Financial Services Bill (First sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[Harriett Baldwin]

Q The FCA has not prepared anything specific demonstrating that—it is a hunch based on what is in the Bill—but has it done any cost-benefit analysis of the breathing space measures that you mentioned?

Sheldon Mills: All these measures are Government proposals, so the cost-benefit analysis that is required will be carried out by the Government and not by us. Once the Bill has been passed, in whatever form—we are bringing forward rules and regulations—we will undertake a cost-benefit analysis. I am giving an indicative view, as opposed to one based on a cost-benefit analysis that we are not required to carry out at this stage.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Q I should like to explore what you have said, particularly about how the Bill will benefit consumers—after all, we are all concerned about the regulation of financial services markets. You set out your interest in the debt respite scheme. We all agree that that is very welcome, but debt prevention is an ultimate aim. How do all three of you think that this way of regulation will help businesses and households with debt prevention?

Sheldon Mills: It is a broader question than the Bill, but I will answer by giving our approach to debt.

As a regulator, our approach is not to have a policy on whether people should be able to access credit, but we are concerned about the impact on people of firms providing credit. We want firms to be able to provide credit in a way that treats individuals fairly, takes account of their needs and circumstances and, in particular, supports vulnerable customers if they are in debt.

We work closely with debt charities. Some of the issues that we are seeing, which we all face and of which the FCA is cognisant, include the accumulation of debt among certain parts of the population, which is why it is important that rules and processes are in place to support people with debt management and why a breathing space policy forms an important part of that. I think that answers your question, but you might have more specific questions.

[Stella Creasy]

Q I do, but I should like to hear about one of the roles that the FCA has tacked on to the Financial Services Act 2012—investigating regulatory failure. The Bill is about how we address that regulatory regime and the things to which you have regard under that regime. Your colleagues might have a view on whether explicitly having regard to whether a product or a firm is likely to cause debt—unsustainable, unaffordable debt—should be built into the new regulatory regime, given some of the investigations that have, or have not, taken place over the past couple of years.

Sheldon Mills: I think it is for Government to decide whether we should have that “have regard” regime, but there are current rules that firms should take account of the needs of customers. If customers are clearly displaying signals that they are taking on debt that is not affordable—and, in that sense, is not sustainable—firms should have in place mechanisms to ensure that they do not provide further credit or loans to them. There are rules in place on unaffordable lending.

It is for Government to decide whether we have “have regards”, but I do not think that we necessarily need them. I agree that there are issues with debt throughout society that we need to tackle, but I believe we have the right rules in place to ensure that firms make appropriate lending decisions.

[Stella Creasy]

Q Perhaps I can come at that question from another angle, because the FCA has been performing this role for several years now. Are there any examples of where the Financial Ombudsman Service has stepped in? I am thinking particularly of the high-cost credit industry, where a lack of proactive regulation in the past could be addressed by having stronger, robust, and clearer direction from us that we wish to see the FCA intervene to protect consumers from unaffordable debt, and to have regard to firms that may be promoting unaffordable debt.

Sheldon Mills: You will have seen that we have done a significant amount of work in relation to high-cost credit and unaffordable lending. We have put caps in relation to forms of high-cost credit; we have tackled payday loan operators; we have a business priority that relates to consumer credit; we have introduced a review, which our former interim CEO, Chris Woolard, is undertaking in relation to aspects of unsecured consumer credit. We are extremely proactive in this area, and the overall system—in terms of the regulatory system—works well. The fact that consumers are able to go to the Financial Ombudsman Service, where they have had certain issues and the service is therefore enabled to give redress to those customers, is an important part of the system. However, I would not want you to think that that we are not proactively seeking to tackle the issues in this area.

[Stella Creasy]

Q A final question to you and colleagues. With that in mind, in moments where there has not been as strong an intervention and early in the process of new products coming to the UK, could you tell us a little bit about what you see coming ahead? We are all very aware of FinTech coming to these shores, and you will be dealing with an awful lot of legislation, as my colleagues pointed out, that you will be onshoring. When you do your horizon scanning—this is a question to all three witnesses—are there any particular products or markets that we should be aware of when thinking about how this legislation will be applied in the coming, say, five years?

Sheldon Mills: I will let my colleagues go first, then I will come in.

Edwin Schooling Latter: Let me raise one area where work is under way. FinTech was mentioned, but the area of crypto-assets has been popular in some quarters. That is an example of an area where we have taken a very proactive approach to putting limitations on where those can be marketed to retail investors who may not fully understand the difficulties of valuing those, the risks attached to them, or the possibilities that they would lose all of their money the more speculative end of that product range.

Sheldon Mills: I would agree with Edwin. The main area which we will see in relation not just to financial services, but to any product, is the continued development of digital means both of accessing and of providing products and services. Our approach to that is twofold: one approach is to encourage innovation. These products and services can bring efficiency and lower cost, and they can bring different levels of access for consumers, including vulnerable consumers. However, while doing that, we ensure we are clear on the ethics and consumer protection aspects of these new forms of products and services. Those are some of the areas where we will see future opportunities and challenges within the financial services system.

[Stella Creasy]

Q Do you regret, then, not moving more quickly on the buy now, pay later industry, because that is not regulated by the FCA at the moment, yet that is exactly an industry which we all now recognise is causing consumer detriment to people on low incomes?

Sheldon Mills: With respect, I cannot regret not acting on something which I do not regulate. However, what we are doing is looking at that area through the form of this review. As you know, and as is implicit in your question, that does sit outside our specific regulation.

[The Chair]

Victoria, I think you were about to say something.

Victoria Saporta: Sorry, I am conscious of the time. I have basically one comment to make in our particular area. I agree very much with Sheldon on digitalisation and with Edwin on crypto. Another particular area that we are looking at—

Financial Services Bill (Second sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[Ms Eagle]

Q Please do.

Catherine McGuinness: I feel I missed a couple of points there. It is true that part of the way we will retain our global leadership in standard setting is by bilateral dialogue and co-operation, regulator to regulator, with other countries. There is also the question of how we work with the multilateral organisations. We need to take a good look at how we engage, on our new footing, with the Basel committee—how we engage with other global standard setters. We have a good story to tell. I think next year gives us a very good opportunity, as we take up the presidency of the G7 and with COP26 coming up. I have already mentioned our potential leadership on green standards. We should really look at next year as part of this new chapter for financial services, and look at how we can make clear our place in standard setting, and in that conversation around global standards.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Q My colleague, Angela, has asked most of the questions that I wanted to ask. I just want to get a bit of clarity. Clearly, there is the question of whether your members are thinking about how the Bill will affect the future landscape for their operation. Could you give us some sense of how you feel the Bill will affect the many who are thinking about whether to stay in the UK or go overseas? What issues around the regulatory framework would be the tests for them? Are there things that we could do in the Bill to make it even more likely that people will commit to the UK, and are there things that would make it less likely?

Emma Reynolds: There are measures in the Bill that do, as I understand it, reflect some of the measures that the EU has taken around prudential requirements. In the past, there has been a bit of a one-size-fits-all for different sizes of companies. For smaller companies that carry a smaller risk, you need to take a proportionate approach to regulation. That is by no means saying that we want lower standards, or a race to the bottom; it is about considering firms of different sizes and the risks that they bring.

Obviously, there are challenges every time there is a significant change such as this, and 1 January will look and feel very different, but there are some opportunities, too. For example, we will be in a position where the UK is making laws and regulations for one member state. I mentioned the fast-moving challenges coming up, involving socioeconomic changes to do with covid, FinTech and green finance; the UK will have more flexibility and agility, and so can perhaps act more quickly than before, or than the EU can, operating with 27 member states.

Catherine McGuinness: I think that is right. To add to what Emma has said, the Bill is very helpful in demonstrating the planned way forward. People will be looking for an ongoing commitment to high standards—and, yes, agility in how we make our rules, but also a rigor in that. We cannot stress often enough the importance of this country’s openness to welcoming trade and business, and to high standards, against our strong regulatory backdrop.

It is very welcome that the Treasury will be looking at the strong patchwork of the bases on which people can come into the UK and operate here—the overseas persons exemption and so on. The Treasury will look at how that whole framework can be knitted together in a more coherent manner, as I understand it. What people will be looking for is an ongoing commitment to high standards and the ability to do their business.

[The Chair]

Are there any further questions? In that case, I thank our two witnesses on this fifth panel. Emma and Catherine, thank you for your evidence.

Examination of Witnesses

Adam Farkas and Constance Underwood gave evidence.

--- Later in debate ---

[Andrew Jones]

Q That is very interesting. Do you have any data that can quantify some of the anecdotal evidence that you have just been giving us? If you can, could you please circulate it around the Committee?

Peter Tutton: Yes, I will dig some out.

[Stella Creasy]

Q Peter, thank you for articulating so clearly all the different challenges that we face in trying to prevent debt as well as deal with its consequences. I have a couple of questions about the Bill and some of its provisions, and then about your sense of where we might be able to make some progress in strengthening the protection for consumers from unaffordable debt.

With the debt repayment schemes, I think all of us recognise that the breathing space is a very positive development. First and foremost, I want to ask for your view on the midway review element. Do you have any thoughts on what impact that might have as currently drafted?

Peter Tutton: It is a good question. We were very concerned initially about the midway point, simply because it could be very expensive and hard to administer the debt advice. The provision is now not quite as onerous, so we are not having to do full outbound calls and things like that. We are now reasonably comfortable with it as something that is a touching point, where clients touch in with us to ensure that they are still engaged with the process. That is something we do anyway. If someone has come for advice and there is a recommendation that the next step of a particular debt solution requires them to do further things for us to help them, we will follow up and keep in contact with them to ensure that they do not drop out of the process and that they have some help. The initial relief of having spoken to someone about it can lead people to think, “Well, I’ve got that out that way,” whereas it is important to keep going and get people into the debt solution.

There is some element of the midway review that is not dissimilar from the kinds of things that we would do anyway. The important thing is that the way it is done in practice should not become an onerous burden that does not really have any practical use to it. I think we are sort of there. We are talking to the Insolvency Service about the guidance and the way it will work. I think we will get to a place that we can live with. My operational colleagues who are implementing this are not saying it is unworkable at the moment, so we are reasonably comfortable with it, but time will tell. [Inaudible.] If, six months in, it turns out to have been really onerous with no practical effect, that is something we would ask the Treasury to come back and look at again.

[Stella Creasy]

Q I ask because I wonder whether you can give us your professional opinion on whether there is a point at which a breathing space should stop. It might become apparent in the review process that somebody is in a level of debt for which a breathing space is not suitable. If it becomes apparent that the person will not be able to repay under the terms of the breathing space, do you perhaps have in mind a length of time over which it would be appropriate to look at some other form of intervention? Do you have a view about when to end the breathing space, essentially?

Peter Tutton: That is a good question. Our starting point here is that we would end the breathing space scheme as soon as it is no longer needed. At the moment, people come to us in a variety of different situations, and a number of different debt solutions are appropriate for them. If the most appropriate solution for them is a debt relief order, which is a type of insolvency for people with very low incomes or with disposable incomes and no assets, and they want to do it, we would put them into that as quickly as we can. If that can be done—sometimes it can, and sometimes it cannot—before the breathing space period ends, the breathing space will end.

There is actually a provision in the Bill that means that if you are in a debt solution before the review, it will end. It certainly is not a case of putting people in breathing space until it comes to the end of its 60 days, and then putting them in a solution. We will always try to get people into the right solution as quickly as they can. The other end of your question is that there might sometimes be cases whereby there is a debt solution but, for whatever reason, it takes a bit longer to get them into it. In exceptional circumstances, there might be a case to extend the breathing space, if for some reason it takes us longer to get someone into a DRO or something like that.

There is another question about this. One of the problems with debt relief solutions at the moment—debt relief orders and bankruptcy in particular—is that they have fees. These people are so poor and their debts are so big that they need to go into insolvency, but they have to find a fee, and the fee is hundreds of pounds for bankruptcy. Very few of our clients could afford that; they would have to save up for a year or two years to meet the fee.

There is a bit here that Government will need to think about, in relation to breathing space, if someone has come for advice and we have given them protection and worked out that the best thing for them is bankruptcy, but it will take them ages to find the fee to actually go bankrupt. They will fall out of that statutory protection, as it were, back into the mosh pit before they can get their protection in bankruptcy.

So you raise a really good question. There are two ends to it. One bit is that we would not keep people in longer than we needed to; that is a case of getting them into the debt solution they need. But there may be other people who will not be able to progress to the right debt solution for them, for a variety of reasons, before the breathing space runs out. That is something that Government may look at. Perhaps we need to build some evidence of that problem as we go along, but it would be good to do a quick review to see whether there are circumstances where the period needs to be extended or, indeed, whether elsewhere in Government we need to look at things like the barriers to accessing debt relief that mean it is not a good option, either because of the cost of getting into it or because it is still quite a stigmatising process and puts people off. There is another need, elsewhere in Government, to look at how the whole debt relief thing is working.

[Stella Creasy]

Q I am conscious that I have one other element that I want to ask you about, but just on that, let me ask this. You have talked about debt relief orders. Obviously, you can access them only if you have less than £50 left after all your outgoings. You seem to be saying that actually the cost of moving into some other forms of debt relief that might be part of this would be something that would be helpful to make the breathing space work. Is it worth looking at those thresholds, as part of making the breathing space process work, so that people can move in, rather than being stuck in a breathing space or, possibly, stuck in a position where you get to the point where you need to write off a debt entirely?

Peter Tutton: The particular issue with the insolvency schemes for England and Wales—well, one of the issues—is the application fee. That is a point that is slightly different from the threshold; that is an issue about people having to find money to pay for those solutions.

[Stella Creasy]

Q Yes, but my question was particularly on the debt relief orders, because you have to be on such a low income for them to be possible. Is there a case, from what you are saying, in terms of making this legislation work, to be more flexible about that threshold—to make it, say, the bottom two deciles, rather than the bottom one decile of income before you can access a debt relief order?

Peter Tutton: It makes some sense to look at this, because a debt relief order is so much cheaper than bankruptcy. Debt relief orders have a restriction on debt size and, as you say, a restriction on disposable income, both of which are to safeguard the creditors, because the Insolvency Service will not do a full investigation. The idea is that it is the people who have really got no money, no assets, and so if we let them into insolvency without an investigation, there is nothing squirreled away that otherwise would benefit creditors.

DROs have been running for many years now, and I think you are right: it is time to look at whether we could have an easier route into them rather than bankruptcy, which might mean lifting the disposable income threshold a bit or the debt threshold a bit, or both. There is now a bunch of people for whom we would be advising bankruptcy who are never going to get into bankruptcy because they cannot afford it, and often it is the debt size as well.

I think it is the right time for the Government to do this. Given what we might see after the fallout from covid of more households, more people, facing financial difficulty, it is a good time to review how these debt solutions work at the moment and to see what can be done to increase accessibility for those who need that help.

[Stella Creasy]

Q May I be cheeky and ask one final question? Obviously, we are talking about where debt has occurred. I would very much welcome your professional opinion about where you see debts being generated by particular products and what you think has worked to prevent that. You and I have previously talked about the benefits of capping forms of credit to prevent people from getting into debt in the first place. We have seen in the last six months concern about the “Buy now, pay later” industry, which currently is not regulated by the FCA but is a form of credit. What is your experience of where the best interventions are to prevent debt and whether there might be things that we could do in this Bill to help that in the first place, before we get to a debt breathing space?

[The Chair]

Order. Can we be a little briefer? We are slightly straying from the scope of the Bill. A very quick answer, please, Peter Tutton.

Peter Tutton: That is a good point. There are things we can do. There are a number of interventions, from lending rules to product features and price. Also, on the relationship between who is using high-cost credit, there is a social policy point here. Is there more to be done to give people affordable alternatives, so that they do not have to go to those products? It would be good to talk more about all of that, because it is absolutely key.

We estimate that survival borrowing under covid—people having to borrow to make ends meet—is up to about £6 billion. There is a big pile of debt building there, which people will not be able to afford to pay down. Some action now to give them an alternative and think about how to deal with that debt is timely and important. We should try to do something now before it gets much bigger.

Financial Services Bill (Fourth sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[Andrew Jones]

Yes, just generally. We are seeing a large provider have access to our markets. That could traditionally see increased supply. Increased supply tends to mean price competition, with consumers benefiting both in quality and innovation of product and in the price they pay for it, but equally it can work the opposite way. So do you think there will be any price implications for UK consumers as a result of these measures?

Hugh Savill: I do not think they would be because of these measures, in that the suppliers from Gibraltar already have 20% of the market, and it is not this Bill that is going to change that. There will be changes in price—there are always changes in price, and there will be other things that drive that—but I do not think that will be driven by this Bill.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Q You suggested there was a small VAT benefit to companies being based in Gibraltar. Obviously, this legislation would remove any other bar in terms of being based in Gibraltar but still being able to operate in the UK. Could you clarify what you mean by a small VAT benefit?

Hugh Savill: That is why I offered to write. I am afraid I do not know exactly what the VAT arrangements are, and I will have to write it down. If I said any more, I would get something wrong.

[The Chair]

So that will be followed up by letter?

Hugh Savill: Yes, absolutely.

--- Later in debate ---

[Julie Marson]

That is an interesting comparison.

[Stella Creasy]

Q I was thinking more of asking turkeys whether Christmas was a good idea. I want to follow up on this, because I have been waiting for the Law Commission on another piece of work that I worked on, which is already a year and a half overdue. It is not connected to financial services, but it indicates some of the challenges of waiting for the Law Commission to follow up on the FATF report, which makes some specific requirements about Gibraltar. This legislation is about the ability to trade between Gibraltar and the UK.

I want to ask your opinion on whether we might be able to learn from the specific proposals in that report. In particular, it recognises that although this does tend to happen, there is no legal requirement to reject applicants with a criminal background in Gibraltar. If we will allow Gibraltar and the UK to operate in the way that this Bill does, do you think we could make it a requirement in the Bill to look at the criminal background of people applying for financial services?

Duncan Hames: I should acknowledge that Gibraltar is not within the scope of the work that I do. I will not profess expertise on the rules as they apply in Gibraltar. I think Bloomberg reported today on a bank in Luxembourg and some of its practices. You ask a good question about the personal credentials that enable one to take on responsible roles in our financial system, whether in banks or other institutions.

