Ark Pension Schemes

Jack Straw Excerpts

Wednesday 11th March 2015 Commons Chamber

[Mr Jack Straw (Blackburn) (Ind)]

I begin by expressing my personal gratitude to you, Mr Speaker, for selecting this important subject for an Adjournment debate this evening. The Ark pension schemes were put in place a few years ago to offer an apparently lawful method by which participants could realise a substantial proportion of their pension pot many years before the relevant retirement age. At the heart of these schemes was a structure called a “maximising pension value arrangement”—MPVA. That involved a pension reciprocation plan by which members could gain access to their pension capital prior to the minimum retirement age without, it was claimed by its promoters, breaching Her Majesty’s Revenue and Customs rules. That was achieved by one of the schemes under the control of the trustees “loaning” funds to a member of another scheme under their control and, reciprocally, the same amount being “loaned” back to a member of the first scheme.

In a High Court judgment in December 2011 on the Ark schemes, Mr Justice Bean said that the arrangements, including the MPVA loans, were “beyond the scope” of the trustees’ powers. They were “made for ulterior motives” and were a

“fraud on the trustees’ powers.”

According to Mr Justice Bean, the Ark schemes in question had funds originally of approximately £25 million, with a total membership of at least 487 members. Those members were from across the United Kingdom, and their situation has been a matter of concern to many Members of this House. One of those scheme members, however, is my constituent. For reasons that are readily understandable, he does not wish to be publicly identified, so although I have provided the Minister with his full details in confidence, in this debate I will refer to him simply as Mr Smith.

Mr Smith is in his late 40s. At 18, he showed rather more foresight than is usual for people of that age and took out membership of a private pension scheme, initially with Britannic Assurance but this was later transferred to Standard Life. After almost a quarter of a century paying into the scheme, he decided in 2008 to stop paying his monthly instalments, which had latterly been about £300 per month. The earliest payout date under the scheme was 2022, at age 55. The total pension pot—the fund—was valued at £122,000 in 2011. Mr Smith had for almost the whole of his working life been employed in a specialist sector of the building supplies industry, as a salesman, and had been employed by the same company for 23 years. However, as one of the many consequences of the 2008 world financial crisis, that company went into liquidation in 2010, and his job with it was no more. He found employment with another firm in the same sector, but by February 2011 it became apparent to Mr Smith that because of trading conditions he was likely to be made redundant from that firm, too.

Given that uncertainty, compounded by his age, Mr Smith thought that the best thing he could do was to set up a shop in the sector and work for himself. On the internet, he saw an advertisement that promised that he could “release 50%” of his “pension tax free”. The scheme claimed to be

“registered with HMRC, and the Pension Regulator”.

It was under the name of “Ark” pensions, with Minerva and Athena as trustees. Ark claimed around that time that

“both HMRC and the FSA”—

the Financial Services Authority, as was—

“have conducted detailed enquiries (with the full cooperation of Ark) but neither has seen fit to take any action”.

Ark also claimed that the schemes were lawful and that it had been advised so by leading counsel.

Mr Smith decided to participate in the Ark scheme. He duly completed all the application forms, and transferred the whole of his pension pot of £122,000 from Standard Life to Ark. His wife also transferred her smaller pension pot of £20,000 to Ark. The issues raised by her case are the same, so for simplicity’s sake I shall concentrate on Mr Smith’s position in this debate.

On 20 April 2011, Mr Smith received from Ark a cheque for £58,725—50% of his pot, less a 5% charge and other charges levied by Ark. Two weeks later, on 6 May 2011, Mr Smith, as he had anticipated, was made redundant for the second time in less than a year. Three weeks after that, on 31 May 2011, the Pensions Regulator decided to impose independent trustees, Dalriada, in place of those operating the Ark schemes, owing to

“concerns over the behaviour of the previous trustees.”

Fourteen days later, on 14 June 2011, Dalriada wrote to all Ark members, including my constituent Mr Smith, to say that they had been advised by leading counsel that there was a “strong possibility” that the MPVA arrangements by Ark were void. Dalriada said:

“This would mean that the arrangements would not be recognised as ever having taken effect.”

The subsequent court action between Dalriada and the original Ark trustees resulted in the judgment of Mr Justice Bean, to which I have already referred, declaring that, as Dalriada had anticipated, the MPVA arrangements were indeed void. The judgment has not been appealed, and therefore stands.

As soon as Mr Smith had had a chance to digest the implications of both the Pensions Regulator’s decision to impose different trustees and the High Court decision, he took the initiative and asked his accountant to contact HMRC about his likely liability to pay tax on the £58,000 received from Ark pensions in April 2011. In a letter to me on 24 February 2014, the chief executive of HMRC, Lin Homer, said:

“Mr [Smith] ... cooperated throughout the process.... and in January 2014 he made the decision to make a payment”

to HMRC

“on account in the sum of £32,300.”

This sum is currently held on Mr Smith's self-assessment account, and to date HMRC has not raised an assessment about it.

Over the past few years, I have come to know Mr Smith very well. He is a thoroughly decent, honourable man. He is expert in his own field of work, but not in pension law. He was led to believe that this MPVA method of releasing funds early from his pension account was entirely lawful. Mr Smith now finds himself in limbo.

I hope that in this short debate the Minister can clarify what the future holds for Mr Smith and other members of the Ark schemes. What Mr Smith most wants is to be put back to the status quo ante. In other words, he refunds the total of what he has received from Ark—£58,000—and it is invested by respectable trustees in the usual way, and the benefits of his pension pot then become available to him, in the usual way, from the age of 55. Of that sum, £26,000 would be paid direct by him, and the other £32,300, which is currently held in a suspense account by HMRC, would be paid by HMRC to the new trustees. That seems to be entirely consistent with the statement of the new trustees, Dalriada, that if, as indeed happened, the MPVA arrangements were declared void, then they would

“not be recognised as ever having taken effect.”

