Draft EEA Passport Rights (amendment, Etc., and Transitional Provisions) (EU Exit) Regulations 2018

Jonathan Reynolds Excerpts

Wednesday 24th October 2018 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mr Austin. This Committee marks the 13th time I have done a Delegated Legislation Committee for the Opposition in my role as a shadow Treasury Minister. In that time, I have seen Committees on issues of varying significance and impact. The Minister and I have done everything from the post-financial crisis regulatory regime to formally dissolving the British Potato Council, but I do not think anyone would deny that the piece of legislation before us today is on a completely different scale because of its importance and the issues of substance that it covers.

As is well known, the Government took a decision to undertake the bulk of the legislative preparation for our EU withdrawal through secondary legislation. As an Opposition, we have voiced our concerns about that on many occasions because of the transfer of power to the Executive that it entails. I very much appreciate the work that has been done by the Minister and his staff in the civil service to brief us on the process, but it is unquestionable that, in a normal environment, changes such as this should be dealt with through primary legislation, given the scrutiny that that would bring. The sheer number of Treasury regulations and the speed with which they have to come forward is deeply concerning in respect of holding the Government fully accountable. As the Opposition, we commit to making every effort to do that, but it is undoubtedly a constitutionally unprecedented and tremendously resource-intensive task, and it leaves room for error.

It is disappointing that we have reached the stage where such contingency measures for a no deal scenario must be laid before the Committee. The UK is very close to our EU exit date, and financial services firms need certainty about the shape of things to come, which has been sorely lacking. As a result, financial institutions have already begun to enact their own contingency provisions such as moving subsidiaries and assets to the EU. They began that process many months ago.

I repeat my thanks to the Minister and his staff for taking the time to ensure that we have as much clarity as possible on what the measures mean, but the extent of the regulations paints a bleak picture, most notably with the consequential amendments, which show what we will be giving up if the negotiations do not progress, including co-operation with the EU on the implementation of sanctions and asset-freezing.

I begin by asking for the Minister’s reassurance about the presence of such clauses and their intended use. We have taken it on trust that the regulations simply provide for a functional statute book in the event of no deal, but in the interests of ensuring full transparency, will the Minister confirm that for the record? We would be failing in our duties if we were not to get that on the record.

Moving from the principle to the substance of the regulations, I want to ask the Minister specific questions about the potential temporary permissions regime and how it would operate. Given that the TPR would underpin the full regime for passporting financial services into the UK, it is a possible fundamental building block of our future regulatory regime. Will he make clear to the Committee what the Government’s current negotiating objective is in relation to the passporting rights for EU financial services firms given that it is the backstop contingency measure? What is the ideal scenario? How will legislative provision be made for it?

Adding to the democratic deficit in the process, elements of the draft legislation seem to bestow significant discretionary powers on the regulators—both the FCA and the PRA. Regulation 6(6)(a) appears to give the FCA and the PRA powers to set landing slots of any length and any notice period for which an EEA firm passporting into the UK must apply for full UK authorisation. Should those landing slots have a minimum duration so that financial institutions are given a minimum notice period before being required to submit an application? In practice, such applications can take weeks or months to prepare and firms will need as much time as possible.

It appears that regulation 6(7) extends the period for which the regulators are able to delay a decision on whether to grant UK authorisation from the current six to 12 months to three years from exit day. That seems disproportionate and unfair to companies, which will endure a long period of uncertainty about whether they will be granted UK authorisation. Will the Minister clarify the reasons for that? We recognise that increased regulatory workload is likely to increase approval times, but surely they should be closer to the current timescale—perhaps they should increase from six months to nine, or from 12 months to 15. Clearly, there must be no outstanding applications awaiting approval at the end of the three-year transition period.

The Opposition argue that regulation 6(8) should include a minimum notice period to tell firms that their UK authorisation has been declined. A refusal will necessitate the winding down of operations and may present a risk of disruption to customers. It is essential that a firm’s withdrawal from the market is as orderly as possible. Firms need time to prepare. Obviously, that has to include a three-year cut-off at the end of the transition period.

Finally, the Opposition suggest regulation 19 should be looked at again. That regulation would give the FCA and the PRA powers to enforce the requirements of a passporting EEA firm’s home state regulator on that firm. However, that creates new practical issues related to the ability of UK regulators to act on an extraterritorial basis. We suggest that alternatives could be looked at. It was suggested to me that co-operation agreements could be set up with local EEA regulators for relevant member states so they retain enforcement powers for breaches, but I am mindful that Ministers and the regulators will have discussed other options. I am interested to hear the Minister’s view about whether it is possible to reconsider regulation 19 with other types of remedial measure.

Those issues show the scope and complexity of what we are dealing with. I am aware that we are under significant time pressure, both with exit day looming and given the volume of secondary legislation that must be passed in the coming months. However, for the sake of one of the UK’s most important economic sectors, we must not let that stand in the way of proper scrutiny and consideration.

--- Later in debate ---

[John Glen]

I have stated my and the Government’s position. We are working towards a deal that is in the best interests of the United Kingdom as a whole. There was an awareness of this measure on 20 December last year. It was laid on 11 July. The head of the PRA came to the Select Committee on 11 July and set out how desirable it was. With respect to the wider question of the economic consequences of different outcomes, it would be beyond the scope of this Committee if I set that out here and now. However, I can say that we must have a deal that is right for financial services and allows us flexibility going forward, but this measure is about making sure that we have adequate certainty for consumers who benefit from the financial services of EEA firms, and that is what this is about.

As to what will happen to UK firms that passport into the EEA , the Government, as I said, can take legislative action only in relation to EEA firms that passport into the UK. We cannot, through unilateral action, influence the status of UK firms operating in the EEA. However, as I said, it is hugely desirable for their consumers for them to do it. That is why we really want to avoid that situation and agree a deep and special partnership with the EU, as well as an implementation period, which is important for both.

[Jonathan Reynolds]

I think the Minister is saying that the Government’s objective is still for mutual regulatory recognition for—essentially without the existence of the passporting regime—similar arrangements to those we have now after we leave. I think most people would acknowledge that that is quite a difficult thing to propose without negotiating a new relationship with Europe that would include such things as being part of a new customs union, as the Labour party has proposed.

Is it not possible that, if the Government agree what we might call the Chequers package—a common rule book on goods—even though a deal might be agreed we should still be using the measures we shall agree today? Even though a deal of some sort was agreed, because it did not cover the financial services sector, we would still be using the regulations that are before the Committee.

[John Glen]

Of course, the outcome of the negotiations will determine what we do. If we get a deal, clearly the implementation period will take effect. We would then have to look at what new legislation was optimal, from a financial services point of view, to keep us competitive; but such decisions have to be deferred until we get to that point.

I do not want to detain the Committee unduly, but there were other points I wanted to address. On the point about the FCA and the PRA powers to enforce home regulator powers or breaches, it is not an extra-territorial measure, but it has effect in the UK only. It merely preserves requirements imposed by an EU regulator so that the EU regulator does not have to impose such requirements itself. Once in the regime, the UK regulators will be able to disapply the requirements if they choose.

I think I have probably addressed all the points that were made. I am grateful for the number of points that have been fed to me from my left. I do not think that I have addressed all the scenarios to the satisfaction of the hon. Member for Edinburgh South, and I acknowledge his dissatisfaction. All I can say is that the Government are fully committed to delivering the best possible deal on financial services. I visited Edinburgh over the summer recess and I acknowledge the importance of financial services to the hon. Gentleman’s constituency, and to jobs throughout the country. We hope that we shall not need provision for a no-deal scenario, but it is appropriate that we make provision for it today.

Question put and agreed to.

Resolved,

That the Committee has considered the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.