I note, for example, that the proposals in relation to Companies House are not that it should be more discerning in the acceptance of the directors of companies registering, but rather that it should simply verify the accuracy of the identity and the information provided. Current initiatives do not go as far as you are suggesting would be reasonable. It seems hard enough just to get us responsible for ensuring the accuracy of the data, which is provided as a piece of our economic infrastructure, without getting to a position of demanding some kind of individual assessment.

[Stella Creasy]

Q I am just following up on what the Minister said. He was looking at what he could do to address some of the things that came out of that report. I appreciate that you are not particularly sighted on Gibraltar, but the FATF report also says that there is no dedicated supervision of accountants and tax advisers in Gibraltar, which means that they are perhaps not as cognisant of where people might be trying to launder money. Given that the Bill gives us powers of lines of sight into Gibraltarian firms, do you think that is something we should consider in this legislation, so that when we allow Gibraltarian firms to operate in the UK environment in the way that this Bill does, we could build in some of those safeguards now, with a view to then extending things when the Law Commission eventually reports?

Duncan Hames: Dedicated supervision of the accountancy sector is part of what has got us into this mess of having 25 supervisory bodies. I think one must weigh the benefits of particular sectoral knowledge and some of the issues I raised earlier around potential conflicts of interest and incentives to supervise assertively. As we explained in our report “At your Service”, which was published about this time last year, it is definitely the case that the non-financial sector is very much touched by the money laundering problem. It is not enough to rely on the requirements of banks without raising our defences in other sectors—whether that is accountants, solicitors, estate agents, trust and company formation agents and so forth. In some areas, such as private education or charitable giving, an educational training supportive approach might be appropriate to try to raise standards, but in other areas, as I have outlined, clear financial incentives need to be addressed. A firmer approach to supervision is proving necessary given the findings of, for example, the studies that I cited from HMRC, the SRA and OPBAS.

[The Chair]

If there are no further questions from the Committee, I thank Duncan Hames for his evidence and we can move on to the next witnesses.

Examination of Witnesses

Jesse Griffiths and Fran Boait gave evidence.

--- Later in debate ---

[Abena Oppong-Asare]

Q The Bill mentions a statutory debt repayment plan; I want to get your thoughts on that. Are there elements that you are concerned about? Do you think it goes far enough, and if not, can you make some recommendations? Can I go with Jesse first?

Jesse Griffiths: You can. I do not have anything in particular to say that goes beyond the evidence from StepChange and others on this point. I fully support what they said.

Fran Boait: Similarly, a point that StepChange brought up that it is critical to keep in mind when looking at this kind of regulation is how we look at debtors and the stress and strain that they are under. We need to ensure that their needs are prioritised above those of creditors.

Earlier I made a macroeconomic point about financial services: unless we get our financial services sector better aligned with the needs of the people, small businesses and different parts of the economy in this country, household debt will keep rising. Obviously, we also need good direction from the Government’s fiscal spending plan. The direction of financial services and the direction of Government spending are critical in tackling household debt. If we do not look at some of those underlying systemic causes, we will keep kicking the can down the road, in terms of household debt being a problem. Although changes such as breathing space are welcome, they do not tackle the underlying causes and the need to get the number of people in problem debt down.

[Stella Creasy]

Q I want to follow up on a couple of things. First and foremost, Jesse, you were talking about the co-operative banking sector, what we could do, and what would be within the scope of the Bill, given that co-operative and mutual banking would be covered by the Prudential Regulation Authority. Obviously, there are a number of requirements on co-operative banking that we could consider superfluous now that we have this legislation. I am thinking in particular about section 67 of the Co-operative and Community Benefit Societies Act 2014, which has some unnecessary constraints, given the capital structure it requires. Do you agree that it would be helpful in creating a level playing field, and ensuring that co-op banks and mutuals could compete, to recognise that as the Bill provides prudential regulation that covers those banks, those earlier provisions are superfluous?

Jesse Griffiths: Yes, I think that is very sensible. The main point I would make is that those institutions are very different from other types of financial institution, and need a proportionate regulatory regime. The point that you raised is important. They frequently raise the idea of establishing a network of 18 regional banks on the model of the German Sparkasse system. For that to work, they would need to centralise IT and other services so they do not have to replicate those across the different institutions. As they have, embedded in the network idea, an agreement that they will not compete with each other, they can fall foul of competition regulations, so those would need to be considered.

Those are some of many examples that show you need a different regime for these types of institutions. On following a model like the Sparkasse system, in Germany those regional institutions are jointly responsible for each other, so that creates a very powerful incentive for them to be prudent and responsible lenders. If that internal incentive is already there, you should consider which other regulations are not so necessary for those institutions because, by their nature, they are highly prudent lenders.

[Stella Creasy]

Q I take your point that being concerned only with competitiveness is a very narrow view of what is good for the consumer. That piece of regulation does not prevent co-op banks from holding a banking licence, but it could be seen as preventing the competitiveness of co-op banks. If the Government are interested in co-operative banks and supporting their ability to compete, it would be a good thing to remove.

You and Fran talked powerfully about trying to ensure that this Bill has at its heart a positive approach to consumer regulation. Perhaps one of the things missing from it is consideration of its inevitable impact on consumers. Do you have a view about the benefits of reviewing how the Financial Conduct Authority has acted for consumers, and are there are areas where you think it could have gone further and been more proactive? The Bill gives the FCA new regulatory powers. I have an interest in high-cost credit. If we wanted the FCA to take a more proactive view in using these new regulatory powers for consumers, where would you want it to act?

Fran Boait: That is a great question. To build on what Jesse said about mutuals and your wider point about consumer regulation, the issue with our financial services regulation is that all regulation tends to favour the status quo—the incumbents. That is where Parliament’s voice is so crucial, as is having more of a civil society voice than we had pre-crash. It might not be obvious how the FCA regulates a mutual bank. Without direction from Parliament that the regulator’s purpose is to look at diversifying the UK banking or financial services sector to include different ownership models, the FCA is not really in a position to understand fully or quickly, or move fast on how it can support the emergence of new banks.

On banks and consumers, since the crash, we have seen all these challenger banks coming in, but they are operating very much the same model of a shareholder bank, with short-term profits, and without any kind of wider thought for environmental or social mission-driven aims, or regional considerations. We have not really diversified the sector, and it will be very challenging for us to do so unless the regulators think differently. I think that Jesse and I agree that one of their goals should be to diversify the sector’s ownership models, in terms of mission, geographic location and so on. For consumers, and especially someone setting up a new local co-op or small business, that would be a lot better, particularly as we emerge from the pandemic wanting to build back better.

I definitely support a lot of your work on high-cost credit, but although there were some wins on payday loans and in other areas, that issue tended to be transferred to other areas, such as credit cards; some good proposals were put forward on how to regulate those. Obviously, we hope to see the FCA moving fast on trying to ensure that regulation is put forward as quickly as possible where there is a clear issue with extremely high interest rates on high-cost credit.

I repeat that we need to bring this back to the systemic problem of such a large sector of society being on low pay with high living costs. We need to think about the underlying macroeconomic issues, which are very relevant to the direction of financial services. If we are serious about taking things in a more positive direction as we emerge from the pandemic and Brexit, we need more voices for consumer rights in financial services, and for environmental and social considerations. That will be critical if we are to see a more positive direction from financial services, in terms of serving consumer needs.

[Stella Creasy]

Q Jesse, you may wish to answer this. Fran talked powerfully about mission. Our regulatory structure talks about consumer protection. In previous evidence sessions, we have talked about, and indeed the Bill contains provisions for, debt respite, which is very much about protecting consumers when things go wrong. Is there a case for being more proactive about the consumer experience, and perhaps charging our regulators with being more proactive on consumer detriment to try to prevent some of those problems? For example, we could look at what we could learn from capping high-cost credit, and extend that across the whole credit industry—or to sectors where there is no regulation, but we can see that consumer detriment is likely to occur from the model. We could move to a more proactive approach from the regulator, with horizon scanning for what might happen to consumers.

Jesse Griffiths: Absolutely; I agree. On consumers, to bring this back to high-cost credit—this links to the point about the purpose of regulation—regulators should always have at the front of their mind the impact on the most vulnerable people in society, and those who are in many ways excluded by the financial system. This is not just about consumers as a whole, although they are important; it should be about those consumers who will lose most if their needs are not taken into account.

One example that we have been discussing are the new regulations on open banking and open finance, which can lead to further exclusion of marginalised people, who might get their income, withdraw it as cash, and operate in the cash economy, or who often—this has been raised—get income from a lot of different sources, and in such small amounts that it is not recognised as income by the open banking system, as it is set up. Those are just small examples, but if the regulator is not thinking, “What is the impact on these people?”, they get missed. Unfortunately, in that example, it feels a bit like that discussion has been, “Well, if it works for 95% of consumers, then it is good.” If it does not work for 5%, that is probably the biggest impact that we should care about.

Financial Services Bill (Fifth sitting)

Stella Creasy Excerpts

Committee stage
Tuesday 24th November 2020 Public Bill Committees

[John Glen]

I am very happy to have another go. The hon. Lady is at risk of suggesting that there is somehow a clumsy, rushed delegation to regulators and a risk that—in that delegation—the industry will influence regulators to right-size in a way that damages consumers. I draw her attention to the fact that the legislation gives the FCA responsibility to have regard to the impact on consumers, on the market and on firms—that is, the impact on themselves—of not having the appropriate capital requirements.

The right-sizing comment refers to the fact that the firms are currently bound by rules that align them to other institutions that are clearly functionally different. Nobody really believes that it would be right for there to be a prescriptive mandate from primary legislation on exactly how those technical rules and those capital requirements on a firm-by-firm basis should exist. The FCA has the right to reclassify firms and monitor that reclassification as firms evolve. The PRA will retain oversight of systemically important firms.

I contend that the Bill contains sufficient mechanisms to ensure public and parliamentary scrutiny of both the FCA and the Treasury through the draft affirmative procedure and the FCA reporting requirements. That combination of the FCA’s existing statutory duties and the “have regards” set out in the Bill cover the areas that amendment 19 seeks to address.

I make one further important point that goes to the heart of the wider regulatory framework. The future regulatory framework consultation that we launched on 19 October sets out over a 12-week period to look holistically at what should be the constitutional relationship between the FCA, the PRA, the Treasury and Parliament to embed an enduring accountability framework on a much broader basis. There will be another consultation subsequent to that. I anticipate that the response to the consultation might be, “Why haven’t you done this before?”. The bottom line is that the measures are required to meet international standards within an internationally determined timeframe of expectations. I declared on Second Reading that this is the first in a series of pieces of legislation, and I have always said so. This first piece of legislation sets the accountability framework for the initial measures.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I do not think any of us doubt the Minister’s intention to get this right and to recognise that these decisions have a consumer impact. The challenge, which I think we all see, is that it is one thing for the FCA to conduct a public consultation on high-cost credit firms, for example—he knows my specialist subject—but on something like LIBOR or the Basel regulations, which is less tangible but no less impactful, the argument he is making seems rather to strengthen the point the amendment makes about including consumer risk as one of the things to be reported on, because it does not immediately grasp people’s imagination until a catastrophe such as the last financial crisis happens. He says he envisages the FCA’s performing this role, so will he set out how he sees it performing that role if we do not say, “Actually, could we in a couple of years’ time get some information on how consumer risk has been identified and addressed in this process?”. That is harder to quantify, but no less important.

[John Glen]

I am very happy to respond to that point and I thank the hon. Lady for her comments. I recognise her expertise, particularly on high-cost credit, and I look forward to—I imagine—further amendments on that, perhaps next week.

The FCA will be required to publish an explanation of how having regard to the additional considerations that I have set out has affected the proposed rules that it comes up with. When the FCA makes those final rules, it will publish an explanation complying with them, as well as a summary of those new rules, aligned to the FSMA publication requirements.

The challenge here is a bit of a mismatch between the concerns that we have collectively in Parliament to maintain standards that will not allow a repeat of what the right hon. Member for Wolverhampton South East eloquently set out as the problem leading up to 2008 and to have regard to the enduring and ever-transforming consumer risks, which derive from rules and technical standards that we in this place are not well placed to deliver, given their design. What we must do subsequently with the future regulatory framework review—it is not some short, rushed exercise, but a deliberately open exercise of consultation to try to examine best practices—is to come up with something that gets that balance right between the direction that Parliament sets in primary legislation and the accountability to this place that will exist for our regulators, through the Treasury Committee and through potentially significantly enhanced accountability mechanisms.

However, setting out the enduring final framework of that relationship between the regulators and Parliament is the point of that consultation exercise. With respect to this measure, I believe that the accountability mechanisms set within it and the procedures set out will achieve the accountability that is necessary and appropriate at this stage.

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This is very much in line with what the Chancellor says he wants to do.

[Stella Creasy]

Is it not also important to recognise that some of the strongest drivers for reaching some of those emissions targets will come from the financial sector itself? For example, the move towards decarbonising pension funds has been hugely beneficial in promoting renewable energy. It makes sense to join the dots when it comes to our country’s financial objectives and our wider social and climate objectives.

[Mr McFadden]

My hon. Friend is absolutely right. Joining the dots is exactly what we should do. Of course, she is right that individual investment firms will make their own decisions on these things, perhaps sometimes pressed by pension fund members, consumer groups or trustees in some ways. We applaud firms that do that, but how much more powerful would it be if that was a goal of the regulators, set out in our own financial services legislation? It would be more powerful, because the UK has this huge financial sector, which has around it this cluster of expertise, which we refer to a lot—legal and accountancy firms and all the rest—and because our own domestic commitments can bend the power of that sector towards the net zero goals.

The amendment goes with the grain of what more and more firms and people in this sector are talking about. By including this change, we can take all the fine-sounding commitments on corporate websites and put them at the heart of our regulatory mission. It can mark out the UK financial services regulation as having a new post-Brexit mission. If asked what we want the UK financial services sector to do in this post-Brexit world—we debated divergence and capital rules and all the rest earlier—what would be a better answer than making sure that the power of this is bent towards us achieving net zero, and in so doing encouraging financial sectors elsewhere in the world to go down the same path?

Finance will play a huge role in whether or not we meet the target. I do not propose, Mr Davies, to go through what the Committee on Climate Change has said that we need to do to reach the target in great detail, because we would be here all day, but I want to give the Committee an idea of a few headings that will require enormous investment.

If we are going to achieve the target, we will need a quadrupling of the supply of low carbon electricity. We have done well on low carbon electricity in the UK, in the last 20 years or so. We have vastly expanded the provision of renewables that go into the grid, but even after doing well we need to quadruple that if we are going to meet the target.

We will need a complete automotive transition, from internal combustion engines to electric or other zero emission vehicles. Just a few days ago, the Prime Minister himself announced a new, more advanced target for the phasing out of internal combustion engines.

There will need to be a huge programme of investment in buildings and heating. Whether that is through heat pumps or hydrogen boilers, there will need to be a huge programme of retrofitting equipment to millions of houses throughout the UK.

There will need to be a large programme of afforestation, because remember this is net zero. It will not be that we never have emissions, but we will have net zero. One of the main vehicles, if you like, in absorbing the emissions that we are still responsible for is afforestation, so we will need a huge programme.

We will need changes in farming and food production. We have the return of our old friend, carbon capture and storage. That takes me back, because a decade ago, when I was sitting where the Minister is now, we were announcing carbon capture and storage. It was announced again last week. There might be Members here who are quite new to Parliament, such as my hon. Friend the Member for Erith and Thamesmead, the hon. Member for Hertford and Stortford and maybe others who were elected in 2019. I look forward to them coming back in 10 years’ time and debating a Bill where new carbon capture and storage has been announced. Maybe we will even have achieved it by then, who knows?

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[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

I am delighted to speak in favour of amendment 24. In just 12 months, the UK will host and hold the presidency of the 26th UN climate change conference of the parties in Glasgow, where the world will be watching. The amendment shows that the UK means business on climate change and that the Government are putting in place their promise to join forces with civil society, companies and people on the frontline of climate action ahead of COP26. It has the support of all political parties, so this is in no way party political or controversial.

Last week the Committee heard evidence from the likes of the Finance Innovation Lab and Positive Money, which support the amendment. The witnesses mentioned that it would be helpful if the FCA could refer to the Climate Change Act when preparing secondary legislation. Will the Minister therefore consider putting in capital requirements for investment firms, introducing weighting on environmental, social and governance issues such as penalising assets that have climate risks? As we know, the Bill covers legislation on packaged retail and insurance-based investment products, which will bring the £10 billion market to the EU.

We also heard last week that the Bill could be improved further, with a key information document that investors receive when looking at PRIIPS to include disclosure on environmental and social governance issues, and to ask the FCA to ensure that happens. I am sure the Minister will agree that that would help the Prime Minister achieve his ambitious 10-point plan—it is certainly ambitious—for the green industrial revolution.

It is important to know that there is a drive towards greater ESG integration across the financial sector, which investors are pushing for as well. This is an opportunity for the Bill to be shaped more robustly, and it sends a really strong message that the UK takes climate change seriously.

As we sit here today, hundreds of young people are meeting virtually at the mock COP, ensuring that net zero goals are deliverable. I am therefore surprised that elements of the amendment are not already in the Bill, given the Prime Minister’s ambitious 10-point plan for a green industrial revolution, which will not be deliverable if we do not reinforce our commitment to environmental sustainability in the Bill.

The amendment, which I believe is rather reasonable, would lay the foundations for sustainable environmental infrastructure with substance. As mentioned by a number of colleagues, this is not controversial but something that we really need right now. Particularly as we are dealing with covid, we need to be thinking seriously about the environment. The only way we can ensure that this is delivered is by putting something in the Bill that requires firms and the regulator to step up on this issue.

We do not have time for delay. This is an opportunity for us to put our heart into the Bill and deliver what we have promised, and it falls in line with what all political parties have been asking for.

[Stella Creasy]

The shadow Minister is making a powerful speech. I take the point made by the Government side, but I always wonder: what about the counterfactual? What problem will there be if we do not put these things into legislation? What message would that send about what might be jettisoned if, God forbid, we had another crisis on a similar scale to this year’s? Action on climate change is something that we simply cannot afford to go slow on. The counterfactual on this is an important issue, because it gives us an opportunity to say that if we do not put it into legislation, we are sending a message that this might be an optional extra, rather than an integral part of our future as a country.

[Abena Oppong-Asare]

My hon. Friend makes a good point. The UK Government constantly say on their website that they plan to go further and faster to tackle climate change. As my hon Friend has mentioned, this is a perfect opportunity to ensure that this is implemented in the Bill. I am surprised, frankly, that it is not in there. All that we are asking for is a reasonable amendment that already falls in line with the Government’s objectives. It is not going to create any extra work. We need to think about the future, particularly if we do not take action to address climate change, because we are heading for difficult times and I am really worried about the future for younger generations.

