Financial Conduct Authority Redress Scheme

Debate between Ian Swales and Cathy Jamieson

Thursday 4th December 2014 Commons Chamber

[Cathy Jamieson]

My hon. Friend makes a good point and I was going to say something about the circumstances that he and my hon. Friend the Member for Dumfries and Galloway (Mr Brown) mentioned and that element of compulsion. Clearly, many people felt that they had no option but to take those products or else they would not get the loan. As I am sure everyone understands, there are circumstances in which people rely on banks, and they trusted them and believed they were getting good advice.

[Ian Swales]

To emphasise that point, a constituent of mine was presented with an agreement to sign at the point when they thought they were signing a straightforward loan agreement. They literally did not have time to think, let alone make a choice.

[Cathy Jamieson]

Indeed, the hon. Gentleman makes a useful point and similar circumstances have been brought to my attention of people who thought at the point of signature that all they were signing was a refinancing agreement, and they had not understood the full consequences. We must drill down on those issues to ensure that people get the justice they deserve.

In some instances, product sellers painted only a partial picture of the product and the nature of the protection offered—I see the Minister is listening intently and I am sure she will agree. That resulted in customers purchasing products that were not appropriate to their circumstances, with the result that they lost money or spent money unnecessarily.

In the review, the FCA draws a distinction between sophisticated and unsophisticated customers. Under the terms of the agreement with the banks, only the cases of customers deemed to be unsophisticated were subject to the review. The FCA defines unsophisticated customers as those less likely to have had the expertise or resources to seek advice before purchasing an interest rate hedging product. People might suggest that that is a common-sense distinction, and one that correctly focuses on customers who were less likely fully to comprehend the nature and consequences of the product they were being sold, but the question of how the distinction was arrived at is an entirely different one. It will be interesting to hear the Minister’s view on that, and on the question of whether people ought to have the opportunity to appeal if they were put into the sophisticated category.

Taxation of Pensions Bill

Debate between Ian Swales and Cathy Jamieson

Wednesday 3rd December 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

The hon. Lady has obviously done a lot of research on this. As I understand it, once a flexible draw-down is started, the tax relief is then limited beyond that, so cascading £40,000 of tax relief year after year is not possible. That is my reading of the Bill.

[Cathy Jamieson]

I thank the hon. Gentleman for that intervention, as those are exactly the kind of detailed points that I hope the Minister will respond to when he gives his views on the provisions. These are exactly the sort of questions to ask: is that the type of tax avoidance that we have described and the AAT has suggested would be an issue? Is it possible? Is it an intended consequence of the Bill? During the Public Bill Committee he explicitly told us that allowing individuals to avoid income tax and national insurance contributions is “not the intention” of the reforms, and I had no doubt that he was genuine on that. However, people are still coming to us and repeatedly outlining concerns about the scale of tax avoidance that could be facilitated by the Bill. Therefore, it is important that we continue to pursue the matter, even at this late stage, and be given assurances on it.

Towers Watson has said that Ministers seem “sanguine” on this matter. I am sure that the Minister is not sanguine in any shape or form about the potential for tax avoidance, that he would want to close any loopholes and that he would want to send a clear message that it was not his intention that the Bill be used for any attempt at tax avoidance. That is particularly the case because, as has been repeated again today, tax revenues and the take into the Exchequer are falling, because of some of the Government’s other economic policies, particularly on wages and the impact on income tax and national insurance. It is not as though the Exchequer is going to be able to afford to lose hundreds of millions of pounds of tax income.

Interestingly, the written evidence from Towers Watson cited the Minister’s assurance that

“the government will be closely monitoring behaviour under the new system”,

and will take action “if loss accelerates” Towers Watson’s evidence suggests that it is very likely that action will be required. Complementing the AAT estimates of how much tax could be lost if individuals use salary sacrifice before they have accessed their pensions flexibly, Towers Watson provides an estimate of how much tax could be lost after a pension has been accessed flexibly and the money purchase annual allowance imposed. Towers Watson’s projection returns us to the point made by the hon. Member for Redcar (Ian Swales) and shows why we have pursued this matter vigorously. Towers Watson states that

“if £10,000 of salary is given up in exchange for an employer pension contribution, the employer could pay £1,380 less National Insurance while the employee would pay between £200 and £1,200 less”.

