Bilateral Loan for Ireland
John Glen Excerpts(5 years, 7 months ago)
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The Economic Secretary to the Treasury (John Glen)
I would like to update Parliament on the loan to Ireland.
In December 2010, the UK agreed to provide a bilateral loan of £3.2 billion as part of a €67.5 billion international assistance package for Ireland. The loan was disbursed in eight tranches. The final tranche was drawn down on 26 September 2013. Ireland has made interest payments on the loan every six months since the first disbursement.
On 15 April, in line with the agreed repayment schedule, HM Treasury received a total payment of £407,843,097.02 from Ireland. This comprises the repayment of £403,370,000 in principal and £4,473,097.02 in accrued interest.
As required under the Loans to Ireland Act 2010, HM Treasury laid a statutory report to Parliament on 1 April covering the period from 1 October to 31 March 2019. The report set out details of future payments up to the final repayment on 26 March 2021. The Government continue to expect the loan to be repaid in full and on time.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791132/Ireland_loan_statutory_report_April_2019_web.pdf
The next statutory report will cover the period from 1 April to 30 September 2019. HM Treasury will report fully on all repayments received during this period in the report.
[HCWS1519]
Ministerial Equivalence and Exemption Directions in Financial Services: EU and EEA
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (S.I. 2019/541), includes a power for Ministers, for up to twelve months after exit day, to make equivalence directions and exemption directions for the European Union and EEA member states.
I have today laid before Parliament ministerial directions which exercise the power in four specific areas, to help ensure that the UK will have a functioning regulatory regime for financial services in all scenarios.
The first direction determines that the EU-adopted international financial reporting standards are equivalent to UK accounting standards and can continue to be used, for example, to prepare financial statements for requirements under the transparency directive, and to prepare a prospectus under the prospectus directive. This delivers on a commitment made by the Government in November 2018.
HM Treasury, the European Union and the EEA European Free Trade Association countries have decided to provide exemptions for central banks and certain public bodies under certain prudential regulations in the area of financial services in the event that the United Kingdom leaves the European Union without an agreement. Therefore, directions have been made exempting these EU and EEA bodies from certain requirements under UK law in force after exit.
These measures are important for avoiding disruption to the financial services sector, and the businesses and individuals relying on it, in the event that the United Kingdom withdraws from the European Union without an agreement.
Copies of the directions are available in the Vote Office and Printed Paper Office and will be published alongside the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 on Legislation.gov.uk.
[HCWS1512]
Counter-Terrorism Asset Freezing Regime: 1 October to 31 December 2018
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
Under the Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010), the Treasury is required to prepare a quarterly report regarding its exercise of the powers conferred on it by part 1 of TAFA 2010. This written statement satisfies that requirement for the period 1 October 2018 to 31 December 2018,
This report also covers the UK’s implementation of the UN’s ISIL (Daesh) and al-Qaeda asset-freezing regime (ISIL-AQ), and the operation of the EU’s asset-freezing regime under EU regulation (EC) 2580/2001 concerning external terrorist threats to the EU (also referred to as the CP 931 regime).
Under the ISIL-AQ asset-freezing regime, the UN has responsibility for designations and the Treasury, through the Office of Financial Sanctions Implementation (OFSI), has responsibility for licensing and compliance with the regime in the UK under the ISIL (Daesh) and Al-Qaida (Asset-Freezing) Regulations 2011.
Under EU regulation 2580/2001, the EU has responsibility for designations and OFSI has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.
A new EU asset-freezing regime under EU regulation (2016/1686) was implemented on 22 September 2016. This permits the EU to make autonomous al-Qaeda and ISIL (Daesh) listings. One new designation under the regime was made during this quarter, and is recorded in the fifth column of the annexed table entitled “New Designations in this Quarter”.
The Sanctions and Anti-Money Laundering Act 2018 will help ensure that UK counter-terrorist sanctions powers remain a useful tool for law enforcement and intelligence agencies to consider utilising, while also meeting the UK’s international obligations.
Under the Act, a designation could be made where there are reasonable grounds to suspect that the person or group is or has been involved in a defined terrorist activity and that designation is appropriate. This approach is in line with the UK’s current approach under UN and EU sanctions and would be balanced by procedural protections such as the ability of designated persons to challenge the Government in court.
The annexed tables set out the key asset-freezing activity in the UK during the quarter.
Attachments can be viewed online at:
http://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2019-04-11/HCWS1509/.
[HCWS1509]
British Steel Pension Scheme: Transfers
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship this morning, Mr Howarth. I thank the hon. Member for Blaenau Gwent (Nick Smith) for securing this important debate. I know he has engaged extensively and constructively with the Financial Conduct Authority on these matters over the past year. I was pleased to meet him in February to discuss how we can avoid a repeat of the unfortunate circumstances that occurred in the British Steel pensions scheme case. I am aware of the extensive work he has undertaken with the hon. Member for Aberavon (Stephen Kinnock) and others from south Wales, and I know that the FCA has valued immensely that interaction to try to improve communications and other aspects raised in the debate this morning.
Many issues have been raised in the debate, and I will seek to respond to them all—particularly the importance of a well-functioning financial advice market. I have listened carefully to all those who have made observations about the aspects of that that are not functioning well.
