Financial Services Bill

Lord Tunnicliffe Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, I begin by thanking the Minister and his officials for their early engagement on this legislation, which is both wide-ranging and highly technical. I very much hope that this spirit of co-operation will continue throughout the Bill.

In recent times, our consideration of financial services matters has been restricted mainly to a raft of EU exit statutory instruments. As joyous as those debates were, this Bill provides a welcome shift in focus. It is a rare opportunity to review and revise the sector’s regulatory architecture, to ensure it is fit for purpose in the post-Brexit world.

As others have noted, financial services make a significant contribution to the UK economy in several respects: economic output, contribution to the Exchequer and the provision of skilled jobs. Despite recent capital movements to places such as Frankfurt, London remains one of the main global hubs of financial activity. The Chancellor has spoken of his wish to make London the world’s pre-eminent financial centre and, through our consideration of this Bill, we will be passing judgment on whether—and how—that ambition can be achieved.

While we often speak of London or the City, it is important to remember that financial services firms employ hundreds of thousands of staff across the country. Banking, insurance and other financial services have a significant impact—mostly positive, but sometimes negative—on the lives of consumers in every corner of the UK. A further task of ours is to make sure that this legislation works for them, as well as the firms themselves.

We may be more than a decade on from the global financial crisis, but this debate has highlighted that the events of that time remain at the forefront of our minds. Given the severe economic and social costs that came out of past regulatory failure, that is only right. It speaks to the points that I have just raised, that is, the importance of ensuring an appropriate balance between flexibility and responsibility.

Central to achieving this balance is the topic of oversight and scrutiny. As far as I can see, and as other noble Lords have observed, this Bill is severely lacking. Several fundamental regulatory changes are proposed in the Bill, yet, in many cases, there is no scope for formal parliamentary scrutiny. The Treasury has not always availed itself of the opportunity to attach scrutiny procedures to existing processes that could benefit from them.

I am sure that the Minister will assure us that the parliamentarians will be able to feed into and keep abreast of consultations and other policy exercises. To avoid any doubt, we clearly would not wish to unduly impinge on the independence of the Financial Conduct Authority, the Prudential Regulation Authority and other key actors. However, half of the delegated powers in this Bill go directly to regulators, and not even one of those has a formal parliamentary process attached to it.

I would not go so far as saying these proposals amount to deregulation, but I do believe that there is an absence of proper oversight and scrutiny mechanisms could lead us down a dangerous road in the future. As my noble friend Lord Eatwell, who will join us during later stages of the Bill, notes, the language used in the Bill’s supporting documents is, in places, worryingly reminiscent of the early 2000s.

It seems to me that, at the very least, regulators should be required to engage meaningfully with Parliament as a matter of course. It means more than periodically publishing reports or giving evidence to committees after important policy changes have been enacted. In the other place, arguments were put forward that Parliament should have a role in approving new rules before they take effect. I am sure we will explore this further.

Given the level of interest in this topic, I hope we can work collaboratively across your Lordships’ House to ensure improvements are made. In an ideal world, the Minister would work with us. However, if the Government remain unconvinced of our arguments, we reserve the right to ask MPs to think again. After all, we were told time and again that leaving the EU would see power returned to Parliament. Let us ensure the promise is upheld.



I am sure there are many of us who were hoping never to utter the word “Brexit” ever again. However, this Bill is inherently linked with the outcomes of the Brexit process. Therefore, as we progress to Committee, we will need to examine forensically the gap between the Government’s many commitments on financial services and the suboptimal reality the sector faces. Even if the Government seal a memorandum of understanding in March, access to EU markets will be well below what they have been. Why has the Prime Minister fallen so far short of his promises?

I am conscious that noble Lords are eager to hear from the Minister, so I will be brief in outlining other areas of concern. We expect important debates on the shift from LIBOR to SONIA and all that entails. Several noble Lords mentioned additional steps that could help to tackle money laundering and other forms of financial crime. It is important that we get this right. As I have mentioned, we need to ensure that consumers are properly protected from unscrupulous practices. On this last point, we will seek to table amendments that require proper regulation of the “buy now pay later” firms which appear to have grown exponentially during the Covid-19 pandemic. A review is under way in this area, but Labour believes that more urgency is required, especially if we are to avoid a repeat of the social problems that resulted from the past behaviour of certain payday lenders.

We look forward to working with colleagues on all Benches to hold the Chancellor to his word on greening finance. The Government have made a range of broader commitments, domestic and global, on climate change and it is vital that our legislation reflects the urgency of the situation.

This has been a very good debate, graced by two excellent maiden speeches. I congratulate the noble Lord, Lord Hammond of Runnymede, and the noble Baroness, Lady Shafik, on their excellent contributions. It has been both a good debate and a surprising one. There has been a remarkable level of consensus running through the discussions, and I believe that that consensus means that the Bill is going to be much amended before it is sent back to the other place. I particularly think that the whole issue of accountability and scrutiny of the regulation-making powers is crucial and has to be further considered. I think the noble Baroness, Lady Noakes, got it right—it is not often I agree with her—and the words “accountability deficit” are crucial.

I recommend that the Minister ponders carefully what he hears in the subsequent days of debate in Committee. The best way forward will almost certainly be through negotiated agreement to reintroduce a satisfactory level of accountability and scrutiny.

Financial Services Bill

Lord Tunnicliffe Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

This kind of history is simply not acceptable, and it is a consequence of this extraordinary regulatory perimeter. My amendment does not deal with all that: Amendments 5 and 73 help that circumstance, but there is a fundamental issue at play here. The FCA has looked into the perimeter and will say that it has decided to treat micro-businesses like consumers. However, I believe, as do many others, that it needs to go much farther. It is particularly important at this time, as we are looking to many people as entrepreneurs and starters of small businesses to drive the recovery from Covid. Surely they ought to have the kind of protection that is necessary against a financial services institution that does not always have their interests at heart. As I argued at the beginning, they are far more akin to consumers than they are to multinationals, and that needs to be embedded in the way in which they are treated by the regulator. Of course, the financial services ombudsman can look at many of these cases but, by the time we get to that point, the mischief and damage has been done, and this is not the way to handle this underlying problem.

[Lord Tunnicliffe (Lab) [V]]

My Lords, faced with speaking on this group, I looked at the Bill as a whole and, to a surprising extent, there is little reference to consumers or people who depend on the banking sector. The failure to contain these areas was brought out by the first group of amendments, where there was a very strong thrust to require the sector to exercise a duty of care.

This group, which I support, seeks to isolate a singular problem and address it directly. It is a problem that is not just unfair but evil, and one we find across many sectors—the problem of bullying. In many sectors, size is an advantage, and because of that, a small number of firms grow to a large size. The problem with size is that it enables bullying; you find it in many sectors, including airlines and supermarkets and with Amazon and Facebook. The problem with bullying is that, used skilfully and ruthlessly, it enhances profit and, because it enables profit, it is pursued, often covertly. It is the classic example of why benign regulation is so important in our economic and financial landscape.

These amendments are a bold move to add to that benign regulation by directly addressing the evil of bullying. This will be good for individuals but also—and this is a very important point—for SMEs. I was at the large end of the scale, and we were able to see off any attempt at bullying because we were big enough and ugly enough to be able to fight the problem with an equality of arms. The problem with an SME—and often we are talking about individuals—is that the concept of equality of arms in the courts is almost impossible; they can easily use up their revenue for a whole year on one court case. These amendments address the issue together.

I know the Government are likely to say, “Not now. We will do it later. We are looking at another area.” That just cannot go on, and I urge the Government to think about these ideas and work out some way to introduce this. The banking industry, in particular, has an appalling reputation. The evil things it has done over the years are frightening. It is difficult to believe, in a sense, that those evils were done by malice; but it is very easy to understand how the opportunities present themselves to behave in this way and generate more profit, more praise and more reward.

[Baroness Penn (Con)]

My Lords, Amendments 5, 73 and 95 relate to the protection of consumers and small businesses against misconduct. The Government are committed to ensuring that consumers and businesses can use financial services and products with confidence and that there are appropriate protections in place.

Before I comment on the specific amendments, I want to take a moment to set out the wider context. The Government have given the FCA a strong mandate to prevent and take action against inappropriate behaviour in financial services, and it has a wide range of enforcement powers to protect consumers and small business. Noble Lords will appreciate that the majority of business lending is unregulated—that is what the amendments test and probe—but the Government are committed to providing appropriate safeguards for SMEs in accessing financial services, while seeking to avoid driving up the costs of lending and unnecessarily reducing affordable credit options.

In the UK, loans of less than £25,000 to small businesses are treated as regulated consumer credit agreements for the purposes of the Financial Services and Markets Act 2000. This means that most small businesses already receive regulatory protection. In addition, in April 2019, the remit of the Financial Ombudsman Service was expanded to allow more SMEs to put forward a complaint. This covers 99% of small businesses in the UK. If a complaint is upheld, the FOS could make an award of up to £350,000 in relation to acts or omissions that took place on or after 1 April 2019, when its remit was expanded.

Small and medium-sized businesses also now have access to the Business Banking Resolution Service, an independent, non-governmental body which will provide dispute resolution for businesses which meet the eligibility criteria. The BBRS will address historic cases from 2000 which would now be eligible for FOS but were not at the time, and which have not been through another independent redress scheme. It will address future complaints from businesses with a turnover between £6.5 million and £10 million.

It is with that context in mind that I turn to the specific amendments. Amendment 5 seeks to protect consumers and small businesses from certain types of exploitation by financial services firms providing services to those groups. It proposes imposing new obligations on the FCA when it exercises its general functions. However, it risks putting up the cost of borrowing and limiting the availability of products and services. For example, it could require the FCA to make rules creating additional safeguards designed to ensure that exploitation, as defined by the amendment, does not occur. Given the different levels of financial sophistication of different small businesses, the rules may need to be designed to protect those with minimal levels of sophistication. Given the potential complexity of such new rules, financial institutions may be more reluctant to lend to small businesses.

Amendment 73 would duplicate similar existing protections that I have previously outlined, in a way that could be confusing to consumers, SMEs and lenders. On the issue of unconscionable conduct, in response to the banking crisis and significant conduct failings, Parliament passed legislation leading to the FCA and PRA applying the senior managers and certification regime. The regime aims to reduce harm to consumers and govern market integrity by making individuals more accountable for their actions.

Amendment 95 would broaden the scope of those parties who can seek action for damages related to mis-selling of financial services. However, I argue that these changes are unnecessary, as businesses already have robust avenues for pursuing financial services complaints, which I have already set out.

The Government are committed to regulating only where there is a clear case for doing so. This is to avoid putting additional costs on lenders that could ultimately lead to higher cost for businesses; these would likely be passed on to consumers and could restrict access to affordable finance—a key Government priority.

The Government’s view is that each of these amendments risks duplicating the existing protections that I have set out, while also making lending to SMEs more complex, which could make it harder for them to access affordable credit. Our view is that the existing protections get the balance right between protecting consumers and small businesses and not unduly restricting access to affordable credit options. For these reasons, I ask that these amendments be withdrawn.

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I argue, as does the amendment from the noble Lord, Lord Holmes, that the FCA should be more proactive. Nobody is better placed than the FCA to drive the industry to close gaps in provision, especially in financial inclusion. We have seen regulators do it in the United States with the Community Reinvestment Act, which was originally a civil rights Bill but has had an extraordinary effect in making sure that there are community banks targeted at disadvantaged communities right across the United States. Numerous proposals have been put to the FCA over the years. I am not trying to fix on any one solution, but that change from passive to proactive really is necessary, and action is needed now.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the noble Baroness, Lady McIntosh, mentioned that my noble friend Lord Stevenson has retired from the Front Bench, much to my personal disgust—because we are short of talent and he has a great deal of it. However, it is my duty to point out that the amendment he has proposed has the full support of the Labour Front Bench, although it touches on a subject that has terrified me for most of my life, although for no good reason.

The idea of poverty is very remote to most of us. When you think of the number of people who live in poverty, particularly in this crisis, in the areas where the support schemes have not worked properly, it is terrifying and difficult to understand how people survive. The problem with poverty is that the individuals involved lose their equity in society—they get to a point of having nothing to lose, and then we worry about the fact that they do not behave in the way we would like them to.

I was brought up in—how can I put it?—a low-income household, where we had probably the equivalent of the living wage, but it was not nearly as bad as today. First, I believe there is more financial inequality today. Secondly, employment among the working class in my youth and that of my parents was much more secure. Finally, it was a cash society. Whatever else you might say about cash, it is very easy to understand. In the non-cash society that we are drifting into—indeed, we are largely already in it—you can barely survive without a bank account. Creating basic bank accounts is very important but, whether we like it or not, many people will not understand the mechanisms. The situation of not working in cash means that it so much easier to spend money and to lose control of what your liabilities and payments are. Much as we may deride the jam-jar approach to running a domestic budget, it was easy to understand and, therefore, easy to manage.

Anyway, what can we do about inequality and security? That, of course, is the big issue in society; it has been in the past, it is particularly bad now, and it is something that we will probably be working on for the rest of our lives. However, we can do something about understanding society. I agree with the noble Baroness, Lady Neville-Rolfe, that this should start in school. I am a great believer that the curriculum on what one might loosely call citizenship should be much wider in many ways, and there is no question but that financial literacy and understanding should be part of it. This curriculum cannot be completed in school because you only really learn when you come across real-life challenges; so, after school, a concept of financial well-being is needed that will be part of the future world. I believe that these amendments could lead us strongly towards that better future.

[Baroness Penn (Con)]

My Lords, I welcome the opportunity presented by this group of amendments to discuss the importance of financial well-being and inclusion. The Government are proud of our strong record, and I know that making progress on these issues is a personal priority for both the Economic Secretary to the Treasury and the Minister for Pensions and Financial Inclusion. However, I recognise, of course, that there will be people who are struggling with their finances and need further support, particularly at this challenging time.

Given that these are probing amendments and given the invitation, at least from some, for a high-level response, I thought it would be helpful to set out briefly the Government’s approach, working closely with the FCA as well as a wide range of stakeholders, to promote financial inclusion and financial well-being in the UK. The Government produce an annual financial inclusion report; the most recent of these was published in November 2020, outlining our response to the Covid-19 pandemic as well as the progress we have made on issues such as access to affordable credit, support for credit unions and enhancing the use of financial technology. Since 2018, the Government have convened the biannual Financial Inclusion Policy Forum, bringing together key leaders from industry, charities, consumer groups and the FCA, as well as government Ministers, including the Economic Secretary to the Treasury, who was responsible for the passage of this Bill through the other place.

The Government also work with a number of stakeholders to promote people’s financial well-being. This includes engaging closely with the Money and Pensions Service, an arm’s-length body of government, which published its national financial well-being strategy in January last year. The strategy sets out its five agendas for change to improve the UK’s financial well-being over the next 10 years. This includes goals to increase the number of children and young people receiving financial education, to encourage saving, to reduce the use of credit to pay for essentials, to enhance access to affordable credit, to increase the number of people receiving debt advice and to support people to plan for later in life. Delivery plans will be published by the Money and Pensions Service later in the spring and the Government are supportive of this work.

The Government also work with Fair4All Finance, an independent organisation funded by £96 million from the government-backed dormant assets scheme, which was founded to improve the financial well-being of vulnerable consumers through increased access to fair and affordable financial products. To date, Fair4All Finance has focused on affordable credit and developed an affordable credit scale-up programme to help the sector develop a sustainable model for serving people in vulnerable circumstances.

The Government also work closely with the FCA, and I reassure the noble Lord, Lord McNicol, that the FCA is committed to improving the way that regulated firms treat vulnerable consumers. It is one of the FCA’s key areas of focus in its current business plan. Its rules ensure that the fair treatment of vulnerable consumers is required by firms and embedded into its policies and processes. I will give a couple of practical examples, as mentioned in previous groups. First, the FCA’s consultation on the fair treatment of vulnerable consumers closed in September 2020 and the FCA intends to publish further guidance on this matter imminently. Secondly, as discussed in the context of the amendments on a proposed duty of care, the FCA has announced that it will undertake further work to address any potential deficiencies in consumer protection, particularly by reviewing its principles for business. While the FCA delayed this work because of the pandemic, it aims to consult in the first quarter of 2021. I also assure the noble Lord that a number of other matters that he raised, such as the issue of buy now, pay later, will be discussed in subsequent groups of amendments.

I understand that these are probing amendments. I hope that noble Lords will take reassurance, from the measures that I have set out so far, of the Government’s commitment to this area and the commitment by the FCA from the work under way. However, as my noble friend Lady Neville-Rolfe has argued, the Government do not believe that further statutory duties on the FCA in this area is the right approach.

On the challenge of the noble Lord, Lord Stevenson, the Government see the value of considering the broader concept of financial well-being to include access to affordable credit and consumer protection, as well as financial education, as an important area for future work by the Government, the FCA and associated stakeholders.

I hope that the Government have demonstrated their commitment to taking this work forward, working closely with the FCA and a wide range of stakeholders, and that this provides sufficient reassurance to noble Lords of the Government’s commitment on this topic for them to withdraw their amendments.

Financial Services Bill

Lord Tunnicliffe Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

Moved by

[Lord Tunnicliffe]

24: Clause 3, page 4, line 14, leave out “adequately replaced by” and insert “replicated or otherwise reflected in”
Member’s explanatory statement
This probing amendment aims to understand the degree of flexibility that the Treasury will allow the PRA when it replaces provisions of the CRR via general rules.

--- Later in debate ---

[Lord Tunnicliffe (Lab) [V]]

My Lords, I shall speak also to Amendment 25. This is a Christmas tree Bill with many attractive decorations, to which the Committee has tried to add. They have all been important issues, but in my view Clause 3 is the most important clause in the Bill.

Clause 3 takes away a system of regulation without a clear replacement and, if we get it wrong, it could create another crisis. We have all started to forget the crisis of 2008-09 and we do not recall, I fear, just how close that crisis came to being a catastrophic worldwide crisis. We were saved by a number of very small margins, and I think many Members of the Committee have sensed this. That is why we spent the first part of the day addressing what, at Second Reading, the noble Baroness, Lady Noakes, called “the accountability deficit”. I hope the Government heard the debate and we can come to a satisfactory consensus. I draw some comfort from the Minister’s closing remarks that that is, indeed, his intention.

Amendments 24 and 25 address the Clause 3 problem from a different direction. What should replace what Clause 3 takes out? This particularly relates to the “have regard” provisions. If we look at the history of legislation in this area, it starts with the now unrecognisable FSMA 2000. That was the original Act, but 2012 brought significant change and created the FCA and the PRA. The model was supposed to be that the Government and Parliament would create a framework and the regulators would invent the rules. However, in many ways, that was overtaken by the European Union capital requirements regulation. It is worth noting that, while we were a rule-taker in that regard, the EU regulation went through a significant democratic scrutiny process in the EU Commission and, particularly, the EU Parliament. The noble Baroness, Lady Bowles of Berkhamsted, may be able to assure us of that, since she took a considerable part in that scrutiny.

