Financial Services and Markets Bill

John Glen Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[John Glen (Salisbury) (Con)]

May I say what a great pleasure it is to speak in this debate? It will be of little surprise to the House that I support many of the measures in the Bill—20 separate measures, I think, over 335 pages. I would like to make a few comments on the process that led to the Bill, some observations on the policy content and, if I may, a few suggestions about some areas in which the Government might consider going further.

It has been the greatest privilege of my political career to have been Economic Secretary to the Treasury for four and a half years. When I started in the role in January 2018, there was considerable ambiguity about the direction of Government policy. It feels a little heretical to say it, but there was great uncertainty about how financial services would land after the Brexit decision. There was no consensus, and there were significant predictions of the demise of the City of London. Over those four and a half years, I was very pleased—I am not saying that it was all my doing—to see the resilience of the City of London. The global hub of financial services in London has proved itself phenomenally resilient over the past three years.

After a lot of discussion about dynamic alignments and thoughts about how things should be delivered, we had an election and we had clarity. We had a new, clear direction, eventually resulting in this Bill, which takes us back to the gold standard of the FSMA model. I welcome that. I also welcome the fact that the Bill has come about through deep dialogue with the City and the trade bodies that represent the financial services industry. As my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) says, it is a critical industry for our country: it generates 10% of our tax revenues. That is why the framework that we are setting out today is so important.

I pay tribute to Miles Celic at TheCityUK, to David Postings at UK Finance, to Catherine McGuinness and now Chris Hayward at the City of London Corporation, and to Huw Evans and now Hannah Gurga at the Association of British Insurers. They were instrumental in the constructive dialogue with Treasury officials to ensure that the policy that we arrived at met the needs of this complex industry. I thank them for their engagement during my tenure.

At the risk of being accused of Stockholm syndrome, I also pay tribute to officials at the Treasury. Over the summer, a lot has been said about Treasury orthodoxy and about regulators. I put it on record that my experience of working at the Treasury over the past four and a half years was that Treasury officials worked under the direction of politicians, as we would expect, but that they were also extremely eager to find creative solutions at a time when there was no template, no rulebook and no preordained way forward.

I pay tribute to the work of Sam Woods at the Prudential Regulation Authority. The PRA provides a distinct role from the one that we perform in this place, but the professionalism that it shows in dealing with complex regulatory matters is something that we should be very grateful for in this country. I also want to speak about the Financial Conduct Authority, because the Bill will give the FCA and the PRA a significant degree of responsibility. As we put aside the retained EU law that we spent so much time in Committee sorting out, we now rely on them, under the growth and competitiveness objective, to come forward with new rules. We are not seeking to deviate from norms in other jurisdictions; what we are trying to do is rightsize those rules for the UK.

I want to say that I recognise that the implementation of the future regulatory framework has not come about on a whim, but has taken a great deal of work over a couple of years, along with a great deal of consultation. I also want to say that the EU legacy is not all bad. We in the UK played a significant role in shaping that legislation, and during my interactions with my counterparts when I was a Minister they were very complimentary about the role that we played, but—as my right hon. Friend the Member for Richmond (Yorks) pointed out—that does not mean that we should not now be courageous in taking opportunities.

The wholesale market review presents a phenomenal opportunity to make changes to MiFID. It is one of 30 reviews that we have undertaken in the Treasury over the last year to ensure that we get this right. What we are doing with clearing—the middleman in trading—is also critically important, because the central clearing counterparties in London are instrumental across the globe and will continue to be so. They are efficient, they are world class, and no matter what the EU may wish to do to compete with our clearing environment, we can be certain that the Bill will ensure that those standards remain very high. We have needed to embrace innovation, and the sandbox for which the Bill provides is an important function enabling the FCA to do that.

As we look to the future, we must think about our relationships with other countries that have significant financial services industries. We will need to customise those relationships, and optimise them. I am therefore pleased about the mutual recognition agreement enablement provisions. I welcome the call-in power, although clear principles must be set out in respect of how it is applied; this is not about a random political intervention. I also endorse the moves to deal with packaged retail investment and insurance-based products and get rid of key information documents, and to introduce something that is appropriate in the UK.