I will refer to the lessons that have been learned specifically in the British Steel pensions case; the actions the FCA has taken to address unsuitable pensions transfer advice; the protections in place for consumers; and the issue of so-called phoenix firms—an outrageous situation where individuals seek to leave behind responsibility for a previous, failed enterprise, recreate a new enterprise and therefore absolve themselves of responsibility.
I am here as the Minister responsible for financial services. I note the questions that have been raised by the hon. Member for Birmingham, Erdington (Jack Dromey) concerning the status and other aspects of the pensions Bill. I was in front of the Work and Pensions Committee last week with my colleague, the Minister for Pensions, so I have some observations on that, but he has lead responsibility in that area, so I shall seek to secure a response from him.
As the Minister responsible for financial services, I am committed to ensuring that a well-functioning financial advice market exists to support people to make the right decisions for them and their families. In 2015, as has been mentioned, the Treasury and the FCA launched the financial advice market review, with the goal of improving the accessibility and affordability of financial advice. The Government and the FCA have now implemented all 28 recommendations from that review and will be reviewing the advice market again over 2019 to monitor progress and report back next year.
The Government have also made financial advice mandatory for people considering a defined-benefit pension transfer where the value of the pension is over £30,000. That threshold is purposely low, given the dire consequences of taking poor advice and making unwise decisions—as has been said in relation to a number of cases this morning. That is to ensure that people consider the fact that they may lose guaranteed income in retirement and are aware of all the options available before they make such a complex decision.
Turning to British Steel, although most financial advisers offer sound advice, unfortunately there are cases where the advice people receive is not right for them. The British Steel case was one such instance and resulted from a unique set of complex circumstances. A minority of advisers were responsible for giving unsuitable advice, which resulted in losses for scheme members. The restructure of the British Steel pension scheme occurred at a time when there was considerable concern over the future of Tata Steel, and members were understandably worried about whether they were about to lose their jobs and pensions. Several public bodies were involved in supporting scheme members to decide what to do with their British Steel pension, and it would be helpful to outline their different roles, because that will bring clarity to where the issues lie and how we can address them.
The Pensions Regulator is responsible for negotiating and agreeing arrangements where an employer is unable to continue to support a defined-benefit scheme, as was the case for Tata Steel and the British Steel pension scheme. That includes guidance and oversight of the trustees and scheme administrators. As such, the Pensions Regulator was also responsible for the options available to BSPS members, the communications sent by the trustees and the deadlines for decisions to be made.
The FCA is responsible for the regulation of the financial advice market. Financial advice firms must be authorised by the FCA before they are permitted to provide advice, including on pension transfers, and advisers are required to provide financial advice that is suitable for the individual’s personal circumstances.
The Pensions Advisory Service was an independent service offering free-to-consumer guidance on pension matters. As has been mentioned, it has recently been merged with Pension Wise and the Money Advice Service to create a new single financial guidance body, which is now known as the Money and Pensions Service. The hon. Member for Birmingham, Erdington asked from the Opposition Front Bench about the status of that body. The chief executive is now in place, and work is going on in this financial year to set up the processes for bringing those three entities together. There will be a series of announcements over the coming months about their intentions, but the body will operationalise in the course of the coming financial year.
As to the lessons learned from the experience in south Wales with the British Steel scheme, the independent Rookes review, which considered the communication exercise that supported members of British Steel to take decisions on their pension, reported in January. It noted that there are important lessons for organisations to learn to prevent such a case from happening again. There are, I think, 18 recommendations, and they include earlier intervention and intelligence sharing between the regulators and the Money and Pensions Service; improved support for members considering cash transfers out of defined-benefit schemes; improved guidance for trustees facing restructuring and other major changes; and improved message content clarity and channels.
The Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service have publicly committed to addressing the review’s remaining recommendations. They have agreed a joint protocol to work together to ensure that consumers are appropriately protected. It includes ensuring that support and communications are in place for members of defined-benefit pension schemes, ahead of any restructures and consultations—something manifestly different from what happened in the regrettable case that we are considering. Another aim of the protocol is that there should be better co-ordination of the involvement of different public bodies through early intervention, expedited approval processes and improved information sharing. The bodies have also developed branded written materials for trustees, to ensure that there are better communications with pension scheme members, including letters to alert them to the risks of transferring out of DB pension schemes, and the giving of practical information.
I will now talk about action on unsuitable pensions transfer advice, because the British Steel case has also raised many questions about quality.
Stephen Kinnock
The Minister has set out some of the structural and institutional issues and the lessons to be learned, but does he agree that when 8,000 members transfer out there is clearly a problem that needs to be addressed at source? Flagging up risks is all very well, but this is a case of shutting the door after the horse has bolted. We need a system that prevents such mass migration out, because once those kinds of numbers are involved it is highly likely that people will be going against actuarial advice that is in their best interests.
John Glen
I have listened carefully to the hon. Gentleman’s interventions, and he is right to say that 6.6% of the 122,000 individuals who had those pensions did transfer out, and that, in general, the default option would not be to transfer out of a DB scheme. There is work going on to develop pathways. I am not clear, given that it is not my direct area of responsibility, about the status of that work. I think, however, that there is a challenge, in the context of the policy on freedoms that is now well under way, about how to reconcile that freedom with making the decisions in question. Perhaps I might pivot over to consider the DC schemes. I think what is happening is that many people decide to take the 25% tax-free lump sum and then do not necessarily make appropriate, or the best, decisions on the remainder of that pot of money. Work is being done on that, but with respect to the specificity of the default option, I cannot give the hon. Gentleman a definitive response now.