Although the annual allowance does not altogether remove the scope for tax avoidance, it does have a limiting effect, which of course we welcome. The crucial point made by Towers Watson, however, is that this is not a potential tax avoidance opportunity that has been “dreamt up by accountants”, but one that could be “created by legislation” before us today.

Taxpayers and employers need to know whether the Government will regard the diversion of salary through pensions as legitimate. Some people have suggested that the Government drafted the legislation oblivious to the loophole they were creating and that when they realised the consequences, they came up with the money purchase annual allowance rules as a partial stop-gap. I am inclined to be slightly more generous, because I am sure that the Government were very conscientious in drafting the Bill and gave consideration to all its component parts. I am sure that the Minister will reassure us on that point in his response. I know that he is concerned about the potential for tax avoidance, because he has repeatedly told us that he will “closely monitor behaviour” under the new system and that he will work with the industry to ensure that the system remains “fair and proportionate”.

[Ian Swales]

I am following the hon. Lady’s argument closely. Is she suggesting that this Bill creates new avenues for employer contributions to pension schemes? As I understand it, what she describes is available in the current system.

[Cathy Jamieson]

I thank the hon. Gentleman for his intervention. I hope the Minister will provide a clear steer to people about what would be acceptable both to employers and employees. I would also be interested to learn what he plans to do if the system turns out not to be fair and proportionate, and what form the monitoring will take. That is why we have proposed new clause 1. We did debate the matter in Committee, but we are still concerned that we have not heard exactly how the monitoring will take place and what the Minister intends to do.

Essentially, new clause 1 asks the Government to commit to doing something that the Minister has already said that they would do—to monitor and review the reforms to ensure that they are not used for the purpose of tax avoidance. We simply want that commitment in the Bill, to ensure that there are reports back to the House.

When we first debated the issue, concerns were raised about the time scale in which we were asking for the review. We had not, at that stage, fully anticipated how long it would be before patterns were established and problems had manifested themselves, which is why the new clause includes a two-year-time frame.

Taxation of Pensions Bill

Debate between Ian Swales and Cathy Jamieson

Wednesday 29th October 2014 Commons Chamber

[Ian Swales]

I thank the hon. Lady for her clarification. I am sure that the Exchequer Secretary would be interested to hear more about how she defines “unscrupulous”. I agree with her, but there is more to do to be clear what that means or about conduct that the Financial Conduct Authority would regard as unscrupulous.

All this liberalisation of pensions, as the hon. Member for Amber Valley mentioned, makes pension savings more like other kinds of savings. We are also providing a big tax advantage. Removing restrictions on when pensions are taken and removing some of the tax charges and restrictions on death means that we are moving closer and closer to a simple tax-free savings market. Such a market is especially attractive for people who are very close to retirement. I have done some sums, and if one is about to take one’s pension pot, there is quite an incentive—because of the tax-free 25%—to throw in the maximum possible amount of money in the months before retirement. Somebody paying tax at the basic rate who puts a lot into their pension pot in March and starts their pension in April or May would make a 6% return on their money simply by putting it in and taking it back out again. A higher rate taxpayer would make a 16% return on their money simply by putting a lump sum into their pension pot immediately before they retire and then drawing it out again. There will therefore be clear consequences of the flexibility that we are creating. People will be more inclined to put their money in if they know that they will be able to get it out quickly. There are clear benefits to getting the tax-free amount very quickly.

We have heard about the possible later costs to the state in respect of care and so on. By definition, if people take more out of their pension pots earlier, more people will need state assistance later in life with health or care costs. I know that the Minister is aware of that issue, but I do not know whether the possible costs have been calculated or estimated.

