Financial Conduct Authority Mortgage Review

John Glen Excerpts

Monday 29th November 2021 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

The issue of mortgage prisoners is one of my key priorities. I recognise the difficult position these borrowers are in and understand the stress that many experience as a result. I remain committed to examining what further can be done to assist borrowers and this is why I asked the Financial Conduct Authority (FCA) to conduct a review on mortgage prisoners to provide the further detail necessary to continue this important work. The Mortgage Prisoners Review [CP 576] has today been laid in Parliament.

The review identifies that there are now around 47,000 mortgage prisoners—these are borrowers who are up to date with payments, who are unable to switch, and who could potentially benefit from switching if they were eligible for a new deal. Most mortgage prisoner loans originate from prior to the financial crisis, when lending standards were looser, and this means that many affected borrowers struggle to switch as a result of not meeting post-financial crisis risk appetite.

The report is clear that the underlying reasons mortgage prisoners are unable to switch are complex, and it is therefore crucial to understand the facts and data around this issue in order to consider our approach. The FCA’s review provides important insight into the mortgage prisoner population which the Treasury will now examine to determine if any further practical and proportionate solutions can be found for affected borrowers who struggle to obtain a new mortgage deal.

More widely the review shows that the number of borrowers with inactive firms has materially decreased since the FCA last collected data in this area in 2019. This partly reflects the ability of many borrowers in closed books to switch to an active lender if they so choose. I would encourage all mortgage borrowers to examine their switching options to ensure they are on as competitive a rate as possible for their circumstances.

I am also encouraged to see that the interest rates paid by almost all borrowers in closed books are less than the rates they signed up to when they took out their mortgage, with a third paying at least 3.5 percentage points less.

However, it is clear that challenges remain in addressing this issue. While there is evidence that some mortgage prisoners have switched as a result of significant regulatory interventions made to date, it is also clear that the number of borrowers who have benefited is small. This new report also makes clear that the reasons borrowers struggle to switch are complex and varied, and that there are no simple solutions to increase the number of borrowers who are able to switch to better rates with active lenders.

Nevertheless, I remain committed to this issue, and am grateful for the work undertaken by the FCA on this review which provides the crucial insight necessary to consider any further action. I am also grateful to the industry partners who have committed to continue to work together on this issue and look forward to further engagement with them.



With the data from this review, the Treasury will now target our work to determine if there are any further practical and proportionate solutions for affected borrowers, including consideration of means through which we can help borrowers better position themselves to meet lender risk appetite. While I am approaching this further piece of work with appropriate ambition and optimism, I am also keen to manage borrower expectations by emphasising that any solutions tabled must avoid the potential for significant risk of moral hazard to consumers in the wider mortgage market or those who aspire to obtain a mortgage and must be value for money for the taxpayer. Any announcements on this will be made when the Treasury has had sufficient time to examine the review’s findings and consider any options available to address this complex issue.

Copies are available in the Vote Office and at: https://www.gov.uk/government/publications/mortgage-prisoner-review.

Black Friday: Financial Products

John Glen Excerpts

Tuesday 23rd November 2021 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Mr Robertson. I associate myself with the remarks of a number of Members this afternoon concerning the death of Sir David Amess. He was a true blessing to this Parliament and a great character whom we all loved, and he will be sadly missed.

I have listened carefully to the various contributions this afternoon. As ever, this has been a very well-informed debate that I welcome very much. I pay particular tribute, as I have done previously, to the hon. Member for Walthamstow (Stella Creasy) for securing a debate on this important matter. I will be sure to give her some time to have another go at me in the last few minutes of the debate. She set the scene very well, explaining the context that we face in the run-up to Christmas: the inducements to consumption and the apparent savings for consumers; the evolution in new forms of credit; the need for regulation, which I fully accept at the outset; the risks around the use of buy now, pay later becoming habit-forming; the behavioural shifts we are seeing in the market; and the need to really think about the context of borrowers’ behaviour as we bring forward this regulation. As ever, we were treated to some sophisticated analysis of the wider consumer credit challenges, and the issues with making more affordable credit available, from my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard). I will address those points later.

It is important that we start this afternoon by understanding the Government’s position: we recognise that there is a potential risk to consumers from unregulated buy now, pay later products. I listened very carefully to the criticisms of the timeline, and over the next few minutes I will address the challenges we have encountered and present some of the solutions that we think may exist. It is extremely helpful for all parties to be represented in this debate; given the level of engagement from players in the market, there is a clear desire to address this significant area of concern in Parliament. There has been a massive explosion in this area, and it is important that we respond appropriately.

It is important to understand the nature of the risks. We should acknowledge that the use of buy now, pay later is growing rapidly: in fact, the number of transactions from the main providers using buy now, pay later more than tripled in 2020. That said, buy now, pay later is still estimated to have amounted to only 2% to 3% of the consumer credit market last year, and a recent study by the consultancy Bain & Company found that about 5% of online transaction volumes involved the use of buy now, pay later. I am very sensitive to the distribution of that additional use and the people who are increasingly reliant on buy now, pay later—that is something we must take account of—but it makes up a smaller proportion of the market than is sometimes believed. In addition, we have not seen substantial evidence of the risks that some have predicted materialising.

I will set the scene of the current state of regulation, because it certainly does not mean that the Government are turning a blind eye. A degree of regulation already provides protections for users of interest-free buy now, pay later products. The Consumer Protection from Unfair Trading Regulations 2008 make it a criminal offence for traders to give consumers misleading information. Firms are required to provide consumers with the information necessary to make informed decisions and not omit or hide material information that the average consumer needs. The FCA and the Competition and Markets Authority are designated enforcement bodies for these regulations. The Consumer Rights Act 2015 requires that the contract terms of buy now, pay later providers must be transparent and not contain unfair terms. When promoting buy now, pay later products, firms must also comply with the rules set out in the UK advertising codes, and offending firms can be referred to trading standards and Ofcom.

Last year, the Advertising Standards Authority published formal guidance about buy now, pay later, setting out its expectations of both providers and retailers when they offer these services. The ASA also banned harmful buy now, pay later adverts, stating that future advertising must not irresponsibly encourage the use of a product, particularly

“by linking it with lifting or boosting mood”.

That is something that the hon. Member for Walthamstow has highlighted and campaigned on. Some buy now, pay later agreements are also already subject to some aspects of the financial promotions regime. The FCA uses its existing powers to protect buy now, pay later users, for example by scrutinising marketing materials of authorised firms and the way these products are promoted. The FCA has wider consumer protection powers that it can apply to unauthorised firms where it sees poor practice.

Effective Government oversight of financial services is not just about imposing rules; it is also about engaging with industry. In the case of the buy now, pay later sector, that is something we have done extensively—as have Members here today. We have seen that reflected in the actions of the largest firms, with many voluntarily introducing credit-worthiness checks and making information more transparent at checkout. However, I fully concede that that is not universal, and not every firm has moved in the right direction.

Looking ahead, the fact that we have seen some progress does not mean that we are complacent. As Members have noted, the Woolard review into the unsecured credit market, which was published in February this year, identified a number of potential risks. They include how buy now, pay later is promoted to consumers and presented as a payment option. Consumers are sometimes left with an absence of information about the product and the features of the credit agreement, and there are no requirements to undertake affordability and credit-worthiness checks. As has been pointed out, that is particularly important when multiple transactions are taken up with different buy now, pay later providers.

Following the publication of the Woolard review the Government announced, with support from the Opposition —I am grateful for their support—our intention to regulate these products. On 21 October, we published a consultation document that sets out the proposed approach to regulation, and that consultation is open until 6 January. Prior to the publication of the consultation, I had a lot of engagement with my officials. One of them is sitting here today, and I have spoken to a number of them this afternoon and numerous times before that. It is through a desire to get this right that we have taken time over it. There is no desire to go slow. I recognise that there is an urgency to this, and we have to move forward as quickly as we can. During the consultation period, the Government are engaging with representatives from consumer groups and industry—indeed, there is a workshop going on this afternoon—to ensure that the final approach to regulation strikes the right balance on consumer protections. Debates such as this help to inform that approach.

