Oral Answers to Questions

Ranil Jayawardena Excerpts

Tuesday 19th March 2024 Commons Chamber

[Laura Trott]

The Barnett consequentials formula is long established. It gives a clear framework, through which we can understand spending in the devolved nations. The hon. Gentleman will know that it means higher per-person funding in each of the devolved nations than in England.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

I am delighted that my right hon. Friend the Chancellor is seeking to make the tax system more family friendly, including by collecting household data in the years ahead, but being family friendly includes looking after the family home. Sweden abolished inheritance tax in 2004. The result was a boom in entrepreneurship, economic growth and higher tax revenues. Will he, or one of the excellent ministerial team, meet me to discuss that further?

[The Financial Secretary to the Treasury (Nigel Huddleston)]

I thank my right hon. Friend for his advocacy in support of families. We have had conversations, and I know that he very much welcomes the changes to the high-income child benefit charge and child benefit. We always keep taxes under review, and I am always delighted to meet him.

Inheritance Tax

Ranil Jayawardena Excerpts

Wednesday 17th January 2024 Westminster Hall

[Jon Trickett (Hemsworth) (Lab)]

I beg to move,

That this House has considered inheritance tax.

I am looking forward to your firm guidance from the Chair, Sir Robert. I am grateful to the House authorities for allowing us to have this important debate.

The whole British tax system is skewed in a very odd way. We simply do not tax wealth sufficiently, but we do tax income from work. Income from wealth is relatively untouched by the taxation system, but income from work is taxed and people feel the burden of it. If we were to redesign our whole tax system, I wonder whether that is the way we would structure it. My office wrote a report on this issue three years ago, suggesting a wealth tax. If there were to be a wealth tax, we might well be able to change the way we tax inheritance, but that is not the case; it is not a serious proposal for now, but it is something to think about in the longer term.

It is good to see so many Members here. I begin my reflections on inheritance tax with the following reflection: it is always interesting to look at the language politicians use, especially those from the governing party. When Labour proposes a spending commitment, the Government say that we have found a “magic money tree”. When the Tories find money to spend or give away in tax gifts, suddenly it is “wise”, “prudential” and “management of the economy”. Of course, it is no such thing; it is propaganda.

The right-wing papers are saying that there is some “fiscal headroom” in the Budget—in other words, the Treasury is sloshing around with money. But where has the money come from? It has come from hard-working people who are overtaxed on their income. There might be other ways to fund state services, but it is the working people who have created the additional money in the Treasury. That has been done through a cruel system, which is no longer quite as invisible as it was, called fiscal drag, whereby people’s wages and salaries are increasing but the threshold at which they pay tax is being held steady by a Conservative Government who have clearly set out to raise more money from working people. The fact that thresholds are being held steady while wages are rising means that people are paying more as a proportion of their income than they would have done if the thresholds had risen at the same rate.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

Will the hon. Gentleman give way?

[Jon Trickett]

There are a lot of Members present, so I will give way only once—twice at the most.

[Mr Jayawardena]

Given that the hon. Gentleman is concerned about fiscal drag, as am I, would he concede that, given that the £325,000 threshold for inheritance tax has been fixed since 2007, it should be increased in order to avoid fiscal drag?

[Jon Trickett]

I find that a very interesting intervention. I am not opposed to considering that idea as part of the wider debate, but let me return to the point I was trying to develop.

It looks as though right-wing ideologues in newspapers and elsewhere are hinting that there is a significant amount of money available in the Treasury. Those papers are saying that we should end inheritance tax or perhaps cut it. It would cost £7 billion of the Treasury’s reserve of money to abolish inheritance tax completely. I guess that all Members present will have been around their constituencies in the recent Christmas and new year recess, and they will have seen people hungry and living on the streets, schools closed because the concrete problem has not been resolved, hospitals with cruel waiting lists, people unable to heat their homes, and even unfilled potholes.

What we have seen in our own constituencies is true for the whole nation. There are massive pressures on our civil society and the way we live our lives. If we were the Treasury and had £7 billion, would we really want to hand over money to some of the richest people in our society, when all those needs are still there, and when maybe we should be trying to help people on lower pay with some assistance on tax? I don’t think so. I do not think it is a rational decision and a proper way to spend money, and nor do the public. In two recent polls, 75% said they were against a cut in or the abolition of inheritance tax.

[Mr Jayawardena]

Will the hon. Gentleman give way?

[Jon Trickett]

I said I would give way twice. The right hon. Gentleman has already had one intervention, so I will only take another from somebody else; a lot of people want to speak.

I am sure we are all clear on this, but let us remind ourselves how the system works. One argument that might be made is, “Are you really saying that if you’ve worked hard all your life and managed to buy a house, your descendants can’t inherit that house?” Well, the rules are quite clear. It is not as people might imagine, because a person is allowed half a million pounds with no inheritance tax on the house value. With a couple, however—whether they are married or in a civil partnership—the partner left behind after the other has died inherits the house with no tax; we all know that. When the second person in the marriage or civil partnership dies, the first person’s £500,000 is accumulated to the second person’s £500,000, so that is effectively £1 million per house. Nobody in a couple who owns a house in that particular way would pay any inheritance tax on the house, so it is a specious and false argument to say that inheritance tax would somehow deprive people of their houses.

Look at the figures. In Yorkshire, only one in 300 properties is worth more than £1 million. All the rest are worth substantially less. In the whole of Yorkshire, there are 7,500 households worth more than £1 million. Across the whole country—of 60-odd million people—there are 700,000 properties worth more than £1 million. It is important to put that on the record, before we go any further into the debate.

