Draft Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019

Jonathan Reynolds Excerpts
Thursday 31st October 2019

(4 years, 4 months ago)

General Committees
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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As ever, it is a pleasure to see you in the Chair, Mr Stringer. I thank the Minister for his explanation of the instrument, and wish all Members good fortune in the forthcoming general election. It is something of a highlight for me to be allowed to scrutinise a statutory instrument that does not relate to Brexit; however, this is reasonably familiar ground, as we addressed in Committee a number of clauses in the 2018 Finance Bill that related to intangible fixed assets and intangible property.

We know that intangible assets have been used unscrupulously in the past by multinationals that have sought to exploit the provisions to minimise their tax bill. Any loopholes of that kind urgently need closing. I am sure that we are all familiar with some high-profile examples of profit shifting, where profits from intangible property are moved internally within corporations to lower-tax jurisdictions, despite having limited, or no, connection with the location. Members have suggested companies that have had those allegations levelled against them.

The Opposition are clearly supportive of any manoeuvres that seek to improve our tax transparency and close down the exploitation of the existing rules. However, as we said in Committee on the Finance Bill, our worry is whether the measures go far enough. That is why we tabled an amendment at the time, for a full review of the impact of the measure, and for it to be assessed in the light of our exit from the European Union.

The Opposition believe that there is a significant concern about the Government’s approach. I understand—and the Minister has confirmed—that the measure does not apply to any country with which we have a full tax treaty. So we are tightening our laws, but not in relation to any country with which we have a full tax treaty. However, the UK has one of the largest networks of double taxation agreements in the world. The list extends to jurisdictions including the British Virgin Islands and the Cayman Islands, which begs the question how effective the measure will be. The Minister seemed to suggest that there was a degree of nuance and that it was not entirely a binary decision, but if he could provide clarity about what jurisdictions are being tackled, that would be useful to us all.

Equally, we need to look at the bigger picture when it comes to tax collection. Closing tax loopholes with one hand while taking resources away from HMRC with the other is likely to prove ineffective. I could speak at length about the Opposition’s view on the subject, and ask for the Government’s plans, but I am mindful of the brevity of the parliamentary Session and that Parliament will soon be dissolved.

Last Sunday my right hon. Friend the shadow Chancellor backed a unitary approach to taxing multi- nationals, whereby multinationals would be taxed more comprehensively on the basis of where economic activity occurs and where value is created. That is a practical approach, which would go further than what is proposed today. I recognise that many Conservative colleagues are also interested in that area. The hon. Member for Thirsk and Malton referred to such an approach, and the Minister mentioned the digital services tax. I think that everyone in Parliament will be particularly interested in how that will fare in the light of a potential US trade deal.

There must be zero tolerance of tax avoidance. We shall continue to advocate that and make it a priority when we return in the next Parliament, whatever the result of the forthcoming general election.

Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019

Jonathan Reynolds Excerpts
Wednesday 23rd October 2019

(4 years, 5 months ago)

General Committees
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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It is a pleasure to see you in the Chair, Mr Bailey. We have read out the title of this statutory instrument twice already, so I will exempt myself from that particular duty.

For the benefit of any new members of the Committee and for the record, my Opposition colleagues and I have strongly objected to the process of passing so-called no-deal SIs since it began a year ago. Secondary legislation is not an appropriate channel for the size and scope of the onshoring project that is being attempted, and does not allow time for the scrutiny that regulations of this magnitude demand. The fact that we are still, at this stage of the process, preparing for no deal is an indictment of the way the Government have handled these negotiations, which has left businesses and the City mired in uncertainty. However, we have had that debate in this room many times; the Minister knows my view, and I know his, so I will move on to the substance of the instrument.

As the Minister described, EMIR is a fundamental piece of pan-European financial markets regulation that emerged in the wake of the financial crisis and as part of a G20 commitment. It relates to building a more robust and transparent trading regime for the sale of over-the-counter derivatives, designed to protect against the type of systemic risk that worsened the freefall in markets after the collapse of Lehman Brothers by using an institution known as a central clearing counterparty.

Ongoing European co-operation is vital to the future stability and effectiveness of that regime, and the UK’s role as a European clearing hub is vital. In the past, our competitors have argued that clearing of euro-denominated instruments should take place in the eurozone, and it is clear that Frankfurt and Paris will continue to try to win clearing volume from London. Therefore, it is of the utmost importance that we get the ongoing regulatory framework right, not just to maintain our competitiveness, but because CCPs are so fundamental to the stability of the financial system across Europe. It is vital that the Government work to secure a more permanent form of recognition from the EU for the UK’s CCPs, for which the FCA has lobbied. Without that, we risk splitting liquidity and migration of contracts by EEA firms, which will be unable to use a UK CCP that is not formally recognised.

In preparing my comments on the instrument, some of the criticisms felt familiar. In particular, the Opposition have raised concerns in the past about the transition of powers from EU institutions to UK equivalents without properly considering the interaction between those institutions. A number of new powers to assess equivalence and recognition of third-country CCPs and trade repositories are being transferred to institutions including the Bank of England, Financial Conduct Authority and the Treasury. However, the relationship between the Bank of England and the FCA, for example, is not the same as that between the European Commission and the European Securities and Markets Authority.

The Opposition are concerned about this attempt to simply port across the Lamfalussy process of rule-making without considering whether it fits the framework that we have in this country. In addition, the secondary legislation process has been so piecemeal that it is challenging to scrutinise properly the allocation of powers to the different bodies. It is unclear how all these elements fit together and how extra responsibilities given to UK regulators will be accommodated in terms of resources.