Business Banking Fraud

Jonathan Reynolds Excerpts

Tuesday 9th October 2018 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I, too, thank the hon. Member for Hazel Grove (Mr Wragg) for securing today’s debate. Colleagues will know that he and I are constituency neighbours. The powerful case study that he gave on behalf of his constituent could quite easily have been on behalf of one of mine. I first became aware of the scale of the issues through constituency examples. Every Member who has spoken in today’s debate has presented those testimonies extremely well. I also thank the all-party parliamentary group on fair business banking and finance, especially for the efforts of its chair, the hon. Member for Thirsk and Malton (Kevin Hollinrake), who gave an authoritative and powerful account of some of the problems that have come to the group’s attention.

Many of us have participated in similar debates before, but as we mark the 10th anniversary of the financial crisis it is a good time to consider the relationship between businesses and their banks. All of us in the Chamber, even though we have come today with powerful case studies of inappropriate behaviour, want to see a strong relationship between businesses and banks. Having a good relationship between banks and businesses is critical to our economic growth, prosperity, employment and much more.

Unfortunately, research shows that frighteningly low numbers of small businesses trust their bank to do the right thing for them. That is unsurprising given some of what we have heard today. We have to improve that. We have to look at why that is, and how we can change it. We have to restore confidence that the regulatory system is fair, and crucially that there will be a level playing field for businesses when they find themselves in conflict with their bank, especially if their bank is suspected of having committed fraud, as we are discussing today.

The central premise of today’s debate and of all the speeches has been that there are insufficient resources available to tackle business banking fraud. Colleagues will be aware that I agree with that premise. The National Crime Agency, the Serious Fraud Office, local police forces and the Financial Conduct Authority do not have sufficient capacity, either individually or collectively, to look into the matter with the attention that it deserves. I am sure that the Minister will refer to the new National Economic Crime Centre—the NECC—a new unit of the National Crime Agency. An initial budget of £6 million does not seem sufficient when compared with, as I think the hon. Member for Harrogate and Knaresborough (Andrew Jones) mentioned, the £7 million cost of the Thames Valley police investigation into HBOS in Reading, and given the scale of the issues raised today.

I want to say quite a bit more, because I do not think that we can simply say, “This issue requires more resources and that will solve the problem.” It is about how we can change the culture that has led to such outrages happening time and again. I will talk about three different ways in which I believe we could contribute to achieving that. First, we could launch a full public inquiry into recent business banking scandals. Secondly, we could introduce an independent tribunal system for small and medium-sized enterprises to resolve disputes. Lastly, we could put in place a more robust system to better protect and enable whistleblowing.

The first step has to be securing proper redress for SMEs that have been mistreated by their banks. Scandals such as GRG and HBOS mis-selling have been outrages, and have seriously dented business and customer confidence. The shadow Treasury team has consistently called for a judge-led independent inquiry into RBS GRG and other small business banking scandals, so that victims can get proper redress. I know that several colleagues in the Chamber have argued strongly for the same measure. There is clearly cross-party support for that to take place.

Such an inquiry would not just get to the bottom of the case studies that have been raised today; it would establish whether there is further criminal liability to be addressed, and examine the wider systemic issues that have allowed such events to take place. We are talking about people’s livelihoods, homes and relationships. Some people have simply been ruined. These issues are too important for us to sweep under the carpet, with the risk that such events could happen again. We have to be able to go out from a debate such as today’s and promise constituents that this will not happen again. In my view, a full public inquiry is required to do that.

Secondly, in terms of disputes, part of the problem is that it is well recognised that the gap between the financial ombudsman for individuals and the full legal process for very big firms is just too great. I support the all-party parliamentary group’s proposal to establish an independent tribunal to help create a level playing field between businesses and the banks in order to fill that gap.

We all await with interest the outcome of the UK Finance independent review, chaired by Mr Simon Walker, into complaints handling and alternative dispute resolution for SMEs. I have met Mr Walker and I understand that he will report very soon. The review will examine dispute resolution processes in different sectors and countries, and provide some evidence-based conclusions on how we can meet the needs of businesses for larger or more complex disputes.

Other initiatives are under way that will hopefully progress the situation. In July 2017, 20 banks signed up to the new standards of lending practice for business customers, which outlined what businesses should expect from their bank when in financial difficulty. Although such moves are welcome, my view is that ultimately we cannot rely on the industry to self-regulate. Look at the RBS GRG complaints resolution process as evidence. Concerns are being raised about how the goalposts have been moved regarding compensation, and how the process has been subject to quite a lot of individual discretion. That is why an independent tribunal system is necessary.

Lastly, an answer could lie in exploring a change in our approach to whistleblowing in financial services in this country. Whistleblowing will never be a substitute for effective action by regulators, but it can play a part. That is especially important in a time of scarcer resources as a result of public spending cuts. The Dodd-Frank Act in the US, which was introduced as a central piece of post-financial crisis legislation in 2010, is a demonstration of how much more robust the whistleblower protection framework could be. Whistleblowers in the US are entitled to awards where their information leads to enforcement action. The framework is structured in such a way as to disincentivise false reports, but to provide protection in the event of dismissal.

The UK legislation, on the other hand, is much weaker. Although the Financial Conduct Authority can assist whistleblowers under the Public Interest Disclosure Act 1998, it has not been enshrined in regulation in the way the Dodd-Frank Act has been used in the US. There is a case for examining how we could introduce specific financial services whistleblower protection in order to seriously improve conduct in banking. I have encountered significant support for that within the sector itself. I think the hon. Member for Thirsk and Malton mentioned that many good people are working in the sector who want to see such issues improved so that today’s debate does not have to happen again.

Having a banking system that we can trust is essential to our economy. Entrepreneurs who have taken the risk of setting up their own businesses deserve to know that there will be proper redress if they have been the victim of unscrupulous practices. SMEs are the backbone of the British economy. If they cannot trust the financial institutions that are meant to serve them, we will all pay a price.

If we are to begin to restore trust to UK business banking, there are two outcomes we have to achieve. The first is to ensure that the victims of the GRG and HBOS banking scandals get proper redress for the damage done to their businesses and livelihoods, and individuals, as well as the institutions they worked for, must face sanctions for their actions. The second outcome is that we must create a framework in which such a flagrant abuse of the bank and business relationship can never happen again.

With the combination of a full public inquiry, the establishment of an alternative dispute resolution mechanism and a radical rethink of how we treat whistleblowers, we could begin that process. These businesspeople, many of whom are in Parliament today, were badly let down. We must all commit to less talk and more action to get them the redress that they deserve.

[Mr Laurence Robertson (in the Chair)]

I would like Mr Wragg to be left a minute to wind up at the end. I call the Minister.

Oral Answers to Questions

Jonathan Reynolds Excerpts

Tuesday 11th September 2018 Commons Chamber

[John Glen]

Absolutely we will.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

This Government may say that they are taking action on household debt, but the fact is that they rely on that excessive debt for economic growth. The Office for Budget Responsibility says that nine tenths of all GDP growth last year is attributable to household consumption, which is being fuelled by unsustainable levels of debt. Instead, we should raise investment, both public and private, which in the UK is well below the average for a developed country. We have plans to do that, but will we see any such proposals from the Government in the forthcoming Budget?

[John Glen]

The Chancellor has set out in successive Budgets our commitment to invest in this economy with the national productivity plan. We must recognise that we need affordable investment, and we have found out over the past 24 hours that the Opposition’s plans are confused. If £500 billion is just a down payment and the start of the investment, where will it end? Is that affordable?

Draft Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) (Amendment) Order 2018

Jonathan Reynolds Excerpts

Monday 16th July 2018 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mr Davies.

As we approach the 10th anniversary of the financial crisis, this order is a timely reminder that the regulatory effort to ensure that we have a safer, more robust banking system is still a work in progress. Creating safeguards to prevent a repeat of the events of 2008 are of the highest priority, given the devastating impact of that crisis on people’s lives and the wider British economy, the legacy of which is still felt by many families today.