Then came 1 January 2021, and the effect of the European Union (Withdrawal) Act 2018 was effectively to translate the regulation into UK primary legislation. Clause 3 revokes the regulation, so the real question is, what is to replace it? One has to delve quite deeply into the Bill to find out.

The Bill inserts new Section 144C,

“Matters to consider when making CRR rules”

into the now-famous FSMA 2000. Subsection (1) states:

“When making CRR rules, the PRA must, among other things, have regard to … (a) relevant standards recommended by the Basel Committee on Banking Supervision from time to time.”


As far as I know, there is no democratic input to the Basel Committee on Banking Supervision. I believe that UK interests are represented not by a politician or by government but by the Governor of the Bank of England. It seems that we are to be a rule-taker yet again.

Subsection (1) has three other paragraphs: paragraphs (b) and (c)—which I did not understand when I read them; I gather from a reference during an earlier debate that they are probably something to do with competition—and (d), which refers to

“any other matter specified by the Treasury by regulations”.

About the only good thing that can be said about that is that it has a parliamentary process and is subject to an affirmative statutory instrument. At first sight, it is the only democratic control in the regulations.

What has all this got to with Amendments 24 and 25? They are an attempt to prescribe what goes into the “have regard” section. Clause 3(4) of the Bill states:

“The Treasury may only make regulations under subsection (1) or (3) revoking a provision if they consider that … (a) the provision has been, or will be, adequately replaced by general rules made, or to be made, by the Prudential Regulation Authority.”


The weakness of this provision is that it is not at all clear what “adequately replaced” means, hence we propose that it be substituted by

“replicated or otherwise reflected in”.

That would mean that every provision in Clause 3(2) would have to be considered and replaced. The exception is in subsection (4)(b), which states

“consider that … it is appropriate for the provision not to be replaced”.

We cover that in Amendment 25, which would insert:

“Where the Treasury makes regulations in reliance on subsection (4)(b), the Treasury must, when laying a draft of the regulations before Parliament, also lay before Parliament a statement explaining why, in the Treasury’s opinion, there are good reasons for revoking the provision.”


The constraints which our amendments propose would mean that the initial, “have regard” rules would be at least as comprehensive as those they replace. I hope that the Government will consider with care these two modest amendments and accept them or incorporate their essence into their own proposals to achieve consensus on Clause 3. I beg to move.

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[Lord Tunnicliffe (Lab) [V]]

My Lords, I thank all Members who have taken part in this debate. The statement of the noble Baroness, Lady Bowles, that Clause 3 waives away a whole series of rules, without any clarity about how they are replaced, is very prescient. She rightly made the point that it may not be helpful in our aspiration to achieve EU equivalence.

The noble Viscount, Lord Trenchard, asked if I want the old. No—I want the old to be used to test whether the new is equally as comprehensive. He also spoke about simplicity. As someone who has been involved in rules in all sorts of environments, I know that they are not usually complex because people want them to be but rather because, in the operation of simple rules, questions come up and teach you that you need more complex ones. What impact will that have in this situation? The probability is that the apparent rules will be simple and the complex ones will be hidden from us in a series of rules that we do not see, which the PRA will inevitably have to create to make its supervision practical.

Furthermore, we had the comment that we are looking for light-touch regulation. In 2008 and 2009, we discovered light-touch regulation. This was not solely a British mistake but one made almost throughout the western world. However, the consequence was very close to disastrous. I find it interesting that, in his response, the noble Earl said that we have the Basel standards and already know what they are. This suggests that they are a system of rules ready-made for this purpose; if that is true, where is this flexibility that everyone praises so much?

Finally, we were told to rely on the checks and balances. We had a long debate at the beginning of today’s session, in which many people around this table, to a greater or lesser degree, were not at all convinced that the processes we are being asked to adopt have sufficient checks and balances. I will have to consider whether I want to bring this further forward on Report but, in the meantime, I beg leave to withdraw Amendment 24.

Amendment 24 withdrawn.

Financial Services Bill

Lord Tunnicliffe Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

I spoke to the other two amendments in the group at the beginning. I have taken up so much of your Lordships’ time. I apologise, but these are three nagging issues that create narrow but significant problems. They could be sorted relatively easily if somebody were to kick the Treasury.

[Lord Tunnicliffe (Lab) [V]]

My Lords, despite various initiatives to encourage the emergence of challenger banks and local and regional institutions, barriers to entry remain high and the UK does not have a very positive story to tell. If they were provided with the right regulatory framework, an expansion in the number of local and regional banks could play an important role in addressing local inequalities, building financial inclusion and increasing the proportion of lending going to the real economy SMEs. It is important not to look at this as a zero-sum game; it is not, or at least should not be, a choice between supporting either big corporates or small banks, but rather about creating a financial services ecosystem that covers everybody’s needs.

These amendments seem benign. Nevertheless, banking is a risky activity. It is a funny business: it goes out of its way to look respectable and sound, but, as we know, it is extremely frail. In the financial crisis of 2008, the country almost came to a position of collapse—much closer than we seem to remember. Only through decisive action by the Government of the time, and by other overseas Governments, were we saved from a serious financial crisis that could have crippled the world.

When looking at a bunch of amendments like this, one might be tempted to say that the PRA’s general objective will look after us, and one should remember that its general objective is promoting the safety and soundness of PRA-authorised persons. However, if these amendments were to become a trade-off between the amendments and the PRA’s general objective, that would be a step too far in the safety of the banking structure. Accordingly, I hope that the Government will have listened to the suite of sensible ideas expressed today but judge it as an overall package of goods and bring forward some proposals that capture the best without endangering the banking system. My noble friend Lord Stevenson brought up the fact that individuals desperately need a safe and orderly form of low-cost credit, and that is equally true of SMEs.

[Baroness Penn (Con)]

My Lords, as has been set out, this grouping considers issues relating to competition and proportionate regulation in support of increased competition. Increasing competition in banking has been a priority for government under successive Prime Ministers; this can be traced back to the immediate period following the financial crisis and, indeed, the work of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards, of which I know noble Lords in this Committee were members.

Amendment 29 seeks to ensure that the FCA and PRA give due consideration to competition in exercising their duties and apply their rules and regulations proportionately to different-sized firms. It is important to note that the FCA and PRA are already required to consider competition as part of their statutory objectives. It was essential to put competition at the heart of the post-2007 financial crisis regulatory reforms. For the FCA, this is one of the three operational objectives and, for the PRA, it is a secondary objective—secondary to its safety and soundness objective. Since being given their competition objectives, both the FCA and PRA have taken significant actions to improve competition in UK financial services.

I shall give some examples. First, the new bank start-up unit was set up in 2016 as a joint initiative of the PRA and FCA to make the process of setting up a new bank in the UK more straightforward. Since it was launched, 20 new banks have been authorised, and the PRA continues to ensure that steps are taken to ensure that it is acting on its competition objective. For example, it consulted in summer 2020 on its approach to new and growing banks and, in November 2020, announced its intention to consider a more proportionate prudential regime for smaller banks, which promotes growth. Secondly, the FCA launched its regulatory sandbox in 2015, the first of its kind globally. This sandbox enables businesses to test innovative propositions with customers, improving the range of services and products available to UK customers. The FCA also recently launched a new digital sandbox to allow early stage firms access to data, which enables them further to develop their innovative ideas.

To give some more examples, the current account switch service, or CASS, was introduced in 2013 to allow customers easily to switch account provider when they see a better deal. As of September 2020, customers have switched over 6.8 million times using the service. The Payment Systems Regulator has been created to ensure fair and competitive access to central payment systems so that payment systems work in the interests of the businesses and customers that use them, and an SME credit data-sharing scheme has been introduced to make it easier for challenger banks and alternative finance providers to check the creditworthiness of businesses, improving their ability to lend to SMEs. I hope that reassures noble Lords that competition is already a key priority for this Government and is being properly considered by regulators.

Amendment 43, in the name of the noble Baroness, Lady Kramer, would remove existing capital requirements for banks with assets below £100 billion. As she has already explained, the intention of this amendment is to ensure that the rules on capital requirements for these smaller banks would be replaced by PRA rules with more proportionate requirements. The Government are committed to supporting more proportionate regulation for small and medium-sized banks and enhancing competition in financial services. The delegation of the relevant prudential requirements in this Bill will allow the PRA to introduce proportionality in its implementation, where appropriate.

Financial Services Bill

Lord Tunnicliffe Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, I spoke at length on the previous group, so I am going to pay penance and try to be much briefer on this one, even though this is an issue that I also care about passionately. I do not think I can start without acknowledging all the incredible work done by the noble Lord, Lord Stevenson, in this arena. He has genuinely moved the issue on by sheer determination, a baton now picked up by the noble Baroness, Lady Coussins.

The statutory debt repayment plan element of the debt respite scheme needs to come into effect as soon as possible. I suspect that we all acknowledge that, but the impact of Covid makes it more important than ever. When we talk about a timetable—I am thinking of the speeches by the noble Baronesses, Lady Morgan and Lady Ritchie—we know that a group of people who will probably never have experienced financial difficulties will now be drawn into a system where they are overwhelmed by their debts. One can see that this is an opportunity for the less scrupulous to take advantage. Even those who regard themselves as perfectly professional and ethical will look for weaknesses in the system in order to get paid. There is pressure on both sides. I have therefore added my name to Amendments 52 and 67.

The noble Lord, Lord Lucas, raised a number of interesting issues but he can probably take comfort in the fact that there is a sort of Scottish template, if you like, in that experience in Scotland will help to make sure that the programmes in England—I assume this covers Wales as well—will benefit and learn any necessary lessons. That should remove a lot of the anxiety and some of the teething problems.

The amendment in the name of the noble Baroness, Lady Meacher, is completely new to me. It seems entirely logical that we should have a proper framework of oversight for bailiff enforcement.

I also strongly support Amendment 111, in the name of the noble Lord, Lord Holmes, to bring lead generators for debt advice and debt solution services under FCA regulation. I have worked on many financial services Bills over the years, particularly on the consumer side, and it is almost breathtaking how many people and groups are totally unscrupulous and use any opportunity to gouge people when they are anxious and worried. One can just see the exploitation that could happen here. I ask that the issue be taken more broadly, that the FCA go on the front foot and anticipate where unscrupulous individuals might try to exploit the situation, and that we see if we can to some extent head it off at the pass. We are quite good at doing something when thousands of people are complaining that they have been taken advantage of; it might be very useful if we turn that around and try to anticipate where trouble could come from and see whether we can deal with it.

The issues have been so well laid out by others that I will not repeat them, but I join in asking the Government to respond to these amendments, particularly those on the timetable, with some very strong assurances at the very least.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we have spent an hour and a quarter debating a clause that is two thirds of a page long in a 182-page Bill. This, at first sight, might seem unreasonable, but when you look at the clause from the point of the view of the individual citizen, it is probably one of the most important in the Bill, so it is right that we have done so. There are an amazing 19 amendments to this clause, which would normally imply concerted opposition. In fact, that has not been the mood of the debate at all.

To sum the clause up, it has dealt well with one of the concepts, but we have too little detail. My noble friend Lord Stevenson of Balmacara seems in many ways to have been the father of this concept, and I congratulate him. We have adjacent desks, and I have seen him busily dealing with issues such as this. His two amendments seek to flesh out how the clause would bring in proper regulation, a degree of reasonableness and recognition of the role of bodies related to national and local government; they also address the importance of protection from bailiffs, and funding.

The noble Baroness, Lady Coussins, brought in the idea that we must have a hard deadline, and the noble Lord, Lord Holmes of Richmond, introduced the concept that we need advice for individuals. A timetable of December 2024 was gazumped by the noble Baroness, who suggested instead May 2024. It is important that the funding issues be addressed, especially if this fine concept is improved, because it could always go wrong if they are not faced up to. Again, this brings home the importance of regulation.

Finally, we have the 11 amendments from the noble Lord, Lord Lucas. I hope he will not mind me saying that they are very “Lord Lucas-like”, with each small detail adding value to this legislation. I say that in order to illustrate that most of the amendments are complementary.

I ask the Minister to recognise the degree of clear, cross-party consensus on this important clause. Many people have urged him to make concessions. My experience is that Ministers making concessions on the hoof is considered rather dangerous; hence, this is unlikely. But I do strongly urge him not to reject too many of these ideas. His brief probably says that the wording will not work. Wording never works when it is from the Back Benches, but the ideas work, and these ideas are powerful and need to be taken account of. I hope there will be a further round of conversations before Report, and that the Government will come back with a composite proposal that improves this important clause. I fear that if that does not happen, we will spend a lot of time on Report, and there will be a more muscular approach from those who tabled and who support these amendments.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, the noble Baroness, Lady Noakes, and I very rarely seem to agree on the types of issues covered in this amendment, but on this one we are totally of one mind. I am very grateful because I tried to write an explanation of how this process would work and it was so inferior. The noble Baroness, Lady Noakes, not only explained it very clearly, step by step, but included numbers, which makes it much more evident.

I think there must be some misunderstanding. As the noble Baroness, Lady Noakes, explained, it is perfectly normal for an originating company to sell off the loans it has, sometimes because it can sell them to someone who has a different funding profile or a different tolerance for the average duration of the book of loans being sold, or because somebody may take a different view on how many of the loans will pay in full, pay in part or default. It is a perfectly standard process and provides liquidity to the market. As the noble Baroness, Lady Noakes, said, if an organisation had to keep all the loans it generated on its books and could not sell them off, it would find very quickly that it was constrained in doing any new business. That would be hugely damaging to many of the people who go out and borrow. It tends to be a completely different business that will buy loans in the secondary market.

The question that underpins this is: is the Statutory Debt Repayment Plan right and fair when it is put in place? If that is true, it should not matter if the money is paid to the originating company or to the secondary buyer. Within the portfolio, there will be some people who can and do meet the full obligations of the Statutory Debt Repayment Plan, and surely that is appropriate. There will be others who fail and end up in bankruptcy, and whoever is holding the loan will lose out.

My question is whether there is any read-over from the kind of issues we have had with mortgage prisoners. It is important that where there are expectations about how the original lender will behave, they are carried over to the secondary lender. For example, if the original lender is quite likely to offer an alternative loan or new terms and conditions or whatever else, you would expect to see that reflected in the secondary lender. I would not want a situation where the secondary lender was able to levy additional charges or put additional costs on the borrower that would not have been expected by the original lender but perhaps are not covered in the minutiae of the contract.

Otherwise, the honest truth is that I just do not understand this amendment. I am absolutely certain that it completely seizes up any possibility of having a secondary market, and the people who will pay the greatest consequence for that are those who need to go out and borrow from time to time and are at the margins of being appropriate borrowers.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I think this debate brings out the fact that we do not fully understand this area. There is obviously a case for a great debate. We are, sadly, going to see many more people in heavy, chronic debt and we will see people—to use a colloquial term—fall apart. When people have debt and cannot see how they are going to cope, they lose their equity in society.

Perhaps I am being unfair, but I see a conflict here between people—human beings—and loan books and technocrats. That is not a very useful comment. I cannot argue that this particular amendment should be pressed, but the debate about it brings out that we almost certainly do not have all the mechanisms, and the understanding of the human beings involved, to face the many more people who will be in chronic debt when we, who are not in that situation, are talking about the Covid crisis being over. Those people need society’s help, and for them to have that, we need a much better understanding of the impacts on those people and how we can make sure that the excesses of the people who hold the books are restrained.

Financial Services Bill

Lord Tunnicliffe Excerpts

Committee stage
Monday 8th March 2021 Grand Committee

Moved by

[Lord Tunnicliffe]

79: After Clause 40, insert the following new Clause—
“FCA duty to regulate buy now, pay later firms
(1) Within 3 months of the day on which this Act is passed, the Secretary of State must lay before Parliament regulations which confer a duty on the FCA to regulate—(a) buy now, pay later credit services, and(b) other lending services that have non-interest-bearing elements.(2) The duty conferred in regulations under subsection (1) must take effect no later than 6 April 2022.(3) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This new Clause would require the Chancellor to confer responsibility for regulation of the non-interest-bearing elements of buy-now-pay-later lending to the FCA, with such a duty to come into force no later than the beginning of the 2022/23 tax year.

[Lord Tunnicliffe (Lab) [V]]

My Lords, many colleagues will recognise Amendment 79 as a response to the recent publication of the Woolard Review into change and innovation in the unsecured credit market.

The Government have been on something of a journey on buy now, pay later products. In December 2020, the Economic Secretary resisted a similar amendment tabled by long-standing personal debt campaigner and MP for Walthamstow Stella Creasy. He said that while the Government were aware of potential risks resulting from a boom in the use of buy now, pay later products,

“we are yet to see substantive evidence of widespread consumer harm”,—[Official Report, Commons, Financial Services Bill Committee, 3/12/20; col. 398.]

and it would therefore be inappropriate to act.

To be fair to the Government, they did not want to pre-empt the findings of the Woolard Review, which was published a month ago and is a very strong piece of work. It warned of “significant potential customer harm” if there was not a role for the FCA. By bringing certain unregulated credit products under the FCA’s watchful eye, we could see requirements around affordability checks, as well as the introduction of proper protocols for individuals who find themselves struggling to repay the loans they have taken out.

The review also stressed the importance of ensuring a well-functioning debt advice sector, and the need for both government and regulators to take a more holistic approach to a range of issues around personal finance and debt. I know that this piqued the interest of my noble friend Lord Stevenson of Balmacara, who has already dealt with the concept of financial well-being and will turn his attention to Victorian log-book loans shortly. We support his endeavours and hope that at the very least the Government will commit to a review of the antiquated legislation whose repeal was recommended by the Law Commission several years ago.

We strongly welcome the Government’s acceptance of the Woolard Review’s recommendations, as well as their commitment to implement the necessary changes as soon as practicable. It is in some ways a curious change of position, as the review’s discussion of theoretical risks does not appear to meet the evidence test set by the Treasury just three months ago. However, this is a policy change that we can support and, luckily for the Minister, this legislation provides a means of delivering on the Government’s promises.

No doubt we will hear later that this is a very complicated matter and the Treasury needs time to think through the consequences—intended and unintended. Mr Glen hinted at this back in December, talking about the need for the Government to “assess the options” and to weigh up whether they “would be proportionate” in responding to potential harm.

One worry previously cited by the Government related to the potential restricting of flexible payment options for such things as gym memberships or sport season tickets. Nobody would wish to restrict access to such options, in part because they have shown themselves over many years to be low risk. We therefore welcome the distinction made in the review, which talks of “certain new credit products” being brought under the FCA. Our Amendment 79 is more wide-ranging but is, as so often in Committee, a vehicle for debate.