We want to expand the evidence base about the risk to consumers, and Members from across the Chamber have made a lot of points about that this afternoon. As I have said, the Government recognise the potential risks, and that has been supported in recent studies by consumer groups, such as Which?, Citizens Advice and others. However, the Government’s view is that as an interest-free product, buy now, pay later is inherently lower risk than products that charge interest. Used properly, it can be a way for consumers to manage their finances, as my hon. Friend the Member for Blackpool North and Cleveleys mentioned, and to spread the cost of purchases—particularly when managing periods of higher household expenditure, such as Christmas, when Michael Bublé CDs are being purchased in the household of the right hon. Member for Wolverhampton South East (Mr McFadden). We should not forget that interest-free buy now, pay later offers, specifically around Black Friday, can allow consumers to take advantage of offers and discounts that they might not otherwise be able to benefit from.

Looking ahead, and in the context of the ongoing consultation, our overall objective is to ensure that buy now, pay later products can continue to be offered in a way that allows consumers to take advantage of the flexibility of the offer, while ensuring that the potential risks are managed. That means designing regulation that is proportionate to the level of risk and takes into account the way that the products are used.

For example, the Government believe that is it reasonable that buy now, pay later products use a bespoke approach to consumer disclosures, as well as to the form that the credit agreement must take. That is reflected in the proposals in the consultation, which I would characterise as not reluctant, but detailed, reflecting the fact that different issues come up with the evolution in the market and in the provision of different services. We cannot apply a single, one-size-fits-all approach. I see that the hon. Member for Walthamstow is adjusting her face mask, so I think she wants to intervene.

[Stella Creasy]

I thank the Minister for letting me intervene. He will understand that I am a little troubled because when the Woolard review said in February that there was an urgent need for regulation, we all agreed that urgency, as well as regulation, was a critical part of that conversation. Does he accept that in the absence of such regulation, one thing that we now need to tell people —it is on his list—is that they cannot go to the Financial Ombudsman Service if they feel they have been mis-sold a product? At the very least, in the intervening time before any regulation comes forward, the Government have a duty to ask retailers and companies to make that clear to people—a buyer beware warning. Does he at least accept that the Government should be doing that this Christmas?

[John Glen]

I fully accept the point that the hon. Lady makes, in that at the moment, those protections do not exist, and that is why we have to regulate appropriately and proportionately.

I want to say a bit more about what I think we should be doing. It is reasonable that buy now, pay later products use a bespoke approach to consumer disclosures, as well as to the form the credit agreement must take, and that is reflected in the consultation proposals. However, we need to think about the way that these products are used in the context of an online journey, the warnings that are inherently there during that journey and the fact that they are frequently used for much smaller sums than the traditional credit agreements for which these rules were originally developed.

When we think about how this facility is used, part of the challenge is the way additional payment smoothing mechanisms can inadvertently be sucked in. I do not want dental payment plans—essentially, for expenditure that is smoothed over 12 months—to incur an obligation to do some form of affordability check. Such issues make this more complex than it may have at first seemed.

I am determined that we get this right, that we recognise the distinct consumer risks that exist and that we bring forward regulation that deals with them. The Government’s view is that buy now, buy later information should not be long and detailed so that it becomes just another long set of terms and conditions, because frankly there is a significant risk that people would just make a cursory observation of such a list and tick the box. Instead, the information should be presented in a form that allows consumers to engage meaningfully, and I hope the hon. Member for Walthamstow would support that.

The Government also consider in the consultation whether the financial promotions regime, which already applies to a broad range of financial products, should be amended to ensure that all buy now, pay later promotions fall into that regime, further strengthening consumer protection. That would mean that all promotions made by merchants, such as a retailer, would have to be approved by an FCA-authorised firm. It is also important that consumers are lent to affordably. That is why the Government anticipate that the proportionate regulation of buy now, pay later would include the application of the FCA’s current rules on credit worthiness.

The Government recognise that these products are lower risk than other interest-bearing agreements and can help consumers to manage their finances. A study by Bain suggests that in 2020 consumers using buy now, pay later instead of credit cards in the UK saved £103 million in interest. I say that not to commend it over credit cards, but to recognise the segmentation of the credit market and the different behaviours and options that exist out there. That is why we believe it is right that regulation is balanced and proportionate, ensuring that customers are given the appropriate protections, without unduly limiting the availability and cost of useful financial products.

As hon. Members have mentioned, there is already precedent for imposing different regulatory requirements on different credit products, depending on the risk they pose. The Government and the FCA have previously implemented bespoke regulation for higher-risk products, such as the price cap rules for payday lenders and rent to own. Obviously, it would be difficult to apply that symmetrically in this context, but I sincerely welcome the hon. Lady’s comments later. Likewise, a more proportionate approach is right for buy now, pay later products, which we assess to be of a lower risk.

As new products enter the market, it is critical that the Government carefully consider not only how credit products are regulated, but where the boundaries of regulation should be. I note the concern that buy now, pay later may increasingly be used as a more mainstream form of credit, as has been mentioned this afternoon, and that even some banks are beginning to offer it.

Many different types of financial arrangement already make use of the same exemption, as I mentioned earlier, which currently allows interest-free buy now, pay later to operate outside consumer credit regulation—and has done so for decades. That includes arrangements used over many years by UK retailers to support the purchase of higher value items such as home furnishings and white goods, but also those arrangements which allow monthly payments for memberships to sports clubs, dental plans, other associations and certain invoicing arrangements.

In regulating buy now, pay later, we need to think carefully about all the arrangements that these changes could affect and avoid bringing activities into regulation which do not present the same risks to consumers. What is in play here is the cumulative application of the buy now, pay later product to a vulnerable group of consumers, and we need to make sure that that is where we focus the outcome. The Government must also ensure that their approach is future proof and cannot be gamed by firms operating on the margins of regulation. That is why we are engaging with consumer groups in detail to ensure that we get this right and capture the emerging products that are beginning to form.

I will give the hon. Lady several minutes to come back, but I want to mention personal debt more broadly, because it is a critical topic that comes into this discussion. I think everyone here has a desire to tackle problem debt and, as this afternoon has shown, we share an understanding of the complexity of the issue.

We need comprehensive solutions, which is why we are maintaining record levels of funding for free debt advice in England. The Money and Pensions Service this year has a budget of £96.4 million. We have launched the breathing space scheme, which gives a 60-day freedom from fees and payment requests. We are also expanding the availability of affordable credit, providing £96 million of dormant assets funding to Fair4All Finance.

My hon. Friend the Member for Blackpool North and Cleveleys talked about the Australian experience and the opportunity to cut and paste no-interest loan schemes. We have moved ahead with that, and I anticipate that it will move more quickly now. However, I want to be absolutely clear that it works in the UK context and can be scaled up quickly. I would rather it was on solid foundations, but I feel his frustration in my heart too.

I will sum up by reiterating that the Government’s view is that interest-free buy now, pay later has a legitimate role to play in the market, but its rapid growth throws up challenges. I think that consumers recognise that; they find it useful and easy to use. However, we are committed to getting regulation right and protecting consumers. The asymmetry of protections mentioned here needs to be addressed, but we want to do that without limiting the availability and cost of genuinely useful financial products.

We understand that there are concerns, which I have heard this afternoon, about the speed of the regulation. I will do this as quickly as I can, with my officials. We will report back to the House as quickly as possible, but I would welcome colleagues’ continued engagement in the weeks ahead. I recognise the risks that exist in the run-up to Christmas, and I acknowledge the legitimate warnings that the hon. Member for Walthamstow has raised.