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The Bill grants the Treasury a power to specify further matters in the accountability framework at a later date, which could be used to add a requirement to explicitly have regard to green issues in the prudential framework, if appropriate. In the light of that power, I can assure the Committee that the Treasury will carefully consider a green “have regard” in the future, once the Government have had consultations on their exact framing of the prudential regimes and on the considerable body of international work that is going on.

[Stella Creasy]

Apologies; I did not realise the Minister was going to move on. He has made an incredibly powerful case for the importance of including such a commitment, and he has essentially said that the Treasury might look to include it. He said that it had looked only at the immediate and specific regulatory requirements. Of course, many of us believe that we are facing an immediate and specific crisis, so can he tell us why the Treasury has not already taken on the issue of climate change, given that he has made a case that it should be part of it? He has gone for pop No. 3 in the shadow Minister’s list. There might be a sixth option here, which is: “If we did not come up with it, we are not going to support it.” That would be rather short-termist, surely.

[John Glen]

I hope I would never be accused of taking such an approach. The reality is that I want the Bill to work most effectively. As I just said, the regulators are already taking into account climate change as a risk to the economy. The FCA/PRA climate financial risk forum and the Bank of England’s climate change stress test are alive and working, and I am confident that they will continue to consider climate change risk when making rules for the prudential regimes. In that context, we will look carefully at the need to add that specific additional reason. I have also stressed the work that is going on internationally. We should ensure that what we put in primary legislation is actually best practice and in line with the evolving consensus on how to deal with such matters.

I turn now to amendments 24 and 42, which make a similar set of changes to the Prudential Regulation Authority’s accountability framework for the implementation of the remaining Basel standards. As I have already said, the Government are already considering how best to ensure that the regulators and the financial sector can meet the commitments, and the Bill grants the Treasury a power to specify further matters in both accountability frameworks at a later data, which could potentially be used to add such a “have regard” in future, if appropriate. Therefore, after serious consideration, I respectfully ask the right hon. Member to withdraw the amendment.

Financial Services Bill (Sixth sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 5th sitting & Committee Debate: 5th sitting: House of Commons & Committee Debate: 6th sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[Stella Creasy (Walthamstow) (Lab/Co-op)]

We should put on the record that the gender pay gap has not slipped but has been abandoned as a commitment by the Government. I hope the Government will rethink that quickly, given the importance of the case that the hon. Lady makes. It has not slipped—it has gone.

[Alison Thewliss]

I meant more that the actions of businesses had slipped, but the hon. Lady is correct to point out that the Government have abandoned that commitment as well. I was going to go there with that point. If companies are not held to account, that slippage will become irreversible. Companies have worked so hard to try to bridge that gap, and going backwards really is unacceptable.

By bringing those elements together, companies across Scotland have shown that they can improve productivity and competitiveness and build sustainable growth in a way that achieves fairness, equality, opportunity and innovation. We have the UK’s highest proportion of living wage employers in Scotland because the Scottish Government made that commitment. That is what we can do with the limited powers that we have. If we were to put into legislation here far more responsibility and accountability, it would certainly move that agenda forward.

In addition, we believe that moves such as increasing worker representation on company boards, which is commonplace among our more productive, investment-rich European competitors, would promote much greater social responsibility among companies that had that representation, as would increasing the representation of women and minority communities on public and private sector boards.

Scotland is on track to ensure that all public sector boards have a 50/50 gender balance due to the statutory targets that we put in place. We would support similar UK legislation for the private sector, because if these things are not in place, it will take a very long time before we see any meaningful change. The evidence shows that it is good for companies and organisations to do that, because they do better when they better represent society.

It is important that we make sure that companies are held to account in this way. The amendments tabled by the official Opposition are good and sound. I am interested to hear why the Minister thinks that they are not good ideas worthy of pursuit.

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[John Glen]

I have listened carefully to the points made by the hon. Lady, who touches on a wide range of subjects, some of which I responded to in my response to the shadow Minister. I would just say that a number of initiatives are under way and intensifying. Just a few hours ago, I launched a piece of work with the Corporation of London on social diversity, a taskforce to bring people together to look at what we can do to improve access to financial services. That follows the work that we have been doing and that former Minister Mark Hoban is doing with the Financial Services Skills Commission. I mentioned the work of Women in Finance, but there are a lot of other pieces of work that my colleague the Exchequer Secretary is also looking at in her dual role as Equalities Minister.

I made clear in my response a few moments ago that I believe the provisions we have already give the regulators significant licence to operate in this area and, although I do not rule out any changes subsequently, I believe at this time that the amendments should be resisted.

[Stella Creasy]

The challenge that the Minister has with these instruments is exactly the issue around the gender pay gap. We were told that that did not need to be written into the legislation, because there would be a commitment. As we have seen this year, that commitment has not been absolute. It has been abandoned by the Government.

The Minister has said that he agrees with those commitments and the issues that the shadow Minister has raised, and that they might be put into legislation. Does he recognise that, for those of us who are committed to those high standards, the point of such amendments is to put it beyond doubt that they will actually happen? As we have seen, if we do not put them beyond doubt, it is tempting for future Administrations and future regulators to remove or weaken the protections.

[John Glen]

I thank the hon. Lady for those points. As public bodies, it is clear that the regulators are answerable and accountable to Parliament, and I have explained how that will be enhanced, but they are also subject to legal duties to publicly consult on the new rules and to how Parliament wishes to scrutinise them. I recognise the point that she is making, but I believe that putting that obligation into legislation in that way would not immediately lead to the outcome that she supports. Across those areas of completely legitimate aspiration, many of which I share in an identical form, this is something that we would need to look at in the round following the regulatory framework review.

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[Mr McFadden]

Of course they don’t. We cannot conclude that, for all the taskforces and all the well-meaning, great people who have been involved in them, they have made enough progress.

This is not just a British agenda by the way. I read in the news the other day that the upper echelons of German industry are having exactly the same debate about whether to mandate quotas on boards for so many women and about the broader equalities agenda that my hon. Friend the Member for Erith and Thamesmead referred to.

[Stella Creasy]

If we are recognising that, it is worth noting that other nations that we compete with have already put gender quotas into legislation and beyond doubt, so we are behind our economic competitors. Ultimately, as we all know, the point about such regulation is that it would also make us more competitive. Blasting through the discrimination that has stopped us doing it would help our economy as well as our society.

[Mr McFadden]

My hon. Friend is absolutely right. For those reasons, we made specific mention of equalities legislation in the amendment.

It comes down to one’s view of the difference between encouragement, taskforces and all that, and legislation. This amendment is not particularly prescriptive. It calls for high standards of social and corporate governance. Hon. Members might say, “How do you define ‘high’?” and so on, but it is no less defined that talking about the relative standing of the United Kingdom as a place for internationally active investment firms to do business.

Once we have been through two or three of these debates, we begin to see a pattern in the way that the Committee works. I find myself a bit unconvinced that voluntary action will do this. There is not just an opportunity but a duty on us to start to define the post-Brexit financial services sector and what its characteristics will be. I want to put a few teeth behind all the fine words we have heard about the commitment to high standards, having no race to the bottom and all the rest of it. I always remember the plea of the former Chancellor, George Osborne: anybody in politics should be able to count. I look around the room and I can count, but I still want to press the amendment to a vote.

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Wherever we stood on that issue, taking back control was understood to mean taking control back to the UK Parliament, not replacing European parliamentary input with UK regulator control, with their perhaps making one or two appearances before Parliament after the decisions had been taken. That is why we believe that it is important to empower Parliament in this new system, rather than onshoring these regulations in a way that results in the public, consumer organisations and, indeed, elected parliamentarians actually having less of a voice over these things while they are in the development stage than was the case in the past. It is to avoid that paradoxical outcome that we tabled these amendments, to try to ensure a strong Select Committee role while regulations are being developed, allowing representations to be made during that development rather than simply after the fact.

[Stella Creasy]

As this is my first speech, let me say how fantastic it is to serve under your chairmanship, Dr Huq—none of us ever says anything other.

I rise partly to presage what I am sure the Minister knows is coming, given our previous correspondence on my concerns about existing financial regulation in this country and where the voice of the consumer is heard in that. I am sure he has looked avidly at some of the new clauses that I have tabled, which seek to get at that and which I note will come much later, in the shape of new clauses 15, 18, 21 and 23.

The shadow Minister has set out clearly how amendment 22 reflects those concerns. Again, where in the new financial regulatory regime being brought in by the Bill will the voices of our constituents be heard? The shadow Minister has focused on the consequences of leaving the European Union and the lacuna that will be created in terms of financial regulation by the Bill if we do not have that clear commitment with the Treasury or any other financial body to look at Select Committees and the role they might play. I want to focus on the other end of that telescope and what it has been like to seek to give consumers voices within the existing regulatory framework, what lessons that might offer us in the future regulatory framework and why involving Select Committees might be a way forward.

I am sure the Minister would say that working out how we make sure our constituents are heard is a work in progress. We talked this morning very strongly about the impact of financial regulation on people’s everyday lives, the financial crisis and what could be learned from that. Many of us will have seen among our constituents people whose lives were decimated when financial institutions were found wanting and how that has driven the concerns about consumer protection in the wider work of the FCA. My concern as a Member of Parliament who has long had an interest in personal debt in this country has been about how that conversation is part of those bigger questions.

As I mentioned this morning, often we look for specific issues when it comes to consumer voice and financial regulation. On the wider impact, it is almost a given that somehow regulators will think about consumers. The reality is that over the past six or seven years of having the Financial Conduct Authority that has not always been the case. The Bill gives those regulatory bodies more powers. As the shadow Minister has pointed out, it removes one of the mechanisms for consumer voice through the democratic process within the European Union. Therefore, it is right that we ask how we replace that and whether there are gaps in what has happened to date that mean it is even more important, when asking whether the financial regulators are living up to the issues we might want them to have regard to, that that consumer voice is being heard in that process.

Amendment 22 is an eminently sensible idea to say, “Hang on a minute, where there had been previous scrutiny and challenge from democratic institutions, we need to replicate that within the UK Parliament.” It comes from that perspective of saying that it is in everyone’s interest to have that check and balance because it has been of benefit under the previous regime and, under that regime, there has been too narrow a consumer voice. I am not going to prosecute that argument in full today, because I am going to save it for the Minister for the new clauses that I have put down and how I think he can do that. I can see his disappointment already. However, I argue that it is worth looking at where the Select Committee process can add value to financial regulation in this country because, so clearly, it is our constituents who have paid the price when financial regulation has not looked at consumer risk and has not been able to ask questions before a crisis happened.

Many of the issues that our Treasury Committee, for example, as one body that may be involved in this, has looked at have come from our constituents raising concerns and a recognition that something might be on its way. Many of us would argue, and I suspect the Minister would agree, that sometimes regulators have been slow to react because they have been trying to balance the needs of the industry with questions about whether interference might cause more harm. The amendment is a way of getting that right, of having a place where those conversations could take place around financial regulation with a regulator that now has much more extensive powers than previously. It is a way of making sure that, as a democracy, we have a space where we can raise those concerns before problems happen.

When we get to the new clauses I have tabled, one of the concerns I will raise is where we see other regulators—in particular, I think of the financial ombudsman having to intervene where our financial regulators have not been able to do their job around supporting and protecting consumers, and so the ombudsman has picked up the pieces. Under the model we have coming forward in this Bill, it is not clear to me, without the involvement of Select Committees, where those conversations could take place, apart from with the financial ombudsman. Again, we are waiting until institutions potentially fail and organisations can pick up the pieces for that consumer voice to be heard.

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[Alison Thewliss]

I agree very much with what the right hon. Gentleman has said. It is important that we are kept up to date, in the absence of other scrutiny mechanisms. At the very least, within six months of Royal Assent, we should find out the impact of any revocations. The point was well made about consumers, because in many ways they are very far away from where this Bill is, and they may not see any issues that are coming up. It is important that we, as parliamentarians, are sighted on what those issues might be and have some degree of scrutiny over what happens with the regulations.

[Stella Creasy]

We are talking in quite abstract terms, but it is worth remembering that when Fannie Mae and Freddie Mac fell apart in America, consumers were the first to feel the repercussions that were felt around the world. This financial regulation comes in in the aftermath of that, because it is still going on. There are still people and families who are paying the price for what happened in the financial crisis. This is not about reheating and repeating the arguments about who caused the financial crisis. It is about recognising that consumers in all our constituencies paid the price, first and foremost.

As others have said, when we think about financial regulations, it can feel quite technical, distant and obscure because of the language we use, but let us remember back to those days. Many years ago, when I first came into Parliament, we were dealing in 2010 with the aftermath of the financial crisis, and it was a very painful crisis for many. Everybody asked why we did not see what was happening. Why did we not see it coming? How could we not have seen that banks were over-leveraged? How could we not have seen that mortgages were being resold in the subprime market? The truth was that it was a closed shop, so everybody was marking each other’s homework and saying, “I am sure this will be fine.” This seems to me the mildest of amendments, simply asking whether we have the information to ensure that such an occurrence could never happen again, when we are talking about something as simple as the capital requirements that banks and financial institutions should have. After all, that is exactly what happened in 2008: everybody leveraged each other, so the capital was gone, and when the roundabout stopped, it was our constituents who paid the price. I know by now, on the first day, that Ministers will think we are a broken record, but to ask the Treasury simply to provide that information and to look at it from a consumer perspective does not seem an unfair thing to do, given the history and the legacy of this that we have seen for so many in our constituencies.

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[John Glen]

In addressing this amendment, I want to start by saying that the Government are fully committed to ensuring that this greater delegation of responsibility to the regulators is accompanied by robust accountability and scrutiny mechanisms. To pick up on the point made by right hon. Gentleman about clauses 1 and 3, they amend the existing banking framework for different reasons. Clause 1 only removes FCA investment firms from the CRR. Clause 3 enables the implementation of Basel standards for the remaining firms, credit institutions and PRA investment firms by enabling the Treasury to revoke parts of the CRR that relate to Basel. That is so that the PRA can fill the space with its rules.

Amendment 23 seeks to add a requirement for the Treasury to assess and report on the impact of its revocations of the capital requirements regulation on consumers, competitiveness and the economy. However, I would argue that the emphasis is in the wrong place. The Treasury will only make revocations to enable the introduction of the PRA’s rules. A stand-alone assessment of the provisions being deleted would not provide meaningful information for Parliament—it is unnecessary. Those revocations are to be subject to the draft affirmative procedure, so they will be explained to Parliament and Parliament will be able to debate their appropriateness before they are made.

I agree with the principle of scrutiny, but the emphasis should be placed on the PRA’s rule making, and that is what this Bill does. The Bill includes provisions requiring the PRA to publicly report on how it has had regard to upholding international standards and relative standing in the UK, as well as facilitating sustainable lending. Those are in addition to the PRA’s existing statutory objectives on safety and soundness of financial institutions and its secondary competition objective, so they overlap with the areas that the amendment attempts to address.

The provisions in this Bill sit alongside existing provisions in the Financial Services and Markets Act 2000, which require the PRA to publish a cost-benefit analysis alongside its consultation on rules. That will provide Parliament and the public with the information required to scrutinise the PRA’s actions. Therefore, the current provisions in the Bill, combined with those existing provisions in the Financial Services and Markets Act, already ensure that the information that Parliament is seeking will be in the public domain. The hon. Member for Walthamstow asked me to set out a vision, almost, for the conduct regulator with respect to the future operating environment.  To some extent, that is deferred to the future regulatory review, but I will give her my view because this goes to the core of the future of financial services. We need an environment in which the regulator is accessible to consumer concerns. I recognise the work that she has done and the shortcomings that she perceives with the regulator’s current dynamic. We need Parliament to be at the heart of scrutinising its activities. The legislation would give it an obligation to report, but then we need meaningful scrutiny from Parliament.

The challenge is based on the work that the hon. Lady did after 2010—we came into Parliament at the same time—after which there was a rapid evolution in business models and new types of things. That is why I am delighted that Chris Woolard is doing a high-cost credit review and looking at some of the areas that she is engaged in, such as buy now, pay later. He is looking at that urgently so that we do not make the mistakes of the past and do not face some of the emerging challenges, in terms of behaviours—[Interruption.] She smiles. I suspect that she is not completely convinced by what I am saying about the provisions. We are resisting the amendment because in the narrow confines of what we need to achieve, with respect to the translation of these directives appropriately at the end of the transition period, that is distinct and different from an enduring solution. I look forward to her contribution to the regulatory framework review, because that will drive a meaningful discussion about how we achieve the sort of accountability that she and I want and think should be enhanced.

[Stella Creasy]

I am sure the Minister will have some delightful conversations about the regulatory framework that will keep many people wide awake for hours to come, but the two are not mutually exclusive. This amendment and this debate are about capital holdings.

Does the Minister recognise that what I said about what happened in 2008-09 is directly linked to this? We need to keep a tight eye on this, especially because of the global context in which it is happening. We cannot protect our economy and our constituents without some form of scrutiny and control. The Minister said that it is important to have parliamentary involvement, but he has just refused an amendment that would have brought the Select Committees into the process.

I am struggling to understand why in this instance, with this amendment and this requirement of the Bill, given the role of the FCA in overseeing capital requirements, the Minister feels that it would not be important to have the data, so that we are not in a position in which that subprime lending happens again in a different guise. If we have learned anything—this is not just about the high-cost industry—it is that these models evolve. It is like water: exploitation in the system will find a way through unless we have robust procedures. It is possible to have both this report and a regulatory framework; the two are not mutually exclusive. If there is not a reporting provision, the Minister leaves a gap until one is in place.

[John Glen]

This legislation provides the regulators with the responsibility and the reporting obligation to Parliament. What the hon. Lady has done is make an explicit relationship between conduct failure and capital requirement decisions. Decisions about the overall framework for accountability for the regulators are embedded within this Bill. The point of disagreement between us is whether there are sufficient obligations, in terms of reporting and scrutiny, for these narrow measures. We obviously disagree. I am trying to signal that, more broadly, on the wider issues of the future dynamic among Parliament, the Treasury and regulators, there is scope for significant review, and appropriately so given the changing nature of where these regulations are coming from. I do not have anything else to say.