I think we are moving to a point where there will be default pathways that people will need to be advised on when they take advice. I think that is probably a sensible compromise that deals with the fact that, in some instances, not coming out of the DB scheme would not be the right thing to do. The hon. Gentleman will agree about that, although he is also perfectly correct to say that, generally, not coming out would be the right thing to do. There is work to be done, but I think progress is being made, and I acknowledge the sensible point he has raised.
Nick Smith
I want to focus on what the Minister calls the 6%—perhaps nearly 8,000 people—who may have been badly advised in this case. What is he going to do to get the FCA to up its game, contact those people and help them, in case they have been badly advised?
John Glen
Following our meeting, I undertook to speak to Andrew Bailey, the chief executive. We are due to meet every few months, and our next meeting is imminent. I will speak to him about that. A number of live investigations are under way; I do not have investigative power myself, but I will take a close interest in those investigations. Individual companies—I will not name them—are being actively investigated now, and I expect the FCA to make announcements and recommendations consequent to those investigations imminently. I am not privy to the detail, but I am taking a close interest and will be speaking to the chief executive, because I realise that time is pressing on. This morning we have heard vivid accounts of individuals and families ruined by these decisions, and I take the matter seriously.
To get back to my script, the FCA leads on financial advice and has considerable power to act against firms and individuals who provide negligent advice. To be clear: the FCA can impose a financial penalty on a firm, require the firm to pay redress to its customers, restrict the firm’s permissions, or prohibit individuals from operating in financial services. The FCA can bring criminal prosecutions. I hear the enthusiasm for that action being taken, and I think the FCA hears it too, but it works closely with other organisations to support criminal prosecutions. Both the Government and the FCA are targeting their attention on the effective regulation of financial services and wider work to tackle scams, including the recent implementation of a ban on pensions cold calling.
Jack Dromey
That is helpful, but in the case of British Steel, I think it would send absolutely the right message to the workers concerned if the Minister said today that a sense of urgency is needed on the part of the FCA and the South Wales police about investigating potential criminal wrongdoing and taking action. The workers back at the plant would welcome that.
John Glen
I am happy to respond to that intervention by saying that it is absolutely imperative that the FCA works with all bodies to hold those individuals to account and to take the appropriate action in the light of the evidence presented to it. This is urgent; the individuals who have suffered this experience expect that of the FCA, and I believe the FCA is keenly aware of that.
The hon. Member for Blaenau Gwent talked about the regional presence of the FCA. It has more than 3,000 employees and runs an annual programme of regional supervisory workshops under its “Live and local” banner, in which it educates firms and gathers intelligence from across the country. That has included recent workshops on DB pension transfers. Although the FCA does not have a series of regional offices, there is a clear expectation on the part of the Government and the FCA itself that it will go out into communities across the country, to ensure it has a presence among the 35,000 IFAs that operate.
The regulator is also undertaking further work on the pensions transfer advice market. The FCA is analysing responses to a recent data request from firms that undertake pensions transfer advice and is planning a programme of work, which is likely to include further engagement with stakeholders, targeted education for firms involved in providing pension transfer advice, and assessment of those firms significantly involved in the provision of DB transfer advice. The FCA has already announced a requirement for all pension transfer specialists to obtain the same qualifications as fully regulated investment advisers, alongside their existing qualifications, by October 2020. In relation to the BSPS, the FCA intervened to stop 11 firms from providing pensions transfer advice, and several firms are still under investigation.
It is important to ensure that consumers are protected from poor-quality and unsuitable advice, and there are proper mechanisms for redress when they receive poor advice. The first port of call for consumers to seek compensation is to approach the firm itself. If they cannot resolve the issue, consumers can take their complaint to the Financial Ombudsman Service. The FOS is a free, independent service that provides an alternative to the courts. The maximum award it can recommend was increased at the beginning of this month from £150,000 to £350,000 per individual. If firms go into liquidation and cannot provide compensation to individuals, a second tier of protection is open through the financial services compensation scheme. The FSCS is mainly funded by an annual levy on the financial services industry. Since its founding, the FSCS has helped millions of people and paid billions of pounds in compensation.
It is important to note that in the British Steel case, only a very small minority of former steelworkers who have taken their claims through the FOS and the FSCS have not been fully compensated. That group were all clients of one firm, and the Government’s decision to make financial advice mandatory for those seeking to transfer their DB pension has therefore guaranteed a crucial layer of consumer protection to those individuals.
“Phoenixing”—firms or individuals seeking to avoid liabilities arising from poor investment advice by re-emerging as a different legal entity—can leave consumers and taxpayers out of pocket and tarnish the reputation of the industry. The FCA has a range of tools to identify and act against firms or individuals who try to avoid responsibility in that way. Those seeking to liquidate firms must provide information about outstanding complaints, and the assets of collapsed firms cannot be sold on or passed back to former directors without the prior consent of the regulator. The FCA has already used those powers to prevent several individuals and businesses from avoiding their liabilities, and other cases are under investigation. This has caused some individuals to withdraw their applications, knowing full well that they will not get through. Although I acknowledge that this will not give absolute comfort to those who have suffered, I believe that we now have in place a regime that will prevent the practice in future.