Critical Benchmarks (References and Administrators’ Liability) Bill [Lords]

John Glen Excerpts

Committee stage & 3rd reading
Thursday 18th November 2021 Commons Chamber

[John Glen]

Thank you, Madam Chairman. I am grateful to you for being in the Chair at this point.

I realise that a number of these provisions have already been considered on Second Reading, but I am keen to explain the clauses in turn. Owing to their technical nature, I will explain them paragraph by paragraph at times. I hope that the House will bear with me.

As I said on Second Reading, the Bill provides important legal certainty for contracts that will rely on LIBOR after the end of this year. All its provisions deal with how a benchmark is treated in contracts once it has been designated an article 23A benchmark under the benchmarks regulation. The Financial Conduct Authority has power to make this designation when a critical benchmark is unrepresentative, or at risk of becoming unrepresentative, of the market that it seeks to measure. For LIBOR this will happen at the end of this year when the panel banks stop making their contributions. At that point, the FCA will ensure that LIBOR will continue to be published, using the synthetic methodology that we have already discussed.

In describing the purpose and effect of the clauses, I will use LIBOR as an example because it is currently the only benchmark to be designated under article 23A, but the provisions will also apply in future to any critical benchmark designated an article 23A benchmark by the FCA, although none is envisaged at this point.

Clause 1 means that LIBOR referencing contracts can rely on synthetic LIBOR. The clause inserts two new articles, article 23FA and article 23FB, into the benchmarks regulation. They supplement the legislative framework introduced by the Financial Services Act 2021 to provide for the orderly wind-down of a critical benchmark. Article 23FA clarifies how references to an article 23A benchmark should be interpreted in contracts and arrangements. Specifically, it provides that when the FCA designates a benchmark under article 23A and imposes a change in how the benchmark is determined, contractual references to the benchmark should be interpreted as including the benchmark as it exists after the exercise of the FCA’s powers. This is called “contractual continuity”.

For example, where LIBOR settings are designated under article 23A of the benchmarks regulation, this article would provide that contractual references to LIBOR should be interpreted as including synthetic LIBOR.

Article 23FA also sets out how contractual continuity will work in practice. It provides that this interpretation applies to all references to the benchmark in contracts or other arrangements, including references that do not refer to the benchmark by name but rather describe it, for example by reference to the economic or market reality that it intends to measure. It also applies where the parties were treating a reference in a contract as a reference to that benchmark immediately before the article 23A designation. That will ensure that any legal uncertainty is minimised, even when the contract does not explicitly use the name “LIBOR”, or includes a reference to LIBOR that is out of date. Finally, it is formally retrospective, in that it also provides that the contract is to be treated as having always provided for the reference to the benchmark to be interpreted in this way once the synthetic benchmark was introduced.

In the Government’s view, for contracts that continue to refer to LIBOR, these provisions will comprehensively address the risk that parties might successfully dispute the use of synthetic LIBOR to calculate payments after the end of this year. They do so in a proportionate way while not interfering with other valid claims. The clause does not introduce a so-called safe harbour, as has been introduced in New York. The Government considered that approach and, as I said, concluded that it would not be appropriate. However, the clause does not prevent parties’ ability to seek legal redress via the courts for other matters.

I draw the Committee’s attention to paragraphs 6 and 7 of article 23FA, which provides that the Bill does not create a basis for new claims concerning actions by the parties in relation to the formation, variation or operation of the contract prior to the change to a synthetic methodology. That should ensure that if, for example, a misrepresentation claim were brought in relation to statements made before a contract was entered into, the claim is considered according to the reality at the time when the statements were made, not in the light of the Bill’s impact on the contract. It would also not be reasonable or proportionate for the Bill to extinguish existing legal claims. Paragraph 7 therefore ensures that article 23FA does not extinguish existing causes of action. Any claim that could have been brought prior to the article 23A designation of the benchmark can therefore still be brought regardless of the Bill. For example, a mis-selling claim brought on the basis that a lender had misrepresented LIBOR to the customer could still be brought and judged according to the situation at the relevant time.

I turn to article 23FB, which introduces further provisions necessary to provide legal certainty to parties to contracts or arrangements that reference an article 23A benchmark. It is designed to avoid unnecessary interference in contracts where parties to a contract have already agreed what should happen in the event that a benchmark is designated under article 23A. This new article is primarily concerned with how the contractual continuity provision will operate in contracts that already have fall-back provisions—that is, provisions that provide for the contract to operate by reference to something other than LIBOR, or to terminate in particular circumstances.

The new article provides that article 23FA does not apply if the contract expressly disapplies it or expressly provides that the reference to the benchmark is not to include the benchmark in its synthetic form. It also provides that article 23FA does not override the operation of contractual fall-back provisions, many of which are designed to cater for the wind-down of the benchmark. For example, a fall-back in a contract that is triggered by LIBOR becoming unrepresentative will not be affected by the Bill. However, article 23FB is also clear that the designation of the benchmark under article 23A, or the imposition of a synthetic methodology, will not trigger fallbacks designed for the cessation or unavailability of a benchmark. That is because the benchmark continues to exist and be available in its synthetic form, so it has not ceased.

Concern about inappropriate cessation fall-backs that were designed with only a temporary unavailability of LIBOR in mind was one of the drivers of the approach taken in the Financial Services Act 2021. It is one of the key reasons why the Government are allowing for the continuation of LIBOR under a synthetic methodology. Article 23FB also provides the Treasury with three limited powers to make regulations. The powers are intended to future-proof this legislation, allowing the Government to ensure that an appropriate legislative framework is in place to support the orderly wind-down of future critical benchmarks across the wide range of contracts and arrangements that could reference those benchmarks.

The right hon. Member for Wolverhampton South East (Mr McFadden) referenced concern about timing. As I mentioned, that provision allows for wind-down over a 10-year period. We want to continue to encourage the wind-down over the coming period. We reserve the right to make further legislative interventions, but we envisage that they would be on a smaller and diminishing pool of contracts.

I turn to clause 2. On Second Reading, I spoke to the narrow and targeted immunity that the Bill provides for the administrator of a critical benchmark for action that it is required to take by the FCA. That is the clause’s purpose. It inserts new article 23FC into the benchmarks regulation. The clause, as with clause 1, deals with the circumstance where the FCA has designated a benchmark as an article 23A benchmark. Article 23FC concerns the liability of the administrator of an article 23A benchmark. The administrator will be responsible for administering the change in methodology as directed by the FCA, and as I set out on Second Reading.

Importantly, the clause provides that the administrator of an article 23A benchmark is not liable in damages for action—or inaction—that it is required to take by the FCA under article 23D of the benchmarks regulation, or for publishing the benchmark as it exists as a result of the FCA’s direction under article 23D. In essence, that gives protection to the administrator in terms of liability related to the FCA’s direction of it.

--- Later in debate ---

[Peter Grant]

I will not detain the House by repeating my comments on Second Reading. I am grateful to the Minister for his answers to a number of my questions, but one question he did not pick up, and on which I hope he can give some assurance, is what happens if something goes badly wrong with people’s mortgages. The small percentage of people who have mortgages covered by this legislation—although it could potentially be quite a big number of people—are now, through no fault of their own, quite literally staking their home on our getting this right. Although I appreciate that the Minister will not commit to a specific compensation scheme just now, will he at least give an assurance that the Government have not closed the door on that possibility should unforeseen circumstances lead to it being necessary?