My first and key question to the Minister is therefore this: can what Mr Smith is seeking happen, and if not—with respect—why not? Mr Smith fears that he may end up being the subject of a double whammy: first, he will have to pay the £32,000 in tax on the moneys released; and secondly, he will then find that the £61,000—the 50%—that was left in his pension pot under the arrangement is considerably reduced in value because of poor decisions by the Ark trustees, even though they had control of his moneys for less than six weeks. As I have already mentioned, HMRC has yet formally to raise an assessment against Mr Smith, so my second question to the Minister is this: are Mr Smith’s fears justified, and when is HMRC likely to decide whether or not to require the payment of the £32,300 held in the suspense account against a tax liability?

My third question builds on the second. Mr Smith fears that a considerable part of his outstanding pension pot will be absorbed by fees and legal costs incurred by the new Dalriada trustees. Are those rational fears?

My fourth and final set of questions relates to the assertion that Ark claimed its scheme was

“registered with HMRC and the Pensions Regulator”.

Are those claims correct? If they are, does that not imply that some responsibility for what has happened to individuals such as Mr Smith, who were acting in good faith, must lie with HMRC and the Pensions Regulator? If Ark’s claims are not correct—they were claims that my constituent and, I suspect, every other person who became a member of the schemes relied on—and they were fraudulent, what civil and criminal action is being taken against those responsible?

In short, it seems to me that my constituent has been the innocent victim of an elaborate and sophisticated arrangement designed to evade our pension laws. I have no sympathy for the architects of the scam or for those advising them. I have every sympathy for Mr Smith and his wife, and indeed for others in the same situation. I very much hope that the Minister does too and that he can offer the couple some better hope for their future.

[The Financial Secretary to the Treasury (Mr David Gauke)]

I congratulate the right hon. Member for Blackburn (Mr Straw) on securing the debate and on setting out his case so clearly and with such forensic skill, which has been a characteristic of his role as a Member of Parliament for some 36 years.

As the right hon. Gentleman outlined, the Ark pension schemes are a number of schemes that were administered by Ark Business Consulting. The schemes operated a pensions reciprocation plan that involved loans being paid between schemes and their respective members. That was on the basis that members could access a proportion of their pension savings without breaching tax rules intended to ensure that members access their tax-relieved pension savings only from age 55, under a practice known as pension liberation.

The right hon. Gentleman raised a number of concerns about the tax implications for individuals involved in the schemes. It might help if I set out the tax rules in a little more detail before turning to the particular points he raised. Tax relief is provided on pensions savings with the expectation that the funds are used by the member to provide benefits later in life. The tax rules therefore set out the various payments that a pension scheme is authorised to make to, or on behalf of, a member. They include payments of authorised benefits—pensions and lump sums—as well as such payments as transfers to another registered pension scheme. To be an authorised payment, these benefits cannot be paid before the minimum pension age, currently 55.

Where payments are made that are not authorised, they are classed as “unauthorised payments” and are subject to certain tax charges. These charges are intended to recover the tax relief previously given on the savings, as they have not been used as intended by the tax rules. Where savings are taken before age 55, this is an “unauthorised payment” and tax charges will apply. A loan made to a member from a registered pension in connection with their pension savings is also an “unauthorised payment”. This guarantees fairness to the taxpayer and ensures that pensions are not simply used as a tax-efficient savings tool. HMRC is looking into whether the payments made to the members of the Ark schemes are authorised by the tax rules.

The tax position in relation to the Ark pension schemes is by no means straightforward. The right hon. Gentleman asked whether, if the loans are repaid, they can be treated for tax purposes as though they had never happened. That is not the case, as loans are “payments” for the purposes of the tax legislation under consideration, whether or not they are repaid. He asked why we cannot return to the status quo ante. To do otherwise than treat loans as “payments” would enable people to withdraw funds early from their pension pots without any tax implications, and then return them to their pension pots at some point in the future if they so wished, with no consequences. Clearly, we do not want to encourage that type of speculative behaviour. The rules essentially comply with the principles that have been in place since tax relief was introduced many years ago.

[Mr Straw]

Of course I accept, as does, I think, everyone in this House, that if we are going to have arrangements by which people are able to save up for their retirement and to gain tax advantages in doing so, we cannot, in principle, have a situation where, in advance of their retirement age, they can simply pick and choose what they take out of the scheme, or not. However, does the Minister recognise the inequity of the fact that my constituent, who has acted in good faith, has been the victim of circumstances where he believed that what was happening was lawful—as indeed, at the time, it was—and accept that, in the special circumstances in which he finds himself, arrangements ought to be made by which he can return to the status quo ante, because otherwise he will suffer a huge penalty for no benefit?

[Mr Gauke]

The right hon. Gentleman puts his constituent’s case very well. In the situation as he describes it, it is hard not to be sympathetic to an individual placed in that position. However, the law is very clear that a loan payment of this sort constitutes a “payment”, and certain consequences follow. I take his point, and this may well be a hard case. The challenge arises if we have a situation whereby people are able at least to attempt to access some of their pension pot, and then subsequently find, for one reason or another, that that was not the right thing to do. However, simply putting them in the position they were in to begin with is, to use a snooker term, a bit of a shot to nothing. Although this might be unfair—I am sure that it is—on the right hon. Gentleman’s constituent, others who are acting in not quite such a degree of good faith might attempt to liberate, as it were, their pension in the hope that it does not get picked up, and in the knowledge that if it does, they are in no worse a situation. That is one of the challenges that a Government of any description would face, and that is why the law in this area has been tightly drawn for many years.

In the right hon. Gentleman’s second question, he asked when the matter might be settled so that he could provide some certainty for his constituent. I fear that I cannot provide such certainty about when the tax position will be settled. This is a complex case, and it may ultimately be for the tax tribunal to determine the correct tax position. Until that has been determined, it will not be possible for HMRC to settle the specific case, and that timetable is not within the control of HMRC. I have asked HMRC when it anticipates dealing with this case, but given that it will have to go to a tribunal, HMRC is not willing to provide a precise date.

The Government have a duty, not least to the taxpayer, to apply the legislation fairly and consistently in line with statutory provisions. Where a liability to tax arises, the normal rules in relation to interest accruing on any outstanding tax charge apply. Existing arrangements that allow individuals to get more time to pay or to pay their tax bill in instalments will be available to help those who want to use them.