Stephen Kinnock
On the issue of compensation, phoenixing and rogue financial advisers’ ability to just shut up shop and walk away, surely there is also a question of insurance. In our recent meeting with the FCA, which I found absolutely extraordinary, it was made clear to us that there appears to be no mandatory level of insurance that financial advisers must take out so that they can be held to account and insurance pay-outs can be made. My understanding is that, as soon as these advisers see the writing on the wall and know that people will come after them for compensation, they shut down, and there is no backstop—perhaps safety net is a better term—so that people who have been ripped off can go after them through an insurance process. Does not that extraordinary situation require a policy and legislative shift so that the FCA has a chance of doing its job in this area?
John Glen
I have been trying to find the note that one of my officials kindly sent me on the quantum of insurance. My understanding is that FCA-authorised and regulated firms must have insurance in place; if they do not, the FCA has it in its armoury to de-authorise. I listened carefully to the hon. Gentleman, and his point seemed to be on the amount of that insurance. I am happy to take that matter away and consider it. On the practice of phoenixing, I am given to understand that the FCA has done a significant amount of work in that area. It launched a programme of work in April 2018 to strengthen authorisations, and I have given some of the details. I do not want to waffle further on this point, but I will give consideration to the amount and level of insurance required. The hon. Gentleman has discussed the matter with the FCA; I will do so as well and write to him. If it is not fit for purpose, it is not fit.
I thank the hon. Member for Blaenau Gwent for bringing to the House this debate on a very important topic. I was pleased to hear that he is committed to supporting the communications work with the FCA to raise awareness among former BSPS members of their rights to complain and to seek justice. The Government, regulators and other organisations are strongly committed to monitoring the market for financial advice and defined-benefit pension schemes, and to taking decisive action to ensure that these events cannot be repeated. I recognise that Ministers often say that at this point, but I have listened sincerely and carefully to the points that have been raised.
A lot can be done as a consequence of the excellent work of the hon. Gentleman and his colleagues, and through my interaction with the FCA. I accept that there have been some differences of opinion in the Chamber this morning regarding the amount that can be done by regulatory intervention and legislative action. However, I will do all I can to ensure that we exhaust reasonable opportunities for the FCA to tighten up in all these areas. The example given by the hon. Member for Birmingham, Erdington of an individual who inadvertently, unwittingly and tragically led his 20 colleagues to make certain decisions, and the multiplier effect of those, was heartbreaking, and one that the Government need to respond to. I thank Members for the opportunity to respond to this morning’s debate.
Oral Answers to Questions
John Glen Excerpts(5 years, 8 months ago)
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Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
The Economic Secretary to the Treasury (John Glen)
Distributional analysis published by the Treasury at Budget 2018 shows that decisions taken by the Government on tax, welfare and spending on public services have benefited households across the income distribution, with the poorest households gaining the most as a percentage of net income.
Drew Hendry
The £1.7 billion announced yesterday for universal credit does not even touch the sides of the £12 billion of welfare cuts since 2015, nor does it contain provision to repay the debts that universal credit has caused for local authorities, such as the £2.5 million cost that has been borne by every highland household six years into the roll-out. Should Highland Council send the invoice for that debt for council tax payers directly to the Minister?
Mrs Emma Lewell-Buck (South Shields) (Lab)
Gill Furniss (Sheffield, Brightside and Hillsborough) (Lab)
The Economic Secretary to the Treasury (John Glen)
Loans of less than £25,000 to the smallest businesses are already regulated under the Financial Services and Markets Act 2000. The Government are committed to regulating only where there is a clear case for doing so, to avoid putting additional costs on lenders and businesses, and the Government welcome the recent expansion of the Financial Ombudsman Service and the establishment of a voluntary dispute resolution service.
Gill Furniss
A succession of small business lending scandals has come to light in recent months, including from Clydesdale, the Global Restructuring Group and HBOS. This has highlighted that small businesses are still struggling to get fair access to finance. Last week, Labour set out our proposals to fix this, including plans to set up a post bank that would offer relationship banking for small businesses to improve their access to finance. Will the Minister support Labour’s proposition for a publically owned postal bank that will provide trustworthy finance for small businesses?
John Glen
I am sorry, but I cannot give the hon. Lady that undertaking. I really passionately believe that we need to resist additional Financial Conduct Authority fees, product reviews, increased compliance and monitoring costs for businesses, stifled product innovation and narrower product choice for small and medium-sized enterprises, which would be the consequences if we followed Labour’s advice on this policy area.
Several hon. Members rose—
Robert Courts
John Glen
My hon. Friend makes a very fair point. That is why the Chancellor announced at the spring statement that we will require company audit committees to review payment practices and report on them in their annual accounts. This is part of a range of measures that the Government will be setting out shortly when we make a full response after the call for evidence.
Jim McMahon (Oldham West and Royton) (Lab/Co-op)
The Government know full well that some deep-rooted corruption is taking place within major banking institutions when it comes to commercial lending. At the moment, there is nowhere near the type of protection needed to help cover our small businesses in such an eventuality. Will the Government take action now—eventually—to give small businesses that support?
