Financial Services (Implementation of Legislation) Bill [Lords]

Mary Creagh Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 11th February 2019 Commons Chamber

[The Financial Secretary to the Treasury (Mel Stride)]

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

I should begin by paying tribute to my noble Friend Lord Bates for piloting the Bill through the other place so successfully. I am sure that the House will recognise the importance of supporting our financial services industry no matter what the outcome of negotiations on leaving the European Union. The UK’s position as a world-leading financial centre is critical to our prosperity. In 2017, the financial sector contributed £131 billion to the UK economy. It employs over 1 million people across the country, two thirds of whom are outside London, including in the thriving financial centres of Edinburgh, Belfast, Manchester and Cardiff. UK exports of financial services were worth over £77 billion in 2017, which highlights the importance of the sector on the global stage.

[Mary Creagh (Wakefield) (Lab)]

I am sure it was an oversight, but in his list of UK financial services centres the Financial Secretary neglected to mention the Yorkshire centres of Leeds and Halifax—of course where the Halifax bank was born—and the many building societies that remain in our area.

[Mel Stride]

I thank the hon. Lady for that very appropriate intervention. She is quite right to mention the local presence of financial services across the United Kingdom.

My right hon. Friend the Chancellor of the Exchequer has already set out the Government’s long-term vision for the future success of the UK’s financial sector, based on world-leading positions in the markets of the future, whether in green finance or in FinTech, and we are pursuing an ambitious global financial partnership strategy to cement our trading relationships with key partners.

However, we also need to ensure that we have appropriate regulations in place, with the right balance between protecting stability and fostering competitiveness. We aim to be the safest and most transparent place to do business, leading the race to the top and always championing high regulatory standards in financial services markets. The Bill will ensure that, in a no-deal scenario, the UK’s regulatory landscape will not fall behind its international counterparts.

The Government have been clear that we do not want a no-deal scenario, but it remains the role of a responsible Government to continue to prepare for all possible outcomes. That includes the event that we reach 29 March without a deal. In those circumstances, we will have brought on to our statute book the vast body of EU legislation that needs to be operative at the point of exit. However, the powers under the European Union (Withdrawal) Act 2018 relate only to legislation operative immediately before exit day. A number of pieces of EU legislation will not be covered by the powers conferred under the withdrawal Act. They include proposals that are either already agreed but which have not yet been implemented, or those that are soon to be agreed beyond our exit from the European Union.

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[Mary Creagh]

The Minister talks about the in-flight legislation and the proposals as they appeared in the other place. When they first appeared in the other place, they were missing a couple of bits relating to the taxonomy of environmentally sustainable activities that would allow companies to green-check their revenue streams, and to new disclosure requirements for asset owners such as pensions schemes, which is of great concern to the Environmental Audit Committee. Can he explain why those two proposals were left off the list? The Bill has now been amended in the other place, but why were they originally missing?

[Mel Stride]

I think this is an example of Parliament carrying out its process and legislation being improved as a consequence. The most important point is where we have ended up. Having listened to the arguments put forward in the other place, the Government chose to embrace the amendments that brought those two particular files into the scope of the Bill.

The Bill provides a mechanism through which the UK will be able to implement in-flight financial services legislation. They fall into two categories. The first category of files relates to those that have been agreed while we have been a member of the European Union, but will not apply or be in force prior to the UK’s exit from the EU on 29 March. In a no deal and in the absence of the Bill, there would be no effective way to implement those files in a timely manner, as each would require primary legislation. The Bill allows the Government to domesticate each of these files in whole or in part via an affirmative statutory instrument. It further provides a power to fix deficiencies within them.

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[Mary Creagh (Wakefield) (Lab)]

It is a pleasure to follow the hon. Member for Glasgow Central (Alison Thewliss), who made an excellent speech.

Today’s debate has focused on Brexit and financial services. I want to focus on why the Bill is so vital to our budding green finance industry, what the EU is doing to promote green finance and what our own country is doing in that regard, and what the Government can do to end uncertainty for an important and growing part of our economy. I shall refer to the sixth and seventh reports of the Environmental Audit Committee, “Greening Finance: embedding sustainability in financial decision making” and “Green finance: mobilising investment in clean energy and sustainable development”.

In 2015, the United Kingdom signed up to the Paris agreement on climate change and the UN’s global goals for sustainable development, which set out ambitious targets to transform our world. In the three years since then, we have learnt much more about climate science. As was made clear in a report published by the Intergovernmental Panel on Climate Change in October 2018, if we are to avoid the catastrophic effects of uncontrolled climate change we shall need radical and unprecedented changes in all parts of the economy, which will require trillions of pounds—or dollars—to be invested in clean energy and cleaner transport infrastructure.