By my count, this is the fifth statutory instrument that relates to central counterparty clearing, as the Minister mentioned. We were due to leave the EU in March 2019, so the fact that we are still porting across fundamental items of legislation tells us something.

The Minister said that the circumstances in Europe have materially changed, particularly the pension system. I would like him to clarify whether those changes form a new initiative on the European level. Perhaps the most interesting question I could ask is this: had we left in March 2019, would we still be making this change and essentially be choosing a form of voluntary alignment with single market regulations in the financial services sector?

Scrutiny of the instrument is challenging without a proper impact assessment. The explanatory memorandum states:

“An Impact Assessment has not been prepared for this instrument because, in line with Better Regulation guidance, HM Treasury considers that the net impact on businesses will be less than £5 million a year.”

That is a rather generous interpretation of the better regulation framework; it may well comply with the letter of the guidance, but it does not comply with the spirit. The political uncertainty we are in and the seriousness of these regulations mean that we need a proper impact assessment. Trillions of pounds-worth of trades are cleared through UK CCPs every year. We must be sure that we have assessed every possible outcome of change to the framework, particularly in a no-deal scenario in which markets will be volatile.

The FCA has been granted powers to suspend reporting obligations, with the agreement of the Treasury, for a period of up to one year in the event that no registered or recognised UK trade repository is available. Under that arrangement, the FCA will also be able to specify when, once the suspension ends, firms will be expected to report previous trades undertaken during the suspension period. That feels like a worrying step towards deregulation. Under what circumstances does the Treasury envisage that there will be such a cataclysmic failure that no trade repositories in the UK will be functioning? Is this requirement intended to apply solely to EEA firms operating here that are unable to use a UK trade repository because it has not been formally recognised by the EU?

If that is the case, surely the Government’s priority should be to ensure that that recognition process is formalised and given a degree of permanence, as the unavailability of a trade repository suggests that there would be extreme disruption. Equally, allowing the FCA simply to suspend regulations risks creating uncertainty. The value is in a consistent and reliable regulatory regime.

More broadly, I would like to ask the Minister to provide reassurance that the measures will not result in any lighter regulation in market infrastructure. The regulations are a central part of our G20 commitments to prevent the derivatives market ever again inflicting damage to the global economy on the scale of 2008. We must not allow any repeat of those disastrous events.

--- Later in debate ---
John Glen Portrait John Glen
- Hansard - - - Excerpts

Let me say at the outset that the instrument is needed to ensure that UK firms are able to make use of the new provisions included in EMIR REFIT and that EMIR will function appropriately after exit. Without the instrument, UK pension funds would be required to clear derivatives in a CCP, and that would come at a considerable cost to UK pension schemes and pensioners.

The instrument also ensures that the clearing suspension, a key financial stability tool, operates effectively in the UK. The hon. Member for Stalybridge and Hyde characteristically went through familiar arguments, stating his party’s position on the unsuitability of this process, and I will not go over that again. As he said, we both know where we are on that. He did make some specific points, which I will respectfully try to accommodate.

On the appropriateness of the transition of powers, the Bank of England will be given responsibility for suspending the clearing obligation in exceptional circumstances, with the consent of the Treasury. Both the Bank of England and the FCA will take on the responsibility to set certain binding technical standards that currently sit with ESMA. That is a widely understood common responsibility between them.

The SI does not give any new supervisory responsibilities to UK authorities. No new firms will be subject to supervision by UK supervisors due to the SI. National supervisors across the EU already have responsibility for supervising the users of uncleared derivatives and CCPs, and we are confident that the regulators are appropriately resourced for those roles.

The hon. Gentleman made a point about the wider framework. As he knows, a review is ongoing with respect to what we term air traffic control of regulations. There will be subsequent reviews of the configuration of powers between the Treasury, the FCA and the Bank of England, so the wider point that he made was a fair one, but that will be resolved hopefully after a deal is secured.

The hon. Member for Stalybridge and Hyde mentioned impact assessments. The Treasury has considered the impact of all its financial services SIs. I did not mention it before, but I am happy to say now that the impact of today’s SI was assessed to be below £5 million. When that is the case, Government policy is not to publish a full impact assessment. For previous exit SIs where the impact was assessed to above £5 million, impact assessments were published in advance and could be scrutinised.

The hon. Gentleman made some points about reassurance on the direction of travel of regulation. The context of the SI is that the UK’s pension regime relies on a higher number of defined benefit schemes than the rest of the EU. The way that those schemes need to interact with CCPs is unusual and different, so we have had an enduring dispensation not to participate in the same way. That is not a deregulatory effect, but because the pension schemes would have to hold a large amount of cash, which would be costly and uneconomic for them.

In essence, there has been enduring uncertainty around the conclusion of the process of resolution, but we have actively participated in it, given our historically different pension scheme arrangement. There is no desire not to observe the G20 Pittsburgh obligations on derivatives, and this is not some sort of deregulatory effort.

Jonathan Reynolds Portrait Jonathan Reynolds
- Hansard - -

It is an entirely reasonable observation that the UK pensions industry is structured differently and requires a different set of regulations and approach, but we have always known that. Is the Minister saying that, if we had not spotted this back then and left the European Union without passing the instrument, our regime would be deficient, or has something changed so that we now need to address it?

John Glen Portrait John Glen
- Hansard - - - Excerpts

Clearly, had we left on 31 March, the EMIR REFIT regulation would not have come in in July. What happened would have depended on the conditions under which we had left at the end of March and on whether we observed the changes naturally as part of the EU through a transition period, or if, in a no-deal circumstance, we used a different mechanism to consider ongoing legislation into which we had had some input but that was not quite finished. That is a bit of a difficult question to answer fully, but that is my understanding.

