman welcome progress on the deficit and suggest further progress?

[Jonathan Reynolds]

I love being given way to with caveats based on what I might say in my intervention. Let me ask the Minister a serious point in all this silliness. Since the end of the second world war, this country has been in surplus for only 12 financial years. Of those 12 years, 10 have had Labour Governments. Conservative Governments have hardly ever run a surplus. Is the Minister telling us that the Governments of Thatcher, Macmillan, Anthony Eden and Churchill were all spendthrift and socialist, or will she be a little more serious when addressing these issues?

[Harriett Baldwin]

The hon. Gentleman is right to say that this is a serious issue, and I hope that, as one of the more moderate and sensible members of his party, he will be able to convince those on the Labour Front Bench that this is an important issue to tackle.

The Opposition motion also mentions tax credits.

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

The Minister mentioned the fall in unemployment, but is there not a paradox? We are considering closing Her Majesty’s Revenue and Customs offices and reducing the number of people who work for it, when its official figures show a £34 billion tax gap. If we collected that money, it would go a long way towards eating into the deficit. If we then scrapped Trident and the other place we would be nearly there, and we would not need to make cuts.

[Harriett Baldwin]

I would listen more to the advice of the SNP on the economy if it had not projected that the oil price would remain at over $100 forever and fought last year’s referendum on that basis.

Various hon. Members have mentioned tax credits. The British people want to see a lower welfare, lower tax and higher wage economy, and that is what they voted for in May. In the summer Budget, we set out a package of reforms for working people, which included the introduction of the new national living wage, continued increases in the personal allowance and the doubling of free childcare worth up to £5,000 a year for working parents. Of course, we will listen to the concerns raised about the transition period, and my right hon. Friend the Chancellor will set out our response to those concerns next week. But make no mistake, creating a low-welfare, low-tax, high-wage economy is one of the most progressive goals a Government can have, and one that we will continue to work towards.

[Richard Fuller (Bedford) (Con)]

As my hon. Friend analyses the Opposition motion to decide whether she will support it—I think we are fairly clear on that—is she as surprised as I am that it does not mention the new national living wage? That is probably the most significant change in our economy over the next five years—[Interruption.] Well, there are issues with tax credits—I am not making a speech, Mr Speaker—but the fundamental point is that we will ask companies to pay our poorest paid workers what is effectively a 38% increase in their wages over five years, plus 3% on their pensions. Does she agree that that needs more attention from Members on both sides of the House?

[Harriett Baldwin]

My hon. Friend is right to highlight that progressive move, and it gives me a chance to emphasise the fact that yesterday’s data on earnings showed that the lowest earning 10% in our society saw a wage increase of 3.4% over the last 12 months, and that is before these changes have even taken place.

The Opposition motion also mentions child poverty. The best route out of child poverty is for a parent or parents to work. On our watch, the number of children growing up in workless families is at a record low, down almost 500,000 from 16.2% of all children to 11.8%.

[Catherine West (Hornsey and Wood Green) (Lab)]

Is the Economic Secretary aware that 500,000 children have fallen below the poverty line since 2010? What does she intend to do about that?

[Harriett Baldwin]

The hon. Lady is wrong about that. Since 2010, in terms of relative poverty, some 300,000 fewer children are living in poverty. The Government losing control of public finances and not being able to do anything about that would be the worst thing that could possibly happen for the opportunities for those children. The people who suffer when the country loses control of its public finances are the low-paid, and the people who get turned out of work are the ones who suffer the most—

[Geraint Davies]

rose—

[Mr Speaker]

Order. May I say gently to the House that it is reasonable for the Economic Secretary to be given the opportunity to respond to one intervention before immediately being pressed to accept another? Some level of orderliness in the conduct of this debate needs to be restored, with the help of all willing parties.

[Harriett Baldwin]

In that spirit, I shall try to make some progress, Mr Speaker.

The richest do not suffer most when the economy suffers. It is not the trade union barons who lose their jobs when that happens: it is the poorest in the country. We are making sure that it never happens again.

The motion also mentions the impact of our policies on women. There are now more women working than ever before, the gender pay gap is at the lowest level since records began, and 56% of the people we have taken out of income tax, by raising the personal allowance, are women. Of course, 27.5 million working men and women have had a tax cut since 2010, and 58% of those receiving a much stronger, triple-lock state pension are women. Almost two thirds of the people benefiting from the introduction of the national living wage are women. In fact, since 2010, women have moved faster into jobs in the UK than in any other G7 country, and women’s employment rate has increased more since 2010 than during the previous three Parliaments combined.

[Margaret Greenwood]

rose—

--- Later in debate ---

[Harriett Baldwin]

The hon. Lady may be about to comment on this, and we live in hope that the wish of the right hon. and learned Member for Camberwell and Peckham (Ms Harman) that senior jobs in her party go to women will be granted soon. Does the hon. Lady welcome some of this good economic news for women?

[Margaret Greenwood]

Does the Economic Secretary share my real concern that 29% of women earn less than the living wage? That is not a success story for women—far from it.

[Harriett Baldwin]

That is exactly my point: they will be disproportionately helped by the increase in the national minimum wage through the national living wage from next year.

The motion mentions productivity, and it was also raised by the hon. Member for Caerphilly (Wayne David), who is no longer in his place. Productivity has been a long-standing issue since well before 2010, and we accept that. But rather than grandstanding, we have set out a wide-ranging productivity plan. We are delivering the infrastructure projects we need, through our infrastructure pipeline, and we have set up the national infrastructure commission to take a long-term, depoliticised approach to major projects. We have seen a recent strengthening in productivity growth. Output per hour rose by 0.9% in the last quarter, and the Office for Budget Responsibility forecasts that productivity will pick up by 1.7% next year, and 2.4% in the year after that.

The motion also questions our long-term commitment to science, technology and green growth.

[Sammy Wilson (East Antrim) (DUP)]

Does the Minister agree that the freezing in cash terms of money spent on science and research and development has had an impact on productivity growth and the potential for increasing productivity in the UK economy?

[Harriett Baldwin]

We agree that maintaining the science budget is incredibly important. As part of the £100 billion of infrastructure investment that we have already committed to, £6.9 billion will be going towards research infrastructure.

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

If the Economic Secretary believes what she has just said about maintaining the science budget, why have the Government cut it in real terms by 10% in the past five years? They have made no commitment thus far to increase the science budget either, to such an extent that the UK is bottom in the G8 for investment in science.

[Harriett Baldwin]

The hon. Gentleman will know, and has just reiterated, that we have maintained the science budget, which has been one of the choices that we have made. We have secured £7 billion of investment per year for UK-based renewable energy projects. We are investing in major research facilities such as the new Turing Institute, the UK’s national institute for data science. Our science and innovation strategy sets out our long-term vision for the sector’s contribution to national prosperity.

[Lucy Frazer]

Does my hon. Friend welcome the comments by Sir Paul Nurse, the president of the Royal Society, who said recently that the UK is excellent on the world stage and that, in terms of effective research, we are probably top? Most people rank us second to the United States, and we lose out merely on size.

[Harriett Baldwin]

My hon. and learned Friend is right to highlight the effectiveness of our science spending. Earlier, she mentioned agri-tech, and my constituency has fantastic skills in cyber-security. Those are all important and we will continue to make sure that they are a Government priority.

