Draft Privacy and Electronic Communications (Amendment) (No. 2) Regulations 2018
John Glen Excerpts(7Â years, 9Â months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Privacy and Electronic Communications (Amendment) (No. 2) Regulations 2018.
It is a pleasure to serve under your chairmanship again, Mr Austin. For most people in the UK, pensions are their largest financial asset, but that, unfortunately, makes pensions an attractive target for fraudsters. Pension scams can have a significant and devastating impact on people’s lives. Scams can lead people to face retirement with a greatly reduced income and unable to build their pension savings back up.
From recent debates in the other place, I am aware of the strength of feeling on tackling cold calling. As well as being a nuisance, cold calling is the most common method used to initiate pension fraud. According to Citizens Advice’s most recent statistics, 97% of pension fraud cases brought to it originated from a cold call. That is why the Government are taking action to ban pensions cold calling.
Before I discuss the regulations, I will briefly explain how the current system works. The Privacy and Electronic Communications (EC Directive) Regulations 2003—PECR—permit firms to cold call consumers for marketing purposes, subject to a couple of exceptions, which are where the consumer has notified the caller that they do not wish to receive such calls, or has listed their number on the telephone preference service. The current regime, therefore, permits cold calling unless a consumer has proactively opted out.
The purpose of these regulations is to amend PECR in order to much more tightly restrict firms from cold calling consumers about their pensions. The regulations do that by creating an explicit opt-in regime that prohibits all such calls unless one of two tightly drafted exemptions applies and the caller is authorised by the Financial Conduct Authority or is the trustee or manager of a pensions scheme. The exemptions mean that the ban does not have an unnecessary or disproportionate impact on legitimate activities.
It is important to highlight that the exemptions do not apply to so-called introducers, which are the marketing firms that seek to establish leads that they then pass to financial advice firms. Introducers undertake the majority of pensions cold calling. Under the proposed regulations, there are no circumstances under which introducers are permitted to call consumers about their pensions.
The first exemption applies where the consumer has given consent to the caller to receive direct marketing calls about their pension. It has been included so that consumers can seek information on pension products. The regulations are fully in line with the general data protection regulation, which sets a high standard for consent. Consent must be actively given—for example, the use of pre-ticked boxes is not permitted.
The second exemption applies where the consumer has an existing client relationship with the caller, such that they would expect to receive such calls. It means that individuals can receive information about investment opportunities from firms with which they have a client relationship.
To help to future-proof the regulations, the definition of “direct marketing in relation to pension schemes” has been drafted widely, which will help to ensure that we capture new activities that may evolve in future, as well as activities that we know scammers already use.
Martin Whitfield (East Lothian) (Lab)
On the changing approach taken by the scam companies, will the regulations cover the use of texting and contact through messaging? I know from constituents’ experiences that a response by way of text is deemed to be consent and they then get the phone call.
John Glen
I am grateful to the hon. Gentleman for making that point. The pensions cold calling ban does not include direct marketing via texts and emails, because they are already closely restricted under PECR. Under regulation 22, texts and emails are restricted unless consumers have given consent. That is an opt-in regime.
Martin Whitfield
To pursue that point, is the Minister saying that a response to a text is not deemed to be consent for a subsequent phone call?
John Glen
Those regulations deal with that matter; I am dealing today with the banning of cold calling. I will move on to enforcement, and then I will be happy to respond.
The ban will be enforced by the Information Commissioner’s Office, a world leader in the protection of information rights. The ICO’s tough enforcement powers include fining offenders up to £500,000. I am also pleased to say that from Monday next week, 17 December, directors of companies making unlawful calls may also be personally liable for penalties of up to £500,000.
Patricia Gibson (North Ayrshire and Arran) (SNP)
The Minister says that named directors “may” be liable. Will he give us clarity on what “may” means in that context?
John Glen
What I mean is that there is scope for them to be fined up to ÂŁ500,000, according to the breach that they have committed. That will be a matter for the ICO to adjudicate.
I would like to take this opportunity to thank industry and charity stakeholders for their engagement with the consultation over the summer. As a consequence, I am pleased to say that we have a set of regulations that our stakeholders can get behind. I emphasise that the Government do not consider this ban to be “job done”. We understand that scammers are skilled at adapting to circumstances and that scams are constantly evolving. As such, we will continue our efforts to understand and take action on future scams.
Project Bloom, a cross-Government taskforce established in 2012 and currently led by the Pensions Regulator, continues its work to tackle scams and identify emerging threats. In addition, the Government are committed to limiting the statutory right to transfer, to help prevent funds transferring from occupational pension schemes into fraudulent ones.
In conclusion, the Government believe that the proposed legislation is necessary to help protect consumers from pension fraudsters, and I hope colleagues will join me in supporting the regulations, which I commend to the Committee.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am grateful to the Minister for explaining the rationale for the measures. Of course, we have talked in previous Committees about other statutory instruments arising out of them. This is a significant problem; I understand that more than 11 million pensioners, in particular, are being targeted annually by cold callers, with fraudsters making 250 million calls a year, which is the equivalent of eight per second. That is a huge problem, and behind those figures there is a significant human impact on some vulnerable people.
As the Minister will be aware, during the Committee stage of the Financial Guidance and Claims Act 2018 the Labour party called for the FCA, rather than the ICO, to be given functions in respect of the ban on unsolicited direct marketing relating to pensions. The FCA has much stronger powers than the ICO and can strike off members who contravene the rules. We also called for an offence to be created for the use of information obtained through cold calling.
Will the Minister explain his response to those points? I have looked through the accompanying material and it is not crystal clear to me which body will be responsible for enforcing the ban, or whether the respective powers of the FCA, as against those of the ICO, have been taken into account in this determination.
I am concerned about the restricted powers of the ICO. I am sure that the Minister is aware of the views of various representative bodies. In particular, the Fair Telecoms campaign has intimated that the ICO has restricted means of ensuring compliance. I recall sitting on a previous Committee examining delegated legislation related to other parts of the Act, where we discussed transferring authority to the FCA precisely because it is a more powerful and authoritative body. It would be useful to hear more about that.
Secondly, it would have been helpful to ban the use of information derived from cold calls. That would have resulted in firms that provide financial services covered by the FCA being banned from using information gathered by introducers, thereby breaking that part of the chain. I know that that idea was not accepted by the Government, but has the Minister considered other means of dissuading such forward use of that information?
Thirdly, perhaps I have not got to grips with the relevant part of the legislation, but it is not clear to me exactly who the draft regulations will cover with respect to the telephone preference service register. The Fair Telecoms campaign maintains:
“This change in regulation will only affect the behaviour of callers who are currently checking numbers on the TPS register before making calls. For those who do not it simply adds to the cases that may be the subject of action by the ICO, rather than making any significant change.
Targets with their numbers on the TPS—the basis for many of the statistics given about the volume of calls alleged to be covered—are not affected in any way by this measure. It is understood that 80% of UK households have their number recorded on the TPS. At best, this measure can only affect the remaining 20%.”
Will the Minister clarify whether the draft regulations are focused on those not covered by the telephone preference service? If so, is it the Government’s view that the service is sufficient? It would be helpful to hear the Government’s thinking on the matter.
Fourthly, the Minister states that the draft regulations are in line with GDPR requirements, but some have suggested that their consent provisions are weaker than those in the GDPR. It would be helpful to understand where the exact language used about consent in the draft regulations has come from and why it is formally different from the language used in the GDPR.
Fifthly, as I understand it the regulations are drafted to cover only cases in which there is specific reference to
“funds held, or previously held, in an occupational pension scheme or a personal pension scheme”.
Cases in which a caller fails to make specific reference to the source of the funds that may be used for an unwise investment will therefore not be covered. Is the Department aware of that potential loophole? We can all imagine a particularly inventive and devious caller simply manipulating their sales script to comply with the letter but not the spirit of the draft regulations by talking in general terms without referring to a specific existing personal or occupational pension scheme.
Finally, may I push a little harder on the issue raised by my hon. Friend the Member for East Lothian? Would a response to a text message that was legal under PECR be sufficient to enable future cold calls within this regime?
Anneliese Dodds
The Minister shakes his head, helpfully. I will take that as a no, but it would be great to get a response to my other questions.
Patricia Gibson
I welcome the proposals, as far as they go. The Minister may be aware that I have long campaigned against the whole culture of cold calling on the grounds of the distress, disturbance and alarm that it causes and the door that it leaves gapingly open to scammers of all kinds.
I was interested to hear the Minister say that the UK Government will implement my Bill to make named directors responsible, the Unsolicited Marketing Communications (Company Directors) Bill—in September, I think he said. The Government exactly reprinted and resurrected my Bill in the name of one of their own Back Benchers; that was ironic, given that one of the Bill’s goals was to deal with scammers, but its implementation is very welcome. However, there is a very serious point to be made.
If all consumers are to receive welcome protection from cold callers on receipt of their pension, surely the Government must concede that cold calling, in and of itself, leaves all consumers open to fraud or heavy-handed sales techniques. So far, at least, it seems that protection from cold calling is not to be extended to all consumers. I know that that issue is not in the Minister’s remit today, but it is an interesting point. Will he explain why the Government are not extending that protection? There has been a delay of more than two years in the important policy of using named directors’ responsibility to protect not only those with pension pots, but all consumers.
I welcome the common-sense approach outlined by the Minister under which the consumer will be able to receive marketing calls about their pension if they have explicitly consented to that. Of course, explicit consent cannot mean just ticking a tiny wee box at the bottom of a page of very small writing; it has to be more robust than that. People should not opt in to receive pension marketing calls by accident. Opting in must be clear and explicit. What assurances can the Minister give about that?
We are told that the general data protection regulation
“sets a high standard for consent”.
Will the Minister give us more detail about what that high standard looks like and what it involves?
I have concerns about the ICO being able to take action against organisations that contravene the regulations. We know that, in the past, companies that faced heavy penalties from the ICO for various breaches simply closed down and reopened with the same staff and premises under a different name. That is why named director responsibility matters so much. I welcome the Minister’s comment that it will be enshrined in law in September—
Patricia Gibson
Excellent. I am very pleased to hear what the Minister has to say, and I welcome that. I have waited a long time for it. There has been a delay over named director responsibility. We want it not just for people with big pension pots, important as they are, but for all consumers in all industries. The two-year delay was a wasted opportunity. I wonder how many people have been swindled while we have waited.
The ICO can take any enforcement action it likes, but without named director responsibility it is a paper exercise because companies simply phoenix and evade their responsibilities. Penalty notices without named director responsibly are pie in the sky; they will not deter scammers.
I welcome these measures, and I am very pleased to hear about the December deadline that the Minister set out. I think he understands my reservations about this not being extended across every industry. For pension pots, this will stop scammers calling people without fear of reprisal and, when they receive a notice of penalty, simply putting it in the bin because it does not mean anything.