Financial Services Bill (Seventh sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

Separately, I note that there is already clear legislation that covers manipulation or attempted manipulation of a benchmark and provides sanctions for such activities. Under the Financial Services Act 2012, it is a criminal offence to make misleading statements in relation to benchmarks. In fact, in the Bill, as the right hon. Gentleman also rightly mentioned, there are measures that increase the maximum sentence for such a crime to 10 years.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is wonderful to serve under your chairmanship, as ever, Mr Davies. The Minister is explaining that there is a process for enforcement. We all know that this issue is very specialist. If he thinks the current regulations and sanctions are appropriate, could he set out how they are being enacted and monitored? Frankly, it requires someone with a specialist understanding of how these rates can be manipulated to enact them in the way he outlines. If he does not want to add the amendment, could he explain how these issues can be investigated, and what resources there are to do that?

[John Glen]

I thank the hon. Lady for her point. These matters are administered by the FCA. I have set out the framework under which it operates. Its resourcing is a matter for it, and I speak on a six-weekly basis to the chief executive about that. The sanctions available to the FCA vary considerably according the nature of the breaches. Some will be small, modest technical breaches.

[Stella Creasy]

The Minister has set out the criminal sanction. I am interested in whether there is support and resourcing expertise in relation to the criminal element, as opposed to the regulatory element.

[John Glen]

At this point I cannot give her chapter and verse on the exact attribution of resources to this measure, but I can look into that and come back to her.

Financial Services Bill (Eighth sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 8th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

misunderstood, and goes on to say that the financing terrorism risk is “not properly understood” by the financial institutions, particularly banks and e-money providers, and that banks do not properly consider “transactions to high-risk countries”. The picture painted here is of regulators trying to do the right thing and operate to UK standards, but of financial institutions operating in the territory that are sometimes not fully aware of the risks outlined in the report. What is the Minister’s response?

[Stella Creasy (Walthamstow) (Lab/Co-op)]

My right hon. Friend is making a powerful and important case about the importance of ensuring that we do not inadvertently support money laundering or standards that could enable that by accident. It is worth reflecting that in February this year, the EU anti-money laundering watchdog, MONEYVAL, called for Gibraltar to do more. One question for us in this legislation is whether there are things we can do to ensure that we are not inadvertently creating access that would enable such behaviour, now that we are leaving the European Union, which might have been offering that level of scrutiny. Does my right hon. Friend have a view on joining up those dots?

[Mr McFadden]

My hon. Friend is absolutely right.  In fairness, I do not think that the UK system on money laundering and financial crime is perfect—we have our own issues, which we have debated before and will debate later in our consideration of the Bill—but these findings should be taken seriously, particularly as we are creating a new situation. In the past, both the UK and Gibraltar were part of the EU and we operated under the single market rules, including those on financial services. I do not know whether what we are creating is unique—I will ask the Minister about uniqueness—but it is certainly a new concept: a mini-single market in financial services between two territories.

What is the Minister’s response to the report’s findings? In particular, given that protection from financial crime has been written into the Bill through the Government’s two-year review process, what contact has there been between the Treasury, the relevant regulators and the financial institutions in Gibraltar since the report was published a year ago? What actions do the authorities propose to take? I certainly believe that the Gibraltar authorities will want to act in good faith and try to uphold proper standards, but some of the report’s findings are concerning.

Another issue raised last week was the difference in corporation tax between Gibraltar and the UK: Gibraltar’s main corporation tax rate of 10% is significantly lower than our own. The Minister from Gibraltar said in his evidence, with some charm, that corporation tax would not be a factor in location—that, if anything, quality of life was more important. I have no doubt that the quality of life in Gibraltar is very good; looking out on a slightly gloomy London autumn afternoon, I have no doubt that the weather and climate is a big attraction, too. I am sure that he was right about that, but it is a big tax difference. He also pointed out—again, quite fairly—that the corporation tax differential predates our departure from the EU and has been in place for some time. However, this is a new situation, with a new, specially designed market access regime for Gibraltar being enshrined in UK law. Has the Treasury made any assessment of the likelihood of corporate relocations from the UK to Gibraltar as a result of the new measures under discussion?

I also ask the Minister about the condition, which I have described as interesting, about relationships with other territories with significant financial services markets. Why has it been written into schedule 6 as something that the Government should consider in their biennial review? Is it considered that this mini-single market will create some sort of vulnerability in those other relationships? Why is it thought possible that the arrangement might affect our relationships with other territories?

Finally, how unique and specific to the Gibraltar situation is the new regime? Could it conceivably be extended to other territories such as Jersey and the other Channel Islands? As the Minister will know, some Crown dependencies have been accused of being tax havens or of being susceptible to money laundering. Is it possible that such a regime could, in effect, be used to extend the reach of UK regulators to territories other than Gibraltar? This is a very big topic that has been debated quite a lot over recent years. I suppose I am asking about the Treasury’s thinking, rather than just about the Bill: might the arrangement with Gibraltar be a model for the treatment of other Crown dependencies or overseas territories, or should we view it as specific and purely a consequence of Gibraltar having to leave the European Union? I would be grateful if the Minister considered and responded to some of those points.

[Ms Eagle]

I suppose I want the Minister to reassure me about the fact that financial markets are rapid and regulation—if there is an equivalence regime, or mini-single market as my right hon. Friend the Member for Wolverhampton South East put it—allows the Gibraltarian authorities to do the regulation and then have immediate access to the UK. That may be done in a way that gives us some benefit; perhaps the Minister will say what the benefits of the regime are, particularly for UK consumers, given that Gibraltar does 90% of its business with the UK anyway. Perhaps he will also say what the risks would be.

My right hon. Friend spent a little time raising some of the risks and I suppose they can be characterised by the view that in a very liquid and rapid global money market, if there are vulnerabilities or back doors into regimes that are interconnected, that causes risks. We saw some of those risks playing out during the global financial crisis. To what extent does the Minister believe that the Gibraltar regime for which the clauses legislate will be—I am going to use that word—robust enough to prevent the opening of back doors to vulnerabilities for all sorts of money that is sloshing round the world? My right hon. Friend mentioned some of that—money used for money laundering, drugs and terrorism. It is important that the defences that we have against coming under that kind of influence should be maintained and strengthened, rather than weakened.

[Stella Creasy]

My hon. Friend is giving the speech that I wanted to give, so I thought I would intervene. One example, to express some of the concerns we might have, is the fact that in the Gibraltar regime there is currently no legal requirement to refuse registration to someone with a criminal record. In practice that does happen. It is something that the FATF report flags, but it is not inevitable. One thing we might want to think about for our regulatory regime—and I take the point made by the shadow Minister about not suggesting that the UK regime is perfect—is looking at whether there are lessons in the report that should be put into the Bill to make sure we do not create such a back door. That seems an eminently practical example of the sorts of things that might happen if people with criminal convictions, who may still be able to access financial regulations as a result of the Gibraltar regime, are now able to operate in the UK.

[Ms Eagle]

My hon. Friend gives an example of exactly the kind of point I was trying to make more generally about ensuring that these regimes are correct. Given that Gibraltar governs itself, the Bill makes it clear that Gibraltarian regulators will continue to do that job in Gibraltar and supervise the companies based there after this arrangement has been legislated for. That is quite proper in many ways, but it does give our regulators in a small number of narrowly-defined circumstances—I think this is the phrase—the duty or the right to leap in and do some regulation or enforcement presumably. Will the Minister say a bit more about that? He did mention it in passing in his introduction to the clause, in which he talked about financial stability. We clearly had some recent examples during the 2008 crash, where some robust enforcement had to take place with offshore island countries or territories that were trying to take money out of our jurisdiction in ways that were unacceptable at the time.

There is therefore a financial stability issue, but there is surely something about consumer protection, fraud and money laundering here as well. Perhaps he could talk in more detail about what those narrow circumstances are. Our regulators will be reluctant to romp and stomp all over Gibraltarian institutions and their regulators. Yet, by definition, Gibraltar is a small territory, and it will have less capacity to deal with some of the sophisticated fraudsters and international terrorist, money-laundering types than we do here. I am not saying that our regime is perfect, if we are honest, and we will get on to that later in the Bill.

My worry is that this might inadvertently create some vulnerabilities. I suppose what I am seeking from the Minister is some reassurance that the regulators have got a handle on this, that they will not allow the wish not to infantilise the Gibraltarian regulators to be a reason for not paying close attention to this, and that there will be some close supervision of what is happening, particularly once the regime is established. Once these things settle down, it is then that things start to happen. If a door is opened inadvertently somewhere, this money swilling around tends to find it, and then things can start changing very rapidly.

What warning flags does this regime put up to ensure that if that dynamic begins to happen, we can close it down rapidly? Does the Bill expect some kind of relationship between the Gibraltarian regulators and the Treasury? How does the Minister expect that relationship to work out? Obviously, I do not want to spend all my time being so negative about these things, so will the Minister also say a little more about what the benefits might be?

Will the Minister also talk about consumer protection in his response? Motor insurance is one of the largest components of the financial services that Gibraltar currently sells into the UK, and clearly there is a big retail consumer protection angle to such financial services.

[Stella Creasy]

While we are considering the variations for companies based in Gibraltar as opposed to the UK, it would be helpful if the Minister answered the question that the insurance bodies could not: about VAT benefits for companies based in Gibraltar and the likelihood, now that we have left the European Union, of companies moving more industry to Gibraltar because of that benefit, which could also affect consumers. Does my hon. Friend agree that it would be helpful if the Minister set out those figures? The industry seemed slightly coy when we spoke to it about those matters.

[Ms Eagle]

Clearly, the potential situation is there now. In evidence, the response—reasonably—was that that has not happened to date, even though there have been close connections between Gibraltar and the UK. However, these things tend to be dynamic and, once the agreement with Gibraltar is established, our tax regimes may diverge even further. If the Chancellor has his way after yesterday’s statement, I suspect they might have to.

Will that create more of a temptation for financial service companies to offshore to Gibraltar outside of the UK? Is the Minister convinced that that will not happen as a result of the Bill? I want reassurance from him about those potential weaknesses or risks and about consumer protections. He might even want to say a bit about benefits, if he feels up to it.

[John Glen]

I counted several questions in those four contributions and I will do my best to address them. First, I will reiterate what we are trying to do: to create the market access regime for Gibraltar-based financial services wishing to operate in the UK, and to make provision for outbound UK-based firms wishing to operate in Gibraltar.

The right hon. Member for Wolverhampton South East made a number of points, which I will start to address. He asked about the two-year reporting mechanism. The Gibraltar authorisation regime provides a broader and deeper market access into the UK market—including to the retail market—than other market access regimes, so the Treasury needs to be satisfied continuously that all conditions are met. We will therefore work carefully with the Minister we spoke to last week from the Government of Gibraltar to ensure that those conditions can be satisfied on an ongoing basis.

It is important to contextualise the nature of the relationship with Gibraltar. There has been a lot of dialogue, visits—not latterly—and evaluation of each other’s situation with respect to market access. In the lead up to the new regime, the Treasury will assess Gibraltar against the relevant market conditions for the sub-sectors to which it seeks access, and we will work closely with the Government of Gibraltar. The most significant area is the Gibraltarian insurance market, and 90% of that is UK facing.

The right hon. Gentleman compared the two-year review to our refusal to review the prudential regimes. As we have already discussed, the prudential measures include an accountability framework; we had a different view on the suitability of the one we suggested versus the amendment. The regulators have the expertise to set rules in the complex and technical areas of financial regulation and can do so in an agile way.

The right hon. Gentleman also referred to the FATF report. I have not read it in full, but I am aware of its broad indications of the challenges that exist. I am also aware that, while we had a good report, there are some challenges that we need to address in the UK. I will not hold back on admitting that. I will write to him specifically on those measures that pertain to Gibraltar, because I ought to do justice to his proper scrutiny.

There is an issue with the extension of the Gibraltarian regime to other countries. That is a bespoke regime that has been specifically designed for Gibraltar, recognising what the right hon. Gentleman and others will acknowledge is a special historical relationship, and our past common membership of the EU. These circumstances do not apply to any other jurisdictions, so that is not designed as a model or, as he said, a mini-single market to be extended elsewhere.

The hon. Member for Glasgow Central asked about the scope of the FOS jurisdiction over products sold by Gibraltarian firms. Our intention is that all Gibraltar-based firms with a schedule 2A commission will be covered by the FOS’s compulsory jurisdiction. That ensures that individuals and small businesses can seek appropriate redress. However, the extension of the FOS’s jurisdiction to schedule 2A firms does not require express wording in this Bill. The Bill makes schedule 2A firms a type of authorised person, so the FCA be able to make rules about them, bringing them inside the FOS’s remit. The FCA will be reflecting that change in the rules governing the FOS’s jurisdiction. Firms already under the FOS’s voluntary jurisdiction will transfer to the compulsory jurisdiction, with no loss of eligibility for their consumers in respect of actions occurring before they entered the compulsory jurisdiction.

The hon. Member for Glasgow Central also asked about the withdrawal of equivalence. If market access were to be withdrawn, schedule 2A puts in place winding down arrangements that enable the Government to pass secondary legislation providing for Gibraltar-based firms to exit the market in an orderly fashion, with appropriate protections for UK consumers. That is what would happen in market failure.

[Stella Creasy]

The Minister was just talking about the Financial Ombudsman Service being extended. One of the things that we might be concerned about is that our constituents might experience fraud from companies based in Gibraltar, perhaps in relation to insurance. Many of us can think of some famous Brexit backers who run insurance companies in Gibraltar and might have concerns about these issues. The FAFT report tells us that at the moment the supervision is only for new companies. There is a historical legacy of companies that have not previously been registered that might, therefore, under new supervision, be companies that we would not want to see operating in the UK. The Minister talked about the FOS’s requirements being retrospective, but that will be the same with the FCA. Can he clarify that if there are companies that are historically registered in Gibraltar, which we would not want to see registered here, perhaps because the people running them have criminal records, will they retrospectively be denied a licence, or is it only those from new registrations onwards, as with the current Gibraltarian regime?

[John Glen]

I wish to examine that matter carefully on the basis of the FATF report. I totally understand the clear point the hon. Lady is making about the retrospective nature of this and what could we essentially onshore, in terms of access to UK consumers, and the inherent and apparent risks in that. If the hon. Lady will permit me, I would like to examine that and get back to her.

The hon. Member for Wallasey asked about the independent Gibraltarian regulator and whether it will remain the supervisor of Gibraltar-based firms. The explicit intention for the UK regulators, contained in proposed schedule 2A, is to guarantee the protection of UK consumers, but that will be exercisable only on specific grounds, for example where a situation is urgent or if a Gibraltar-based firm is contravening a rule. We are not trying to take over their regulator.

The hon. Lady asked if the parties will co-operate sufficiently. There has been close and frequent co-operation over the past three years, between both Governments and regulators. They are developing their regime, and I am confident that will continue. The Minister in Gibraltar —effectively, my opposite number there—was positive about that last week. Schedule 2A will create a framework for this effective co-operation. That also means that the UK and Gibraltar Governments, the respective regulators and the Financial Services Compensation Scheme will put in place effective procedures to carry out any dialogue and co-ordinated action for the good functioning of the regime.

The hon. Members for Walthamstow and for Wallasey asked about consumer protection. It is obviously of the upmost importance that we provide the right level of protection for UK customers of Gibraltarian products, and that the level of protection afforded is communicated to them. Under this regime, most UK-based consumers purchasing products from Gibraltarian providers will receive a similar level of compensation as those purchasing their products from UK firms, whether through the FSCS or through the equivalent Gibraltarian schemes.

--- Later in debate ---

[Mr McFadden]

I thank the Minister for his explanation. As he said, this clause, schedule 9 and clause 25 create an overseas fund regime for establishing the recognition of collective investment schemes based outside the UK. It is estimated that there are about 9,000 such schemes, which are often known as UCITS.

Up until now, those schemes have operated under the European Union’s passporting provisions, as have UK-based schemes operating in other countries; it has been a two-way street. It was not inevitable that passporting had to end when the UK left the EU. There were models of leaving that could have preserved those rights for UK-based firms. Indeed, there were votes in Parliament that sought to guarantee the continuation of passporting rights, but the Government set their face against that, so the first thing to say about these provisions is that the need for them has arisen out of choices made by the Government.

That there would be an adverse impact on services from this decision was acknowledged. It seems the dim and distant past now, but back in the halcyon days of 2018, we had something called the Chequers plan. That document was issued in July 2018 with—I noted when I had another look at it—a foreword from the current Foreign Secretary. The Minister could usefully remind him of that the next time he bumps into him. The document said that the Government

“acknowledges that there will be more barriers to the UK’s access to the EU market than is the case today.”

It went on to note that

“these arrangements will not replicate the EU’s passporting regimes”.

Let us look at what the document’s verdict was on equivalence, which is the thing that we are trying to achieve and in part legislate for today. This is the Government’s own verdict on the kind of regime in clauses 24 and 25 and schedule 9. It said:

“The EU has third country equivalence regimes which provide limited access for some of its third country partners to some areas of EU financial services markets. These regimes are not sufficient to deal with a third country whose financial markets are as deeply interconnected with the EU’s as those of the UK are. In particular, the existing regimes do not provide for:…institutional dialogue…a mediated solution where equivalence is threatened by a divergence of rules”—

we have discussed divergence of rules quite a lot in this Committee—

“or supervisory practices…sufficient tools for reciprocal supervisory cooperation…This would lead to unnecessary fragmentation of markets and increased costs to consumers and businesses; or…phased adjustments and careful management of the impacts of change, so that businesses face a predictable environment.”

That is not my verdict on equivalence; it is the Government’s verdict on equivalence when they published their own plan two years ago. So there we have it in the Government’s own words. That which they have been as yet unable to secure from the EU was dismissed as inadequate for the UK’s financial services sector even if we were able to secure it, which we have not, or at least not yet. The Government were aiming for something different, because it was deemed by them to be inadequate. They were aiming for

“a bilateral framework of treaty-based commitments to…ensure transparency and stability”,

because, as the document goes on to say, equivalence

“is not sufficient in scope for the breadth of the interconnectedness of UK-EU financial services provision. A new arrangement would need to encompass a broader range of cross-border activities”.

The Government wanted common principles, supervisory co-operation and

“a shared intention to avoid adopting regulations that produce divergent outcomes”.