[Steve McCabe]

Does the Economic Secretary accept that one of the problems is the contradictory nature of Government policy? It may well be true that they are investing in the science budget, but simultaneously—as the Coalition for a Digital Economy, or Coadec, revealed in its recent letter to the Prime Minister—they are strangling the digital industries through their immigration policy, which denies entry to tier 2 skilled workers and entrepreneurial visas to people who could boost our industries.

[Harriett Baldwin]

I welcome the opportunity to clarify that there is no cap on inter-company transfers at tier 2 or on people who will earn a substantial amount. I am aware that Tech City keeps very close tabs on this and informs me about its importance. The hon. Gentleman will welcome its continued success in attracting investment from around the world.

The motion also mentions the Department for Business, Innovation and Skills budget. I obviously cannot pre-empt what the Chancellor will say next week, but every single decision on spending has been based on our productivity plan to focus on world-beating productivity, to drive the next phase of our growth and to raise living standards.

People should never underestimate this Government’s commitment to helping British businesses and workers succeed in the global economy. We know that businesses drive growth and create jobs, and we work with them so that they continue to do so. In marked contrast, the Labour party could not get a single business even to host an event with its leader last week.

Is the economy perfect? No economy is ever perfect. We need to export more, work more productively and eliminate the gender pay gap altogether. It takes time for a country to recover from a significant economic crash, such as the one inflicted on us by the last Labour Government. But thanks to the hard work of the British people, the economy has recovered. We have more growth, more jobs and higher wages. We know that there is still much more to do, but there is no economic security, no national security and no opportunity when control of the public finances is lost. I urge hon. Members to reject the economic views of the Labour party, to reject the advice of the shadow Chancellor and to reject the motion.

Guaranteed Income for Retirees

Harriett Baldwin Excerpts

Tuesday 17th November 2015 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Betts. I am not quite sure what the sporting achievements mentioned earlier are, but I look forward to hearing about them.

[Mr Clive Betts (in the Chair)]

I think the word “achievements” might be stretching it a little bit, but we will pass over that for the time being. [Laughter.]

[Harriett Baldwin]

I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing the debate and making a thoughtful, constructive contribution to our national debate on securing a guaranteed income for retirees. Perhaps I should not confess this, but if Wikipedia is correct, I am the one who should declare an interest as being closest to retirement age of all those speaking in the debate—but perhaps Wikipedia may not be accurate. That has happened before.

[Roger Mullin]

I should thank the Minister very much for her comment.

[Harriett Baldwin]

The hon. Gentleman wears it well.

The debate is timely, because we are just over six months into the pension freedoms, and are beginning to get data on what pensioners or retirees have been doing with those freedoms, and about use of the free and impartial guidance from Pension Wise, which was set up by the Government. As we speak, life expectancy is growing by about five hours a day in this country, which makes it all the more important that we have this debate and agree on the aspiration to ensure that hard-working people are in a position to fund a comfortable and, we hope, increasingly lengthy retirement.

Against the background that I have set out, the Government introduced radical reforms giving people freedom and choice in how they access their own hard-earned retirement savings, replacing an effective obligation on pensioners to purchase an annuity—a product that often they did not shop around for and that may not have been right for their circumstances.

[Julian Knight (Solihull) (Con)]

The hon. Member for Ross, Skye and Lochaber (Ian Blackford), whom I congratulate on securing this important debate, mentioned at one point reinstating the requirement to annuitise. The old open market system failed many vulnerable consumers, as my hon. Friend the Minister mentioned, and many with impaired life expectancy were shunted by providers into poorly paying and inappropriate annuity contracts. Will she comment on that?

[Harriett Baldwin]

My hon. Friend is right; the world where we obliged people to buy an annuity income with their retirement savings was not perfect. Often they did not shop around—the data from the Financial Conduct Authority suggest that about eight out of 10 consumers could have got a better deal by shopping around—so I cannot agree with what I believe was SNP policy. That seems to be to end the current situation where there is more flexibility, and once again to require people to buy an annuity. However, I recognise that Members across the House have concerns about customers and how they are supported as they make perhaps their most important long-term financial decision, other than purchasing a home.

[Ian Blackford]

I just want to clarify something. I absolutely share the concern that the annuity market was not working properly. Where there is a difference of opinion is that we believe that the market should be reformed. We need greater choice in the annuity market: for example, we need to think about how we explain index-linked products in the annuity market, and circumstances such as lower life expectancy must be reflected. We must consider those things in the light of experience of what has happened with pension freedom.

[Harriett Baldwin]

I thank the hon. Gentleman for that clarification. I agree that we need to evaluate the measures, which is why this is such a timely debate. It is extremely important that, as people take advantage of the new pension freedoms, they have the right information and the tools they need to make an informed and confident decision about their financial future. I recognise that there is a range of different circumstances and that one size does not fit all.

It might be helpful if I summarise some of the changes made over the past five years to the pension landscape to strengthen the finances of people in retirement. They include ensuring that there is no enforced retirement age at 65, and strengthening the first pillar of retirement income, the basic state pension, which now rises with a triple-lock—increasing by the greater of 2.5%, earnings or inflation every year. That has been very important cumulatively over the past five years—the income replacement of the state pension is now at its highest level since 1992—and we have pledged to continue that throughout this Parliament.

[Nick Thomas-Symonds]

I refer back to the Hansard quotation from 20 June 2011 that I cited about the transitional provisions for women born in the 1950s who have lost out under the new state pension provisions. Can the Minister update the House about what has happened with that policy and how the transitional provisions will be introduced?

[Harriett Baldwin]

I assure the hon. Gentleman that I am just setting out the background. I will address the points that colleagues raised later in my speech.

The changes we are making to simplify the state pension are also important, because they are going to set a new level for the state pension that is higher than the means-tested threshold that we have had in this country historically. That is very important, because we do not want those who draw down their retirement savings to be thrown on to means-tested benefits. I believe I am right in saying that that is a crucial difference from the situation in Australia. We have also safeguarded support for older people in other ways, such as providing free bus passes, eye tests, television licences and so on.

The changes we made in April are an integral part of the whole landscape. I will describe for the benefit of all hon. Members what we think success for the reforms looks like: a vibrant and competitive retirement income market with a range of different products that give people the flexibility and security that is right for them, and well informed, engaged consumers who can access the guidance and advice they need. As more people are automatically enrolled in employer schemes, more people engage with the process. More than 5 million more people are now saving for a retirement income than were in 2010, and by the full roll-out in a couple of years’ time, we will have almost 9 million additional new savers through automatic enrolment, saving £15 billion a year more in aggregate.

[Ian Blackford]

I am grateful to the Minister for giving way; she is being very gracious with her time. As I said, we fully support auto-enrolment. It is fantastic that there has been an increase in saving and that both employers and employees are contributing, but will she reflect on the situation that could develop? People will have a greater ability to access the pension pot that they are saving into and take out cash at 55, but I am concerned that employers may be disincentivised from contributing to the pension scheme if they see that those who benefit from it can walk away with a cash pot at 55.