I urge the Minister to go back to his colleagues and make the case for real protection for all consumers in all industries. The Government supported named director responsibility for this measure, but we need to stop scammers across the board, not just in the area of pensions.
John Glen
I thank the hon. Members for Oxford East and for North Ayrshire and Arran for their points, which I will try to respond to as fully as I can. I will start with the last point, about the delay. All I can say is that, since I have been in office, this is something I have focused on. It came out of the legislation that was introduced in the spring. I am pleased that we are at this point. I cannot account for the delay fully, but I am glad we are at this point today.
The hon. Member for East Lothian asked whether, if someone has opted into receiving text messages, they are opting into receiving calls. The answer is no, because the GDPR requires granular consent to something clear and specific. Consent to receiving a text is not consent to receiving a call.
Martin Whitfield
Just to clarify, the experience that I am aware of is that a text message was used, which itself invited consent. The caller used the consent given by the response to the text message to phone again. The measure talks about the specific line that the caller has been authorised to use, but I wonder whether the Minister understands that, in the regulations, the consent to approach a person has to be for the telephone number/line, in which case the text messaging system would not be consent at any time.
John Glen
As I say, text messages are not the subject of these regulations, which relate to the PECR. I am relying on box notes to clarify the point. I will have to take this away and write to the hon. Gentleman. I understand the specific example that he has raised, and I will not leave him in any ambiguity on that point. Currently, my understanding is that one cannot opt in to receive cold calling by text message, but I will write to him as soon as I can on that matter.
The hon. Member for Oxford East raised issues relating to the ICO and the FCA. I will not rehearse those points again, as we have already have discussed them, but I will respond to the concern about the effectiveness of the ICO as an enforcement body. The ICO will enforce restrictions on unsolicited electronic direct marketing under PECR, and it is appropriate that the planned ban is enforced through that existing framework. As we have discussed, the ICO has tough enforcement powers, including a fine of up to £500,000. There would be a risk of confusing consumers and industry if we had different cold calling enforcement regimes for different sectors. If the Committee agrees to introduce the ban, the FCA will work closely with the ICO where breaches of the rules by FCA-authorised firms are identified and, crucially, the ICO will be able to enforce bans on introducers that are outside the FCA’s remit, because they are not FCA-authorised firms.
The hon. Member for Oxford East also talked about the telephone preference service. This statutory instrument would change it from an opt-out to an opt-in regime, which makes restrictions on pensions cold calling much tighter. In addition, although not all consumers are aware of the TPS, those listed on it would still be protected by the ban.
The ICO’s guidance is indeed clear that consent under PECR is to be understood in accordance with GDPR. Although the FCA is not prohibiting the use of personal data collected by third parties through cold calling, the Government and the FCA will keep the proposal under review as the effectiveness of the ban is monitored. An authorised firm that accepts business from an introducer must meet the FCA’s regulatory requirements, including carrying out due diligence on the introducers they transact with. If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible and subject to regulatory action. The FCA has alerted investment advisers and authorised firms to their responsibilities when accepting business from unauthorised introducers or lead generators. Organisations are already required to process or handle personal data in accordance with the Data Protection Act 2018 and GDPR.
I assure the hon. Members for Oxford East and for North Ayrshire and Arran, and the Committee as a whole, that the Government are engaged in an ongoing process. As I said in my opening remarks, this is not “job done”. I recognise that there are a range of concerns from consumer organisations and different parts of the industry about whether further restrictions or bans should be in place. One of the reasons for the draft instrument is that, in future, we can introduce additional restrictions more speedily should they be required.
Kerry McCarthy (Bristol East) (Lab)
On a slightly different topic, in 2015, a constituent of mine, 92-year-old Olive Cook, committed suicide by throwing herself over the Avon gorge. That hit the national headlines because she had been inundated with calls from charities. She was on the databases of 99 different charities, and a lot of them would trade in her details. To stop cold calling now, has the Minister considered the lessons that we tried to learn and the work of the Charity Commission to try to stop cold calling following that incident?
John Glen
I am extremely sorry to be reminded of that case. The regulations introduce a ban on pensions cold calling, but I would be happy to look into the matter and see what the collective conclusion of Government was on that particular case and its implications. I am happy to examine that in the context of my previous remarks.
The hon. Member for North Ayrshire and Arran spoke about a more comprehensive cold calling ban. As I tried to indicate, pensions cold calling is a special case where levels of consumer detriment are particularly high. The Government are committed to taking action. I accept that, for some, action has not been taken as quickly as it could have been, but a balance has to be struck between ensuring that consumers are adequately protected and providing the right conditions for legitimate direct marketing industry to operate.
Patricia Gibson
Nobody wants to stop businesses going about their lawful work, but if we had named director responsibility across every sector, that would allow legitimate businesses to thrive, while the scammers and the cowboys would be the ones to suffer.
John Glen
I am happy to look at appropriate additional measures, in the light of the evidence presented. I would like to draw the Committee’s attention, for example, to situations where utilities companies use calls to prospects to secure a switch to their service, or where the publishing industry uses calls to consumers who have indicated some affinity with the brand. Many national newspapers and magazine publishing houses use that approach. I am not, in this response, indicating that the Government are closed off to any further moves, but it has to be done on an evidential basis.
Patricia Gibson
The examples that the Minister has given are of legitimate businesses going about their normal work. We are not talking about that sort of business; we are talking about the ones that phone up, pester, scare, disturb, annoy and scam people.
John Glen
Fraud is fraud, and with actionable fraud the police can be contacted in such circumstances. With respect to the cold calling mechanism, I have said all I can on that. The Government are open on the basis of evidence to move forward.
The hon. Lady also raised the issue of how the Government will ensure that consumers do not accidentally give consent through ticking a box on a form. To give clarity on what GDPR sets out, it is a high standard of consent, requiring a positive opt in. Any default method, such as a pre-ticked box, does not constitute consent under GDPR, as I made clear in my opening remarks. Guidance to firms on complying with GDPR highlights that that request for consent must be prominently displayed, clear and specific, and separate from the terms and conditions.
I hope that that deals—
Anneliese Dodds
I am sorry to interrupt the Minister, who has been generous and helpful in his responses. I have one question remaining, which might fit into the rubric of what he has said about Government being open to further tightening, if necessary. I have handed over my speaking notes, but I recall that the legislation refers specifically to occupational or other pension schemes, and how a scammer or somebody selling inappropriately could use general talk of pensions to get into that conversation, and thus creatively comply. Will the Minister’s Department look at that carefully?
John Glen
I am clear that this is about pensions cold calling. I understand what the hon. Lady is saying about loopholes, in the sense that that conversation could hide that intent. It would be appropriate for me to reflect on that and write to the hon. Lady and the Committee. She raises a fair point, and the last thing we want to do is leave such ambiguity out there.
To conclude, this legislation will make a real impact in tackling pensions scams, deterring pensions cold callers by making their actions illegal and signalling to consumers that legitimate companies will not cold call them about their pensions. I hope the Committee will have found the sitting informative and will join me in supporting the regulations.
Question put and agreed to.
Oral Answers to Questions
John Glen Excerpts(7Â years, 9Â months ago)
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Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
The Economic Secretary to the Treasury (John Glen)
It is Government policy to explore options for the sale of corporate and financial assets where there is no longer a policy reason to retain them and value for money can be secured for taxpayers. All asset sales are subject to a rigorous value-for-money assessment before they can go ahead.
Meg Hillier
In the Government’s pursuit of paying down the debt, they are at risk of selling off assets that could be of benefit to the public in the long term. Although the Economic Secretary talks about the modelling, we know from our work on the Public Accounts Committee that the model is very debatable in exactly what the benefit and disbenefit will be to the public in the long term. Will he commit to assessing every upcoming sale rigorously and making sure that the Treasury is learning, so that it is not selling off the family silver and taking things away from the British public that belong to them?
John Glen
I read the report published by the hon. Lady’s Committee, and I recognise the need for a rigorous value-for-money assessment of every sale. That is why, with respect to student loans, which was the subject of the Committee’s last report, I was pleased that the NAO said that
“the sale achieved prices at the upper end of these estimates”
and that
“the transaction…achieved value for money.”
The Government will continue to be guided by that in every transaction they undertake.
Michael Fabricant (Lichfield) (Con)
Julie Elliott (Sunderland Central) (Lab)
The Economic Secretary to the Treasury (John Glen)
The Government have undertaken analysis to understand the impact of different EU exit scenarios on public sector net borrowing, which is a UK-wide metric, and we have published an assessment of the economic impact of EU exit on different sectors. For example, the analysis shows that manufacturing sectors are estimated to have a significantly higher output in the White Paper scenario than under the no-deal scenario.
Julie Elliott
I thank the Minister for that response, but is it not true that Office for National Statistics figures in the last few months have shown a 0.9% decline in manufacturing and a worrying 6.6% decline in the automotive sector? What are the Chancellor and the Minister doing to provide certainty to businesses in this area about the impact of this Government’s chaotic Brexit policy?
John Glen
I am grateful for the hon. Lady’s question. The automotive issue is related to other factors, including diesel. The Government are focused on investing in infrastructure in the north-east. I think that she would be very pleased to know that since 2010, we have had 66,000 new jobs in the north-east as a consequence of more business growth.
Sir Desmond Swayne (New Forest West) (Con)
I can introduce my hon. Friend to manufacturers who find it significantly easier to export to the rest of the world than to the EU. Is there a lesson in that?
John Glen
I think my right hon. Friend is right to say that the Treasury is looking at growth opportunities across the whole world, and that is why the Chancellor set out in his Mansion House speech the aspiration to have global financial partnerships that make the best of those opportunities.
Mr Speaker
I am perfectly open to the hon. Member for Bedford (Mohammad Yasin) coming in on this question if he is minded to do so, but I am not psychic, so I cannot anticipate his wishes. He needs to stand if he wishes to do so.
John Glen
There is considerable analysis from the Bank of England and the Government’s analysis of the long-term effect of the different options, with a significant reference paper demonstrating the different scenarios and what lies behind them. The Government are seeking to deliver on the decision of the British people in the referendum in a way that maximises the opportunities for the British economy.
Jack Brereton (Stoke-on-Trent South) (Con)
Sandy Martin (Ipswich) (Lab)
The Economic Secretary to the Treasury (John Glen)
The City is very content with the deal we have on financial services, under which we would seek and secure enhanced equivalence decisions six months before the end of the implementation period, and the degree of dialogue with and support from the City has been constant throughout.
Stephen Kerr (Stirling) (Con)
Given the ÂŁ900 million of additional funding for the Scottish block grant announced in the Budget, what discussions has the Chancellor had with the SNP Scottish Government about following his example and cutting business rates?
John Glen
Following on from the Budget, we have a series of measures to assist credit unions to expand their role in delivering affordable credit across communities. We have a scheme of work over the next three months to pilot interest-free loans and prize-linked saving schemes, to help credit unions to grow as they have been doing in recent years.