Where did all that go? What happened to all of that? That was the aim. Why is it now the summit of the Government’s ambitions to achieve an outcome for the UK’s globally significant financial services sector that they dismissed as inadequate only two years ago? Why is this not at the heart of the UK-EU negotiations, in this crucial period? We have just over a month left—less, in real terms—to strike a deal. We must think of the significance of this sector to the UK economy and look at the employment, the investment and the tax revenue.

[Stella Creasy]

The shadow Minister is making a powerful case, and I suspect he is about to move on to this point. In layman’s terms, the Government are asking financial companies, which represent hundreds of thousands of jobs in our country, to deal with more paperwork, more bureaucracy, more regulation and a tougher business environment in which to operate. Does the shadow Minister think that these major financial companies are going to adhere to that because they are rather fond of London, or might they make different commercial decisions because we have not secured the kind of regulation he is talking about as yet and move themselves to other parts of the European Union?

Financial Services Bill (Tenth sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 10th sitting: House of Commons
Tuesday 1st December 2020 Public Bill Committees

[Mr McFadden]

As I said, I do not intend to press the amendment today. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I beg to move amendment 34, in clause 32, page 38, line 23, at end insert—

“(2A) After subsection (3) insert—

(3A) Where, by virtue of subsection 2, the Secretary of State makes regulations establishing a debt respite scheme, the time period that the debtor protections provided for by virtue of section 6(2)(a) and section 6(2)(b) shall be no less than 120 days.”

This amendment would require the breathing space to provide debtors with a minimum of 120 days protection from the accrual of further interest and charges and enforcement action.

[The Chair]

With this it will be convenient to discuss new clause 11—Extension of the Breathing Space and Mental Health Crisis Moratorium—

“(1) The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 shall be amended as follows.

(2) In paragraph 1(2), for ‘4th May 2021’ substitute ‘31st January 2021’.

(3) In paragraph 26(2), for ‘60 days’ substitute ‘12 months’.”

This new clause would bring forward the start date of the Debt Respite Scheme and extend the duration of the Breathing Space Moratorium from 60 days to 12 months.

[Stella Creasy]

It is, as ever, a pleasure to serve under your chairmanship, Mr Davies, and a pleasure to have this debate. I see the Minister is already smiling. I know he has been looking forward to this debate, because he and I have talked for some time now about how best to help our constituents with debt.

As a nation, we find it easier to talk about anything other than money; even our intimate relations tend to get more coverage in our national press now than the state of our bank balances. Each of us, as representatives in this place, will know from our surgeries how critical this issue is for our country and how important it is to get right the measures to help people with their financial position, because the honest truth is that this is a country not waving but drowning. We all see it in our constituencies.

Mindful of what you said about scope, Mr Davies, in speaking to the amendments I will first set out why I agree with the Government absolutely that we need a breathing space scheme. The amendments come from a desire to work with the Minister to get that scheme right. I know he shares my concern to get these policies right, because we see in our communities the damage—the financial damage, the social damage and the mental health damage—caused by problem debt.

I do not think we can start to have the conversation about whether the Bill needs amending until we define what we mean by problem debt, which is a term that we use interchangeably in debates and discussions. We know that when people do not talk about their debts, they can get into all sorts of debt without thinking that it is a problem until it is too late. All of us, whether we have been an MP for a year, 10 years or 20 years, will have encountered the person who comes to a surgery and says, “I’m going to be evicted next week. Can you help me save my house?” We know it is too late, because they have got into a level of debt they cannot get out of, but they did not see it as a problem.

One of the things that we must do in this place is to make it as popular to talk about our debts and the problems that debt can create, how people can be good with money and how we can help people be good with money—and, when it comes to the Financial Conduct Authority, how we make sure it is a fair fight—as it is to talk about people’s intimate relations. Indeed, the sidebar of shame in the Daily Mail should be more about companies seeking to exploit our constituents by offering them poor levels of debt that we want the FCA to regulate than the size of Kim Kardashian’s derrière. I put that out there as something we should be more concerned about.

Problem debt has been an issue for generations, and over the past decade it has got a lot worse. It is important that the Government are proposing a breathing space, because we can layer on top of that debt the Monty Python foot that is covid and the disruption to people’s lives and livelihoods. I know that some Members would rather be in that debate today than in this one, but I hope I can convince them that this debate in Committee and getting these measures right is the most important place we can be.

As a country we do not talk about problem debt. We do not even see it as a problem, but the problems that will face our constituents and communities in the coming months will be horrific. Let us consider how almost half the UK adult population went into 2020 with debt already hanging over their head, with almost 5 million of our fellow citizens owing more than £10,000 in credit and loans alone. That is unsecured personal debt. This is not about mortgages and housing debt; it is about people having too much month at the end of their money, and people finding ways to deal with that that do not seem to them to be a problem because, if they can keep cycling things through the cards and keep borrowing and making repayments, they can probably keep going.

The nation went into coronavirus already in hock in ways that make people financially vulnerable, but without an awareness of what that might mean for their communities. When asked about their debts at the start of 2020, 40% of those polled said the debt was due to normal living expenses. One thing that we need to knock on the head is the fact in this country debt is not about people buying flash cars and tellies, much though that sidebar of shame might like to make us think it is. It is about people trying to put food on the table and keep the car going so they can get to work, and yes, there are people putting their mortgage on their credit cards.

When I talk about problem debt, I do not just mean the Wongas of this world. I mean the credit card companies that have a sort of respectability because they have helped to keep people going. I am not against borrowing or any form of credit at all, but when we know how the country and our constituents were leveraged at the start of this year, and we see what has happened this year, getting right our proposals to help them, because debt will be a problem, becomes all the more important.

[Alison Thewliss (Glasgow Central) (SNP)]

Does the hon. Lady agree with me that there is a big problem around catalogues and debt for basics such as school clothes, trainers and jackets? People are building up debt for the essentials of life and are told they can pay it back in tiny amounts, but it is over a very long period, which means the debt is never really cleared.

[Stella Creasy]

I completely agree. Many a time have I had conversations with constituents about how they buy things, and they do not see it as a problem. They have no other option, so they use the catalogues and do not look at the interest rates. What they need is not more financial education, but more options. The brutal reality is that it is very expensive to be poor in this country. That is why it matters that the things we do to help them if they get into difficulty work.

[Ms Angela Eagle (Wallasey) (Lab)]

Does my hon. Friend agree that when it comes to debt and interest payments incurred—the price of having that debt—the concept of an unfair contract is far too lax on those who lend the money and far too harsh on those whose circumstances often, as the hon. Lady just mentioned, mean that they have to borrow?

[Stella Creasy]

My hon. Friend knows that I completely agree with her. She also knows that she is tempting me to discuss other amendments that I have tabled about that fair fight, and I do not want to disrespect you, Mr Davies, or the Clerk in trying to keep us to the issue at hand. My point is that when we talk about a respite scheme to help people with problem debt, we have to be clear about what we mean by problem debt and whether people recognise that they have a problem. The point of a breathing space is to be able to address that problem.

The hon. Member for Edinburgh West (Christine Jardine) and I tabled the amendments because we recognise that people do not necessarily see things as a problem until it is too late, so when we construct measures to help people in these difficult places, we have to be able to work with them and where they are at, and how people deal with debt. We might look at something and say, “That is an unsustainable financial situation that you have got yourself into,” but our constituents not see it that way.

I said at the start that it was worth thinking about where this country stood at the start of the year. There are conflicting figures, which I am sure the Minister has been looking at. I know he shares my concern about consumer debt and consumer credit. Bank of England data shows that during the coronavirus crisis people have actually been trying to pay down their debts—frankly, they have been stuck at home, so they have money and they think, “Well, I’ll try to pay down my debts.” Since March this year, £15.6 billion of household debt has been repaid, and credit card debt has fallen by 13% in the last year.

--- Later in debate ---

[Mr McFadden]

My hon. Friend has done a huge amount of work on this over the years. Amendment 34 seeks to extend the breathing space period to 120 days. Does she think that covid factors add to the case for having a longer period than was initially envisaged?

[Stella Creasy]

My right hon. Friend is right, and that was one of the points I was going to make. If we are dealing with a new group of people who have never been in financial difficulty before, one of the sources of help and support for them may well be our welfare system. Anybody who has ever dealt with people trying to make new claims in our welfare system knows that 60 days is an incredibly tight timeline for that to happen—to deal with any appeals and paperwork, and to even get a response to the claim that has been made. Yet experience tells us then when people do get into problem debt, sometimes they do not know what support they are entitled to.

The amendments speak both to the reality of people and to the practicality of making a breathing space work. I hope the Minister will see them in that way and recognise that that is why so many debt advice providers support the amendments and say, “Yes, actually, what’s proposed does feel too tight to get things right.” Some people’s situations can be resolved in 60 days; others’ will take longer. It is not right to close off the opportunity of a breathing space by setting a deadline or threshold that means that for some people who are waiting for information it will be too late. The amendments speak to how we can make the process work for everyone, giving debt advice providers the discretion to be able to work with people and to use the breathing space for its intended purpose, which is to give those who recognise they have a problem the chance to get it sorted before we go into some of the more serious options.

The brutal reality is that we know that, with jobs thin on the ground, debt already mounting up and the cost of living not reducing any time soon, not everybody who gets a breathing space is going to be able to breathe again. I know the Minister would be frustrated if, rather than the financial position of the people involved, it was that timing, that threshold, that meant the breathing space did not work in the way in which it is intended.

The Minister will have seen that I have tabled other amendments on we make this breathing space work. I know he cares about getting this right. In these Committees, there is always pressure on Ministers to say no to amendments, but I hope he will acknowledge that this is about making the policy work, recognising the evidence on the ground about what works with people who are in problem debt and how long it takes them to see that they have a problem. If he does not accept the timescales, if he does not accept the intentions of myself and the hon. Member for Edinburgh West in acknowledging the distress people feel when they have to front up and talk to a stranger about the financial position they are in and their fears in an environment where unemployment is widespread. Goodness knows, getting people to take debt advice at the start of this year, when there seemed to be jobs in our economy, was difficult—anybody who tried to refer a constituent to Citizens Advice knows that. Getting people to a point where they have the chance to breathe again means making this process work.

If the Minister does not think the extension is right, I am keen to hear what he thinks we should do to make sure that that threshold is not a cliff edge over which people fall and cannot come back from. We are all going to be seeing a lot of people in financial difficulty in the coming months in our surgeries—people who have nowhere else to turn, people who are very frightened, and people whose families, homes and mental welfare depend on us getting this right.

[Ms Eagle]

I wish to spend a short amount of time congratulating my hon. Friend the Member for Walthamstow on the focus and experience she brings to this very important topic. As she said, debt is one of those taboo subjects. People feel ashamed if they have got into debt and tend not to discuss it—sometimes within their own relationships, let alone with other people—because it is a source of shame.

To some extent, it is a bit like the people who fall for scams or fraud. It is a uniquely difficult thing because if someone has got themselves into that situation, it makes them feel ashamed of their behaviour or that they have fallen for something. They feel isolated and unable to discuss it and go to get assistance. To some extent, even getting to what my hon. Friend is suggesting in her amendment means someone has gone a considerable distance: first, admitting there is a problem, and secondly, seeking help and trying to see what can be done to alleviate the problem.

I also feel that when people get into debt in this manner, they are uniquely judged by those looking on. The taboo is reinforced by the judgmental nature of onlookers who think, “I would never get into debt like that,” or, “How on earth have they done that?” There are caricatures of how people who get into debt behave that are almost designed to blame them for their debts, suggesting that somehow they are incoherent with money, that they cannot manage, that they have inadequacies, or that they have gone on spending sprees all over the place and not thought about the future. I suppose in a minority of cases that might be true, but in the majority of cases, in my experience—certainly in my advice surgery—it is not. People get on a slippery slope.

We live in a consumer-oriented society where those who wish to sell us things, and the financial services companies that wish to provide us with the wherewithal to buy them immediately, are very sophisticated. We are in a culture very different from the one I grew up in. I will now reveal how old I am: when I was growing up, one had to put money away and pay for goods gradually before one could get them. Now there are all sorts of electronic currencies that can be used.

On Black Friday, I was shopping for deals from my room, but—uniquely—had no positive results because everything was out of stock. That demonstrates how easy it is to spend money to acquire things, and to get into debt. It is now instantaneous. With the shift to online, one does not even have to physically be in shops to buy things; one is two clicks away from having this kind of problem.

If ever there were something that made it easier for people to get into trouble, it is the speed and effectiveness with which they can click on things and spend money. We talk about that with regard to gambling, but buying goods can also be addictive. People are propagandised the whole time about how success comes with having goods, and that one has to have the right trainers and the right brands.

--- Later in debate ---

[John Glen]

Forgive me, Mr Davies; I did not acknowledge what a pleasure it is to serve under your chairmanship in my previous remarks, so I do so now. I will address amendment 34 and new clause 11, but first I feel that I should respond to the general context that colleagues have raised. The hon. Member for Walthamstow is right that I share many of her perspectives, if not always her solutions.

High-cost credit will always be with us; the question is about the terms on which it is made available and what we can do to make available better alternative provision of credit. As the hon. Lady acknowledged, we have had conversations and debates about the issue many times. It will be useful for the Committee to know that Chris Woolard, the former interim chief executive of the FCA, is currently conducting a review into high-cost credit, particularly looking at the explosion of new models of payment—“buy now, pay later” in particular.

I have also been very focused on making more of the alternatives, by supporting the credit unions to allow them to lend more easily and by looking with the Association of British Credit Unions, one of their trade bodies, at what legislation we can bring forward. That is something we have committed to. I have also committed to working on pilots for the no-interest loan scheme, because that could be really useful; if we can establish where that can be used, it would provide a meaningful alternative.

Some of my most compelling experiences as an MP have come from working on the all-party parliamentary group on hunger and food poverty with the hon. Member for South Shields (Mrs Lewell-Buck) and the former Member for Birkenhead. On a visit to South Shields in 2014, I remember seeing first hand some of the really challenging situations that people get into with debt. That has been echoed in my own constituency in Salisbury, where the Trussell Trust was founded. That is why it is really important we have invigorated the support that the debt advice sector can have. We have allocated an extra £37.8 million in May, so that it has £100 million this year.

The main objective of the breathing space mechanism is to get people to a place where they can evaluate their situation and find the right option. The effect of amendment 34 is to require the Government to provide protections that last at least 120 days when making future regulations concerning breathing space or the statutory debt repayment plan. The amendment does not amend the existing breathing space regulations, which, I believe, was probably the intention. The aim of breathing space is to provide temporary debt relief, and extending the duration by that amount of time does not align with the policy intent.

In the 2017 manifesto, we committed, as an aspiring Government, to a six-week moratorium breathing space period. That is what we consulted on and it was, I think, through my direction as the Minister two and a half years ago that we committed to extend that to 60 days. That was the expectation and consensus among those who contributed to that. The Government consider those 60 days to be an appropriate period for a breathing space moratorium. I have not received any direct representations from charities, although StepChange believes that 60 days is the right period, although that could be changed in exceptional circumstances. I recognise that that charity may consider that as being met, but I am told by my officials that I have not received direct representation about that.

[Stella Creasy]

Apologies; I just want to clarify. Some 80 debt advisers have written to the Committee to support the measure on precisely the grounds that I have set out. Is the Minister saying he has not seen those representations or that he does not see them as a voice of the sector? There is a difference and I do not know whether that is an absence we need to address.

[John Glen]

The difference is that, as a Minister, I have not been written to by them. I recognise that there is a range of views out there, but I also recognise that a significant piece of work was done to consult on and to establish these measures and to secure cross-party support for them.

We believe that the time period will allow individuals to identify and access a debt solution, while the fixed period will provide certainty to creditors. It is important to reflect on that: this is in the interests of both the debtors—the individuals who have significant debt—and also creditors, often small businesses, who are owed money. There is a judgment to be made about how that balance is achieved.

Given the current circumstances, I understand why Members believe that a stronger moratorium would benefit those in problem debt who are struggling with their finances during this difficult time. The Government have put in place an unprecedented package of support to help people with their finances during the covid-19 pandemic. We have worked with mortgage lenders, credit providers and the FCA from the outset to help people manage their finances. A lot of work has been done and is still being done by financial services firms to make those measures work.

During the consultation period, the Government explained their position on the duration of the scheme and were supported, as I said, by many stakeholders. The regulations were approved by Parliament in October and by the Welsh Senedd in November and have subsequently been made.

The amendment would also apply to any regulations made in the future on the statutory debt repayment plan—the second part of the debt respite scheme, which the clause is focused on. It would set a new minimum duration for an SDRP of 120 days. Of course, in practice, most SDRPs are likely to last for a period of years rather than months, allowing individuals to repay their debts to a manageable timetable. Introducing a minimum duration is not likely to be a necessary protection in this scheme.

New clause 11 would do two things. First, it would require the breathing space scheme to commence on 31 January 2021 instead of 4 May 2021, which was set out in regulations that we approved in October, as I said earlier. Secondly, the new clause would also extend the duration of a breathing space moratorium from 60 days to 12 months.

Increasing the duration of the scheme to 12 months would create much greater interference in creditor rights without increasing any of the corresponding safeguards. For example, the midway review process, which regulations stipulate must take place between days 25 and 35 of a breathing space moratorium, would need to be reconsidered and redesigned.

As the breathing space regulations have already been made and the proposed amendments would not achieve the policy intent, I ask, with some regret, the hon. Member to withdraw the amendment.

[Stella Creasy]

I thank the Minister for his response. I am sorry to hear that he did not see the document, which I know was sent to his office yesterday by the debt advice workers, because I think we all recognise that we are dealing with unusual circumstances. Covid is that Monty Python foot coming down on any of the plans that might have made the policy intent 60 days prior to our current situation.

Unless the Minister thinks that the Office for Budget Responsibility is wrong about the levels of redundancies, unemployment and financial contraction—we have not even mentioned the B-word, Brexit, on top of that—that will face the economy that we want to provide the jobs that allow people to earn the money to pay off their debts, he is having a bit of a tin ear to what people are saying. In this circumstance, we need to extend the breathing space for it to be a breathing space.

This is not just about high-cost credit; this is about the people who are stuck on credit cards as well—the people who will end up spending 25 years to pay back the credit card average debt at minimum repayments. He talks about small businesses. This is about people who have mortgages, for example—

[John Glen]

It is small businesses.

[Stella Creasy]

Well, but there are also major banks. If we push too quickly, problem debt will sink any possible financial recovery. We have never learned that lesson as a country. I really wish we would. With the greatest respect to the Minister and his talk about policy intent, he is in the wrong place on these measures at this point in time. I will press this to a vote because I think it is important that we set on the record the concern that we should listen to the debt advisers who say that we will need longer in the pandemic to sort the issues out.