CAPITAL REQUIREMENTS (AMENDMENT) (EU EXIT) REGULATIONS 2019

Jonathan Reynolds Excerpts
Monday 7th October 2019

(4 years, 5 months ago)

General Committees
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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May I, too, say what a pleasure it is to see you in the Chair, Mr Bailey?

The statutory instrument returns the Minister and I to our preparations for the country’s potential exit from the European Union without a deal. For the avoidance of any doubt, let me state that the Opposition believe that a no-deal Brexit would be extremely damaging and grossly irresponsible, and would return the Brexit process to square one rather than be the clean break that some would, erroneously, have us believe. However, we acknowledge, as we always have, the need for a functional regulatory regime in the eventuality that we have to fall back on it.

The issue relating to the capital requirements regulation was first addressed by the Minister and me in Committee on 12 December 2018. The Opposition retain our concerns about one of the central tenets of the instrument, which is the removal of the preferential treatment for EU sovereign debt. That raises the risk of a potentially costly, disruptive and unnecessary sale and repurchase of assets immediately upon a no-deal Brexit. The trade publication GlobalCapital expressed it succinctly last year as proposing

“a hit to UK bank capital ratios at the worst time imaginable.”

However, I am mindful that we have had that substantive debate before, and the Government and Opposition do not agree. Hopefully we will never have to find out who is correct on that point.

The explanatory memorandum highlights that the reason we are going round this matter again today is to account for changes that have occurred between the original proposed EU exit date of 29 March and the revised exit date of 31 October. However, that seems to be a convenient means of avoiding the resurrection of the Financial Services (Implementation of Legislation) Bill on in-flight files. To remind colleagues, the Opposition were put under significant time pressure on the in-flight Bill in March. We were given very short notice to scrutinise and table amendments to that piece of primary legislation. When it became apparent that the Bill would not be passed by Parliament unless it was amended to strengthen money laundering and anti-corruption provisions, the Government withdrew it.

Today’s instrument will seemingly implement some of those in-flight changes. The capital requirements regulation was named as one of the relevant files in scope of that original Bill. I ask the Minister whether he can clarify that point and, if so, how it can be that those changes have been demoted in importance from primary to secondary legislation. Is it the intention that the entire in-flight Bill will be broken up across several statutory instruments to conceal the fact that it cannot be passed on the Floor of the House of Commons?

The changes contained in the statutory instrument again give new responsibilities to UK regulators. The capital requirements regulation is an important part of the post-financial crisis regulatory regime, and I am sure that we all wish never to find ourselves in a repeat of the circumstances of 2008. Yet new requirements are being loaded on to UK regulators regarding macro-supervisory obligations that have previously been conducted at an EU level. Will the Minister assure the Committee that that is the right supervisory model?

Furthermore, in almost all the substantive changes to the capital requirements regulation—for example on internal modelling, reporting requirements and reporting on prudential requirements—there has been an important change of language. Where the original EU legislation states that the European Banking Authority “shall” make standards, that has become,

“The FCA and PRA may…make”,

on pages 11, 13, 15, 17 and so on.

I read that as a shift from mandatory action to optional action by the regulator. Why has that new distinction been made? The argument has always been that this process simply transfers responsibilities, with no policy decisions being taken, but surely this decision could lead to a change of regulation. Will the Minister elaborate on why that change of language was made, and on the Treasury’s intentions behind it?

FINANCIAL SERVICES (ELECTRONIC MONEY, PAYMENT SERVICES AND MISCELLANEOUS AMENDMENTS) (EU EXIT) REGULATIONS 2019

Jonathan Reynolds Excerpts
Monday 7th October 2019

(4 years, 5 months ago)

General Committees
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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It is a genuine pleasure to see you in the Chair, Ms Buck. It is good to be with the Minister for the second time today to discuss our contingency plans in the event of a no-deal Brexit. While this statutory instrument appears to address payments primarily, as the Minister said, actually it covers a wide range of financial regulation, including statutory instruments from previous months in which there have been omissions and where there have been subsequent changes to EU law since the exit date was postponed.

I know, and I hope all my colleagues acknowledge, that Treasury civil servants have worked exceptionally hard on the hugely difficult task of drafting the sheer volume of secondary legislation that has been required—often at short notice—by the Government. Given the scale of that task, it is understandable that some degree of corrections has been needed to address previous omissions. Our criticisms relate to the political decisions not taken that have required that process to come about—there were different ways this could have been done. I think it is fair to say that a lot of Government Ministers, although not this Minister, frankly under- estimated Brexit as a process. That has led, at times, to very difficult decisions, including on some of the processes that we have had to do together as statutory instruments, so I think it is reasonable to ask the Minister whether he is now confident that all drafting errors and omissions have been identified and addressed.

To give one example, in one instrument, references to the European market infrastructure regulation and the markets in financial instruments directive were mixed up. That may seem like minor semantics—fair play—and most people do not really appreciate what those regulations do, but they are huge and entirely separate pieces of legislation. We are discussing critical financial regulations, so there is no room for error. This is not legislation that can be rushed through or made without due care. Everybody was aware what using the secondary legislation process would mean if it was to be the mechanism to do this. I reiterate that this is not a criticism at all of the civil service, but rather a reflection of the gargantuan task expected of it, which was bound to bring about errors.

One principal attraction of the UK, particularly in financial services, has been its relatively stable legal and regulatory framework. The fact is that Brexit has cost us some of that reputation, which is one of the most regrettable things of all. During another recent statutory instrument Committee, a gap I identified and highlighted with the Minister was the apparent lack of permission for EEA institutions to make payments in the UK after exit. I am pleased to see that that has been clarified in this statutory instrument, and that such payments will be covered under the temporary permissions regime, given that they will be exempt from the specific Payment Systems Regulator authorisation. That will provide much-needed assurance to EEA institutions seeking to continue to operate in the UK should we crash out with a no-deal Brexit. I always say that the Opposition are always here to help.