On the specific case, in May 2011, the Pensions Regulator decided to appoint Dalriada Trustees Ltd as the independent trustee of the Ark pension schemes. It did so because it was satisfied that the interests of scheme members were at risk due to the schemes being used for pension liberation. Under trust law, Dalriada has a duty to act in the best interests of the members. I am sure that it will seek to locate as much of the scheme’s funds as possible, and to recover assets wherever it is reasonable and proportionate to do so, bearing in mind that the standard practice is for the costs of investigating and recovering assets to be met from member funds.

On the right hon. Gentleman’s third question, there are responsibilities on Dalriada as the trustee to ensure that its actions are proportionate and that the pension funds of Ark members are not frittered away. None the less, it faces a challenge in recovering the assets. I suspect that Dalriada as the trustee is better placed to give an estimate of the risks of legal costs substantially diminishing the pension pot in the Ark scheme.

The right hon. Gentleman has raised the concern that Ark scheme members entered the arrangements in good faith. As I have mentioned, Dalriada was appointed because the schemes were suspected of being involved in pension liberation. He will doubtless be aware that pension liberation is a threat to individuals’ hard-earned pensions savings. It occurs where a scheme is set up to enable someone to access their pensions savings early—usually before age 55. Scheme promoters often fail to tell people about the tax consequences of accessing their pension savings early, and promoters often charge high fees. In some cases, people are promised cash if they invest their pension funds in esoteric investments, on which a high return is promised, and people unfortunately often lose all their pension savings in those cases.

Some products claim to unlock, liberate or provide early access to pension savings without giving rise to tax charges. That is not true: anyone receiving money from their pension scheme before the age of 55 will normally be subject to tax charges aimed at recovering tax reliefs. It is therefore vital for individuals to recognise the danger of entering into such schemes. If they choose to access their pensions savings early, they need to be aware of the tax charges and risks. HMRC is continuing to take action in pursuit of those who deliberately bend or break the rules by offering schemes to liberate pensions savings. That is part of a continuous strategy to combat pension liberation, as is the ongoing review of pension tax legislation. The Government will not hesitate to make further changes if necessary.

[Mr Straw]

It may be that the Minister is coming to my fourth question, but I would be grateful to know whether it is correct, as my constituent claims, that Ark held out that it was regulated by HMRC and the Pensions Regulator. If that is correct, does he believe that any responsibility for the fact that the scheme was advertised in that way rests with those two regulators?

[Mr Gauke]

I reassure the right hon. Gentleman that I will turn to his fourth question in a moment, but before I do I hope it will be helpful if I first say a little more about what HMRC is doing in this area, and then I will deal with his question directly.

In addition to the measures I have mentioned, HMRC has been working extremely closely with partner agencies—the Pensions Regulator, the Financial Services Authority and the Serious Fraud Office—to detect, disrupt and deter promoters, and to warn people of the dangers of entering into these schemes. Although HMRC and its partners are taking action to raise awareness of potential threats, the Ark case highlights the need for people to be on their guard against promises of tax loopholes, offers of unrealistic investment returns, or other dubious advice linked to their pension pot or cash lump sums. If it sounds too good to be true, it probably is. Individuals need to consider carefully what is on offer and whether it is appropriate to their circumstances, and ensure they have carried out sufficient due diligence, taking professional advice as they deem necessary.

The right hon. Gentleman asks whether the Ark pension schemes were registered with HMRC, and I confirm that they were. As he will appreciate, it is difficult to know at the point an application for registration is received whether any particular pension scheme will ultimately be misused, but that is not to say that the Government should be complacent. Changes have recently been made to the process for registering a new pension scheme with HMRC to make the system more robust and disrupt any fraudulent intentions.

Legislation in last year’s Finance Act provided greater powers to check that pension schemes are being set up for the genuine provision of retirement benefits, and to impose penalties where wrongdoing is identified. That includes a “fit and proper person” test for those running the pension schemes applying for registration. Essentially, these changes provide stronger powers for existing pension schemes to be deregistered, or for new schemes to be refused registration where there are concerns.

HMRC’s role is to ensure that the tax system is being complied with. It is not there to perform a role of consumer protection, but to ensure that pensions are not liberated, and we have made a number of changes in recent months to strengthen its powers in that area. As the right hon. Gentleman will appreciate I cannot discuss individual cases, but I assure him that HMRC continues to ensure that the tax rules are applied fairly and consistently, that it will continue to pursue those behind pension liberation schemes, and that the British taxpayer continues to get a fair deal.

Question put and agreed to.

The Economy and Living Standards

Jack Straw Excerpts

Thursday 12th June 2014 Commons Chamber

[Mr Jack Straw (Blackburn) (Lab)]

We heard a vigorous defence of the Queen’s Speech from the Chancellor of the Exchequer, so it is surprising that so many Conservative Members have voted with their feet and emptied their side of the Chamber, obviously lacking the confidence to speak up in favour of their own Chancellor.

A central part of the Government’s defence of their economic policies is the challenge they make to the competence of and decisions taken by Labour Governments between 1997 and 2010. I was privileged to be a senior member of the Labour Government throughout the term and I am proud of their achievements. As John Major once shrewdly observed, the only people who never make mistakes are those who never make decisions. No more than any Government, did we get all our judgments right, but overall I believe we made the correct judgments, including on the economy. The criticism the current Government make of us is not just wide of the mark; it fails to take account of the contradictory policy positions they were adopting at the time.

The first charge the Chancellor has often made is that the Labour Government did not fix the roof when the sun was shining, but we did—we had to. As my right hon. Friend the Member for Stirling (Mrs McGuire) mentioned, one of the scandals of the Thatcher and Major Governments was their palpable neglect of public services. There were hospitals and schools with leaking roofs and buckets everywhere. There were schools where the sun could literally be seen through the open roof. There is not a Conservative constituency in the country where the roofs of its schools and hospitals were not fixed by the last Labour Government, and no Conservative MP complained about that spending at the time.