Question put, That the amendment be made.

Division 6

Ayes: 6

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Labour: 5
Scottish National Party: 1

Noes: 10

---

Conservative: 10

[Stella Creasy]

I beg to move amendment 35, in page 38, line 23, at end insert—

‘( ) After subsection (3) insert—

( ) Where, by virtue of subsection 2, the Secretary of State makes regulations establishing a debt respite scheme, these regulations shall not extend to placing debt advice providers under any obligation to initiate a review of debtor eligibility for the protections provided by the scheme.””

This amendment would remove the requirement in the current draft regulations for debt advice providers to conduct a ‘mid-way review’ of eligibility for breathing space.

This amendment follows in a similar vein to amendment 34 in trying to make the Government’s policy work. It is about how we translate policy intent into the practical reality of dealing with people who are in problem debt. I said in the previous debate that problem debt might be when people realise that they have a problem with their debts and finally seek help. A breathing space in those circumstances would be useful.

Amendment 35 is about the midway review. I encourage the Minister to check his inbox because he will see the note from the 80 different debt advisers, who are the people we will be charging to deal with the debt respite scheme and make it work. They say that there are two very practical reasons why they would like the clause to be amended. Any good debt adviser will be in continual contact with their client and will try to make the breathing space a genuine one that leads somewhere rather than simply limbo. To those debt advisers, the requirement always to have a midway review does not work for two very simple, practical reasons. First and foremost, it moves them from being somebody who might be able, finally, to offer a helping hand and wise counsel to being someone who is policing their relationship with that debtor. We have all had someone come into our constituency surgery who is in financial difficulty and had them cry because they are embarrassed and ashamed. At that point, censure is not helpful; for someone in debt, practicality and kindness are the things that get them through. To ask debt advisers to police the breathing space could have a negative impact on the relationship with the debtor. We are simply suggesting that rather than making the midway review a requirement, we should give the debt advisers the discretion to decide.

The second reason that debt advisers support the amendment is entirely practical and refers again to the policy intent that the Minister set out. The brutal reality is that there will be a big increase in the numbers of people needing debt advice. The Minister has given more funding to the debt advice sector, but that is being done in an environment where millions of people are out of work, and millions already have debts and limited credit options. I wish that the expansion of the credit union movement could happen; as a Co-operative Member as well as a Labour Member, we have been talking about that since I was elected in 2010, but that has yet to materialise. The reality is that people will be looking for credit and it is likely to be had at an expensive price; we can all debate what expensive is, and I know that later amendments refer to that. The reality is that there will be a lot of people who will need debt advice and to include the mandatory requirement of a midway review will limit how debt advisers can manage their caseload.

To put it into context, and I wager that I am not the only Member in this situation, in the last seven months, 42% of my constituents have come to be dependent on some form of Government support. People are in a completely new scenario; they have suddenly found themselves without the income on which they have always relied.

--- Later in debate ---

[Mr McFadden]

Is my hon. Friend’s fear about the midway review that it is too onerous a burden on the debt advisers, or that it may exclude from the breathing space people who still need it, but who are pushed out halfway through?

[Stella Creasy]

My right hon. Friend raises a real concern. If we have a large influx of people needing to speak to a debt adviser, and there are no appointments, will they get access to help? One reason why they will not be able to get an appointment is because debt advisers will have to do a midway review with people. We should simply trust debt advisers. Anybody who has worked with them, as the Minister has, will know that they are part Martin Lewis, part Alison Hammond from “This Morning”—a kind person who makes jokes so that a person feels better about themselves. They are trying to help people in distress. Through the legislation, we are asking them to do a job; we should let them do it as they see fit.

I hope that the Minister will listen to the sector when it says, “Let us hold those reviews when we need to, rather than telling us that we have to hold them, because if we are overwhelmed by people, we can’t do the job that you are asking us to do.” I do not disagree on the policy intent, but the context is different, and if we do not react to the context, all this good work, and all the legislation, will be for nothing, because there will not be appointments. There will be a negative relationship between debt advisers and the people whom they are trying to help, which will affect whether people listen to what advisers are saying; debts will continue to rise; creditors will go unpaid; and for people, the breathing space will feel like holding their breath, rather than coming up for air.

[Alison Thewliss]

We should recognise the professionalism, expertise and qualifications of those giving debt advice to our constituents, and not try to put a provision in the Bill that prejudges what they do. Speaking from experience, they have worked incredibly well, over time, with my constituents, so I question whether the midway review is necessary.

Let me give a case from my constituency. A woman came to my office very upset, very much in the way that the hon. Member for Walthamstow described, because she was being evicted the next day. We had to swing into action and try to find ways around that, and spoke to the Glasgow Housing Association. It did take time to make that happen, but the GHA sat down with her, went through all her bills and outgoings and worked with her intensively over a period, to make sure it would get the rent money and that the other debts she had, that were also causing her problems, were taken care of.

I was struck by the professionalism of the GHA advisers and by the fact that they were experienced and were tough but compassionate with the woman. They made sure she could see a way through. If people see an arbitrary cut-off point halfway through, that will give them fear, not reassurance. There is a risk that the respite will be removed from people who are supposed to be helped by the midway review, if it is put at an arbitrary halfway point. The Minister should consider whether that is really the outcome that he wants to achieve. Yes, there should be some kind of review mechanism, but my experience is that it is done all the way through the process. There is no need for the midway review, because reviewing is already happening.

[John Glen]

Amendment 35, put forward by the hon. Member for Walthamstow, would restrict the Government’s ability to require debt advisers to complete any review of debtor eligibility in any future regulations made concerning breathing space or the SDRP. As the Committee will be aware, breathing space regulations were approved by the House in October, and they state that a debt adviser must complete a midway review after day 25 and before day 35 of the moratorium.

The amendment would not amend the existing breathing space regulations, which I believe was the intention. In addition, it would apply to any regulations made in the future on the SDRP and the second part of the debt respite scheme, which the clause is focused on. That would restrict the Government’s ability to require debt advisers to complete any review of debtor eligibility related to a plan. It is expected that SDRPs will be reviewed annually, or when requested by a debtor, to ensure that payments are set at the right level and the plan remains appropriate. If those reviews could not consider a debtor’s eligibility in any way, that could be a significant constraint on the design and effectiveness of the scheme in future, and would remove the safeguards put in place for creditors.

[Stella Creasy]

What the Minister has just said suggests he thinks there is a binary choice between debt advisers reviewing and being involved in seeing how the breathing space is working, and their being completely absent. Does he recognise that, in the words of a previous Prime Minister, there could be a third way? Debt advisers could be given the professional courtesy of having the responsibility of doing their job. As part of that there might, absolutely, be some people they would spend more time with, whereas they might know that others had got on the right course. It is not that debt advisers would be absent if not put under a requirement; sometimes red tape can be a burden, not a benefit.

[John Glen]

Absolutely; that is why we listened carefully to the sector in constructing the measure. For example, when we were designing the breathing space scheme, we worked with the Money and Mental Health charity to design a different pathway for different groups with chronic crisis in mental health, allowing them to re-enter the scheme on multiple occasions in a year, and giving an extra provision. It is not something where I am being prescriptive when, alongside the SDRP regulations, it is being consulted on. However, we are in danger of making arbitrary changes in a similar vein.

If I leave aside the question of drafting, which I think I have addressed, the Government consider that a midway review is necessary to the breathing space scheme, to assess whether the debtor continues to comply with the conditions of the moratorium. I see that not as a policing exercise but an appropriate step in reviewing the suitability of the mechanism. The breathing space mechanism will not work for everyone, and it is important for a review to take place.

During the consultation period the Government explained their position on the midway review and it was supported by many stakeholders. The regulations were approved by Parliament in October and by the Welsh Senedd in November, and were subsequently made. I respectfully ask the hon. Lady to withdraw the amendment.

[Stella Creasy]

Again, I am afraid that the Minister has a slightly tin ear to the reality of what people will be asked to do and what they are trying to do. We cannot have it both ways. It cannot be claimed that our amendments about how services should be run are too prescriptive but it is not prescriptive for the Government to specify that after 30 days there must be another meeting, something which puts at risk the ability of debt advice providers to manage their own diaries. That does feel like the dead cold hand of the state going overboard, and I am sure that many Conservative Members present who perhaps have pledged their lives to fighting such intervention would recognise that that requirement is rather prescriptive.

Above all, I am listening to the sector, and those debt advisers say that in the current environment, when they will be overwhelmed by so many people needing their help, they should be allowed to do it in the way that they know best. I do know that the Minister wants to get this right, but I think he is not listening, and I think it is important that Parliament does, so I will press the amendment to a vote. We can then say to the sector that we have tried to articulate its concerns about this particular prescriptive clause.

Question put, That the amendment be made.

Division 7

Ayes: 6

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Labour: 5
Scottish National Party: 1

Noes: 10

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Conservative: 10

[Stella Creasy]

I beg to move amendment 33, in page 38, line 38, after “applies.” insert—

‘(4B) The regulations must include provision for an assessment, before the introduction of any debt repayment plan, of the debtor’s resources by a debt advice provider which must—

(a) disregard the value of the debtor’s main residence, provided that this does not exceed the median house price reported by the Land Registry for the local authority in which the debtor resides;

(b) make a recommendation about the timetable under which the individual can repay the debt whilst maintaining a living standard at least equivalent to that of households in the second quintile of income distribution.”

(4C) The regulations must require any debt repayment plan to take account of the assessment under subsection (4B) in determining the timetable over which the debt can be repaid.

(4D) The regulations must make provision for a revised assessment in the event that it is not possible for the debtor to repay their debts within three years and maintain the required living standard during this period, in which the debt advice provider must consider, and offer advice on, insolvency options available to the debtor.”

This amendment requires any regulations for the Statutory Debt Repayment Plan to make provision for an assessment of a debtor’s resources and, should the debtor be unable to pay their debts within three years, for a revised assessment to advise on insolvency options.

I am hoping for third time lucky in convincing the Minister that there are things that we need to address.

Amendment 33 is about maths. It is about how debts are calculated and how we understand whether someone is able to take advantage of the debt advice scheme—I am sure we always looked forward to double maths on a Tuesday afternoon at school. It is about how we make the scheme work while recognising that some of the guidelines and regulations on how to deal with those in problem debt have not kept pace with the times. I am not talking just about covid but about some of the calculations that have made been over a period of time.

I am incredibly mindful of what you said, Mr Davies, about insolvency and not straying into a discussion of the Insolvency Act 2020. When we are thinking about debt advisers and what work they can do with people, however, it is relevant to consider the options, as the Minister said. That is what we have the debt adviser for—they may push people towards different statutory formats. The reality is that the cost of those options and the cost of living will, I believe, artificially restrict debt advisers’ ability to give the best advice. The amendment is about giving clarity to how those calculations should be done, so that we do not see people pushed into further difficulties, or indeed fail to seek help because of those artificial thresholds.

What am I talking about? At the moment, it costs £680 to file for bankruptcy. If someone is broke, filing for bankruptcy is often beyond their reach. That means that they are stuck in limbo. The breathing space protections are designed to operate before someone reaches that point, so that they have space to sort out what they are able to do. If the calculations mean that none of the available options are open to someone, because they have no money, which is why they need a breathing space and why they turned up at a debt adviser, that is no choice at all. It is the Henry Ford choice—every option is the black car.

I started by talking about the average debt of £10,000—in those Tuesday afternoon maths lessons we will have studied the mean, the mode and the median. Households with the worst debt, who owe more than £20,000, will be excluded from some of the available options. The debt adviser will be unable to have that conversation with those people because those debts mean that they are too far gone. In fact, a debt relief order is open only to the very poorest because people have to be at the point where their monthly surplus income is less than £50 after accounting for their expenses. That £50 threshold was set in 2009. We all studied inflation in our Tuesday afternoon maths lesson, so we recognise that a £50 threshold in 2009 does not make any sense in 2020.

The amendment would help to set out the level of living expenses we should expect people to have before we start talking about their debts, so that we are not asking people to be in penury. That does matter, because we could be talking about people being in that financial position for a very long period of time.

--- Later in debate ---

[John Glen]

Amendment 33, tabled by the hon. Member for Walthamstow, would dictate specific eligibility criteria for a statutory debt repayment plan, which would involve requiring debt advice providers to carry out a complex assessment of a debtor’s resources against external data and benchmarks and, where a debtor is unable to repay their debts within three years, to conduct a revised assessment of the debtor’s circumstances and advise on insolvency solutions.

I reassure the Committee that the Government are keen for any eligibility criteria to strike the right balance between allowing suitable debtors to enter the protections of an SDRP and ensuring that creditors are repaid over a reasonable timeframe. The Government set out the proposed eligibility criteria in their consultation response of June 2019, and they expect the principles to remain the same.

Imposing an additional obligation on debt advice providers to conduct an assessment of a debtor’s living standards, fixed by reference to income distribution and local house prices, could lead to inflexibility and inconsistency in the way the SDRP is provided. In any case, the appropriate mechanism for setting out that level of detail is the regulations, on which, I absolutely reassure the Committee, the Government will consult.

I turn to the suggestion that debt advice providers be required to conduct an assessment of a debtor’s circumstances, and to consider insolvency solutions if the debtor is unable to repay the debt within three years. Again, let me reassure the Committee that it is absolutely the Government’s intention for debtors’ plans to be reviewed regularly. In fact, our consultation response proposes that debt advice providers complete an annual review to ensure that a debtor’s plan continues to be the most suitable solution for them. This review can propose changes to the planned payments if the debtor has experienced a rise or fall in surplus income.

In line with the consultation response, we expect to include in the SDRP regulations provision for a debtor to request a review, and provision for payment breaks in the case of an income shock. The ability for an individual’s plan to last longer than three years, and up to a maximum of 10 years in exceptional circumstances, is intended to support sustainable repayment plans over time. If, once the SDRP scheme is up and running, a debt adviser considered an insolvency solution more appropriate for an individual than their entering into an SDRP over a longer period, that option would remain available.

[Stella Creasy]

I thank the Minister for what he is saying, and I appreciate that he is setting out that he thinks the amendment is not needed because there will be earlier interventions. Does he understand that the £680 cost of going bankrupt can be a barrier to taking up the options that he is talking about? It could lead to people above these very low thresholds staying in the same position not for a couple of years, but for seven, eight, nine or 10 years—not because they want to live like that, but because they have not got enough money built up to take the alternative.

[John Glen]

I recognise that these are complex matters. There will sometimes be a need to pay fees over a much longer period, and that option exists. The consultation on how the regulations will work will engage very closely with the sector, and I anticipate that it would get to the right place. I do not think that I have reassured the hon. Lady, but I hope that I have reassured other members of the Committee about the Government’s intentions. I ask her to withdraw the amendment.

[Stella Creasy]

I thank the Minister for what he said. If he is saying that he is prepared to engage on the subject of debt advice—perhaps the debt advisers’ writings for the Committee on this point were lost in translation—I am happy to withdraw the amendment. It is about recognising that the thresholds have to change, and it sounds like the consultation is the right place to have that conversation. If the Minister nods and says that that is the sort of thing that the consultation will consider, that is perfect.

[John Glen]

indicated assent.

[Stella Creasy]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

New clause 12—Impact of COVID-19 on the Debt Respite Scheme: Ministerial report—

“(1) The Treasury must prepare and publish a report on the impact of the COVID-19 pandemic on the implementation of the Debt Respite Scheme.

(2) The report must include—

(a) a statement on the extent to which changes to levels of household debt caused by the COVID-19 pandemic will affect the usage and operation of the Debt Respite Scheme;

(b) a statement on the resilience of UK households to future pandemics and other financial shocks, and how these would affect the usage and operation of the Debt Respite Scheme; and

(c) consideration of proposals for the incorporation of a no-interest loan scheme into the Debt Respite Scheme for financially vulnerable individuals affected by the COVID-19 pandemic.

(3) The report must be laid before Parliament no later than 28 February 2021.”

This new clause would require the Treasury to publish a report on the impact of the COVID-19 pandemic on the implementation of the Debt Respite Scheme, including consideration of a proposal for the incorporation of a no-interest loan scheme into the Debt Respite Scheme.

New clause 19—Report on functioning of debt respite scheme and compatibility with personal insolvency regime—

“(1) The Treasury must prepare a report on—

(a) the functioning of the debt respite scheme under section 32;

(b) the extent to which it is achieving its objectives;

(c) its compatibility with personal insolvency legislation and policy.

(2) That report must be laid before Parliament no later than one year after this Act is passed.”

New clause 25—Debt Respite Scheme: review—

“(1) The Chancellor of the Exchequer must review the impact on debt in parts of the United Kingdom and regions of England of the changes made by section 32 of this Act and lay a report of that review before the House of Commons within six months of the date on which this Act receives Royal Assent.

(2) A review under this section must consider the effects of the changes on debt held by—

(a) households,

(b) individuals with protected characteristic as defined by the Equality Act 2010,

(c) small companies as defined by the Companies Act 2006.

(3) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and

“regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on debt of the changes made to the Financial Guidance and Claims Act 2018 in section 32.

[John Glen]

Clause 32 builds on existing legislation, and will allow us to implement a statutory debt repayment plan that will help people who are in problem debt. The Government want to incentivise more people to access professional debt advice, and to do it sooner. To this end, we are introducing a debt respite scheme.

The first part of the scheme is a breathing space, which commences on 4 May 2021. The second part is the SDRP, which will be a new debt solution for people in problem debt. It will provide a revised, long-term agreement between the debtor and their creditors on the amount owed, and a manageable timetable over which those debts are to be repaid. It is intended that during the agreement, debtors will be protected from most creditor enforcement action, and from certain interest and charges on debts in the plan.

The clause amends sections 6 and 7 of the Financial Guidance and Claims Act 2018 to allow the Government to implement the SDRP effectively, as set out in their policy consultations on the debt respite scheme. The amendments will allow the Government to make regulations that can compel creditors to accept amended repayment terms and provide for a charging mechanism where creditors will contribute to the running of the scheme, ensuring it is fair and sustainable.

The clause will also allow the SDRP to include debts owed to central Government, which is crucial to helping people in problem debt. In time, I hope that will encourage more people to access debt advice sooner and enable them to repay their debts within a more manageable timeframe.

We are debating a number of new clauses alongside the clause, and I will allow hon. Members to speak to those before I respond to them. I recommend that the clause stand part of the Bill.