Few would disagree that there is still significant work to be done to rebuild trust in the banking sector and to create a framework of institutions that serve both customers and market participants fairly and effectively. Ring-fencing is a central part of that project. Given its scale and complexity, it is perhaps understandable that areas have arisen during the implementation phase that require further amendments to the statute book. Banks should clearly not be put in the position where it seems that there is a conflict between complying with the letter of the law on ring-fencing and with the rules on financial sanctions, so the Opposition support the measure.

Significant sums of money may be involved. According to the Government’s written statement in February 2018, up to £1.4 billion flowed through the UK in breach of financial sanctions in 2017. Worryingly, that figure is a correction to a previous parliamentary statement that wildly underestimated the figure at just £117 million. Given the geopolitical environment, which the Minister knows only too well from events in his constituency, the Government must do better to instil confidence that they can clamp down on dirty money coming into our financial system.

I have two questions for the Minister about the order. First, it dictates that banks will have up to six months to move accounts over after sanctions have been lifted. Can he shed some light on how that timeframe was decided on, as it seems rather generous? Secondly, the explanatory memorandum states that the Treasury will consult with affected banks, in tandem with the regulators, on their implementation plans. Can the Minister provide further information about how the order will be monitored for compliance purposes, to ensure that the affected banks have moved accounts in the allotted time?

Leaving the EU: Customs Arrangements

Jonathan Reynolds Excerpts

Tuesday 10th July 2018 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mr Streeter, and I congratulate the hon. Member for Wimbledon (Stephen Hammond) on securing this debate. I do not wish to do him any harm, but I can say honestly that I am always prepared to listen to him, and I found his speech lucid, informed and persuasive.

You will understand what I mean, Mr Streeter, when I say that when I was sitting in the Library yesterday, this was not an easy debate to prepare for. Major issues within the Cabinet were being resolved in public, and it was not clear whether today would begin with the Prime Minister being in a position to say that she can go forward and deliver the Brexit deal that protects jobs and the economy that we all want. I do not say that with any pleasure or partisanship, because as I listened to the hon. Gentleman, I could not help thinking that at this stage we should not even be having this debate. We should know the answers to many of the questions he raised, or at least we should know the UK’s preferred answer to those questions.

We cannot deny that, since the referendum result, there has been a lot of delay and dithering, and the lack of clarity that that has caused has put jobs and living standards at risk. That delay and lack of clarity is operating within an economy that still faces many significant challenges, such as the collapse in growth, huge problems with productivity, and the fact that many of our constituents live very difficult lives—those on both Front Benches agree about those challenges, even if we propose different solutions.

It seems reasonable to say that the Government by now should have come up with a credible and comprehensive customs plan for post-Brexit. Recent events at Chequers indicate that the Government are moving away from the type of Brexit advocated by many Tory Brexiteers and towards what we might call a soft Brexit—I would simply call it an economically realistic Brexit—but the Government’s proposals at Chequers stop short of the comprehensive customs solution we feel is needed. Meanwhile workers, businesses and everyone who voted in the referendum, no matter how they chose to vote, are reasonably seeking reassurance and security over what Brexit is likely to mean for their future and that of the country.

As the Opposition, our message has been clear and consistent: we respect the result of the referendum, but we still want to work with European partners in the economic interests of the country. Our priority is simply to get the best deal for jobs, living standards and the economy, and we are pragmatic about how that should be done. We will reject any race to the bottom in workers’ rights, environmental safeguards, consumer protections or food safety standards. We want people in this country to continue to enjoy the same protections as our cousins on the continent. That is why Labour proposes to negotiate a new comprehensive UK-EU customs union to ensure frictionless trade between the UK and EU. In particular, we want to ensure that there are no tariffs with Europe and the continuation of advanced supply chains, particularly in manufacturing, which was well described in speeches today. Crucially, we want to help avoid a hard border in Northern Ireland.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

A number of northern businesses have come to me. They are all globally owned, global manufacturing and exporting businesses that use the port of Dover. They have said they are now looking at contingency with other ports because of the proposed customs arrangements. They are concerned that every port will have the arrangements and their businesses will have to move outside the UK. Are the proposals that my hon. Friend is outlining not exactly the sort of proposals that will alleviate the fears of those businesses?

[Jonathan Reynolds]

My hon. Friend is absolutely right. I say to all Ministers that, for many of us, this matter is not an abstract question. I am a little younger than my hon. Friend the Member for Bishop Auckland (Helen Goodman), but I grew up in the north-east in the 1980s, not far from her constituency. It was clearly a time of substantial turmoil. We had the miners’ strike and the shipyards closing. The modern prosperity of those areas has been built around a relationship with the single market, the European Union and inward investment. Many of my schoolfriends work in that Nissan plant, which is the most efficient car factory in the world. There is a plant in Mexico that disputes that, but we are pretty sure we have got it. The Government should not underestimate just how willing many of us are to fight to ensure that the next generation do not have to undergo the kind of economic turmoil that many of grew up within. They should recognise the benefits that have been brought from that relationship.

The Taxation (Cross-border Trade) Bill—many of us here are veterans of its Committee—ostensibly sets out from the Government’s point of view how we will create a functioning customs framework for the United Kingdom once we leave the European Union. Many of us have read all of that Bill, and there is nothing in it that guarantees frictionless trade through UK ports from the moment of exit. There are no measures that properly resource Her Majesty’s Revenue and Customs for the task ahead. There is nowhere near sufficient detail on the powers and provisions of the Trade Remedies Authority, which will be charged with securing vital British interests.

Frankly, it is just an enabling Bill. The political decisions that will be required to decide whether we use the powers within that Bill have not yet been taken. They may have been taken at Chequers, but we will need to see more detail on that and the political fallout. It is still fair to say that the Government have failed to offer specifics on what the new customs system will look like, how it will work and, crucially, whether it will be ready on time. Huge underlying questions remain about whether the current customs declaration service programme can deal with the sheer workload and pressure coming its way post-Brexit.

Everyone in the House agrees that we must avoid the nightmare scenario of gridlock at UK ports with lorry queues stretching as far as the eye can see, yet the Government continue to refuse to acknowledge that HMRC has had its staffing levels cut substantially—they have been cut by nearly a fifth since 2010. There are still plans to close 137 HMRC offices across the country. HMRC has 2,000 less staff today than it did on the day of the referendum. That has to bring into question our ability to deal with a future customs regime.

In contrast, we recognise the urgent need to hire and train more customs officers and HMRC staff, particularly if the Government are to meet their ambitious target of a fully operational customs system by 2019. In addition, the Public and Commercial Services Union only last week warned that strike action looks increasingly likely after the Treasury announced without consultation that the pay cap would be lifted only through cuts and increased workloads across Departments. That is not an ideal position to be in, based on where we are today.

Post-Brexit, we will need the ability to enforce against the dumping of unfairly priced goods. At the moment, those remedies are provided in conjunction with the EU, but on leaving the UK will have to enact and manage its own trade remedies. The measures are spread across a number of pieces of legislation and are of great interest and importance to UK manufacturers. The manufacturing industry remains an indispensable part of the UK economy. Some of the speakers today, particularly my hon. Friend the Member for Bishop Auckland, articulated just how specific and detailed the questions are that we are receiving from constituents on how the system will work. The complexity of modern manufacturing does not seem to tally with some of the Government’s aspirations for how the system will work going forward.

We want the Government to set out a clear path to our mutual objective of creating a functioning institutional framework for the handling of customs once we leave the European Union. Crucially, we must recognise that the final customs regime post-Brexit will be a result of the deal we strike with the EU, not the deal we strike among ourselves in Parliament or between different factions of the Conservative party. We must be ready for that regime, but we feel that the overwhelming evidence favours the UK entering into a continued and renewed customs union with the EU. The Government perhaps moved some way towards that last weekend. Perhaps they will go just that little bit further to get us the post-Brexit customs regime that this country needs.