John Glen
We have taken direct action so that small businesses can get a direct and quick response by expanding the authority of the Financial Ombudsman Service and having a retrospective review through the dispute resolution mechanism. What businesses up and down the country want is quick action to deal with disputes that are unresolved.
Kevin Hollinrake (Thirsk and Malton) (Con)
High street banks are regulated, but the loans they provide to SMEs are not. There is not even a requirement to treat such a customer fairly and reasonably. In the absence of regulation, should there be a clearer warning about the lack of protection if things go wrong?
John Glen
As my hon. Friend knows through his excellent work with the dispute resolution service, there are some avenues for businesses to go down. Many—virtually all—lenders have now signed up to the standards of lending practice, and that, alongside the expansion of the Financial Ombudsman Service’s jurisdiction, gives businesses the assurance they need.
Sir Desmond Swayne (New Forest West) (Con)
The Economic Secretary to the Treasury (John Glen)
Automatic enrolment has reversed the decade-long decline in workplace pension saving. Department for Work and Pensions statistics show that since 2012 over 10 million people have been automatically enrolled into a pension. Minimum contributions increased this month to 8%, and everyone who is contributing at the minimum rate should see an increase in their overall remuneration package.
Bim Afolami
I thank the Minister for that response. One of my constituents in Hitchin is a stay-at-home mother, and the maximum she can contribute to her pension is £3,000 per year, whereas if she were working, she could contribute up to £40,000 per year. I am sure the Minister will agree that we want to encourage people to save for their future. How can we increase the threshold so that stay-at-home parents can increase the amount they put into their pensions?
John Glen
The Government do offer generous tax relief on contributions to, and investment growth within, pensions. We also enable tax-free access to a proportion of savings. It is right that the Government control the cost of tax reliefs, and the £3,600 limit is one method of doing that. I can assure my hon. Friend that all aspects of pension policy and the tax system are kept under review in the context of the wider public finances.
Ruth Smeeth (Stoke-on-Trent North) (Lab)
On Thursday last week, one of my oldest manufacturing companies, Dudson, went into administration. The average length of service is over 20 years, and we now have huge concerns about the pension scheme, as we do about everything else to do with the administration—there is no money left even for redundancy. Will the Minister arrange for me to meet the appropriate Ministers to ensure that we get Government support where we most desperately need it?
Adam Afriyie (Windsor) (Con)
The Economic Secretary to the Treasury (John Glen)
FinTech revolutionises financial services, promoting innovation, stimulating competition and incentivising firms to deliver better outcomes for customers. FinTech firms directly contribute £6.6 billion annually to the UK economy, employing over 60,000 people across 1,600 companies.
Adam Afriyie
I thank the Minister for that answer, and I thank the Government for keeping us in the No. 1 slot for FinTech. I very much welcome the call for evidence on digital payments, but there is a danger that if the wrong type of payments are taken, particularly around the interchange fees, we could undermine the sector. I therefore urge the Minister to remain open-minded to charging a maximum fee per transaction, as opposed to a proportionate fee.
John Glen
I am grateful to my hon. Friend for that question and for his work as chair of the all-party parliamentary group on financial technology over the last four years. The regulator is the UK’s leading authority for interchange fee regulation, as he knows, and it is conducting a review into the fees that businesses face when accepting card payments. I acknowledge his concern, and we are open to hearing views on this issue, and on digital payments more broadly, as part of our call for evidence.
Gareth Thomas (Harrow West) (Lab/Co-op)
Can the Minister think of one independent trade expert who thinks FinTech in the UK will do better once Britain has left the European Union?
John Glen
As the hon. Gentleman knows, it is the Government’s policy to have an orderly exit from the EU. However, we know that FinTech has proved to be very resilient in all circumstances. We had record investment of £15 billion last year. That is testimony to the creative power of that industry, working in the financial services sector in the City.
Robert Neill (Bromley and Chislehurst) (Con)
Charlie Elphicke (Dover) (Con)
Does the Chancellor agree that, in view of the failure of London Capital & Finance, of Premier FX, of individual police forces around the country to investigate economic crime, and of the Serious Fraud Office in yet another case, it is time we had a single economic crime police force in this country to deal with things properly?
The Economic Secretary to the Treasury (John Glen)
We have a single economic crime board, which was set up in January and chaired by the Chancellor and the Home Secretary, to look at how better collaboration can tackle those challenges more effectively.
Ian Austin (Dudley North) (Ind)
IR35 Tax Reforms
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir David, in this very dry Chamber. I acknowledge the six excellent speeches that I have listened to carefully. I hope I will be able to respond to the whole range of concerns that have been raised, and specifically on the way in which IR35 has been implemented, as well as on the implications of the Taylor review.
First, I congratulate the hon. Member for Rutherglen and Hamilton West (Ged Killen) on securing this debate, and I thank everyone who has contributed. The Financial Secretary wanted to be here today—I suppose he could now come over and see how we are getting on—but the debate on disguised remuneration and the loan charge in the main Chamber meant he was unable to attend, so I am here in his place. I am conscious that disguised remuneration and the loan charge were mentioned by the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), and I will come to that issue shortly.
The Government have a responsibility to ensure that everyone pays their fair share of tax—I am sure that feeling is shared across the House. We want to help people to pay the correct taxes on time by ensuring the system works as it is meant to. Some serious points have been made about the effectiveness of the system, which I will get to.