I welcome the Bill, and I pay tribute to my successor. I wish him as long a tenure as I have had.

--- Later in debate ---

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I do not want to disappoint my colleagues on the Government Benches, but I think that they know the issue on which I wish to focus in the time that is available to me. Before I start, I want to put on record, as a Co-operative and Labour MP, my support for the comments of my Labour colleagues on the importance of access to credit unions and of access to cash, which reflects the issue that I want to raise, particularly with regard to high-cost credit regulation.

I also wish to put on record some scepticism about the idea that there are wonderful opportunities as a result of Brexit. To my mind, there are simply problems that we will need to address, and I note that the former Minister, the hon. Member for Salisbury (John Glen), talked about the unlikelihood of a derogation from the existing regulations. Some may wonder whether this is the best use of parliamentary time, but I am willing to look at the legislation.

There is a genuine philosophical disagreement here about the concept of consumer protection. It is the lesson of high-cost credit regulation in this country that I do not think this legislation learns and it is our constituents who will pay the price.

Let me start by highlighting the points of agreement. I agree with the right hon. Member for East Hampshire (Damian Hinds) when he talks about this as an industry that is shape shifting—that it evolves to meet the times that it faces. Let me also put on record my appreciation of the work of the former Minister, the hon. Member for Salisbury. He and I have had many discussions about this industry and how best to address the threat that it poses to our constituents. Although we may not have agreed all the time, I have certainly respected the fact that he has been listening and looking at the evidence.

I am here today as a Cassandra, a broken record, to warn again of these industries and the latest antics of the companies, particularly the buy now, pay later lenders. Two years ago, we started to say that those lenders must be regulated, and I would argue that that was probably 18 months too late from recognising the threat that they pose.

The lessons of payday lending, guarantor lending and hire purchase agreements show that we simply cannot wait until the harm is evident among our constituents, especially when the abuse that is coming is self-evident already. Now that we are in a cost of living crisis, such caution is frankly unforgiveable, because it is our constituents who are paying the price. I hope that we can return to this matter in Committee. I am sure that the Minister now dealing with this Bill will recognise that, especially as the £1.8 billion that this country owes in personal debt—a rise of £62 billion—has not come from nowhere. Credit card borrowing in this country has jumped at its fastest rate in the past 17 years as people deal with the cost of living crisis.

When a third of households with children are cutting back on food to be able to pay their bills, it does not take a rocket scientist to work out that too much month at the end of somebody’s money and mouths to feed mean that credit must be found, and our constituents are turning to the high-cost lenders in their droves. I would be surprised if Members do not know what buy now, pay later is, because it is on every single website in this country now as a result of the delay in action. It has massively exploded as a result of the pandemic and now the cost of living crisis. Those companies are offering the opportunity to spread the payments, but they do not do so out of the goodness of their hearts; they do so because consumers spend 30% to 40% more. Add that toxicity to the way in which people are borrowing now to make ends meet: we are seeing buy now, pay later companies offering to put people’s energy bills onto these processes. We are seeing them offering the loans not for fast fashion, which is where people originally thought this kind of regulation was needed, but for basic goods and essentials. Millions of people in this country are now using this form of credit and getting into a hole that they cannot get out of. Those are not my words; it is what the evidence is now showing us. The previous Minister well knows that the evidence of harm is there. Indeed, that is what the FCA told us more than two years ago.

The average buy now, pay later user is paying off £293 of buy now, pay later debt, but that is at current prices. With inflation rocketing in the way that it is, the only ones that will win from that are those that offer the ability to apparently spread the payments, but that simply gets people into further and further debt. Most of these companies will not be clear with their lenders about the consequences. Indeed, many people do not even realise that it is a form of credit; they just think that they are spreading the payments on the websites.

Shoppers were charged £39 million in late repayment fees on buy now, pay later loans last year. I dread to think what the figure is now. There is agreement across this House that we need to regulate these companies, but what there is not is the political will to make sure that it happens before the pressure points come. We have already been through one Christmas where one pound in every four spent was on buy now, pay later. There are millions of people still paying off those debts. On the regulatory timetable that the Government are talking about, we will not see action before some time late next year. Minister, some time late next year is far too late for our constituents.