I am also looking for clarity on the precise circumstances in which the administrator does or does not have immunity from legal action. The Minister has said the administrator is covered if it does something the law says it has to do, and it will not be covered if it does something it has chosen to do in a particular way. Does the administrator have discretion on the precise methodology it uses to calculate synthetic LIBOR, and can it exercise its judgment on the numbers it puts into the model? If the administrator has such discretion, nobody needs to sue it for using a synthetic LIBOR model; they can just sue it because of how it has carried out the calculation.

Given the nature of contracts of the value that the right hon. Member for Wolverhampton South East (Mr McFadden) mentioned, a slight change in the published rate can mean a lot of money. Every time the published rate is arguably a wee bit higher or a wee bit lower than somebody else thinks it might have been, one party will win and be quite happy, and the other party will lose and will potentially have a strong motivation to resort to legal action. Are administrators adequately covered against being sued simply because they have published a figure that says the current synthetic LIBOR rate is 1.2% rather than 1.25%? Are there grounds on which they might be sued because those 0.05 percentage points of difference in the published synthetic LIBOR rate either make or lose quite a lot of money?

[John Glen]

It is a pleasure to serve under your chairmanship, Mr Evans.

The right hon. Member for Wolverhampton South East (Mr McFadden) and the hon. Member for Glenrothes (Peter Grant) have raised a number of questions arising from what I said. The Government are clear that we support this transition away from LIBOR by providing additional legal certainty for contracts relying on LIBOR past the end of this year. The provisions of the Bill are vital to using the synthetic rate in an orderly winding down of LIBOR, and they provide protection to consumers and the integrity of UK markets, but there are four or five elements that I will address now.

The hon. Member for Glenrothes mentioned compensation, and we do not anticipate that being an issue. As with all matters, the Treasury keeps things under review. We will continue to monitor what happens as a consequence of this methodology.

Both the right hon. Member for Wolverhampton South East and the hon. Member for Glenrothes mentioned legal action, and it is possible that judicial review could be raised against the FCA on the synthetic methodology it is prescribing for ICE. We think that would be extremely unlikely, given that there has been an active exercise of listening to representations on designing a methodology that has broad credibility. That is fundamental to the integrity of the process. There has been no attempt to develop a methodology in isolation or separate from the consultation with the market.

The right hon. Member for Wolverhampton South East asked about both the future timetable and what will happen with contracts that have fall-back clauses overridden by the effect of this legislation. This Bill provides certainty where a fall-back provision is triggered by a benchmark ceasing to be published or made available. Neither the designation of a benchmark under article 23A of the BMR nor the imposition of a synthetic methodology would trigger the operation of the fall-back provision. Where a contractual arrangement has a fall-back provision that is triggered by other means, this Bill does not affect or override the operation of that clause. For example, it will not override a fall-back triggered by an assessment of unrepresentativeness or a prohibition on the use of the benchmark, provided that the circumstances in which the fall-back was triggered are met.

[Mr McFadden]

In layman’s terms, does that mean that a fall-back provision trumps synthetic LIBOR? That is what I am trying to get at. If there is a fall-back provision—some alternative already written into the contract—will these synthetic LIBOR continuity provisions not kick in?

[John Glen]

What we are saying is that the fall-back provisions, if they are without reference to LIBOR, would still apply. Where LIBOR is the reference, we are trying to ensure this synthetic methodology would not trigger that fall-back provision on the argument that it is distinct from the LIBOR provision in the contract. Essentially, we are trying to establish that the synthetic LIBOR methodology is synonymous with and continuous from the previous LIBOR rate, as set by the panel, but it does not intrude on the contractual issues around the fall-back on another basis. That goes back to our provisions dealing with the continuity of LIBOR rate setting through this new methodology—anything else is not the Government’s intention.

The right hon. Member for Wolverhampton South East reasonably probes me about the future timetable, and whether the provision of “moral persuasion” from the Financial Conduct Authority and warnings would be sufficient. We will keep these matters under review. What we are anticipating, and what we have seen, is a rapid and increasing move away from reference to LIBOR, and we expect that that will continue right up to the end of the year. We will look at what is required on an ongoing basis, but we think that it is quite likely that there may not be need for further legislative intervention. However, we reserve the right at a future point to legislate as needed. What we would do, as the FCA is doing, is encourage people to transition away from LIBOR.

I was also asked about the rate difference. It is possible that when the methodology of LIBOR changes from relying on panel bank contributions to using this synthetic methodology, there could be a small change in the rate of interest that borrowers with contracts that reference LIBOR will pay. I mentioned on Second Reading that we expect the synthetic LIBOR to replicate the economic outcomes achieved under the panel bank rate. Obviously, that was the intention throughout. It is difficult to say exactly what the synthetic rate will be when it replaces LIBOR. In the medium term, we would expect it to be matched to the existing LIBOR rate, but smoothed to reduce day-to-day changes.

Today’s LIBOR rate is at historic lows, and it is worth noting that the rate can fluctuate significantly. For example, if we look at the three-month LIBOR on GBP, we see that it has varied from 0.28% in September 2017 to 0.92% at the end of December 2019, and it is now 0.11%. We have seen a lot of volatility in the past few weeks because of speculation about what is happening with interest rates. So there have been some days during the past months when the synthetic methodology would have produced a lower rate than panel bank LIBOR and others when it would have produced a slightly higher one. Therefore, it is not possible to fully account for what would actually happen. I hope that that addresses the points that have been raised in Committee.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 to 4 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Third Reading

[John Glen]

We have had a considerable debate this afternoon, both on Second Reading and in our scrutiny in Committee. I have made clear on a number of occasions the Government’s intentions in this legislation. I wish to thank the Opposition spokesmen for their contribution and thank my officials, but I do not have anything further to add.

Critical Benchmarks (References and Administrators’ Liability) Bill [Lords]

John Glen Excerpts

2nd reading
Thursday 18th November 2021 Commons Chamber

[The Economic Secretary to the Treasury (John Glen)]

I beg to move, That the Bill be now read a Second time.

Many Members will have heard of LIBOR in the context of the manipulation scandals almost 10 years ago. The London interbank offered rate is the rate at which banks lend to each other in wholesale markets. As the right hon. Member for Wolverhampton South East (Mr McFadden) knows too well, from his experience on the Parliamentary Committee on Banking Standards, a number of changes were made to the administration and governance of LIBOR as a result of that scandal.

Stringent and effective regulation means that LIBOR is now effectively supervised. However, it is no longer robust, as I will explain, and is due to be wound down. The Financial Conduct Authority has confirmed the process to wind down the LIBOR benchmark by the end of this year. Most contracts that reference LIBOR will have transitioned to a different rate before the end of 2021, in line with the guidance of the regulators, but there remain a proportion of contracts that will not have done so.

[Peter Grant (Glenrothes) (SNP)]

It is comforting to hear that most of these contracts will have transitioned over. In the Lords, the Government estimated that the total value of those contracts was about £300 trillion, so even if a tiny percentage of them do not transition over, they could still represent a significant amount of money. Does the Minister have any indication of the number and value of contracts that he thinks will still need to be covered by this Bill—not as a percentage, but in actual pounds value?

[John Glen]

I cannot give the hon. Gentleman a precise figure. However, in my remarks now and further on, I will give an explanation of those that are excluded and therefore necessitate the creation of this synthetic rate. If he would just bear with me, I will get to the point, and he should feel free to intervene subsequently if he is not satisfied.

The Bill builds on the provisions of the Financial Services Act 2021, as I mentioned a moment ago. This provided the FCA with the powers to effectively oversee the cessation of a critical benchmark in a manner that protects consumers and minimises disruption to financial markets. If I may, I would like to take a few minutes to put the Bill into context.