[Mr Gary Streeter (in the Chair)]

Before I call the Minister to respond, I ask him to leave two minutes for Mr Hammond to have the final word.

Draft Financial Services And Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 Draft Electronic Presentment Of Instruments (Evidence Of Payment And Compensation For Loss) Regulations 2018

Jonathan Reynolds Excerpts

Wednesday 4th July 2018 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Neither of these two important draft statutory instruments is particularly controversial for the Opposition. The first one, the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018, relates to the admission of alternative finance investment bonds to different trading venues, as the Minister said, including multilateral trading facilities and organised trading facilities.

I am aware that our noble colleagues in the Lords have already considered the matter. I echo the points that my noble Friend Lord Tunnicliffe made on 25 June. He said that the explanatory notes to the order could have been clearer, as it took a bit of decoding to understand that it relates to sukuk. Transparency and clarity are important—not just for scrutiny in Parliament but so that people outside Parliament understand what we are doing. I appeal to the Treasury to bear that in mind in the future.

This is undeniably a positive initiative to promote and consolidate the UK as a hub for Islamic finance. I want the UK to be a hub for as many different categories of finance as possible. According to the Islamic Development Bank, the UK already has the largest Islamic financial sector of any OECD country. In 2014, it became the first ever non-Muslim country to issue a sukuk. In a post-Brexit environment, it is important that we continue to invest in and build on the City’s strength to attract revenue from around the globe, as a world-class, world-leading financial centre, and to service our domestic financial market.

Islamic finance brings many advantages of its own. When London’s Mayor, Sadiq Khan, opened a major conference on Islamic finance earlier this year at the London Stock Exchange, he said that it drives positive, ethical change around the world. The Opposition, therefore, do not oppose creating a level playing field in this area of finance, and we do not see any immediate issue with the changes before us today. The entire point of MTFs and OTFs, as introduced by the markets in financial instruments directive, is to create a more efficient and competitive trading environment. That cannot be the case if unintended restrictions exclude certain instruments. Sukuk is an important pillar of the Islamic finance market, representing 17% of the entire industry, and competition with other trading venues globally is fierce. Hopefully, the settling of this issue will bring much-needed certainty to any issuers who are considering listing in the UK.

Will the Minister explain why this oversight is being rectified today, given that it formed part of the amendment that the Finance Act 2018 made when it was implemented on 1 April 2018? Are the Government confident that there are no further gaps in that legislation that will require attention? I look forward to the Minister’s response, and to the passage of this order, which will allow the UK to be promoted further as a centre for excellence for Islamic finance.

The second item for discussion today is the draft Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018. It is sometimes said that Back Benchers do not always find delegated Treasury business to be the most exciting business before them in the parliamentary week, but on this occasion I beg to differ. We are discussing a useful and enabling piece of technology, which has allowed banks to speed up cheque processing by using images, instead of physically transporting pieces of paper. I am fascinated by the way historical banking transactions and new technology can be brought together in ways that benefit the customer. We would surely never have dreamed, 15 years ago, that handheld phones could enable cheque deposits.

As with all exciting banking technology innovation, it is vital that we strike a balance between innovation and consumer protection. Sadly, as digital technology evolves, so too do the techniques of fraudsters looking to exploit customers at every link in the payments infrastructure. The Opposition support this regulation, which clarifies where compensation will come from if somebody is defrauded. However, it is a significant shift to transfer the liability from the paying bank to the payee bank, so it is important that that is monitored for any potential unintended consequences. The shift must be effective with regard to compensation where it is needed.

As it stands, the principal use of the image clearance system is in the banks themselves, but will the Minister encourage the further roll-out of the system to customers themselves? I am aware that some banks are already using this technology, but it is not standard yet. That would be especially valuable to customers with impaired mobility. I would be interested to know what consultation has taken place with the banking sector on progress towards that. Further safeguards may be needed to protect customers as the situation evolves. As ever, maintaining a strong regulatory framework must be our priority.

Oral Answers to Questions

Jonathan Reynolds Excerpts

Tuesday 3rd July 2018 Commons Chamber

[Elizabeth Truss]

The financial services industry is a very important industry for the whole UK and we want it to do as well as possible, which is why we are working on getting the best possible deal. It is in the interests of EU countries that rely heavily on UK financial services to get a deal that suits both sides.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

According to EY’s recently released Brexit Tracker, a third of all financial services companies have confirmed that they will move staff or operations outside the United Kingdom. Most are going to Dublin, Frankfurt and Luxembourg, and they are going because this Government cannot give them the basic assurances for which they, and we, have been asking for 18 months. After eight failed years of Conservative government, we simply cannot afford this. What are the Government going to do to stop it getting any worse?

[Elizabeth Truss]

I am amazed that the hon. Gentleman did not mention the fact that the City has yet again been rated the top financial centre in the world. We hear nothing but doom and gloom from the Labour party about the future of our economy. If the hon. Gentleman thinks that the solution to our problems is calling business the enemy and overthrowing capitalism, he is seriously mistaken.

Banking Misconduct and the FCA

Jonathan Reynolds Excerpts

Thursday 10th May 2018 Commons Chamber

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It has been a sobering experience to listen to this debate. We have heard so many stories and so much advocacy from hon. Members on behalf of constituents. I commend everyone who has spoken today. I thank my hon. Friend the Member for East Lothian (Martin Whitfield) and the all-party parliamentary group on fair business banking for securing this debate on a topic that continues to be of such critical importance.

In my remarks I want to restate the Opposition’s support for a full public inquiry; talk a little about the current inadequacy of the regulator and the section 166 procedure; state why an independent mechanism of redress for business is clearly required; and say why this is in the best interests not just of customers and the country, but of the banks themselves.

This debate shows that the issues around the relationship between banks and their business customers are not fading, diminishing or going away. Rather, in recent weeks we have continued to hear yet more appalling revelations about the way in which RBS’s Global Restructuring Group treated its customers and stories of how that had spread to other financial institutions, too. Following the efforts of my hon. Friend the Member for Norwich South (Clive Lewis), we can now read the full section 166 report on the conduct of the GRG unit. The extent of the inexcusable behaviour revealed in that report is truly shocking. The purchase of the assets of distressed businesses, in some cases by RBS staff themselves, illustrates just how deeply the conflicts ran within GRG. Clearly, certain bank employees felt that they could act with total impunity towards their customers, and that cannot be acceptable.

We are all aware that the complaints process is ongoing between RBS and its former business customers who were the victims of GRG. However, I echo the call made by my hon. Friends the Members for Norwich South and for Sefton Central (Bill Esterson) in the debate that took place earlier this year in saying that this issue demands a full, independent public inquiry. Given the revelations exposed in the section 166 report, there must be a comprehensive examination of whether criminal liability has occurred, and those responsible must be held to account. In addition, given that certain individuals involved in GRG’s management continue to work in senior positions within British banking, surely an objective assessment should be made as to whether those people are fit to do so.

I am afraid that the Government’s response on this has so far fallen short—for instance, in the Treasury’s repeated cut-and-paste responses to the numerous parliamentary questions tabled by my hon. Friend the Member for Sefton Central since December 2017. The Treasury has simply deferred the issue time and again, saying that it is impossible to comment while the Financial Conduct Authority’s investigation is ongoing. Will the Minister please acknowledge today the strength of feeling in all parts of the House?

Another key issue is the effectiveness of the existing system—in particular, the use of section 116 reports and whether that is entirely appropriate to deal with these cases. A section 116 report, or skilled person’s report, is conducted by a third party appointed by the Financial Conduct Authority. The cost is met by the subject of the investigation, and it can range from hundreds of thousands of pounds to millions of pounds, but the reports remain entirely confidential. This lack of transparency is not good enough.