Joseph Johnson (Orpington) (Con)
What do the Government make of the Centre for European Reform’s report this week that warned of a 60% fall in UK financial services exports to the EU in the event that we lose access to the single market and put a free trade agreement in its place?
Mr Jim Cunningham (Coventry South) (Lab)
What impact will Brexit have on our universities, particularly in Coventry? More importantly, our universities do projects with Europe and also work closely with the manufacturing industry, including companies such as Jaguar Land Rover. What are we going to do about that?
Kevin Hollinrake (Thirsk and Malton) (Con)
Thank you, Mr Speaker. Banks that are guilty of the scandalous mistreatment of small businesses are allowed to design and oversee their own redress schemes, including determining the level of compensation paid to the victims. Does the Minister agree that Parliament and the regulator should take control of those processes?
John Glen
I have always said that the banks need to do more to restore their relationship with SMEs, and I welcome the scheme that UK Finance has announced to address unresolved historical complaints. I look forward to meeting my hon. Friend next week, with the Chancellor, to discuss the Government’s position.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
The Inverness and Highlands city region deal was agreed a little while ago, and that is very good news. A whole shedload of money has been spent on Inverness—well done, Inverness!—but precious little has been spent on the outlying areas, including Wick and Thurso. That is surely not in the spirit of the deal. Should there not be an audit of this kind of deal in future?
Ruth George (High Peak) (Lab)
In the next two months, the Royal Bank of Scotland will close all but 56 branches in cities across England, leaving banking deserts in towns and rural areas like mine. What is the Chancellor doing to use the Government’s shareholding to exert public pressure on RBS and ensure that we have no banking deserts?
Sir Oliver Heald (North East Hertfordshire) (Con)
Is my right hon. Friend aware that one of the most successful companies in our country, Johnson Matthey in my constituency, is committed to having a fair-deal, not a no-deal Brexit because it feels that it is vital that there should be an orderly retreat, not chaos? Does he agree that the Prime Minister’s deal would achieve that?
Anti-money Laundering and Counter-terrorism Financing regime
John Glen Excerpts(7Â years, 9Â months ago)
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The Economic Secretary to the Treasury (John Glen)
The UK is one of the world’s largest and most open economies, and a leading global financial centre. That brings it with the heightened risk of illicit financial flows from money laundering and terrorist financing. The Government are committed to tackling the threat that this presents to our security and prosperity. The Government have taken robust action over recent years to clamp down on illicit finance, protecting our citizens and helping legitimate businesses to thrive.
The Financial Action Task Force (FATF) is the global standard setter for anti-money laundering and counter-terrorist financing (AML/CTF). The FATF published its mutual evaluation report of the United Kingdom on Friday 7 December. The report recognises that the UK’s AML/CTF regime is the strongest of the over 60 countries assessed by FATF and its regional bodies to date.
The UK received the highest rating possible in four out of the 11 areas of the report, and received a rating of “substantial” in a further four areas. In particular, the report highlights the UK’s efforts on:
Taking significant steps to understand and coordinate the UK’s response to the threat of illicit finance, including publishing two national risk assessments in 2015 and 2017;
Working with international partners to tackle illicit finance, through a strong legal framework and a liaison network spanning over 160 jurisdictions;
Aggressively investigating and prosecuting money laundering, with over 1,400 convictions a year, and adopting new tools such as unexplained wealth orders;
Using all available measures to disrupt terrorist financing, including criminal justice measures, confiscating funds, and financial sanctions;
Preventing the misuse of companies and trusts, and acting as a global leader by adopting a public register of company beneficial ownership and a register of trusts with tax consequences;
Promoting effective global use and implementation of financial sanctions against terrorists and against proliferation of weapons of mass destruction;
The Government recognise that there is more to be done and is progressing with a series of measures to redouble its fight against economic crime.
The National Economic Crime Centre (NECC), housed within the National Crime Agency, has recently been launched. Tasked with co-ordinating the national response to economic crime, the NECC will ensure operations achieve the greatest sustained impact on threats the UK faces, and will lead a new approach to economic crime in the UK.
In line with this, the UK will take forward its ambitious reform of the suspicious activity reporting regime. This will provide an improved IT system to help the UK’s Financial Intelligence Unit (UKFIU) process, analyse and distribute the nearly 500,000 SARs received annually by UKFIU, and will also drive up the quality and use of SARs across the UK’s system. The NCA is increasing the staffing of the UKFIU by more than 30% this year, with further increases envisaged in future years.
The Government plan to legislate in 2019 to introduce a register of beneficial ownership for overseas entities which own or purchase UK property, which is being developed by the Department for Business, Energy and Industrial Strategy (BEIS). The Government also plan to take further action to mitigate the risks presented by the misuse of limited partnerships, in line with the consultation response published today by BEIS. In addition, BEIS will look further at controls over who registers companies in the UK, what information they have to provide, and how assurance is provided over that information.
The 2017 National Risk Assessment noted the steps that UK supervisors are taking to strengthen their approaches and collaboration in the fight against illicit finance. Complementing this ongoing work, the Government launched the office for professional body AML supervision (OPBAS) earlier this year, which will continue its work with supervisors to help improve standards and consistency across the UK’s regime.
The FATF report underlines where more work can be done and will help to focus these efforts over the coming years. The Government are considering the recommendations in the report and will publish their response to these in due course.
A copy of the report has been deposited in the Libraries of both House.
[HCWS1162]
Affordable Credit for People on Low Incomes
John Glen Excerpts(7Â years, 9Â months ago)
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Sir David Crausby (in the Chair)
Order. It is not normal, in a half-hour debate, for hon. Members to speak unless they have sought the permission of the mover of the motion and the Minister. Is the Minister happy for other Members to speak at this point?
The Economic Secretary to the Treasury (John Glen)
Yes, as long as I have a bit of time.
Sir David Crausby (in the Chair)
I think that the Minister wants about 10 minutes to respond to the debate. Is that right?
The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir David. I thank the right hon. Member for Birkenhead (Frank Field) for raising this important issue, which, as he knows, I have been passionate about since our days of setting up Feeding Britain. We went to South Shields and Salisbury to look at the experience of people using food banks. We even travelled to Paris together to try to get some inspiration for how to get the right model—
John Glen
Absolutely. I really want to make progress on the issue during my time as Economic Secretary, and in my response I will draw attention to some of the measures that have been taken.
I also had the pleasure of working with the right hon. Gentleman on the Select Committee. The assiduous way that he has pursued the challenges that people on low incomes face is legendary across the House. The whole House admires his efforts.
I want to get to the heart of the matter. The right hon. Gentleman has raised a number of issues about the conduct of Provident, as have five other hon. Members. We also had a conversation earlier this week. I recognise that he sees a citizens bank as playing two roles—first, ensuring that the poorest members of society can access core banking services, and secondly, providing credit to those people to help them to smooth their income, spread costs over time and cope with unexpected financial shocks. I will address each of those in turn.
I will set out how the progress that the Government have made on ensuring access to core financial services such as bank accounts has been achieved. The nine largest personal current account providers in the UK are legally required to offer a basic bank account to customers who are unbanked. Those accounts must be fee-free and must not have an overdraft facility.
The right hon. Gentleman drew attention to the key issue of the need to access affordable credit. The Government’s vision is for a well-functioning and sustainable consumer credit market that can responsibly meet the needs of all consumers. I think there is some agreement on that vision on both sides of the House.
I recognise that we face a playing field that is not level. My hon. Friend the Member for South Suffolk (James Cartlidge) and other hon. Members raised the point about advertising budgets, which is why one of the Budget announcements seeks to tackle the barriers faced by key partners such as housing associations to referring people to sources of affordable credit. The default setting is to find a better option than some of those that can be found on Google.
James Cartlidge
Has the Minister considered speaking to Google and other companies about that? It is a good point that it is very difficult to police the robot algorithm that sets up their adverts. I do not see how he can do that unless he speaks to the companies themselves.
John Glen
I am happy to take on that suggestion. I will look into what we can do as part of the challenge we also set in the Budget to introduce technical solutions to try to level that playing field and to make community development financial institutions such as Scotcash, which I visited in Glasgow in September, more accessible earlier in that process.
On Financial Conduct Authority regulation, I will try to address the points raised by the hon. Member for Walthamstow (Stella Creasy), who has raised the matter in the House previously. There was a review in May, although she does not agree with all its conclusions. Since the review, I have had more conversations about Amigo Loans and other issues, such as what can be done to monitor and to provide the evidence. In the interests of responding to the right hon. Member for Birkenhead, I will not carry on, but I do not want to be flippant about the serious concerns of the hon. Member for Walthamstow.
The FCA governs the rules about the provision of credit and is responsible for the regulation of consumer credit. It is a robust regulator, which I always encourage to be even more robust. It has the tools to take swift, effective action against improper practices. My regular dialogue with the chief executive, Andrew Bailey, and the director of strategy and competition, Christopher Woolard, covers that topic, and I know that high-cost credit is a priority for them.
The right hon. Gentleman specifically highlighted a number of worrying examples of high-cost credit lenders in Birkenhead. I listened with concern and serious dismay to the impact of those practices on vulnerable consumers. I hope the action that the FCA is undertaking in relation to lenders, as part of its broader review of the high-cost credit market, will have some impact.
The right hon. Gentleman mentioned Provident. The FCA is consulting on new rules and guidance specifically for home-collected credit firms. I will draw its chief executive’s attention to this debate. The rules will include requirements for firms to clearly explain the costs of a new loan compared with the cost of refinancing an existing one, and guidance stating that firms cannot visit customers to offer new loans without an explicit request from the customer.
The provision of affordable credit is a multifaceted problem and there is no single solution to overcome it. It is not sufficient to simply tighten regulation for high-cost lenders. Therefore the Government are desperately keen, and have taken steps, to ensure that low-income consumers can access safe, affordable and sustainable credit. In our civil society strategy, we announced that ÂŁ55 million of funding from dormant assets would be directed towards addressing the problem of access to affordable credit and alternatives.
In the autumn Budget at the end of October, the Chancellor announced a package of measures to support affordable lending, including a prize-linked savings scheme to encourage the growth of the credit union sector. Although the sector is variable in quality, as has been discussed, there are opportunities to expand it. Another measure is an affordable credit challenge fund to encourage the UK’s vibrant FinTech sector to solve the challenges that I just discussed with my hon. Friend the Member for South Suffolk. A further measure is a change in the regulatory boundary to allow registered social landlords to offer their tenants better community lenders. A final measure is a feasibility study into a no-interest loan scheme, and a pilot of that scheme.
The right hon. Member for Birkenhead is absolutely right that banks have a responsibility to assist and facilitate better solutions in this area. Earlier this year, we took through the House the single financial guidance body, which will be a huge partner in working—I hope—with the banks, which often have worthwhile initiatives that are piecemeal and not joined-up. My vision, which is very similar to his, is of the banks coming together to recognise that, across the country, there are pockets of poverty and deprivation that need a new solution, which involves pooling their expertise and endeavour and working closely with the single financial guidance body to deliver a better set of options and outcomes for the constituents for whom he has been fighting so earnestly for 40 years.