I will ask some specific questions about some remaining items in the statutory instrument. I am curious to know why a further stipulation on the capital requirements regulation has been added to this instrument, when we addressed that regulation an hour ago in a separate piece of secondary legislation. I know it is a reference to cross-referencing, but it might have been reasonable to expect that all such references would have been included in that other piece of secondary legislation.

On the issues that the Minister raised relating to the benchmarks regulation, what exactly is causing the delay for third-country benchmark inclusion on the FCA register? Does further work need to be carried out to promote awareness and understanding of the existence of the register in third countries, or is there a resource issue on the UK side that needs addressing?

On a broader, final point, I do not believe that it is conducive to good legislative scrutiny to bundle together such different items of legislation under one SI. I appreciate the time constraints, but each of these items needs separate and thorough consideration. Equally, although some of these items pertain to changing references, due to the altered deadline, some simply relate to errors and omissions. Are we to anticipate another raft of changes in six months’ time, after these statutory instruments were all rushed through today? Given where we are with the timescale, what assurances can the Minister give us on the viability of the regulatory regime as it stands today, should a no-deal Brexit occur?

Draft Local Loans (Increase of Limit) Order 2019

Jonathan Reynolds Excerpts
Thursday 3rd October 2019

(4 years, 5 months ago)

General Committees
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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It is a pleasure to see you in the Chair, Mr Gray, and, to be frank, it is a pleasure for the Minister and me to consider a statutory instrument that is not related to a no-deal Brexit. Instead, as he outlined, it relates to a fairly routine increase in the Public Works Loan Board’s borrowing ceiling for local authorities.

The Opposition believe that local government is at a crisis point in the funding that it requires to meet its needs. Many authorities face pressures, particularly with respect to severely rising adult social care costs, alongside what have been the most severe cuts we have ever seen in central Government funding. That is why Labour has committed that in government we would give local government the extra funding it needs, as we outlined in our 2017 manifesto. We would initiate a long-term review of council tax and business rates to ensure that local government has the sustainable revenue it needs.

The draft order will permit higher borrowing. Investing to save is clearly a good thing for local authorities, but the Minister will be aware of concern that the shortfall in local authority budgets is being met with more borrowing by councils to invest in assets in order to provide the revenue to meet that shortfall. Has his Department conducted a proper assessment of that issue?

Research by the House of Commons Library in September 2019 on the use of commercial property investment as a source of revenue notes that

“local authorities have experienced substantial reductions in central government funding since 2010. The Institute for Fiscal Studies claimed that grants to local authorities were cut by 36% between 2009-10 and 2014-15…Revenue Support Grant (RSG) funding is projected to be cut further, from £11.5 billion in 2015-16 to £5.4 billion in 2019-20.”

It also cites a report that states:

“Driven by increasing social care costs, if they remain constant, local government faces a £5.8 billion funding gap by 2020.”

The research paper addressed evidence that the financial pressures on local authorities mean that they turn to different methods to seek funding to alleviate the strain, namely borrowing at a lower rate from the Public Works Loan Board and investing in higher return asset classes, particularly commercial property. Is it still Government policy that such a practice should be permitted without formal restriction? Will the Minister elaborate on whether any assessment has been conducted of what proportion of any increased funds may fuel this type of activity, given that it is not without risks and particularly given how exposed commercial property would be to a no-deal Brexit?

Local authorities can of course be creative and entrepreneurial in how they fund themselves, although in many cases they have been forced to do so through desperation because of the cuts they have faced. Any increase in the borrowing limit should not detract attention from the very real problems that local authorities face in meeting their budget constraints as a result of austerity policies. I seek the Minister’s assurance on that particular point.

Oral Answers to Questions

Jonathan Reynolds Excerpts
Tuesday 1st October 2019

(4 years, 5 months ago)

Commons Chamber
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Sajid Javid Portrait Sajid Javid
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Significant work is going on to prepare the whole country for a potential no-deal outcome, and that includes helping businesses. I have allocated an additional £2.1 billion on top of the £2 billion that was already there, and that means that we can do much more to help businesses, including sending them more than 750 communications on preparedness and more than 100 technical notices.

Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
- Hansard - -

The Government’s current policy is that we can have higher public spending, falling debt and a no-deal Brexit, but those three things are impossible to deliver together, so on which of them are the Government not telling the truth?

Sajid Javid Portrait Sajid Javid
- Hansard - - - Excerpts

The Government are focused on leaving the European Union on 31 October. We are trying to do that with a deal, but if we do not, we will leave with no deal. The hon. Gentleman talks about the Government’s policy. At least this Government have a clear policy on Brexit; what is the policy of the Labour party?

Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 3) Regulations 2019

Jonathan Reynolds Excerpts
Monday 9th September 2019

(4 years, 6 months ago)

General Committees
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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It is always a pleasure, Sir Edward, to see you in the Chair.

We now know that this is one of the last chances the Opposition will have to be heard on the matter of a no-deal Brexit, given the Government’s decision to prorogue Parliament this evening. The Opposition’s concerns about our crashing out without a deal are well known. That is why we have spent the small amount of time available to us since the summer recess working hard across parties to prevent the Government from imposing that outcome on the UK.

What will also be well known to those who have served on such Committees before are the Opposition’s objections to the use of statutory instruments to prepare us for no deal through an opaque and rushed process. The Minister and I stood opposite each other in Committees considering dozens of instruments in the run-up to the original exit date in March 2019. Today, we stand closer to the cliff edge than ever before, with a Prime Minister who is seemingly prepared to sacrifice our economic stability and perhaps even the rule of law.