LIBOR seeks to measure the cost that banks pay to borrow from each other in different currencies and over various time periods. It is calculated using data submitted by a panel of large banks to LIBOR’s administrator, which is the ICE Benchmark Administration. It is referenced in approximately $300 trillion of contracts globally. It is used in a huge volume and variety of contracts, including in derivatives markets, mortgages, consumer loans, structured products, money market instruments and fixed income products. For example, a simple loan contract may say that the interest payable is LIBOR plus 2%. In this example, LIBOR represents the cost to the lender of getting access to the money to lend it out, and the 2% represents the additional risk to the lender associated with making the loan.

Back in 2012, it emerged that LIBOR was being manipulated for financial gain. Following the subsequent Wheatley review, LIBOR came under the regulatory jurisdiction of the FCA in 2013. That led to significant improvements to the regulation and governance of LIBOR. However, in 2014 the G20’s Financial Stability Board, known as the FSB—not to be confused with the Federation of Small Businesses—declared that the continued use of such rates, including LIBOR, represented a potentially serious source of systemic risk. The FSB said that financial markets should voluntarily transition towards the use of more robust and sustainable alternatives. It reached that conclusion due to the structural decline in banks borrowing from each other through the unsecured wholesale lending market. That has meant in turn that LIBOR has become more and more reliant on expert judgments, rather than based on real transaction data. In other words, the market that this systemically important benchmark seeks to measure increasingly no longer exists, which underscores the fundamental need to transition away from LIBOR.

Since the FSB’s recommendation, the Government, the FCA and the Bank of England have worked together to support a market-led transition away from use of the LIBOR benchmark. Primarily, they have encouraged contract holders voluntarily to move to robust alternatives, in accordance with guidance from the FCA and the Bank of England, before the end of the year. At the end of the year, LIBOR’s panel banks will stop making the submissions to the administrator on which LIBOR is based. At that point it will therefore become unrepresentative, and the administrator will cease publishing in any setting where the FCA has not required continued publication using the synthetic methodology. The vast majority of contracts are expected to have transitioned away from LIBOR before that happens. For example, it is estimated that 97% of all sterling LIBOR referencing derivatives will have transitioned by the end of the year.

Despite extensive work and progress, there remains a category of contracts that face significant contractual barriers to moving away from LIBOR by the end of the year, and measures in the Financial Services Act 2021 sought to provide a safety net for those so-called tough legacy contracts. Through the Act, the Government granted the FCA powers to designate a critical benchmark as unrepresentative, if it determines that the benchmark is, or is at risk of becoming, unrepresentative—in other words, that it no longer accurately represents what it seeks to measure—and that it is not possible or desirable to restore its representativeness. The Act also provided the FCA with powers to compel the administrator of such a designated benchmark to continue to publish it for a temporary period of up to 10 years, to prohibit new use of the benchmark, and to require the administrator to change how the benchmark is calculated.

[Bob Stewart (Beckenham) (Con)]

I thank my very good friend the Minister for allowing me to intervene. He understands all this, and I understand some of it, but not much. I speak, however, as someone who is concerned. If we are moving away from LIBOR, is such a move likely to result in a greater cost to those who wish to borrow money?

--- Later in debate ---

[John Glen]

As ever, my right hon. Friend makes a reasonable point, and I will come on to address the potential divergence, and the implications of the synthetic methodology for the existing rate that we are about to institute and protect in the Bill. In short, there is a lot of volatility in the market, and it is difficult to be fully confident in determining the exact quantum of any difference between where the synthetic rate would get to and the existing outgoing LIBOR rate based on the panel banks. I will address that point more substantively in further stages of the Bill.

In the case of LIBOR, the FCA has indicated that it will designate it using that provision in the Financial Services Act at the end of 2021, when the panel banks will cease making submissions to the administrator. The FCA has announced that it will use its powers to compel the continued publication of certain LIBOR settings, using a revised methodology referred to as “synthetic LIBOR”. The FCA has done that so that tough legacy contracts can continue to function, protecting against the market disruption that would arise were the benchmark to cease permanently at the end of this year with nothing in its place. It is important to emphasise that the synthetic rate is a temporary safety net that will be available for at most 10 years, and only for legacy contracts that have not been able to move away from LIBOR in time for the year end. It is not intended to replace LIBOR in the long-term, and new financial contracts will not be allowed to reference the synthetic rate.

The Bill provides important legal clarity for users of the synthetic LIBOR rate. Clause 1 provides explicitly that LIBOR referencing contracts can rely on synthetic LIBOR. That is covered in proposed new articles 23FA and 23FB which the Bill would insert into the benchmarks regulation. Specifically, where the FCA imposes a change in how the benchmark is calculated, such as a synthetic methodology, the Bill makes clear that references to the benchmark in contracts also include the benchmark in its synthetic form. In the case of LIBOR wind-down, where a contract says “LIBOR”, that should be read as referring to synthetic LIBOR, so that there is effective continuity. That will provide legal certainty for contracts that will continue to refer to LIBOR after the end of 2021.

The Bill also provides a narrow immunity for the administrator of a critical benchmark for action it is required to take by the FCA. That includes where it is required to change how a critical benchmark is calculated, such as a change in the benchmark’s methodology. That will protect the administrator from unmerited and vexatious legal claims. The Government have introduced this in the narrowest way possible. It does not protect the administrator to the extent that it can act with discretion; it protects it only to the extent that it is acting purely on a direction from the FCA. The Bill does not in any way change the ability to challenge the FCA, and its decisions on setting a synthetic methodology are subject to challenge on the usual public law grounds. That means that provision is enabled for legal challenge, but the existence of the synthetic rate as a continuity to LIBOR on the panel bank basis is not grounds for legal challenge.

The UK has one of the most open, innovative and dynamic financial services sectors in the world. The Bill reaffirms the Government’s commitment to protecting and promoting the UK’s financial services sector. As the home of LIBOR, the United Kingdom has a unique and crucial role to play in minimising global financial stability risks and disruption to financial systems from the wind-down of LIBOR. The Bill forms part of a significant programme of work by the Government and regulators to support the global market-led transition away from LIBOR, as indicated by the FSB decision in 2014. It supports the integrity of financial markets, and in doing so underlines our reputation as a custodian of a global financial centre.

The LIBOR transition is the responsibility of the FCA. It is important to remember that LIBOR is primarily the preserve of sophisticated financial operators, not retail investors. The vast majority of LIBOR contracts are derivatives. Those are sophisticated financial products, the vast majority of which will transition away from LIBOR voluntarily. Synthetic LIBOR will be used only by a limited set of contracts and as a last resort. The market-led, voluntary transition of contracts away from LIBOR to robust alternative rates has been ongoing for years, and the success of that transition means that the vast majority of contracts will not need to use the synthetic rate at all. Where synthetic LIBOR is used in contracts, it is appropriate that the FCA takes technical decisions on the methodology. Indeed, our regulatory system often sees independent bodies empowered to produce calculations that reflect and influence economic reality, such as the Bank of England setting base rates.

A question raised on Second Reading from the Opposition Benches in the other place concerned whether the Government would consider giving compensation to consumers who lose out from synthetic LIBOR—that echoes the question from my right hon. Friend the Member for Beckenham (Bob Stewart). We do not know at this stage what the difference will be between panel bank LIBOR and synthetic LIBOR on the day synthetic comes in, but it is clear that any change will be well within the range of change in the rate that could reasonably be expected, based on what LIBOR has been historically.

The replacement rate is based on a five-year average, so in the medium term consumers should enjoy similar returns, but with less risk of day-to-day changes in how their rate is calculated. It is therefore not at all clear that consumers will lose out from this change, or that there is a case for compensating the subset of consumers affected. The Government would not compensate mortgage holders for a change in the Bank rate, for example.

There are two issues here. There is the difficulty in determining what that quantum of difference could mean, because there is an evolving move off the LIBOR rate even at this stage. We also have the situation where, in essence, such rates and benchmarks are used in different ways. Mortgage holders would have the opportunity to go their provider and ask to move another rate, for example the Bank rate.