I thank the right hon. Gentleman for securing the debate. He and other hon. Members have raised some significant issues that I take to my heart and back to my office. I hope I have offered him some reassurance by setting out the comprehensive and concerted actions that the Government have taken with the FCA to address the challenges in this area. I am clear that the Government are on a journey to actively and comprehensively support vulnerable borrowers. I want to continue to work with him, and other hon. Members from both sides of the House, using the knowledge and expertise that exists, to come up with even better solutions to deal with a real problem in some communities in this country.
Question put and agreed to.
ATM Closures
John Glen Excerpts(7Â years, 9Â months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank the hon. Member for Rutherglen and Hamilton West (Ged Killen) for raising the matter and for the thoughtful way he set out several issues that I will respond to. I also thank the other five Back-Bench Members who made contributions.
First, I assure hon. Members present, and across the House, that the Government recognise that widespread free access to cash remains extremely important for the day-to-day lives of many consumers and businesses in the UK, particularly the most vulnerable members of our society. Ultimately, the Government’s approach to payments is one of facilitating maximum choice; consumers should be free to choose the method of payment that best suits them. I acknowledge that several scenarios have been set out, particularly for rural and less affluent areas, and I will come on to address some actions that can be taken at different levels to deal with those challenges.
The fundamental context for the problem is the rise of digital payments and the decline in cash use. The UK has one of the most extensive free ATM networks in the world; some 82% of the ATM network is free. I listened carefully to the remarks of my hon. Friend the Member for Moray (Douglas Ross), who resists the option to pay a fee. I share his antipathy to that situation, but 98% of all ATM transactions are conducted on free ATMs. Moreover, the free ATM network has increased by 40% in the past 10 years and the number of pay-to-use ATMs has fallen by a similar percentage.
However, we must all acknowledge that people are increasingly moving away from cash and towards digital payments. To be specific, in the UK, cash use has fallen from 61% of all payments in 2007 to a remarkable 34% last year. That fall is expected to continue at pace. Correspondingly, the declining number of withdrawals at ATMs is forecast to continue as cash usage by consumers for payments declines. We can all, therefore, recognise the challenge of maintaining efficient, free access to cash.
In response to that challenge, LINK—the UK’s ATM network—announced a series of reforms at the beginning of the year, which have provided the main focus of the debate. Its work to maintain widespread free access to cash involves acknowledging that 80% of free ATMs are within 300 metres of one another. There is evidence that too many ATMs are clustered in busy, urban areas, which unnecessarily duplicates the supply of that service. Therefore, LINK’s measures aim to reduce the amount of ATM duplication in urban areas and avoid unnecessary growth in ATM numbers, despite the observed decline in consumer demand for cash.
Jim Shannon
The Minister says that there has certainly been a downturn in the use of cash, but I remind him that we have to acknowledge that almost three quarters of people use cash two to three times per week. An interesting trend, which we cannot ignore, is that 60% of 18 to 24-year-olds also use cash at that level, so it is still vital.
John Glen
I acknowledge that we are not seeing the end of cash. The challenge is how we adapt to the different mode and frequency of its use. There is no simple single solution. Clearly, creating a complete network in sparsely populated areas will not always be the right answer.
Although the hon. Member for Makerfield (Yvonne Fovargue) is not in her place, for general edification I will respond to her point about the lack of notice when ATM operators move. They have a duty to inform LINK that a protected ATM will close. LINK can offer premiums to all its members to incentivise the replacement of the machine. It has set up a publicly available monitoring tool on its website that shows ATM availability. It has the power to mandate and directly commission an ATM deployer where one is necessary.
LINK’s measures aim to reduce the duplication that I mentioned earlier and to intervene where necessary. It aims to incentivise broad, national coverage of free ATMs and to protect every community across the UK from losing free ATM access. Specifically, LINK has ensured that free ATMs that are 1 km or more from the nearest free ATM are exempt from any reductions in the interchange fees that fund free ATMs. It has put in place specific arrangements to protect free ATMs more than 1 km away from the nearest free ATM, including boosting the interchange fee available in those areas. It has also enhanced its financial inclusion programme by tripling the interchange fee available to the lowest-income areas of the UK, to ensure that they all have at least one free ATM. Some 93%—an all-time high—of the most deprived areas in the UK have a free ATM.
That fact has to be seen in the context of the ÂŁ2 billion of investment in the Post Office since 2010. The ÂŁ370 million that is earmarked for 2018-21 is designed to maintain the last post office in the village and ensure that consumers can use the over-the-counter option to secure cash.
Douglas Ross
I am grateful to the Minister for his courtesy in giving way—a courtesy that was sadly lacking in the hon. Member for North Ayrshire and Arran (Patricia Gibson). As he is speaking about post offices, does he think that the hon. Lady did not take my intervention because she is fully aware that business rates are overseen by the SNP Scottish Government in Scotland? The problem for the Lossiemouth post office is that it is being punished by the SNP Scottish Government for having its ATM facing outwards and accessible 24/7 rather than inside the post office, which has therefore reduced the hours when the ATM is accessible.
Carol Monaghan (Glasgow North West) (SNP)
The Minister talks about the importance of keeping an ATM in rural and deprived areas. The difficulty is that when there is only one ATM in such areas, it often experiences high levels of usage and regularly runs out of cash, which is worse than not having it at all in some ways. I encourage him to do what he can to ensure that we keep a network, even in such areas.
Patricia Gibson
The Minister mentioned the Payment Systems Regulator, so before he moves on I want to ask whether he is considering giving it greater powers to protect cash, and imposing a duty of care on it, to ensure that the UK’s cash infrastructure is sustainable. That would address a lot of the concerns that hon. Members have expressed.
John Glen
I will come on to talk about the powers of the Payment Systems Regulator, which I have met. My judgment is that it has considerable power over the LINK network. It can mandate LINK to do certain things and it can impose fines. I would need to look carefully at what that proposal would involve and where it would be different from the powers that LINK has at the moment.
I acknowledge LINK’s independent review, which is chaired by Natalie Ceeney. As was mentioned earlier, the report will be published in March. It is looking at long-term access to cash and exploring further the impact on consumers and small businesses of the shift from cash to digital payments. I have met Natalie Ceeney and encouraged her to look as broadly as possible at this issue. I imagine that the nature of her powers, as well as what she needs to do her job, will be part of her report.
This House should also note that the payment systems regulator, which the Government established in 2015 to ensure that payment systems work well for those who use them and which regulates LINK, has taken a lead in examining this issue. Following the first publication of LINK’s ATM footprint report, the regulator used its powers to place a specific direction on LINK. This is designed to make sure that LINK does all it can to fulfil its public commitment to preserve the broad geographic spread of free ATMs and to report to the regulator on a regular basis.
I think I have addressed a number of the concerns raised in the debate. The Government have invested heavily in maintaining a stable network of post office branches. Anyone can use their LINK-enabled bank card to take money out for free at the counter of every one of the 11,500 post offices in the UK. I acknowledge that a post office needs to be open for that to happen, so I am not presenting it as a perfect solution, but it is a significant alternative source of cash for many people.
Additionally, in the autumn Budget at the end of October the Chancellor announced the Government’s plan to help local high streets to evolve and adapt to changing consumer demands. It included £675 million for the future high streets fund to support local areas’ plans to make their high streets and town centres fit for the future.
The hon. Member for Rutherglen and Hamilton West raised a couple of specific points about digital payments failure. The Treasury and the UK financial authorities take this issue very seriously and are investing in improving the operational resilience of the system, including cyber, across the financial sector. Over the next five years, ÂŁ1.9 billion will be spent on cyber-security initiatives.
The hon. Gentleman also asked about helping the vulnerable. The Department for Digital, Culture, Media and Sport has a digital skills partnership that is looking at partnerships across the private, public and charity sectors, which also involves training in digital skills for adults.
On the point about the powers of the PSR, it has the power to direct LINK and impose financial penalties; it is committed to using those powers. It also made a direct intervention on the interchange fees to LINK to deal with this issue.
To conclude, I thank the hon. Member for Rutherglen and Hamilton West for raising this issue. It is surely right that we consider the impact of an increasingly digital world and ensure that we protect those who need to be able to pay by cash. In the here and now, cash use remains important; it is still the second most frequently used payment method, just behind debit cards. We also know that around 2.2 million consumers predominantly use cash, many of whom are the more vulnerable members of our society.
I take this matter very seriously. I chair the Government’s financial inclusion forum, and for me there is a combination of interventions. There will be interventions from the regulator to deal with those who are making it very difficult for people to access affordable credit. However, this issue is also about increasing capacity.
I do not rule anything out in terms of efforts to improve the situation. With my officials, I have spoken to the PSR about this issue, and it has engaged with the regulator and LINK on this topic. I assure the Chamber this morning that I will continue to emphasise the importance that this Government place on widespread free access to cash.
Financial Implications for the Next Generation
John Glen Excerpts(7Â years, 9Â months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for South Dorset (Richard Drax) and acknowledge the assiduous way in which he has communicated with the Treasury over recent years, sharing the correspondence of his constituent. I welcome this opportunity to address, in as detailed fashion as possible, the points he has raised in his eloquent speech. I pass on my sincere thanks to his constituent for raising his concerns with the Government. I respect those concerns, and it is rare and gratifying to have a member of the public who takes quite such an assiduous interest in the public finances as to spend 5,000 hours studying them. I also thank the hon. Members for West Ham (Lyn Brown) and for Glasgow East (David Linden) for their contributions to the wide-ranging discussion this afternoon.
The Government share the concerns expressed today about the level of debt and recognise the importance of reducing it so as not to pass on an unfair burden to the next generation. I am anxious to reassure the constituent of my hon. Friend the Member for South Dorset that the Government are taking this matter seriously and are committed to getting debt down.
It may be helpful if I start with a few points of clarification. My hon. Friend observed a number of statistics relating to general Government gross debt. The Government’s chosen metric for debt is public sector net debt, which is a more complete and transparent measure of debt, incorporating a wider range of public institutions than general Government gross debt. Looking at net debt rather than gross debt also provides a more accurate picture of the health of the public finances, as it nets off our liquid assets.
My hon. Friend also stated in his opening remarks that the Government had reduced the deficit so that we now borrow ÂŁ1 in ÂŁ16, compared with ÂŁ1 in ÂŁ5 in 2009-10. He may be pleased to know that the figure is actually better than that: the Government now borrow only ÂŁ1 in every ÂŁ20 we spend.