[Kevin Hollinrake]

The hon. Gentleman mentioned executives from RBS who are still earning large amounts of money within the financial services sector. Is he aware that Nathan Bostock, a senior director within GRG, currently earns £1.6 million as chief executive of Santander and £1.8 million a year from RBS as part of his payoff?

[Jonathan Reynolds]

I am grateful to the hon. Gentleman. These are the questions that need answering. People have told me that they worked for RBS and left because they were unhappy with the conduct of the bank. Surely they should also be allowed to put their case in a proper way.

Returning to the confidentiality of section 166 reports, I have to put on record the disquiet, certainly among Opposition Members, about the discrepancy between the FCA’s summary of the investigation into GRG and the actual report in terms of the former’s heavily sanitised nature. Now that the report has finally been made public, we can fully witness the extent to which relationships with business customers were abused. Under normal conditions, however, the report would have remained confidential. That cannot be appropriate, because it furthers the perception that the odds are stacked against businesses. We need processes that are transparent and fair, and command the confidence of everybody. We also need to look at who is asked to undertake these reports and any conflicts of interest that they might have.

As many Members have pointed out, small businesses are the backbone of our economy. If they cannot trust the financial institutions that are meant to serve them, we are all going to pay the price for that. Statistics show that up to half of all SMEs are non-borrowers, although we do not know whether that is because they do not feel they can trust their banks or simply feel too anxious to expand by taking on credit. As a country, we all acknowledge that we need to offer those businesses the right incentives and support to grow. We need to solve this crisis of trust in business banking. An independent arbiter who can fill the gap between the Financial Ombudsman Service and the full legal route for redress is a minimum sensible starting point for consideration. We await with interest the outcome of UK Finance’s independent review, chaired by Mr Simon Walker, of complaints handling and alternative dispute resolution for SMEs, which could provide a steer.

However, I do not believe that this industry can be allowed to self-regulate, and that is why an independent platform must be considered. Like many Members who have spoken today, I believe that the restoration of trust in business banking is essential, but it will not come without the Government taking decisive action. A public inquiry, redress for victims, accountability for those responsible and a new independent system of redress are surely the right places to begin.

Landfill Tax (Disposals Of Material) Order 2018

Jonathan Reynolds Excerpts

Monday 30th April 2018 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Thank you for calling me to speak on these measures today, Sir David.

According to the Environmental Services Association, landfill tax avoidance is estimated to cost the Exchequer between £150 million and as much as £1 billion a year: a considerable amount of money that could be put into vital public services. In addition to that, as someone who represents the edge of the Greater Manchester conurbation with Derbyshire, we are blighted by the problems of organised fly-tipping in my constituency, so I welcome the chance to speak from the Front Bench today about the measures to ensure that tax is paid at sites that do not have an environmental permit, and I welcome the clarification in the Government’s note that the individuals involved may also be liable to penalties for non-compliance or face prosecution.

Bringing non-permitted sites into the scope of the landfill tax will hopefully make it a less attractive and lucrative option for those seeking to break the law, so we are supportive, although I have some questions for the Minister regarding the changes. Since the introduction of the landfill tax, the Government have stated—the Minister has just repeated it—that the amount of waste going to landfill has reduced by 65%. Can the Minister comment on whether that figure includes the calculation on waste diverted to non-permitted sites? If so, how much further does he expect the amount of waste going to landfill to reduce because of the new measures?

My hon. Friend the Member for North Durham (Mr Jones) has previously spoken at great length in the Chamber on issues related to landfill tax. One issue that he raised was money laundering, a timely issue given the debate that we will have tomorrow. Running a landfill site is a high volume business that can involve large amounts of money, so has the Minister done any research into the prevalence of money laundering in the sector? I understand that, according to the Government’s calculations, there were 622 known illegal waste sites in the UK in 2015-16. Will the Minister update us on how many there are now?

Also, are there currently any plans to increase the monitoring of high volume landfill operators through the use of technology? Could we not have a system similar to those used in slaughterhouses and weighbridges where cameras record how many vehicles enter the sites? Given the amount of money estimated to be lost each year through tax avoidance, a small investment in such technology could potentially pay for itself in a short space of time.

There is no doubt that extending the scope of the landfill tax to include non-permitted sites is a positive step that has been welcomed by the industry and those willing to abide by the rules. However, we are also eager to see whether there is more that the Government can do to stamp out illicit activity in the sector, and I look forward to hearing how the Minister plans to address those issues. It seems strange that the measure appears to treat unauthorised sites the same as authorised landfill sites by applying the tax, as the Minister has explained. That seems to show that the current regulatory system for illegal landfill sites is not sufficient. Is it not possible for any resulting funds from the measure to be redirected into the Environment Agency so that it can actually stop the illegal sites in the first place?

Finally, as Members are aware, landfill is devolved in Wales and Scotland. Will the Minister comment briefly on how the Government co-operate with the Welsh and Scottish Governments to deal with the issue if the material illegally deposited is a cross-border problem?

Financial Services

Jonathan Reynolds Excerpts

Thursday 26th April 2018 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Thank you very much, Sir David, for calling me; it is always a pleasure to spend some time on a Thursday afternoon with you in the Chair.

I begin by congratulating the hon. Member for Chelmsford (Vicky Ford) on securing this debate and on her very fine speech to introduce the subject that we are debating. Indeed, I have enjoyed listening not only to her speech, but to those of the hon. Members for North East Derbyshire (Lee Rowley) and for Glasgow Central (Alison Thewliss).

All speeches on this subject and this sector begin by talking about how hugely important financial services are to the UK, which is absolutely correct. Such speeches always begin by talking about the role that the sector plays in employment and in the number of jobs in the UK, and it is always good to hear that about two thirds of jobs in financial services are based outside London and the south-east. We always rightly mention the huge amounts of revenue that the sector generates for the Exchequer, but the caveat I always put on both those things—we all need to recognise this danger—is that when we mention such arguments in this place, the public hears something slightly different. They hear us almost saying that we have struck a grand bargain with finance; that we somehow tolerate people doing things that the public thinks are risky or perhaps dangerous because they provide half the budget for the NHS. To me, that is not the message we want to get across to the British public.

We need to get across to the British public a much greater sense of what the sector does for them as consumers and what it does for the country. We need to explain that if we have an ageing population and we want to be able to live in retirement with good pension products, that requires an effective asset management industry. If we want our businesses to be successful, that requires an effective system of finance for business. If we want to solve the housing crisis, that requires a robust mortgage market. I have even tried to push with some Front-Bench colleagues that insurance is a socialist industry: it is about pooling the risks everyone in society faces in a way that shares the burden equitably.

To Labour, it is clear that finance plays a major role in the economy. We want to work in partnership with financial services to deliver the kind of policies we think this country needs. We held a major financial services conference in Bloomberg Europe last Thursday that was addressed by the shadow Chancellor. We went through many of the issues that the sector needs to look at and how we feel we can work with them. I put a slight caveat on that: The Daily Telegraph on 25 March reported me as saying that I believe bankers are a public good, but that is not quite what I said. I said that good financial services are a public good. It tells us something about how the sector is sometimes viewed in public that a Member of Parliament saying that good pension products, good mortgage products and good insurance products are a public good could be reported with some degree of controversy.

Many of the speeches we have heard have rightly highlighted Brexit as the major issue facing the sector, which is extremely correct. I will start with some analysis of that. There is no doubt that Brexit poses enormous challenges to financial services. As well as my concerns about the impact on manufacturing and supply chains, one reason I voted remain related to market access for financial services. The situation we see today is difficult. It is fair to say that the sector is losing hope that it will ever get the certainty it needs to avoid the contingency plans it has been forced to consider.