If someone leaves more than £1 million, they may well be required to pay inheritance tax. Let me deal with what actually happens, based on figures provided by the Financial Times, which are based on Treasury figures. If someone leaves an estate worth more than £5 million, they will find that the amount of money they pay in inheritance tax declines. The people between £1 million and £5 million are probably paying 40%—unless they have made certain arrangements—but the really wealthy estates above £5 million, where the power and wealth in our society resides, pay less and less tax the more wealthy they are. Hon. Members can see the graphs; they are freely available on the internet. The richest estates in our country pay virtually nothing at all in inheritance tax. Can that really be right? I do not believe it is morally justifiable.

I do not want to name too many very wealthy people, but let me name one, because it has been in the newspapers. The Duke of Westminster, one of the richest men in the country, inherited well over £6 billion—I think, nearly £7 billion—through various trusts and other arrangements, but according to the right-wing newspapers—the Daily Mail, Daily Express and others—the estates more or less avoided any form of tax at all. How can it possibly be right that that kind of wealth should be handed on, while people who work hard and have maybe managed to accumulate more than £1 million in their lifetimes are paying 40% tax on the residual amount they arrive at?

In Scotland—I have no doubt my hon. Friend the Member for Glasgow East (David Linden) from the SNP may well mention this—500 families own half of all the land. That is barely touched through the way we deal with inheritance. I do not think that is justifiable, when the half the land of a whole nation is held by 500 families.

I discovered something quite extraordinary in my constituency while researching this issue. I will not name anyone, because this case has not been in the papers. There is an estate of more than 3,000 acres in my area, with 5,000 acres elsewhere and a further 3,000 somewhere else. That large estate, in place since the 16th century, has been barely touched by any form of inheritance or wealth tax over the centuries. That estate remains in place. What is extraordinary is that there is an agreement between the Treasury and the people who leave these large estates that if they cannot pay the inheritance tax, they can donate a work of art. I will be interested to hear the Minister defend that.

It was extraordinary to find that the owners of that property in my constituency avoided inheritance tax on one of the largest estates in the country, which has been left untouched for four centuries, because they were able to gift to the nation a bookshelf—okay, it was a valuable bookshelf. That bookshelf was given in place of paying inheritance tax. How can that possibly be correct?

What is even more extraordinary is: where is that bookshelf now? It is in the very stately home where that particular family still has some residential rights. Of course, it is available for the public to see if they visit. None the less, it is extraordinary that someone earning £10,000 or £15,000 a year—struggling—is paying bloomin’ tax, but a multimillionaire with hundreds of millions of pounds and an estate can avoid tax by handing over a bookshelf that remains in the very house where their family have lived for centuries.

The senior economist at the Institute for Fiscal Studies, which is hardly a hotbed of Marxist thinking, said overnight that it is not in favour of changing inheritance tax, except to say that we should avoid all of the reliefs and the systems by which people can escape inheritance tax, which makes it unfair and skews the taxation system as a whole. It wants to see the loopholes that some of these richer families use closed. For example, it is possible to put money in a trust. If it is agricultural land that is being farmed, there is no inheritance tax on it. Such estates remain there—a blight on our system and a way of securing the continued existence of the British class system, which has caused so many problems for our country.

Let me turn from the very wealthy to other people who pay inheritance tax. Less than one in 25 people who die leave an estate that is subject to inheritance tax; that is under 4%. More than half the constituencies in the country pay no inheritance tax at all, or none that can be measured. That figure is from the Financial Times. Ending inheritance tax would not put a single penny into all those constituencies. There would be no benefit to them whatsoever, as far as I can see, from the relief of inheritance tax.

[Mr Jayawardena]

rose—

[Jon Trickett]

No, I will not give way—the right hon. Gentleman will have a chance to speak in a moment.

I want to illustrate what is happening. I think I am right in saying that, if inheritance tax were abolished, it would put £12 million back into the Minister’s constituency, which makes £60 million in a five-year Parliament. In all the 42 red wall seats in the north of England, which went from Labour to Tory, that sum is hardly more. All those seats together would raise £15 million a year in inheritance tax. Abolishing inheritance tax would put a fraction of the amount of wealth in our country back into those constituencies, and then only into the hands of the richest in our society.

--- Later in debate ---

[Peter Gibson (Darlington) (Con)]

It is a pleasure to serve under your chairmanship, Sir Robert, and I congratulate the hon. Member for Hemsworth (Jon Trickett) on securing this important debate.

As a practising solicitor—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—it was common for me to provide advice to clients while they were planning for later life. While I was drafting wills and preparing powers of attorney, the dreaded subject of inheritance tax often came up. It is indeed a much-feared tax and a real motivator for many people to consider estate planning.

As house values have increased, many more families who never before would have considered themselves to be wealthy are brought into the scope of inheritance tax. For many, however, through proper planning and structures, it can be very much avoided. Indeed, it is often said that inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue. As a Conservative, I believe that families should be able to keep as much of their money as possible and, ultimately, I would like to see the complete abolition of inheritance tax, when the time is right.

I only have a very short speech; I really only have one suggestion to put to the Minister. A number of years ago, additional nil-rate bands were introduced to enable a joint estate to leave up to £1 million free of inheritance tax. However, that privilege only extends to those who have children, either naturally or by adoption. It seems unfair that those who have children can be given a significant tax advantage that does not benefit those who either do not choose to have children or are unable to have children. To my mind, a much fairer approach would be to equalise the inheritance tax threshold at £500,000 for everyone, enabling even childless couples to leave an estate of up to £1 million free of tax.

[Mr Jayawardena]

I thank my hon. Friend for what he has said. Does he agree that by doing those sorts of things—lifting thresholds, taking people out of fiscal drag and giving more people the opportunity to benefit from a nil-rate band—we would actually be able to grow the economy? As the Swedish equivalent of the CBI has said,

“if you abolish a stupid tax that is complicated and forces wealthy people to leave the country”—

or, by extension, reduce the amount that people pay—

“you get more tax revenue…That is the Swedish experience.”