An important point has been raised about how we measure debt, which I would like to address. The observation is that debt has increased in cash terms since 1973 and that that relates to us joining the European Union. I reiterate that looking at debt as a percentage of our national income—that is, GDP—is a more helpful way of assessing the public finances as it recognises our ability to afford debt as a nation. Looking at debt as a percentage of GDP adjusts for inflation and our ability to service that debt. It also paints a different picture from the nominal figures and shows that our debt level fluctuated between 20% and 50% from 1973, before significantly increasing at the time of the financial crisis. The fall in debt that we are now seeing as a percentage of GDP, rather than in cash terms, is an important distinction as it recognises that GDP is growing faster than debt. As my hon. Friend says, that is a movement in the right direction.
My hon. Friend also observed that, although we have significantly reduced the deficit since 2010, debt rose as a share of GDP over the same period before it peaked in 2016-17. That increase to debt in cash terms and as a percentage of GDP is principally due to the high levels of borrowing that we inherited from the last Administration—a post-war high of 9.9% of GDP, to be exact—which added to our overall debt burden. That could not be fixed overnight. As it was, there was significant resistance to the measures we took to reduce that deficit in the early years in government. We have now reached a crucial turning point, and the deficit has been reduced by four-fifths, from 9.9% when we came in to 1.9% of GDP at the end of the last financial year in April.
Thanks to the work of the British people to reduce the deficit, debt peaked at 85.2% of GDP in 2016-17 and has now begun its first sustained fall in a generation. It will reach—or, it is anticipated to, given the inherent difficulties of forecast—74.1% of GDP in 2023-24. That progress means that we are in a much stronger position with the public finances than we were in 2010.
While it is correct that debt rose after 2010, without the Government successfully reducing the deficit to the extent we have, debt would have been even higher and would still be rising. As my hon. Friend observed, there is a keen contrast between the Government’s balanced approach to paying down the deficit and paying down debt and the Opposition’s proposals to spend £1,000 billion if they assume office.
My hon. Friend also mentioned debt figures in cash terms for 2010, which his constituent Mr Stewkesbury rightly points out have changed. That change is due to a large number of reclassifications, the largest of which was adopting the European system of accounts 2010, which increased debt by around £100 billion due to the inclusion of Network Rail’s debt and the asset purchase facility and the treatment of public sector bank shares as illiquid. Reclassifications are necessary in the course of following international standards, which are themselves in constant evaluation.
The Government’s commitment to responsible management of the public finances was shown this summer, as we published our response to the OBR’s fiscal risks report, providing a detail account of the actions that the Government are taking to address risks to fiscal sustainability. That report provides a mechanism for Parliament and the public to assess the Government’s strategies for managing the risks, and to hold us to account for their implementation.
The report’s publication reaffirms the UK’s place at the international frontier of fiscal transparency and accountability, and supports the Government’s long-term fiscal strategy. The report set out a range of reforms that we are pursuing to reduce risks to the fiscal outlook, including actions to reduce our inflation exposure and tighter controls over the issuance of Government loans and guarantees. Such reforms will enhance the UK’s resilience to future economic shocks and aid in helping to keep debt falling.
It is right that actions taken by the Government today do not unjustly impact the next generation. In 2010, the Government inherited a very difficult position in the public finances, with debt having nearly doubled in two years and the budget deficit at its largest since the second world war. We have made significant progress. The deficit has been reduced by four-fifths and debt has begun its first sustained fall in a generation. However, the Government recognise that the job is not yet done, and share the concerns raised today.
We must continue to reduce debt to reduce the burden placed on the next generation. The OBR’s October forecast confirmed that the Government are on course to do that, and that we have met our near-term fiscal rules three years early. We will continue with our balanced approach, keeping debt falling while supporting public services, investing in the economy and keeping taxes low.
My hon. Friend raised a specific point about the sale of the Channel tunnel. The Government’s approach to such matters is that we sell public assets where there is no public policy reason for retaining them, but all asset sales must meet the value-for-money tests set out in the Green Book at the time.
It has been difficult to respond fully to today’s debate, given the range of speeches. My hon. Friend made essentially a macroeconomic critique of the Government, while the Opposition Front-Bench Members made a different set of observations, which are perhaps best left to another time. I sincerely acknowledge the need for the Government to come to terms with the fact that in 2019-20 we will still spend £43 billion on net debt interest, which is more than the amount spent on our armed forces. We need to be clear about the imperative to bear down on the challenge of getting our public finances into a position where we do not add to that debt burden, so that the next generation is in a better situation than when we came into Government.
Draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018
Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018
John Glen Excerpts(7Â years, 9Â months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.
The Chair
With this it will be convenient to consider the draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018.
John Glen
It is a pleasure to serve under your chairmanship, Mr Evans. The two statutory instruments before the Committee, which were debated in the House of Lords on Wednesday 28 November, form part of our contingency planning for a potential no-deal EU withdrawal scenario. They are two of approximately 60 SIs that we are laying under the European Union (Withdrawal) Act 2018 to ensure that the UK retains a fully functioning legislative and regulatory regime for the financial services sector after our withdrawal from the EU in March 2019.
Last December, the Treasury pledged to transfer functions and powers in relation to trade repositories and central securities depositories to the Financial Conduct Authority and the Bank of England respectively, thus enabling the regulators to manage any cliff-edge risks arising from a no-deal scenario and to ensure an orderly exit from the EU. The statutory instruments deliver on those commitments.
Trade repositories and central securities depositories provide essential services to UK customers under EU regulation. Should the UK leave the EU without a deal or an implementation period, they would be unable to provide services to UK firms until they had the appropriate permissions under the UK’s domestic regimes, given that the UK would be outside the single market for financial services. The SIs therefore seek to ensure that there will continue to be a functioning regulatory regime to mitigate any risk of disruption to the provision of services in the event of a no-deal scenario.
Let me first discuss the draft Central Securities Depositories (Amendment) (EU Exit) Regulations. A central securities depository is an element of financial market infrastructure that keeps a record of who owns individual securities such as bonds or shares. Central securities depositories carry out three core functions: the registration of share ownership, trade settlement, and the maintenance of obligations arising from owning a security. Central securities depositories are governed by the central securities depositories regulation, which created a common authorisation, supervision and regulatory framework for central securities depositories across the EU.
The failure to maintain access to the UK for non-UK central securities depositories would introduce unnecessary risk to any UK firm using those services and would potentially cut off access to central financial markets. The draft regulations will therefore introduce a UK transitional regime that will allow both UK and non-UK central securities depositories to continue to provide services in the UK after exit next March.
To make use of the UK transitional regime, the draft regulations will also introduce a requirement for non-UK central securities depositories to notify the Bank of England, before exit day, of their intention to provide services in the UK after exit from the EU. The Bank of England has sent letters to non-UK central securities depositories—10 of them, I think—to set out the notification process. The draft regulations will introduce measures to mitigate those risks and ensure a smooth continuation of the provision of services by central securities depositories to the UK.
The draft regulations will transfer the various functions and powers currently held by EU bodies to the appropriate UK authorities. After exit, the powers that are currently held by the European Securities and Markets Authority in the EU to recognise non-UK central securities depositories will be transferred to the Bank of England. The European Commission’s powers to make equivalence decisions are being transferred to the Treasury. This is a process of reviewing another country’s regulatory framework to determine whether it is equivalent in outcome to one’s own. Once the Treasury has deemed a country equivalent, the Bank of England can recognise central securities depositories within that country. This will allow such central securities depositories to provide services to UK firms in compliance with the UK regime.
I now turn to the draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations. Trade repositories centrally collect and maintain data on derivative transactions. Derivatives are financial instruments that can be used to hedge against risks such as interest rate fluctuations or asset price volatility. The European market infrastructure regulation requires all data and information on European derivative transactions to be reported to trade repositories that are registered with or recognised by ESMA; this is known as the EMIR reporting obligation. If trade repositories are unable to provide services to UK firms post exit, those UK firms will be unable to fulfil their reporting obligation under the UK’s regime, resulting in the UK regulators losing access to the data necessary for monitoring financial stability risks to the UK market.
The draft regulations will introduce measures to mitigate that risk, ensuring a smooth continuation of services from trade repositories to UK firms. First, they will establish a framework in the UK for the registration of UK trade repositories, while maintaining the same regulatory criteria for new UK trade repository applicants. To achieve that, ESMA functions relating to the registration of trade repositories will be transferred to the Financial Conduct Authority, including the mandate to make technical standards specifying the information to be provided by trade repository applicants. The FCA currently supervises UK firms subject to existing EU reporting obligations and is therefore familiar with the reporting requirements under EMIR, so it is the most appropriate UK authority to take on that role.
Secondly, the draft regulations will provide powers to the FCA to consider applications ahead of exit day so that a trade repository can provide services in the UK as soon as possible after exit. Thirdly, they will establish a temporary registration regime for eligible trade repositories that will allow them to continue to provide services to the UK by setting up new UK entities. This provides temporary registration for a period of three years to UK trade repositories that are part of a group that contains an ESMA-registered trade repository. The purpose is to allow additional time for those trade repositories’ applications for permanent registration to be considered by the FCA and ensure continuity of services to UK firms. To enter the temporary regime, an eligible trade repository must, ahead of exit day, submit an application to the FCA for registration and set up a new legal entity in the UK.
Finally, the draft regulations will create a conversion regime whereby UK trade repositories that currently have ESMA authorisation are deemed to be registered by the FCA from exit day. To enter the regime ahead of exit day, a UK trade repository must notify the FCA of its intention to be registered. The conversion regime will ensure the smooth continuity of services from UK trade repositories to UK firms.
The Treasury has worked very closely with UK financial regulators and industry bodies to draft the statutory instruments. To ensure full transparency with Parliament, industry and the public ahead of laying the instruments, the Treasury published the trade repositories regulations in draft on 5 October 2018 and the central securities depositories regulations in draft on 22 October 2018, with an accompanying explanatory policy note for each. The regulators and the industry have generally been supportive of the policy decisions in the SIs, both of which are essential to ensuring that the UK retains a fully functioning legal regime both for trade repositories and for central securities depositories in the event of a no-deal scenario. The relevant UK regulators are also equipped to manage any cliff-edge risks. No matter what the outcome of the exit negotiations, UK businesses and customers who use trade repositories and central securities depositories can therefore be confident that they will continue to operate and provide services in the UK.
I hope colleagues from all parties will join me in supporting the draft regulations. I commend them to the Committee.
The Chair
Before I call the shadow Minister, let me inform the Committee that if there is a Division in the House, I will suspend our sitting for 15 minutes so that hon. Members can vote.
John Glen
I thank the hon. Members for West Ham and for Glasgow Central for their points, and I will endeavour to answer all of them. I recognise that some of the scenarios are obviously not desirable, and I echo their comments about that. We are seeking a deal, and the framework of the deal for financial services would give us provision for early equivalence decisions before the end of the implementation period, and we hope that will happen. We believe that the regulations are necessary to ensure that the UK retains a fully functioning legal regime for the trade repositories and central securities depositories in the event of a no-deal scenario. I also want to make the point, which applies in response to both hon. Ladies’ comments, that the Government do not, in any eventuality, see the UK financial services sector trading on some deregulatory arbitrage basis, where we somehow remove ourselves from the context in which we have been so intimately involved within the EU with respect to regulations. The hon. Member for West Ham made reference to the Pittsburgh agreement in 2009 to improve transparency, and we stand by that. A holistic review was undertaken following the crisis and the ESMA rules came into effect to try to address that.