[Harriett Baldwin]

Methinks the hon. Gentleman is worrying too much. At this point, I think we will just welcome the fact that £15 billion a year more is going into pension saving in this country. The hon. Member for Paisley and Renfrewshire South (Mhairi Black) can say to her generation that the earlier they start, the better, given the cumulative impact of the wonders of compound interest. Nevertheless, I take on board the point the hon. Gentleman made.

The hon. Gentleman said that providers may not have time to get ready and may not have the right kinds of products. In fact, providers have stepped up to the challenge: the systems requirements were admittedly very challenging, but more than 90% of people are now being offered flexibility within their existing scheme and something like a quarter of the largest firms are planning to launch new products in the next six months, so there has been real innovation and engagement with what customers want. We have moved away from the inflexibility of the old annuity market.

The hon. Gentleman highlighted the recent data from the ABI stating that £4.7 billion was paid out in the first six months. The first six months will not necessarily be representative of the settled state of the market, because obviously there has been a lot of pent-up demand, but it is fair to say that in that six-month period £2.5 billion has been invested in income drawdown products and £2.2 billion in annuities. That does not suggest that people are shying away from the annuity market, which we hope continues to be successful and an important part of people’s retirement planning. I am delighted that so many people have already taken advantage of the freedoms and that many providers have stepped up to deliver for their members.

Many hon. Members asked about Pension Wise, the Government’s free and impartial guidance service. It, too, is playing an important role. There have been more than 30,000 guidance appointments and 1.7 million hits on its website so far. Hon. Members alleged that only one in 10 people are making use of Pension Wise, but we dispute that in the sense that people will be getting financial advice, sometimes from a regulated adviser, or they may get information, guidance or advice through their provider. There is a range of different ways in which people can inform themselves; Pension Wise is one of them. It is free, impartial and backed by the Government.

Pension Wise prompts users to consider their life expectancy and any health issues and lifestyle factors they have, and it links to the Office for National Statistics life expectancy calculator, which I am sure everyone in the room has visited. All in all, that is excellent news, but we are always on the lookout for ways to make the service more useful. Last month’s report from the Work and Pensions Committee, of which the hon. Member for Paisley and Renfrewshire South is a member, was welcome. It noted the progress we have already made in ensuring that the reforms deliver for consumers, but made it clear that the job is not yet done.

In line with the Committee’s recommendations, we are considering a number of developments to make Pension Wise even more useful. For example, we are looking at how appointments can be tailored to individuals. In the summer Budget, we opened it up to people from the age of 50 onwards, and we are developing more online tools for the website and calculators that people can use to see how the new pension freedoms relate to their particular circumstances. We are trying to make the website more interactive, and the team has done a fantastic job in delivering that to such a tight timeframe. We are looking to amend the content of Pension Wise appointments to ensure they are more tailored to people in the 50 to 55 age bracket, who are not yet able to take advantage of the pension freedoms but want to start thinking about the options available to them.

The hon. Member for Torfaen (Nick Thomas-Symonds) rightly mentioned the financial advice market review. I am delighted to hear that he supports the initiative. The Treasury and the Financial Conduct Authority are reviewing what he called the advice gap—the fact that between guidance and paid-for financial advice, there is a gap for ordinary people who do not want to pay for a financial adviser or are not able to afford one at their stage in life. The aim of the review is to come up with a package of reforms, along the lines of those that the hon. Gentleman outlined, to ensure the financial advice market works for everybody. I hope he will write to the review with his recommendations.

Advice, in and of itself, is not enough. It is important that we supplement our guidance provision and review it on an ongoing basis. We must ensure that we make the most of Pension Wise, which focuses on pension freedoms, the Money Advice Service, which focuses on some of the other aspects of financial markets, and the Pensions Advisory Service, which is run out of the Department for Work and Pensions. We must make those services more effective for consumers. Alongside the financial advice market review, we are also looking at the guidance and hope to have some findings ahead of next year’s Budget, so that people get the help they need to take such important long-term decisions.

Several hon. Members mentioned scams, and the Work and Pensions Committee report also flagged that risk, which we recognise is not new. Pension scammers were previously trying to get people to take money out of their pensions before the age of 55, causing a lot of harm in the marketplace, but I agree that it is an important matter. Given that consumers have been given unprecedented freedom and choice in how they access their retirement savings, we appreciate that fraudsters will use that as an opportunity to try and exploit people. An effective strategy to target scams must bring together all the relevant parts of Government and work with providers to focus on both the prevention and the disruption of scams. That is what we are doing and will continue to do. We have set up Project Bloom, a multi-agency taskforce led by the National Crime Agency, which is joining up the various Departments involved, the regulators, anti-fraud groups and police forces to tackle scams. It is worth reiterating here how important it is that we remind consumers that they should never engage with anyone who telephones them out of the blue offering help with their pension. I encourage all hon. Members to get that message out widely in their communities. I emphasise that Pension Wise will never call without a consumer having previously asked them to.

The pensions regulators have their own pension scam campaigns to raise awareness of the issue. The FCA runs ScamSmart and the Pensions Regulator runs Scorpion. Warnings are sent out with paperwork from pension providers and both of them give advice to businesses and consumers on how to protect against scams. Pension Wise also alerts customers to the risk of scams during guidance sessions and on its website, and firms have a duty to flag the risk of investment scams, when appropriate, to their members as part of the FCA’s retirement risk warning rules. The hon. Member for Paisley and Renfrewshire South, who asked me about this during a Work and Pensions Committee hearing, wanted to know about some of the numbers. So far this year, since the pension freedoms were launched, incidents reported to Action Fraud are lower than the year before, but I completely agree with her that we must remain on top of this. To be frank, we have to be tough, because one scam succeeding is one too many.

Moving on to women who have been affected by the change in pension age, I am probably one of the few women affected who actually welcomes the fact that I will be able to do this wonderful job for longer, but I realise that not everyone feels that way. To respond to the questions from the hon. Member for Torfaen about the number of meetings that have been held, the number of updates and the transition protection and his Hansard reference, which shows what an effective researcher he is—he is a published biographer—I will defer to my colleague Baroness Altman, who will write to him with the details.

The hon. Member for Paisley and Renfrewshire South also asked about the Pension Wise data and when it will be published. In ministerial speak, I believe that the word is “shortly” so it should be up on the website soon. We will write to the Chair of the Work and Pensions Committee as soon as that happens so that he is the first to know.

I have responded to most hon. Members’ points, but I will remain on my feet in case anyone feels that they have not had a chance to ask their question or to get one answered.

[Roger Mullin]

I thank the Minister for giving way at this late stage. Does she agree that, as I mentioned earlier, women face particular risks and therefore require particular additional support and guidance to ensure that they make the most of their futures?

[Harriett Baldwin]

I am sure that, like me, the hon. Gentleman is a passionate feminist and thinks it important that men and women have the same pension age. I appreciate, however, that the process of transition from the much earlier age at which women were retiring will, depending on people’s circumstances, have posed a range of challenges, of which the Government are well aware. As a constituency MP, I am also well aware of such issues. I will write to the hon. Member for Torfaen and the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) with more specific points from my noble colleague.

Shall I conclude with my impassioned concluding remarks, Mr Betts, or is everyone happy to stop there?

[Mr Clive Betts (in the Chair)]

It is up to you, Minister. You have time if you wish to impassion us.

