Financial Services and Markets Bill

Lord Harlech Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

[Lord Jackson of Peterborough (Con)]

My Lords, I rise briefly to support Amendment 241B, moved by the noble Baroness, Lady Fox of Buckley. I declare at the outset for full transparency that I am a paid-up member of the Free Speech Union. To be fully topical, I am also a graduate of Royal Holloway, which has been in the news today along with the noble Baroness on similar free speech issues. We debated this matter in the Chamber earlier.

This is a very gentle nudge by way of an amendment. Like the debate we had earlier this month on politically exposed persons, in this case, we see that a regulatory regime does not work and that we sometimes need a legislative nudge by way of something like this amendment. We could have a sterile debate about EDI/ESG and woke and cancel culture, but that is perhaps for another day. My concern is that untrammelled free speech should not be a monopoly; it is a relative concept because we have laws in this country to prevent egregious offence against certain people who have protected characteristics under the Equality Act 2010. Free speech within the law cannot be the preserve of a plutocratic, wealthy elite as represented by big financial institutions and big tech companies.

I never thought I would quote the comedian Jack Dee but, when the decision was taken by PayPal on 15 September last year to throw off the Free Speech Union, the Daily Sceptic blog and UsforThem, he quite rightly said:

“Big Tech companies that feel they can bully people for questioning mainstream groupthink don’t deserve anyone’s business.”


The offence of UsforThem was to question the efficacy of a policy of the teaching unions and, by inference, the Government not to force or even encourage children to go back to school. UsforThem felt that there was a serious public policy issue around that; it was well within its rights to debate that on the basis of empirical evidence and a well-argued case but PayPal took against it and threw it off the platform for breaching its rather Orwellian-sounding “acceptable use policy”. I do not think that is at all right.

The point that the noble Baroness, Lady Fox, made is right. In a competitive market where you have perfect competition—that is, lots of participants and allowing people to enter and leave the market—people can pick and choose which banks and tech companies they go to. However, when there is an oligopoly, as in this case, with a small number of providers of technical applications, perfect competition falls down. There is effectively a situation where people have no choice. That is why people who are not exactly conspiracy theorists, including me, worry about the idea of a cashless society because it puts absolute power in terms of business into the hands of the powerful, the influential, the wealthy, the well-connected and those who believe in and articulate groupthink.

The other thing that slightly worries me is not necessarily the overt idea of censorship, which is itself very worrying in an advanced liberal democracy such as the UK and the United States, but the concept of self-censorship—that is, you do not debate these important issues of public policy that might push against vested interests because you know that the battlefield is so asymmetrical that you do not have the funds to fight big tech or to engage civil litigation, and you run the risk of criminal penalty and sanctions should you do so. That is important. You cannot afford to take the risk so we get into this cul-de-sac of self-fulfilling beliefs and views, which were represented by PayPal.

I am glad that PayPal capitulated and surrendered, and said that it was wrong, but it did a lot of damage to the Free Speech Union, its membership base and its cash flow. Not surprisingly, Toby Young, the founder and CEO of the Free Speech Union, made it absolutely clear that he would not go back to PayPal because it had egregiously ruined his business model.

However, that is not as important as the general principle that, unless you have a bit of stick with these tech companies, they will not voluntarily eschew the concept of EDI and their fixed beliefs. Only the power of legislation can force them to comply with the basic tenets of a decent, liberal society: that free speech should be available to everyone; and that people should be able to voice unfashionable opinions. The mark of a mature and sensible society is that we allow people with whom we vehemently disagree to have a say in the public square.

To an extent, this a probing amendment, but my noble friend the Minister—incidentally, she has done extremely well in a very long and difficult Bill; I give her that plaudit, having given her a hard time the last time I was before this Committee—should reflect on it and come back with some sanction to defend the long-standing commitment that all of us, as parliamentarians and legislators, should have to the concept and practice of free speech.

[Lord Harlech (Con)]

My Lords, I thank the noble Baroness, Lady Fox, and my noble friend Lord Jackson of Peterborough for raising the important issue of freedom of expression and, within that, the role of payment providers.

Following PayPal’s temporary suspension of some accounts in autumn last year, to which both the noble Baroness and my noble friend referred, the Economic Secretary met PayPal and the FCA, as well as interested Members of Parliament. He subsequently set out the Government’s position on this matter on Report during this Bill’s passage through the Commons.