On the point about how stable the regulations on central securities depositories will be when needed, we have engaged extensively with the regulators and with industry, and we are confident that we will ensure a stable and functioning regime at the point of exit. With respect to what happens if there is a deal, the withdrawal agreement Bill will include provision to delay, amend or revoke statutory instruments made under the European Union (Withdrawal) Act 2018, so we would make a decision based on what was appropriate at that time.
The hon. Lady asked about the differences between the transition regime for CSDs and full authorisation or recognition under CSDR. While a CSD is within the transitional regime, it will be subject to the recognised clearing house regime in part 18 of the Financial Services and Markets Act 2000. Other legislation, such as the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001, is also relevant. Recognised clearing houses must be recognised as part of the Bank of England, which gives an exemption from the general prohibition under FSMA IV regulated activity. A recognised clearing house may provide clearing services in the UK.
Once a UK CSD has been authorised, or a non-UK CSD has been recognised, the onshore CSDR regime will apply to it. That consists of the EU CSDR and the UK’s 2014 and 2017 regulations that implement it, and CSDs are given a separate exemption in section 285 of FSMA. As the hon. Lady pointed out at the start, the regulation is complicated by the way that those markets function. That regime is more extensive than the recognised clearing house regime and contains more detailed requirements about the operation and supervision of CSDs.
The hon. Lady also asked whether there would be any departures from EU law. The legislation is drafted using powers under the European Union (Withdrawal) Act 2018, so there is no policy innovation or deviation. That Act does not allow such policy changes, except where necessary to address deficiencies in language or such like. No changes are made to the regulatory requirements on CSDs.
The hon. Lady asked about the appropriateness of the Bank of England recognising non-UK CSDs. The Bank of England is obviously the UK regulator responsible for the authorisation and supervision of UK CSDs. It has a process in place for the recognition of UK CSDs and therefore has the most relevant experience for recognising non-UK CSDs. That sort of pattern has been followed throughout the construction, engagement and laying of these statutory instruments, so where the Commission is appropriate for making equivalence decisions, that comes to the Treasury, because we are equivalent, and the same with ESMA and the Bank of England.
John Glen
The regime that we would be onshoring for the future recognition of third countries would be a matter for us to consider, on the same basis that we would be onshoring EU entities that would have a new legal entity in the UK. It will be the same process, but one that we would essentially have to do domestically, rather than relying on the ESMA framework.
I now turn to the points of the hon. Member for Glasgow Central. I acknowledge the recurrent but appropriately made comments about her party’s position. All I can say is that I have tried to conduct this in as professional a manner as possible. The regulators have the resources available. They have a supervisory framework and, through the levy, they have the ability to make the appropriate resources available.
The hon. Lady asked about the temporary registration regime, which is intended to allow existing EU trade repositories to continue to provide services to the UK. It allows the new UK legal entities, which are part of an ESMA-authorised group, to submit an application. In terms of the process for that application, she mentioned the drafts on the site. I cannot give her the responses to the letter of 25 October, but I undertake to write to her on that. I need to speak to the regulators to understand where they are with that.
The hon. Lady also made a point about the degree of engagement that we have had with the EU. We have had a wide range of discussions with our EU counterparts—I have not personally, but my officials have—on matters relating to our withdrawal from the EU and this matter.
The UK Government and regulatory authorities will continue to do everything we can to ensure a smooth adjustment for firms and customers on both sides. Unfortunately, as with many of these matters, we cannot determine the EU’s response. That has been a challenge over this period. It is inevitable that, in a no-deal scenario, hostility will break out. It is in the interests of all market participants, regulator-to-regulator, Government-to-Government, to continue to work closely together, because that is in the interest of stability.
I believe that has addressed most, if not all, of the points raised.
Alison Thewliss
On the point about not knowing the exact number of firms affected, I draw the Minister’s attention to paragraph 124 on page 32 of the impact assessment, which says:
“As the volume of firms affected is so large, and both financial counterparties and non-financial counterparties are affected by the reporting obligation, it is difficult to provide an estimate of the number of firms affected.”
Will he tell me more about what can be done to raise awareness among the firms that may be caught up in this? If they do not know about it, they will not know about their obligations to comply.
John Glen
The existing reporting obligations for both statutory instruments are enduring and have been established for a long time. The issue of reporting into a different legal entity would come to pass following the enablement and the enacting of this regime.
The hon. Lady referred to the different parts of the impact assessment and the wider cost of familiarisation. She is absolutely right to draw attention to the undesirability of this additional cost and expense. That is why we do not advocate a no-deal scenario. I am not in a position to give her any more information, because I do not possess it. It will be incumbent on the regulator to send out timely information updates on what will be required. There is no meaningful change in what a market participant will need to do, in terms of the information they will need to share.
I hope the Committee has found this afternoon’s sitting informative and that it will support these regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.
Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018.
Resolved,
That the Committee has considered the draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018. —(John Glen.)
Draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7Â years, 10Â months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Austin. As the Committee will be aware, the Treasury has undertaken a programme of legislation to ensure that if the United Kingdom leaves the European Union without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying statutory instruments before Parliament under the European Union (Withdrawal) Act 2018 to deliver that. A number of these SIs have already been debated in this place and in the House of Lords. The SI being debated today is part of that programme, and has been debated and approved by the House of Lords.
The SI will fix deficiencies in UK law on the UK’s deposit guarantee scheme and certain areas of financial services legislation, such as the Financial Ombudsman Service, to ensure they continue to operate effectively post exit. The approach taken in this legislation aligns with that taken in other SIs being laid before Parliament under the 2018 Act: it is to provide continuity by maintaining existing legislation at the point of exit, but amending where necessary to ensure that it works effectively in a no-deal context.
Many colleagues are familiar with the financial services compensation scheme, also known as the FSCS—the UK’s deposit guarantee scheme, which compensates savers for up to £85,000 per person when their bank, building society or credit union fails. Its role is critical in enhancing financial stability and consumer confidence in the banking system. The underlying legislative framework for FSCS protection on deposits stems from the EU’s deposit guarantee schemes directive and our transposing regulations. The EU directive sets the level of deposit protection across the EU at €100,000 and empowers the European Commission to review the protection level every five years. Non-euro countries such as ours can convert €100,000 into the equivalent amount in their national currency.
The directive stipulates that deposit guarantee schemes such as the FSCS shall protect their members’ deposits in other member states. That means that a UK bank’s operations in the European economic area will be FSCS protected, and vice versa: when an EEA firm fails, the customers of its UK business are protected by the relevant EEA scheme. An administrative arrangement in the directive builds on such co-operation. Currently, if an EEA authorised firm were to fail, the FSCS would administer compensation to UK depositors on behalf of the EEA protection scheme. This occurs only after the EEA scheme has provided the FSCS with the funds to be transferred.
In a no-deal scenario, the UK would be outside the EEA and outside the EU’s legal, supervisory and financial regulatory framework. The Deposit Guarantee Scheme Regulations 2015, which were part of the UK’s transposition of the directive, need to be updated to reflect that and ensure that the provisions work properly in a no-deal scenario.
These draft regulations make three key amendments to the 2015 regulations. First, the SI will transfer the power to set the maximum deposit protection level from EU entities to the UK’s Prudential Regulation Authority. This approach retains the principles of the current EU arrangement by giving the power to the technical body best placed to make a judgment on the necessary level of protection. The PRA is the appropriate body to take on this role, given its technical expertise, and its role under the EU framework in setting a sterling deposit protection level that is in accordance with the EU level. This mirrors the domestic process for setting the coverage level for insurance and investments, in which the regulators are responsible for deciding the compensation limit, based on their technical judgment and balancing factors such as consumer protection, financial stability and costs to firms.
Given the importance of deposit protection for the wider economy and the public interest, changes to the protection level will be subject to Treasury approval. In addition, the PRA will be required to consult on any changes to the level.
Secondly, the statutory instrument removes the obligation on the FSCS to administer compensation on behalf of an EEA protection scheme, given that EEA schemes will no longer be obliged to co-operate with the FSCS in a no-deal scenario, with the UK being treated as a third country. In the unlikely scenario that an EEA firm fails just before exit day but a UK depositor has not yet received compensation after exit day, the SI will enable the FSCS to continue to administer payments to UK depositors on behalf of an EEA scheme. That will make it easier and quicker for UK depositors to get their money back.
I reassure the Committee that this provision and the changes in the SI will not directly affect members of the general UK population, the overwhelming majority of whom hold their deposits with UK-authorised firms that are FSCS protected. Customers of firms such as Santander UK—that is, UK-incorporated subsidiaries of EEA firms that are authorised and supervised by UK regulators—will continue to be FSCS protected.
Finally, the statutory instrument also removes provisions in UK legislation that continue to impose EU obligations on the UK. One such obligation is the requirement on the PRA to notify the European Banking Authority every year of the total amount of protected deposits in the UK. It also fixes definitions and legislative references to the Financial Ombudsman Service in the Financial Services and Markets Act 2000 that would no longer work in a no-deal scenario. Those changes will have no impact on the operations of the Financial Ombudsman Service.
The Treasury has been working closely with the PRA, the Financial Conduct Authority and the FSCS on drafting the instrument, and will continue to engage with the financial services industry. The Treasury published the instrument in draft, along with an explanatory policy note, on 15 August to maximise transparency to Parliament and industry.
The Government believe that the proposed legislation is necessary to ensure that the rules governing the UK’s deposit guarantee scheme and the other systems mentioned function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will support the regulations, which I commend to the Committee.
John Glen
I thank the hon. Lady for her comments. All I can do in response to her opening remarks is reiterate my commitment as a Minister to continuing the rigorous process of examining the statutory instruments, bringing them to the Committee in a timely fashion, and being as thorough as possible in our impact assessments.
The hon. Lady raised two issues. First, she referred to the exchange between Baroness Kramer and Lord Bates in the other place on 6 November, concerning the level at which the PRA could set the compensation. The imperative from the directive has been to have a consistent level, and the UK has onshored, essentially, the €100,000. There are no plans to depart from the current level; frankly, there is a significant imperative to keep the levels aligned, regardless of what happens, but that will be a matter for the PRA.
Anneliese Dodds
Would that mean that the five-year period could be altered if there were a severe need for a change due to a fluctuating exchange rate?
John Glen
In a scenario of unforeseen volatility, there would be an opportunity for the Treasury to ask the PRA to examine that, or vice versa. In such a scenario, we would of course have more immediate discretion on that point.