That brings me to my second point. I have been through what Conservative shadow Chancellors were saying in response to the Budgets and spending reviews between 2000 and 2010. Yes, there are plenty of passages of criticism, in small print, about the levels of borrowing and taxation to which the Conservatives could, and do, point, but if we look at what they were saying about the spending plans that were leading to all those improvements in their constituencies, we find that a very different story emerges. In 2004, they published a medium-term economic strategy, setting out their plans for the years to 2011-12. The Institute for Fiscal Studies published its own commentary on that, saying that if the Conservatives were to win the forthcoming general election, spending would

“still be higher”

under the Conservative plans

“than it was in every year of Labour’s first term”.

At the 2005 general election, the Conservatives’ main pitch, in the face of Labour criticism, was to reassure voters that no significant cuts would take place if they were elected. The Economist newspaper for 14 April 2005 published a major article under the heading “Much ado about nothing: The Conservatives’ spending plans are strikingly similar to Labour’s”. After the 2005 election, the reassurance that the Conservatives would not be cutting public spending continued, but in even more categorical terms. On 3 September 2007, the “ConservativeHome” website proclaimed:

“Tories will match Labour’s spending plans for the next three years”.

It highlighted an article in The Times of the same date, written by the then shadow Chancellor, which stated:

“I can confirm for the first time”—

he solemnly intoned—

“that a Conservative Government will adopt”

the Labour Government’s spending totals for the years 2008-09 to 2010-11.

[Robert Flello]

Does my right hon. Friend also recall that at the same time the Conservatives, to a person, were calling on the then Labour Government to weaken the oversight and weaken the regulation of the banks to allow them greater freedom?

[Mr Straw]

I absolutely confirm that. As we have accepted, we did not regulate the banks and other financial institutes sufficiently, but the Conservatives at the time were demanding, in this Chamber and outside it, not more regulation but less. Just in case readers did not get the point of the then shadow Chancellor’s article in The Times in September 2007, its headline was “Tories cutting services? That’s a pack of lies”. All the plans for the economy—those of the Conservatives, as much as those of Labour—were knocked badly off course by the global financial crisis. But for all the insinuations we now hear about how Labour ignored the warning signs, there is not a line—not a word—of such predictions in that article, nor anywhere else in what Conservatives were saying at the time.

The Chancellor talks today of Britain’s recovery, and I am delighted that output, after the longest recession in modern history, is now close to where it was six years ago. But although he will not do this, future economic historians will, I believe, judge that part of the reason for the recovery was the wise decisions made by my right hon. Friend the Member for Edinburgh South West (Mr Darling) when he was Chancellor of the Exchequer. Let it also be remembered that, for all the Conservative efforts to rewrite history now, the average level of debt to GDP under Labour was below that of the preceding Conservative Governments and below international averages, not only for the 11 years before the recession took hold, but even when our last two years in power are included. We fixed the roofs, for both sun and storms. By contrast, the Conservatives then were calling simultaneously for lower taxation and lower borrowing but the same spending. How on earth did they think those sums would ever add up?

[Sir Edward Leigh (Gainsborough) (Con)]

The whole House has great respect for the right hon. Member for Blackburn (Mr Straw), who, as always, was careful to acknowledge that the previous Labour Government did make some mistakes. One of those has been all over the newspapers this morning. It was a decision that he was closely involved in and that I voted against: the decision to invade Iraq. That has proved to be one of the single most disastrous decisions ever made in foreign policy, and we have reduced that country to chaos. There are also lessons to be learned for the future, when next we think of involving ourselves in foreign countries with military ventures, whether in Ukraine or Syria.

The right hon. Gentleman was also generous in his description of the very difficult economic decisions that both Governments have grappled with. Of course he is right to say that the roof has to be fixed, but I am sure he would accept it when I say, as a former Chairman of the Public Accounts Committee, that there were productivity declines in areas such as the NHS and that extraordinary waste was involved in the rapid increases in expenditure, particularly on health and education. I am sure that both Governments have a lot to learn about that. I agree with him that we were probably wrong to agree to commit ourselves to accepting Labour’s spending plans, which were too high, and I have consistently argued that we should have addressed the deficit even quicker. It is a matter of regret that we are still spending more than ever before. That highlights the key challenge that both parties face: we have to keep addressing this deficit.

The current Government are winning the economic argument because there remains a lack of coherence in Labour’s spending plans. The whole country realises that there has been this monumental waste and the Government are addressing it. Perhaps we could have done more and we could have done it in a better way, but we are seeking to address it. This Labour Opposition, unlike the Labour Opposition before 1997, who accepted our spending plans before 1997, do not apparently have a coherent economic message to address that. We know that elections are won on the economy.

At the moment, we cannot deny that 2 million extra jobs have been created in the private sector, and I have to say, following an intervention from the Opposition Benches, that they have not all come from ex-members of the Bullingdon club. There are a lot of ordinary people who are getting these jobs. The Opposition have to address that problem, and we have to concentrate on the economy. It was significant and a bit of an innovation that, in the Gracious Speech, the Queen often mentioned the economy.

[Mr Straw]

I am extremely grateful to the hon. Gentleman for giving way and for his generosity towards me. Yes, of course I accept the 2 million figure that he mentioned, but does he acknowledge that a significant element of that 2 million, whether we like it or not, is composed of those migrants who have come in, about which he so much complains?

[Sir Edward Leigh]

Yes, of course I acknowledge that, but the point I want to make is that it is by concentrating on the economy during the last year of this Government that we will establish our credibility as a party of government. What worries me is that although there is so much in this Queen’s Speech that is excellent, especially the Bill dealing with pensions, we still sometimes forget the essential lesson that, as a Conservative party and a Conservative Government, where we do conservative things and address the economy in a conservative way, we win. Where we indulge in modernising gimmicks, we stumble and start to lose. Sometimes, we forget that. When we do conservative things, such as cutting the deficit, introducing a benefit cap and attempting—not enough—to deal with immigration, we win.