I believe that the instrument in front of us tonight, which is a patchwork of tidy-ups and corrections, shows that we were vindicated in our criticism of the Government’s approach. I am sorry to say that I do not believe the Government have always treated this process with the care and respect it demands. That is in no way a personal criticism of the Minister, who I think is one of the relatively few members of the Government who understands what is at stake, but it is a criticism of the Government as a whole. I say that because we now stand here looking at this legislation in a different way; we stand here on the cusp of no deal occurring, which the Government now believe is a perfectly acceptable outcome.

I just look at this SI and reflect that our country’s economy is 80% services and that our financial sector is the envy of much of the world. We are about to lose market access to all EU member states and, crucially, under no deal we will lose the good faith required to overcome that. That is 10% of the revenue from our most important sector. Although we all acknowledge that the single market in services is not what it could be, as Sir Ivan Rogers has repeatedly pointed out it is more integrated in the single market than it is, for instance, between different US states or between different Canadian provinces. Crucially, no deal will put us years away from correcting those problems in a trade deal.

However, the in-flight Bill was pulled at the last minute in March and has never returned to the Chamber. The then Financial Secretary to the Treasury even addressed the House that evening without addressing why. Does this statutory instrument correct that? I do not think it does. Now that the House is being prorogued, that Bill will surely fall, so how can the Government possibly argue that we are in a position to leave without a deal when there are such significant legislative gaps in our contingency plans?

It is not just the Opposition who have outlined these concerns. The House of Lords Secondary Legislation Scrutiny Committee—I think the Minister mentioned it, but he perhaps undersold its criticism—said:

“These Regulations are the third time HM Treasury…has made changes to existing financial services legislation, and the Committee hopes that HM Treasury has not under-estimated the challenge which is posed to financial services firms in taking on board so many amendments to the core legislation for the sector…the range and magnitude of the changes are significant: the Regulations make changes to 15 items of legislation and include a sub-delegation of powers to UK regulators and extend a ministerial power of direction. The Committee reiterates its concern about the scale of the challenge facing financial services firms in adjusting to these changes.”

If this statutory instrument is being discussed tonight, with mere hours to go before Parliament is suspended, how can the proper consultation have taken place with the financial services sector? As the Lords Committee noted, there is a significant extension of ministerial power, which bestows on the Treasury the power to grant MiFIR—markets in financial instruments regulation—exemptions to EEA central banks. It has to be alarming that this is suddenly being swept in at the last moment. Why, Minister, has it not been addressed before now?

What other omissions will there be? One stakeholder has already raised with us the fact that neither the statutory instrument that establishes the temporary permissions regime in relation to the Financial Services and Markets Act 2000, nor the statutory instrument in relation to the Electronic Money Regulations 2011 and the Payment Services Regulations 2017 appears to apply to payment services provided by an EEA bank in the UK. “Regulated activities”, as referred to in the EEA passport rights regulations, do not include payment services. It therefore seems that there is no authorisation for that to continue, which will be enormously disruptive—unless the Minister can provide some assurances to the contrary today or perhaps in correspondence.

There is in this statutory instrument a whole list of items of retained EU law that are now irrelevant or surplus to requirements. My question remains: how are we only identifying those items now?

Therefore, the Opposition cannot support this statutory instrument today and will vote against it. We have argued against using secondary legislation in this manner since the no-deal process began, and this instrument serves to validate our criticism. The Opposition refuse to use the Government’s final few hours of parliamentary time before the undemocratic Prorogation of Parliament to further enable any no-deal scenario. We will do everything in our power to prevent such a disastrous outcome, which we believe would be so damaging to the UK’s core national interests.

Co-operative and Mutual Businesses

Jonathan Reynolds Excerpts
Thursday 27th June 2019

(4 years, 9 months ago)

Commons Chamber
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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It is a pleasure to close this debate as a proud Labour and Co-operative Member of Parliament and as a member of the Opposition shadow Treasury team. What a good debate we have had to mark Co-operatives Fortnight. We have rightly heard that the co-operative and mutual tradition is one of the most significant in the economic and social history of this country. It is a tradition that was of course begun and built on the east side of Manchester in towns like mine—Stalybridge and Hyde—and Mossley, and I should also mention Ashton as my hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) is sitting beside me. But we have also heard that it is a tradition with much to offer for the future.

I want to be clear about what a co-operative is, because I am always conscious that while there is huge expertise in the Chamber today, there will be people listening to this debate who perhaps do not know exactly what co-operatives or the mutual sector are, and why they are different and why that is important. For the benefit of those people, let me say that co-operatives are enterprises that trade for the common good as opposed to the private benefit of their shareholders.

Legally, there are several differences between a company and a co-operative, but the most important are the following. First, the members of a co-operative are all equal and have one vote each, irrespective of the number of shares they hold. They all have the same right to participate in the affairs of the co-operative, which they democratically control. The members of a company, by contrast, of course hold their rights of control over the company in proportion to the number of shares they own. Greater power and control over the company can be acquired by buying more shares, but that cannot happen in a co-operative. Secondly, it is members, rather than shareholders, who provide the capital to a co-operative, and the distribution of profits is made by way of a dividend to those members based on their annual trade with the co-operative. In a company, profits are distributed in proportion to the shareholding a person has.

These legal differences point to a fundamental difference of purpose. A company carries on business for the private benefit of the shareholders at the time, whereas a co-operative is a trading mechanism for the benefit of its members; it is essentially a self-help mechanism enabling people collectively to meet their shared needs in a broader social context. It has a purpose that goes beyond the immediate business itself. This means looking beyond the personal, private needs of individual members and accepting the importance of collective needs, but also looking outward to wider interests including others affected by the business, wider society and, crucially, future generations—that last point is especially significant.