Jim Shannon (Strangford) (DUP)
If the leak in the House had happened yesterday at 5 o’clock, there would have been conspiracy theories, but that is by the way. For small businesses and the self-employed who pay tax, we need a tax system that is simple to follow. Will there be changes in the tax system to make it simple to follow for small and medium businesses and the self-employed?
John Glen
I certainly agree with the hon. Gentleman’s instinct that tax simplification is how all Governments should seek to develop tax reforms. I will make some observations about that later.
As we have heard, the Government have set about extending the reform of the rules that govern off-payroll working. Those rules, known as IR35, were introduced in 2000—in fact, in the previous year’s Budget—to ensure that people working through their own company, who but for the existence of that company would be taxed as employees, pay broadly the same tax and national insurance as other employees. The rules do not affect the genuinely self-employed, and the Government recognise the massive contribution that contractors make to business and public services across the country. Our aim is simply to ensure that contractors who work through their own company pay the right tax.
However, evidence suggests that the rules have frequently been misapplied, meaning that contractors acting as employees were incorrectly paying less tax than if they had been employed in the usual manner. In April 2017, the Government introduced reforms for public sector organisations that take on contractors through their own companies. The reforms mean that public sector organisations are now responsible for deciding whether the contractor is acting as an employee and is therefore within the rules, as well as for ensuring that the right amount of tax is paid.
HMRC estimates that the reform has raised an additional £550 million in income tax and national insurance contributions over the first 12 months.
Ged Killen
Does the Minister know—I am not claiming that I do—how much of that £550 million is the result of the public sector incorrectly sweeping up contractors into the IR35 rules?
John Glen
I am not aware of any distribution analysis, but I will check with officials, and if I can give clarification on that, I will do so by letter.
Non-compliance in the private sector remains a persistent and growing problem that, if left unchecked, will cost the taxpayer as much as £1.3 billion by 2023-24, according to the Government’s estimates. In last year’s Budget, the Government announced that we will extend the reform of off-payroll working rules to all sectors, including the private and voluntary sectors. That will help to address the issue of non-compliance and to ensure there is a level playing field for the public sector and other sectors when hiring contractors.
The Government have listened to the views of individuals and businesses and have decided that the reform will apply only to medium and large organisations. It will not extend to the smallest 1.5 million businesses. In addition, it will take effect from April 2020, to give businesses and other organisations time to prepare. The Government are consulting on the detailed design of the planned reform, and we are listening carefully to the representations made. Our aim is to provide the individuals and organisations concerned with greater certainty about how the off-payroll working rules will operate from April 2020 in all sectors, including about the actions they can take to prepare for the changes.
Hon. Members talked about HMRC’s check employment status for tax—CEST—tool and raised some questions about its effectiveness. CEST was developed in consultation with stakeholders, including tax specialists and contractors, to assist individuals and public authorities in making the correct determinations. HMRC will stand by the result of CEST, provided the information entered is accurate and in line with HMRC guidance. It gives an answer in 85% of cases, and where it does not, more detailed guidance and support are available through a telephone number for individuals.
To support organisations in applying the rules, HMRC will continue to review and improve CEST. HMRC has already held user research sessions, and will continue to work with stakeholders over the coming months to ensure that the tool and the wider guidance suit the needs of all sectors, and to address specific points raised during the consultation. Enhancements will be tested and rolled out before the reforms are introduced in 2020. I asked officials for greater clarity on what that is likely to mean, and we are talking about improved guidance, better phraseology and improved language that gives greater certainty to individuals who make inquiries.
The hon. Member for Brentford and Isleworth (Ruth Cadbury) mentioned the issue of blanket decisions in the example she gave. Members have expressed concern that businesses might take a blanket approach to applying the off-payroll working rules to contractors without looking at the facts of individual cases. Independent research suggests that has not generally been the case in the public sector, where the reform has been in place since April 2017. I cannot account for every case, but research was done to evaluate the issue because it was a legitimate area of concern. The vast majority of public bodies are making assessments on a case-by-case basis. I have looked into how that research was done— HMRC commissioned an external independent organisation to speak to central Government Departments, the NHS and local government departments to ascertain that.
Having listened to people’s concerns, we included proposals in our recently published consultation to help to ensure that processes are put in place for individuals to resolve disputes with their engagers directly and in real time. The proposals would put a legal requirement on engagers to have a status disagreement process in place, and would require them to consider evidence provided by an individual contractor and review their status determinations accordingly. HMRC is committed to working with organisations to ensure they make the correct status determinations, and will publish detailed support and guidance to help organisations prepare well ahead of April 2020.
Ruth Cadbury
I thank the Minister for his response. We look forward to that research. I hope he checks it with bodies such as the NHS and ensures that the different levels and layers of the NHS are looked at. I have been given evidence that different trusts are doing different things and that NHS Improvement and the framework providers in the NHS are providing conflicting advice, which of course causes a problem for agencies and for workers themselves.
John Glen
I am very happy to look into that and to see that that work is forensic enough to give a reliable read-out on actual behaviour.