I reassure the House that consumer interests have been factored into all decisions relating to LIBOR wind-down. In particular, the FCA has considered how to address concerns that the synthetic methodology may result in a rate which is higher than the current LIBOR rate. The FCA has taken a rigorous and careful approach to making the decision on the synthetic methodology, resulting in a decision that is entirely in line with the global consensus, among both industry and regulators internationally. This has been a careful and deliberate process, and I commend both my officials and the professionals at the FCA for the work they have undertaken.

The FCA’s synthetic rate will seek to provide a reasonable and fair approximation of what LIBOR would have been had it continued to be based on panel bank contributions, while removing a major factor in the volatility of the rate. That is to the benefit of parties to contracts referencing LIBOR, who will no longer be exposed to perceived changes in bank creditworthiness or liquidity conditions in wholesale funding markets. The alternative is having no rate at all, or being put on an unsuitable fall-back rate that may well be designed for a different situation, such as a short-term problem with publishing LIBOR. The Bill supports the wind-down process by ensuring that contracts will remain able to function if they are not able to transition to an alternative rate in time.

The Government have worked at pace to develop this legislation, carefully considering responses to the consultation and the complex range of contracts that reference critical benchmarks. As I have said, the FCA has confirmed the process to put in place a synthetic methodology by the end of this year. The Government will continue to engage with regulators to ensure a smooth transition.

I want to respond to the point made by the hon. Member for Glenrothes (Peter Grant) in his intervention on the number of mortgage holders. There is some speculation over how many mortgage holders will be affected. Some estimates say it could be 200,000, or 1.8% of the mortgages held in the UK, about half of which would be buy-to-let mortgages and the other half residential mortgages. However, the estimates I have received from industry suggest it would be significantly less than that, and a diminishing number. I think that that is the best I can give the hon. Gentleman.

I hope that I have provided the House with the background to the Bill, an explanation of its provisions and an update on the broader work being undertaken by regulators on the LIBOR transition, and that we can debate the provisions in the Bill in a constructive manner and deliver this vital legislation.

I will conclude by recognising that this is an unusually complex and technical Bill. I would not want to be in any way patronising to the House, but I want to be open to questions on it at the next stage. However, I hope I have satisfied the House in explaining the principles and narrative the Government have around this Bill.

--- Later in debate ---

[John Glen]

I want to address thoroughly all the points raised by the right hon. Member for Wolverhampton South East (Mr McFadden) and the hon. Member for Glenrothes (Peter Grant) about legal certainty, the temporary nature of this provision, and concerns about what will happen to the population of mortgage holders.

This is clearly a technical Bill. The Government are taking clear action to ensure that contracts that make reference to LIBOR, and that cannot transition before the end of the year, can continue to function. It is vital that the Government take the necessary steps to make the wind-down of LIBOR as smooth and orderly as possible, given the number of contracts that refer to it.

I was asked why people are on LIBOR mortgages. Customers who hold LIBOR-referencing mortgages are, and should continue to be, encouraged to speak to their lender to switch to an alternative rate. The FCA has been very clear with lenders that they must be able to demonstrate that they have fulfilled their duty to treat customers fairly where they transition them to a replacement rate. The Bill will not do anything to restrict consumers’ ability to bring mis-selling claims if they arise.

Let me address synthetic methodology—a term that refers to the methodology that the FCA would impose on the administrator to provide for the continuity of a LIBOR-setting function for the benefit of these tough legacy contracts. The hon. Member for Glenrothes cited the figure of £472 billion, which was the FCA’s estimate on 29 September. The synthetic methodology will seek to replicate, as far as possible, the economic outcomes that would have been achieved under LIBOR’s panel bank methodology, but without the need for panel bank submissions.

The FCA has always made it clear, however, that the synthetic methodology will not be representative of the underlying economic reality that LIBOR seeks to measure. Parties to contracts and agreements that make reference to the benchmark should seek to transition to suitable alternative reference rates where possible. That process will continue. There is a lot of speculation about the numbers, but it is impossible to verify them at this stage.

Reference has been made to the differences in rate between panel bank LIBOR and synthetic LIBOR. We have given responsibility for the synthetic rate methodology to the FCA in consequence of the Financial Services Act. Its approach will provide a fair and reasonable approximation of what LIBOR would have been if it had continued to be calculated under the previous panel bank methodology, while removing a large factor in the rate’s volatility. That will be to the benefit of those who have contracts that refer to LIBOR.

It is important to note that, even in the past few weeks, the LIBOR rate has been volatile. There have been some days when the synthetic methodology would have produced a lower rate than panel bank LIBOR, and other days when it would have been slightly higher. That illustrates clearly that it is not sensible to speculate about a change in the rate on day one of the change in methodology. It is impossible, really, to create an enduring and certain difference.

Given the interest in how the rate works, let me explain that sterling synthetic LIBOR will be calculated using SONIA—the sterling overnight index average—with the addition of the International Swaps and Derivatives Association five-year median credit spread. ISDA, the trade association, has played an important role in consulting the market to arrive at consensus on key elements of the LIBOR transition.

Let me briefly address the concern about how we got to this point. There was iterative consultation as widely as possible with the industry to develop consensus. As for the question of why the legislation was needed and whether we will need to do it again, this provision was based on legal advice and is intended to address concerns raised by industry about the robustness of the synthetic methodology. The methodology involves a five-year median for the credit spread, which was selected following that industry consultation, to avoid manipulation. It is important to remember that LIBOR is a forward-looking interest rate benchmark, and to replicate its economics the synthetic methodology will be calculated using the SONIA term rate.

The issue of the 12 base points was raised. The synthetic LIBOR will be 12 points higher than SONIA, not LIBOR. The difference between LIBOR and synthetic LIBOR will depend on the LIBOR and SONIA rates on the relevant day. Again, it is impossible to fully verify and quantify the difference, in terms of those that are not rolled off to another rate and the way in which the rates will perform in reality.

The right hon. Member for Wolverhampton South East referred to what is commonly known as the “safe harbour” provision. Some industry stakeholders have called for an express legal safe harbour like that put in place by the New York legislature. The Bill makes clear that references in contracts to a critical benchmark include the benchmark in its synthetic form. Furthermore, by providing in the Bill that contracts are to be interpreted as having always provided for the synthetic form of the benchmark to be used once the benchmark existed in that form, the Government have sought to address the risk of a party’s arguing that the use of the synthetic benchmark constitutes a material change to a contract, or even that it has frustrated the purpose of the contract.

It is the Government’s view that this Bill comprehensively addresses the risk of legal uncertainty in a proportionate way, while not interfering with other valid claims. We considered approaches taken in other jurisdictions, notably New York, but as a matter of policy the Government do not think it would be appropriate or proportionate to prevent parties’ ability to seek legal redress via the courts for other issues that may arise under affected contracts. A contract could be entered into and there could be a legal dispute over how it had come about, separate from the issue of the LIBOR dependency. We thought that this was the appropriate way to proceed, because the Bill was never about withdrawing the legal rights of individuals.

This is an important Bill. Now that the FCA has confirmed the process to wind down LIBOR by the end of this year, the Government are committed to having this legislation in place to mitigate the residual risk of litigation and disruption resulting from the LIBOR wind-down in the UK. We believe that it is vital to the protection of consumers and the integrity of UK markets.

Question put and agreed to.

Bill accordingly read a Second time.