The Government fully recognise the importance of protecting free speech and the crucial role of payment providers in delivering services without censorship. The Government are committed to ensuring that the regulatory regime respects the balance of rights between users’ and service providers’ obligations, including in relation to protecting freedom of expression for anyone expressing lawful views. My noble friend made that distinction in his remarks.

I draw noble Lords’ attention to the letters from the Economic Secretary, the Financial Conduct Authority and PayPal regarding this issue, copies of which have been deposited in the Commons Library. The letter from PayPal explains that it re-evaluated and reversed its decision in a number of the specific cases raised. It made clear that it was never its intention to be an arbiter of free speech and that none of its actions were based on its customers’ political views.

While welcoming this clarification, the Economic Secretary expressed his concern about the importance of protecting free speech and recognising the crucial role of payment service providers in delivering payment services without censorship. As a result, he pledged to take evidence on the adequacy of the existing legislative framework through the statutory review of the Payment Services Regulations. This was published on 13 January 2023; the Government look forward to responses from all interested parties. I note for the Committee that that consultation is open for 12 weeks, meaning that it will close on 7 April. The Economic Secretary will promptly update Parliament through a Written Ministerial Statement following this review. He has committed that, if it emerges that there is a problem with the existing regime, the Government will act swiftly to address it.

In terms of going further to protect the importance of free speech, we have to understand that the Government do not believe there is evidence of a potential issue with payment services regulation beyond these few PayPal cases. The existing legal regime includes statutory minimum notice periods, rights of appeal to the Financial Ombudsman Service and the FCA’s principles on fair treatment. Users of payment services, in common with all UK citizens, benefit from a safety net of legislation such as the Human Rights Act, criminal law and court decisions, which balance the rights of people to express their ideas in a public space with the necessary limits of a democratic society, for example, to protect people from hate speech. More specifically, the Equality Act 2010 prohibits service providers in the UK denying services to users on the basis of their beliefs, including philosophical as well as religious beliefs.

Noble Lords talked about going further in this Bill. The Government’s view is that making legislative change just for payment services would not be proportionate or correspond with the requirements placed on other essential service sectors. The Government need evidence if there is a problem given the existing protections in the current legal regime for payment service users. Today I am aware of the concerns raised in relation only to PayPal, which re-evaluated and reversed its actions in several cases. The FCA has explained that it has the tools to regulate in a further specific way through its authorisation processes if there is a problem.

[Lord Jackson of Peterborough (Con)]

When the Minister analyses the results of the review which is concluding next month, will he also look at the slightly wider issue of barriers to entry and the possible oligopoly behaviour of payment services? That is a linked issue which is pertinent to the debate we have had today.

[Lord Harlech (Con)]

My noble friend makes an excellent point. I will certainly feed that back to the department in terms of the review.

To conclude, the Government already have the means to act on this issue and have made a clear commitment to do so if necessary. We are clear that we first need public consultation and an evidence base before determining the right course of action on this matter. I therefore request that the noble Baroness withdraws her amendment.

[Baroness Fox of Buckley (Non-Afl)]

I thank the noble Lord, Lord Jackson, and the Minister for that response. I will not keep noble Lords long. What the noble Lord, Lord Jackson, said about self-censorship was important. I mention that because I am worried that the Government are underestimating the climate that financial services providers are embroiled in relating to ESG and EDI. This is a warning shot that we recognised around PayPal, but I did not confine it to PayPal. It is just one example. There are sadly lots of recent examples, with organisations such as GoFundMe refusing to accept certain people because of their views and so on. I know that is not strictly within the remit of this Bill, but I know that the Government understand that there are tensions here. I do not want them to be too narrow and technocratic in the way they approach it by saying “Oh, there are only three examples, so what is there to worry about?” We have seen this internationally. I note that the Chinese social credit system lurks around this debate as something we want to be careful of. Big tech financial companies do not have regard for free speech as their terms and conditions will often cut against what is required in equality legislation here. That was the point I was making.

I hope that this short debate will be taken note of in that consultation. I also hope the Government do not feel that they can just deal with it simply through the consultation but will keep a close eye on what could be a dangerous and nasty situation of financially powerful organisations having an impact on individuals, frightening them into thinking that if they say the wrong thing they will not get banking. That is not the sort of society that we would like to end up with. I beg leave to withdraw the amendment.