[Stella Creasy]

I will speak to new clauses 12 and 19. New clause 12 appears in the name of my friend, the hon. Member for Edinburgh West, but I recognise that she and I share a similar concern about seeing these measures in the round. As the Minister has spoken this afternoon, he has made the case for doing that, because he has talked very strongly about the policy intent and all the work that has been going on, but he has said limited amounts about the Monty Python foot of covid coming down on those best intentions.

Both of these new clauses speak to that Monty Python foot and the very different circumstances people face in terms of having a stable income to be able to repay any debt, problem or not, over the coming years. We know that there is already a problem brewing on top of a problem—a double problem, as it were. I am sure I could think of a better analogy if it was not a Tuesday afternoon.

One in three of those people reporting a fall in income over the past seven months has already borrowed to try to make ends meet. They are already on that carousel, going round and round, putting a bit of money here, hoping they can put another bit there and wondering when it will stop—hoping that schemes will come through. I am sure we will have heard about the economic impact in the debate in the main Chamber today, so I simply say to colleagues on the Government Benches: “You cannot be concerned about the economic impact of the tier system if you turn a blind eye to the debts in our communities and what happens to them.” It is dangerous simply to presume that we can spend our way out of this, knowing that debt is not equally distributed in our country.

That is why the new clauses are about having that evidence in front of us. I am a big fan of evidence-based policy making—although it has not often been in vogue in the 10 years I have been an MP—particularly when it comes to debt. That is partly because the figures change. As I said in my first set of contributions, there is some evidence that people are paying down their debts and trying to be more financially resilient, but we know that a tsunami of unemployment and low incomes is coming our way, and we know it will hit people who have not had to deal with it before—people who have never had to budget in the way that they will have to budget in the coming months.

The new clauses are about having that information and understanding why people take up particular options. Again, I do not wish to prosecute the Insolvency Act 1986 and how it works, but I do wish to set out that, if people cannot access those mechanisms, the breathing space is no breathing space at all—it is just limbo. We will not know that unless we put those measures in the context that these new clauses create by asking to have that information and that detail. If we do not ask ourselves why it is that every six minutes a person is declared insolvent and bankrupt in the UK, is that going to change over the year ahead? If not, is the breathing space working, or is it that people are not able to access alternative support?

The Minister will need that information to be able to flex the policies, as he inevitably will have to because of the Monty Python foot of covid. The longer this place pretends that that is not going to be a problem—that debt is not going to be part of everyday life for millions of people who have never really had to deal with it before—the more the vultures will circle. I have tabled other amendments later on in the Bill, and I do not know whether we will get to them today, but I know we will get to them on Thursday. Those amendments are about how we protect consumers, but sunlight is the best disinfectant—knowing where the damage is being done.

These new clauses and this data are about recognising that we will not get everything right now. There may be all sorts of consequences. What happens if the implementation of the vaccine takes longer to do and more industries go bust? We have already seen Arcadia going into administration today. What happens if it comes in more quickly, but the jobs that are created or the jobs that are available to people pay a fraction of what they previously earned? There are huge uncertainties ahead in the policy context into which the policy intent is being put.

I hope the Minister will see the new clauses from myself and the hon. Member for Edinburgh West as they are intended, which is to be forewarned and forearmed so that we can take a muscular and proactive approach in this place to not just protecting consumers and our constituents, but preventing problem debt in the first place. We would then not have to have that conversation with people about whether it is a problem that they have put everything on the credit card, taken out a payday loan in one of its various forms, taken out an Amigo loan or gone to the buy-now-pay-later industry, which we are going to come on to.

--- Later in debate ---

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

It is a pleasure to be under your chairmanship, Mr Davies. I would like to speak to new clause 3, which calls on the Government to prepare and publish an annual report on the Help to Save scheme for each financial year that it remains open to new accounts.

The Help to Save scheme is a form of savings account that allows eligible people to receive a bonus of 50p for every pound they save over four years. The scheme is particularly good, as it targets people who are entitled to working tax credits or who are in receipt of universal credit. Given the failure to support jobs during covid-19, the number of households currently receiving universal credit has risen from 1.8 million in May 2019 to almost 4.6 million as of October 2020. I am sure everybody on the Committee agrees that that is a very high figure, although I appreciate that we are going through really difficult times because of covid.

One of the things that I am seeing as a local MP in my constituency—I am sure it is the same for everybody on the Committee—is a huge increase in universal credit claimants. We are likely to see an even bigger increase as people are no longer able to rely on their personal savings, so the Help to Save scheme is more important than ever.

After a two-year delay, the Help to Save scheme was launched by the Government in September 2018, to much anticipation. However, the scheme to date cannot be considered a success, and I am eager to find out why. We tabled the new clause because we feel that an annual report would help us in uncovering that. Of the 2.8 million people eligible to take up the scheme, only 132,150 accounts had been opened by July 2019—just 4.6% of those eligible for the scheme. I am still struggling to understand those figures and to believe that the Government are truly committed to a savings scheme and to creating a culture of household saving.

Furthermore, in last year’s spring statement of March 2019, the Government’s Budget watchdog slashed by half its forecast of how much the taxman would have to spend on Help to Save by 2021, citing lower than expected take-up. However, as I mentioned, I am in favour of the scheme and want it to succeed. That is, after all, why the previous Labour Government spent time highlighting the scheme and planning to launch it in 2010 as a savings gateway, only for it to be scrapped in 2010 by the then Chancellor.

Members may agree that the information we have so far does not paint a picture of commitment from the Government to supporting people to save. When the savings gateway was created, Labour worked with banks, building societies and credit unions, which invested in software and promotional literature for the launch. Some potential savers had received letters informing them of their eligibility and telling them about local providers just hours before the scheme was scrapped by the incoming Conservative Government.

I am really interested to hear what measures the Government have implemented to promote take-up of the scheme. I could raise many issues about universal credit and working tax credits, but as you advised, Mr Davies, we need to keep to the new clause, so I will raise them another time. My primary concern is to ensure that those who are eligible can access the scheme, now and in the future.

The Government’s pilot scheme found that 45,000 individuals saved a total of £3 billion during the trial period. We know that the scheme works. Charities and debt support services are hopeful that it can directly tackle asset poverty. The Help to Save scheme is due to come to a close in three years’ time, in September 2023, which means that we still have time to support people to save over £800, if we act now to make the scheme more widely accessible.

Publishing an annual report on the scheme, as provided for by the new clause, would allow us to see in detail where take-up has been successful and what we can do to ensure that people are aware of the scheme and how to engage with it. We feel very strongly that a report would help us to capture what areas we need to improve. The Minister mentioned that the Government are committed to providing support. I hope that they are, but agreeing to have an annual report would show further commitment.

In the meantime, I believe that more can be done, particularly to integrate with credit unions and debt management services so that the scheme functions more effectively in the years it has left to run. I would also be really interested, in lieu of an annual report for 2020, given that at the end of last year it was estimated that only 4% of eligible people have signed up to the Government’s Help to Save scheme, if the Minister could tell the Committee whether he thinks it has been unsuccessful and what the Government are doing to promote take-up.

[Stella Creasy]

I rise to support what my Front-Bench colleague said on new clause 3 and to speak to new clause 14, which seeks to underline the question that she set. Given that this is a good scheme, why has it not been taken up more widely?

The Minister may have thought that I was just a one-trick pony, obsessed with debt. Let me tell him that my difficult second album is very much about savings. I know that he had concerns about the drafting of my previous amendments and I want to put on the record my thanks to the Clerks, who have been incredibly helpful and patient with me in seeking to get the wording right. We all appreciate the hard work that they do behind the scenes to ensure that our drafting is intelligible, even if it is not inevitably accepted by the Minister.

I hope that the Minister will accept this new clause and my difficult second album about savings. This is two sides of the same coin of how people make ends meet. I would wager that that is why he has put them together in this portmanteau or Christmas tree Bill––given that it is 1 December, we may as well call it that. It is about how we make sure that people have the money they need, whatever the weather or time of year and whether things are going well or badly for them. Just as we would want people to get help when they get into debt, we also want them to get help to have rainy day money, as it might quaintly be called now. I said that to a member of my staff who looked blank and probably tried to look it up on Instagram.

Clearly, helping people on low incomes to save is critical. One reason why I support the new clauses is that I do not think we can have a conversation about savings without talking about assets. There are increasing inequalities in our society. Indeed, the new inequality is not so much about income as assets. We are looking at why people do not take up the scheme, what we can do to make it work and whether it serves the purpose that we are trying to get at. While we come from different political traditions, I hope that the Minister would agree that income inequality is of itself a negative draw on our economy and social cohesion. Perhaps that is the best way I can put it to him. One day, I will tempt him towards the more radical socialism of egalitarianism.

When we have people who have plenty and people who have very little, or indeed no access to anything, our society suffers. The Help to Save scheme is about improving that situation. It is increasingly obvious that in constituencies and communities like mine that are riven by gentrification and inequality, it is assets that are the difference between success and failure. That is necessarily different from savings accounts, and it is right that when we are looking at what we are doing to help those on the poorest incomes succeed in life, we are cognisant of that fact and include it in our thinking.

What do I mean in layman’s––or perhaps laywoman’s––terms? One in five mortgages are issued with the help of the bank of mum and dad. People with the bank of mum and dad are always going to be more successful and stable than many of those constituents who do not have access to that. Those are the people at whom the scheme is targeted. The 10 million households that have no savings at all stand in a very different place from the one in 10 children born in the 1980s who will inherit more than half average lifetime earnings. Property is the divider within our society and that trend has got a lot worse over the last 30 years, yet very little Government policy on tax and savings begins to address that and the income inequalities that it creates.

When we are looking at a savings scheme and expecting people to have money to put aside––even what might seem very modest sums––we have to set it in the context of the other assets they have access to if we really want to get to grips with those inequalities in society. In looking at tax and benefit policies, and savings policies, the fact that someone can inherit £1 million in property without paying any tax at all stands against those families with £15,000 of debt who will never be able to put any money aside because they will always owe somebody else. All Governments of all colours have been burned before in trying to address some of these factors, and in taking a narrow view purely of income levels. I am old enough to remember TESSAs—not just the fantastic Dame Tessa Jowell who is sadly no longer with us, but tax-exempt special savings accounts, which drove income inequality in this country in terms of people’s ability to put money aside.



It is right that we ask ourselves whether this measure will get to the root of that problem—to the communities and people we represent who will not be able to save and whose lives will always be askew, because their counterparts have been able to benefit from that growing asset wealth, whether that is people who have inherited property or people who are now in communities such as mine, where housing costs and housing values have risen to such an extent that their children will be able to benefit from them, including from schemes such as remortgaging. In situations such as that with covid, which we know is an income shock, people might be expected to use their savings account, but they cannot because they do not have any money in it, so it is even more apposite to ask whether they have other assets that they might be able to draw on in comparison with their counterparts.

Financial Services Bill (Eleventh sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 11th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

I stress that that is very different from a consumer going to their credit card provider and asking for an increase in their credit limit; of course, that should be available to consumers. We are not being prescriptive on personal freedom, but we are saying that this could go some way to redressing the imbalance of power and information between financial service providers and their consumers. That is why we have tabled the new clause.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Davies, as ever, for the last time on this Bill. Let us make it a good one. I will try to keep it lively and maybe capture the attention of everybody on the Committee about the things we can do.

The new clauses provide the moment to finally talk about the big beast in this Bill: the Financial Conduct Authority. I say “big beast”, because, as someone who has tracked not only high-cost credit, but credit companies—as I know the Minister has for many years—I sometimes feel like Bob Peck in “Jurassic Park”, who played the warden, Robert Muldoon, who tried to warn people about the velociraptors, but was also supremely impressed by the way in which they evolved to be able to kill. In this case it is about evolving to be able to exploit.

It matters that we take a careful look at what the FCA is doing, because the FCA is our constituents’ best defence against the velociraptors of the credit industries in this country. I use “credit industries” widely, because for me this is not just about the high-cost credit industry. However, in supporting the new clauses, I want to share with the Committee the experiences around the high-cost credit industry and, in particular, the pay-day loan sector, because I think they speak to the challenges with the Financial Conduct Authority and why we need to amend the Bill, to ensure that as we give the FCA more powers, it truly has our constituents’ interests at the forefront of its mind.

I do not doubt the impact that the FCA has had. I want to put that on record, because the Minister and I have talked for a long time about my concerns about the FCA. I acknowledge that it has made progress. My point is about the pace at which it has made progress, about cutting through the stand-off that we sometimes see, whereby people recognise that this is a problematic type of credit or, as my right hon. Friend the shadow Minister has talked about, where issues arise for our constituents—the people who come into our constituency offices and tell us about their ongoing battles—and about ensuring that we do not just give them protection, which means avenues for redress, but actually prevent those problems. I believe that the FCA was set up to prevent problems, but if we look at its track record in some of those problem areas, we see where delays in dealing with them has led to our constituents paying the price.

Bear with me, Committee; I think it is worth sharing that example, because it explains why these amendments make sense. Indeed, I believe the Minister agrees with me on this. A bit like earlier, with the lead generators, I am sure he already has a folder full of examples of where the FCA has done brilliant work in tackling consumer detriment. In fact, I can see all the paper—goodness me, all the trees that have gone into that! However, I know that he wants the FCA to be more agile and does not want to have people like me continually coming to him and him knowing that there is a problem, but seeing this trade-off, as this aspect is overthought almost, with too much emphasis on the unintended consequences of acting and no emphasis on the unintended consequences of not acting on some of these issues. In order to cut through that, these amendments would give a clear direction to the FCA about what consumer detriment is, why and how it needs to act, and the particular issue it needs to take into account when it comes to debt.

On Tuesday, we talked a lot in this Committee about the debts already in our communities and the debts to come, which is why this is an urgent issue that cannot really be dealt with in another review or consultation, which will go on for 18 months, because by then, in every one of our constituencies, too many people will have lost their jobs and possibly their homes, and will be in what we are calling problem debt for decades to come. Indeed, I believe this Committee is already having a positive impact on that conversation, because on Tuesday we talked about the importance of making problem debt as much of an issue for the sidebar of shame in the Daily Mail as Kim Kardashian’s derrière, and last night I saw that the Daily Mail had started talking about the horror of middle-class people having to go to food banks.

Clearly we are starting that conversation in our country, but we need to do much more. Why do we need to do much more? Because it took too long to deal with the payday lending industry. In 2010, when I was first elected, I already knew many colleagues in this place were seeing these companies on their high streets and the problems with the eye-watering interest rates, where people thought they had missed where the decimal point was. Yet nothing was done for years, and those companies exploded, not just in our high streets but online, and our constituents got into huge amounts of debt. I know that the Minister agrees with me that it took too long. I know, too, that the Minister is not his predecessor, who, when I first went to see him about payday lending, literally patted me on the back, congratulated me on finding an issue that I could issue a press release to my local community about and sent me on my way. I know he is not like that; he recognises when there is a problem. However, if he looks at the regulatory history of the FSA on this issue, he will also see that there was a problem.

Let me set that out with companies that people will have heard of. They will have heard of Wonga, QuickQuid and BrightHouse, all of which operate in constituencies across the country. All these companies have collapsed or are in financial difficulty because of the debts they owe to their customers, our constituents, because of the way in which they lent them money on credit. They have not collapsed as a result of the work of the FCA, but because of the work of the ombudsman. In 2014, when Wonga was clearly a problem for so many of our constituents, the FCA agreed a redress scheme for 375 customers and announced that it had appointed a skilled person to monitor the new lending decisions that Wonga was going to make, to ensure that the issue was sorted. In November 2015, the FCA agreed a redress scheme for 4,000 QuickQuid customers worth £1.7 million, and in October 2017 it agreed a £14.8 million redress scheme for 250,000 BrightHouse customers in respect of 384 agreements for lending that may not have been affordable.

That is the critical issue here. At every point, the FCA has acted to look at the affordability of the loans. However—given it is that time of year—it does not take a rocket scientist to work out that if we ask turkeys to decide what is on the menu for Christmas, they will often say that a nut roast is better, and that is what happens when we ask these companies whether a loan is affordable. They would tell their clients that they could afford these loans, because the way they made their money was to re-lend. It was not for someone to borrow from them and pay it all back—it was for that person to borrow from them and get into a cycle of continually borrowing from them, because they would make a lot more money. Once a person was hooked, they would borrow and borrow. That was the decision about affordability.

At various points the FCA has been brought into these companies to determine whether they were making good affordability decisions—whether, in layman’s terms, they were ripping off our constituents. At every point, that affordability decision did not meet the needs of those customers. How do we know that? Because the ombudsman then had to interfere to help people who were in debt. The result was the same: the lenders all fell into administration, not because of the action of the FCA but because the ombudsman was making them repay our constituents, who had been ripped off by them.

--- Later in debate ---

[John Glen]

I thank the hon. Ladies and the right hon. Gentleman for their speeches, to which I have listened carefully. I will try to address fully the 10 new clauses that have been tabled. In essence, they relate to the effectiveness of the FCA’s oversight; that is the substantive point behind them.

The lead new clause is new clause 6, which has two functions. Subsection (2) requires the FCA to have explicit regard for vulnerable consumers when discharging its consumer protection objective, and subsection (3) introduces a statutory requirement for the FCA to make rules requiring authorised persons to adhere to a duty of care when providing a product or service.

UK financial services firms’ treatment of their customers is governed by the FCA in its principles of business, as well as specific requirements in its handbook. The FCA’s principles for businesses require firms to conduct their business with due skill, care and diligence, and to pay due regard to the interests of their customers and treat them fairly. The FCA already has recourse to disciplinary action against firms that breach the principles.

The FCA has already announced that it will undertake work to address potential deficiencies in consumer protection, in particular by reference to its principles for businesses. Although the coronavirus pandemic has caused the FCA to reprioritise its resources and delay certain pieces of work, including the next formal stage of this work, delaying these initiatives has ensured that firms are able to focus on supporting their customers, including the most vulnerable, during this difficult period.

I draw attention to the second purpose of new clause 6, alongside new clauses 38 and 39, which require the FCA to introduce a duty of care. A number of other amendments here also relate to the duty of care.

The Government believe that, as the FCA is already taking steps to ensure that consumers are treated fairly and financial services firms are obliged to exercise due care and regard when offering products, services and advice, a statutory duty of care requirement is not necessary. I have already set out a number of actions that the FCA is taking to ensure that customers are properly protected.