Critical Benchmarks (References and Administrators’ Liability) Bill [Lords] (Allocation of Time)

John Glen Excerpts

Thursday 18th November 2021 Commons Chamber

[The Economic Secretary to the Treasury (John Glen)]

I am grateful to the hon. Member for Glenrothes (Peter Grant) for the points he has made, and I recognise the relatively unusual procedure being adopted here. He was present during the passage of the Financial Services Act 2021. Indeed, he contacted my office last week for a briefing prior to this Bill, which I made available to him and Opposition Front Benchers earlier this week. I hope that, in the course of the Second Reading debate and the Committee of the whole House this afternoon, we will indeed give full scrutiny to these matters. They relate to some concerns that arose following the passage of the Financial Services Act earlier this year. As my right hon. Friend the Leader of the House mentioned in response to a question on the business statement a few moments ago, the lack of amendments suggests that this is an uncontroversial matter. However, I am confident that there will be an opportunity to fully scrutinise the provisions of this small and technical Bill through a Committee of the whole House. I do not believe that we are in any way forestalling the appropriate and necessary level of scrutiny for a very technical matter consequential on an Act of a few months ago.

Question put and agreed to.

Financial Services: Future Regulatory Framework Review

John Glen Excerpts

Tuesday 9th November 2021 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

The Government have today laid before Parliament the second consultation on the future regulatory framework (FRF) review, “Financial Services Future Regulatory Framework Review: Proposals for Reform” (CP 548). The FRF review provides a once-in-a-generation opportunity to ensure that, having left the EU, the UK establishes a coherent, agile, and internationally respected approach to financial services regulation that is right for the UK.



In his speech at Mansion House on 1 July 2021, the Chancellor set out the Government’s vision for an open, green and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens across the UK. Delivering the outcomes of the FRF review is a key part of achieving this vision.



An initial consultation was published in October 2020. HM Treasury received over 120 responses and has carried out significant further engagement with the sector. The consultation document laid today sets out the Government’s response to the feedback received, and the proposals to deliver the intended outcomes of the FRF review.



The consultation sets out a number of proposals to build on the strengths of the UK’s existing domestic framework of financial services regulation, including by:



Ensuring that, as the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) take on greater responsibility, their objectives continue to be appropriate. To reflect the importance of the sector as an engine for growth across the wider economy and the UK’s position as a global financial centre, the Government intend to introduce a new secondary growth and international competitiveness objective for both the PRA and the FCA.

Moving to a system where the financial services regulators take responsibility for setting many of the direct regulatory requirements which were previously set by the EU, establishing a comprehensive FSMA model of financial services regulation for the UK. This will be achieved by repealing the majority of retained EU financial services legislation, with the regulators given powers to replace the current requirements with their own rules. This will ensure a more agile regulatory framework for the future while supporting the UK’s commitment to high standards of regulation.

Ensuring that there continues to be appropriate democratic input into, and public oversight of, the regulators’ activities. This means strengthening the mechanisms through which Parliament holds the regulators to account and which underpin the regulators’ relationship with HM Treasury, in addition to proposals to improve stakeholder engagement in the regulatory policymaking process.

This publication is available on www.gov.uk and will be open for responses until 9 February 2022.



“Future Regulatory Framework Review: Proposals for Reform”: www.gov.uk/government/consultations/future-regulatory-framework-frf-review-proposals-for-reform.

[HCWS382]

Central Bank Digital Currency

John Glen Excerpts

Tuesday 9th November 2021 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

The UK, like many countries, is actively exploring the potential role of a retail central bank digital currency (CBDC) as a complement to cash and bank deposits. A retail CBDC would be a new form of digital money, denominated in sterling and issued by the Bank of England, for use by people and businesses for their everyday payments needs. Exploring the opportunities that a CBDC could offer is aligned with the Government’s wider agenda to remain at the forefront of innovation and technology in financial services.



Earlier this year, the Chancellor of the Exchequer announced a taskforce jointly chaired by HM Treasury and the Bank of England to lead the UK’s exploration of a UK CBDC, along with forums to engage a broad range of stakeholders from across our economy and society, including consumer groups, think-tanks, businesses, academics, financial institutions and technology experts. The taskforce will ensure the UK authorities adopt a strategic and co-ordinated approach as they explore a CBDC, in line with their statutory objectives.



No decision has been taken by the Government and Bank of England as to whether to issue a UK CBDC, which would be a major national infrastructure project. A decision will be based on a rigorous assessment of the overall case for a UK CBDC and will be informed by extensive stakeholder engagement and consultation.



Exploring and delivering a UK CBDC, if there were a decision to proceed, would require carefully sequenced phases of work, which will span several years. I am today setting out the next steps for the exploration of a UK CBDC.



The UK authorities are currently engaged in a process of research and exploration to examine the opportunities and implications of CBDC. As part of those explorations, HM Treasury and the Bank of England will publish a consultation in 2022 setting out their assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC.



If there is a decision to proceed following the consultation, a development phase would include the publication, by the Bank of England, of a technical specification to explain the proposed conceptual architecture for a UK CBDC. This development phase could involve in-depth testing of the optimal design for, and feasibility of, a UK CBDC.



Following this, a decision would be taken on whether to move into a subsequent build and testing phase. Given the scale and national importance of such a project, this phase would likely take several years and could involve the development of large-scale prototypes and live pilots.



Were the results of each of these phases to conclude that the case for CBDC were made, and that it were operationally and technologically robust, then the earliest date for launch of a UK CBDC would be in the second half of the decade.



The Government are also committed to continuing to work closely with international partners on the cross-border implications of a potential CBDC. The UK, through its G7 presidency, has been leading the global conversation on the opportunities and implications of CBDC. G7 central banks and finance ministries have developed a set of public policy principles for CBDC, and a full report capturing these principles was published in October. These international principles for CBDC represent a step change in the global conversation and are intended to support and inform exploration of CBDCs in the G7 and beyond.

[HCWS381]

Treasury Updates

John Glen Excerpts

Thursday 4th November 2021 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

Today the Government are publishing the Finance Bill 2021-22 which will include a clause to increase the normal minimum pension age from age 55 to age 57 from 6 April 2028. This increase in the normal minimum pension age was announced in 2014 in the response to the consultation on “Freedom and Choice in Pensions” and the draft clause was published in July 2021. The normal minimum pension age is the lowest age at which the majority of members can take benefits from a registered pension scheme without incurring tax charges, except in cases of ill health.

This change will not apply to members of certain uniformed public service schemes, nor to those whose scheme rules provide an unqualified right to take benefits before age 57. Members with these rights will have a protected pension age.

The draft clause included a window of time during which people could either join or transfer into a scheme which can offer a protected pension age. The window was designed to ensure that those in the process of transferring a pension could complete their transfer and not unexpectedly lose the right to a protected pension age. Stakeholders have subsequently expressed their concerns about this window running until 5 April 2023 as originally proposed, including possible adverse impacts on the pensions market and on pension savers.

The Government believe it is right to offer a protected pension age to those whose scheme rules give them an unqualified right to take their pension before age 57. The Government also believe it is right that those in the process of transferring their pension do not unexpectedly lose the right to a protected pension age. However, after listening to stakeholder views on the draft clause, the Government has decided to shorten the window. The window closed at 23:59 on 3 November 2021. Those who have already made a substantive request to transfer their pension to a pension scheme with a protected pension age of 55 or 56 will still be able to keep or gain a protected pension age assuming the transfer is completed in accordance with the current regulations. This shorter window will help address the issues raised by stakeholders while also being fair for pension savers.

Ordinarily this change to a Finance Bill clause would have been announced at autumn Budget 2021. On this occasion, giving prior notice of the shorter window ahead of its closure on 3 November 2021 could have led to unnecessary turbulence in the pensions market and led to some consumer detriment. Some pension savers could find themselves with poorer outcomes (or even be the victim of a pension scam) if they were rushed by rogue advisors to make a quick transfer in the short time period before the window closed.

A tax information and impact note for this clause is also being published today.