[Harriett Baldwin]

I will say something in conclusion as we have time.

I thank all hon. Members who have participated in the debate. How people access an income in retirement is an incredibly important question. It is also an issue of huge international importance. I have summarised a range of changes that have been made over the past five years. The more recent pension freedoms are major changes and it is important that we get them right, which is why the Government and the regulator will continue actively to monitor the post-reform retirement landscape closely.

Royal Bank of Scotland

Harriett Baldwin Excerpts

Thursday 5th November 2015 Commons Chamber

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

I hope you will indulge me with a little time, Madam Deputy Speaker, to respond to a thoughtful and well-subscribed debate that has focused on the future of the banking system in this country. I congratulate the hon. Member for Edmonton (Kate Osamor) on suggesting this debate, and the Backbench Business Committee on securing time for it on the Floor of the House.

The 15 contributions that we have heard highlight the importance and impact of our banking sector, and show how integral it is to our long-term economic plan. I assure the House that a key element of that plan is a strong, healthy, more competitive and diverse banking sector. When the Labour Government acquired RBS, it was the largest single bank bail-out in the world at more than £45 billion—the price that was paid is a matter of historical public record. It was only ever intended as a temporary privatisation to restore financial stability to our banking sector, and I remind colleagues that in 2008, Gordon Brown stated:

“The Government will not be a permanent investor. Over time we intend to dispose of these investments in an orderly way”.

RBS is very different now from how it was then, and it has been restructured to focus on banking in the UK. It has shrunk its investment bank, and it recently completed the disposal of its US business, Citizens. The creation, by carving out RBS branches in England and Wales and NatWest branches in Scotland, of the historic Williams & Glyn brand will mean 314 challenger branches—more than twice as many as recommended by the hon. Member for Edmonton.

Seven years on, despite starting the process of selling shares in the summer, the UK Government—and therefore taxpayers—still own 70% of Royal Bank of Scotland. The easiest thing would be to leave RBS in state hands and duck the difficult questions, but no one in this debate has argued that the situation we inherited in 2010, with large chunks of failing banks in taxpayer hands, is something that we should maintain for ever. The right thing to do for the strength of our economy and for taxpayers is to start selling off our stake as part of a phased disposal programme. That is part of our long-term economic plan to bring down national debt and secure a brighter future for hard-working people across the country.

The hon. Lady was not a Member in the last Parliament, but I am sure she will recall that in June 2013 the Parliamentary Commission on Banking Standards, led by my right hon. Friend the Member for Chichester (Mr Tyrie), considered various options for dealing with the legacy of RBS as part of its wider review into the banking sector. Those included a radical restructuring of RBS and the creation of a number of regional banks. That option was dismissed by the Commission, which noted

“how difficult, expensive and time-consuming it can be to separate integrated activities”

of a bank.

The PCBS recommended that the Government undertake a review into the option of splitting RBS into a good and bad bank, and we acted on that. In November 2013 following the publication of our findings, RBS set out plans for the creation of an internal “bad bank”. It has now set out its new strategy to focus on its core British business. As I mentioned, it committed to sell off more of its overseas business, simplify its operations, shrink its investment bank and use the additional capital to support the British economy.

By the summer of this year, the strong progress RBS had made in implementing that plan had led us to a clear decision point. That is why, in July, the Chancellor sought the advice of the Governor of the Bank of England regarding the Government’s shareholding. It was the Governor’s view that

“public ownership has largely served its purpose”

and that

“it is in the public interest for the government to begin to return RBS to private ownership.”

He went on to say

“there could be considerable net costs to taxpayers of further delaying the start of the sale,”

and that

“Continued public ownership without a foreseeable end point runs risks, including limiting RBS’ future strategic options and continuing the perception that taxpayers bear responsibility for RBS’ losses.”

The Governor added:

“The Bank of England believes the interests of the people of the United Kingdom are best served by a vibrant, resilient and privately owned banking sector”

and that

“a phased return of RBS to private ownership would promote financial stability, a more competitive banking sector, and is in the interests of the wider economy.”

A lot of Members mentioned competition and choice. The financial services sector is now fundamentally stronger thanks to the Government’s reforms. A central part of the reforms has been to inject extra competition and choice into the banking sector, and specifically to help new challenger banks to enter the market. I mentioned already RBS’s process of divesting a new challenger bank, Williams & Glyn, but that is in addition to creating another eight challenger banks during the previous Parliament, including TSB, Metro, Virgin Money and Tesco Bank. During the election, we committed to ensuring 15 new banks would receive banking licences in the life of this Parliament. We are promoting competition between banks by boosting and helping to deliver the current account switch service. We have put competition at the heart of the regulatory system.

In the interests of time, I will respond to a few of the points made in the debate. On the FCA’s review of the Tomlinson report, which was mentioned by a number of colleagues, including my hon. Friends the Members for Hazel Grove (William Wragg) and for Aberconwy (Guto Bebb), my understanding is that the FCA review should be published between now and the end of the year. I will keep Parliament informed if I hear differently.

A number of colleagues spoke favourably about the German banking system. It is worth noting, however, that the German banking system also required £70 billion of capital injection, as well as £100 billion of guarantees, during the financial crash.

Colleagues mentioned a range of other important points. I can reassure the hon. Member for Ross, Skye and Lochaber (Ian Blackford) that we think ring-fencing, separating the actions of retail banks from those of their investment banking colleagues, is an important part of strengthening the regulatory system.

The hon. Member for Easington (Grahame M. Morris) mentioned the bonus culture. He will know that that was rampant under the previous Labour Government. It was brought very much under control under the previous Government, and that continues under this Government. He also said that we do not all want a state-owned bank run from Whitehall. I can only agree.

The hon. Member for Caithness, Sutherland and Easter Ross (Dr Monaghan) made some important points, with which I have great deal of sympathy, about the bank branches in his very large and very rural constituency. I pay tribute to the staff and pensioners of RBS, of whom he has 105 in his constituency. I have a wide range of points to make about the specific towns he mentioned, but in the interests of time it is probably better if I write to him.

Today’s debate was very much on the future of the banking system and the importance of having a strong, healthy, diverse and competitive range of choices in our banking sector for customers and businesses. I recognise that the issues raised in the motion are extremely serious, but the Government cannot support its proposals. They run contrary to all the evidence presented to us. Instead, we will continue to put in place our long-term economic plan, which is bringing stability and competition to the UK banking sector and delivering a better deal for hard-working people across the country.

Question put and agreed to.

Resolved,

That this House calls on the Government to consider suspending the further sale of its shares in the Royal Bank of Scotland whilst it looks at alternative options; and believes that this should take place in the context of a wider review of the UK's financial sector and that such a review should consider the case for establishing new models of banking, including regional banks.

[Madam Deputy Speaker (Natascha Engel)]

Before I call Robert Flello to move the motion on the dog meat trade, I point out that we have very limited time, because of the length of the previous debate. I am not going to apply a time limit, but if the mover of the motion and the Front-Bench spokespersons can take about 10 minutes and everybody else five minutes, including interventions, we will get through everyone before 5 o’clock.