I pay tribute to the Government for some of their work in that regard. The Bank of England’s Task Force on Climate-related Financial Disclosures looked into strategy, risk and targets. The Government then set up the Green Finance Taskforce, whose report made a series of recommendations, one of which was that the Government should establish a sovereign green bond to kick-start investment. The Government have yet to respond to that report, but I hope they will do so soon. We have seen the green growth strategy, and, in the City of London, $22 billion of investment has been raised in seven currencies for more than 72 green bonds. I fear that the Bill could potentially disrupt some of the progress that we are making, and interfere with London’s place as a centre for green finance.

We have done well in our own country. We have moved quickly to decarbonise the power structure. However, we have done very little to deal with our agricultural and transport-related emissions, and almost nothing to decarbonise our heating emissions. When people tell me that things will be easier, I always ask, “How are you going to transform 31 million gas boilers over the next 10 years?” According to the IPPC’s report, we have just 12 years in which to tackle damaging carbon emissions. We need to think big, and think globally, if we are to rise to that challenge.

My Committee’s inquiry found that the privatisation of the Green Investment Bank and the reduction in European Investment Bank lending following the referendum may have played a part in the 56% reduction in investment in green energy projects in the UK. We could not work out whether that was a blip or a trend, but I look forward to seeing this year’s figures and finding out which it was. Our “Greening Finance” report states that climate change poses material threats to our economy, our investments and, of course, our pensions, which provide the funding for these companies.

There are three climate-related financial risks. There is the physical risk posed by more heatwaves such as the one that we experienced last year, more droughts, which will threaten the water industry, wildfires, which we have seen in the Arctic and in California, extreme rainfall, rising sea levels, and flooding. That risk will affect investment in food, farming, infrastructure, house building and insurance. In a 4° world, my Committee was told, the insurance market would cease to exist. London’s position as a global insurance centre would be destroyed, and the jobs along with it. There is also the risk posed by the transition to the green economy. Companies that do not make a timely low-carbon transition could face costly legal or regulatory action, and some will be left behind by innovative firms with cleaner, greener, more efficient technologies.

Issuers—banks, insurance companies, asset managers and owners, and a range of other financial institutions—must assess and report climate-related financial risks. That is particularly important in relation to pension funds. I welcome the National Employment Savings Trust, but by the time a young person auto-enrolled in the scheme retires, we could be living in a world radically transformed by climate change and society’s response to it. According to the latest Met Office prediction, in a high-emissions scenario our summers will be 5° warmer than they are now. That has implications for the water that we drink and the homes in which we live.

It is vital that our pensions, investments and savings are able to weather those changes, which is why my Committee called on the Government to introduce mandatory reporting of climate-related financial risk. We also wrote to the chairs of the 25 largest pension funds asking them what they were doing to mitigate that risk. We think that improved reporting would help to divert more capital to more sustainable ends, because what gets measured gets done. That would increase investment in the new green infrastructure that we need, and would mean that our savings did well while also doing good. We are pleased that the Government have clarified the fiduciary duty of pension trustees in trust-based schemes, which will come into force on 1 October 2019, and we are waiting to hear from the Financial Conduct Authority what it intends to do.

Let me now turn to why the Bill matters in relation to sustainable finance. I asked the Minister—and I was grateful to him for giving way—about “in-flight” legislation. The EU has proposals for financial services legislation that would promote sustainable finance. It is debating proposals for a framework for low-carbon benchmarks which would allow investors to harmonise their portfolios with the Paris agreement on climate change. The benchmarking is important, because only by seeing what is happening in other companies can investors work out whether they are doing well or badly, and make the strategic changes that may be necessary. It is also discussing the possibility of a taxonomy of environmentally sustainable activities which would allow companies to “green-check” their revenue streams, and new disclosure requirements for asset owners such as pension schemes, as well as asset managers, banks and insurers. My Committee had called for that.

When the Bill was introduced in the other place, I was disappointed to note that the EU proposals for benchmarks and disclosure requirements were not included in the list of “in-flight” legislation in the schedule. The Minister said that this was Parliament doing its job and amending legislation, but it is not clear to me whether those proposals were left out accidentally or deliberately. Do we think that we are already doing those things so brilliantly that we need not bother to pursue the proposals? The Minister has not made that clear.

I welcome the amendments made in the other place to include all the EU’s sustainable finance proposals. However—this is important—the Government have no obligation, but only the option to adopt those valuable measures. Will the Minister reassure the House that the Government will adopt them, and that the UK will not fall behind when it comes to EU action on sustainable finance? If we diverge from the EU’s regulations on sustainable finance it would harm large financial institutions with investment in green financial products in Europe. It could harm our budding sustainable investment industry. We are at the moment a world leader in finance; we know the difficulties Brexit will cause to be faced across our economy, but we have the opportunity to be a world leader in sustainable green finance and we must not let that opportunity pass us by.