The hon. Member for Glasgow Central talked about the difference between passporting and equivalence. Her analysis of those two things was correct, but I have to say that neither is available to us. Passporting would only be possible through some sort of continued membership of the single market, and I do not think that is likely. She was right to say, however, that equivalence on its own will simply not give us what we need. The only model in town is one of mutual regulatory recognition. That is hard to deliver, but there is certainly a mutual interest to be found there. In the short term, there is a major threat to financial stability if it does not go ahead.

The hon. Member for North East Derbyshire talked about the difficulties in repapering contracts if we do not get mutual regulatory recognition. He is right. We have to admit that for such sectors as the insurance industry there simply is not enough time, even if we start today or had started six months ago, to move the quantum of contracts that would need to be novated. We have to recognise that the position we are in today is extremely unfavourable. Much time has been wasted by the Government when frankly they could have cut to the chase a lot faster.

To do such a deal is clearly not easy—I recognise that and the burden placed on the Treasury to try to get to that point—but it is also true to say that we have never had a trade negotiation where two countries are aligned and they are moving further apart through the process. From talking to industry, my analysis is that what the EU wants to know more than anything else is whether we seek continued alignment or whether we seek to break off and go in a different direction. It is not getting a clear message from the Government on what the future is. We have heard the Prime Minister say that we will remain aligned, but with the autonomy to move away in the future. That is not the unequivocal message we need to give. We need to spell out clearly that we want to continue, not with the political integration of the European Union, but with the economic integration that has been so successful for financial services in this country. Once we give the EU that signal, there will clearly be questions on the method of alignment we would continue with, the jurisdiction we would seek to govern that future relationship and—perhaps the most difficult of those questions—how we would manage the full freedoms and impact on immigration policy of that relationship, but it has got to be possible.

We also have to understand—I think the hon. Member for Glasgow Central said this—that it is not the EU playing politics if it puts a negotiating position to us. It is clear that there is a threat to jobs and revenue in this country from the Brexit process. We cannot be surprised if other countries enviously eye up parts of our successful sector that they would like to move to their countries. The big threat to jobs in London and the rest of the country is not other parts of the EU, but Singapore and New York. If we are being honest, if the German economy had made a decision akin to the one we are making with Brexit, would we look at parts of their car industry and wonder whether we could take some of that business for ourselves? I think quite reasonably we would. We see that most of all in questions around delegated portfolio management and asset management—essentially the right to manage in this country assets and wealth held overseas. That should not necessarily in itself be an issue of leaving the European Union, but it clearly underpins a large ecosystem in financial services. Some countries will look at that and say, “If we can pull that thread, ultimately that will lead to a relocation of jobs and higher value sectors to our economy.” It is difficult.

People say all the time—certainly the more Brexiteer MPs—that financial services in the City will adjust to Brexit. Of course they will. We are the world-leading financial sector; it will not disappear overnight. The key issue has to be the cost of that adjustment. If it is 10% of the economic activity of financial services in the UK, that is an extremely painful place for us to get to. We would not want to be in that position.

A key point that needs making in establishing what that future relationship will be is that there is absolutely no appetite from financial services in this country for some sort of regulatory bonfire. There is a desire for stability, but there is nothing that I receive regularly that says people want to unpin the post-financial crisis settlement or that says they see a future for the UK undercutting the rest of the EU regulation. The opposite is true. Good regulation attracts business activity to the UK, among other things. We should always seek to cherish and continue our reputation as a first-rate regulator.

The issue of trust in financial services comes up a lot, and many speeches have referenced it. A quote I like to give when I am in the City doing roundtables or making speeches comes from a fellow Member of this House, and it is indicative of where the debate is. It is not a famous quote, but I like to use it. The Member said that

“in our country, far too often the rewards have gone not to risk-takers and job creators but to insiders in our financial system and big businesses who have rigged the market in their interests”.

I read that out, and people think that must be a comment from the Leader of the Opposition or the shadow Chancellor. It is actually a quote from the Secretary of State for Environment, Food and Rural Affairs. He said that on the day he launched his campaign to be leader of the Conservative party. It reflects how many people feel about the financial sector. We have to recognise that an event such as the financial crisis has a huge impact on trust and how people feel when they talk about financial services.

Some of that is a reflection on how the past 10 years have been for many people. They have been very tough years for many in my constituency. The relative positions of capital and labour have fared differently. We have had quantitative easing, which even the Prime Minister has said has clearly had an impact on those already with assets. Labour has faced a flatlining of wages for 10 years and a public sector pay cap. It will be difficult. The hon. Member for North East Derbyshire asked when we will move on from that. We will start to move on from it, although I have a constituent who refuses to vote for me because he is still angry about Howard Wilson’s devaluation of the pound in 1967, so these things can have a considerable shelf life. We will begin to move away to a more positive feeling in the country about financial services, but only if we give people a greater understanding of what the sector is doing for them.

I do not like and have never liked the sense in this debate that we have the real economy over here and financial services doing something different over there. That in no way reflects the complexity of the British economy or what is going on, but I can understand that sentiment among the public. For many, investment banking looks akin to something not that far from gambling. When I talk to constituents about the financial crisis and explain a collateralised debt obligation, they cannot believe that that was the basis on which the global financial system essentially fell apart.

As the hon. Member for Chelmsford said, what happened with the Royal Bank of Scotland and the Global Restructuring Group was not defensible economically, politically or morally. Not only were businesses fundamentally let down, but in some cases people’s financiers and bankers personally benefited from buying the assets that they had put into distress. We must understand that that will generate legitimate anger, and how we politicians respond to that will be crucial to people’s ability to move on. A call for a full public inquiry into events such as those that happened with GRG is the right way forward.

It is fair to say that the next Labour Government will be more interventionist in financial services, and that this Conservative Government have been more interventionist than previous ones. We have to learn the lessons of the past. We have to tell the public, and make them understand, that we are not complacent about the risks, and we are not beholden to finance in the sense that we are unable to properly regulate it because we do not appreciate the full scale of those risks.

We cannot be complacent about regional inequality or productivity, and the finance sector can provide some of the answers. The Opposition have talked about a strategic investment board to look at where finance is investing in the economy. We have talked about a national investment bank, akin to the German model, working with private lenders to secure access to businesses. There is an exciting agenda on transparency, greater stewardship of assets, and incentivising long-term investment over short-term decision making, for which there is a lot of support on both sides of the House.

It was particularly good to hear some talk about financial inclusion. I think I have said to the Minister before that I find it fascinating how we have both a world-leading financial sector and so many people who are victims of significant financial exclusion. Our financial resilience in this country is insufficient; many people have effectively less than £100 to fall back on when times are tough. No matter what we think of the Government’s economic policies over the last eight years, the big change for us all as constituency MPs has been seeing debt become much more an issue of people managing their monthly living costs, and less about the purchase of a car, or a “white good”, as they were called.

How we respond to that in the policies that we pursue is crucial. The Opposition have talked about extending the Financial Conduct Authority’s credit card market report to deal with those people who are in the most difficult circumstances, effectively living off their credit cards every month with no hope of paying the money back. That requires an intervention. We support, as I know the Minister does, the breathing space scheme. We believe that public sector debts such as council tax have to be included in that to make it effective.

The hon. Member for North East Derbyshire rightly mentioned bank branch closures. Clearly, there is a big transition through technology to things such as online banking, but the scale at which that happens has to be of interest to us. I think RBS is to close 50% of all its branches in the south-west of England. That seems an enormous change overnight—I would be very concerned if I was an MP for that region.

The impact of technology will undoubtedly lead to a period of radical change in financial services over the next few years, but it could also be one of tremendous benefit. I agree that things such as open banking, where people might be able to separate out their overdrafts from their current accounts, could lead to much better deals for consumers.