Counter-terrorist Asset Freezing Regime

Harriett Baldwin Excerpts

Thursday 5th November 2015 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 18th report under the Act and it covers the period from 1 July 2015 to 30 September 2015. 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 30 September 2015:

Equitable Life Payment Scheme

Harriett Baldwin Excerpts

Tuesday 3rd November 2015 Written Statements

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

As at 30 September 2015, the Equitable Life Payment Scheme has now issued payments of nearly £1.08 billion to 915,453 policyholders. This means the scheme has now paid 88% of eligible policyholders, and 92.9% of the money due. The scheme will today be publishing a further progress report, which can be found at: www.gov.uk/equitable-life-payment-scheme.

The scheme has made major efforts to trace policyholders, including extensive electronic tracing methods, writing to policyholders’ last known addresses, a national advertising campaign, working with other Government Departments and liaising with group scheme trustees. As announced at the summer Budget, a final attempt to trace policyholders has been made through the Department for Work and Pensions (DWP) by the DWP sending letters to all untraced policyholders due £50 or more for whom the scheme holds a national insurance number and other data such as their name. These letters have now been sent. Despite this there remain approximately 125,000 policyholders whom the scheme has been unable to pay.

As the Chancellor announced in the summer Budget on 8 July, the scheme will be closing to new claims on 31 December 2015. Any policyholders who still believe themselves to be eligible are encouraged to call the scheme on 0300 0200 150 before 31 December 2015. The scheme can verify the identity of most policyholders on the telephone, which means any payment due can usually be received within two weeks. This will not affect the yearly payments made by the scheme to with-profits annuitants, which will continue for the duration of those annuities. The scheme has written to all with-profits annuitants to make them aware of this.

In the summer Budget, the Chancellor also announced that payments to non-with profit annuitant policyholders who receive pension credit will be doubled. Any policyholders who have made a claim from the scheme by the time it closes on 31 December and are receiving pension credit on that date will receive this second payment without having to take any action.

Policyholders can check their eligibility for pension credit using the Government’s pension credit calculator at: www.gov.uk/pension-credit-calculator.

[HCWS286]

Oral Answers to Questions

Harriett Baldwin Excerpts

Tuesday 27th October 2015 Commons Chamber

[David Mowat (Warrington South) (Con)]

11. What progress his Department has made on implementing ring-fencing proposals to enhance the stability of major banks.

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

The Government are fully committed to implementing a robust and effective ring-fencing regime, and we remain firmly on track for the separation of banks by January 2019. We passed the last legislation implementing the Independent Commission on Banking ring-fencing recommendations this year, and the Prudential Regulation Authority is currently consulting on the second tranche of implementation rules before publishing the final rules this year.

[David Mowat]

I thank the Minister for that answer. In 2012, the then Governor of the Bank of England said that unless these regulations were tightly specified there was a risk of their being watered down before implementation in 2019. We now see Barclays joining RBS and Lloyds in requesting significant waivers. Will the City Minister reconfirm the Government’s commitment to Vickers and the design principles within the legislation?

[Harriett Baldwin]

Of course, the Government remain as committed as ever to implementing a robust ring-fencing regime, as recommended by the Independent Commission on Banking. Obviously, I am not going to comment on speculation about how individual banks would like to implement their ring-fencing rules, because that is a commercial decision for banks, as long as they remain compliant with the considerable restrictions imposed by the legislation. Their deadline is the start of 2019.

[John Pugh (Southport) (LD)]

There is a lot of crying wolf and worried bleating from the banks on this subject of ring-fencing. Is the Minister aware of any banks that have decamped to foreign parts because of it?

[Harriett Baldwin]

The Government are delighted that the UK recently, once again, topped the poll as the No. 1 location for a global financial centre. We believe that our legal system, language, geographical location and brilliant skilled workforce, and many other factors, contribute to this being an excellent place to locate a global financial services firm.

[Neil Carmichael (Stroud) (Con)]

12. What steps he is taking to tackle the productivity gap.

--- Later in debate ---

[Carolyn Harris (Swansea East) (Lab)]

T3. Given the growing evidence that fixed-odds betting terminals are being used as a prime vehicle through which to launder money, will the Chancellor assure the House that there will be a prominent focus on the machines in his upcoming anti-laundering action plan?

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

The hon. Lady will be aware that we are in the process of considering how we implement the fourth anti-money-laundering directive. We will be looking closely at the evidence, and I encourage her to get in touch with me.

[James Morris (Halesowen and Rowley Regis) (Con)]

T8. The Black Country local enterprise partnership has done an excellent job in bringing jobs and investment to the black country, but does the Chancellor agree that the time has come for local enterprise partnerships to work together with the west midlands combined authority to deliver further growth, jobs and investment for the west midlands region? [Interruption.]

Draft Financial Services and Markets act 2000 (regulated activities) (amendment) (No. 3) order 2015 draft financial services and markets act 2000 (relevant authorised persons) Order 2015 draft financial services and markets act 2000 (Misconduct and appropriate regulator) order 2015

Harriett Baldwin Excerpts

Thursday 22nd October 2015 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) (No. 3) Order 2015.

[The Chair]

With this it will be convenient to consider the draft Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015 and the draft Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015.

[Harriett Baldwin]

It is customary to say what a pleasure it is to serve under your chairmanship, Mr Nuttall, but in this case I genuinely mean it because of our previous close association when I was your Whip. For the sake of brevity, I shall refer to the orders as the Relevant Authorised Persons Order, the Misconduct and Appropriate Regulator Order and the Regulated Activities (Amendment) Order.

The Relevant Authorised Persons Order and the Misconduct and Appropriate Regulator Order are related, so I am glad that the Committee has agreed to consider them together. It might be helpful for me to start by outlining the background to the legislation. In December 2013, Parliament passed the Financial Services (Banking Reform) Act 2013. Among other things, it provided the legislative framework for implementing the recommendations of the Parliamentary Commission on Banking Standards. That included making provision for introducing the senior managers and certification regime for the banking sector—banks, building societies, credit unions and certain systemically important investment firms. As right hon. and hon. Members may be aware, the Government have now included in the Bank of England and Financial Services Bill provision to extend the regime to all other types of financial services firm, but the two orders I am describing are part of the original programme to apply the new regime to banking.

When the Parliamentary Commission on Banking Standards reported in June 2013, it made a number of recommendations for reforming how individuals who work in banks are regulated. Those recommendations formed the basis for what is now the senior managers and certification regime and include a tougher regulatory approval regime for a small number of the most senior individuals in a bank; an annual certification by banks that other key individuals are “fit and proper”; and rules of conduct covering a wider range of bank employees, not just those subject to regulatory pre-approval.

The Relevant Authorised Persons Order will extend the scope of the senior managers and certification regime to include UK branches of foreign banks. It was initially decided to confine the senior managers and certification regime only to UK institutions—that is, businesses incorporated in the UK. That includes those global financial institutions that operate here through a UK subsidiary company, because such a company is incorporated here so counts as a UK institution in its own right. Not included are global banks that operate here through a UK branch, because a branch is not a separate legal entity from its parent and so is not incorporated in the UK. Nevertheless, a branch can have senior managers and staff who might be subject to annual certification or required to comply with the rules of conduct.