The second point related to the need to maintain a stable prudential regulatory regime. As the City Minister, I hear lots of representations from different parts of the financial services sector for more flexibility on occasion. This is a matter for the regulator, not me, but in conversations with the PRA, I have made it very clear that the Government do not want to secure competitive advantage based on downsizing our regulatory environment. I agree with the hon. Lady’s sentiments with regard to keeping that as the driving imperative.
To conclude, the statutory instrument is needed to ensure that the rules governing the UK’s deposit guarantee scheme and the other systems covered by the SI function appropriately if the UK leaves the EU without a deal or an implementation period. I hope I have satisfactorily addressed the legitimate points made by the hon. Lady, and that the Committee will support the regulations.
Question put and agreed to.
Draft Short Selling (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7Â years, 10Â months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Short Selling (Amendment) (EU Exit) Regulations 2018.
May I say what a pleasure it is to serve under your chairmanship, Mr Robertson? It is a pleasure to be here again to introduce a statutory instrument. I thoroughly enjoyed the preparation for this debate.
In the context of the UK’s withdrawal from the EU, the Treasury has been preparing extensively for a range of potential outcomes, including a no-deal scenario. This statutory instrument forms part of the work that is necessary to ensure that there continues to be a functional regulatory and legislative regime for financial services if the UK leaves the EU with no deal and no implementation period. As colleagues are aware, we have had a number of debates in the House as part of that process. The statutory instrument is another part of that programme of legislation.
Short selling is the practice of someone selling a security that they borrowed, with the aim of buying it back at a lower price than they sold it for. Following the financial crisis, a number of countries, including the UK, acted to suspend or ban short selling due to the risks it posed to the stability of the global financial system. In response, the EU introduced the short selling regulation—the SSR—which introduced a harmonised regulatory framework for short selling and certain aspects of credit default swaps. That regulation relates to financial instruments that are admitted to trading or traded on a European economic area trading venue.
Given that the UK would be outside the EEA and the EU’s legal, supervisory and regulatory framework in a no-deal scenario, the existing legislation needs to be updated to reflect that and amended to ensure that its provisions work properly in such a scenario. The statutory instrument will therefore make a number of amendments to the SSR and related legislation, including certain parts of the Financial Services and Markets Act 2000, to ensure that they continue to operate effectively in the UK once the UK has left the EU.
First, the statutory instrument amends the scope of the regulation so that it relates only to instruments admitted to trading on UK venues and UK sovereign debt. Financial instruments admitted to trading only on EU venues will no longer be in the scope of UK regulation. Additionally, the statutory instrument amends the UK’s powers to address threats to financial stability or market confidence in the context of the SSR. Under the current regulation, the UK can take action on instruments for which it is the most liquid market in Europe or that were first admitted to trading in the UK. If the UK wishes to take action on an instrument that has its most liquid market elsewhere in the European Union or was first admitted to trading on an EU venue, it is required to seek consent from the relevant EU regulator. The statutory instrument deletes that provision so that those instruments will be treated in line with other third-country instruments. That means the UK will be able to take action against any instrument traded on a UK venue and, before using those powers, will consider threats solely to UK market confidence and financial stability.
Secondly, the statutory instrument transfers to the appropriate UK bodies functions that are currently carried out by EU authorities. For example, there will be a transfer of powers, such as the power to specify when a sovereign credit default swap transaction is regarded as hedging against a default risk, from the European Commission to the Treasury. Powers will also be transferred to the Financial Conduct Authority from EU supervisory bodies. Those include powers that will enable the FCA to make technical standards and take action on all instruments admitted to trading on a UK venue. The FCA is the appropriate regulator to which to transfer those functions because it has the necessary technical expertise to make technical standards, due to its existing supervisory responsibilities in relation to short selling.
Thirdly, the statutory instrument deletes provisions that facilitate co-operation and co-ordination across the European Union. Currently, regulators in member states must notify their counterparts in other member states before taking action to restrict short selling, with other regulators subsequently determining whether to apply similar restrictions. This instrument removes those provisions, along with the powers of the European Securities and Markets Authority to intervene in exceptional circumstances.
The statutory instrument makes technical amendments to existing UK legislation, particularly part 8A of the Financial Services and Markets Act 2000, to ensure that the UK can continue to respond to overseas regulators’ requests for information. It is the intention of the UK to preserve as far as possible a mutually beneficial working relationship with the EU, in the same way as we currently co-operate with non-EU regulators under existing provisions in the 2000 Act.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
What assessment has the Treasury made of the likely increase in the volume of activity at the Financial Conduct Authority and whether the resources are sufficient to deal with that?
John Glen
I can confirm that the Treasury worked very closely with the FCA before publication of this SI on 9 August. Over the two months before the regulations were laid on 9 October, we took feedback from industry and the regulator, and we are confident that they are in a very strong position to deal with the requirements that they would be given in the context of a no-deal outcome subsequent to the SI.
Let me make some progress—I am nearly there. The instrument maintains a number of existing exemptions. The current regulation provides exemptions from certain reporting requirements, restrictions on uncovered short selling for shares that are traded primarily in a third country, and the buy-in regime. Those will be maintained, and the FCA will now take on responsibility for publishing a list of relevant third country shares that are subject to the exemption—a responsibility that currently rests with the European Securities and Markets Authority. To ensure continuity at the point of exit, the FCA will recognise the ESMA list for two years following exit day, so that there will be no change to the exemptions.
Additionally, the SI maintains the exemption for market makers and authorised primary dealers under SSR. This exemption enables firms to carry out certain primary market operations and market-making activities without the requirement to disclose their net short position. Moreover, provided that they meet certain thresholds, those operators are not required to comply with relevant restrictions on uncovered short selling. Market makers will be required to join a UK trading venue and notify the FCA at least 30 days before exit should they wish to benefit from the exemption. However, the operators that have already done that will not experience a change.
The instrument deletes the conditions in the current regulation that must be met to be able to correlate sovereign issuer positions to sovereign debt. To determine sovereign debt correlation under SSR that can be used to offset the positions of sovereign issuers, those conditions are currently used. The deletion reflects the fact that the UK will be the sole sovereign issuer in question post-exit. The instrument will also provide the Treasury with the power after exit to set the relevant thresholds.
The instrument makes amendments that will enable UK credit default swaps to be used by market participants to hedge correlated assets and liabilities anywhere in the world, rather than solely in the EU. That will ensure that UK firms can continue to use UK sovereign credit default swaps to hedge correlated liabilities or assets issued by issuers in the EEA and, in future, across the rest of the world, too.
In summary, the Government believe that this SI is necessary to ensure that the regulatory regime relating to short selling and certain aspects of credit default swaps works effectively if the UK leaves the EU without a deal or an implementation period. I sincerely hope that colleagues will join me in supporting the regulations; I commend them to the Committee.
John Glen
I will seek to address the specific points raised, but in response to the hon. Members for Stalybridge and Hyde and for Glasgow Central it is worth repeating that the Treasury is taking this exercise very seriously, and a lot of work and rigour is going into the SIs and the consultation process that goes with them. It is obviously exacting to get on top of all the details about what needs to happen, but each SI is taken seriously and there is a process of engagement, in this case with trading venues such as the London Stock Exchange, the FCA, the Bank of England and those who participate in the market. In response to the first question from the hon. Member for Stalybridge and Hyde, a considerable amount of work was done over that two-month period before the SI was published. An impact assessment has also been made, which will be published later today.
Rushanara Ali (Bethnal Green and Bow) (Lab)
Usually, impact assessments are provided for these Committees. My office contacted the Treasury for an impact assessment, so can the Minister explain why it is being provided after the Committee? We do not have the opportunity properly to scrutinise SI Committee presentations of legislation, which is not acceptable.
John Glen
I understand the hon. Lady’s concern, and this reflects the unusual nature of the process. The Treasury has made five impact assessments on these SIs, and I have been in dialogue with the Regulatory Policy Committee about the unusual nature of this process and the contingency arrangements for no deal. Those impact assessments will be published in due course.
Rushanara Ali
This is a broader issue that has been raised in previous debates, because we do not have the opportunity properly to scrutinise these measures with the relevant facts and information. Will the Minister give an undertaking that Committees will be provided with information in advance, to the best of the Treasury’s abilities, rather than saying, “Sorry, we don’t have anything to provide to you”? That is not acceptable because it means that these Committees are a rubber-stamping exercise without the relevant information and support to enable Members properly to conduct their roles and scrutinise the Government.
John Glen
The issues with impact assessments are extremely complicated, and we have taken the time needed to ensure that they are as robust as possible in a very constrained timeframe. This is not an optimal process, and I and my fellow Ministers and officials are doing everything we can to bring the impact assessment process to the scrutiny of the House as quickly as possible. The hon. Lady is correct—ideally we should have published these impact assessments sooner. We have proactively sought to engage Members on the issues with the SIs, anticipating concerns that may be raised, and we are doing everything we can. [Interruption.] I cannot give more comfort, I am afraid, but I am happy to give way if the hon. Lady thinks we can edify the Committee further.
Rushanara Ali
I am grateful to the Minister and apologise for taking up his time, but can he provide an undertaking that this will not happen in future? It is unacceptable that the impact assessment is provided after Committee sittings. Will the Minister give an undertaking that that will not happen, and that Committees will be held after the impact assessment has been made available?
John Glen
I undertake to continue to do everything I can to bring these impact assessments to the House as quickly as possible in the imperfect conditions that we have. Where possible, we will do that, but I also have to balance that with ensuring that the statutory instrument that I bring before the House is fit for purpose, because the objective is to provide a contingent regime in a no-deal scenario that is fit for the market and avoids the instability that we wish to avoid.
Turning to the second point by the hon. Member for Stalybridge and Hyde on thresholds, he asked me to elaborate on the transfer of powers from the European Commission to the Treasury. This SI onshoring process does not permit us to specify additional changes in policy. The Treasury is well equipped to make those judgments and will do so in a no-deal situation, as part of a larger piece of financial services regulation.
The hon. Member for Glasgow Central quite legitimately raised concerns, as she has done on a number of occasions, about the FCA’s capacity to carry on the functions of EU bodies to implement this instrument and the resources available. I can reassure her once again that those resources are available. The FCA does have the resources to account for the additional work. Processes such as notifying a regulator of net short positions under the SSR will remain the same, and market makers in the UK will continue to report to the FCA in the same manner as they currently do under the European Security and Markets Authority, which delegates its implementation powers to the national competent authorities. In this country that is the FCA, so the FCA is equipped and ready to do that.
General concern was expressed about whether this means that we will go down a deregulatory route in a no-deal situation. It is my instinct, and, I think, that of the regulator, that we would wish to remain closely aligned. A no-deal situation, as undesirable as it is, does not mean we are in a situation of hostility. From my conversations with my counterparts in European countries, I know that they wish us to have a strong relationship even in a no-deal situation. I believe the lines of communication are open and the UK has been a force for good in securing high-quality regulations.