I am more confident than most that the responsible part of the industry will come up with new products and innovations. As I said to somebody from Just Retirement last week, what people need is plain language. Even the word “annuity” is not plain language. People want a secure income in retirement. The vast majority of people who retire do not want to buy a sports car, but to have a certain income throughout their retirement. The more the industry wraps things up in mumbo-jumbo that people do not understand, the more suspicious people are of its motivations.

We are already seeing warning signs. For example, Fidelity is saying, “All this flexibility means complexity, which means higher costs, because we are not set up to run bank accounts.” I am concerned that the industry will see the changes as a new way to levy high charges. It will say that the very flexibility that the Government want to see is expensive to provide. I hope that we see the right level of competition in the market and that people come in who do not levy those high charges.

We have seen a huge fall in the number of annuities that have been taken out recently. Just Retirement has seen a 50% fall in demand for annuities. I suspect that that is partly due to uncertainty. People want to be clear what the new rules are before making a decision. Demand may pick up again, particularly if there are new products. However, there is no doubt that fewer people will take out annuity-type products.

[Cathy Jamieson]

I am listening carefully to what the hon. Gentleman is saying. Does he agree that there are concerns for people who have relatively small pots, because companies might feel that it is not in their financial interest to offer them products? How can we ensure that there is equality?

[Ian Swales]

The shadow Minister makes a good point. If we create a spectrum of products that is genuinely complex, the charges might be inappropriate even for those with medium-sized pots because of the flexibility that is offered. We need to hear more from the industry about that.

Finally, on timing, I know from personal experience that when the date that one has defined as a potential pension date is approaching, the industry offers what it calls warm-up packages. I have had my first warm-up package for next year. The industry is not waiting until April next year. It has to get on with this right now. If there is any uncertainty in the minds of Ministers, they had better get moving pretty quickly, because the industry has to get all its systems, documentation, regulations and new products in place so that it can offer them to the cohort that is approaching retirement in just a few months’ time—from April onwards. The ABI is already concerned that it is getting towards the eleventh hour, when clarity on all this will be needed.

Despite all the reservations that I have expressed, I very much support the Bill and commend it to the House. I am sure that when it emerges in its finished form, it will be an excellent piece of work.

Office for Budget Responsibility (Manifesto Audits)

Debate between Ian Swales and Cathy Jamieson

Wednesday 25th June 2014 Commons Chamber

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

We have had what could best be described as a very interesting debate. Let me begin by picking up a point made by the hon. Member for Wyre Forest (Mark Garnier), who said that the sums done by the Scottish National party and the Scottish Government did not add up. The Scottish Government’s child care proposals provide a good example of that. The Scottish Parliament Information Centre has studied the figures, and has demonstrated that the SNP’s sums do not add up and its policies do not make sense. However, that is not the subject of today’s debate.

I think that the debate has been useful, although, like others, I was a bit disappointed that the Chancellor had not seen fit to come to the House and defend the Government’s position. As for the Financial Secretary, I know from previous debates that she generally seeks to build consensus. Perhaps she was simply given a script and told to make the best of a bad job, but I was nevertheless surprised that she did not adopt her usual tone. It seemed to me that her heart was not in the argument that she was presenting, and that, given the opportunity and a slightly different setting, she might have adopted another approach.

We heard a number of thoughtful and considered contributions, not least from my hon. Friends the Members for Coventry North West (Mr Robinson), for Eltham (Clive Efford), for Edinburgh East (Sheila Gilmore), for Leeds East (Mr Mudie), for Oldham East and Saddleworth (Debbie Abrahams) and for Derby North (Chris Williamson). I have already mentioned the hon. Member for Wyre Forest. He too made a thoughtful speech, although I did not agree with everything that he said. We made one interesting discovery, namely that the hon. Member for North East Somerset (Jacob Rees-Mogg) has not ruled out standing for the leadership of any political party. I look forward to observing his progress in the coming weeks and months.