The fact that a branch is not separate from its parent was bound to raise a number of issues that could not be considered fully at the time. A power was therefore included in the Financial Services (Banking Reform) Act 2013 to enable the Treasury to bring branches of foreign banks into the senior managers and certification regime, after appropriate consultation. The consultation document was published last November and the Government announced in March that they would make the necessary order. Subject to parliamentary approval, from 7 March 2016 all parts of the senior managers and certification regime will apply to all foreign banks that operate in the UK through branches, the same date on which the senior managers and certification regime comes into force for UK banks.

It might be helpful to clarify two further points for the Committee at this stage. First, the 2013 Act also includes a new criminal offence relating to decisions that cause a bank to fail, which is sometimes called the reckless mismanagement offence. That offence was also recommended by the parliamentary commission and was included in the Act along with the senior managers and certification regime provisions. It can be committed only by persons who are senior managers in banks, building societies and systemic investment banks. The offence, however, is not part of that regime and I want to make it clear that the order does not extend the new offence to UK branches of foreign banks. There is no power in the 2013 Act to do that and it would also not be appropriate to do so. The offence concerns decisions that cause a bank to fail and, as a branch is not a separate legal entity from its parent, it can fail only if the parent fails. The failure of a branch, and any action arising from that, can be taken only by the authorities in the parent’s home state.

Secondly, I assure the Committee that the UK regulators have the powers to ensure that the regime can be applied flexibly and appropriately to different types of branch. They can also differentiate, where appropriate, between “passporting” branches from other European economic area states, “non-passporting” branches from countries outside the EEA, subsidiaries and UK-owned banks.

I turn now to the Misconduct and Appropriate Regulator Order, which makes some necessary technical changes to legislation before the senior managers and certification regime comes into operation in the banking sector next March. The first of those simply ensures that the revised provisions relating to enforcement action by the Financial Conduct Authority will cover cases where an approved person has been knowingly concerned in a breach of regulatory requirements imposed by the Alternative Investment Fund Managers Regulations 2013, which implement the EU alternative investment fund managers directive in the UK.

The second group of technical amendments make some consequential changes to section 204A of the Financial Services and Markets Act 2000. Section 204A sets out which of the Financial Conduct Authority and Prudential Regulation Authority is responsible for enforcing certain requirements in that Act. The order makes changes to section 204A to ensure that the PRA can enforce new requirements where it is the lead regulator for the senior managers and certification regime. If the order were not made, the FCA would have to enforce obligations that should be, in effect, owed to the PRA.

I will move on to the Regulated Activities Order. In March, 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. That order was due to come into effect in March 2016 to prevent gold-plating.

Since that order’s approval, the Government have been actively monitoring the progress of the mortgage industry towards implementation, to ensure a smooth transition in which customers do not see any disruption. During the course of that routine monitoring it came to light that, owing to the complexity of layering a new wave of legislation on top of existing legislation, in some areas the order did not achieve what was intended. The Government therefore decided to act quickly and make a small number of amendments to the scope of regulation, to ensure that the regulatory framework continued to operate as intended.

The order makes a number of changes to ensure that the existing legislation delivers on previously agreed policy. The most significant of those is to ensure that mortgages dating from before 31 October 2004 that are currently regulated as credit agreements will be regulated as mortgages from 31 March 2016. That is part of the Government’s widely supported aim to consolidate the regulation of mortgages within a single framework, reducing the burden on firms and ensuring that customers get a consistent experience.

Taken together, these statutory instruments are another important step in ensuring that the UK’s financial system is resilient and works for the good of the nation. I hope hon. Members will therefore approve them.

--- Later in debate ---

[Harriett Baldwin]

It is good to hear from the hon. Member for Leeds East, whom I welcome to his post. I am sure that this will be only the first of many exciting box office events in which he and I will participate.

Much of the proposed legislation is technical, but he is right to emphasise the principles that we are applying to regulation of the financial sector. At the heart of our aspirations is a strong, healthy and well-regulated sector, which works for all the individuals whom we represent in this place. The aim of our regulatory regime is to ensure that we have a proportionate and appropriate balance to reflect the legal characteristics with which we are dealing.

The hon. Gentleman asked a range of specific technical questions, the first about the inclusion of pre-2004 mortgages and the decision on their regulation. They were previously included in the consumer credit regime, due to historical reasons relating to the introduction of mortgage regulation at the time, but the Government believe that legislating to combine all the mortgage regulations under one regime is more appropriate. We have been working closely and in consultation with the industry in the process of finalising the regulations, which will reduce costs for such firms, because they will be able to observe one regime. That particular change has been supported widely by the industry and ensures that consumers will continue to be protected.

The hon. Gentleman asked about the regulations’ exclusion of bridging loans, which, as he knows, are short term in nature. Equitable bridging loans have always been unregulated. We did not intend the draft orders to change the status quo, so those types of bridging loans will remain unregulated. However, as with all such legislation, we will continue to keep things under review.

The hon. Gentleman asked about the consistency of the regime and in particular the criminal offence. He will appreciate that in extending the regime across the whole financial services industry, we are replacing the approved persons regime, which was so discredited and noted to be in need of change by the Banking Commission. In the interests of fairness, we believe that it is important to deliver that consistency across the industry. The regime provides for the right balance of consistent regulation for a wide range of different firms. Given the foreign branch regime, it is appropriate to treat them as we are proposing.

In conclusion, the draft orders make some necessary, albeit uncontroversial, changes to the overall financial services regime. They strike the right balance between ensuring that consumers are protected and that firms are well regulated. The Committee has scrutinised the measures in detail and I ask it to support the orders.

Question put and agreed to.

draft financial services and markets act 2000 (relevant authorised persons) order 2015

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015.—(Harriett Baldwin.)

draft financial services and markets act 2000 (misconduct and appropriate regulator) order 2015

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015.—(Harriett Baldwin.)

Money Laundering and Terrorist Financing (Risk Assessment)

Harriett Baldwin Excerpts

Thursday 15th October 2015 Written Statements

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

Money laundering can undermine the integrity and stability of our financial markets and institutions. Countering terrorist financing is also important in protecting national security and forms a key part of the UK’s counter-terrorism strategy.

Money laundering is a global problem and the laundering of proceeds of overseas corruption into or through the UK fuels political instability in some countries. The European Commission’s 2013 impact assessment of anti-money laundering and terrorist financing points to global criminal proceeds potentially amounting to some 3.6% of global GDP; around US$2.1 trillion in 2009.

The Government have already taken steps to improve the anti-money laundering and counter-terrorist financing regimes including by:

launching the Economic Crime Command in the National Crime Agency in 2013;

publishing the UK anti-corruption plan in 2014 and setting up a new specialist international corruption unit in the NCA;

strengthening the confiscation regime under the Proceeds of Crime Act 2002 and creating a new offence for participation in organised crime;

introducing a reporting process for anti-money laundering (AML)/counter-financing of terrorism (CFT) supervisors, improving the transparency and accountability of supervision and enforcement in the UK;

building asset confiscation enforcement (ACE) teams to crack down on those who refuse to pay their confiscation orders, contributing to the recovery of £199 million last year, the highest amount on record;

forming a new partnership with the financial sector to create the joint money laundering intelligence taskforce;

and launching a review of the suspicious activity reports (SARs) regime.