Another worry of those who oppose regulation relates to the potential stifling of innovation in the sector. Of course we welcome new entrants and new services, but on the basis that they operate in a responsible manner. These products are booming in part because of Covid-19 and changes to peoples’ shopping habits. Buy now, pay later grew exponentially during 2020, with an estimated 5 million people using products from firms such as Klarna and Clearpay. The value of these transactions is in the billions, and that figure is likely to grow.

We do not oppose Klarna, Clearpay or other providers of these services. They offer a product which many shoppers wish to avail themselves of, and I am confident that such companies will continue to grow once subject to FCA regulation. All we are asking is that these players, as with others across the financial services sector, are subject to the correct balance of rights and responsibilities, including duties to those who may have problems with debt.

I have no doubt that the brilliant minds at the Treasury and the FCA can come up with a solution, and do so while the Bill remains under consideration. Our amendment mentions the 2022-23 tax year, and if we are to learn lessons from the past, including the failure to properly regulate payday lenders, surely we must keep this target at the forefront of our minds.

I know from previous discussions with the Minister and officials that they are working very hard on this. Therefore, I am hopeful of seeing a government text on Report, if not establishing the detail then committing to the principle and providing the powers that will be needed to implement changes in the coming months.

Other noble Lords with amendments in this group will be very keen to make their speeches, so I will not detain the Committee for too much longer. However, I want to voice support for the other amendments, including that from my noble friend Lord Stevenson referred to earlier in my remarks. I also look forward to the Minister’s response to the amendment on access to bank accounts and cash. Sadly, we continue to see the withdrawal of bank branches and cash machines from towns and villages across the country, suggesting that previous initiatives have not had the desired effects. I beg to move.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I start by expressing support for Amendment 79, introduced by my noble friend Lord Tunnicliffe. As the Woolard Review pointed out, the buy now, pay later issue is a hotspot at the moment and in need of urgent action. My noble friend’s amendment would require that the non-interest-bearing elements of lending under that regime should be regulated by the FCA, and we support that. I thank the Economic Secretary for the time given to us recently on this issue and I appreciate that this is not easy to regulate for. However, as my noble friend pointed out, there is time to get this right by the next financial year.

At heart, this looks like a consumer-friendly initiative—something we could all support. Credit-financed purchases have been with us for a long time, and there are some examples of activity in this field that could be damaged if the regulations to be brought forward are too aggressive. My noble friend mentioned employees, advances of salary and season tickets, and similar arrangements. However, the real profit motive which drives these schemes lies in the small print. Like so many similar schemes, these buy now, pay later schemes put pressure on customers to make unnecessary purchases, do not make effective credit checks, and there is evidence that they can cause mental health difficulties for those who sign up. I am sure that it would be possible to get this side of things properly regulated. However, what is less easy to regulate—although in fact it is far more damaging to hard-pressed consumers—are the penalties that get applied to missed payments and the excess interest that is loaded when payments are missed. In addition, compulsory insurance is often levied against default, links to loyalty follow-up purchases are imposed, and no real comparator APRs are somewhere available for those who wish to shop around before purchasing.

The focus placed on the FCA’s duty to promote competition rather than on a duty of care is an issue in play here. When the FCA was asked to regulate payday lenders, this House made it clear that its concern was the usurious rates of interest being charged, often many thousands of percentage points measured by APR. The solution favoured by the House was banning the products, which was why many of us were mystified by the FCA’s proposed solution of reducing the number of players in this market to a smaller number of well-capitalised companies—which indeed got the interest rates down, but only to around 1,000% APR, so consumers were left facing usurious rates. I hope the Minister will be able to reassure us that the approach that the Government are thinking of taking to buy now, pay later will not fall into the same trap as the payday lender regulations. The aim is consumer care and stamping out egregious behaviour, and not just promoting competition by allowing companies to rip off vulnerable consumers.

My Amendment 101, which I am grateful to the noble Lord, Lord Holmes of Richmond, for signing, is also about high-cost credit. As I said at Second Reading, it is high time we repealed the Victorian bills of sale legislation, which permits an egregious area of high-cost credit to continue and flourish outwith current consumer protection rules. Harm is being done.

Bills of sale are an early form of mortgage, aimed at goods and chattels and not property, which allow individuals to use goods they already own as security for loans while retaining possession of them. The use of bills of sale grew from fewer than 3,000 cases in 2001 to more than 30,000 in 2016. The number has dropped recently, but it is probably still in the order of 15,000 a year and it is going up. Ironically, bills of sale were legislated for before cars were invented, but they are used today mainly for what are called log-book loans, where a borrower raises cash on the security of his or her vehicle. Borrowers may continue to use their vehicle while they keep up the repayments, but if they default, the vehicle can be repossessed, sometimes from outside their front door, without the protections that apply to hire-purchase transactions or other consumer credit. It is also difficult to discover, when a car is being sold, whether it has a log-book loan attached. The register is kept by the High Court and it is not easily searchable. The new owner has no protection against losing the car if that loan has been defaulted on by the previous owner. This is just not fair.

Bills of sale are currently governed by two Victorian statutes, the Bills of Sale Act 1878 and the amendment Act of 1882—the statute was apparently so obscure in 1878 that it had to be re-regulated for in 1882. The legislation is described by the Law Commission as “archaic” and “wholly unsuited” to the 21st century. The current law creates hardship for borrowers and for private purchasers. The Law Commission argues that it imposes unnecessary burdens on lenders, and the lack of a proper chattels mortgage system restricts access to finance for unincorporated businesses and high-net worth individuals.

The great majority of bills of sale are taken out by borrowers who have difficulty in accessing other forms of credit. The current APR in a recent advert that I saw was 450%. The Law Commission says that the statutory form of a bill of sale as set out in the 1882 Act, which has to be followed absolutely to the letter, confuses borrowers rather than helps them to understand the consequences. It is clearly an area that should be cleaned up. A simple way, which is what I propose in my amendment, would be to repeal the Acts. While I accept that some people currently using log-book loans would be adversely affected by such a radical change, the greater harm lies in continuing the status quo.

I currently have a Private Member’s Bill on this issue, drafted by the Law Commission, which includes provision also for a goods mortgages scheme. Perhaps a way forward on this would be for the Government to agree to take on all or part of this Bill in the next Session using the special scheme for approving uncontentious Law Commission Bills. I would be happy to meet the Minister on this issue, if he could find the time, to see whether this would turn out to be a way forward.

--- Later in debate ---

[Lord Tunnicliffe (Lab) [V]]

My Lords, I did not study this group with the care I should have, otherwise I would have realised what an extraordinarily rich group of amendments it is. They seek to address individual areas of customer concern and equalise the balance between customer and firm. It is interesting that, as I think the noble Baroness, Lady McIntosh, said, each has its merits.

I thank the Minister for his response and note the little chinks of optimism that he has allowed us to go away and, hopefully, talk. I hope he will also extend that invitation to many of the movers of amendments in this group, perhaps working together to see whether there are areas where more progress can be made. While normally we would not be happy with bits of legislation leaving most of it to happen via regulation, in comparison with the possibility of no finance legislation for a year or so, we must have an open mind about mechanisms going forward. Furthermore, I and my fellow noble Lords in this in no way seek that he accepts our wording. We know that the chances of our wording being acceptable to the Government are negligible, and therefore have an entirely open mind about his wording, provided that it leads to the same result.

The noble Baroness, Lady Kramer, mentioned en passant the concept of duty of care. I know that terrifies Governments; they will have to come to terms with it sooner or later, but for the moment I recognise that we cannot get there. Sadly, in many areas of retail finance, products and services, sectors of the industry at least seem to have a duty to exploit. The problem is that this exploitation frequently leads to real harm to real individuals. These amendments are about real individuals and preventing real harm. The problem is that there is an asymmetry of power in the sector, certainly at the level of the individual, between the firms and your typical consumer.

Purists will argue that this asymmetry will be held back by competition. I am not that enamoured with competition. To me, competition is when, on a Friday morning, I drive out to do the shopping for the week and can turn left for Waitrose, straight ahead for Tesco or right for Sainsbury’s. That is real competition. Every week I make that decision—it is not like the bother and fear of moving one’s service providers in the financial world, if you are an unskilled typical consumer. Possibly nowhere in our modern society is the concept of intelligent regulation more necessary than in the financial services sector. The complexity on the one hand and the opportunity and possibility of getting into serious harm on the other are so significant that we must accept that intelligent regulation, of which the amendments in this group are all examples, must be part of the financial services landscape of activity. All we seek to do in this group is introduce intelligent pieces of regulation to make the whole thing fairer for the customer.

I look forward to further discussions with the Minister and his colleagues. With that, I beg leave to withdraw my amendment.

Amendment 79 withdrawn.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, any one of us can go on to our smartphone and find an app for halal financing for someone who wants to buy a car or a house—they are called “halal mortgages”—or who needs money to support a small business. It is incredible and quite incomprehensible that we do not have a sharia-compliant version of student loans. It is not as though we do not know how to do it or the institutions do not exist in the UK. I suspect that many noble Lords have been, like I have, at general meetings of the financial services industry where, as well as talking about being world leading in terms of green finance, we have talked about London as a very important centre for sharia-compliant finance as we attempt to expand and have a much greater global reach. Six years is an incredible time to wait. It has been four years since enabling legislation was put in place.

I was looking at a Metro article on the web about students who were interviewed in 2019. Some had managed to put together a way to pay their student fees. One said:

“I was constantly broke as a student and never, ever did anything remotely fun. I always felt too guilty if I spent any money on myself.”


Students who started out and found that they just could not keep going left and went to work, but then found that, as this lady said,

“to progress further I need that degree so the plan is to go back.”

However, this young woman has no idea how to finance it. Another youngster talked about the stress of

“having to live scrupulously and scrape up enough to pay each instalment in time.”

We really should not be putting any student into this situation. I do not understand the delay. There does not seem to be an obstacle in terms of designing the appropriate facility or the appropriate legislation. I hope that the Ministers who are here, all of whom are people of understanding and sympathy, will go and put pressure on the Government to take this from the bottom of the in-tray and put it at the top. It could be a minor amendment that we make on Report.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the last Labour Government were supportive of facilitating access to sharia-compliant financial services, and we understand—and welcome—that Her Majesty’s Government have made similarly helpful noises during their time in office. This is an interesting time for financial services as some firms prioritise divesting from fossil fuel projects, and so on. If such moves are possible, surely we can make progress on services that do not have involvement in industries such as gambling or alcohol?

Amendment 88 raises the issue of sharia-compliant student finance, which was subject to a recent e-petition on the Parliament website. In their response, the Government recalled their consultation on the matter back in 2014 and said that they intend to publish an update on progress later this year. While we appreciate that it takes time to engage with communities to understand their needs, evaluate feedback, devise new schemes and ultimately make them operational, there has been a significant wait for new products, and we need evidence from the Minister that we will soon turn a corner.

[Lord True (Con)]

My Lords, as has been eloquently expressed, these amendments relate to sharia-compliant finance and specifically to the availability of sharia-compliant student finance products. This is an area where the Treasury and the Department for Education are in close contact. The Government are committed to ensuring that all students in England with the potential to benefit from further and higher education are able to access it. I know from this debate and from others that many noble Lords of all parties are keen to see action on this.

On the specific amendments, which the noble Lord, Lord Sharkey, stated are probing, Amendment 80 seeks to require the Treasury to publish an assessment of the availability of sharia-compliant financial services, I can assure noble Lords that the Government are committed to ensuring that no UK customer is denied access to competitive financial products because of their faith. As referred to in the debate, the United Kingdom is indeed the leading western hub for Islamic finance, a position we have maintained for several years now. Treasury Ministers and officials conduct regular engagement with key stakeholders in the Islamic finance sector to inform our policies.

Amendment 88 seeks to add access to sharia-compliant student finance to the FCA’s objectives within Section 1B of the Financial Services and Markets Act 2000. It would be ineffective to add this objective because student loans are exempt from FCA regulation, meaning that the FCA would not have the powers to fulfil this duty. Additionally, student finance provision is a devolved matter while the FCA is our UK-wide regulator. Finally, as I have explained, work is under way in government to ensure that all eligible students are able to access student finance.

A number of noble Lords commented on the pace of this work. As the noble Lord, Lord Sharkey, said, the Government published a consultation in September 2014 into a potential model that could form the basis of a new student finance product. The Government signalled in the consultation response that they would need to take new primary powers to enable the Secretary of State for Education to make alternative payments in addition to grants and loans. These were secured in the Higher Education and Research Act 2017. The Government have also carried out work with the Islamic Finance Council UK on an alternative student finance product for tuition fee and living cost support compatible with Islamic finance principles.

As has been stated, the implementation of alternative student finance is currently being considered alongside the review of post-18 education and funding. The interim report of that review was published on 21 January and the review is due to conclude alongside the next multi-year spending review. The Government will therefore provide an update on alternative student finance in due course. We should not underestimate the scale of complexity here. The Department for Education is trying to replicate a system of student finance that delivers the same results as now where students do not receive any advantage nor suffer any disadvantage through applying for alternative student finance.

I am sure that our colleagues in the departments concerned have heard the concerns expressed by noble Lords. I hope that, for these reasons, the noble Lord, Lord Sharkey, will feel able to withdraw his amendment.

Financial Services Bill

Lord Tunnicliffe Excerpts

Committee stage
Wednesday 10th March 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, I have taken a vow to try to be brief in all my responses today, recognising the time pressures of the day. I also listened carefully to my noble friend Lord Sharkey and the noble Lord, Lord Stevenson, and I am not sure that the case could be better made.

However, I must follow the noble Lord, Lord Griffiths of Burry Port, in picking up an issue raised by the noble Baroness, Lady Noakes, who described mortgage prisoners essentially as problem debtors. These are people the overwhelming majority of whom would not have any problem with their debt if they had been allowed to take advantage of the changes in interest rates and mortgage terms that have been available much more widely. The case to act for their protection is simply overwhelming. If we had not had the financial crash and they had remained with regulated lenders, the vast majority of them would not be facing any issue. They would have had their mortgages restructured to lower rates and they would not be facing stresses and strains today.

I have been sent information from a significant number of people who find themselves to be mortgage prisoners and, frankly, the stories are often heart-breaking. I heard this morning from someone who is desperately ill in hospital, but the stress of the financial challenges that he faces makes every day far worse and far more difficult to deal with. To me, it is inhuman that action is not taken. The Government recognise that action must be taken, given the circumstances and the stress that so many people face and the corners that they have been pinned into. Surely such action should be taken now and not be kicked down the road yet again.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the case for reform in this area has been overwhelmingly made by my noble friends Lord Stevenson and Lord Griffiths, the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer. I wish not to delay the Committee any longer, but simply to advise that the Labour Front Bench supports my noble friend Lord Stevenson’s amendment and the generality of those proposed by the noble Lord, Lord Sharkey.

[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, I acknowledge that the Government have a great deal of sympathy for borrowers who are unable to switch their mortgage, and we are committed to finding practical ways to help them. That is why we have been working closely with the FCA, and I will set out the action that it has taken.

In 2019, the FCA introduced a modified affordability assessment, which allows active mortgage lenders to waive the normal affordability checks for borrowers with inactive lenders who meet certain criteria—for example, not being in arrears and not wishing to borrow more. As a result of this, inactive lenders have been contacting borrowers who have had difficulty with switching, setting out new options that may be available for them on the active market. I am pleased that a number of lenders, including Halifax, NatWest and Santander, have already come forward with options specifically for these borrowers.

More widely, we have taken steps to support those unable to make mortgage payments during the pandemic. Payment holidays have provided vital support for consumers, including those with inactive lenders, with over 2.75 million mortgage holidays granted since March 2020.

However, policy should be based on clear evidence. The FCA’s analysis found that customers with inactive lenders paid, on average, just 0.4% more than customers in the active market with similar characteristics. There has been comment in Committee on that figure. The FCA’s analysis also found that, of the 250,000 borrowers with inactive lenders, half were in a position to switch to a new mortgage even before any action from the Government. That illustrates one aspect of the diversity of this group.

On the 0.4%, I am aware that there are other estimates out there, including in a recent report, which has been referred to, published by the UK Mortgage Prisoners action group on 8 March, just a few days ago. Treasury officials have reviewed this analysis and noted that these figures seem to be based on surveys with small sample sizes. The comparisons are often inappropriate—for example, contrasting rates that many borrowers with active lenders would not even be offered. I hope that noble Lords will appreciate that this is a complex topic. We are, as I have said, committed to finding practical ways to help.

Amendment 99 seeks to cap standard variable rate mortgages for some customers. Data from the FCA suggest that the majority of borrowers with inactive lenders pay less than 3.5% interest. As I have already said, compared to those with similar lending characteristics, consumers with inactive lenders pay on average only 0.4% more than those with an active lender. This was also backed by the London School of Economics recent report on mortgage prisoners, noting that it does not recommend capping standard variable rates at a low rate. Capping mortgages with inactive lenders could have an impact on their financial stability, as it would restrict lenders’ ability to vary rates in line with market conditions. That would also be unfair to borrowers in the active lending sector, particularly those in arrears, who are paying a higher standard variable rate.

Amendment 116 seeks to provide new fixed interest rate deals for certain mortgage customers with inactive lenders. I have already set out the FCA’s work in introducing a modified affordability assessment and that a number of active lenders—household names—have come forward with offers. The FCA estimates that up to 55,000 borrowers could be eligible to benefit from the new modified affordability assessments. The Government will continue to monitor the situation and hope to see even more options available over the coming months. Enabling people to switch into the active market is the best way to help consumers secure new deals, and that is what we have been doing.

Amendment 117 would require active lenders to seek a borrower’s permission before transferring their regulated mortgage contract to an inactive lender. There are already a number of protections in place for borrowers, meaning that their mortgage cannot be sold on to an unregulated servicer and their terms and conditions cannot change as a result of the sale, so the benefit of explicitly seeking permission from the borrower is unlikely to help them any further.

It is required that all loans within the UK must be administered by a regulated entity, meaning that all customers will be able to benefit from consumer protections —for example, access to the FOS. The terms and conditions of a loan do not change upon sale, meaning that consumers will be treated in line with their original agreement even if their loan was sold to an unregulated entity.

As my noble friend Lady Noakes pointed out, the amendment would also risk disrupting the residential mortgage-backed securities market as it may prevent the effective securitisation of mortgages, where beneficial ownership of a portfolio of mortgages is transferred to a special purpose vehicle. Securitisation is a common way for active lenders to fund themselves, and disrupting the securitisation market would likely have a negative impact on the availability and cost of mortgage credit in the United Kingdom. For those reasons, I ask that the amendment be withdrawn.