My right hon. Friend the Member for Morley and Outwood (Ed Balls) explained our proposal very well, in his usual careful, considered and consensual style. I found it difficult to understand why Government Members took such exception to the way in which he set out what I thought was a very good case. The OBR already scrutinises the Government’s spending and tax policies and assesses whether they are reasonable, and we are merely asking for what is, essentially, a logical extension of that. We are suggesting that the OBR should perform the role that we propose not just for the current Government, but for prospective Governments.

As a number of my hon. Friends have pointed out, it would be sensible to require the OBR to audit only the manifestos of parties with 5% of the seats in the House. We need not involve it in every party manifesto. Ultimately, what the public want to know is that someone has looked at the sums of the parties that are likely to be in government to ensure that they add up.

Some Members on the Government Benches spoke as if the OBR would suddenly have to have a raft of civil servants and new people to do costings all over the place, every day of the week, for months and months. Let me again put on the record what my right hon. Friend the shadow Chancellor said in his letter in September to the head of the OBR:

“The reform I am proposing would mean the Opposition would submit costings for proposed manifesto commitments on spending and tax—obtained from, for example, the House of Commons Library, Parliamentary Questions or the Institute for Fiscal Studies”—

it was interesting to note the number of times that Government Members referred to that; I hope that they will take account of the findings of that august body as the debate continues—

“and the OBR would ‘provide independent scrutiny and certification’ of those costings.”

Therefore, it is not the case, as seemed to be suggested, that the OBR is being expected to do all the costings. It is being expected to certify those.

[Ian Swales (Redcar) (LD)]

The hon. Lady mentioned the Institute for Fiscal Studies. A look at its remit shows that this kind of work falls squarely under its banner. It also receives more than half its funding from the public purse, directly or indirectly. Does she not think that it could fulfil the role that the motion describes?

[Cathy Jamieson]

The IFS’s role is slightly different from the one that has been proposed. This is about scrutinising and certifying the policies and plans for government. One hon. Member mentioned the difference between costings and audit. We are saying that the costings should be looked at. That role is slightly different from the one that the IFS fulfils.

We are confident that our policies will stand up to that scrutiny. We are confident enough to say that we want the OBR to run the rule over all the spending commitments in our manifesto. As Members have rightly said, we recognise the need to restore trust in politics. The public want assurances that our policies add up. They want the OBR, having done the work, to be in a position to give them the quality assurance that they seek. We strongly believe that the other major parties should be prepared to do the same thing. That will enable the electorate to make an informed decision based on facts. That is important.

Financial Services (Banking Reform) Bill

Debate between Ian Swales and Cathy Jamieson

Wednesday 11th December 2013 Commons Chamber

[Cathy Jamieson]

I thank my hon. Friend for his comments. I do not know what was in the Government’s mind, but in Committee the Bill was very thin. We raised the matter on a number of occasions, but the Government resisted every attempt to amend the Bill in Committee, apart from on one minor detail. In retrospect, that is not the way to produce the best possible legislation. The Bill will undoubtedly have been improved by the end of the process—I do not detract from the work that has been done—but it would have sent a stronger message to the general public and the financial services industry that this place took the matter seriously if the Government had accepted amendments at an early stage.

[Ian Swales (Redcar) (LD)]

As a member of an accountancy body that deals with police professional standards and continuing professional development, I understand this issue. I also understand that the financial services industry is diverse, with many different roles. Has the hon. Lady tried to list all those roles and thought about what professional qualifications and standards are appropriate to each and every one?

[Cathy Jamieson]

I understand the hon. Gentleman’s point. Our approach has been to suggest that that responsibility lies, rightly, with the Financial Conduct Authority. It would not be for me, as a shadow Minister, to list those roles. In relation to the definition of a professional, it is important for people to have professional development, with qualifications, on a continuous basis. One fundamental issue for professions is an adherence to a code of conduct. We tabled amendments on that consistently because we believe strongly that that is important. The wider world wants to know that the banking industry culture has changed and that malpractice, which unfortunately is still coming to light, is being dealt with.