[Peter Gibson]

I completely agree with my right hon. Friend. We know that when we reduce a tax, the effect has the potential to cascade throughout families—and throughout the country, because not all beneficiaries of estates necessarily live in the constituency where the house that is left behind is situated.

I will conclude on that point. Will the Minister respond specifically to my point about the equalisation of rates for all individuals?

Oral Answers to Questions

Ranil Jayawardena Excerpts

Tuesday 14th November 2023 Commons Chamber

[Laura Trott]

Nice try. The triple lock was a Conservative invention, delivered by the Conservatives, and it is something to which we remain committed.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

I welcome my hon. Friend to her new role. Given that it is right that we look after our pensioners and ensure that people are well looked after in later life, it is important that we have the right tax base to fund our pensions. Will she meet me to consider ways in which we can make our taxation system more family friendly, to encourage more people to have more children and to ensure that we can pay for our pensions in the years ahead?

[Laura Trott]

My right hon. Friend is a brilliant advocate on these issues, and of course I would be delighted to meet him.

--- Later in debate ---

[Jeremy Hunt]

I will not pre-empt what I am going to say next week, but I will say to the hon. Lady that, as a former Health Secretary, I am well aware of the pressures on NHS dentistry and its importance to all our constituents.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

Given that inheritance tax is the least popular of all taxes at every income decile and that scrapping it would not be inflationary, will my right hon. Friend consider doing so?

[Jeremy Hunt]

That was a very nice try, but my hon. Friend will have to wait for a week.

Draft Uncertificated Securities (Amendment and EU Exit) Regulations 2019

Ranil Jayawardena Excerpts

Tuesday 12th March 2019 General Committees

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

I beg to move,

That the Committee has considered the draft Uncertificated Securities (Amendment and EU Exit) Regulations 2019.

It is a pleasure to serve once again under your chairmanship, Mr Sharma.

The Treasury is laying this statutory instrument under both the European Union (Withdrawal) Act 2018 and the European Communities Act 1972. The Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period there continues to be a functioning legislative and regulatory regime for financial services in the UK. This draft SI is part of that programme. It has been debated by the House of Lords and was approved on 25 February. The SI also uses the powers in section 2(2) of the European Communities Act to amend UK law as necessary to ensure that the directly applicable EU central securities depository regulation, or CSDR, operates effectively in the UK.

The draft regulations amend the Uncertificated Securities Regulations 2001, or USRs, which concern the registering and transfer of securities such as bonds or shares electronically on computer-based systems. Certain requirements within the USRs are also subject to the CSDR, which creates a common authorisation, supervision and regulatory framework for central security depositaries, or CSDs, across the EU. The SI makes the necessary changes to UK legislation to ensure that the EU regime operates effectively in the UK. The instrument also contains provisions to address deficiencies in UK law and retained EU law that arise due to the UK’s withdrawal from the European Union.

The changes to the USRs that implement CSDR will come into effect on the day after the draft regulations are made in Parliament in any scenario. However, the changes made under the EU (Withdrawal) Act to fix deficiencies in the legislation arising as a result of the UK’s withdrawal from the EU will only come into effect on exit day in the event that the UK leaves without a deal or an implementation period.

First, the draft regulations make amendments to ensure that the USRs align with both the EU regulation and the UK implementing legislation concerning the CSDR. That includes authorisation and recognition of CSDs and article 49 of the CSDR. Article 49 allows issuers the right to issue securities into a CSD in any European economic area member state. Accordingly, amendments have been made to ensure that no provisions in the USRs are incompatible with that right. By removing the duplication between CSDR and USR requirements for operators of relevant systems, the instrument provides clarity to the industry in the area. Further, USR operators now gain operator status by virtue of gaining authorised CSD, EEA CSD or third-country CSD status for CSDR purposes, not via the USR recognition regime, which will be revoked by this SI.

Secondly, the SI will provide transitional provisions for UK operators of systems that were approved under the USRs before 30 March 2017, when the period for CSDs to apply for authorisation or recognition under the CSDR began. That transitional power ensures that operators can continue to operate under the previous USR regime, pending their authorisation or recognition as a CSD under the EU CSDR regime. The SI also inserts a provision into the UK’s Central Securities Depositories Regulations 2014 that grants the Bank of England the power to charge fees to third-country CSDs. That is considered necessary in relation to its new role in recognising third-country CSDs following exit day. That role was granted by the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, which have been agreed by this House.

Finally, the draft regulations amend article 15 of the EU short selling regulation to change its scope from the EU to the UK. The change ensures legal certainty on the scope of that provision after exit day. To maximise transparency, the Treasury has worked closely on the instrument with the Financial Conduct Authority, the Bank of England and industry. The Treasury consulted on changes to the uncertificated securities regulations as part of implementing the CSDR in 2015, and undertook an informal consultation with industry in October 2018. The current form of the instrument, which includes EU exit changes, was laid on 17 January 2019.

Provisions relating to the consultation are dealt with in parts 1 to 4. Part 5 of the instrument deals with the EU exit changes.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

On the consultation that the Treasury has undertaken, I note that the instrument provides for a requirement for a statutory review within five years. Does the Minister have a position on how soon it may be necessary to review the instrument?

[John Glen]

I am sorry, but I do not have a position on that at this point in time.

[Mr Jayawardena]

What discussions have there been between the FCA, the Treasury and the Bank to determine the level of the fees the Bank can charge other than to meet the expenses incurred?

[John Glen]

I am sure that my hon. Friend will understand that the Bank of England routinely issues fees under many financial services regulations. This power is consistent with that general responsibility and will be exercised in consultation with those subject to the fee, as in all the other areas of regulation the Bank engages with.