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[Lord Tunnicliffe (Lab) [V]]

My Lords, the noble Lord, Lord Hodgson, has tabled a number of interesting amendments relating to the quality of work, as well as on the topic of employee share schemes. As I am sure the Minister will mention, the latter topic is the subject of a call for evidence issued alongside last week’s Budget. However, as that exercise only covers the operation of one specific scheme, I do hope that we will hear about the Government’s wider plans to promote employee ownership and employee share ownership. With an eye to the next group, I suspect that many fintech start-ups would be interested in taking up such options to help attract the talent they need.

In studying the first three amendments in this group, I was reminded of a remark I made at Second Reading, where I praised the financial services sector for the many well-paid and relatively secure jobs it provides, not just in the City of London but across the whole of the United Kingdom. While I stand by that generalisation, I must acknowledge that, as in any other sector, exceptions do exist. For example, as tranche after tranche of local bank branches reduce their opening hours or close their doors for good, we cannot possibly pretend that the job security of those workers is as high as it was, say, two decades ago. While working practices are rapidly changing across the financial services sector, certain strands of it retain a reputation for featuring long, unsociable hours or a cut-throat working environment that many would struggle with.

The proposals put forward by the noble Lord, Lord Hodgson, are intriguing. The amendments raise several questions about access to talent and the treatment of it. As we have said on a number of occasions, we very much hope that the sector will go from strength to strength, bringing a steady stream of quality new jobs. The noble Lord is right to probe the Government on how they will create the ecosystem that makes this hope a reality. However, these considerations are not unique to financial services. As the economy recovers from Covid-19, we will want to see gains in employment across the board. If we are to build back better, as the Government claim they want to do, we will need to ensure that workers have good terms and conditions, as well as opportunities to undertake training or reskilling.

Therefore, for me the real question raised by these amendments is when we can expect to see the long-awaited employment Bill. The 2019 Conservative manifesto made a range of commitments on employment rights, and the last Queen’s Speech promised legislation to enact them. Regrettably, despite a longer than normal parliamentary Session, we have yet to see any concrete proposals. So, while the Minister may not be responsible for the forthcoming legislation, I hope that, during his response to these amendments, we will get a firm commitment that the employment Bill will appear soon.

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[Baroness Kramer (LD)]

My Lords, after all those excellent speeches, I shall try to be brief but I need to declare my interests in the register because they apply to this group of amendments.

Fintech is an extraordinary success story in the UK. In 2011, shortly after having the privilege of being appointed to this House, I sought out and invited the chief executive of every fintech in the UK that I could find to come to a meeting. We needed only a small conference room over in Millbank House. Today, the QEII Centre would not be adequate. That alone speaks to the extraordinary success of the industry, much helped by an enlightened view from the Financial Conduct Authority, which had to be dragged kicking and screaming into looking benevolently upon the industry and understanding that it required appropriate regulation to grow. However, once it got there, the FCA has been incredibly positive and powerful.

I want to plead against complacency, which is a rather British weakness. In the days before Brexit, many of our fintechs chose to expand into continental Europe, using passporting and the e-commerce directive. They also attempted to go into the United States but few have been successful, partly because of the competition there and the difference in structure. The European market is incredibly important for expansion. We also know that it has been important for recruitment, which raises many issues around visas. A single person is perhaps not so hard to attract but someone whose wife or husband is unable to work may not be so cheered in taking up a visa to come to the UK. That is an underlying problem that we face for entrepreneurs and skills.

Many issues have been raised in this debate, including AI and fintech: the two merge over some significant territory. The issues raised by the noble Lord, Lord Holmes, are important and will, I hope, be a prod to make sure that we continue to deal with them at pace and to understand that there is no easy time. Berlin has, frankly, become a centre for tech within Europe and it would not be so very difficult to swivel that around and begin to absorb fintech. We do not want to put ourselves into that situation.

I wanted quickly to make two other points, picking up on points raised by the noble Lord, Lord Holmes. Digital fiat currency is now the issue of the moment. We have a relatively small window in which to decide whether we want to play in that area in such a way as to make us a significant player. One could say that sterling is not a natural global currency and we therefore need to be first mover. Picking up on the noble Lord’s point, I hope that we will look more at that area.

AI obviously brings with it extraordinary complexities and question marks but they are issues that can all be worked through if we focus on them. They will not become easier over time; they are just as difficult now as in the future, so one might as well deal with them as is. The issues raised by the noble Lord, Lord Holmes, deserve a proper debate on the Floor of the House and I am sure will draw in many more people than those who focus on financial services issues alone. I very much look forward to that opportunity as well as listening to the Minister’s response.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling this group of amendments, which deal with various aspects of fintech. His contributions on this Bill have been thoughtful, and nobody should be surprised by him pushing this agenda today, given his role as co-chair of the relevant APPG. As other noble Lords have mentioned, this debate is a topical one, following the publication of the Kalifa review on fintech last month. We welcome that review and hope that the Government will support our world-leading fintech sector to continue innovating and do so in a way that spreads opportunity to all parts of the country.

When we refer to things being life changing, we often do so in a hyperbolic manner. However, it is no exaggeration to say that technological innovation in the financial services sector has fundamentally altered our understanding of and everyday experiences with money. The pace and scope of change has been incredible; the journey from cheques to mobile phone payments, for example, has been a swift one. Many young people conduct virtually all their banking activity online through the apps of high-street banks or using entirely digital services such as Monzo. Elsewhere, terms such as crowdfunding and crypto currency have become common parlance, with the emergence and increasing use of new technologies, including artificial intelligence and blockchain. The possibilities are almost beyond comprehension.

Taken collectively, the noble Lord’s amendments point to the crux of the issue: how can we maximise the opportunities that undoubtedly exist in the sector while guarding against the risk inherent in the use of new technologies and working practices? Artificial intelligence is an interesting case in point. AI tools, which are regularly deployed in a number of sectors, have the potential to assist with a variety of issues which we have covered in previous debates, such as identifying fraudulent or otherwise suspicious transactions. However, Amendments 112 and 118 refer to some of the ethical considerations that arise from automated decision-making.

In a recent piece for the House magazine, and again in his opening remarks, the noble Lord issued a challenge to the Government that they should take steps now to foster the potential for our fintech sector or risk losing talent to our competitors, falling behind in the global tech arms race and, ultimately, having to play catch-up. I am not necessarily convinced of the case for legislative requirements for reports and reviews on these issues. The noble Lord is right to seek more information on the Government’s intentions. If London is to be the world-leading financial centre that the Chancellor and many others would like it to be, how do the Government plan to strike the balance that I spoke of previously? In striking that balance, how do Ministers plan to ensure that consumers and citizens are placed at the heart of a digital finance package? With technology touching all our lives, it is only right that we should all reap the benefits of change. However, as I mentioned previously, we must also take steps to identify and mitigate the risks.

There is probably far more that could be said than time allows. I look forward to seeing how much ground the Minister is able to cover.

[Baroness Penn (Con)]

My Lords, I am grateful for this opportunity to discuss the important issue of the use of technology in financial services and how technological developments will continue to impact the sector. The UK has been independently ranked as one of the best places in the world to start and grow a financial technology, or fintech, firm. I reassure my noble friend Lady McIntosh of Pickering that, as the Chancellor set out in his November speech on the future of financial services, we are not complacent. We want to build on this strength and use technology to deliver better outcomes for consumers and businesses and make the most of the job opportunities that this sector presents.

Many of the questions raised by the adoption of cutting-edge technology apply across the whole economy, not just to financial services, so although I am sympathetic to the purpose behind a number of the amendments—ensuring that the UK embraces the opportunities that new technology can bring—I am not convinced that they are the best route forward at this time.

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[Baroness Kramer (LD)]

My Lords, I very much agree with the noble Lord, Lord Sikka, that regulatory capture is a real risk. We certainly saw that prior to the 2008-09 crash, and many people would say that the soft hand of the regulator has ever since reflected an ongoing degree of regulatory capture. I am less focused on the revolving door issue but am much more concerned that the regulator says, “Wait a minute. If we go hard after whichever institution has done wrong, particularly if it is a major one and would involve going after senior people, we will disrupt financial stability. For that greater good, we must go softly and gently”. That approach has not served the industry or the country well.

We have talked extensively about accountability. I see this matter as an extension of that conversation. We have talked about the importance of accountability being extremely well informed in a way in which it is not today, and about the importance of transparency. Numerous ideas have come forward during the process of this Grand Committee. This is another, different approach that essentially tries to get to the same place —a regulator that has to be transparent and which provides genuine, sufficient and high-quality information that can be assessed by people of a relevant skills base, and that is accountable to Parliament. It should not be a regulator that just meets with Parliament and gives it an explanation once or twice a year but one that is actually accountable.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the interesting amendment tabled by my noble friend Lord Sikka is another demonstration of the considerable unease felt on all sides of the Grand Committee about the governance of the FCA and the PRA, and their relationship with one another. The amendments moved on Monday by the noble Lord, Lord Blackwell, addressed similar concerns. The question still to be answered is: what would be the composition and terms of reference of such a supervisory board? Is the Treasury not deemed to be performing that role? How can we be confident that the supervisory board would have the authority and expertise to perform a task that my noble friend Lord Sikka rightly identified as being necessary?

I am sorry to sound like a broken record. Are not my noble friend Lord Sikka’s concerns another example of the lack of an effective mechanism of parliamentary scrutiny? Whether an effective parliamentary mechanism can be created is a question that we do not hear or have the ability to address but it must be addressed. I am sure that the Minister will agree.

[Earl Howe (Con)]

My Lords, the Government agree that effective oversight of the FCA and PRA is a crucial component of our regulatory framework. Indeed, noble Lords will remember that in earlier debates we discussed the existing mechanisms to ensure effective independent oversight of the regulators by a diverse range of stakeholders. For example, both the FCA and PRA are required under the Financial Services and Markets Act 2000 to consult independent panels on the impact of their work.

I should say that in general I do not recognise the picture of regulatory capture that the noble Lord, Lord Sikka, painted in relation to our two financial regulators, although I shall of course read his comments in Hansard and make sure that I understand all that he said.

For the PRA, this involves consulting an independent practitioner panel of industry representatives, while the FCA must consult four different statutory panels, representing consumers as well as the financial services industry. Furthermore, the regulators are already under a statutory obligation to publish the results of their public consultations, including on proposed new rules.

The amendment proposes that the FCA and PRA should attend hearings in front of a supervisory board. I simply observe that both bodies must already attend such hearings before parliamentary committees, and those committees may also hear evidence from stakeholders about the performance of the regulators. The FCA, for example, must attend general accountability hearings before the Treasury Select Committee twice a year, while the PRA must appear before that committee after the publication of its annual report. Parliamentary committees of both Houses are also able to summon the regulators to give evidence whenever they may choose. For example, the CEO and chairman of the FCA appeared before the Treasury Select Committee on 1 March to answer questions on their regulation of London Capital & Finance.

The amendment proposes that a supervisory board should have the power to inquire into the adequacy of resources used and available to the FCA and the PRA. However, as we have discussed in previous debates, the Treasury already has the capacity to order independent reviews into the regulators’ economy, efficiency and effectiveness. Therefore, all told, the amendment would result in a duplication of existing opportunities for scrutiny and oversight of the regulators’ resourcing.

I realise that the noble Lord, Lord Sikka, has a close interest in the issue of supervision, but I hope I have convinced him that the PRA and FCA are already accountable in meaningful and tangible ways, and that a diverse range of stakeholders has opportunities to participate in scrutiny of their actions.

Finally, let me say that the Government are not closing down debate on these issues. As I have set out during other debates, the future regulatory framework review is already exploring how our framework needs to adapt to reflect our new position outside the EU. It would be premature to make changes to these arrangements before we consider stakeholder responses to the ongoing consultation. However, I have noted the contributions from the Committee on what form that may take. Against that background, I ask that the amendment be withdrawn.

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[Baroness Kramer (LD)]

My Lords, I am going to be very brief again on this issue, because I cannot pretend that it is my area of expertise. I remember the period when George Osborne was very proud of saying that not only would he make country-by-country a requirement but that it would be published. My understanding is that that was reversed in 2016. Perhaps the Minister will correct me, but that information is no longer published at a national level and the UK has been fairly instrumental in blocking the OECD from publishing the data at an international level. I apologise if I have got that wrong: I am reading from a Tax Justice Network report. Its calculation is that, as a consequence of not publishing, and therefore not having the cleansing impact of transparency, the UK misses out on collecting something in the range of £2.5 billion in corporate taxes a year.

Again, this is not my area of expertise, but I shall wish to hear from the Minister. We as a country have always said the answer is transparency. We have insisted that publication is the mechanism for cleaning up abuse. I would be extremely troubled if the regulators felt they were now in a position to weaken in any way country-by-country reporting requirements.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the provision of country-by-country data by banks and investment firms will be an important step forward both in combating financial crime and in addressing the vexed question of the fair taxation of international entities. These problems will be solved only by international negotiation and agreement. It is important that we are seen as an exemplar, and satisfactory country-by-country reporting is surely part of that.

[Earl Howe (Con)]

My Lords, Amendment 121 aims to ensure that banks and investment firms engage in country-by-country reporting related to the provision of tax information. I am happy to assure the noble Baroness that there is no need for this amendment, because such requirements already exist for these firms in legislation.

Banks and most investment firms are already subject to country-by-country reporting requirements as a result of the fourth capital requirements directive, or CRD IV, which we implemented in the UK while we were an EU member state. This was done through a statutory instrument in 2013, and it requires firms to report relevant information on tax and revenue in each country where they have operations. This statutory instrument remains in place today. In order to implement the investment firms prudential regime, this Bill removes investment firms from the prudential requirements for banks in the capital requirements regulation—in order to allow the FCA to implement the new regime. But Schedule 1 to the Bill ensures that country-by-country reporting requirements will continue to apply to FCA investment firms.

There is an exception for small and non-interconnected investment firms. This is because this new regime aims to ensure proportional requirements for investment firms consistent with their size and activities. These firms are, by definition, small and non-interconnected with the wider financial system, and it would be disproportionate for these requirements to apply to them. This is the same approach that the EU took in the investment firms directive.

Amendment 121 would have the effect of preventing small and non-interconnected firms from being carved out in this way. For the reasons just mentioned, I do not think that this is appropriate. Therefore, when it comes to banks and investment firms, I am confident that the existing country-by-country reporting requirements for these firms are appropriate, and I ask the noble Baroness, Lady Bowles, to withdraw the amendment.

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[Baroness Kramer (LD)]

My Lords, I think I understand where the noble Baroness, Lady Bennett, is coming from. I am not sure that I personally would want to let the Treasury get its hands on an assessment of the UK financial services sector, because it seems that so much depends on the lens through which you look. But what I would like to be sure of is that the relevant information and statistics—those kinds of metrics that would enable you to assess impacts on the real economy—would be available, because we have quite a number of institutions, including think tanks and academic institutions, that could do really good work on all these areas which would then inform Parliament. I would very much like that to happen.

Perhaps this all feeds back into the issue that we have looked at over and over again, which is that, absent some significant change, the necessary information is just not available, whether one is trying to look at the macro level or the micro level. That information has to be available, or else accountability in any proper sense just cannot exist.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I think the whole subject of supervision and the presentation of information for decision-making is very important. I do not think that it could be shoehorned into this Bill. I hope that the Government will note the concerns about this and meet it where we can in parts of the Bill, but perhaps there has to be an ongoing debate, which will hopefully come to some consensus about how we improve the supervision and accountability of the financial services sector.

[Earl Howe (Con)]

My Lords, I listened carefully to the noble Baroness, Lady Bennett, in her clear introduction to these amendments, and I thank her for the background briefing papers that she kindly sent me this morning. Having said that, I hope she will forgive me if I do not turn the end of these Committee proceedings into an off-the-cuff economics seminar. Indeed, she will not be surprised if, on behalf of the Government, I adopt an orthodox stance on the role of our financial services sector.

It is the Government’s firm contention that the financial services sector is a vital part of our economy. It employs more than a million people, and two-thirds of the people employed in financial and professional services work outside London. It has been a critical source of tax revenue, whatever the exact figure, especially in these difficult times.

The IMF has described the UK’s financial system as a global public good, so the Treasury is not persuaded by the arguments of the Tax Justice Network around “too much finance” or that finance is inherently a bad thing for the real economy. The financial services sector supports British businesses to expand, manage cash flow, invest in themselves and create jobs. The sector is also one of our leading industries in its own right, driven by a concentration of international, and therefore internationally mobile, firms.

Amendment 123 would require regular reports on the impact of the financial services sector on a range of topics including growth, inequality and risk. Amendment 124 would establish a new oversight body which would consider the impact of this sector on the “real economy”.

I have already set out some of the positive impacts that the sector has in its own right on growth, jobs and tax revenue in the UK. But let us not forget that it is also a sector on which all other parts of our economy rely. This means that the sector is a vital source of funding and services for other sectors of the economy. But, of course, it can also mean that if there are problems in the financial services sector, they can affect other parts of our economy. That is why the sector is so vital, and it is why I am able to assure noble Lords that the Government are absolutely committed to transparency around financial risks and welcome independent scrutiny of risk exposure.

The Bank of England’s Financial Policy Committee also has a responsibility to identify, monitor and take action to remove or reduce systemic risks. The committee was established under the Financial Services Act 2012 and must publish and lay before Parliament a financial stability report twice a year. As part of its assessment of financial stability risks, the Financial Policy Committee already considers and reports on risks arising from shadow banking, also referred to as “non-banks”. Given the rapid growth of non-banks, the Treasury has asked the Financial Policy Committee to publish a detailed assessment of the risk oversight and mitigation systems in place for non-banks. That is expected in the first half of this year.

The Office for Budget Responsibility produces and presents a fiscal risks report to Parliament every two years, and it has previously explored risks posed by and to the financial sector. More generally, the FCA and PRA are required to prepare and lay annual reports before Parliament, assessing how effectively their objectives have been advanced. These objectives are set by Parliament, as noble Lords are well aware.

Of course, as I said, one key role of the financial services sector is to provide funding to the so-called real economy. The Government have recognised that, in this Bill, the provisions on the implementation of Basel require the PRA to have regard to the likely effect of its rules on the ability of the firms affected to continue to provide finance to businesses and consumers in the UK, on a sustainable basis in the medium and long term.

The amendment refers to inequality. On that issue, I can reassure the Committee that the Treasury, the FCA and the PRA are all bound by the public sector equality duty. As part of that duty, all three are required by the Equality Act 2010 to have due regard to the need to eliminate discrimination and to promote equality of opportunity in carrying out their policies, services and functions. The FCA publishes a diversity annual report to set specific measurable equality objectives and publish relevant, proportionate information demonstrating its compliance with the public sector equality duty.