Today, the Government are publishing the UK’s first national risk assessment of money laundering and terrorist financing. It identifies and assesses the UK’s money laundering and terrorist financing risks, drawing on data from UK law enforcement and intelligence agencies, anti-money laundering supervisors, Government Departments, industry bodies and private sector firms.

The national risk assessment has found that while the UK’s response to money laundering and terrorist financing risks is well developed, more could be done to strengthen the UK’s anti-money laundering and counter-terrorist financing regime, including in the following areas:

the understanding of certain types of money laundering, and particularly in relation to “high end” money laundering, where the proceeds are often held in bank accounts, real estate or other investments, rather than cash;

the consistency of the UK’s supervisory regime, and specifically the understanding and application of a risk-based approach to supervision;

the priority given to combatting money laundering by law enforcement agencies and the effectiveness of their response.

The Government will take forward these findings in a comprehensive action plan. The priorities for the action plan will include:

fill intelligence gaps, particularly those associated with “high end” money laundering through the professional services sector;

enhance our law enforcement response and build more effective public-private sector partnerships, to tackle the most serious threats;

address the inconsistencies in the supervisory regime that have been identified;

work with supervisors to improve individuals’ and firms’ knowledge of money laundering and terrorist financing risks;

increase collaboration between law enforcement agencies, supervisors and the private sector to support prevention and detection.

The Government are committed to ensuring that the anti-money laundering regime is effective and proportionate, with businesses and regulators taking a risk-based approach to implementation. The Better Regulation Executive is leading a “red tape” review into the UK anti-money laundering regime to identify for example where companies are confused as to what is required or are undertaking unnecessary activity which diverts attention away from where there are real risks. The results of this review will inform the action plan.

The UK is periodically assessed under mutual evaluations by the Financial Action Task Force. The national risk assessment and the action plan will be kept under review and will inform the UK’s next evaluation.

A copy of the report has been deposited in the Libraries of both Houses.

[HCWS244]

Finance Bill (Third sitting)

Harriett Baldwin Excerpts

Tuesday 13th October 2015 Public Bill Committees

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

What a pleasure it is to serve under your chairmanship this morning, Sir Roger, after our short break. I welcome the hon. Members for Wolverhampton South West and for Leeds East to the Opposition Front Bench. I hope that they remain there for a long time. I also pay tribute to the work of the hon. Members for Worsley and Eccles South (Barbara Keeley) and for Wirral South (Alison McGovern), who worked so hard in that role before the break.

The changes made by the clause mean that banks will no longer be entitled to tax relief for compensation payments made in relation to their misconduct and mis-selling. That will protect the Exchequer from banks’ past management failures and ensure that the sector makes an appropriate contribution to restoring the public finances.

Let me start by providing some background to the tax rules in this area. Fines are generally treated as non-deductible expenses in calculating companies’ profits liable to corporation tax. That means that the fines imposed on banks as a result of their conduct have had no direct impact on UK tax receipts; in fact, they have actually benefited the Exchequer due to a change in rules enacted by the Government. That is not the case, however, for banks’ customer compensation payments. Such payments are generally treated as deductible expenses for corporation tax purposes, reflecting the fact that they are non-punitive and often the straightforward reimbursement of income on which businesses have already been taxed. As a result, compensation payments made by banks in relation to the mis-selling of financial products have, until this point, impacted directly on corporation tax receipts.

The scale of banks’ compensation payments in recent years has been unprecedented. More than £25 billion has already been paid out or provided for in relation to the mis-selling of payment protection insurance, with a further £1.8 billion paid or provided for in relation to the mis-selling of interest rate products. Crucially, the exceptional levels of banking sector compensation are persisting. New PPI provisions exceeded £2 billion in the first half of 2015 alone, with cumulative provisions now well in excess of initial market expectations and continuing to grow. In that context, the Government believe that the existing tax rules have become unsustainable. It is not acceptable that post-crisis corporation tax receipts continue to be depressed by conduct failures that in some instances took place more than 10 years ago. The clause therefore makes a change to address that.

The clause makes banks’ compensation payments in relation to misconduct and mis-selling non-deductible for tax purposes from 8 July 2015. That will apply to compensation material enough to have been disclosed in banks’ accounts, albeit with an exclusion for compensation relating to administrative errors, system failures and the actions of unconnected third parties. The changes will also capture administrative expenses associated with that compensation, but will achieve that indirectly by requiring banks to apply a 10% uplift in calculating their non-deductible compensation expenditure. That will help to ensure that the changes are proportionate. It will also ensure that the Exchequer is protected from the large-scale compensation seen in recent years, but in a way that is administrable and recognises that banks, like other industries, will inevitably make compensation payments as part of their ordinary course of business. Overall, this is a fair and workable set of rules, which is forecast by the independent Office for Budget Responsibility to increase banks’ corporation tax payments by £1 billion over the next five years.

We have already taken action to reduce the sensitivity of corporation tax receipts to losses incurred by banks during the crisis. The changes made by clause 18 now do the same in respect of banks’ past misconduct and the exceptional levels of compensation it has given rise to. This is crucial in ensuring that taxpayers get a fair deal from the banking sector, which they stood behind during the crisis. I therefore commend clause 18 to the Committee.

[Rob Marris (Wolverhampton South West) (Lab)]

What a pleasure it is to appear in Committee before you, Sir Roger. It has been a good many years. I thank the Minister for her kind words and pay tribute to my predecessors in this role, who worked hard, including on this Finance Bill. It is a particular pleasure to be shadowing the hon. Member for South West Hertfordshire. He and I have crossed swords in previous Committees—it is getting on for 10 years ago. I always think it is a bit like that Texas festival, South by Southwest—we are South West Hertfordshire and Wolverhampton South West. I look forward to our debate.

It will not surprise the Committee, and in particular my hon. Friends, that the Labour party thinks that clause 18 is rather a good idea. I will not detain the Committee for long, but I want to make one point and raise one issue. It was on this very day in 2008 that one of the major banks in this country was nationalised—I believe it was Lloyds bank. I remember, because I remarked in the Commons, as a then Government Back Bencher, that happy days were here again, because we were nationalising a bank on Margaret Thatcher’s birthday. It seems to go with the zeitgeist of the current Labour party leadership.

[Harriett Baldwin]

On that point, I am keen to explore whether the hon. Gentleman supports that leadership.

[The Chair]

Order. I am going to throw the hon. Gentleman a lifebelt. That is strictly not part of the Bill.

--- Later in debate ---

[Rob Marris]

Thank you, Sir Roger. As a shadow Minister, I think the Minister knows my response.

I have a question for the Minister—one that has just occurred to me, so I hope she will indulge me, as I have not had a chance to research it. The explanatory notes seem to suggest that this clause refer to banking, but the wording seems to suggest that it refers to corporation tax and deductions for compensation. All hon. Members will be aware that the largest car company in Europe—the second largest in the world—has been doing precisely what banks were doing leading up to the crash in 2008. Starting in 2009—which shows that the capitalists never learn and need regulating—the Volkswagen Audi group has been using computer algorithms and deception to con consumers. My personal view is that the Government, with the prosecuting authorities, should look at prosecuting Volkswagen executives if there is a case to answer that they obtained pecuniary advantage by deception—a breach of section 15 of the Theft Act 1968. However, my question for the Minister is this. Would clause 18, on the deductibility or non-deductibility from corporation tax of payments made by cheating companies, cover a company such as Volkswagen if it were adjudicated formally to have cheated?