I am still worried about a couple of things in the Queen’s Speech. Is it really essential, when we are trying to address record spending and difficulties in the economy, to start talking about eradicating plastic bags in supermarkets? Is that a priority? Is it essential to start talking about the recall of MPs? It may at first sight be populist and popular, but it is very difficult to administer and probably will not solve any problems. For centuries, rogue MPs have consistently been kicked out of this place, so let us concentrate on the economy.

--- Later in debate ---

[Nicky Morgan]

I thank my hon. Friend. The Labour party did nothing for the south-west. He has been a doughty champion of investment in the south-west since his election in 2010. The Treasury and other Departments continue to look at road and rail projects, which will make a huge difference. Of course, we saw the speedy rebuilding of the railway line following this year’s floods, which caused such disruption to the south-west. We did not hang around talking about it; we got on and delivered the investment that was needed.

[Mr Straw]

If the right hon. Lady is so critical of the Labour Government’s record, will she explain why the Chancellor, when he was shadow Chancellor, made the commitment in an article in The Times on 3 September 2007 that a Government under him would endorse Labour’s spending plans for the following three years?

[Nicky Morgan]

I thank the right hon. Gentleman very much indeed for his question. Although I was not in the House at the time, my party warned the Labour Government about excessive borrowing and spending. It is frankly rather pathetic of Labour Members to say, not just in this debate but in many debates, “You didn’t warn us. You didn’t tell us that we weren’t doing the right thing.” They were in government at the time and they were running the country.

The right hon. Member for Oldham West and Royton (Mr Meacher) showed in his opening paragraph—[Interruption.]

Interest Rate Swap Derivatives

Jack Straw Excerpts

Thursday 24th October 2013 Commons Chamber

[Mr Jack Straw (Blackburn) (Lab)]

I wish to express my gratitude to the hon. Gentleman for his leadership on this issue. Hon. Members on both sides of the House are very grateful. Like so many colleagues, I have a firm in my constituency—it does not want to be named—that has been in this situation. I was able to get the redress payment paid and was about to get compensation in hand, when the FCA intervened to say, “Oh well, the 8% simple interest paid for the redress payment is sufficient compensation for the consequential losses.” Does he accept what must be blindingly obvious—that no bank seeking redress for a loss that it had unfairly suffered and then seeking compensation for consequential losses would dream of ever seeing the two rolled up together? What is sauce for the goose must be sauce for the gander.

[Mr Speaker]

We all look forward to the publication of the right hon. Gentleman’s thesis on this subject, but in fact I think we have just heard it.

--- Later in debate ---

[Mr McFadden]

I do agree, but there is also the question of who gets that redress and who does not.

Underneath this sales culture, we found that instead of a culture of a duty of care to the customer there was—characterised by the combining of products, often a simple product with a complex one—a culture of “buyer beware” that put the responsibility for fully understanding and being aware of all this in the customer’s lap, with, in many cases, the bank showing a lack of responsibility.

[Mr Straw]

I entirely endorse what my right hon. Friend has said. Does he accept that what made the banks’ behaviour even less acceptable is that such was the complexity of the swap products that often—and to my certain knowledge in a case that I have dealt with—the person providing the loan from the bank had no proper understanding of how the hedge product was going to work?

[Mr McFadden]

That is a really important point. Having heard the speech by the hon. Member for Wyre Forest, I wonder how many of the people selling these products would have been in a position to explain the consequences to their customers. I think we know the answer.

Products were being sold, allied to another product, that may or may not have been suitable for the person buying them. The customer may or may not have fully understood what they were buying, but they were left fully with the consequences of having bought it, to the extent that we had the situations highlighted in this debate whereby the banks pursued customers to such a degree that they were put out of business. We should recognise that hedging is not always wrong, and trying to insure against risks is not always wrong, but a degree of understanding is important. People have to understand what they are buying and the product has to be suitable for them. When the lifetime of the hedging product is completely different from that of the loan, there is a serious problem about that product’s suitability.

This issue provides a really important test of the standards and culture in the banks after everything that has happened. They have to show whether they have learned the lessons of previous mis-selling scandals or whether there has been a repeat of the pattern of behaviour that we saw before in which there was first a refusal to face up to responsibility. That was followed by increasing anger among the customer base and the destruction of trust, followed by a redress scheme that might have ended up being more expensive than the one that might have been put in place earlier.

This is also a test of the FCA. We are in the early stages of a new regulatory system, as the FCA has been in existence for only about six months. The system of redress that it has proposed is an important test of whether it is going to be able to do its job in restoring trust between banks and consumers in the face of sometimes increasingly complex financial products;

Cyprus

Jack Straw Excerpts

Monday 18th March 2013 Commons Chamber

[Mr Jack Straw (Blackburn) (Lab)]

The lack of effective supervision of the Greek Cypriot banking system has been notorious for many years and it has become a haven for Russian money laundering. What steps, either through this package or through other measures, are being taken better to control the banking system in Cyprus?

[Greg Clark]

The right hon. Gentleman will know that the agreement reached at the weekend includes action to address the reputation Cyprus has established as a potential home for money laundering and that is part of the conditionality for the package.

Prevention of Nuclear Proliferation

Jack Straw Excerpts

Tuesday 13th December 2011 Commons Chamber

[Mr Hoban]

I will outline some of the action taken by several countries to exert pressure on the Iranian regime and to ensure that targeted action is taken to prevent the development of nuclear technology. I shall address some of those issues later.

The case for UK action is also underlined by the recent calls from the Financial Action Task Force for countries to apply effective counter-measures to protect their financial sectors from money laundering and financing-of-terrorism risks emanating from Iran. Those calls were renewed with urgency on 28 October 2011 and noted the taskforce’s particular and exceptional concern about Iran’s failure to address the risk of terrorist financing. It also flagged up its concerns about the serious threat that this posed to the integrity of the international financial system. The taskforce has not expressed such serious and ongoing concerns about any other country.