Members also questioned whether there might be an additional burden on businesses that hire contractors, and raised concerns about introducing the reform at this time of uncertainty. As I mentioned, the reform simply enforces legislation that was introduced in 2000. Fundamentally, I believe it is fair that two people who work in a similar way pay broadly the same tax, and the businesses that hire individuals are best placed to determine whether these rules apply. Medium-sized and large organisations will have until April 2020 to implement the changes, and we will keep the existing rules for the smallest organisations, minimising administrative burdens for the vast majority of businesses and other organisations.
I turn now to employment rights, which the hon. Member for Oxford East (Anneliese Dodds) mentioned. I, too, have missed our exchanges in Delegated Legislation Committees, but it is good to be talking about another topic. Falling within the off-payroll working tax rules does not currently change an individual’s status for employment rights, as there is currently no direct link between employment taxes and those rights.
The Matthew Taylor review took place in summer 2017, and the good work plan was published in December 2018. As set out in that plan, the Government agree that reducing the differences between the tax and rights frameworks for employment status to a minimum is the right ambition. We will bring forward detailed proposals this year—I recognise the need for this to happen quickly—for how those frameworks could be aligned. In the meantime, it is right that the Government take action to improve compliance with existing rules. Those who wish to challenge their employment status for rights can take their case to an employment tribunal, regardless of their tax status.
Members suggested that there is a link between the off-payroll working rules and disguised remuneration schemes. Disguised remuneration arrangements have nothing to do with the off-payroll working rules; individuals are able to comply with those rules without entering into contrived avoidance. Trying to get around rules that are designed to ensure that everyone pays their fair share is not an excuse to use a tax avoidance scheme.
There was mention of some celebrated court cases. It is not appropriate for me to comment on individual cases. Obviously, many of those cases are very complex; only the very complicated cases make it to court. HMRC will work with businesses to ensure they are equipped to make the right determinations.
I want to be clear that this reform does not introduce a new tax but seeks to strengthen compliance with existing tax rules. The Government value immensely the contribution of the self-employed and flexible workers—various Members have made the point that they make up a much larger proportion of the UK workforce—and intend to protect them, but there are many legitimate commercial reasons for people to work through limited companies and for businesses to engage those companies, and that should not need to change. The off-payroll working rules exist to ensure that those individuals pay a fair amount of tax, and the Government believe it is right that we address non-compliance through these reforms.
I hope I have addressed the points that were raised. If there are any points I have not dealt with, I would be very happy to take on board the final remarks by the hon. Member for Rutherglen and Hamilton West and to write to any Member in lieu of responding appropriately.
Ged Killen
I thank the Minister for his response and hon. Members for attending the debate. This is a very complicated issue, and it is not necessarily one that sets pulses racing. However, for the people affected, their livelihoods are at stake, so I am pleased that Members have had the opportunity to raise their constituents’ concerns.
My hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) spoke about what is going on in the NHS, and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) pointed out how many public services in rural communities are dealt with in this manner. We have not yet got this right in the public sector. That is the crucial point: if we cannot get it right in the public sector, these issues will only be amplified in the private sector. We have to consider that carefully.
As my hon. Friend the Member for Clwyd South (Susan Elan Jones) said, people’s livelihoods and incomes are at risk because, for example, expenses will be treated as earnings. For a lot of small businesses, having expenses treated differently could be the difference between success and failure. Small decisions in this respect may have major impacts.
My hon. Friend the Member for Glasgow North East (Mr Sweeney) mentioned the CEST tool, which I touched on in my opening remarks. I am not comforted by what the Minister said about that tool, purely because I have experience of it in a previous life and I know just how inconclusive it can be.
Ged Killen
I thank the Minister for that. I appreciate that we can have a constructive approach. I do not think any of us disagrees about the principles; this is about getting it right.
HMRC’s idea of working with people to assist them is different across the board. I point out gently to the Minister that it can be daunting for people to have HMRC assisting them, because it provides guidance but it is also the enforcer. People are therefore keen to get things right on their own, so we need a fair and transparent system that everyone can understand and use fairly. If we can get a tool that works, that is great, but let us make sure we have one before we come down too hard on people.
I did not hear the Minister confirm whether the changes will eventually be rolled out to small businesses in the private sector. I appreciate that he might not be in a position to answer that today. If the Government are considering that, I urge real caution. They have not suggested that yet, but, having come from a small business background, I can say that that would be a very difficult prospect.
Contingent Liability Notification and Disclosure of Asset Sale
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
I can today confirm that I have laid a Treasury minute informing the House of the contingent liability that HM Treasury has taken on in authorising the sale of a portfolio of NRAM (formerly part of Northern Rock) loans acquired during the financial crisis under the last Labour Government. This sale generates proceeds of £4.9 billion for the Exchequer and the portfolio will be sold to Citi. The majority of financing is being provided by PIMCO. Metric Impact Sale proceeds £4.9 billion Hold valuation Net present value of the assets if held to maturity using Green Book assumptions The price achieved is above the hold value range Public Sector Net Borrowing Increased by: £206 million in 2019-20 £176 million in 2020-21 £148 million in 2021-22 £121 million in 2012-23 and £99 million in 2023-24 Public Sector Net Debt Improved by £4.9 billion in 2019-20 Public Sector Net Liabilities Improved by £182 million in 2019-20 Public Sector Net Financial Liabilities Improved by £149 million in 2019- 20
Rationale
The previous Government intervened in the financial sector to preserve financial stability; this policy objective has now been met, and these assets should be returned to the private sector. The proceeds from this sale will reduce public sector net debt. This marks a major milestone in the plan to recover taxpayers’ money and exit from the Government’s shareholdings in NRAM and Bradford & Bingley.