Parliament has long recognised these differences. In 1852, Parliament passed the first Industrial and Provident Societies Partnership Act, and this provided a formal basis for the establishment of co-operatives, many of which had already been established on the Rochdale model.

The Co-operative party exists as the political wing of the co-operative movement. Established in 1917, we took the decision in 1927 to form an electoral pact with the Labour party and, as a result, members including me and some hon. Friends are elected on ballot papers that say “Labour and Co-operative”, and we represent both parties here in Parliament.

In modern times, we advocate not only for the strict legal definition of co-operatives, but for the whole mutual sector. My hon. Friend the Member for Huddersfield (Mr Sheerman) made the point well about how widely that concept has grown. While we are on the subject, may I also formally offer my thanks to our outgoing general secretary, Claire McCarthy, for her commitment and passion and for what she has delivered for the co-operative movement? We will miss her a great deal.

I know that I speak for all of us when I say that we take great responsibility and honour in continuing to advocate the great co-operative tradition, but in my view, co-operation is a political tradition that appeals to those on all parts of the political spectrum. The thoughtful speech from the hon. Member for Wycombe (Mr Baker) made that point very well. In many ways, it was an intellectual case for a free market economy that goes beyond that straightforward Friedmanite definition of the concept of business, and I would welcome continuing that discussion in more detail.

Many of my hon. Friends also spoke in the debate today. My hon. Friend the Member for Harrow West (Gareth Thomas), who secured the debate, gave an excellent overview of the entire sector. We would expect nothing less from him, and his expertise is widely recognised and respected across the House. He made some specific asks, and I am with him on all of them, particularly on his point that we need to modernise co-operative share capital in order to fulfil the potential of this sector.

I often think of my hon. Friend the Member for Huddersfield as the father of the Co-operative group in Parliament. As ever, he was fizzing with co-operative passion and energy, and that is why we admire him so much. He talked about the insecurity that is a feature of so much of the modern economy and about how the co-operative movement can be an answer to that, as it was in the past. I very much agree with him on that point.

The hon. Member for Stafford (Jeremy Lefroy) made the absolutely excellent point that co-operatives can operate on a significant global scale. They can be significant players. Some people feel that this can be a niche sector of the economy, and it is important to make the point that some of the biggest co-operatives are bigger than some multinational businesses.

My hon. Friend the Member for West Bromwich West (Mr Bailey), who has delivered more as a Co-operative parliamentarian than almost anyone in his time in this place, mentioned the fact that we are still not living up to the potential of the sector. I think we all agree on that. He particularly highlighted how the trend towards self-employment could create more opportunities. That is a crucial point. He also mentioned the work of the northern city Mayors and their Co-operative Commissions, which I agree is very exciting.

My hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) mentioned his family experience. Mine is similar, except that it was the Northern Rock building society that we used to go to on a Saturday morning. As a child, I certainly did not appreciate or understand demutualisation. It felt like everyone in County Durham was receiving free money overnight. I thought that there must surely be a catch to that, and of course there was. My hon. Friend is a fluent advocate of co-operation, and his points on public services were particularly well made and something we should all take heed of.

The hon. Member for Argyll and Bute (Brendan O’Hara) talked about how the role of co-ops in Scotland continues to expand. He said that the crucial issue is the need for better advice, and that is something that has come across strongly in the debate today.

My hon. Friend the Member for Redcar (Anna Turley), the newly elected chair of the Co-operative party, talked about the powerlessness and frustration that a lot of people feel as a result of their inability to get a say in the world around them when they are buffeted by such strong global economic forces. She is entirely right, and in many ways that is the biggest issue of all facing our economy. She showed why she will be such an effective chair of the Co-operative party.

My hon. Friend the Member for Stroud (Dr Drew), as ever, made some very good points. It was great to hear him mention agriculture, and particularly the need to build on the parts of the mutual sector that already exist there, such as NFU Mutual. My hon. Friend the Member for Plymouth, Sutton and Devonport (Luke Pollard) talked to us about the plans in Plymouth. That level of ambition sounds truly superb. I almost think I should suggest a day trip down to Plymouth for the Co-operative Members of Parliament. He did not offer us many pubs, but perhaps we can see what they have done with the former ones. What an impressive advocate he is for the work going on in Plymouth! I commend him for that.

It was great to get a UK-wide perspective from the hon. Member for Strangford (Jim Shannon), and I could not agree more with his points on credit unions. I take my children to a credit union, which is part of their school, every week, and I want every school in the country to have that kind of practical example. That is relatively easy to do. The hon. Gentleman was right to say that it is in Northern Ireland that credit unions have been most successful, and there is much that we can learn from him and from Northern Ireland.

For my own part, I have always relished my role in promoting co-operative and mutual policy in Parliament. I have tried to legislate for co-operative housing tenure, for example, and I have lobbied for greater powers and resources for credit unions. It is that enthusiasm and conviction that I bring to my work in the shadow Treasury team. I am ambitious about the co-operative sector. I believe that we should not limit the drive for a more co-operative economy to just one Department or just one aspect of public policy, because this debate shows that co-operative ideas and models would benefit a wide range of matters, from railways to housing to energy production and supply, with huge scope for everything in between.