The UK is leading action against Iran because Iran’s proliferation-sensitive activities pose an ongoing concern for the UK and the international community as a whole. The measure that we have imposed is strong but necessary, and we encourage other countries to take similar tough action. The UK is an important global financial centre, so UK restrictions will have a significant impact on the options available to Iranian banks. That will make it more difficult for Iranian banks to use the international financial system in support of proliferation-sensitive activities and protect the integrity of the UK financial sector. Other countries share our and the taskforce’s concern about Iran’s nuclear activities.

[Mr Jack Straw (Blackburn) (Lab)]

rose—

[Mr Hoban]

I will finish this paragraph and then give way.

That includes the US and Canada, which implemented further restrictive measures against Iran on 21 November, alongside the action that the UK took.

[Mr Straw]

I sought to intervene on the Minister when he started talking about other countries. One of the things that slightly surprise me about this measure, whatever its merits, is that only two other countries supported it, which left us rather isolated and an easy target for the thugs in Tehran. Why did the Government not discuss and then take steps to agree with as many European Union partners as possible a similar measure in advance of this measure being promulgated?

[Mr Hoban]

Given the UK’s importance as a financial centre and its interconnectedness, there was an opportunity to act to close down opportunities for banks in Iran to use our facilities. The other point is that on the day that we announced our measures, President Sarkozy wrote to us supporting our financial sanctions and also proposing sanctions on oil. There will be a further debate in the European Union about that next month at the Foreign Affairs Council, where we will push this issue further. We are working in concert, not just with our European allies but with the US and Canada, as I have said. Indeed, the EU already has strong financial sanctions in place against Iran, and introduced asset-freezing measures and travel bans against 180 Iranian individuals and entities at the beginning of this month. The EU is considering taking further measures to implement that, and we will be pushing our partners to take strong measures too.

[Mr Straw]

I am grateful to the Minister for giving way, but with great respect, I am still rather perplexed. We are members of the EU, and although I am aware of the individual-specific action that the EU is taking, that is different from the measures in this order. What I simply do not understand, just to repeat the point, is this. Whatever the merits of this measure, the manner of its introduction must leave us very isolated and exposed. Why was there such a hurry? Was it because of an American timetable, or was there some other, more commendable reason for doing it in advance of getting what I would have thought the Minister might judge to be a significant number of other nations alongside us and then making a co-ordinated announcement?

[Mr Hoban]

The Government bore in mind when making their decision the strong concerns raised by the IAEA in its November report. Indeed, the way in which it expressed them marked a step change in its level of concern compared with previous quarterly reports. The increase in concern on the part of the Financial Action Task Force about how financial systems could be used to finance terrorist acts or in other areas led to the Government’s decision to move, which was an important thing to do. It is a proportionate response to the risk posed by Iran to require the UK financial sector to cease all business relationships and transactions with the Iranian banks and their branches and subsidiaries, including the Central Bank of Iran.

--- Later in debate ---

[Chris Leslie (Nottingham East) (Lab/Co-op)]

As the Minister has outlined, events in Iran in recent months and weeks have been deeply concerning. It is right that we have a debate today on the nature of the British response to those troubling developments. Elements within the Iranian regime have been fomenting public discontent outwards towards other countries, partly in an attempt to stop the Iranian people looking inwards at the regime itself. The increased fuelling of hostility to the outside world is a worrying move, to which neither we nor the international community can afford to turn a blind eye.

Last month, the comprehensive and unequivocal report from the International Atomic Energy Agency made clear the fact that there is an accumulating body of evidence regarding the possible military dimensions of the nuclear programme in Iran. As the Minister has said, in the light of that, it was right that the UK, along with the US and Canada, took the decision to increase diplomatic pressure on the regime in Iran.

We welcome the Chancellor’s announcement that the UK would sever all ties with Iranian banks, including the Central Bank of Iran. As the Minister said, a position came into force on 21 November and is now formally before the House. Since then, important developments have taken place. Following the announcement of the further sanctions, the Iranian Parliament approved a Bill that called for the downgrading of diplomatic ties between Iran and the UK, and several MPs in the Iranian Parliament chanted “Death to Britain” as the measure was adopted. Within a few days, hundreds of demonstrators overran the city centre compound of the British embassy in Tehran. They looted and vandalised the homes of embassy staff and set fire to the main buildings, while Britain’s second embassy compound in the north of Tehran was simultaneously attacked and looted.

I echo the Minister’s comments. I also fully support the remarks made on 30 November by the shadow Foreign Secretary, my right hon. Friend the Member for Paisley and Renfrewshire South (Mr Alexander), about the “unyielding professionalism and… bravery” of our UK diplomatic staff in Iran.

The notion that such an assault against our embassy could take place without permission, and indeed instruction, from elements in the Iranian regime is too far-fetched to be entertained, and the belated and limited response from the Iranian diplomatic police serves further to discredit such delusions. Let us be clear: this was a co-ordinated attack on two British embassy compounds by a student militia controlled by elements within the regime.

All diplomatic avenues available to the UK and the international community must surely be pursued to increase the peaceful pressure on the regime in Iran to ensure that it fulfils its responsibilities and obligations under international law, and the financial restrictions that we are discussing today should be seen in that light. The attacks on and looting of the British embassy compounds in Tehran following the measures that we are debating serve to highlight the desperation of the regime in the face of increasing pressure and isolation from the international community. It is therefore right for us to cease dealings with Iranian banks and their subsidiaries, and with the Central Bank of Iran, to avert the risk of the financing of terrorism or money-laundering activities emanating from Iran.

[Mr Straw]

May I say now what I should have said in my first intervention? I declare my interest as a co-chairman of the all-party parliamentary group on Iran, although I have absolutely no financial interest.

I am listening carefully to what my hon. Friend is saying. Does he share my significant concern about the fact that we were joined by only two other countries in advancing this proposal? If the case was as strong as is suggested, we could surely have had many others alongside us, and our diplomats would not have been exposed in Tehran as they were.

[Chris Leslie]

I understand my right hon. Friend’s point, which brings me neatly to the five questions that I wish to ask the Minister.

The Government say in the impact assessment that they want to press for further international action. They also say that

“there is a risk that the measure will be weakened by financial institutions in other countries providing financial services to Iranian banks, including in support of Iran's proliferation-sensitive activities”.