Amendment 124 mentions the impact of the financial services sector on climate change and biodiversity. The Committee will I hope forgive me if I do not repeat what I said in earlier debates on that topic, as I have already set out the actions that the regulators are taking in that space.

I turn briefly to the composition of the oversight network that the noble Baroness proposes. I am completely with her in believing that the regulators should take on board a variety of different views; it is important that they do so. In fact, the FCA already has a statutory requirement to consult independent panels representing consumers and practitioners, and the Bank of England has strong links with many academics. Of course, all the groups mentioned are able to respond to consultations, which the regulators are required to undertake, and where their responses must be considered.

As a general comment, I just say that the topics raised by the noble Baroness are those which the Treasury and the regulators consider every day when making financial services policy. I assure her that the Government are committed to ensuring that the sector has a positive impact for consumers and for the economy as a whole. No Government could do otherwise.

Given all that I have said, which I hope has provided some useful perspectives on this topic, I hope that the noble Baroness will feel comfortable in withdrawing her amendment.

Financial Services Bill

Lord Tunnicliffe Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, I thank the Minister for introducing these amendments and for the explanation that was shared ahead of this debate. We will not oppose them today, as it is right that changes should not be made without legislative consent. It is, however, very troubling that these provisions will go forward without Northern Ireland’s inclusion. and that time has not been offered to allow the Northern Ireland Executive to pass a consent Motion. It is my understanding that there were also difficulties on timing for a legislative consent Motion during the passage of the Medicines and Medical Devices Bill. It cannot become a habit for this Government to carve Northern Ireland out of legislation at the last minute or treat legislative consent as an afterthought. What conversations were had with the Northern Ireland Executive on the problem of timing? Were any measures considered to allow them extra time as needed?

Have the Government identified ways to prevent this happening again? On the substantive issues, the result is that the Bill will be passed without offering the same powers and protections for communities and law enforcement in Northern Ireland as in other areas of the UK. This is of particular concern for the statutory debt repayment plans at a time when the impact of the Covid pandemic has placed extreme stress on people’s personal finances.

Finally, what options are the Government considering, with the Northern Ireland Executive, to ensure that Northern Ireland is given an opportunity to enact these provisions and that communities in Northern Ireland are able to benefit from the planned support on debt and personal finance?

[Earl Howe (Con)]

My Lords, I thank noble Lords for their remarks, and I stress again that UK government officials will of course continue to work closely with and support their opposite numbers in Northern Ireland. I hope that the noble Lord, Lord Tunnicliffe, will accept that that is as far as I can go as regards our support for our Northern Ireland colleagues, because the ball is very much in their court as to how they wish to proceed and when. As and when they decide to proceed, they will of course get full co-operation from the UK Government.

I would like to touch on a question that the noble Lord, Lord Tunnicliffe, asked me relating to the Medicines and Medical Devices Bill. That also gave rise to an issue over a legislative consent Motion from Northern Ireland. The context for securing legislative consent for the Medicines and Medical Devices Act 2021—as it now is—was quite distinct from that for this Bill. Northern Ireland Executive Ministers were asked to consider promoting a supplementary legislative consent Motion on a second occasion as a result of amendments added to the Medicines and Medical Devices Bill during its House of Lords Committee stage. The Northern Ireland Assembly had sufficient time to consider and pass a supplementary LCM before the Bill’s Report stage in the second House—in this case, the Lords. Report is considered to be the last substantive amending stage of a Bill in the House of Lords and, consequently, the last opportunity for the Government to avoid legislating for Northern Ireland had consent been denied or not achieved in time.

Unfortunately for this Bill, it has not been possible to secure legislative consent in time, in spite of the efforts of our officials and those in the Northern Ireland Executive. The noble Lord, Lord Tunnicliffe, asked whether we can prevent this situation happening again. I respectfully say to him that it really is not within the control of the Government here to influence the order of business and the work conducted by the Northern Ireland Executive. It is largely in their domain, but I hope my earlier reassurances will have been helpful on this topic.

The background to this, to come to his earlier point and the issues raised by the noble Lord, Lord Stevenson, is that breathing space regulations, which are the second half of the SDRP measures, that come into force on 4 May this year, do not apply in Northern Ireland, largely due to there being no sitting Assembly during the policy formulation and drafting of regulations. As I have said, we have been advised by officials in Northern Ireland that it will not be possible to pass the LCM agreeing that Parliament should legislate on their behalf until mid- to late April, which is too late for the Lords’ Report stage. The amendment carves out Northern Ireland from Clause 34 as I have described, with the exception of Clause 34(4). The Government understand that the relevant departments in Northern Ireland intend to take forward their own legislation for a debt respite scheme in due course.

I am afraid that the noble Lord, Lord Stevenson, has the better of me in his detailed questions. I will need to write to him, if he will forgive my not answering him now, on where the precise authority vests in relation to a Northern Ireland debt respite scheme, and indeed how the Government’s plan for the debt respite scheme will pan out prior to the end of 2024.

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[Baroness Kramer (LD)]

My Lords, I join in congratulating the noble Lord, Lord Stevenson of Balmacara, on his amendments in Committee and again here on Report. He has clearly found a mechanism for engaging very fruitfully with the Government, and therefore we all have the benefit of a letter that lays out some of the important and significant elements of statutory debt repayment plans; for that, I am grateful.

I join with the noble Baroness, Lady McIntosh, in being rather perturbed—I think the noble Lord, Lord Stevenson, was as well—that the implementation date is 2024. I think that the noble Lord, Lord Stevenson, said that it was towards the end of 2024. I advise the Government not then to use terms such as “at pace”, which they use extensively in the Financial Services Bill—usually to argue that there is no time for a statutory instrument to be approved by Parliament, which takes a matter of weeks.

I am rather troubled and it suggests that the Government might want to think of some kind of stopgap to deal with the very significant number of people who will find themselves with debt problems as we come to the end of furlough. People will find that they have been moved into permanent redundancy and that other jobs are hard to obtain, and a lot of young people coming out of university courses will not find the usual opportunities.

We are going to go through a very rough period where quite a number of people will find themselves loaded down with private debt, not because they have behaved inappropriately in any way but because the way events have hit them. They will need some additional support and rescue, rather than just the schemes that are in place. The SDRPs would almost certainly have been ideal for many of them. So I hope the Government will look at the events that are going to force a lot of people into a very difficult position.

Amendment 12, tabled by the noble Baroness, Lady Bennett, would do what I think Amendment 55 in Committee was intended to do. This time I think it would do it. It is designed to enhance opportunities for people who have signed up to SDRPs to pay off their debts early at a discount. It will need some structure and engagement from social enterprise groups and perhaps even the Government providing some measure of support, because seed funding will be needed to get a scheme such as this off the ground. I hope that the Government will think some of that through. It seems the kind of scheme that would enable people to get back into the financial mainstream more quickly, which is surely something we want to achieve. Again, the need for that will be more acute because of the extraordinary number of people who will find themselves in debt as a consequence of Covid. I do not think it actually requires legislation, so I am glad that the noble Baroness, Lady Bennett, will choose not to move it.

These two amendments highlight the need for some serious thinking on how the Government can best support people who will come out of Covid and find themselves in fairly difficult circumstances. When we work with people who have debt problems, a fundamental issue usually has to be dealt with that has led them into that corner. Sometimes it is to do with lifestyle choices, but very often it might be mental health issues or family breakdown. The group who will find themselves in problems because of the impact of Covid do not fall into that category. Therefore, with a proper helping hand at the right time, they could quickly and easily be returned to a position where they are no longer financially excluded or in financial difficulties. That is absolutely necessary if we are to see the recovery that we all hope for. I hope the Government will look at these amendments and continue to build on them, rather than consider them concluded because Report has passed.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we welcome the re-tabling of Amendment 11 by my noble friend Lord Stevenson, which provides the Minister with an opportunity to give more detail on the intention behind the Government’s introduction of the statutory debt management scheme. We are grateful to the Minister and his officials for the various meetings that have taken place in recent weeks. We hope that, even once the Bill has passed, there will be opportunities for further cross-party dialogue on issues relating to personal debt, financial resilience and so on.

There was a lively debate on this issue in Grand Committee, and various amendments were tabled by colleagues from across the Committee. Despite the number of amendments, almost all noble Lords were united in saying that the Government must get on with introducing the scheme. Amendment 12 from the noble Baroness, Lady Bennett, co-signed by the right reverend Prelate the Bishop of St Albans, deals with some slightly broader issues relating to problem debt. We hope that the Minister can provide a full response to those points, either now or in writing.

Looking at these amendments and the next group on BNPL and financial exclusion, I am struck by just how important it is to adopt a more holistic approach to personal finance, as proposed by my noble friend Lord Stevenson in his previous amendment on the concept of financial well-being. Helping people with debt has to be important. I have trouble understanding how people cope with that situation. It is the role of the state to provide structures to allow people to take on their debt problems in a managed way. I look forward to the Minister’s response to my noble friend’s amendment.

[Lord True (Con)]

My Lords, I am grateful for the opportunity to respond to the debate. I genuinely thank all noble Lords who spoke in Committee and who have spoken today and, indeed, those with whom I have had the privilege of meeting and discussing these matters of engagement. All the discussions have been useful, and the Government have certainly listened to them. I hope that in my letter which I have placed in the Library of the House and my remarks this evening, I will be able to assure noble Lords that that is the position.

What I have found most pleasing is a sense of unanimity, which is rare in this House, that we are on the right track as regards seeking a scheme of this kind. The SDRP is a new solution for those who are in problem debt. It will provide a revised, long-term agreement between the debtor and creditors. Debtors will be protected from most credit enforcement action and from certain interests and charges on debts in the plan. Following the Committee stage and the valuable discussions I have referred to, I wrote to the noble Lord, Lord Stevenson of Balmacara, the noble Baroness, Lady Coussins, and my noble friend Lord Lucas with further details. The noble Lord, Lord Stevenson, referred to aspects of that letter. However, the Library of your Lordships’ House is not open to everyone, particularly at this time. Given its importance to today’s debate, I hope that your Lordships will indulge me if I take some time to place on public record some of the key commitments set out in it because they are commitments which have been made on behalf of the Government. I also want to ensure that all noble Lords understand the timings the Government are working to.

I spoke in Committee in response to the noble Baroness, Lady Kramer, about the range of support being given by the Government to people at this difficult time, and she is quite right to refer to those difficulties. In the meantime, as we work on the SDRP, the Government are pushing ahead with the implementation of a breathing space scheme that will come into force on 4 May this year. Other voluntary and statutory debt solutions will continue to be available to debtors to consider in the meantime.

I return to the process which has been of interest to many noble Lords. The Treasury is currently drafting regulations for the SDRP and intends to consult on them as soon as possible after the Financial Services Bill receives Royal Assent. As well as preparing the regulations, the Treasury will also need to work with the Insolvency Service and others to implement new IT systems and develop scheme guidance to aid stakeholders in implementing the policy. It is also important, obviously, to give stakeholders adequate time to prepare so that the regime can be implemented properly. Given that, I can confirm that the Government expect the SDRP to be implemented in 2024. In order to achieve that, they will aim to lay the necessary regulations by the end of 2022.

I am sorry that the noble Lord, Lord Stevenson of Balmacara, is disappointed at the specifics of my letter on the timing and, indeed, that has been alluded to by others. However, I will repeat that it is the Government’s clear aim and intent, as the noble Baroness, Lady Coussins, was kind enough to say, to operate on that timetable with the most appropriate dispatch.

As to why the SDRP regulations might not be able to be laid until the end of 2022, the reality is that the Treasury is currently working on their drafting. I have explained that this is a complex undertaking and will require input from stakeholders both inside and outside the Government to finalise before a consultation on regulations can be published. That consultation will in turn need to give a reasonable length of time—we are often criticised for providing insufficient time for consultation—for stakeholders and members of the public to reflect and respond. We must allow sufficient time beyond that to consider the responses properly. Those views, as appropriate, will need to be reflected in the draft regulations before they are laid. The timetable will also need to accommodate the necessary clearances within Government and Parliament for publications and legislation. However, I know that noble Lords on all sides of the House, including on these Benches, wish for the SDRP to be progressed in a timely manner. The Government have certainly understood the strength of feeling among noble Lords on this matter.

I know that the noble Lord, Lord Stevenson of Balmacara, wished also to further understand some of the details of the regime; as he has made clear, that is what his probing Amendment 11 seeks to explore. So I repeat on the public record that the details of the SDRP regime will be set out in affirmative secondary legislation, so Parliament will be able to consider the exact details close to the time. I also reassure noble Lords that Section 7 of the Financial Guidance and Claims Act 2018, as amended by Clause 34 of the Bill, will contain powers to allow the Government to include such features in the SDRP as suggested in the amendment. However, in response to the noble Lord, Lord Stevenson, I will set out further detail on how the Government expect the regime to function.

Financial Services Bill

Lord Tunnicliffe Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the two amendments in this group are significantly different from each other, so I am afraid that I will have to address each one separately, starting with government Amendment 14. We obviously support this step, but some comments need to be made. First, the very fact that legislation has to be passed for these financial transactions to be captured by the regulator demonstrates some of the flaws in the whole approach of using a regulatory perimeter as the mechanism for deciding which activities are regulated or not.

The buy now, pay later industry has been growing at an astonishing rate over the last several years. The largest player is Klarna, which I think was valued in its last funding round at $31 billion—three times its value six months earlier. That gives noble Lords the idea of the pace. Anybody who wants to look up buy now, pay later on the internet will find company after company. This issue has galloped away without the regulator becoming involved. It suggests to the Government that some real rethinking needs to happen, given the pace of innovation that we now see generally in finance.

Secondly, I was concerned by some of the language the Minister used when talking about this as a relatively low risk and rather benign form of financing. There is no free lunch. There is no such thing as a delayed payment that does not have an interest cost embedded in it. I understand that with buy now, pay later, it is the retailer that pays fees to the intermediary providing the advance payment. Those costs then fall on everybody buying products from that particular company. We get to the point where you are a fool if you pay up front, because within the cost of the product is embedded an element of financing that is falling on you. If you are a bit like me, you see the price and you pay it, but I know that I am paying more than I should because I am picking up the cost of financing that has been given to other people using the buy now, pay later product. There certainly is cost embedded in all of this; it is not a free lunch.

Martin Lewis gave evidence to MPs in December, pointing out that this is a product very much targeted at the under-30s, although I know that Klarna disputes this. It is having the impact of getting them into debt. Again, I looked to a quote from Jane Clack, a money adviser at the debt advice firm PayPlan. She was talking about what had happened over the two-year period. She said:

“This form of introduction to credit … supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.”


This is a mechanism that is getting a lot of young people into overpurchasing and consequently into debt. Indeed, the advertising on websites directed at retailers, encouraging them to sign up to buy now, pay later firms, tells them that the average spend will go up by 20% if they sign up to a buy now, pay later scheme because individuals feel, “My goodness, if that’s all it costs I can spend even more.” Noble Lords can see the pattern that is developing. Frankly, there is a lot of risk associated with all this, and I hope it is with that perspective that the whole consultation will go forward and regulation will be structured.

I say this because we went through the same process in this House of saying “it is largely benign” when we looked at payday lending. That was the argument made by the regulator. If this House remembers, the regulator had the power to take action in a serious way against abusive payday lenders. It showed a light touch because it saw payday lending as relatively benign. It was only when this House forced the regulator’s hand by passing regulation that required it to start using interest rate caps that that industry was brought under control. Indeed, most of the players instantly disappeared, because without the abusive part of their activities the other part could not be sustained. This issue should be taken very seriously by the regulator, which should not get caught up in the idea that this is low risk or in some way benign. I am always troubled when I hear that something is interest free. No, it is not; the interest is differently packaged.

On Amendment 35, I continue with apologies from my noble friend Lady Tyler, who is the former chair of the Lords Select Committee on Financial Exclusion. As the Deputy Speaker said, she is speaking in Grand Committee and has had to scratch here. She very much appreciates the spirit of the amendment of the noble Lord, Lord Holmes, but I will quote a sentence from the speech she wrote that I think captures the fundamental issue: “What is still missing is an overarching strategy and responsibility across government, regulators and industry proactively to promote financial inclusion.” In a way, that is the issue that the noble Lord, Lord Holmes, is picking up and addressing and that I hear echoed in the words my noble friend would have used.

The noble Baroness, Lady Noakes, made the case that the Bank of England is really not the place to have a basic bank account, and I want to pick up on this important issue. The current high street banks that provide basic bank accounts do so, as the noble Baroness said, reluctantly. It does not make any sense in the context of their business plan, their overheads or the clientele that they want to build.

There is an important strategy that could be addressed, certainly by the PRA, along the lines of, “As a condition of your banking licence, perhaps you don’t have to provide a basic bank account, but you do need to support the civil society groups that can service this excluded community”—because that is a community that often needs a detailed helping hand. That is one of the reasons why opening a basic bank account at the Bank of England would not get people in that community very far. Typically, they are people who need particular services and particular kinds of support to become financially included, and to get the advantages that come with being financially included in our modern society.

That takes me to the issue raised by the noble Baroness, Lady Neville-Rolfe; it is a canard that needs to be captured very quickly. The Community Reinvestment Act in the United States, to which she referred, was passed in 1977. It was not a play into the sub-prime mortgage crisis. I lived in Chicago in those years, so I know that it came about as a civil rights Act, because disadvantaged communities—primarily black ethnic communities—had been literally red-lined by all the major banking players, which would take deposits from them but would never lend back to support mortgages or businesses. It was a crucial Act that completely changed the nature of financial inclusion in the United States, and it was probably one of the most important pieces of legislation there. I have always regretted that we have not picked up its themes and extended them here, because it created a layer of community banks and credit unions that serviced this community, and did so very well throughout the years of recession.

The sub-prime crisis was, on the one hand, sheer fraud—as I think the noble Baroness, Lady Neville-Rolfe, knows—and, on the other, the packaging up of fraudulent loans into portfolios against which securities were then issued on the grounds that diversification within the portfolio removed the risk. This was not a case of lending into communities in the responsible way driven forward by the Community Reinvestment Act. I hope that we will pick up the lessons of that Act, because in the United States people are not unbanked and excluded to the extent and breadth that they are here in the UK.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the Government’s response to the Woolard Review was swift and positive. As doubts remained over exactly when and how Ministers’ promises on buy now, pay later products would be delivered, this Bill appeared to us to be the perfect vehicle—although, sadly, the Treasury initially disagreed with that view. In Grand Committee the Minister stressed the complexity of the issue, and the need to work with the industry to get the scope of future regulation right.