Regulators and industry have welcomed the Government’s approach to the SI. The Government believe that the proposed legislation is necessary to ensure the smooth functioning of UK financial markets if the UK leaves the EU without a deal or an implementation period. Relevant parts of the SI are also needed in any scenario to ensure the effective functioning of the CSDR. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Mr Sharma. I very much agree with what has been said by the Labour Front-Bench spokesperson, the hon. Member for Stalybridge and Hyde. I do not want to delay us from all the exciting statements still struggling on in the Chamber, but I want to raise a couple of points.

The Minister will not be surprised to hear me say again that this is not what Scotland voted for and not what Scotland’s financial sector needs. Our interests are not best served by being taken out of the EU single market and customs union. The deal we have as a member state is particularly good for financial services. Nothing that the Prime Minister can negotiate will come anywhere near what we have at the moment. Nevertheless, we need to ensure that what comes into place does not undermine all the progress made since the financial crash. We cannot allow Brexit to be an excuse for any kind of backsliding on that regulation and on the progress made. I would like assurances from the Minister that none of the provisions in the SI would allow those kinds of things to happen.

I understand that a few concerns were raised in the Lords about the SI and the landscape in which it would sit. It has been raised before in Committee that we have all these financial services SIs coming through but no comprehensive picture of what the full jigsaw will look like when it is put together, or even if the pieces of the puzzle fit neatly. It would be good to hear a bit more from the Minister about the Government’s intentions. We have so much coming through at the moment that we need some clarity to ensure that nothing falls through the gaps, be it for purposes that are innocent or otherwise. We need to ensure that the system does not allow anything like that to happen.

In the Lords, Baroness Bowles said that

“by the time we have ploughed through all 60 statutory instruments that we are told we have to deal with, and then whatever other number we may get regarding corrections and re-workings—some of which are coming along now—FSMA will be even more incomprehensible on the legislation website, and so too will be any sensible comparison of how EU legislation has been retained with regard to the EU originals… It is actually quite a mockery to make a fuss about the accessibility and clarity of wording in individual documents while it remains impossible to find out their cumulative effect.”—[Official Report, House of Lords, 25 February 2019; Vol. 796, c. 33.]

We need to get to that cumulative effect.

The hon. Member for North East Hampshire made an interesting point about the fees and the powers going to the Bank of England. I have raised the issue of fees before, and it would be good to get more clarity on the scale, size, scope and application of the fees and how they would work. It seems that here and in all our other financial services SIs it is the Bank of England, the FCA and other bodies that are getting powers, not Parliament, which, as I am sure he would agree, is barely taking back control. I am sure that is not his intention with Brexit.

[Mr Jayawardena]

indicated assent.

[Alison Thewliss]

The hon. Gentleman is nodding his head.

Are there any resource implications, as indicated by the fees, for the Bank of England or the FCA, that would have to be recouped through the fees? How many more people would be needed to process these types of uncertificated securities? Do the Government have any idea how many people and what processes they might need? Is there a cost they would affix to that which we could see and understand?

The Minister mentioned the consultation process. It would be interesting to know what changed with that process. Can he give any narrative on where he started out and where he ended up, and were any substantial changes made as a result? I continue to be concerned that there is not enough ability for people to engage and for organisations and those concerned about uncertificated securities to come and give their views and seek changes. The biggest problem with the SI and the way the process works is that we cannot amend it—we accept it or reject it, but we cannot amend it. It is difficult to see where corrections might come from and what tracking there is of that.

Draft Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019

Ranil Jayawardena Excerpts

Wednesday 27th February 2019 General Committees

[John Glen]

I very much respect the points made by the hon. Members for Bootle and for Inverness, Nairn, Badenoch and Strathspey. I will respond to each of the 10 or 11 points that have been raised in succession. The opening remarks of the hon. Member for Bootle concerned the process with respect to the volume and flow, the adequacy of the resourcing, the capacity and transparency.

I will address all of those points, but I will say that the SI is needed to ensure that the EU law on securities financing transactions continues to operate effectively if we leave without a deal or an implementation period. It is not the policy of the Government to get to that point, because we are seeking a bilateral agreement with the EU that would expand the scope of cross-border activity beyond existing equivalence and ensure structured dialogue to manage regulatory change. Our proposal for a future UK-EU relationship in financial services seeks to be both negotiable and ambitious, but it is obviously prudent and necessary for us to have no-deal preparations such as these.

The hon. Member for Bootle commented on the onshoring project and the powers used. The 2018 Act does not give the Government the power to make policy changes, as has been spelled out in this SI, beyond those needed to address deficiencies arising as a result of exit. They are limited and seek simply to onshore existing provisions into domestic regulators and fix deficiencies as they exist.

The hon. Gentleman then referred to the reliance on secondary legislation. Those of us who have sat through a number of such Delegated Legislation Committees in recent weeks, including the Whip, my hon. Friend the Member for Calder Valley (Craig Whittaker), all recognise that, under the powers granted by 2018 Act to make all these financial services statutory instruments, restrictions are in place to ensure the appropriateness of their use. The central objective of the SIs is to provide, as far as possible, legislative continuity for firms. No policy changes are intended; the exercise is an intelligent onshoring one.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

May I probe the Minister a little further? He talks of onshoring policy, not changing it. The FCA is picking up a number of different roles under the draft regulations, particularly on enforcement, so will he assure us that there will be no resulting policy deviation in relation to the penalties that might be imposed?

[John Glen]

I am happy to say that the FCA has been intimately involved in the whole process. Its objective is to provide continuity to the market and to ensure that appropriate scrutiny of market activities is undertaken. No extension of power is given to the FCA through this process. As the national competent authority, it is simply taking on more responsibilities that were often elsewhere previously.