The Labour party and the shadow Chancellor, my right hon. Friend the Member for Hayes and Harlington (John McDonnell), have been clear that in government Labour will work with the co-operative movement to at least double the size of the co-operative sector. That was a pledge in the Labour manifesto that I and other colleagues here helped to secure, and that ambition is not hyperbole, because the opportunity is enormous. The UK’s co-operative sector is currently worth between £35 billion and £60 billion, depending on what estimate you take. That is big, but it is far smaller than the sectors in Germany or the US.

Being a co-operative is not a magic wand. Co-operatives can still succeed or fail like any other business, but it is true to say that twice as many co-operatives survive the crucial first five years as other businesses. Worker-owned companies have a clear productivity advantage over conventional businesses, and that fact should stand out to us when we remember that productivity is the biggest problem in the UK economy today. We should be more ambitious about what can be achieved. Regardless of which side we are on, I think we all want to see more resilient, high-productivity businesses in an economy that is fairer for everyone.

Crucially, we all recognise that although co-operation is a strong bottom-up movement, it can truly thrive only in a supportive regulatory and legislative framework, backed by practical support from both local and national Government. Make no mistake, if we were in government, that support would not be lacking. I want to legislate to give credit unions the power and the regulation they need to considerably expand their activities. I want a degree of employee share ownership to be incentivised and to be the norm in every business. It is the norm for executives, and it could be the norm for every worker. Under our plans for inclusive share ownership, it will be. I also want to ensure that our plans for a national investment bank, which will be organised through a network of regional investment banks, draw on the success of banking sectors and co-operative movements such as Germany’s. There is so much that could be done, and we should welcome the diversity, vibrancy and social purpose that the co-operative sector can bring. It has been a pleasure to respond to this debate today, Madam Deputy Speaker. We are, as ever, yours in co-operation.

Breathing Space Scheme

Jonathan Reynolds Excerpts
Wednesday 19th June 2019

(4 years, 9 months ago)

Commons Chamber
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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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I begin by thanking the Minister for his courtesy in giving me advance notice of this statement, which we broadly welcome. There has been a growing consensus for some time about the need for something less dramatic than formal insolvency proceedings which offers hope to people with problem debts that there can be a way out. That is what the breathing space scheme should be—a space to let people get back on their feet, perhaps overcoming a health issue, a period of unemployment or something else that has adversely affected their lives.

There will always be disagreement between the Opposition and the Government on the necessity of the austerity policies that have blighted the country since 2010, but no one can deny that household debt in the UK is large, growing, and problematic for many people. The big change that I have seen in my constituency is that people are using credit not just to buy a car, a new sofa or a washing machine, but to pay their living costs at the end of the month—for food, dinner money, and children’s clothes. The worst is when people, unable to take control of their own affairs, go from one short-term credit product to another, compounding the costs and liabilities they are incurring and sometimes ending up in hock to illegal moneylenders as the only option they have left. One of my constituents in such circumstances ended up suicidal.

We want this policy to work, and my questions for the Minister are in that spirit. First, can he say why a 60-day period has been chosen as optimal? Going back to the need to let people overcome whatever problems they face, I have always felt that the period may need to be longer.

Secondly, will the Minister confirm my understanding that all debts will be covered, including public sector debts like council tax arrears and benefit overpayments? I very much recognise the obliteration of local government finances over the past nine years and, alongside colleagues, I presented a petition to Downing Street this morning on how bad it has been for councils like mine in Tameside. Council tax arrears are one of the biggest causes of the bailiffs being called, and we need such arrears to be included, too.

In addition, will the Minister look specifically at the issue of guarantor loans? Under such loans another person, typically a family member, accepts joint liability for the debt. I had another case of this type from a constituent in Stalybridge just this week. If the breathing space period does not apply to these loans, the burden will simply pass and offer no relief, which would be counterproductive.

Ultimately, this policy will work only if there are sufficient sources of advice and support for people to access during the breathing space period. It is a reality that such services—citizens advice bureaux, local authority and housing association advice centres, and so on—have been put under massive strain over the past few years. So what strategy do the Government have to significantly improve the capacity in this area? Whatever initiatives have been pursued to date, and whatever merit they have, there is no doubt that we need to go further.

Finally, in the famous words of Archbishop Desmond Tutu:

“There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in.”

As well as a change of economic policy, we believe it is time to regulate further the interest that can be charged on overdrafts and credit cards, to look at the marketing of credit to vulnerable people, and to ensure there is real and effective financial education in schools.

There is a lot to do. This statement is a move in the right direction, but let us make sure we keep going in that direction.

John Glen Portrait John Glen
- Hansard - - - Excerpts

I thank the hon. Gentleman for his typically positive and constructive remarks, and I will try to address the five key points he raises.

First, the 60-day time period is longer than our manifesto commitment of six weeks and is the product of listening to the consultation responses and to the experience of the mechanism in Scotland. Overall, it is seen as the right solution.

Secondly, the hon. Gentleman asked which debts are included. I tried to set out in my statement that the scheme is extremely broad, covering public sector debts and arrears. He asked about bailiffs and their role. Of course, the Ministry of Justice completed a consultation exercise in February and will respond in due course. There is also Cabinet Office guidance on the fairness of debt collection. He makes a reasonable point.

Thirdly, the hon. Gentleman asked about guarantor loans, which are an emerging new category of high-cost credit. Such matters are regulated by the Financial Conduct Authority, and I had a conversation just this morning with its chairman. I spoke to Andrew Bailey, its chief executive, earlier this week on the need to be vigilant across all emerging forms of high-cost credit, which is under ongoing review.

Fourthly, the hon. Gentleman asked about capacity and capability in the area of debt advice. I envisage that the creation of the Money and Pensions Service as a new single entity will bring much better co-ordination of the available advice. As I mentioned, the Government spent £56 million last year, and 85,000 more people were seen than in the previous year. We are looking at how that advice can become consistently of a higher standard.