[John Glen]

I cannot resist. I think there is great consensus in the House on this matter. It is not a question of a lack of political will; I can assure the hon. Lady that it is about the complexity of delivering that legislation. In fact, the intent’s having been stated will have a meaningful effect on market practices and will change, and is changing, behaviours in the marketplace.

[Stella Creasy]

I thank the former Minister for his intervention, but my question is what that means for consumers. The lack of regulation means that my constituents cannot go to the ombudsman to seek redress if they think they have been mis-sold this form of credit. As people are drowning in buy now, pay later lending, they cannot seek assistance except from the companies themselves. We now see mainstream banks moving into buy now, pay later—the very bank that looks at someone’s account to decide how much they can spread payments and how much more they can afford to borrow, because this is a form of borrowing.

The hon. Gentleman may argue that the market is moving, but constituents need help now, because it is now that they are getting into debts that they cannot get out of. The challenge for us all is that the pace of change is horrifically slow, and that is where the damage to our constituents will come. If we all agree that regulation matters, let us get on with it. Furthermore, let us ensure that some of those basic changes, such as the ability for the ombudsman to intervene, happen.

This legislation shows that that matters, because it was the intervention of the ombudsman that made a difference with payday lending. The evidence is clear; the Financial Conduct Authority was overseeing Wonga while it continued to make loans that were unaffordable to its customers. It was only when the ombudsman intervened that Wonga was finally held to account for its behaviour, and as a result it went bust—and Wonga is not a one-off. Our constituents need proper consumer credit protection.

The Minister will know that it is my belief that there should be a proper credit capping process for all forms of credit, so that we do not have to play whack-a-mole. The right hon. Member for East Hampshire reflected that when he talked about shape-shifting: as one of these companies is regulated, another one comes up. In the intervening period, however, it would be perfectly possible to bring in the ombudsman. If we set out a separate regulatory regime for those companies, we are setting a precedent for other forms of credit to come and ask for separate and, frankly, special treatment.

What our constituents need is clarity about who to go to when they get into trouble. We all tell our constituents to go to a debt adviser, but if they have rights, those rights need to be transparent. At the moment, if people are borrowing on buy now, pay later, they have no rights, because it is not regulated. They only have the indulgence of those companies, and asking turkeys to tell us whether Christmas is a good idea rarely ends in a present for anybody.

It is right that we act as quickly as possible. I do not agree with the hon. Member for Salisbury when he says that the political will is there, because frankly this could have been done a while ago. The timetable that the Government have set out, which does not seek any form of actual intervention until some time in late 2023—and even then, it is about consulting on further measures—simply will not wash. Every Member of this House will have constituents coming to them for whom buy now, pay later debt will be part of their debt make-up, who may have put their mortgage on it, because there are companies offering the opportunity of spreading payments. Little wonder, when after all the Government are telling us they are going to spread our energy bills; the Government proposals to date are a form of buy now, pay later.

I wish I was wrong. I wish I had been wrong about payday lending, but we waited too long, and there are still millions of people in this country who are owed money through the compensation scheme from those payday lenders because we waited too long to intervene. We must not make the same mistake again.

I put the Minister on notice, and I ask for support from across the House, because I do not think this is a party political issue; it is about the pace of change. I will be proposing an amendment to this legislation that will give the Government the same time period of 28 days that the buy now, pay laters give our constituents to bring in that secondary legislation and give our constituents the protection of the ombudsman. It is a necessary and vital measure in a cost of living crisis to ensure that when people who cannot choose between eating or heating—because they cannot afford to do either—turn to buy now, pay later, they are not creating further problems for themselves down the road.

I know that hon. Members across the House agree that this kind of lending is a problem, but it is time for clarity, it is time for simplicity and it is time for that legislation. I hope that I will find supporters on the Government Benches, and I know that we will find supporters in the other place. Above all, I know that our constituents deserve better.