[Mr Jayawardena]

I thank the Minister for that answer. May I probe further? Given that the FCA is taking on those responsibilities, is it recruiting more people to undertake that work? If so, is it making good progress in doing so?

[John Glen]

Yes. I can tell my hon. Friend that, for example, 158 individuals or full-time equivalents in the FCA are now working on Brexit matters, which contrasts with 28 such individuals or full-time equivalents in March last year. It will shortly be setting out its plan for 2019-20, which will set out how it is allocating resources. The FCA has the power to increase the levy should it require additional resources.

I have sought to address the issue of the reliance on secondary legislation with the inherent restraints placed on the Government in the process. The hon. Member for Bootle went on to ask whether the change in the SI to how branches are treated will lead to duplicative requirements for firms, but firms are simply reporting the same information at the same time using the same template to the UK and EU authorised trade repositories, so yes, there is duplication, but it is straightforward—exactly the same form is sent to two institutions simultaneously.

The hon. Gentleman asked about the suspension of reporting for one year. The draft SI, like other financial services SIs, does not make changes beyond what is necessary to ensure that we have a functioning regime after exit. With regard to the powers to make regulatory technical standards, that reflects an approach that applies across the entire body of onshored legislation. In addition, the SI will ensure that regulators have sufficient flexibility to avoid cliff-edge risks for firms.

The hon. Gentleman asked about the robustness of the SIs and drew attention to the admission that I made on Monday on the Floor of the House about some minor typographical drafting errors, including one or two that happened previously. There are, I think, 1,000 pages of the SIs. My officials and I have done our best, we have acknowledged where those mistakes were made, and we have corrected them as quickly as we could, but they were not meaningful in their substantive legal effect, with the exception of one case, which has now been corrected. We have engaged with industry on the content of the SIs. We usually—I cannot remember circumstances in which we have not—publish the drafts of the SIs in advance of laying them before Parliament, and we have allowed an iterative process to exist.

The hon. Gentleman asked, in connection with regulation 4, whether we should use an SI to allow the FCA to issue penalties. The 2018 Act allows that in limited circumstances, with safeguards, including the affirmative procedure. The FCA needs the power properly to supervise trade repositories. He then asked about resourcing, but I have discussed that in response to my hon. Friend the Member for North East Hampshire.

The hon. Member for Bootle also asked about consultation. We published a document in June that set out our approach and emphasised the aim of ensuring continuity. That was widely welcomed. The draft regulations were published on 19 December, so people have had two months to examine them.

On the unavailability before the debate of a consolidated text, it is not normal practice for the Government to provide consolidated texts for debates on secondary legislation. I think that the hon. Gentleman was making a wider point about the overall need for all financial regulations. Frankly, that would be very difficult to achieve, given the wide range of contingency arrangements that are needed. However, the National Archives will publish an online collection of documents capturing the full body of EU law as it stands on exit day.

The SNP spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey, made a point about the volume of capital moving outside the UK and asked what the Government’s response was to that. The Treasury is in frequent contact with firms and regulators about their contingency planning for EU exit. Although we have been clear that passporting will come to an end after we leave the EU, we are seeking a relationship with the EU that allows for continued cross-border trade in financial services, as set out in the White Paper. Although I acknowledge that there has been movement of some capital and execution of contingency arrangements, there is a great deal of resilience to the City of London and financial services in the United Kingdom. We need to draw a distinction between wholesale movement of jobs, and capital being located somewhere else but still being acted upon in the United Kingdom and the City of London.

The hon. Member for Bootle asked about discretion for mutual co-operation arrangements and market access. The Government’s priority is to exit the EU with a deal that ensures continued co-operation with EU institutions on all regulatory matters, including SFTs. However, we are working hard to ensure that, in the no-deal scenario that we are seeking to cover ourselves for, we can maintain a degree of co-operation with the EU. Like all such SIs, the draft regulations ensure that we are prepared for all scenarios.

I believe that I have answered the points that were raised. I recognise the wider political point about the adequacy of this process, but I hope that Members have found this Committee sitting informative, will respect the answers I have given and will be able to support the draft regulations.

Question put.

Securitisation Regulations 2018

Ranil Jayawardena Excerpts

Wednesday 13th February 2019 Commons Chamber

[Bambos Charalambous (Enfield, Southgate) (Lab)]

It is a pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman).

Not everyone appreciates the role that securitisation of loans and debts played in the financial crash of 2008, but it was a substantial role, with devastating consequences. To give some context, in the years prior to 2008, a calamitous decision was taken by executives in large US-based international banks to securitise sub-prime mortgages, which were mortgages given to people who had virtually no way of paying them back. Because of predatory lending, the number of these sub-prime mortgages continued to rise. They were then pooled together with other loans and debts and packaged as a financial product in the form of mortgage-backed securities that received triple A ratings from the credit rating companies.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

The hon. Gentleman is surely arguing that sub-prime lending was mismanaged rather than securitisation itself. Do I understand him correctly, or is he suggesting that securitisation was the problem?

[Bambos Charalambous]

It was both. It was the sub-prime lending and it was also the packaging of these products into securitisation with other, better products that were then triple A rated.

[Mr Jayawardena]

But is it not true that securitisation is really helpful in recycling capital, thereby providing investors with a stream of income that is useful to them and allowing responsible financial institutions to direct their capital at new people who want, for example, to borrow money to buy a home?

[Bambos Charalambous]

If done properly, there is benefit in securitisation, but it was not done properly in the United States, and therefore we need to take extra precautions now to ensure that it is done properly.