My question to the Minister echoes some of the concerns expressed by my right hon. Friend. Will he assure us that he and his Foreign Office colleagues will be active in using all available diplomatic channels to put pressure on other countries to impose sanctions similar to those bilaterally imposed by the United Kingdom, the United States and Canada? It is clear that a concerted international effort is greatly needed to put further pressure on Iran to change course.

We think it important to support the order, but some of my questions are important as well, including one concerning enforcement and penalties. We know that there have been instances of financial institutions breaking rules laid down to prevent Iran’s progress towards nuclear capability. Two years ago, in December 2009, Credit Suisse was fined $536 million in the United States for the removal of information in relation to the origination of US-bound transactions from the “Atomic Energy Organization of Iran” and the Iranian “Aerospace Industries Organization”. In January 2009 Lloyds bank was fined a substantial $350 million in the United States for similar breaches involving Iran and other international restrictions, while in August 2010 Barclays was fined $300 million.

Criminal offence and civil penalties will apply in relation to non-compliance with—or knowledge of, and intentional circumvention of—the new requirements that we are discussing. The penalties are the same as those that the enforcement authorities and courts have in respect of non-compliance under the money laundering regulations 2007—fines, imprisonment for a maximum of two years and so on. The Americans clearly take breaches very seriously, as is shown by the scale of the fines they have imposed, so my question to the Minister is: can he reassure the House that the UK will take a similarly robust approach, with penalties on a scale that reflects the seriousness of the offence, both to prevent breaches of the rules and to punish appropriately those who breach them?

My third question for the Minister relates to the explanatory memorandum, which makes it clear that a licence for exemptions from this order can be granted by the Minister on a case-by-case basis. The impact assessment states that

“it is unlikely we will license significant further exemptions for businesses as this would risk undermining the purpose of the measure”.

That is self-explanatory. We recognise that exemptions are not likely to take place on a significant scale, but will the Minister set out in what circumstances exemptions might be made to those restrictions?

My fourth question relates to the fact that the order has a time limit of a year and, under paragraph 38 of schedule 7 to the Counter-Terrorism Act 2008, the Treasury will be obliged to report every year on the exercise of its functions under that schedule. The Minister has said, as does the explanatory memorandum, that the order will be kept under review, but given the fast-moving developments and narrow time scales involved in the situation with Iran, will he commit to reporting to this House before the annual deadline if circumstances change—for instance, if negotiations on the nuclear programme were to improve or worsen? We hope that the latter would not be the case.

Lastly, will the Minister make it clear to the House, and leave no doubt about the message we are sending today to the people of Iran and to the international community more widely, that despite attacks on our channels of diplomacy with assaults on our embassy, we will not be deterred from actively and creatively pursuing all diplomatic options at our disposal to ensure that Iran upholds its responsibilities and obligations under international law? There is a widespread hope that diplomacy must prevail. We, and other nations around the globe, cannot afford to be complacent. The Opposition welcome this measure from the Treasury and hope that, with the Foreign Office, it will, as my right hon. Friend the Member for Blackburn (Mr Straw) said, be proactive in building a broader diplomatic effort across the globe to stop Iran flouting international law.

--- Later in debate ---

[Mr Wallace]

My hon. Friend would have a point if it was not for the fact that at the moment, the Iranians need our goods more than we need theirs. I meet plenty of day-to-day Iranians in business and everything else—not in my business, as I do not have any such interests—who try to do the right thing and live by the rule of law.

Secondly, I ask the Minister what our European colleagues are doing. Historically, Germany and Italy are some of the biggest traders with Iran, and my worry is that the strength of the E3 plus 3 was unity. That was its strength: we brought together the three European powers of Britain, Germany and France along with China, Russia and America. For every round of sanctions that has come before this House or the international community, there have been fewer and fewer signatories to it. As the right hon. Member for Blackburn (Mr Straw) pointed out, as we get fewer and fewer signatories we are at risk of undermining the message that says that we all agree that Iran should not be progressing along such a path.

My worry is that the Iranians are super-sensitive to such differences. They are one of the greatest trading nations in history, of course, and my word, are they canny! When I was there, there was no shortage of some of the things that were subject to sanctions. They used to use the Bahrainis as one of the greatest routes for money, goods, new cars and so on. Without Germany and without Italy, there is a real danger that we could be left high and dry.

[Mr Straw]

May I, as one of the three Foreign Ministers who got the arrangement going in the middle of 2003, underline the hon. Gentleman’s point about the E3? There were two huge advantages. One was that we were not the United States, although we consulted them, and the second was that because France, Germany and the UK were working together, each of us could reach out to a series of other allies. We did not just get three rather large countries on board but many others, too.

[Mr Wallace]

It is absolutely true that Russia and China often need to know that the west is united before they move from an agnostic position to a proactive one. One worry I have about the full closure of the embassy in Tehran is the fact that I have seen the Chinese and Russian embassies in Tehran, and the Chinese and the Russians will not waste any time in becoming the prominent voice of the E3 plus 3. I know that we have not shut down diplomatic relations, and I reiterate the importance of that.

Another thing to which the Iranians will be hypersensitive is the charge of hypocrisy in the middle east. We must always be aware of it. Pakistan is one of their neighbours, and it not only started a nuclear programme but distributed it. In fact, Mr Khan is probably the one responsible for giving the Iranian programme a bit of a boost. The response to that is that the west has done everything other than punish the Pakistanis for not being a signatory of the nuclear non-proliferation pact: therein lies part of the problem. I noticed last week that Australia has agreed to sell uranium to India. India is not a signatory of the nuclear non-proliferation pact and is not going by that rule, and although the nature of the Indian Government is entirely different, the Iranians are obsessed with treaties and they can see what is happening. We must be consistent.

The other issue is Israel, of course. This is not about the conflict or whether it is right or wrong, but Israel is another country in the middle east with a nuclear weapon that does not sign up to the UN nuclear non-proliferation regime at all. That will be used against us. As long as we are consistent and say to Iran that it must comply, but we would also like Israel to comply, that strengthens our hand.