[HCWS373]

London Capital & Finance Compensation Scheme: Contingencies Fund Advance

John Glen Excerpts

Wednesday 3rd November 2021 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

On 19 April 2021 the Government announced the detail of a compensation scheme for London Capital & Finance plc (LCF) bondholders (HCWS922). The scheme provides 80% of LCF bondholders’ principal investment up to a maximum of £68,000 and will be open to all bondholders who hold bonds that have not already been compensated by the Financial Services Compensation Scheme (FSCS).

Now that the necessary legislation has passed through Parliament, final preparations are being made so that the scheme can begin making payments in November. The Government have appointed FSCS to run the scheme on its behalf using part 15A of the Financial Services and Markets Act. The Government and FSCS are committed to providing all eligible bondholders with their compensation within six months.

I would like to emphasise that bondholders do not need to do anything at this stage and should wait for FSCS to contact them about their compensation payment. Further detail on exactly how the scheme will operate, including the scheme rules and frequently asked questions, are available online at www.gov.uk/LCF-compensation-scheme

The Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act received Royal Assent on 20 October 2021 but provision for this was not included in the main estimate for HM Treasury at the start of the financial year. In accordance with normal procedures, HM Treasury will therefore be using a contingencies fund advance to enable bondholders’ access to their compensation payments, ahead of the provision being provided in the Treasury’s supplementary estimate.

Parliamentary approval for additional resources of £120,000,000 for this new expenditure will be sought in a supplementary estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £120,000,000 will be met by repayable cash advances from the contingencies fund.

[HCWS370]

Oral Answers to Questions

John Glen Excerpts

Tuesday 2nd November 2021 Commons Chamber

[Liz Twist (Blaydon) (Lab)]

3. What recent steps he has taken to help reduce economic inequality.

[The Economic Secretary to the Treasury (John Glen)]

Distributional analysis published at the Budget and spending review last week shows that in 2024-25, tax, welfare and spending decisions made since the spending round two years ago will have benefited the poorest house- holds most as a percentage of income. This Government believe that work is the best route out of poverty. That is why the Government are investing £6 billion in labour market support over the next three years.

[Liz Twist]

Analysis of the Chancellor’s Budget and tax and spending plans for the next six years shows that they will cost women an additional £48 billion over that period. That is a staggering amount of money to be taken from women, and it is in contrast to the planned tax cuts for banks. Is that why the Government have failed to produce an equality impact assessment for this Budget, as they are required to—because the Chancellor knows that his tax choices are totally unfair?

[John Glen]

The hon. Lady must have missed a number of measures announced by the Chancellor in the Budget last week in which significant investment was made to support families through the household recovery fund and support for women in particular to get back into the labour market, alongside a whole range of other interventions.

[Saqib Bhatti (Meriden) (Con)]

One issue concerning me at the moment is the lack of access to cash in the north of my constituency, which suffers from significant degrees of inequality. I was pleased to be at the opening of Kingshurst post office, which will restore some cash services, but the issue remains a problem as retail banks reduce their estate. Does my hon. Friend agree that shared banking hubs are a good way forward? Will he highlight to the House what work is being done to increase access to cash?

[John Glen]

Banking hubs will absolutely be a part of the solution, alongside a whole range of other interventions. The Government have committed to legislate on this matter, but in the meantime, I am very hopeful that industry will come forward with meaningful proposals for a range of options to deal with the declining use of cash and ensure access is available everywhere.

[Tim Farron (Westmorland and Lonsdale) (LD)]

The colossal economic inequality facing rural communities is something that I hope the Government take seriously. Is the Minister aware of the collapse of local housing in communities such as mine—and indeed in the Chancellor’s next-door constituency—into the second-home and holiday-let markets? Following the Welsh Assembly Government’s example, will the Minister look at doubling council tax on second-home properties, so that communities such as mine do not lose their local populations and become riddled with ghost towns?

[John Glen]

The Government are looking at tightening up the rules around second homes and council tax. We would be very happy to engage with the hon. Gentleman on the matter.

[James Wild (North West Norfolk) (Con)]

4. What steps he is taking to increase funding for capital investment in the NHS.

--- Later in debate ---

[Stephen Crabb (Preseli Pembrokeshire) (Con)]

15. What recent assessment he has made of the effectiveness of the Plan For Jobs in supporting people into work.

[The Economic Secretary to the Treasury (John Glen)]

Some 1.6 million people have moved into work having received support from work coaches, and hundreds of thousands of jobseekers have been supported by our other Plan for Jobs programmes, such as kickstart. It is clear that this plan is working; unemployment is now expected to peak at less than half of what was initially predicted.

[Laura Farris]

Unemployment in West Berkshire has fallen in every month since April, in no small part thanks to the apprenticeship levy and the kickstart scheme. However, among the over-55s who lost their job in the pandemic the picture is more mixed. Can my hon. Friend set out what the next stage of the Plan for Jobs will do to target that group, particularly given their risk of long-term unemployment?

[John Glen]

Yes, I can. My hon. Friend is right; unemployment is at 3.5% in her constituency, as against the 5% average. On people aged 50 to 64 who unfortunately lose their job and find a return to work less likely, this spending review announced an enhanced 50-plus offer worth more than £20 million to ensure that that cohort of the workforce receive that support to remain in work and benefit from living those fuller working lives. That is in addition to the other interventions across the whole of the working age group.

[Stephen Crabb]

Right now, in this country, about 1 million children are growing up in long-term workless households. Does my hon. Friend agree that the measures the Chancellor took in the Budget last week to boost the national minimum wage and the work allowance, and to lower the universal credit withdrawal rate when people move into work, mean that we have the best opportunity in more than a generation to really bear down on long-term unemployment and improve the life chances of children growing up in homes where there is no role model of someone going out to work every day?

[John Glen]

I agree entirely with my right hon. Friend, who has been a champion in this area, throughout his experience in government and in his work now as Chair of the Select Committee on Welsh Affairs. In addition to what he has set out, we responded to the call to raise the national living wage. It may interest him to know that the April 2022 increase will mean that a full-time worker’s annual salary will have increased by more than £5,000 since the national living wage was introduced, when he was in government, in April 2016.

[Karin Smyth (Bristol South) (Lab)]

I recently visited the newly opened jobcentre in Knowle to support people back to work, and I have previously been chair of the all-party group on apprenticeships. I cannot fathom why the Government are abolishing BTECs, which are a crucial bridge for young people in Bristol South. Has the Treasury done an assessment of abolishing BTECs, and will the Government reconsider?

[John Glen]

The hon. Lady will know of the Government’s investment in T-levels and the additional investment last week in apprenticeships, as well as a number of other interventions that the Chancellor has worked tirelessly with employers’ organisations and trade unions on to develop the workforce and opportunities over the past 18 months.

[David Johnston (Wantage) (Con)]

16. What steps his Department is taking to increase wages and support the lowest-income households.

--- Later in debate ---

[Sam Tarry (Ilford South) (Lab)]

Does the Chancellor agree with the Conservative party donor, Mohamed Amersi, who once claimed that the Tories were operating an access capitalism scheme for their major donors, and described corruption as a “heinous crime”, but who was later seen to have been part of a £162 million bribe to the daughter of Islam Karimov, the awful former president of Uzbekistan? If so, can he look at this and bring forward the response to the Pandora papers, particularly the Registration of Overseas Entities Bill?

[The Economic Secretary to the Treasury (John Glen)]

The Government are committed to making the UK a hostile place for illicit finance and economic crime and ensuring that all donations to political parties comply with the legislation that the Labour party enacted in Government. We have taken tough action through our No Safe Havens strategy to ensure that the correct UK tax is paid. Our landmark 2019 economic crime plan builds on that, and we will continue to work on these matters.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

T5. As my right hon. Friend may know, this week is Evidence Week. Will he therefore let the House know whether, in his opinion, the evidence still indicates that the proposed lower Thames crossing represents value for money?