--- Later in debate ---

[Cathy Jamieson]

I thank the hon. Gentleman, whose comments were slightly more supportive than I expected them to be. He made a good point about his beloved football club. I am sure that he agrees with what I said earlier about the amount that is spent on advertising, and the worrying way in which it is normalised by being associated with football clubs and similar organisations. That particularly affects children and young people, as well as perhaps those on lower incomes.

The Minister referred to the challenges that would be faced if amendment (b) were passed and the date of implementation were brought forward. I am well aware that Martin Wheatley of the FCA set out those challenges even before writing the letter from which the Minister quoted earlier. He said that the Minister was

“aware of the challenges that we face in bringing a price cap into force by January 2015.”

The Minister said in response:

“The Government is…committed to ensuring that you can access the information you need to design the cap. The Government will bring forward secondary legislation to allow you to collect information to support your new duty as soon as possible.”

I heard him say that those regulations have now been laid. However, this strikes us as a matter of political will. If he wants the price cap to be introduced, and if he is willing to make the necessary resources available, it seems reasonable for us to press the case for the introduction of the cap by October 2014 rather than January 2015, especially as that would help us to prevent even more families from falling into the clutches of the high-cost credit market this Christmas.

Will the Minister tell us what will be done to speed up the process of the secondary legislation to which he referred? He described January 2015 as a “backstop”, but it was not clear to me whether he genuinely believed that the cap could be introduced earlier, and I think it reasonable for us to press for that to happen.

The Minister will be aware that organisations such as Which?, while welcoming the introduction of a cap on the cost of credit, suggest that it should apply to all credit products. Members have already raised the issue of authorised and unauthorised overdrafts, which, according to research findings, are often just as expensive as payday loans. It has been reported that borrowing £100 for 31 days costs £30 with a Halifax authorised overdraft and £20 with some Santander accounts, and that borrowing the same amount for the same period from a payday loan company costs between £20 and £37. Some of the banks may not feel particularly comfortable about that comparison. An unauthorised overdraft is even more expensive. I am told that in the case of the Halifax reward account and the Santander everyday account, a £100 unauthorised overdraft can cost £100 in charges. I wonder whether the Minister has taken that into account during his discussions with the FCA.

[Ian Swales]

Is the hon. Lady aware that some of those charges apply even if the overdraft lasts for only a day, let alone a month?

[Cathy Jamieson]

The specific examples that I cited had been reported to me, but I understand that in many instances high charges are applied even if people slip into an unauthorised overdraft for a very short period.

Let me ask the Minister another question. In a letter to the Minister, Martin Wheatley said:

“In designing the cap we will, as far as possible, seek to minimise potential avoidance measures. It is possible for firms located in other EEA Member States to provide a payday lending service through the internet to UK consumers within the Electronic Commerce Directive. This is not something that the FCA can mitigate.”

What assessment has the Minister made of the extent of that problem, and what can be done to reduce that? As we take things forward, it will be important that we do not simply move people from one payday lending system on to something else that could be equally difficult.

I want to say a few words about the relationship between the banks and the payday lending sector, and to focus on the question of the banks lending to the payday lenders. During the consideration of the Bill in the other place, Lord Mitchell raised this issue, and his understanding was that Barclays lent Wonga over £250 million. When he investigated that further, he discovered that the sum was apparently much higher. He raised concerns about the mission and the guiding principles of the bank and asked whether lending money to the payday lenders so they can then lend it at higher rates to people who need loans is the right thing for the banks to be doing. That raises the question of what the banks’ responsibilities are to those on lower incomes, and also the issue of the banks’ relationships with the credit unions, for example.

I feel that we must press the amendments we have tabled to a Division. I hear what the Minister has said and I have heard the comments and concerns raised by the FCA about the timetable, but I think it is reasonable to press for this to be done as quickly as possible. The Minister has said that January 2015 is the backstop date—the latest point when it could happen. I think it is reasonable for us to bring that forward and to press the amendments on data sharing to a Division.