[Mr Jayawardena]

The hon. Gentleman is very kind to give way again. I want to unpick that a little further, because it is helpful. Can he confirm that securitisation is a good way of managing risk across a portfolio of loans, so that those with worse credit ratings can be properly and openly matched up with those with better credit ratings, to ensure that investors have a blend that they can draw an income on in the long run and allow institutions to use the capital they have secured from investors to offer new products to new people?

[Bambos Charalambous]

But if credit rating companies do not give the correct ratings, as happened in the United States, it all falls apart. I am happy to carry on the conversation with the hon. Gentleman in Strangers’ afterwards.

There was a big investment in mortgage-backed securities, with many financial institutions choosing to invest in them because of their promised high rate of return. When people started defaulting on sub-prime mortgages, the mortgage-backed securities lost their value, and the financial institutions that had invested heavily in them became exposed and suffered catastrophic losses. Since that time, steps have been taken to ensure that we never again experience the shockwaves of those failing giant financial institutions and the aftermath. We need a robust system of dealing with the risk of any such exposure due to securitisation, and that requires primary legislation.

As the hon. Member for Aberdeen North said, what we have before us are ill-conceived regulations that do not address the whole picture, and these changes are being made without the House having a chance to properly scrutinise them. Let us be clear: these regulations are not required due to the fear of a no-deal Brexit. They have conveniently been slipped in by the Government, under not the European Union (Withdrawal) Act 2018 but other legislation.

The regulations give responsibility to the Financial Conduct Authority to supervise the compliance of people involved in securitisation practices and allow it to impose certain penalties and take other steps to monitor securitisation. Such changes should not be made via secondary legislation. The complexity of these measures needs proper scrutiny. The very fact that the regulations change provisions in criminal law by preventing the FCA from instituting criminal proceedings for money laundering and insider dealing is a serious matter that is worthy of proper debate and scrutiny, which cannot be done via this debate. The regulations are wrong-headed, as schedule 1 amends primary legislation and transfers significant powers to the Treasury, the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England.

[Mr Jayawardena]

I am enjoying the hon. Gentleman’s contribution, even if we come from different starting points. Does he support the FCA having such a role but object to the principle of how this is being arrived at, or does he object to the FCA having this role? If not the FCA, who should it be?

[Bambos Charalambous]

Those are exactly the sort of points that should be made via a debate on primary, not secondary, legislation.

[Mr Jayawardena]

Will the hon. Gentleman give way?

[Bambos Charalambous]

I will not give way again, as I am almost at the end of my contribution.

These are important changes that Parliament needs to get right, due to the dire consequences of what went wrong in the past. These measures are opaque, unconstitutional and lacking in proper scrutiny. I invite the Government to withdraw the regulations and introduce primary legislation, to allow thorough and proper scrutiny to take place. Without such assurances, I will vote for the motion in the name of my right hon. Friend the Member for Islington North (Jeremy Corbyn) and against the Government.

--- Later in debate ---

[Anneliese Dodds]

As ever, my hon. Friend makes an important, pertinent and brief point.

[Mr Jayawardena]

I wonder whether, on reflection, the hon. Lady thinks that the former regulatory structure under the Financial Services Authority was not fulfilling its duties, that it was right to break it up between the PRA and the FCA, and that that resulted in an improvement in regulation.

[Anneliese Dodds]

The overall regulatory structure for the financial services industry is surely not what we are talking about in this debate. We are talking specifically about the regulation of securitisation. [Interruption.] The hon. Gentleman appears to be suggesting that he was trying to make a point about the lack of stringent regulation at the time of the financial crisis. I remind all Members that it was, of course, the Conservatives who urged the then Government to deregulate further and to remove regulation.

My hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) set out the involvement of securitisation in the financial crisis very clearly. To respond briefly to the hon. Member for North East Hampshire (Mr Jayawardena), building on what my hon. Friend said, there has been a wide-ranging debate about whether it is appropriate to encourage additional securitisation, of which he may be aware. Of course, securitisation facilitates additional leverage, beyond what would already be there, because it makes liquid assets that are not already liquid. That may be appropriate in some contexts, but it can lead to inappropriate leveraging, particularly when it is conducted in a complex and opaque way, as arguably was the case during the financial crisis. It is surely appropriate, therefore, that we question any new regulations that apply to securitisation in this House, as we have done in this debate.

I am grateful to the Minister for his opening remarks. However, I regret that he failed to respond to my detailed comments about the manner in which the EU regulation has been transposed. Our complaint is not necessarily with the overall framework, which, as he rightly intimated, came from the Basel framework through IOSCO and, latterly, the EU. The point is that the process has not been entirely without controversy. As a result, the decisions that the Government make about how to implement the framework are potentially delicate, as was underlined rightly by the hon. Member for Aberdeen North (Kirsty Blackman).

The Minister said that the statutory instrument is a simple empowerment of the FCA. However, I referred in my remarks to how the regulations disapply elements of existing legislation, including those relating to offences under the purview of the Competition and Markets Authority and to insider dealing. He did not make it clear why that was necessary. He said that the measures would make our statute book consistent with offences in other countries in respect of complex securitisation and so on. He did not indicate whether they were consistent with existing offences on the UK statute book. That, surely, is what is at issue.

For all those reasons, we will press the motion of revocation to a vote.

Question put.

Draft Market Abuse (Amendment) (EU Exit) Regulations 2018 Draft Credit Rating Agencies (Amendment, Etc.) (EU Exit) Regulations 2019

Ranil Jayawardena Excerpts

Wednesday 23rd January 2019 General Committees

[John Glen]

I am happy to confirm that point—I wondered what my right hon. Friend was going to come out with.