Format and Timing
The Government, UK Asset Resolution (UKAR) and UK Government investments concluded that this sale achieves value for money for the taxpayer having (i) conducted a rigorous analysis of whether market conditions were conducive for the sale of this portfolio; (ii) considered whether the transaction was likely to generate sufficient competitive tension to lead to a properly competitive process; and (iii) conducted an assessment of the fair market value for the assets. The sale made use of a two-round bidding process, which has been shown to create competitive tension through the bidding process and been used for previous sales of UKAR assets.
Contingent Liability
On this occasion, due to the sensitivities surrounding the commercial negotiation of this sale, it was not possible to notify Parliament of the particulars of the liability in advance of the sale announcement.
The contingent liability includes certain market standard time and value capped warranties and indemnities confirming regulatory, legislative and contractual compliance. The maximum contingent liability arising from these warranties and indemnities is approximately £1 billion. There are further remote fundamental market-standard warranties which are capped at £4.9 billion.
Fiscal Impacts
I can confirm that the sale proceeds of £4.9 billion are above the Government’s hold valuation. In 2019-20 the sale reduces public sector net debt (PSND) by £4.9 billion, as well as reducing public sector net liabilities (PSNL) by £182 million, and public sector net financial liabilities (PSNFL) by £149 million. PSNFL and PNSL are reduced by different amounts as PSNL also takes into account provisions against the loans that are being released. Public Sector Net Borrowing (PSNB) will increase by a total of £750 million by 2023-24. PSNB is increased by the sale as the Government will no longer receive the interest payments associated with these assets.
The impacts on the fiscal aggregates, in line with fiscal forecasting convention, are not discounted to present value. The net impacts of the sale on a selection of fiscal metrics are summarised as follows:
I will update the House of any further changes to NRAM as necessary.
[HCWS1477]
Bilateral Loan to Ireland
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
HM Treasury has today provided a further report to Parliament in relation to the bilateral loan to Ireland as required under the Loans to Ireland Act 2010. The report relates to the period from 1 October 2018 to 31 March 2019.
A written ministerial statement on the previous statutory report regarding the loan to Ireland was issued to Parliament on 15 October 2018, Official Report, column 33WS.
In line with the agreed repayment schedule, the first repayment on the principal of the loan from Ireland falls due on 15 April 2019. HM Treasury will update Parliament when this payment has been received, and report on it fully in the next statutory report.
[HCWS1473]
Supervision of Co-operative Bank 2008-13: Independent Review
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
On 6 March 2018 I laid a direction before Parliament using the powers conferred by sections 77(1) and (2) and 78(5) and (6) of the Financial Services Act 2012 (“the Act”), to require that the Prudential Regulation Authority (“the PRA”) should undertake an investigation into supervision of the Co-operative Bank plc between 2008 and 2013. The direction required that the PRA appoint an independent person to undertake the review and that the review should be completed within one year. The PRA appointed Mr Mark Zelmer, a former Deputy Superintendent of the Office of Superintendent of Financial Institutions, Canada, and previously a senior official at the Bank of Canada, to undertake the review.
The PRA presented the completed report setting out the findings of the review to HM Treasury on 4 March 2019. In accordance with section 82(6) of the Act I have today laid the report before Parliament. Copies of the report are available in the Vote Office and Printed Paper Office and as required by section 82(2) of the Act the report will also be published on the Government website.
The report makes detailed recommendations for the PRA and the Bank of England (“the BoE”) relating to supervisory policy and practice. The PRA and the BoE welcome the Report’s recommendations and have today published a document responding to them.
https://www.bankofengland.co.uk/prudential-regulation/publication/2019/pra-and-banks-response-to-the-independent-review-of-the-co-operative-bank.
The Financial Conduct Authority has also welcomed the report. While the report contains no formal recommendations for HM Treasury, Mr Zelmer observes that in future relevant authorities should continue to engage early and regularly on firm-specific issues where necessary. The Treasury agrees with this observation, while ensuring that we continue to respect the independence of the regulators.
I would like to thank Mr Zelmer for his work in undertaking the review and producing this report.
[HCWS1457]
FCA: Retained Provisions of the Consumer Credit Act
John Glen Excerpts(5 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
In 2014, the Government fundamentally reformed the consumer credit market, by transferring regulation from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). This more robust regulatory system is helping to deliver the Government’s vision for a well-functioning and sustainable consumer credit market which is able to meet consumers’ needs.
As part of the transfer, the FCA was required in regulation 20 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014 to undertake a review of the “retained provisions” of the Consumer Credit Act 1974.
In February 2016 the FCA published a Call for Input setting out its approach and seeking responses from stakeholders. In August 2018, the FCA published an interim report, which set out initial views and invited feedback. The FCA has now completed this review, and the Treasury has laid the final report before Parliament. Copies of the document are available in the Vote Office and the Printed Paper Office.
The Government welcome the FCA’s report, and the significant analysis undertaken by the FCA during the course of the review. The Government will consider the report and whether further reform of the consumer credit regulatory regime is needed.
[HCWS1442]