Thirdly—and finally, because I am aware that many people wish to speak—where will we go from here on sanctions? It is important to recognise that sanctions are part of the process of trying to bring Iran back to the rule of law, and back to attempts to solve the issue by allowing inspectors in. That would allow Iran to play a full role in the world, which it should do, and would allow the Iranian leaders to understand that we are not trying to make war with Iran but to make peace and allow it to live to its full potential. The worst thing for the Treasury and this Government would not be if the sanctions failed, but a war or military intervention that would see oil prices go through the roof. I do not think that this frail economy could survive oil at $250 a barrel.

Eurozone (Contingency Plans)

Jack Straw Excerpts

Monday 20th June 2011 Commons Chamber

[Mr Hoban]

My hon. Friend makes a couple of points about our exposure to Greece and the Bill that is currently going through the House of Lords. As I said, the UK’s exposure to Greece is relatively small, with bank exposure at $4 billion. He will recognise that we have a big interest in ensuring the continued stability of the eurozone. That is why the treaty changes are being made—to put the European support mechanism for eurozone countries on a permanent footing and replace the EFSM, to which we have to contribute thanks to a decision taken by the previous Government, with a mechanism that is funded entirely by the euro area. We do not believe that there is a transfer of sovereignty from this Parliament to Brussels, so there is no need for a referendum on those treaty changes.

[Mr Jack Straw (Blackburn) (Lab)]

Will the Minister first check his figures? Figures in the Financial Times, citing Moody’s and Reuters, suggest that the exposure of British public and private sector banks to Greek debt is €13 billion, and that of Germany and France €34 billion and €53 billion. Those figures are much bigger than the ones that he gave.

Secondly, will the Minister not recognise that there is now a mood change in Europe? Der Spiegel, the German magazine, has had a cover story contemplating the end of the euro as we now know it, and Mr Charles Grant, the well known europhile, has done the same in The Times today. Instead of sheltering behind complacent language and weasel words that we should not speculate, the Government should recognise that this eurozone cannot last. It is the responsibility of the British Government to be open with the British people now about the alternative prospects. Since the euro in its current form is going to collapse, is it not better that that happens quickly rather than it dying a slow death?

[Mr Hoban]

May I just deal with the right hon. Gentleman’s factual questions? The figures about UK banks’ exposure to Greek sovereign debt were provided by the Bank of England, based on results at the end of quarter one this year.

On the right hon. Gentleman’s second question, I seem to remember that he was a member of a Government who seemed committed to taking this country into the euro. I do not know whether we have seen a damascene or deathbed conversion from the Labour party. I think it was right for this country to stay out of the euro, and that is the policy of this Government. We have a strong interest, though, in the continued stability of the eurozone, as it is our major trading partner. Continued instability in the eurozone could be a factor in holding back the recovery of the British economy.

Economic Governance (EU)

Jack Straw Excerpts

Wednesday 27th October 2010 Commons Chamber

[Mr Hoban]

My right hon. Friend makes an important point, but I would point out to him that, at the moment, there are no proposed treaty changes on the table. That may happen at the European Council next weekend, and we should respond to those treaty changes as they arise. However, I go back to the comments that my right hon. Friend the Prime Minister made: we will not agree to any changes to EU treaties that move more powers from this country to the EU.

[Mr Jack Straw (Blackburn) (Lab)]

The Minister says that there are no treaty changes on the table. Theoretically that is true, but he must be aware that in the statement issued after the meeting between Chancellor Merkel and President Sarkozy last week in Deauville, they made it explicit that they intended to put forward treaty changes and that the ambition of those changes would extend beyond simply the eurozone, which will have clear implications for the United Kingdom. In that case, will the Minister re-emphasise his clear statement—which I welcome—that the United Kingdom will not contemplate treaty changes that interfere with the right of the British Government and of this House to determine our own economic policy, including our own exchange rate policy?

[Mr Hoban]

Indeed, that is why we have secured a clear and explicit exclusion in the report from the Van Rompuy taskforce—an exclusion based on the Lisbon treaty, but also based on the opt-out that we secured from the Maastricht treaty—so that the sanctions do not apply to the UK. As I have said, at the moment there are no detailed treaty changes on the table. We will have to wait and see what the French and Germans put forward at the weekend.

Comprehensive Spending Review

Jack Straw Excerpts

Wednesday 20th October 2010 Commons Chamber

[Mr Speaker]

Order. I do not think that we will go with that. With respect, Members must get into the habit of asking questions about the policy of the Government, not about advice to shadow Ministers. Let us get that straight.

[Mr Jack Straw (Blackburn) (Lab)]

The Chancellor of the Exchequer failed to answer the question put by my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) about the extraordinary 11,000 reduction in the number of front-line probation and prison staff in the Ministry of Justice. Will the Chancellor confirm that this runs completely counter to what the Prime Minister said on 2 May about protecting front-line services, and that, even worse, it can only be a grave gamble with the security and safety of the British public and will eat away at the very successful fight against crime?

[Mr Osborne]

Obviously, I do not agree with right hon. Gentleman. All Government Departments have had to make savings. Is he really telling me that if his party had been re-elected and he had been in the Cabinet, the Ministry of Justice would somehow have been protected from any reductions?

[Mr Straw]

Not on this scale, George. You know that.

[Mr Osborne]

Let me explain a couple of things to the right hon. Gentleman. First, as a member of the Cabinet, he fought the general election on protecting part of the health service, not the whole of it, if I remember correctly. He talked about two years of real increases in school funding, but we are going with four. I think he also made a promise on police numbers, but the then Home Secretary ditched the promise in the middle of the general election. The Ministry of Justice has to make a contribution. The right hon. Gentleman says, “Not on this scale”, but over the next four years, the actual reduction in non-protected Departments would have been greater under his Government than under ours because of the decisions we have taken on welfare. The Institute for Fiscal Studies calculated a figure of minus 20%; it is minus 19% in our figures. The Ministry of Justice is, of course, part of one of those non-protected areas.