Of course we agreed on the necessity for the Treasury and the FCA to get this correct, and we are realistic about the difficulty of striking the right balance. As I have said before, we would not wish forthcoming regulatory changes to impact on the availability of certain short-term payment agreements, such as for gym membership or sports season tickets, which have proved to be relatively low risk. We also recognise that there is a growing market for buy now, pay later, and that many of the people using such services experience no problems with them. Indeed, we are grateful to the providers that have engaged with us in recent weeks and shared their ideas on next steps.

In March the boss of Klarna expressed disappointment about the concerns voiced about buy now, pay later products. He said he was “emotionally upset” by comparisons with the former payday lender Wonga. I am sure that this was not aimed at your Lordships’ House, but let me be clear that we recognise the differences. However, just because two business models vary, that does not mean that we cannot and should not learn lessons from past regulatory failure. These products may not have interest charges attached to them, but that does not mean they are risk free. That was recognised by Chris Woolard in his review when he warned that there was significant risk of consumer detriment if the market continued to grow at pace without the implementation of appropriate consumer protections.

In his recent comments, Klarna’s boss acknowledged that his firm had made mistakes, particularly in relation to how it had advertised its products in the past. Such self-reflection is hugely important, and I am sure that advertising is one of the areas that will feature in the future regulatory framework.

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[Baroness Kramer (LD)]

My Lords, I will be very brief. In Grand Committee I gave a precis of some of the experiences of would-be students who had been deterred from going on to higher education or who had done so but then had to limit their life and activities as students because every single penny was hard to come by. As a consequence, they really did not benefit from so much of what is on offer in higher education.

I do not think that I can add anything to the incredibly powerful words of my colleagues, my noble friends Lord Sharkey and Lady Sheehan. I completely support the action that they contemplate but do so in the great hope that the Government will now make a statement that will make it unnecessary for the House to divide.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Sharkey, for moving this amendment, with support from my noble friends. As I noted in Grand Committee, the Labour Party has long supported facilitating access to sharia-compliant financial services, and we therefore backed previous powers for the Government to act on the provision of appropriate forms of student finance.

As outlined both in Grand Committee and again today, the wait for the introduction of sharia-compliant finance products has been lengthy. I will not repeat the timeline cited by others but will say that we were unconvinced by the Minister’s response to the earlier amendments of the noble Lord, Lord Sharkey. Of course, we accept that there is complexity involved, but, in my experience, such challenges can be overcome when there is genuine ambition to find a solution.

The Minister previously said that the Department for Education is faced with designing a system in which students

“do not receive any advantage nor suffer any disadvantage through applying for alternative student finance.”—[Official Report, 8/3/21; col. 558GC.]

That is indeed a challenge, but it is one that I am sure can be met.

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We have a long evening still ahead of us. As I said, this is a very useful group of amendments, and I hope the Government will take seriously the content of each of them and find a way to turn concern into action.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the issues covered by this group are wide-ranging in nature but all important. Amendments 16 and 25 return to issues that we explored in Grand Committee, while the right reverend Prelate the Bishop of St Albans and the noble Lord, Lord Young of Cookham, have found interesting ways to bring important issues to our attention.

The noble Baroness, Lady Meacher, made a convincing case for the need to reform how bailiff activity is regulated. One interesting thing about the Covid-19 pandemic has been its ability to make us look at long-standing issues in a new light, and issues of personal debt are no exception to that. It is promising that both sides of the argument—bailiffs themselves and charities providing advice to those with problem debt—seem to agree on the need for change. This is not a common occurrence, and it provides an opportunity that I hope the Government will seize in the weeks and months ahead.

I know that my noble friend Lord Stevenson, working alongside the noble Baroness, Lady Meacher, has been pushing on this in the background in the hope that the Ministry of Justice can provide a more meaningful response than we had in Grand Committee. What we really need is for the department to identify an appropriate legislative vehicle for this matter. We very much hope that this will be signposted in the document promised for later this year.

Amendment 26 seeks to broaden the scope of the Financial Ombudsman Service to allow potential customers to submit complaints against financial services firms. This is a fair question to ask: clearly the noble Lord, Lord Leigh, is not satisfied with the previous answer to it. On day 1 of Report, we passed an amendment that would enable the FCA to impose on regulated financial services entities a statutory duty of care towards customers. We hope that, despite their misgivings, the Government take this forward, as we believe that new consumer-centric working practices could negate the need for a proportion of complaints to the ombudsman.

Amendment 27, tabled by the right reverend Prelate the Bishop of St Albans, is not only an impressive interpretation of scope, but raises important questions in relation to the tools available to those experiencing issues with problem gambling. Labour has previously been critical of the Government’s lack of urgency in launching reviews and introducing legislation and regulation. That process is now under way—indeed, I believe that the initial call for evidence has now closed. It is clear to all colleagues that the current regulatory regime has serious shortcomings. Without seeking to pre-empt the outcomes of the DCMS-led review, I hope that the Minister can demonstrate that the Government will take the right reverend Prelate’s suggestions on board.

Finally, Amendment 37C raises what looks to be an important issue in relation to certain payments made from child trust funds or junior ISAs on behalf of children with learning difficulties. I do not believe that we have touched on this issue previously, so I hope that the Minister will commit to a future discussion with the noble Lord, Lord Young of Cookham, and my noble friend Lord Blunkett.

[Lord True (Con)]

My Lords, this has been a long and important debate, which I found to be of great interest. As many will know, I am not responsible for the grouping of amendments. That is not a matter for the Executive; it is a matter for the House. However, following on from the noble Lord, Lord Addington, I feel a little like the “MasterChef” hopeful who presents his dish to the judges and is told that there are too many things on the plate. There are different issues conjoined here: the important issue of the behaviour of bailiffs—as, being an old boy, I still call them—credit card applications, gambling protection and child trust funds in the case of incapacity. It is a diverse group of amendments, but they all relate to the protection and fair treatment of consumers and, as we have heard today, of the most vulnerable people in society. I will try to respond to each of them, but I am not certain that I will be able to satisfy every hope of everyone who has spoken. I hope, however, because I am confident from the discussions that I have had with colleagues in different departments—I come as an outsider to this—that I can assure your Lordships that my perception is that the Government are positively engaged on all these fronts and are listening, have listened and will listen.

Amendment 16, from the noble Baroness, Lady Meacher, and others, would commit the Government to making the activities of enforcement agents—also known as bailiffs—in relation to taking control of goods a regulated activity under the Financial Services and Markets Act 2000. The Government understand the importance of debts being enforced in a fair and proportionate manner. Since Committee, I have had the great advantage of speaking directly to the noble Baroness and others, including the noble Baroness, Lady Morgan, and the noble Lord, Lord Stevenson of Balmacara, along with my colleague, my noble friend Lord Wolfson from the Ministry of Justice, which is the department with responsibility for the regulation of enforcement agents. I know that my noble friend Lord Wolfson and the Minister of Justice have heard the arguments of noble Lords. I can reassure the House that the Ministry of Justice is currently reviewing the case for strengthening the regulation of the enforcement sector. As we have heard, that would be widely welcomed, as representatives from the enforcement and debt advice sectors have united to form a working group, led by the Centre for Social Justice, to consider how an independent oversight body could raise standards in the sector. The Government welcome this.

The Ministry of Justice recognises the important momentum of this development and looks forward to continuing to engage with the working group on its proposals for an enforcement conduct authority. The Ministry of Justice has also assured me that it would want to work closely with the working group to monitor the operation of the enforcement conduct authority and will review its operation within two years. At that point, it will consider whether there is a case for legislation to provide statutory underpinning to the body if necessary, as some noble Lords have argued. I stress that the Ministry of Justice will look to work with the enforcement authority as soon as it is established to assess what can be done to improve standards on the ground. It does not see the two years as a target: it would be willing to review the authority operation and consider legislation before the two years if necessary. I hope that that has reassured noble Lords that the Government take this offer from industry very seriously.

On the amendment itself, it would by default require the FCA to act as the regulator of enforcement agents unless its functions were delegated to another body within two years following the passage of this Bill. As I set out in Committee and in the valued exchanges that I have had with noble Lords involved, I think that there is now agreement—indeed, that has been expressed by the noble Baroness, Lady Meacher, and others—that the FCA would not be the right body for such a function. I must underline that the Government’s view on this will not change between now and Third Reading. We do not believe this Bill to be the right legislative vehicle for any changes to the regulation of enforcement agents. I hope that, having heard the assurances that I and my noble friend Lord Wolfson have given, noble Lords will withdraw the amendment and continue to engage with the Government as we go forward.

My noble friend Lord Trenchard asked about the use of the Corporate Insolvency and Governance Act moratorium to give UK companies a formal breathing place in which to pursue a restructuring plan in case of indebtedness. The power is working as intended. A handful of firms have already successfully applied to use the moratorium under the Act. As government support and regulatory easements come to an end, we expect the number of firms using the moratorium to increase. The new restructuring plan is also being used to good effect with Virgin Atlantic and other large firms using the new tool to recapitalise balance sheets.

Amendment 26 from my noble friend Lord Leigh of Hurley seeks to expand the jurisdiction of the Financial Ombudsman Service to include potential customers. I am grateful to my noble friend for his characteristic persistence on this important issue and I know that he is keen to make sure that the regulatory system ensures that others are not faced with the same potential risk of fraud that he experienced. As I sought to reassure noble Lords in Committee, it is already the case that both customers and potential customers of a firm can seek redress through the FOS scheme under the FCA’s existing rules, notably rules in the FCA dispute resolution handbook.

If we have understood the specific case correctly, my noble friend was the unfortunate victim of attempted fraud and did not intend to be a customer of the firm. He was therefore not a potential customer as defined by the relevant rules that cover people seeking to be a customer. As I said in Committee, I assure the House that had this incident led to financial loss or to my noble friend being pursued for a debt that was not his, he would have had recourse to the FOS and been supported by the current regulatory framework.

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[Baroness Kramer (LD)]

My Lords, I shall be extremely brief. It is absolutely clear that bills of sale legislation is fraught with problems both legally and practically, including allowing goods to be repossessed on a single default, and giving no protection to purchasers who unwittingly buy goods subject to bills of default. The Government promised us reform, and they had a draft Bill from the Law Commission in 2017, but then they changed their mind and decided not to legislate. If they can change their mind once they can change it twice, so I hope they will now change their mind again, and take action.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I shall be brief in responding to the amendment, which was ably introduced by my noble friend Lord Stevenson of Balmacara. We are grateful to the Minister and officials for their time discussing this and other consumer issues during the passage of the Bill. Those meetings have been useful, particularly for better understanding the numbers of people affected by financial agreements enabled by the antiquated bills of sale Acts referenced in the amendment. We understand that the Government cannot simply accept the amendment, because of the complexity of the issue and the scope for unintended consequences. Normally we would roll our eyes on hearing that phrase, but, as my noble friend noted, this amendment was tabled as a means of starting a conversation. We hope the Minister can give a strong commitment from the Dispatch Box that the Treasury will undertake a proper review of this part of the credit market, and will have regard to the earlier Law Commission recommendations when deciding on a policy response.

[Lord True (Con)]

My Lords, again I thank all those who have spoken in this slightly shorter debate. I thank the noble Lord, Lord Stevenson of Balmacara, very much for his continued engagement with all aspects of the Bill and with the underlying issues of credit—on which he has long been such a distinguished advocate—and for his interest in this issue. I hope I will be able to give him an assurance that he will find satisfactory.

First, however, I must respond to my noble friends Lady McIntosh of Pickering and Lord Holmes, who asked about the Law Commission report. The noble Baroness, Lady Kramer, also alluded to it. I set out in Committee the reasoning behind the Government’s decision not to take forward their proposed goods mortgages Bill, which had followed from the Law Commission report, in 2018. That Bill would have repealed the bills of sale Acts and replaced them with a new goods mortgages Act, and it was the result of the Law Commission’s report on bills of sale, to which my noble friends referred.

However, when the Government consulted on the proposed goods mortgages Bill, the consultation responses—not all of them, I confess, but the serious responses—showed that while there was broad support for the proposed approach set out in the Bill, some stakeholders raised significant concerns about the degree of consumer protection afforded by the proposed regime. Furthermore, there was a risk that a more modernised, streamlined regime for consumers could lead to more consumers using goods that they already owned as security for a loan, which is inherently a higher-risk form of borrowing. Given the concerns raised in the consultation and the shrinking size of the market, the Government decided not to take forward the goods mortgages Bill. Still, I highlight again that the use of logbook loans has fallen substantially and continues to decline: the number of bills of sale registered at the High Court has fallen from 52,000 in 2014 to just 3,758 in 2020—and a little higher the previous year. Obviously, we will watch this figure.

A number of other points were also raised in Committee. The noble Lord, Lord Stevenson, raised the cost of logbook loans. It has been suggested that some of these loans have very high interest rates. There is already a power for the FCA to cap the cost of all forms of credit, including logbook loans. It will use that power where it thinks it is necessary to protect consumers. Most recently, it capped the cost of rent-to-own products in March 2019.

My noble friend Lady McIntosh questioned in Committee why a model that used hire purchase could not be used for logbook loans. Hire purchase is a financing option that allows borrowers to hire a car and then gives them the option to buy it by the end of the contract. This model would be inappropriate for borrowers who already own their vehicle, as ownership of a vehicle should automatically revert to the borrower when they have repaid their loan.

I turn to the amendment itself. As I explained in Committee, it is likely to have unintended consequences that could lead to a greater risk of detriment, particularly to borrowers. The repeal of the bills of sale Acts would not necessarily prevent this type of credit being offered. Rather, it would remove the statutory framework that governs this type of credit, which could inadvertently lead to a greater use of such lending through the removal of some of the frictions to which some who have spoken have alluded—“frictions” is a polite Treasury word—that the bills of sale Acts impose. Given that, the Government do not believe that repealing the bills of sale Acts would be an effective way of increasing protection for borrowers. Furthermore, the Government do not believe that it would be proportionate to introduce new legislation to specifically implement a replacement for the bills of sale Acts, given the continued decline in their use.

However, I recognise the strength of the feelings of the noble Lord, Lord Stevenson, on the subject of logbook loans, and I have heard the echoes that his resounding voice has provoked. I understand that he wants to know what plans the Government have to review the regulatory treatment of logbook loans. I have had the opportunity to discuss this issue with the noble Lord. As we look beyond the Covid-19 crisis, the Government are keen that work should progress to consider reform of the broader consumer credit regulatory framework to ensure that it remains fit for purpose. That is a substantial piece of work. As part of it, I can give the noble Lord the specific assurance that he asked for: the Government will consider the extent to which that regulatory framework can provide robust protections for logbook-loan borrowers and third parties who may unknowingly buy a car subject to a logbook loan. On that basis, I hope the noble Lord will feel able to withdraw his amendment. I have every confidence that, even if he does, he will continue to knock at the Government’s door.

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[Baroness Kramer (LD)]

My Lords, I think the case has been extremely well made. I usually really respect the opinions that the noble Baroness, Lady Noakes, puts forward, but it seems to me that she completely fails to understand the circumstances that led these people into being mortgage prisoners. They took out loans under credit checks and it was entirely appropriate, but the banks from whom they borrowed the money crashed in the 2008 financial crisis, largely through poor regulation, which lies at the Government’s door, not the door of those who took out mortgages. People with absolutely identical credit profiles who took out their mortgages with a bank which did not crash have had many opportunities to refinance, which is normal in the life of the mortgage. A standard, typical bank knows that it will vary the characteristics of its mortgage over the life if that option is sought by the mortgagee.

The group of people who took out their mortgages with banks that crashed in many cases found that those mortgages were stripped out as part of the asset rescue process that the Government went through, and the Government then sold those mortgages to completely inappropriate buyers under inappropriate terms in order to get the maximum return. I understand their motivation—maximum return for taxpayers—but they removed all of the normal relationships and embedded rights in those relationships that a mortgagee has when they take out a mortgage with a viable financial institution.

The noble Baroness treats many of those mortgage prisoners as people who are now of poor credit. These are people who have aged—we all do that. The mortgage that we take out at the age of 30 is not the same one that we would be able to take out at the age of 55, because we have got older and our career profile is different. Some of them have become ill, and therefore had reduced earning capacity. Any standard bank dealing with a mortgagee in those circumstances makes adjustments. Mortgage prisoners are not able to seek such adjustments and they have been left in dire circumstances.

The fault lay with the Government when they sold mortgages under inappropriate terms to inappropriate buyers to manage them. It treated them as though they were abstract assets, rather than a special category which has a lot of convention embedded in it, in order to maximise their sale. I very much hope that the Government will realise that they have a responsibility. They took those additional revenues, they took the benefit of selling off those mortgages under terms and conditions that they should never have permitted, and they now need to offset that by stepping forward and making sure that those mortgage prisoners can have the same access to flexibility that would have been theirs had they taken that loan out with a financial institution that did not collapse in 2007-08.

[Lord Tunnicliffe (Lab) [V]]

My Lords, this is an emotive issue for a lot of people. Although we recognise that the Government have taken steps to help a proportion of so-called mortgage prisoners to access alternative products, so far, we have not been satisfied with either public or private assurances received on this matter. We are familiar with the Government’s view of the importance of market freedoms and the need to keep interventions to a minimum. However, despite the initiatives that we will hear about from the Minister shortly, the fact is that the market is failing a substantial number of people.

Financial Services Bill

Lord Tunnicliffe Excerpts

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the amendments in this group all deal in one way or another with the digital world and its implications for financial services. We all understand that we are in the midst of a revolution which will gather pace, rapidly expand, and reshape how we lead our lives. It is important that the UK is at the front of the curve in delivering those changes, to underpin its financial services industry. I was very pleased to see that the Bank of England and the Treasury have just announced the creation of a joint task force on central bank digital currency, a potential linchpin to those changes.

These amendments are all extremely useful. On digital identity, the noble Lord, Lord Holmes, hit the nail on the head, when he talked about the importance of engagement with the public. There are a lot of issues around identity, including issues of privacy. It is not an easy issue but a complex one. I hope that this engagement is dealt with more broadly. It may well be that the kind of targeted examples that the noble Baroness, Lady Neville-Rolfe, is concerned to see delivered much more quickly are easier to deal with, but of course, they will always lead to further questions, and this is something that we must confront head on.

We will be discussing access to cash in another group, as the noble Lord, Lord Holmes, has a specific amendment related to that, but it also points out how when we go through revolutionary change, there are always people who will be part of the “left behind”, either by choice or by capacity. Those people have every right to be able to pay a full part in our society and in our communities. Finding those mechanisms may be expensive, since it is much more efficient to go with a single strategy, but we must recognise the full complexity of the societies in which we live, the different pace at which people accept change and the degree to which they need support through that change.