In conclusion, I believe that this SI is necessary to ensure that the regulatory regime relating to short selling and certain aspects of credit default swaps will work effectively if the UK leaves the EU with neither a deal nor an implementation period. I hope the Committee has found this morning’s sitting informative and will join me in supporting the regulations.
Question put and agreed to.
2019 Loan Charge
John Glen Excerpts(7Â years, 10Â months ago)
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The Economic Secretary to the Treasury (John Glen)
Thank you, Mr Walker. It is a pleasure to serve under your chairmanship.
I congratulate my hon. Friend the Member for Wycombe (Mr Baker) on bringing this debate to the Chamber. I acknowledge the 12 speeches from colleagues from across the House, who raised some very important issues on behalf of their constituents. Only last Friday, some of my constituents too came to raise the matter with me.
In the course of my response, I hope to address the significant issues discussed: time to pay; retrospection; whether HMRC is going after the promoters; what my hon. Friend said about the disclosure of tax avoidance schemes; the numbers involved; and the difference between retroactive and retrospective. I will also give some detail on the sums of money that we anticipate will be raised through the measure.
The responsibility of Government is to assess critically the impact of any tax reform, and to ensure that it is structured and implemented in the best possible way.
Mohammad Yasin (Bedford) (Lab)
The Government say not only that the loan charge is designed to treat loans as income, but that if the loans—now income—are written off, they will be subject to inheritance tax because the loan will not be repaid. Numerous court and tribunal findings agree that the loans were loans, not income, yet the Government press ahead regardless. Does the Minister agree that that is completely wrong and unfair?
John Glen
In the course of my speech, I will address that point. I am happy for the hon. Gentleman to come back to me later if he feels that I have not done so.
To be clear, I am the Economic Secretary; the Financial Secretary wanted to be here but he is in the main Chamber for the Finance Bill, so I am here in his place.
I acknowledge the early-day motion tabled by Members. It has attracted 103 signatures, and I also acknowledge the concern throughout the House on this matter. The concerns expressed are for people who have used a disguised remuneration scheme, who expect to have outstanding loans in April 2019, and who will be subject to the charge. I recognise that the Government need to be clear about why we legislated for this charge, which received Royal Assent following a full debate during the Finance Bill process in 2016-17. I will outline the steps that the Government have taken to help those individuals who may be affected.
The Government believe that it is not fair to ordinary taxpayers, who pay their tax on time and in full, to allow people who have used tax avoidance schemes to get away with it. Disguised remuneration tax avoidance schemes are contrived arrangements that use loans, often paid through offshore trusts, to avoid paying income tax and national insurance contributions. The schemes may have involved provision of a loan with no intention whatever to repay it. I spoke to the Financial Secretary this morning, while preparing for the debate, and he said, “Earnings are earnings, and a loan is a loan,” and that is what the issue boils down to.
Gareth Snell
I understand the Minister’s point, but before he progresses with his speech, will he clarify whether he accepts what many Members have asked this afternoon-that those who undertook the scheme did so in good faith, and therefore that the people ultimately in trouble for this system are those who perpetrated it, not those who signed up to it?
John Glen
I am happy to concede that for the 50,000 indivi-duals affected, there are obviously responsibilities for those who promoted this. It is absolutely the case that HMRC is pursuing those individuals. They often promoted the scheme to large numbers of individuals. Five cases are before the courts—that seems a small number, but each one covers a large number of individuals—and there has been a judgment in one, with the other four cases still moving through the courts. It is not right to say that HMRC is not engaged with those who promoted the scheme.
Lyn Brown
I will be gentle, because the Minister knows, as I do, the peope who are really responsible in our respective parties for this particular piece of legislation. I would, however, be grateful if he takes on the responsibility to ensure that we are written to about the actions that the Government take against the enablers.
Tommy Sheppard
Will the Minister confirm, either now or in any such letter, the Treasury’s objectives in pursuing those companies? Is it to take retrospective action against them to try to recover the great volume of money they received from selling those schemes?
John Glen
HMRC’s objective will be to secure the money owed, as per the rules of the tax system. HMRC has enormous power to levy charges of up to £1 million on those individuals who are not complying.
The schemes may have involved provision of a loan with no intention to repay it. The recipients of such payments enjoyed them no differently from the way any of us use our normal income. As such, in the eyes of HMRC, the payments have always been taxable.
I have acknowledged the comments of colleagues who said that the charge on disguised remuneration loans will apply to loans that were made as far back as 1999. It is fair to say that the schemes were never permitted. They were defective, going back to then.
Mr John Hayes
We now learn from the Minister that HMRC knew that the schemes were inappropriate from the outset. So is he saying that HMRC is not malevolent but indiligent, inefficient and ineffective? If HMRC knew that, and the schemes were mainstream for 20 years, why is it acting only now?
John Glen
I thank my right hon. Friend for his point. Every scheme will be taken individually. They were not one single scheme that was developed. It is for HMRC to open cases on the disguised schemes, which it has done—going back many years on some of them—and it will take action as appropriate. A concern has been raised in the debate about not determining an outcome, and my hon. Friend the Member for Wycombe raised the concern about the implication that, when a tax avoidance scheme has been disclosed, that is somehow a verification or an endorsement of it. That is a misleading perception that has been left, and something for which HMRC should be accountable.
Mr Hayes
Forgive me. I will not intervene more than twice on the Minister, because I know he wants to make progress. I have always regarded HMRC as an efficient organisation that goes about its business properly. Is this not about the Government? The Government took a view about all this and I suspect that, although it may be true that HMRC is implementing Government policy, this is really about the Government changing their mind. That is what we are asking for.
John Glen
The Government that my right hon. Friend was part of and, I believe, a Minister in at the time the legislation was passed. [Interruption.] Let me make some progress.
Although the measure subjects the loans to a tax charge, that 2019 charge applies only to current loan balances and does not arise until April 2019. Recipients of loans can still repay outstanding balances in full or settle with HMRC. The legislation is not retrospective because it sets out Parliament’s intention: payments subject to the loan charge should always have been, and will be, subject to tax. The announcement in the 2016 spring Budget by the former Member for Tatton provided scheme users with a three-year period in which to repay disguised remuneration loans or agree a settlement with HMRC to avoid the charge.
Kirstene Hair (Angus) (Con)
Nearly 50% of those who are liable for the loan charge have not had any communication with HMRC since June 2016. Some of them are my constituents. Does the Minister agree that HMRC must accelerate its communications, to take that cloud of uncertainty away from those who are affected?
John Glen
I thank my hon. Friend for that point. There have been 24,000 contacts with HMRC. The number of telephone calls has increased from 2,000 to 4,000 a week and extra resources have been made available by HMRC, but I am happy to take up any individual cases that my hon. Friend may wish to bring to me.
In the view of the Government and of HMRC, the payments were always taxable as income, and the new legislation reiterates and formalises that stance.
Anna Turley (Redcar) (Lab/Co-op)
The Minister is being very generous with his time. That final point reiterates the issue here. I have constituents who are employed in the construction industry and when they were taken on by the agencies—the umbrella companies—through which they had to go to access the work, they simply were not aware of their liabilities and were not made aware of them. This is a natural justice issue. The policy is harming people who are not particularly well paid, have done everything right and are being unfairly punished.
Several hon. Members rose—
John Glen
Let me make some more progress or, despite the time I have, I will not get to the end of my speech and I want to address the points raised.
Anyone who has been involved in legal action will be well aware that it can be protracted and expensive for all concerned. Agreeing a settlement with HMRC allows taxpayers to move on, and out of avoidance for good. In most cases, any users of schemes will be better off approaching HMRC and agreeing a settlement rather than waiting for the charge next April, and HMRC is encouraging anyone worried about being able to pay to get in touch as soon as possible.
Joseph Johnson
On the point about taxpayers wanting to move on, several of my constituents have requested settlement sums from HMRC but have not received a response, notwithstanding the passage of several months. That is prolonging their uncertainty and anxiety. Will the Minister take steps to ensure that HMRC responds to those requests for settlement as rapidly as possible?
John Glen
I certainly will. I took the precaution of speaking to the Financial Secretary again this morning, and I would like to clarify that, with the time-to-pay arrangements, the five-year period will automatically be put in place for those with incomes of less than ÂŁ50,000. For those with larger incomes, there is an opportunity for dialogue with HMRC. With respect to individuals who have not had that settlement made known, I will be happy, as we all will as constituency MPs, to take those cases up with HMRC.
HMRC is helping thousands of scheme users to get out of avoidance for good.
John Glen
Just one moment. It will consider all personal circumstances to agree a manageable and sustainable payment plan wherever possible, and it has recently announced simplified payment terms for individuals looking to settle their tax affairs before 2019.
I want to address another issue of the debate. Those who oppose the legislation have made claims that the loan charge will bankrupt public sector workers, including teachers, nurses and social workers. It is my understanding that 1,500, or 3%, of individuals will be involved in the health and education sectors but that most of the scheme users worked in professional services. The average salary of the scheme users was ÂŁ66,000, which is considerably higher than the average annual wage.
Mr Charles Walker (in the Chair)
There is no time, Minister. You have 40 seconds.
Kirsty Blackman
I have contacted HMRC on behalf of constituents and have been told that it cannot talk to me about those individuals and that they will get an answer by 5 April. That is not helpful.
John Glen
I obviously cannot respond on an individual’s situation, but what I will say is that disguised remuneration schemes are complex and contrived and, as my hon. Friend the Member for Wycombe said, fail the “too good to be true” test.
Although the Financial Secretary and I have tremendous sympathy for those facing large tax bills, it is unfair to let people get away with not paying the tax they owe. There is support for people who have used the schemes and now find themselves in difficult situations, which require those affected to approach HMRC and bring the matter to a close. I will now allow my hon. Friend the Member for Wycombe to make some concluding remarks.
Mr Baker
I am grateful to everyone who has come to the debate and participated. The debate has overwhelmingly avoided straying into the partisan, for which I am grateful. I listened carefully to all the speeches and I do not think anyone stood up and sided with those who think it is legitimate to be paid through loans that have been made with no intention of repayment—no one stood on that side of the argument. What we have seen is how people have been drawn, or even driven, into such schemes, and that is the heart of the injustice.
We have heard stories of human suffering that would melt any heart, which brings us on to the heart of the matter—the rule of law. Once again, my hon. Friend the Minister has earned my admiration, because he seems to get all the Treasury’s toughest gigs. I sometimes wonder whether he should have been promoted to the Department for Exiting the European Union for a little break.
Mr Baker
He will have heard the response of people present when he explained that the measure is not retrospective, and I really hope that the Treasury goes away, looks at the measure again and eliminates retrospection. When people have acted in good faith under advice and end up subject to injustice, we must uphold the principle of the rule of law. Some might then say that they had got away with it, but sometimes we have to say, “While we don’t stand on their side and we accept that it was not Parliament’s intent, we respect that there is a price to be paid for upholding the rule of law so that in the end we can preserve human liberty and justice.”
Motion lapsed (Standing Order No. 10(6)).