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[Lord Tunnicliffe (Lab)]

My Lords, I first welcome my noble friend Lord Leong to this very special club, the Financial Services and Markets Bill club. I am sorry that it is a little thin on the ground. I will say no more than that the case, as presented and supported, seems strong.

One of the sad things about occupying this position is that, every time credit comes up, you get abusers. The large companies are frequently the abusers, and payday loans are a classic example of that. Anywhere there is credit, you end up with pockets of abuse. I unashamedly believe in regulation. I do not believe in bad regulation; I believe in good regulation and I think it should enter this field. But that is not a formal position, so we will listen to the Minister before concluding our point of view.

[Lord Harlech (Con)]

My Lords, I thank the noble Lord, Lord Leong, and others noble Lords for their contributions on this amendment headed “Regulation of factoring companies”.

As noble Lords know, invoice factoring is a type of invoice finance where suppliers effectively sell their invoices at a discount to a finance provider in exchange for an advance. This means that suppliers can receive payments sooner, helping them to manage cash flow. Invoice factoring is an important product for British businesses, helping them to grow sustainably when they might otherwise struggle to do so. It is a relatively standardised product designed to help businesses manage their cash flow and support growth.

Businesses benefit from a diverse finance market made up of high street banks, smaller banks and a range of non-banks to ensure that they can continue to access suitable finance. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. We have discussed the approach to regulating small businesses in an earlier debate but, as noble Lords know, invoice factoring is not considered credit, because it is an advance on invoices already generated; therefore, any small businesses using these products do not benefit from protections such as those under the Consumer Credit Act, which apply to the smallest businesses taking out loans.

However, invoice factoring is generally used by larger SMEs that would not benefit from protections under the Consumer Credit Act in any case. UK Finance estimates that its members advanced invoice finance and asset-based lending facilities to just 35,000 firms in 2022, representing less than 1% of all UK businesses; in comparison, according to the SME Finance Monitor, 36% of SMEs—nearly 2 million of them—were using external finance in 2022.

However, the Government believe that businesses using invoice finance are well protected in other ways. The banking and finance industry has recognised that businesses should be able to use invoice factoring with confidence, so has taken steps to ensure that businesses have adequate protections. UK Finance members, representing between 90% and 95% of invoice factoring by volume, are subject to a standards framework and code, which set the standards that firms should meet when supplying invoice factoring facilities. They include an independent complaints process focusing on the requirements of those smaller businesses using invoice factoring, which might otherwise be reluctant to raise concerns about their treatment. For invoice factoring among larger firms, these businesses will have the financial and legal resource available to take action through the courts.

Bringing invoice factoring into regulation would likely increase costs for businesses. This would negatively impact the ability of these businesses to manage their cash flow in a flexible, cost-effective way at a time when it is important that they have the confidence to invest and expand. There is a fine balance between the costs and benefits when bringing activities into the regulatory perimeter. It requires careful consideration to ensure that there is an appropriate balance between several factors, including ensuring that consumer protection is in place and that businesses are allowed to innovate.

Overall, the Government believe that the current approach—enforcing standards through industry bodies and voluntary codes while facilitating innovation and competition—is more likely than new regulation to drive positive outcomes for businesses that rely on invoice factoring. I therefore ask the noble Lord, Lord Leong, to withdraw his amendment.

[Lord Leong (Lab)]

I thank all noble Lords who have kindly supported this amendment. Access to finance is vital to start-ups and small companies; it is one way in which they can easily get money without any security. The number of small companies that have to resort to factoring invoice discounting is on the rise because banks are becoming more and more demanding as far as security is concerned. As I said in my speech earlier, my amendment is a probing one. I want to take this opportunity to ask the Minister this: can we do some more work to see how many companies access this form of finance and how many companies go bust because they cannot afford to pay some of the rates that are being asked by these companies?

On that basis, I beg leave to withdraw my amendment.

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[Lord Tunnicliffe (Lab)]

Before I start, would the Government Whip like to give us some indication as to how we are going to end this session?

[Lord Harlech (Con)]

The Grand Committee is scheduled to run until 7.45 pm, which gives us half an hour. However, in the usual way, if the debate has not concluded by that point, the debate on this group will continue into the next day of Committee.