As part of the programme that I have set out, the draft regulations will address legal deficiencies in retained EU legislation relating to market abuse and credit rating agencies. They are important for regulating market conduct practices and safeguarding market integrity. Their approach aligns with that of other legislation laid before Parliament under the European Union (Withdrawal) Act 2018, providing continuity by maintaining existing legislation at the point of exit, but amending deficiencies where necessary and introducing transitional provisions to ensure that they work as effectively as possible in a no-deal context. I shall first outline the 2018 draft regulations and then turn to the 2019 draft regulations.

Market abuse can involve a range of illegal practices relating to financial markets, including unlawful disclosure of inside information, insider dealing and market manipulation. MAR—the EU market abuse regulation, which came into effect in 2016—prohibits market abuse practices, thereby increasing market integrity and investor protection and enhancing the attractiveness of the EU securities markets for capital raising. It gives EU regulators powers and responsibilities to prevent and detect market abuse; the Financial Conduct Authority is the regulator that currently enforces it in the UK. MAR applies to financial instruments traded on EU trading venues, as well as market abuse that concerns such instruments anywhere in the world.

The 2018 draft regulations will make amendments to MAR and related legislation to ensure that the UK continues to have an effective regime to regulate market abuse once it leaves the EU. In line with our general approach of onshoring EU legislation by transferring powers and functions in the remit of EU authorities to the appropriate UK institutions, they will transfer powers from the European Commission to the Treasury, including the ability to make delegated Acts related to market abuse, and from the European Securities and Markets Authority to the FCA, enabling the FCA to make binding technical standards.

The FCA has consulted on its proposed changes to its binding technical standards, and it will continue to enforce the market abuse regime in line with its current role as part of the EU framework. That approach reflects the FCA’s extensive experience, expertise and capability to continue in that function post exit. I remind the Committee that it has 158 full-time employees working on Brexit—an increase from 28 in March 2018—and that in a few months it will publish its plans for the year 2019-20.

Furthermore, the statutory instrument retains the existing scope of MAR, so that it continues to apply to financial instruments traded on both UK and EU trading venues, as well as to conduct anywhere in the world that concerns these instruments. That means that the FCA will continue to be able to investigate, prohibit and pursue cases of market abuse related to financial instruments that affect UK markets, as far as is possible in a no-deal scenario. The scope has been limited to the UK and EU, and is not worldwide, given that markets in both jurisdictions are highly integrated due to the current arrangements.

The SI also retains exemptions in MAR—and amends the scope of the exemptions to UK-only—that relate to certain trading activities that cannot be enforced against the regulation[Official Report, 5 February 2019, Vol. 654, c. 1MC.] They include exemptions on monetary and public debt management activities, buy-backs and stabilisation, and accepted market practices. Power will be conferred on the Treasury to extend the exemptions related to monetary and public debt management activities. That power is currently held by the Commission.

In addition, the SI retains references to emission allowances. That will allow UK firms to continue to participate in secondary market trading under the emissions trading scheme, despite the UK leaving it, and will enable the FCA to continue to monitor and enforce against UK-registered emission allowance market participants.

Additionally, the SI removes co-operation requirements between the UK and EU counterparts. The UK will no longer be obliged to share information related to market abuse with the EU, given that there would be no guarantee of reciprocity. However, the FCA will still be able to respond to information requests from third-country regulators; indeed the existing domestic framework for co-operation on information sharing with countries outside the UK already allows for that on a discretionary basis.

Finally, the SI will make further amendments to retained EU and UK legislation, including EU legislation that amends MAR, to ensure that it is operable in a UK-only scenario; to the Criminal Justice Act 1993 to remove references to directly applicable EU regulation; and to the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016 to ensure that the UK’s market abuse regime works effectively once the UK leaves the EU.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

Will the Minister make it his business to ensure that credit rating agencies share information appropriately not only with each other and with regulators, as necessary, but with consumers? Too often, they are inaccessible to consumers, and consumers cannot even write to them to have the appropriate information registered with them. Will he make it his business to sort that out or to impart that to the FCA?

[John Glen]

That probably merits a further meeting.

Digital Taxation

Ranil Jayawardena Excerpts

Tuesday 27th March 2018 Westminster Hall

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

It is a pleasure to serve under your chairmanship, Dame Cheryl, and to see in his place the Paymaster General, who is one of the most thoughtful Ministers in the Government and whom I look forward to hearing from later. I congratulate my hon. Friend the Member for Harborough (Neil O’Brien) on securing this important debate. I do not wish to go through content that has already been provided to hon. Members, but I do wish to approach the topic from a slightly different direction.

This is an exciting time for the United Kingdom. Whatever side of the fence people were on, we are leaving the European Union, and we need to ensure that the economy and the country are fighting fit, not only for businesses to exist for their own sake, but for the people they are there to create jobs and wealth for, and for the next generation who will live with the consequences of our decisions today.

I am very pleased that the Government have an agenda for a more global Britain. We are finding our feet in the world and want to ensure that we build bridges with more countries around the world, and become more internationalist and a great trading nation once again. In that context, it is important to consider, as my hon. Friend the Member for Havant (Alan Mak), who is not able to be in his place this afternoon, would say, the fourth industrial revolution, which is at a critical juncture in our country’s and the world’s history.

Technologies are emerging and affecting our lives in ways that former generations could not have imagined, perhaps in ways that we could not have imagined only 10 years ago. We are in a new era that builds and extends the impact of digitalisation in new and unanticipated ways. In that context, it is important that my hon. Friend the Member for Harborough secured this debate.

In 2016, digital tech employed some 1.5 million people in this country with about £6.8 billion worth of investment in the United Kingdom, which is 50% higher than any other European country, which shows that this country is leading the way. There is always more to do, but we have a good track record of success. It is important to cite that, because we must ensure that, as we develop our industrial strategies, and as the Government develop their digital taxation policies, we continue to back the innovators and drive growth. We must support those creating jobs and those who trade with the world to create lower prices for our consumers, providing greater choice for people across this country, but we must step in when people do not play by the rules.