[Harriett Baldwin]

Let me answer the hon. Gentleman’s question by agreeing that clause 18, given the way it is worded, applies only to banks. Clearly, it was introduced in response to the fact that the scale of bank compensation, to which I referred in my opening remarks, has been so significant. More than £25 billion has already been paid out, which has had a material and meaningful impact on the corporation tax receipts of Her Majesty’s Treasury. We have always been clear that we want banks to make a fair contribution to their historic costs and their potential impact on future risks to the economy.

The hon. Gentleman asked about compensation relating to the Volkswagen emissions scandal, which, as he is right to highlight, is a complete scandal. There is currently no intention to extend this measure. It is obviously early days in terms of the full scale of potential actions regarding Volkswagen, in particular Volkswagen in the UK and where the company pays corporation tax. However, I can assure the hon. Gentleman that the Government reserve the right to act decisively through legislation such as Finance Bills when they need to take steps to protect the public finances.

[Mark Garnier (Wyre Forest) (Con)]

On a point of clarification, the Minister mentioned that the costs of expenses incurred in addition to fines would also not be tax deductible. As she knows, under a section 166 agreement, the Financial Conduct Authority can ask a bank, at its own expense, to investigate an alleged misdemeanour. As I understand it from what she is saying, if that results in a fine, the section 166 cost is not tax deductible, but what would happen if it did not result in a fine and came off with a negative result? Would the section 166 undertaking be recoverable under tax?

[Harriett Baldwin]

My hon. Friend speaks with great insight and authority from his position on the Select Committee on the Treasury. I can explain to him that these measures are designed to tackle the material costs of compensation that are reflected, or provisioned for, in a bank’s accounts. In addition to that, a further 10% for the general costs of administration is attached. Were the costs that my hon. Friend refers to significant enough to require provision in the company’s accounts, they would be captured by this measure.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Banks established under Savings Bank (Scotland) Act 1819: loss allowance

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

[The Chair]

With this it will be convenient to discuss clause 20 stand part.

[Harriett Baldwin]

The changes made by clauses 19 and 20 ensure that special provisions for building societies in the loss-relief restriction legislation extend to savings banks, which share many of the same characteristics. This is a very narrowly targeted change to the legislation to ensure that it applies fairly across the sector and delivers on its stated policy objectives. Clause 20 makes a change to the definition of a bank for the purposes of bank-specific tax legislation, helping to ensure that it is aligned with regulation and delivers the intended policy outcome.

Let me start by explaining the background to clause 19. When a company makes a loss for corporation tax purposes, it is entitled to carry forward that loss and offset it against taxable profit arising in future periods. Legislation was included in the Finance Act 2015 to restrict the amount of profit that banks and building societies can offset with historical losses to 50% from 1 April 2015. This is designed to reduce the sensitivity of corporation tax receipts to losses incurred by banks during the financial crisis and subsequent misconduct and mis-selling scandals. The loss-restriction legislation includes a special provision for building societies, meaning that the restriction applies only to profits they make in excess of £25 million. That reflected a concern that the smallest building societies could otherwise be disproportionately impacted by the restriction, due to the fact that they are non-profit maximisers and reliant on retained earnings to build regulatory capital.

It has been brought to the Government’s attention that this provision does not accommodate banks incorporated under the Savings Bank (Scotland) Act 1819, which share many of the same characteristics as building societies and thus have the potential to be affected in the same way. The changes made by clause 19 therefore address that by ensuring that, from its inception, the legislation applies fairly and consistently across the sector. The changes will have a negligible impact on tax receipts. The independent OBR still forecasts that the loss restriction will increase banks’ tax payments by around £4 billion across the next five years, helping to ensure a fair deal for the taxpayer.

I will now turn briefly to clause 20. The Government have taken a number of steps to ensure that banks make a fair contribution to the public finances. That includes the bank levy, a tax on banks’ balance sheet equity and liabilities. The measures also include a restriction on the amount of profit that banks can offset by carried-forward corporation tax losses.

These policies, which will have raised over £30 billion in total by 2020-21, rely on there being a suitable definition of a bank within tax legislation. That definition needs to be able to take account of the differences between retail banks, investment banks and building societies. The current definition, which is based on regulatory concepts and supervision responsibilities, has been successful at targeting tax measures in accordance with the Government’s policy objective. However, as part of the modernisation of financial regulation, there have been recent changes to the regulatory terms used. Clause 20 aligns the definition used within tax legislation with those changes, and so ensures that investment banks supervised by the FCA remain within the definition, in line with the stated policy objective. The amended legislation will continue to apply to the same population and will continue to operate in the same manner.

Clause 19 represents a narrowly targeted change to the loss restriction legislation to ensure that it applies consistently across similar institutions. It is consistent with existing policy and immaterial in terms of sector-wide tax receipts. Clause 20 is a technical change to the bank tax legislation to ensure that it remains appropriately targeted and appropriately aligned with regulation.

[Rob Marris]

We seem to be dealing with the progressive clauses early on in our proceedings. That suits me and my party rather well: we like building societies, and I suspect that, were we to know more about savings banks in Scotland, we would like them as well, because they are not driven solely by profit, but do wish to make a surplus. I therefore encourage my hon. Friends to support clause 19.

As for clause 20, I have to confess—and this will not be the last time—that some of the technical matters are beyond me, although I appreciate that there is considerable expertise on the Committee and I thank the Minister for her explanation of this technical change. I have one question for her about the clause. It is a troubling one, but she may be able to allay my fears; if she cannot, I will be encouraging my hon. Friends to abstain.

As I understand it, the effect of clause 20, if enacted, would be retrospective to 1 January 2014—that is, a year and a half before the Budget on 8 July 2015. As a lawyer and as a Member of Parliament, I am always acutely concerned about retrospective legislation. I know it happens in Finance Acts in particular; it is common to backdate things to the date of the Budget, for example, and, on occasion, to the beginning of the tax year of that Budget. However, this is the second Finance Bill this year—one hopes it will be the last—and it is concerning to have retrospectivity, even if the measure is a very technical one.

[Harriett Baldwin]

The hon. Gentleman is absolutely right that, where possible, we always try to ensure that this type of legislation has no retrospective effect. He is also right that that is an important principle that we apply in dealing with such Bills. However, I can reassure him that, as he will see from the impact assessment, there will be no change to the effect of the legislation in terms of its financial impact. The legislation will continue to apply to the same population as before and will continue to operate in the same manner. He is right to raise a general principle that we would seek to observe with regard to the Bill, but in this example, because the institutions in question are already being treated in this manner for tax purposes and for regulatory purposes, it is simply a case of the legislation catching up with the real world.

[Rob Marris]

Is the Minister suggesting, by talking about catch-up, that the regime has been acting outside the law for the best part of two years?

[Harriett Baldwin]

The wording in the legislation is being changed to reflect the way in which the system has been operating, and so the change will have no material or measurable impact. Given the regulatory changes that came into effect with the Finance Act 2012, the legislation was ambiguous, so I would describe the change as a clarification of the wording to provide certainty in the legislation to match what has been happening in the real world.