Big data, and access to big data, could change the access to finance that many people enjoy, because risk is fundamentally about information. If we can get better information on people and offer them better financial products, that could benefit us all. The danger is that financial services for consumers end up being akin to what we have in the energy market: a small set of consumers getting good deals because they are savvy and use technology to their benefit, while a large group of people get poor deals, used to subsidise the people who are savvy. That leads to resentment and, frankly, to the kinds of interventions that both sides of the House have proposed in the energy market. We have to avoid that.

My final point is on dirty money and transparency—again, an issue where there is huge agreement on both sides of the House. I think the motivation is there in the Government—perhaps the Minister could reference that in his remarks—as well as among the Opposition, but two policies are key. First, we must finally introduce a public register showing where beneficial ownership of UK property lies. That policy was very much associated with the former Prime Minister, and appears to have been lost somewhat since he left.

Secondly—this is more contentious—we need a public register of beneficial ownership in the Crown dependencies and overseas territories, by Order in Council if necessary. It is no good having the finest and most robust money laundering policies in place in the UK if people can register a company in a Crown dependency, and access all the things that they associate with this country, without the same level of transparency. That will simply lead to the migration of company and property registrations to other parts of the world within the British umbrella.

We should be proud of our financial services sector, not just for its economic contribution but for the benefits it brings in helping us to manage our day-to-day lives. It is incumbent on us all to ensure that the sector is fit for every type of consumer, and that vulnerable people do not fall through the gaps. We need a sector that is at the cutting edge of technological change, but using that change to meet the diverse needs of its customer base. Most of all, we need to offer some certainty, and continued market access, through the final Brexit negotiations. The more clarity the Minister can give us on that, the better for us all.

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

It is a pleasure to serve under your chairmanship, Sir David. I congratulate my hon. Friend the Member for Chelmsford (Vicky Ford) on securing the debate, and my hon. Friend the Member for North East Derbyshire (Lee Rowley) and the hon. Members for Glasgow Central (Alison Thewliss) and for Stalybridge and Hyde (Jonathan Reynolds) on their contributions.

We have had a very well-informed discussion of a wide range of financial services issues. It felt as if every discussion I have had over the last three and a half months as a Minister has been put under scrutiny. I will try to respond to all the points raised. I acknowledge the deep knowledge and experience of my hon. Friend the Member for Chelmsford, in both her work in financial services, infrastructure and project financing and, more recently, her work as a Member of the European Parliament, particularly on the Committee on Economic and Monetary Affairs.

Before I get into the substance of the issues, it would be useful to acknowledge that today’s debate is occurring not in a vacuum, but in the context of a strong and resilient economy. GDP growth has remained solid at 1.8% in 2017, extending the period of continuous growth to five years. That is higher than the 1.5% forecast at the autumn Budget. The UK economy has beaten expectations, and the Treasury and the Government will continue to set ourselves the mission to beat the forecasts. As Economic Secretary to the Treasury, I am committed, along with my Treasury officials, to ensuring that the financial services industry retains its place on the mantel as a beacon of prosperity for this country.

As I continue to tell industry and my colleagues in Government, financial services constitute the plumbing of this country’s economy. We do not want to be reticent about describing and applauding that. Financial services, as others have mentioned, represent 12% of total UK economic output, and the industry contributed £72.1 billion to the Exchequer in 2016-17—11% of total Government tax receipts. It is a critical industry for our nation.

As others have also mentioned, more than 1 million people are employed in the financial and insurance sector in the UK. Some 63% of those jobs are outside London, with 52% outside London and the south-east. That includes 98,000 in the north-west, and 87,000 in Scotland—including, I understand, that of the spouse of the hon. Member for Glasgow Central. Those figures represent the livelihoods of people up and down this country and, as the hon. Lady pointed out, they represent a multitude of jobs beyond the square mile. As I often point out, there is a whole ecosystem of support services and economic activity related to financial services. Bank tellers, mortgage brokers, salespeople, and IT staff form the backbone of this industry in the UK.

The Government’s approach to financial services is based on ensuring that the sector does what it should: effectively channelling savings and capital flows into productive investment to allow the real economy to manage financial risk, take advantage of commercial opportunities, and boost economic prosperity up, down and across the country.

Our historical success has been based on being the most open and dynamic financial hub in the world and having the deftness to continuously innovate and adapt, but there is no room for complacency. We cannot and will not rest on our laurels. The success of financial services has helped elevate the UK to the status of a post-industrial economy. My hon. Friend the Member for Chelmsford made reference to the industrial strategy, which was launched in November 2017 to prepare the whole UK economy for the future. We are taking action across a range of sectors. We published an investment management strategy. I look forward to responding to the recommendations of the green finance taskforce, which reported in March. We are poised to continue to be leaders in innovating in these sectors, to capture the value of innovation, capitalise on all opportunities and speed prosperity to all regions of the United Kingdom.

Close alignment between our financial sector and other parts of the economy is therefore crucial to the success of our industrial strategy. Financial services is a high-growth, high-tech driver of the UK economy and we are working to ensure that, in the face of rapid change, the UK remains the No. 1 place in the world to conduct financial services business. We are fully committed to that mandate, as demonstrated in the announcement of our FinTech sector strategy last month, which is intentionally aligned with and complementary to our industrial strategy.

I want to run through current Government thinking on the regulation of financial services, which is key to how the sector will thrive in a post-Brexit Britain. I also want to reassure hon. Members that the changes required to the financial services regulatory framework following our exit from the EU are an integral part of the Treasury’s exit planning. The Government are listening to the views of industry—the International Regulatory Strategy Group was mentioned—and of course to those across Parliament. I look forward to further work with my Treasury colleagues on financial services regulation as we prepare for our departure from the European Union.

Following the financial crisis 10 years ago, the Government introduced necessary changes to seek to restore public trust in financial services. I recognise that that has been a long and difficult process, but we continue to attract international commendation for the robustness of our regulatory and prudential systems. In the last round of the Financial Sector Assessment Program, the International Monetary Fund found that the UK was fully compliant on the 19 Basel core principles for effective banking supervision. Only France and Switzerland are able to match that. A decade on from the crisis, we should never lose sight of the principal purpose of the regulatory and supervisory regimes: to ensure financial stability and protect taxpayers from having to step in to deal with failure. The key lesson from the financial crisis has been cross-border co-operation, not a global race to the bottom or destabilising protectionism.

That thinking extends to our approach to Brexit. It is crucial that our exit from the EU is smooth and orderly. As my hon. Friend the Member for Chelmsford said, we made a big step forward in agreeing the legal text on an implementation period, which will keep market access on existing terms for firms and consumers. In December, the Government said that, if necessary, we will legislate to ensure that the contractual obligations she mentioned continue to be met, which will benefit millions of UK consumers who have insurance policies from EU firms. It is in the interests of the EU to take similar measures for UK firms serving EU customers, and we continue to encourage co-operation between regulators. We are working on that active dialogue all the time.

It defies logic that a loose relationship with the UK would give the EU the depth of co-operation necessary for a market as close as the UK, and vice versa. That means—I want to be crystal clear—that we do not intend to rip up the rule book after exit. When I hear echoes that there should be a bonfire of financial services regulation post-exit, or a race to the bottom, nothing could be further from the truth.

On 7 March, the Chancellor set out a vision for our future relationship in financial services in what has been called his HSBC speech. The hon. Member for Glasgow Central asked about that vision. It was a thorough analysis of the challenge and the opportunity and the need to prioritise financial stability, and argued for a deal that preserves the mutual benefits of the sector. Neither the UK or EU should be under any illusion about the significant additional costs that would be borne by Europe’s businesses and consumers if this highly efficient market were to fragment. It is a complex ecosystem that serves the UK and the EU. Oliver Wyman calculates that the wholesale banking industry would need to find $30 billion to $50 billion of extra capital if new regulatory barriers forced fragmentation of firms’ balance sheets.