Some Members have made the point about the delicate balance whereby we want to grow the economy and back those who do the right thing, but must ensure that it is fair. It is that sense of fairness—it is almost a gut feel—that people out in the country feel is often not delivered on. I welcome the fact that the Government are trying to tackle that but, as I said, there is always more to do. That comes in the great context of the UK economy growing. It continues to grow—it has grown 14.8% since 2010, perhaps confounding those who are pessimistic about the United Kingdom’s prospects in the years ahead. I mention that because it is important that digital taxation and the plethora of Treasury policy is pro-business and pro-people.

Corporation tax is 19%, down 9% since 2010, with a target of going further, which is a good thing, but I agree with my hon. Friend the Member for Grantham and Stamford (Nick Boles), who referenced earlier in an intervention that it is not just corporation tax that counts, and that business rates are very important to small businesses, to which we have given a significant number of exemptions. That is welcome, but there is always more to do. Why? Someone can have a big warehouse in any town or even in the countryside selling lots of very low-margin products, on which they will not make much profit.

Such businesses face challenges when they compete with small offices, or perhaps not even offices, selling high-margin products but paying low rates or no rates, and of course they compete with others further afield who have a different tax regime, with different rates or different regimes entirely. We must ensure we are internationally competitive. Just as we have reduced corporation tax so that we are leading the world, we must ensure we do the same in other taxation.

It is important that we raise taxation in a fair way. We are raising taxation because, without a strong economy delivering it to the Exchequer, we cannot fund public services. Nor can we help people to keep more of the money they earn. We have cut income tax for 31 million people, raising the personal allowance to do so. We have taken a lot of people out of tax altogether. We can afford those things in the long run only if we get taxation right, and only if we ensure that business taxes are internationally competitive. We should encourage businesses to base themselves here, and ensure that they genuinely get money into the Exchequer.

As I said earlier, we must ensure that the system is fair, because tax evasion and aggressive tax avoidance irks people. I am pleased that, since 2010, HMRC has recovered £160 billion for the Exchequer, which is good news. That money can go into public services when it did not previously. I understand we are trying to combat online VAT fraud as well. That is good progress, but there is more to do.

I note in the Government’s report that they seek to have more OECD and G20 co-operation to control those measures and tackle the issues. The report states:

“the preferred and most sustainable solution to this challenge is reform of the international corporate tax framework”.

I agree with that because there is no point in our doing one thing if other countries do not follow, and no point in our doing one thing if we cost jobs in this country and put businesses out of business. That is not in the Government’s, the country’s or the people’s interest.

Businesses employ people who need to look after themselves and their families through the security of a job. We must maintain competitiveness and ensure we deliver lower taxes for all, but we must ensure that those taxes are fair and that they are paid. I am afraid to say that that is absolutely in stark contrast to Labour party policy. Although the hon. Member for Bootle (Peter Dowd) is a good chap with whom I have had many pleasant exchanges, I have concerns that the Labour party—I wait to be confounded and corrected—does not seem interested in how to make businesses and taxes work, and instead is looking at policies concerned only with protectionism, looking at the past and taxing hard-working people more.

[Luke Graham (Ochil and South Perthshire) (Con)]

My hon. Friend is making a very good point about Labour and tax, but it is not just about Labour. It is important to take into account the Scottish National party. Its tax-varying powers were used to increase bands of taxation, which has led to unintended consequences. The impact on marriage allowances and pensions and things will disadvantage people in our constituencies.

[Mr Jayawardena]

My hon. Friend makes a strong point. It is right that we consider the implications across the whole of this country of the policies of the Labour party and the SNP-led Government. We should also look at where the Liberal Democrats and Greens wish to take our taxation system, which is wrong-headed in so many ways. The tax systems they espouse seem to look back and to tax people more. They do not seem to be interested in how to boost business. They are not interested in the future. They do not seem to care about the next generation and how we will ensure that we create a Britain fit for the future.

[Several hon. Members rose—]

Oral Answers to Questions

Ranil Jayawardena Excerpts

Tuesday 16th January 2018 Commons Chamber

The Chancellor of the Exchequer was asked—

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

1. If he will make it his policy to increase the marriage allowance.

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

I congratulate my hon. Friend on all the hard work that he has put in to promote marriage and civil partnerships, and all the benefits thereof to families and wider society. I assure him that the design of the marriage allowance is such that it will indeed continue to rise as we raise the personal allowance, as we did in the recent Budget.

[Mr Jayawardena]

Given the £48 billion of costs to the Exchequer from family breakdown, will my hon. Friend meet me and a delegation to discuss how we can further strengthen marriage through the tax system and help people to keep more of what they earn?

[Mel Stride]

My hon. Friend is pushing in a direction in which we have already travelled. In the last Budget, we made provision for ensuring that those who have been married or in a civil partnership and have a deceased partner are able to claim the marriage allowance and backdate that claim some four years. I will, of course, be happy to meet him and his colleagues to discuss this matter further.

Autumn Statement

Ranil Jayawardena Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

Yes; I have confirmed again today that we will proceed with those measures. We will proceed with them as quickly as we possibly can.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

There has been a lot of negativity from some Opposition Members, but more people are in jobs than ever before and that means that in North East Hampshire more people are in good jobs, with average earnings of more than £47,000. May I congratulate my right hon. Friend not only on committing to increasing the tax-free allowance but on raising the threshold for the higher rate? Clearly, many hard-working families are being hit by a tax that was never intended for them.

[Mr Hammond]

That is absolutely right. We made that commitment in our election manifesto; it was a commitment on which we were elected. Despite the difficult fiscal circumstances, we will deliver on that commitment.