Finally, the hon. Gentleman asked about the long-term causes and the regulation and marketing of high-cost credit products. Following the recent issues at London Capital & Finance, I directed the FCA to examine what happened, and I have asked my officials in the Treasury to conduct a separate review of how regulation works. We have to continue being vigilant on this evolving space, and the increased digitalisation of the availability of high-cost credit means that the regulation and oversight needs to keep pace.

I hope that answers the hon. Gentleman’s questions.

Financial Exclusion: Access to Cash

Jonathan Reynolds Excerpts
Tuesday 21st May 2019

(4 years, 10 months ago)

Westminster Hall
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Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.

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Jonathan Reynolds Portrait Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
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I thank you, Sir Henry, for giving me the opportunity to respond to the debate. I thank my hon. Friend the Member for Feltham and Heston (Seema Malhotra) for securing this debate on such an important issue. It is good to see such a significant turnout of colleagues. There has been a fair degree of consensus in what has been said.

As shadow City Minister, I spend a great deal of time thinking about how financial services can be changed to improve financial inclusion and how we can remove the poverty premium that we know exists in the UK and that so many Members have referenced. For me, it is impossible to build a fair society—the kind of society we all want—without guaranteeing a degree of access to basic financial services. It always confounds me that we are one of the most advanced global financial centres in the world, yet there are 1.6 million adults in the UK who remain unbanked, and thousands more who are denied access to the basic levels of credit that many of us take for granted.

When I look to the future, I see the challenge as making sure that we can use new technology to tackle financial inclusion, rather than compound the problem. Some new financial technology companies are doing brilliant work to break down historical barriers in banking, such as providing easier access to bank accounts or using rental payment data to help build up credit scores, but technology risks leaving people behind if we do not protect and equip them along the way. That has been evident in the trends surrounding the use of cash.

As many Members have said in the debate today, our use of cash as a nation is declining. According to figures from the British Retail Consortium, cash accounted for just 22% of retail transactions in 2017, which is an inevitable consequence of the rise in popularity of contactless and mobile payments, but there is a significant danger of sleepwalking into a cashless society without giving careful thought to what that will really mean. Some communities, especially vulnerable ones, are still reliant on cash and their ongoing access to cash must be protected. I unreservedly commit the Opposition to that position.

Some poorer families and individuals need cash to budget effectively, a point that was well made by my hon. Friend the Member for Makerfield (Yvonne Fovargue). There is no solution that compares with cash for people who are reliant on, for example, a carer to carry out tasks for them—it is quick and easy to see how much change there is when a carer has done the shopping for someone—and, of course, for the unbanked, cash is a lifeline without which participation in society would simply be impossible. It is up to us to carefully consider access to cash and to create a system that protects more vulnerable individuals.

Natalie Ceeney’s Access to Cash report, which was commissioned by Link and has been referenced quite a lot in the debate, outlined the situation we face and made some sound recommendations for consideration. The Chair of the Treasury Committee noted at the time that

“leaving the future of cash to be determined by market forces will not work.”

The Opposition certainly agree with that.

Establishing cash as a utility will be central to protecting consumer access. I have heard quite a lot of support for that in my initial conversations with the big UK banks, with ideas such as how they could share cash-centre facilities—the sort of back-office function that underpins much of the cash system.

Bank branch closures form a critical part of this debate. In the Opposition’s view, the reduction of the bank branch estate has been too severe. Under a Labour Government, there would be mandatory consultation on bank branch closures, given the negative impact they have on communities, which many Members have referenced. I am mindful that we have held quite a few Westminster Hall debates on this topic recently, and Members will have heard our views then, so I want to focus on the ATM estate.

We know that the number of ATMs has dropped significantly. There are complex factors at work that we must be mindful of. We should focus on protecting ATMs in communities that would end up being stranded long distances from free access to cash if they were to close. LINK’s offer to pay a subsidy on those machines of up to £2.75 is an important step towards preventing cash deserts from emerging.

In other places, especially city centres, we will ultimately see that there is an excess of cash machines. It is inevitable that there will be closures in areas of high concentration. For example, I am planning to go home today and when I get to Manchester Piccadilly station, there are at least six free-access cash machines on the station. I think that will probably decline over time.

I add a word of caution. We must be alert as politicians and regulators not to be seen as being there to protect the incumbents from the consumer change that we have seen. We can protect access to cash at the same time as recognising changing consumer habits.

We must also must be open-minded about creative solutions that will help to safeguard choices for everyone in how we pay. Lloyds Banking Group, for example, has launched a pilot scheme to incentivise cashback by paying retailers a small fee per transaction. We will have to see the results to ascertain whether it is effective, but at face value it seems like an interesting addition to the provision of cash. Cash can be expensive for shops to process and handle securely, yet keeping a small cash float that can be passed on to consumers would help address that problem. It means they can still accept some cash from customers who want to use it, and it would encourage visits to the high street. The point about business rates raised by my hon. Friend the Member for High Peak (Ruth George) must also be addressed. There will not be one panacea that regulators can impose to solve access to cash. The solution will lie in deploying a mix of such co-operative tools that see banks and shops working together.

The Opposition urged the Treasury to open an urgent review into access to cash when Natalie Ceeney’s report was published. I am pleased that those calls have been heeded with the establishment of the Joint Authorities Cash Strategy Group, which must act quickly to ensure that the future of cash can be safeguarded. I am particularly keen for local communities to be given the right to demand a review of access to cash in their areas, which the regulator will then have to respond to if necessary. For our part, the Opposition are ready to support any effort that moves us towards treating cash as the essential utility it is, guaranteeing access to it for all and protecting cash for those who really need it.