To echo the Chancellor, the major winners from fragmentation would not—despite what President Macron suggests—be Paris or Frankfurt, Dublin or Luxembourg, but New York, Singapore or Hong Kong. That point was made by the hon. Member for Stalybridge and Hyde.

[Jonathan Reynolds]

I agree entirely with the Minister’s analysis but he would surely recognise that the transition period can come into play only if the Northern Irish issue is solved. The only way to solve the Northern Ireland issue is with a customs union, and the only way to solve where the country is on that is to let the House of Commons vote on it. Does the Minister know whether the Trade Bill will come back to the House at any point in the near future to give the it the chance to resolve the issue and get the benefits he is describing?

[John Glen]

The hon. Gentleman has made a valiant attempt to try to draw out from me something over which, as he is probably very aware, I have little control. I do share with him an appreciation of the centrality of financial services in the City of London and we have a shared understanding that, if the EU does not come to a place of understanding about City of London financial services, it would leave Europe a lot less competitive.

To address that, the Chancellor set out what our future regulatory framework should look like, underpinned by three things: a binding dialogue for regulatory requirements, supervisory co-operation arrangements that are reciprocal and reliable, and an independent arbitration mechanism to provide durable dispute resolution. That is clear. It is complex, but necessarily so, given what we are dealing with.

Reaching such an agreement with the EU need not be a challenging objective because the status quo is an unbeatable precedent to work from. Our markets are already deeply interconnected; our rule books are identical; and our mutual commitment to world-leading standards is unbeatable. The EU itself has challenged the notion that financial services cannot be addressed in trade negotiations, as evidenced in its approach to creating a deep bilateral framework with the US in the Transatlantic Trade and Investment Partnership negotiations. In those negotiations, the EU pitched a relationship based on mutual recognition of regulations and a unique dialogue on aligning future rule-making. TTIP is a precedent for the approach that we wish to take with the EU. It is in neither the UK’s nor the EU’s interest to exclude financial services from the future relationship.

The UK is clear that there are limitations to how much either of us can achieve unilaterally. The reality is that the European Council and European Parliament have now formally recognised the need to address the terms of market access in financial services between the UK and the EU, so we need to come to the table and discuss it further.

Myriad financial services on which businesses rely to reduce their costs are derived from or pass through, or are linked to, the UK market. Businesses also reap the benefits of the savings and capital flows to consumers across the continent. Those flows untap greater financial prospects for a broad range of people and allow them to access new products and services, such as innovative investment opportunities, tailored and appropriate debt products, and technology-driven solutions such as open banking.

My hon. Friend the Member for North East Derbyshire talked about shared services in the context of the challenges relating to bank closures. The only inhibitor to that is the banks themselves—there is no restriction on finding a shared venue. I know from my conversations with banks in my constituency that phenomenal changes are going on in the age profile of bank users. Just before the Easter recess, I took the opportunity to visit different banking environments and a mobile banking facility in Derbyshire. I was very impressed with what I saw. It happened to be a Lloyds mobile bank, and it came to the village twice a week at the same time. It had disabled facilities. Of course, we all want to retain that certainty about the bank network, but that is not possible because it is a commercial decision. I am in active dialogue with a range of banks, as we all are as constituency MPs, and I know that these are difficult decisions. I commend my hon. Friend’s suggestion, and I raise it actively when I meet representatives of banks.

--- Later in debate ---

[Vicky Ford]

The hon. Member for Glasgow Central (Alison Thewliss) said she is extremely concerned about how soon we can give certainty in the EU negotiations. There are two sides to giving certainty. The Government’s statements—especially the detailed HSBC Canary Wharf speech—contain a huge amount of detail about the need for ongoing co-operation. The EU negotiators have also talked about wanting to have super-equivalence, and that is helpful, but we have not seen the same level of detail. It needs to come from both sides.

In my experience of many years of EU negotiations, having a seat at the table was sometimes helpful—that will be missed—but there were other times when it was a challenge. The financial services industry is much more important to our economy than it is to that of many other countries, although it does support them, but that left us with different exposures. That is why we did not want to have an identical approach to solve certain issues; the approach of maximum harmonisation—one size fits all—that we increasingly see across the single market is very challenging.

The hon. Member for Stalybridge and Hyde (Johnathan Reynolds) spoke about needing to confirm whether we are going to align. To me, that sometimes means having a completely identical approach, which can be a challenge. One thing I learned from my time in European politics is that there are times when the EU recognises equivalence, but without that being identical. I particularly look at the way in which we treated the bank sector. When we introduced our bank levy, the rest of Europe, particularly within the eurozone, had the funded deposit guarantee system. There were two different ways to solve the same issue to make sure that funds were set aside in case there was failure, but they are both built into the legislation.

[Jonathan Reynolds]

My point was not around the specifics of regulations; it is a question of economic models and the partnership we seek with the European Union. We have to try to move the negotiations forward. We have to give them an unequivocal sign of what our future intentions are, or we simply will not get the progress that we need. We are already way behind where we need to be. The point around equivalence is simply this: yes, that model will work, but it must have legal certainty. Without that certainty we will have the migration of business.

[Vicky Ford]

On legal certainty, I completely agree. It is only five or six stops on the Jubilee line to get to Canary Wharf, so I took the bother to go and listen to every single word that was said in that speech. I wish more Members from this House had bothered to go and listen to it and to speak to the industry players who were there afterwards, because it went into detail and addressed very important things—especially how one was going to co-operate with the colleges of supervisors that have been set up on a bank-by-bank basis. Speaking to the individuals who are responsible for the regulatory functions within their own institutions and getting that level of detail was welcome. It is not fair to criticise only the British side of the negotiations for not giving enough detail—the British side has given significant detail.

Maintaining ongoing co-operation, dialogue and exchange of information is key in building regulatory trust. Let us not forget that £45 billion of taxpayers’ money had to be spent bailing out RBS; we had to bail out branches of not just the British bank but the Dutch and Irish bank because there was no legal mechanism for a cross-border reorganisation of a bank in crisis. That has been resolved, and part of the way it has been resolved is by having that ongoing dialogue that brings together the British regulators with the Dutch and the Irish. The very clear message from the Chancellor that he wanted to continue to be part of that should be welcomed. It is not as simple as saying we need alignment to give legal certainty. From the contributions that I had from organisations prior to this debate, the calls are for more legal certainty to be given from the other side of the negotiation table.

I thank Members for the many suggestions on how to deal with the issue of branch closures. There are clearly different problems in different parts of the country. As I said, my part of the country is an urban area—a city—and because we are seeing a change towards digital banking, there is less demand for physical banking, so we need to manage that transition.

I thank my hon. Friend the Member for North East Derbyshire (Lee Rowley), who made fantastic points so eloquently about the future of financial services, reminding us that we need to look forward to what sorts of services we want come 2028 and beyond. The actions that we take are absolutely key. Unlocking some of the benefits of the digital age, but also making sure there is perhaps some friction in the system so that we can put protections in for consumers, is definitely one of the actions I want to continue focusing on after this debate. I think that will help to protect people from cyber-attacks on their bank accounts.

It is absolutely vital that we continue to champion these industries, to support the people who work in them and to work with other parts of the world. I completely welcome the comments that the Minister made about setting up the regulatory working group with the United States and other parts of the world, and I wish him great success. Let us pick up the specific issues that have been addressed by Members here to make sure that we make targeted interventions where we can to help the industry, the people who work in it and the very many of our constituents who are, at the end of the day, consumers of these services and rely on them. Thank you, Sir David, for this wonderful afternoon.

Question put and agreed to.

Resolved,

That this House has considered the financial services and the impact on the UK economy.