I very much hope that we see something strategic coming from the Government, because we are dealing with each issue in a rather piecemeal way. We have reached the point where we need that fundamental underpinning, and I hope that we can begin to develop that strategic view, and quickly.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we welcome the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes of Richmond, on digital ID and other, broader, fintech issues. They provide the Government with an opportunity to elaborate on the responses given in Committee. I hope that those who tabled the amendments will forgive me for not speaking to each in turn, but to do so would be to repeat many of the points already made.

While we would not necessarily endorse some of the timescales envisaged in the amendments, the questions asked by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes, are sensible. In commissioning a review of fintech, the Government have demonstrated a level of interest in it, but the key question is how that is developed into concrete initiatives that grow the financial services sector while also improving the customer experience. The use of distributed digital identification could bring about a fundamental shift in how individuals and financial service businesses operate and interact on a day-to-day basis.

Properly considered implementation of digital ID could empower consumers by giving them greater choice in the services that they can access and better control over their personal data. The latter point is crucial. Any steps to further digitise the sector must come with security and privacy safeguards built in. It may not be possible or desirable to roll out digital ID overnight, but it would be interesting to hear more on the steps being taken by the Treasury and others to assess the opportunities and risks that exist. I hope that the Minister can also speak to potential timescales, even if they are not as ambitious as those spelled out in the amendments.

Amendment 37E in the name of the noble Lord, Lord Holmes of Richmond, appears to be a probing amendment, but I hope the Government will take seriously his suggestion of studying the links between digital and financial exclusion. In an earlier debate I referred to the need to tackle some of the bigger, more complex issues that contribute to financial exclusion. Without concerted effort now, one can envisage a scenario in which certain sections of the population already susceptible to financial exclusion will be unable to avail themselves of the products and services facilitated by new technologies.

We are at an interesting point in the fintech debate following publication of the Kalifa review. Items such as digital ID are mentioned in that document, albeit in the context of the need to establish international codes and standards. The UK has long been a leader in this sector. If we are to continue being so, both government and business must seek to participate fully in relevant cross-border discussions and initiatives.

I note from my latest perusal of the House of Lords business that the ever-tenacious noble Lord, Lord Holmes, has secured an Oral Question on 27 April regarding the Government’s response to the Kalifa review’s recommendations. I hope the Minister can provide sufficient reassurance that the Treasury recognises and wishes to harness the potential of fintech, but I am sure that any gaps in the response today will be revisited in just under two weeks.

[Baroness Penn (Con)]

My Lords, this group of amendments returns to the use of technology and data in financial services, a topic we have discussed at length at earlier stages. It is an important debate, and I welcome the efforts of noble Lords to bring this to our attention again.

As the noble Baroness, Lady Kramer, noted, as part of UK FinTech Week 2021 my right honourable friend the Chancellor, just this morning, delivered a speech setting out the Government’s commitment to fintech as a crucial component of the future of UK financial services. The Chancellor made several announcements, including the launch of a new task force between the Treasury and the Bank of England to co-ordinate exploratory work on a potential central bank digital currency; a new financial market infrastructure sandbox; confirmation that the FCA will take forward the idea of a regulatory scale box; a package of measures to support fintech firm growth; and a commitment to work with the fintech community to realise the idea of a new, industry-led centre for finance, innovation and technology.

The Chancellor also reiterated his thanks to Ron Kalifa for his landmark fintech review and confirmed that the Government will shortly provide a detailed response to Parliament via a Written Statement. I am not sure I can say to the noble Lord, Lord Tunnicliffe, whether that will be before the Oral Question on 27 April.

I turn to the amendments before us today. Amendments 28, 29 and 30 all relate to the establishment of a system of digital identification and call on the Government to publish plans for achieving this. Digital identity is a vital building block for the economy of the future. The Government recognise that digital identities have the potential to make it quicker, easier and more secure for people and businesses to get things done, to simplify people’s lives and to boost business. We want to offer people the choice to provide their identity digitally where and when it suits them, securely, easily and with confidence.

I was pleased to be able to meet my noble friends Lady Neville-Rolfe and Lord Holmes last week. In that meeting, we discussed the ambitious programme of work that the Government are taking forward on digital identities that work across the economy, some of which I will summarise here.

The Government published their response to the digital identity call for evidence in September 2020 and committed to creating a framework of standards, governance and legislation to enable digital identities to be used in the greatest number of circumstances. I assure my noble friend Lady McIntosh of Pickering that this work is being co-ordinated by the Department for Digital, Culture, Media and Sport across all departments, including the Treasury, so that the policy on digital ID captures the widest number of applications and uses for it. An important part of this work was the recent publication of the draft UK Digital Identity and Attributes Trust Framework. This framework sets out a vision of the rules governing the future use of trusted digital identity products.

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[Baroness Kramer (LD)]

My Lords, unfortunately, I did not bring with me a copy of the letter that the noble Earl, Lord Howe, kindly sent me in response to my question about the Ministerial Code. I expect that a copy is in the Library and available to everyone, but I am sure that the Minister will follow through. While reading the content was reassuring, I do not want it to be a distraction—it is one of the reasons that I have not signed this amendment—from the underlying issue of whether there is adequate transparency to act as the cleansing light that we need in an industry sector that will always be subject to misbehaviour. There is just too much money and opportunity, and an awful lot of power, washing through this industry. Insight, clarity and visibility are probably more important than in almost any other sector of our economy.

The noble Baroness, Lady Neville-Rolfe, talked as if all the misbehaviour was in the past, but we are talking about Greensill today and I have questions. I know that there are many task forces and investigations going on, but I still have no understanding of how a company with as many red flags against it as Greensill got through the accreditation process to enable it to participate in the CBILS. Other than writing to the British Business Bank—and I doubt that I will get an adequate answer—I am not sure what mechanism I can possibly use to get to the bottom of that. We do not have transparency in the areas where we need it.

I remember many conversations, in the midst of the 2008 financial crisis and subsequently, with regulators that were anxious not to rock the boat. The economy and industry were fragile enough, and they were disinclined to investigate. It is to that which I have always attributed the FCA’s inaction with regard to HBOS. I support the description of the HBOS crisis given by the noble Lord, Lord Sikka. It was purely by chance that the fraud—it was literally fraud that sent people to jail for 10 years—at HBOS was exposed. Thames Valley Police decided to investigate when all the regulators, the Serious Fraud Office and the most relevant and obvious police forces had refused. Part of that was due to a lack of resources, from the police forces’ perspective.

I do not think I have ever forgiven the Treasury for its actions in this regard. It cost £7 million for Thames Valley Police to investigate that fraud and it was never reimbursed that money. The fine, of about £45 million, went to the Treasury and was deliberately not shared with the police force. Had it been, it would have encouraged and enabled police forces around the country to be more acutely aware and engaged when there was evidence of fraudulent behaviour. Even today, the various companies that were defrauded have not yet been fully compensated. Nearly 14 years on, it has not been resolved. We have two more bodies now involved in trying to clean up that mess.

The other area that leaves me with great concern is that the response I always get when I raise issues around transparency and enforcement in financial services is: “We now have the senior managers regime.” I was on the Parliamentary Commission on Banking Standards, which drove a lot of the thinking that led to that regime, but, as we have often discussed in this House, it has been holed below the waterline by decisions of the FCA not to pursue senior executives. We know mostly about Barclays and Jes Staley—who had hired private investigators to track down a whistleblower—being fined but not declared unfit to hold his position. The fine was of a size that was more than made up by the bonuses he received in the following years, so it was pointless.

We have an underlying problem. It is not that the senior managers regime does not do some good—it establishes some procedures and processes—but it focuses on more junior people and does not hold people accountable at the senior level. With Greensill coming into the picture now and triggering a much wider discussion, I very much hope that the Government will take back the message that they have to sit the regulators and the various enforcement bodies down, and work out a way to make this system more effective. They are up against powerful forces and there is inequality of arms, but this industry has to be kept under oversight and control because, when it goes wrong, it takes a large part of our economy with it, as well as creating many individual victims.

[Lord Tunnicliffe (Lab) [V]]

My Lords, my noble friend Lord Sikka facilitated perhaps one of the most interesting debates in Grand Committee. The amendments raised several important questions about the independence of the FCA, as well as the nature and success, or otherwise, of its past investigations. My noble friend was not happy with the response provided by the Minister last time; nevertheless, I felt that we had a helpful initial response in Committee, with references to legislation that requires FCA action in certain circumstances and allows a Minister to initiate an investigation in others. The response was perhaps a little light on the limits of ministerial power; recent times have shown that the Ministerial Code is not always considered binding. I hope that we will hear more on this later.

Some of the concerns that my noble friends cited related to events preceding the financial crisis, and I wonder whether this is an area where Ministers can go further today. For example, the noble Earl mentioned Section 73 of the Financial Services Act 2012, which imposes a duty on the FCA to investigate in the event of certain regulatory failures. As the measure was introduced after the global crash, it is clearly of no use in shedding light on events that took place before it. However, is he confident that, if some of the instances cited by my noble friend were to happen today, the current legal provisions would be sufficient to trigger an independent investigation?

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[Baroness Kramer (LD)]

I suspect that the noble Viscount, Lord Trenchard, was referring to the loss of the noble Lord, Lord Judd, which was just announced, rather than the noble Lord, Lord Dubs. I join with him; I am still feeling slightly in shock, frankly, at the news. We have all lost too many people of significance to this House over this last year. I think we all want to pay tribute to all of them, but we are all struggling a little with some of the very significant people who will not be here for future debates.

On this amendment, I will speak briefly. I understand where some of the thinking of the noble Lord, Lord Sikka, is coming from, but I cannot say that I see a supervisory board as the answer to the issue he raises. I am much more taken with the proposal made by my noble friend Lady Bowles in Committee, for an expert body—it takes experts to really understand how the regulator functions—regularly to follow the Australian model and review the regulators. This could be every three years; the number of years is not exactly the key issue. It would not second-guess the decisions the regulators have made but look at operations, resources and effectiveness. With the regulator now so detached in many ways, that is essential.

I would want the Treasury to be a good distance from anything like this because, like it or not, the Treasury will always be seen as an influencer of decision-making. An expert view is needed to help us ensure that our regulators are functioning in the way that they need to, given the enormous challenges and responsibilities that they have. With that, I have to say that I cannot support this amendment.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to my noble friend Lord Sikka for bringing back this amendment. In Grand Committee, it was discussed in the context of our wider debates on parliamentary scrutiny and the financial services regulators. My noble friend was not content with this, and while I believe that there is a degree of overlap, I accept the point that his amendment focuses on detailed day-to-day oversights rather than taking what some might call a “helicopter view”.

In his previous response, the Minister indicated that supervisory bodies are not necessary because of the various panels that must be consulted by the PRA and the FCA as they fulfil their duties. However, while these panels undertake valuable work, the extent to which the regulators take their views on board is unclear; for example, I sense that the FCA’s consumer panel would take a very different view on the duty-of-care amendment passed on day 1 from the positions taken by both the Treasury and the FCA.

The Minister also pointed to the future regulatory framework review as the correct vehicle for taking this issue forward. I have some sympathy with that view: I will be very surprised if the review endorses the status quo. If it does, we have had assurances that there will be further primary legislation and that means further opportunities for my noble friend to pursue this initiative.

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[Baroness Kramer (LD)]

My Lords, I think we may end up coming to something like a UK Finance Watch, but I hope not, because I hope Parliament will step up to the plate. The kind of issues described here ought to be part of parliamentary accountability, but that will take support from significant expertise that I do not think currently exists for many of the committees we operate. This is such an important industry; it is so huge, complex and powerful. That specialist knowledge will be necessary.

I was on the Parliamentary Commission on Banking Standards, and it is fair to say that the noble Lord, Lord Tyrie, then in the Commons and chair of that commission, had to beg and borrow to find the staff we needed to support that commission. It was scratched together probably with the minimum number of staff with which it could have operated. We were so lucky; we had brilliant people totally dedicated and working the most ridiculous hours. That commission was a good demonstration of how we often underresource around critical issues. That is going to have to be remedied.

I hope Parliament, as it works out how it is going to manage this process of accountability, will take all that on board, so we will come back and look at this amendment for UK Finance Watch and see that a lot of what it proposes has been ticked off as “satisfactory,” because it has been embedded in the support and expertise that will be provided to Parliament. But anyone who thinks that two meetings a year with the Treasury Select Committee, and ad-hoc meetings on whatever happens to be the issue of the day, is anything close to satisfactory, and anyone who thinks that the annual report—never one of the most informative documents from any organisation—is accountability, completely misunderstands the animal with which we are now dealing.

I hope we will not have to go back and resort to an equivalent to the EU Finance Watch body. We may have to, but I would almost regard that as a mark of failure by this House and the other place. Our committees that look at these issues are going to need to be resourced and provided with the real expertise that they need to deal with both the quantity and the quality of the investigation and challenge that they will have to undertake.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the noble Baroness, Lady Bennett, gave us fair warning that she was likely to bring an amendment back on Report for further debate, which is reasonable given the time constraint we faced in Grand Committee. As with the amendment of the noble Lord, Lord Sikka, we agree that implementing the right forms of oversight is of utmost importance. In Committee, several speakers mentioned the potentially valuable contributions to policy debates that could come from academics, think tanks and others, if they only had access to the data they needed. We agree that more must be done to facilitate such research, and I hope the Minister will say something on this.

The noble Baroness’s redrafting of her amendment addresses some of the points raised in the previous debate. However, her original pitch was for

“a network, not reinventing the wheel, not creating a whole new institution.”—[Official Report, 10/3/21; col. GC 735.]

Yet Amendment 124 from Committee and today’s Amendment 36 would create a whole new institution. I believe that the comments from the noble Baroness, Lady Kramer, bear consideration. Surely the first thing we should do is to make sure that this role is fully taken up by Parliament. We have already established, informally at least, that much more scrutiny of how the FCA and the PRA work will be necessary, and I look forward to how well Parliament reacts to this challenge. It is also important to recognise that resources may be needed to give parliamentary scrutiny the expertise necessary in this complex area.

One area that interests me is the impact of the financial services sector on the real economy. We are all familiar with the arguments advanced by the Minister last time on jobs, tax take and so on, and colleagues will remember that I reflected on the successes of the sector at Second Reading. However, as the UK comes out of the pandemic and as government support schemes begin to disappear, we will need to monitor the extent to which lenders continue to support business expansion and other aspects of the economy. This brings us back to the point about ensuring the availability of data.

[Earl Howe (Con)]

My Lords, as I set out in our earlier debate, the Government agree that effective oversight of the regulation of our financial services sector and consultation with a diverse range of stakeholders are crucial to the sector’s ongoing success. As we have discussed previously, Parliament has a unique role to play in that oversight function.

In that context, I will set out the existing mechanisms that ensure effective independent oversight of the sector and its regulation by a diverse range of stakeholders. I will not repeat my previous remarks on the regulators’ arrangements for publishing consultations and the manifold ways in which they are already held to account by various panels and Select Committees.

I understand that this amendment is partly inspired by Finance Watch in the EU, an organisation which conducts research, monitors financial services legislation inside the EU and advocates on financial services issues. As the noble Baroness indicates in her amendment, we do not have a body in this country that performs an equivalent role; were we to have one, I imagine it would be made up of industry stakeholders of various kinds. As noble Lords will know, parliamentary committees can and do seek input from a wide variety of experts. In doing so, they can bring together the existing expertise of academics, think tanks and industry stakeholders.

Nothing prevents the creation of such a body in this country without a legislative basis; indeed, the EU organisation was not created by EU law but was simply set up as a non-profit organisation under Belgian law. It is funded by a combination of contributions from its members and philanthropic foundations and grant funding from the EU, for which the group has to bid.

The Government and the regulators regularly consult on their plans and proposals, and interested parties, including those from the backgrounds set out in this amendment, are free to respond. The Government and regulators consider all responses to such consultations carefully and consider how the views expressed should influence final policies and rules. I am concerned that this amendment would therefore duplicate existing practices in a very real sense.

In addition, it would appear to duplicate the work carried out by the Financial Policy Committee of the Bank of England. The FPC acts as the UK’s macroprudential authority; it identifies, monitors and acts to remove or reduce systemic risks to the UK financial system. It may make recommendations to the Treasury, the FCA and the PRA, and is required to publish a financial stability report twice a year setting out its view of the outlook for UK financial stability, including its assessment of the resilience of the UK financial system and the main risks to UK financial stability.

Given this, and the existing processes that I have set out in previous debates today that offer ample means for achieving the outcomes sought by this amendment, I hope the noble Baroness will feel able to withdraw it.

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A lot of imaginative work can be done in this area, and I very much hope that, in addition to supporting this important step—I do not underestimate its importance and the impact it will have in some key areas—the Government will also recognise that they have to do a lot more and do it quickly, because of the changes overtaking us so fast.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we are grateful to the noble Lord, Lord Holmes of Richmond, for bringing forward these amendments, which would enable individuals to obtain cashback from retail settings without first having to make a purchase. We have not spent a huge deal of time discussing access to cash during the Bill’s passage, which is a surprise given the challenges we face in this area. It is beyond doubt that the Covid-19 pandemic has accelerated the transition to cashless payment, but this does not mean that cash is becoming obsolete. Many millions of people continue to feel most comfortable making physical payments. While small businesses have access to low-cost options for taking card payments, many will still prefer to deal with cash.

While we welcome this initiative, I hope the Minister can briefly touch on the Government’s response to the wider challenge we face with access to cash, such as the continued closure of bank branches. It is also worth noting that, while people may soon be able to access cash more easily, these amendments do not deal with the fact that some businesses have chosen no longer to accept it. That is their choice, of course, but acceptance is as important as access. I urge the Government to accept these amendments, which would be beneficial to an important part of society.

[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, I join the expressions of sadness at the news of the death of the noble Lord, Lord Judd, such a tireless campaigner for all the causes he held dear. Even though we meet, of necessity, in an almost entirely empty House, it says everything about the noble Lord that one feels that one particular place over there is empty. Our thoughts go out not only to his family, particularly, but to all those in the Labour Party family who were inspired by his example and loved him as a man.

Amendments 37D and 40A seek to facilitate the provision of cashback without a purchase. I say at the outset to the noble Lord, Lord Tunnicliffe, my noble friend Lord Hunt of Wirral and others that the Government will support these amendments. The noble Baroness, Lady Kramer, is able to divine the language of draftsmen even better than I am.

These amendments introduce an exemption for cashback without a purchase, such that it will no longer be a regulated payment service. Under the current legislation, which derives from the EU’s second payment services directive, if a business or its agent, such as a corner shop or supermarket, wanted to offer you cashback without requiring you to make a purchase, it would have to be authorised or registered with the FCA to give you cash from your own accounts. That is a significant burden for even the largest of retailers, let alone small, local shops along the various high streets across the UK.

This amendment removes this requirement; it will take effect two months after Royal Assent. From that point, industry will have discretion to make the service available across the United Kingdom. Where the service is offered, customers will be able to walk into a local business that wishes to participate, such as a corner shop, café or pub, and withdraw cash without having to make an accompanying purchase.

As part of the community access-to-cash pilots, LINK—the UK’s main ATM cash machine network—and PayPoint are already testing a cashback without purchase service in a small number of local stores in Cambuslang, Hay-on-Wye, Burslem and Denny. Indications from this trial are positive, and the Government look forward to the outcomes. This amendment will allow for such initiatives to be rolled out across the UK more easily.

The Government recognise that, as my noble friend Lord Holmes of Richmond said, widespread access to cash remains and will remain extremely important to the daily lives of millions of people across the United Kingdom. Although it was not possible in time for this Bill, I can certainly assure the noble Baroness, Lady Kramer, that the Government have committed to legislate to protect access to cash and to ensure the cash infrastructure is sustainable in the longer term.

The Government published a call for evidence on access to cash in October 2020. This highlighted the potential benefit of facilitating cashback without a purchase through legislation. Cashback with a purchase was in 2019 the second most frequently used method of withdrawing cash in the UK, behind ATMs. As my noble friend Lord Holmes of Richmond told us, there were 123 million cashback transactions, amounting to a total amount withdrawn of £3.8 billion.

The Government’s view is that cashback without a purchase has the potential to be a valuable facility to cash users and to play an important role in the UK’s cash infrastructure. This legislative change, which is possible only now we have left the European Union, would help both to support the availability of cash withdrawal facilities across the United Kingdom, benefiting individuals’ access to cash, and to support local cash recycling. These amendments are therefore a welcome step towards protecting access to cash.

I am particularly grateful to my noble friend Lord Holmes of Richmond, who raised this important issue in Grand Committee, for the constructive way he has engaged with the Government and officials since then on this important issue. I am very pleased to be able to say that the Government are proud to support these amendments. Meanwhile, as I covered in my earlier remarks, the Government are considering responses to the call for evidence and look forward to setting out next steps on legislation to protect access to cash in due course.

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[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

The noble Baroness, Lady Bowles of Berkhamsted, has withdrawn, so I now call the noble Lord, Lord Tunnicliffe.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we had a fruitful debate on the issue of parliamentary scrutiny and the regulator’s rule-making powers last Wednesday. Since this amendment was tabled, I have viewed it as an opportunity to tie up any loose ends, rather than being likely to result in a Division.

It is fair to say that nobody is particularly happy with the current arrangements, particularly given the loss of European Parliament scrutiny of new prudential rules, and the glut that will come once the Bill becomes an Act. However, there is little sense in repeating the arguments made in previous debates. I recognise that the Minister was able to make some important additional commitments in his response to last week’s group of amendments. Since this amendment was tabled, we have seen correspondence from the Economic Secretary to the heads of the FCA and PRA, asserting that Parliament, as we have all said in recent months, has and must enjoy a special role in overseeing the regulators’ output. The letter provided what my noble friend Lord Eatwell has long referred to as the final component of a three-legged stool.

Having reached agreement that Parliament should be treated as a significant stakeholder, the key is to now put in place a mechanism for meaningful scrutiny to take place. Our Amendments 45 and 48 envisage the establishment of a dedicated committee of each House, or a Joint Committee of both, and that remains an attractive prospect to us. Therefore, as we move into a new Session, I hope the Minister can assure me that the Treasury and business managers in both Houses will look at making it a reality. We await the outcomes of the future regulatory framework review, which I hope will represent a significant step forward for all strands of oversight. Once we have digested the findings, our task will be to scrutinise a successor to FiSMA, and I repeat our call for legislation to receive the detailed pre-legislative scrutiny it deserves.

Scrutiny has been the central theme of the Bill. The noble Baroness, Lady Kramer, said that we must look forward, and she commented that, in many ways, the theme of scrutiny has crossed parties as an apolitical discussion. I hope it will not be a matter of conflict between regulators and Parliament, and that the opposite will be true, as they must work together to make this scrutiny work. I also hope it will mean that we can have real confidence in the work of the regulators, and a real sense that their actions are fully understood by responsible politicians.

[Earl Howe (Con)]

My Lords, I am grateful to the noble Baroness, Lady Kramer, for her helpful and constructive introduction to this amendment. I begin by stating my agreement with her on what I am confident is common ground between us in two respects: Parliament has a unique and special role in scrutinising the regulators and shaping the financial services regulatory landscape, and scrutiny and accountability of regulators has emerged as the foremost issue throughout our debates on the Bill. The noble Baroness, Lady Hayman, will forgive me for not putting the issue alongside that of climate change.

I appreciated the noble Baroness’s remarks on the way in which our cross-party discussions have enabled us to make progress on this issue, which we debated in some detail last week. I will not repeat all my remarks from that occasion, but I will summarise them. I confirmed to the House that the Economic Secretary to the Treasury has written to the chief executives of the PRA and the FCA, to endorse the commitments that they made in their recent letters, and emphasised the importance that the Government place on them. I assured noble Lords that the Government agree that the regulators should provide a comprehensive response to parliamentary committees on any issues they raise in the course of their scrutiny. I also confirmed that the Government remain committed to further considering this issue as part of the ongoing future regulatory framework review, and to engaging with Members of this House and the other place, as we continue that review.

As I said then, delivering the reforms that the Government have proposed in this area could be done only through further primary legislation. Therefore, Parliament will have the opportunity to return to this issue where it can be considered fully. The noble Baroness, Lady Kramer, noted that consultations are not the only relevant issue here, and I agree with her. I am happy to confirm again that the Government view parliamentary scrutiny much more broadly, also to encompass the regulators’ wider work.

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[Lord Tunnicliffe (Lab) [V]]

My Lords, this is a very significant Bill. At the point of discontinuity between the days of EU involvement and control to the new world after leaving the EU, the depth of involvement that we have had with both other parties and the Government has been significant. We have had conversations on the Floor of the House and in other meetings, and we have all at least understood one another. We have gone some way to address the central point of the Bill, which is how to scrutinise the regulators while, at the same time, leaving them independent and effective. We will see whether the compromises that have been agreed work, over the next several months, in both the day-to-day examination of the regulators’ output and the development of subsequent law.

I thank the noble Earl, Lord Howe, the noble Lord, Lord True, the noble Baroness, Lady Penn, and their teams, for all their efforts. The leader of the Labour side in this debate was of course my noble friend Lord Eatwell who, unfortunately, was not able to be with us today, but he asked me to read the following statement. These are his words, not mine.

“Standing at the Dispatch Box for the Opposition, I have always believed that my job is to oppose; to expose the flaws in the Government’s erroneous and sloppy thinking. It has, however, been a very new experience working on this Bill with the noble Earl, Lord Howe. It was evident from the start that his objective was to achieve something useful—a constructive experience that I value and for which I am grateful.”

I was less surprised than my noble friend Lord Eatwell, because I have been on the opposite side of this Chamber from the noble Earl, Lord Howe, for many years, and have always found him very committed to finding a consensus way forward, where possible.

I thank my researcher, assistant and speechwriter, Dan Stevens, for all his work, because I would not have survived without it. Finally, I thank the House for its tributes to Frank Judd. He was a wonderful person and he carried on being a wonderful person right to the end. He was voting last week—the right way, of course. I was also his whip, but it really felt the other way round, because he was always so supportive. I have lost not only a member of my team but a very good friend, who has always supported me and been helpful. I thank the House once again for its tributes.

[Baroness Kramer (LD)]

My Lords, once again I thank Lord Judd, because he contributed to this Bill, so it is entirely appropriate to reference him, as we close and the Bill passes. This was originally presented as a “limited, technical Bill”. Whoever thought up that phrase is probably now assigned to writing detailed amendments on obscure financial practice, because it has been anything but.

From my perspective, we had three major areas to tackle in this Bill. We have talked about the constitutional issues of regulator accountability to Parliament, which are overwhelmingly important to this House and the other place. We have also dealt with extensive legislation that impacts ordinary consumers. One can never overstate the importance of dealing with issues such as debt, mortgage prisoners, sharia finance, access to cash or financial exclusion. They are crucial to the people of this country and to everyday lives, so I am very glad that they formed a major part of this Bill. Thanks to the noble Lord, Lord Holmes, we have had some particular success—and perhaps will have more success with the amendments that we passed.

We also dealt with the environment and made some real progress in that area. I regret that by one vote only—because it was a tie—we did not get our capital adequacy amendment through but I think the House will, at some point in time, be back discussing that issue. I also suspect that, at some point, the PRA will announce the changes to capital adequacy ratios that reflect the underlying stranded assets associated with fossil fuels in various forms. That, too, I see as a work in progress but it was an important discussion and put down some very significant markers.

I want to thank the Public Bill Office. I cannot remember a piece of legislation where so many amendments appeared in each round, both in Grand Committee and on Report. Its work in turning around those amendments to ensure they were in an appropriate form was very much appreciated.

I join in thanking the noble Earl, Lord Howe, the noble Baroness, Lady Penn, and the noble Lord, Lord True. I say to all three of them that we appreciate that they listened to what we had to say and, whether they agreed or disagreed, always responded to us with respect and looked for common ground. Frankly, I regard the noble Earl, Lord Howe, as the Conservative Government’s secret weapon because he certainly brings us to a common point that finds a way through when relatively few other people could.

I really want to thank others for the co-operative working across the House. We have worked closely with all those on the Labour Benches, but it has been with the Conservative Benches as well. It really shows this House at its best when it deals with issues of fundamental importance.

On my own team, Sarah Pughe in the Whips’ Office kept us co-ordinated; she also kept us informed, which was quite some challenge. My noble friends Lord Bruce, Lady Sheehan and Lady Tyler stepped in to contribute some special knowledge. I thank in particular my noble friends Lady Bowles, Lord Sharkey and Lord Oates, each of whom took on one of those three areas that I categorised as crucial in this Bill and brought to them absolutely exceptional levels of expertise, real dedication and hard work. They supported their positions with extraordinary diligence. Sometimes when people come with not only expertise but passion and concern, they can make an effective difference in the way they communicate with the House. I have to say to those three how much I appreciated them.

My noble friends Lady Bowles and Lord Sharkey are off at the Industry and Regulators Select Committee. I understand that the noble Lords, Lord Eatwell and Lord Blackwell, are there. I am sure they are missing the noble Baroness, Lady Noakes, today but I hope she will make that up at the next meeting and ensure that her imprint is on the work of that committee.

This has been a real pleasure. I believe we have achieved something. It is not all I would have wanted but, as I say, this is only the beginning of a long process.

Financial Services Bill

Lord Tunnicliffe Excerpts

Consideration of Commons amendments
Wednesday 28th April 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will be brief. My noble friend Lord Sharkey comprehensively answered the points raised by the Economic Secretary on Monday and by the noble Earl, Lord Howe, today in rejecting this amendment. I should point out that if the Government thought that the amendment was not quite correctly finessed, they could easily have brought in an amendment in lieu that would have achieved relief for mortgage prisoners, and they have chosen not to do so.

The nub of the problem is straightforward. Would the financial experience of a mortgage holder be the same if his or her mortgage had been sold by the Government to an active, rather than an inactive, lender? Even the Government do not deny that the answer to that is no. The difference in experience between those whose mortgages were held by active lenders, compared with those whose mortgages were sold to inactive lenders, has been markedly different. Those whose mortgages were held by active lenders that did not collapse in the 2008-09 crash have been able to take advantage of the fact that rates have fallen very sharply and have been offered a whole variety of new and different deals, as part of the normal practice of banks in dealing with their mortgage opportunities and portfolios. Those who ended up in the hands of inactive lenders have faced between limited options and none, and have been unable to take advantage of interest rates falling exceedingly sharply.

That is the only issue at play here. To compare those mortgage prisoners to people today seeking a mortgage is to look at an entirely false set of circumstances. I am concerned that the Government are choosing not to rectify the situation. It was the Government who chose to sell those mortgage assets to inactive lenders. They did so in good faith and without any expectation that the mortgage holders would end up in a different position from their peers who had taken out mortgages with institutions that did not fail. I understand that that was not an intentional process, but, regardless, the Government remain responsible for their decisions when they sold off those assets.

People are genuinely suffering and I ask the Government that the very small measure that my noble friend Lord Sharkey begged for at the end of his speech—that those individuals could at the very least be protected from foreclosures as we exit from Covid and the rules change on repossessions—could be put in place. The Government would then have an opportunity to justify the arguments made in both Houses that they are genuinely trying to find a solution to the problems and devastation that so many individuals face.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we have not made as much progress on this issue as many people, including thousands across the country, would have hoped. That is not through any lack of effort. The noble Lord, Lord Sharkey, and my noble friend Lord Stevenson have been tenacious in their pursuit of change. However, for that to be possible, both sides must want to work towards a favourable outcome.

I said on Report that we were not convinced that this amendment provided the answer to the long-running problems experienced by mortgage prisoners. It certainly provides an answer, but I accept the argument that there would be consequences for the mortgage market as a whole. With this in mind, colleagues offered an alternative option in what was then Amendment 37B. Your Lordships’ House has a reputation for being constructive and, in that spirit, the noble Lord, Lord Sharkey, and my noble friend made further offers to look at any text that the Treasury would be prepared to bring forward. Unfortunately, Ministers chose not to put an amendment on the table.

The Economic Secretary has, to his credit, demonstrated knowledge of the challenges in this area. Every time he has spoken, I have believed his wish to identify workable solutions. The noble Earl, Lord Howe, and the noble Lord, Lord True, have said similar things in our meetings; again, I have viewed their comments as earnest. The problem is that warm words do not pay bills—nor do they generally lead to lenders taking the kind of steps that are required. The initiatives launched to date have helped only a tiny fraction of mortgage prisoners, so one would have thought that the case for further action was overwhelming.

We wanted—and continue to need—the Government to take proper ownership of this issue. We welcome the fact that the FCA will conduct a further review of the options available to mortgage prisoners and that the Treasury will revisit its data on the different cohorts of affected customers. As well as following these processes closely, we will of course continue to press the Economic Secretary to do what is needed.

It is regrettable that we have not been able to achieve a satisfactory outcome on this legislation, which should have been more than another false dawn. However, Conservative MPs have rejected the case for action, and it is hard to imagine meaningful progress being made unless Ministers revise their red lines. Accordingly, we do not believe we should press this matter any further today and look to the noble Lord, Lord Sharkey, to withdraw his amendment. However, I can assure the Minister that we will return to this issue at the next legislative opportunity.

[Earl Howe (Con)]

My Lords, I am grateful to noble Lords who have spoken in this short debate, both for their constructive comments and for re-emphasising the genuine concerns they clearly have for this unfortunate group of people who find themselves trapped in mortgages that cause them great difficulty. I do not doubt for a second the distress that many such people are experiencing, but my noble friend Lady Noakes brought us back to some very important realities on this vexed subject. I agree with the noble Lord, Lord Tunnicliffe, that it is regrettable that we have not been able to reach full agreement on the way forward. Nevertheless, I hope my earlier remarks indicated that we take this subject extremely seriously. I am confident that noble Lords who have listened to my honourable friend the Economic Secretary speak on the subject will be in no doubt whatever of his intention to keep on top of it in the weeks ahead.

Part of the problem we face relates to the data that underpin the case that the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, have made. The report of the UK Mortgage Prisoners group makes accusations about the data held by the FCA, essentially saying that the data analysis is wrong. However, I put it on record that the FCA data analysis was conducted using information on the 250,000 borrowers with inactive lenders alongside a credit referencing agency dataset which includes data on 23,000 borrowers with inactive lenders. The FCA data has shown that, on average, the 55,000 borrowers with inactive firms who have characteristics that would make it difficult for them to switch but are up to date with payments are paying around 0.4 percentage points more than similar borrowers with active lenders who are now on a reversion rate. Its analysis also shows that the majority of borrowers with inactive firms are on relatively low interest rates of 3.5% or less.

It is important that, as part of the review that the Government have announced, the existing data is analysed to provide further details on the characteristics of the borrowers of most concern. That is definitely a core part of getting to grips with what more can be done in this area.

It was suggested that in the first instance the Government failed these consumers. I repudiate that suggestion very strongly. The customer protections that we set were best practice for transactions of this type—or went beyond best practice: the Government strengthened the consumer protections for the last two sales of new car loans in response to concerns raised by parliamentary colleagues.

I do not accept the points made by the noble Baroness, Lady Kramer, about the difference between those whose mortgages were refinanced with active lenders and those who found themselves with inactive lenders. The sales of those mortgages did not impact customers’ ability to remortgage elsewhere: customers with inactive lenders can remortgage with another provider as long as they meet the lender’s risk appetite. The customer protections that we insisted on for new car sales also included prohibitions on placing barriers in the way of customers remortgaging with another provider; for example, all early repayment charges are waived. These lenders are charging interest rates in line with SVRs set by active lenders.

The noble Lord, Lord Sharkey, asked about Cerberus. The customer protections in these sales were best practice in the market at the time. For the last two sales, restrictions on setting the SVR last for the lifetime of the mortgage. I add that Cerberus indicated that it was offering new products to customers but this was not part of its bid, so UKAR did not seek a binding commitment on this point. Cerberus was selected because it agreed to the consumer protections that were sought and provided the best value for money for taxpayers. I underline, therefore, that inactive lenders can, and often do, allow borrowers in arrears to make use of a variety of tools to get themselves back on track. Such tools include capitalisation of arrears, term extensions and payment holidays.

It is simply not true that the FCA has done nothing for this group of people. For example, to reflect the current Covid-19 situation, the FCA has brought forward guidance to allow borrowers who are up to date with their payments on a recently matured or soon-to-mature interest-only, or part-and-part, mortgage to delay repaying the capital on their mortgage while continuing to make interest payments. This guidance has enabled borrowers to stay in their own homes for a significant period. The FCA also confirmed that it was making intra-group switching easier for borrowers with an inactive firm that is in the same lending group as an active lender. On 14 September, the Money and Pensions Service launched online information and a dedicated phone service as a key source of information and advice for borrowers with inactive firms.

The point was made that the modified affordability assessment has helped only 40 households. The modified affordability assessment, I contend, provides an additional and important option for some borrowers who may not otherwise have been able to switch. We must just give it time to take effect. It will not be a silver bullet for all borrowers with inactive firms, many of whom have other characteristics that affect their ability to remortgage.

I will leave it there. I say again that I regret there has been no meeting of minds on this, but I also say that the Government place a great deal of emphasis on the work that is now in train. We will do our utmost to see what more can be done for mortgage prisoners as a result of the further analysis I have referred to. I hope noble Lords will see fit to agree with the Government’s Motion.