On new clause 39 in particular, the Government believe that the scope, which applies to all financial services providers, is inappropriately broad. For example, it is unclear whether that would include persons exempt under the exemptions order, which includes entities ranging from central banks to any employer offering a cycle-to-work scheme. Furthermore, there is no indication of the territorial scope of the financial services provider. Assuming that the duty of care would apply only to actions being done within the UK, the vagueness is still likely to lead to enforcement difficulties if a provider is based outside the UK.

Finally, it is inappropriate to apply the provisions to all financial services providers as no assessment has been made, in relation to unauthorised firms, of the extent to which the existing common law and other consumer protection legislation is or is not sufficient to achieve the right level of consumer protection. For example, where providers are subject to supervision or oversight by other professional bodies, as is the case with professional firms, it is unclear how this proposal would interact with the remit of those bodies who may be better placed to assess matters relevant to duties of care.

New clause 40 would require the Treasury to review at least once a year the case for instructing the FCA to introduce a duty of care for all financial services providers. The Treasury will of course keep this question under consideration. However, it is disproportionate to set this requirement in statute. I have already set out the actions that the FCA is taking to ensure that customers are properly protected.

I want to pause here and note that I have enormous respect for the perspectives of the hon. Member for Walthamstow on this issue. I do not have her encyclopaedic knowledge of dinosaur names, but I do respect her engagement on the issue. I have engaged very closely with the FCA. I recognise that she is still dissatisfied with where things have got to and she makes some reasonable points, on which I am happy to continue the dialogue, but there have been significant changes in recent months with respect to the work that is going on—that is live at present. I suspect she will not be satisfied, but let me carry on and then we can see where we get to at the end of this.

On new clause 41, the Government believe that the FCA, as the independent conduct regulator for the financial services industry, is best placed to judge the merits of a duty of care for the financial services industry. It would therefore be inappropriate for the Treasury to instruct it to impose a duty of care on authorised firms, although that dialogue is ongoing.

On new clause 42, the FCA has already published a feedback statement following its discussion paper on duty of care last year. The FCA will also publicise the findings of its upcoming work on how to address potential deficiencies in consumer protection. Therefore, the Government view is that it would be unnecessary at this point for the Treasury to report on the FCA’s position on the need for a duty of care.

The Government believe that there are sufficient protections in place without expanding the FCA’s statutory consumer protection objective or introducing a statutory duty of care, but I reassure members of the Committee that we will continue to work closely with the FCA to keep this issue under review—I am not saying “No, never.”

New clause 15 would require the FCA to have explicit regard to the prevention of consumer detriment, including the promotion of unaffordable debt, when discharging its consumer protection objective. The Government believe that the FCA, as the UK’s independent conduct regulator, is best placed to judge how to protect financial services consumers from detriment, including that which arises from the promotion of unaffordable debt. The existing legislation accounts for the prevention of consumer detriment as a result of section 1C(2)(e), which outlines

“the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the degree of risk involved…and the capabilities of the consumers in question”.

[Stella Creasy]

I am conscious of time, but approximately 1 million households that could ill afford it have lost out on about £1 billion of compensation from Wonga and QuickQuid. Does the Minister really believe that under the existing regime that he is defending, there has been sufficient recognition of what it means to consumers when it goes wrong, and that there is no need for change?

Financial Services Bill (Twelfth sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 12th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

[Abena Oppong-Asare]

I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 16

Consumer credit: extension of FCA rule-making duty

“(1) Section 137C of the Financial Services and Markets Act 2000 shall be amended as follows.

(2) In subsection (1A), substitute

‘one or more specified descriptions of regulated’

for ‘all forms of consumer’.”—(Stella Creasy.)

This new clause would extend the responsibility of the FCA to make rules with a view to securing an appropriate degree of protection for borrowers against excessive charges to all forms of consumer credit.

Brought up, and read the First time.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

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

[The Chair]

With this it will be convenient to discuss the following:

New clause 17—Regulation of buy-now-pay-later firms—

“The Treasury must by regulations make provision for—

(a) buy-now-pay-later credit services, and

(b) other lending services that have non interest-bearing elements

to be regulated by the FCA.”

This new clause would bring the non interest-bearing elements of bring buy-now-pay-later lending and similar services under the regulatory ambit of the FCA.

New clause 22—Cost of credit: FCA assessment—

“In Schedule 6 of the Financial Services and Markets Act 2000 after paragraph 2F(3) insert—

‘(4) When considering the business model, the Financial Conduct Authority must have regard to the interests of consumers, in particular—

(a) the proportion of a firm’s revenues that are to be derived from re-lending, and

(b) whether customers are likely to be charged a total cost of credit in excess of one hundred percent of the amount borrowed both on the basis of the initial credit terms or following relending activities.

(5) Where the Financial Conduct Authority’s assessment concludes that a business model poses a significant risk that customers will be charged a total cost of credit in excess of one hundred percent of the amount borrowed, then the threshold condition will not be met.’”

This new clause would ensure that the Financial Conduct Authority assesses the business models of firms and does not allow excessive relending activity to take place, or for firms to be granted permission if there is a significant risk of customers paying more in interest, fees and charges, than the amount they have borrowed.

[Stella Creasy]

It is a pleasure to serve under your chairmanship this afternoon, Dr Huq—all of us who have one of those titles but never really use it probably ought to, not least with our bank managers on issues such as this.

The new clauses we discussed this morning were about when the FCA, having been involved with a company, has let down our constituents, and that is why we pushed new clause 21 to a vote: fundamentally, there are thousands of people in this country, many of them our constituents, who will be denied compensation because the companies that owe them compensation have gone into administration on the FCA’s watch.

These new clauses are about how we can get proper consumer protection so that we do not get into those positions at all, as well as taking on board what we have learned in the past seven years about what actually works to protect consumers, and the reality is that it is capping. Capping the costs of credit has been a very effective, cheap and clear form of regulation, which has benefited industry and consumer alike. These new clauses are about giving the FCA the power to use that evidence to help to protect our consumers, because, sadly, the detriment that made capping payday lending such an effective thing to do is now appearing in many other industries. That speaks to the whack-a-mole challenge that we have with credit in this country.

As I said this morning, the challenge is that the FCA moves very slowly, but this industry—credit in its broadest sense, not just high-cost credit—moves very quickly. We know that what has stopped consumer detriment is being able to cap what these companies can charge, and we know that most of all from the payday lending industry. The payday lending industry still exists in this country, but the reason we have not had people turning up to our surgeries, or seen these companies on our high streets or indeed in our inboxes, is that regulation has meant that people are not being exploited by them in the way that they were. The companies can still operate—those that want to lend to people in a short-term and effective way without exploiting them. However, the point at which people get into debt and cannot get out of it—that business model that was about hooking people in and keeping them paying—has ended, because of the cap.

In this country, if someone takes out a payday loan, they will never pay back more than double what they borrowed, including the interest fees and the charges. That is a really important point in these new clauses, because the whole point was capping not just interest rates, but the whole cost of a loan. As I said earlier, exploitation in the credit industry is like water: it finds the loopholes. These new clauses speak to other forms of loopholes.

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

The hon. Lady is making a very good point. Is she aware that the Young Women’s Trust has suggested that 1.5 million young women have lost income during the pandemic?

[Stella Creasy]

Absolutely. We know who such companies are targeting, and they are doing so deliberately. I hate to say this, as I do want to win over the Committee, but we might not be their target audience at this point in our lives, because we might not be actively reading the social influencer media posts. I might be completely wrong—I am sure some Government Members are regularly on their Instagram accounts looking at posts by ASOS.

Some 20% of those young people say they have missed a payment in the last year—the figure has doubled in the last year—because they thought that a purchase would cost a certain amount and that they had an income, but that income has gone. The companies will say that they are very good to their customers because they do not lend more than people need and they do not charge interest—the companies’ interest is in people paying back the money—but those companies go silent on what they do when people do not pay back. What happens to people’s credit references? How do they chase money? Do they use debt collection agencies?

Those companies are growing rapidly, just as the payday lending industry did. We watched that happen and, in that Cassandra-like way, all tried to warn of it, but it took too long for us to act. In 2019 Klarna was boasting that it had signed a partnership with a new merchant every eight minutes in this country. By the end of 2019, 6 million people had used its product, and it said that 55,000 were using it weekly. Imagine what it is like now, with people having been stuck at home and stuck on their phones.

The Money and Mental Health Policy Institute found that more than 3 million people with mental health problems have found it harder during the pandemic to control their online spending, and two in five said the BNPL industry has been “harder to resist”. Because it is not regulated, it does not have to follow any of the rules we might want to point to that protect consumers. That is why we see all those adverts saying, “No interest, no fees—don’t worry about it.” The industry does not have to provide the normal financial information we see in other forms of credit because it is not regulated in that way.

Just as with the payday loan industry, as soon as we started talking about these companies, along came the offers of dinners and discussions and talks, where the industry says it is in fact a misunderstood new technology. Those of us who are not regularly on the internet have obviously missed them.

[Mr McFadden]

rose—

[Stella Creasy]

I am sure the shadow Minister is about to tell us about his Instagram account.

[Mr McFadden]

No, I am not, but I am interested to hear that my hon. Friend got an offer of dinner. All I got was an email.

[Stella Creasy]

Sadly, during the pandemic, none of us has been able to take up any of those offers to explain our concerns to these companies directly, as opposed to on Zoom. It is a simple concern: the way in which these products are marketed encourages people to spend money as a way of dealing with the emotional and social impacts of the pandemic. The adverts, using those social influencers, say, “When you’re feeling low, sat at home by yourself with nowhere to go, there is something to make you feel better.” Essentially, the message is, “Get into debt. Don’t worry about it. You can spread the payments. Don’t worry about whether you can afford it.” They get away with saying and doing that because they are not covered by the regulations.

I know the Minister is looking at this issue—he said so—and that the FCA is doing so. I have made a series of complaints to organisations such as the Advertising Standards Authority about these issues, because, just as with payday lending, we have seen the rapid expansion of these companies. My worry is that if we take 18 months it could be too late in terms of consumer detriment. I do not doubt these companies when they say they want to have a sustainable business model, but it is for us in this place, in crafting the Bill, to decide what sustainability is and how they make their money. Otherwise, we are handing them our young consumers, in particular, on a plate to be exploited. The new clauses speak to those issues.

New clause 16 would ensure that all forms of consumer credit are covered by regulation, because the gap that Klarna and company have fallen into is arguing that they are not a form of consumer credit so they do not need to be regulated. We should always apply a sniff test: if somebody is giving us money to buy things on tick, that is a form of credit. If it walks like a duck and talks like a duck, it should be regulated like ducks should—see, we have moved on from the dinosaurs to ducks.

New clause 17 would make rules explicitly about the buy now, pay later industry. I do not believe we can wait another year or so before we do something. It makes sense to bring the industry under the FCA’s umbrella so that the FCA can act. The new clause would ensure that Ministers could act based on the industry’s actions, given the risks that come from them. Unlike customers of Amigo Loans or indeed the remaining payday loan industry—or even the credit card industry—nobody who uses buy now, pay later can go to the ombudsman for redress, so what do they do if they get into difficulty? I pay tribute to Alice Tapper from Go Fund Yourself, who has been collecting the evidence about young people getting into debt from unaffordable forms of spending with such companies and not knowing how to get out of it.

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[The Chair]

I call Stella Creasy PhD.

[Stella Creasy]

As well as winner of a Titmuss prize, I think you will find, Dr Huq. My father got excited that I meant Abi, and my mother thought I meant Fred—it was neither.

I listened to the Minister, and was all eerily familiar. It was like the conversations that we had on payday lending, when everyone mentioned the then Office of Fair Trading. I appreciate that that conversation was not with the Minister, but the outcome for our constituents will be the same. It is Christmas; does he think that Klarna, Clearpay and Laybuy will not be heavily pressing their product on our constituents?

We could vote to send a message that change will come in the next couple of months. We could sound the alarm that we did not sound on payday lending until millions of people were in debt. The Minister knows that the FCA has been, and will continue to be, timid about using capping, because it is looking for political leadership to say that capping is the right to do.

I am happy to withdraw new clause 16, but I will press new clause 17 to a vote because I think we should send a message that we are listening to the consumers who are already in debt with those buy-now-pay-later companies. It is an incredibly reasonable clause that says that we will regulate and not leave people hanging. The Minister has not given any succour to that idea. He has talked about a review and the possibility of some consideration later, but that is just too late. Too many people are already in debt with those companies. I hope, if the Minister will not listen to me, that he will at least listen to Martin Lewis and Alice Tapper, who have been trying to help people in financial difficulty because they cannot go to the ombudsman. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 17

Regulation of buy-now-pay-later firms

“The Treasury must by regulations make provision for—

(a) buy-now-pay-later credit services, and

(b) other lending services that have non interest-bearing elements

to be regulated by the FCA.”—(Stella Creasy.)

This new clause would bring the non interest-bearing elements of bring buy-now-pay-later lending and similar services under the regulatory ambit of the FCA.

Brought up, and read the First time.

Question proposed, That the clause be read a Second time.

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Brought up, and read the First time.

[Stella Creasy]

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

I do not intend to speak to this new clause for very long because my case has already been made. This is a simple clause about the powers of the FCA to do investigations and about who has the power to require it to do them—currently, that is the Treasury. The new clause suggests that a Select Committee should be able to do that. It would most likely be the Treasury Committee, but the clause says “a relevant Select Committee”, because the issues may concern the Business, Energy and Industrial Strategy Committee.

The Minister will understand my disappointment and frustration that he has not offered any opportunity to look at whether amendments or investigations are needed. Change is likely to come to our credit industry in the time that this Bill is before Parliament. If the Treasury will not act, it falls to all of us in Parliament to ask where else we can scrutinise how our constituents are being lent to and whether they are being ripped off.

--- Later in debate ---

[John Glen]

The change proposed under this new clause to allow Select Committees to require the FCA to launch investigations in situations where there is suspected regulatory failure would mirror powers that are already available to the Treasury. As I set out earlier, section 77 of the Financial Services Act 2012 enables the Treasury to require the regulators to conduct investigations in cases of suspected regulatory failure in circumstances where it does not appear to the Treasury that the regulators are already doing so under, for example, the regulators’ power in section 73 of that Act.

The Treasury has used those powers to require the PRA and FCA to launch investigations where it considers that appropriate. As Members are aware, the Treasury Committee had the opportunity to scrutinise the investigation that was carried out into the Co-operative Bank in 2018, and it made a number of recommendations that were accepted by the PRA.

I am therefore confident that investigations under existing section 77 powers are useful in holding regulators to account, ensuring proper scrutiny of them and conducting investigators in the public interest. In determining whether an investigation is in the public interest, the Treasury will also consider the views of the relevant Select Committee in reaching its decision.

The Government agree that Parliament should play an important strategic role in interrogating, debating and testing the overall direction of policy for financial services. The Treasury is confident that proper mechanisms exist to allow the Treasury Committee to scrutinise and comment on investigations, as is right and proper. Ultimately, there is nothing to stop a relevant Select Committee launching its own investigation into an issue, calling witnesses, gathering evidence and making recommendations. That is a decision for the Committee.

[Stella Creasy]

Earlier today, we talked about the fact that the Treasury instructed the FCA to get involved in the debate around payday lending. Indeed, it went into companies such as Wonga and QuickQuid and set out redress schemes. We know that they were ineffective because it ended up with the ombudsman getting involved, and it was only then that those companies went into administration because it was revealed how much they owed to our constituents. In circumstances such as that, where no doubt there would be difficult conversations about what role the Treasury and the FCA played in the process, who watches the watchmen? Who would instruct that inquiry? At the moment, that inquiry has not happened, so we do not know why that redress scheme did not work. There is no sign that the FCA wants that. Is the Minister saying that he would instruct that so that we can get to the bottom of why the redress scheme did not work? If it did not, it seems rather apposite to have an independent third party that could look at issues such as that on behalf of consumers.

[John Glen]

I am very happy to look at that particular case. The point I am making is that there is a mechanism to compel the FCA to investigate, and the Treasury does not do that in isolation from the its wider accountability to Parliament, individual Members of Parliament and the Treasury Committee. I am very happy to examine the point that the hon. Lady has made and I will look at it carefully, but that provision exists. Frankly, I cannot and would never expect to act in isolation and without accountability to Parliament. Given the powers available to the Treasury, which can be used in that context, and the opportunity for scrutiny by Select Committees, I ask that this new clause be withdrawn.

[Stella Creasy]

If the Minister is saying that he is going to instruct a redress investigation, I will happily withdraw the new clause. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 21

Assessment of risks of consumer detriment

“(1) Schedule 6 of the Financial Services and Markets Act (2000) is amended as follows.

(2) After paragraph 2D(2)(c) insert—

‘(d) the risks of consumer detriment associated with the firm’s business model and the likelihood for compensation claims from consumers.’

(3) After paragraph 2D(3), insert—

‘(3ZA) When assessing whether the firm has appropriate financial resources to meet the risks of consumer detriment and the likelihood of compensation claims from consumers, the Financial Conduct Authority must ensure that, at all times, firms hold sufficient financial resources to meet any likely compensation claims from customers in full.’”—(Stella Creasy.)

This new clause would ensure that the FCA considers the likelihood of consumer detriment arising from the firm’s business model prior to, and following, authorisation, and that firm’s hold sufficient financial resources to meet potential compensation claims from customers in full.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

--- Later in debate ---

Brought up, and read the First time.

[Stella Creasy]

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

This is the final new clause for the final bit of the Bill, so I am hoping that this time round, given the season, the Minister will withdraw his Scrooge-like refusal to amend the Bill, not least because I genuinely think that on this new clause and this area of policy he probably agrees and recognises that there has been an oversight in its consideration. I also hope that Government Members will support the new clause, because it is surely what they came into office to do—to remove the red tape and bureaucracy that holds back enterprising, entrepreneurial people in our local communities.

I speak as a proud Co-op as well as Labour MP, and this new clause is about co-operative banking—perhaps not what people might first think of when they talk about co-operative banking, but it is about how mutual banks are set up. Local mission-led mutual banks are common in other parts of the world, but not so much here in the UK. They are, however, something that people are increasingly looking at and trying to support, particularly around Greater Manchester and elsewhere, and local leaders in Liverpool and Preston have plans to establish such institutions as well.

As people would understand, is quite difficult to start a bank: there are often requirements, even for a standard for-profit shareholder-controlled model. Much of the difficulty boils down to the challenges involved in raising the amount of equity capital that regulators require for institutions before they will issue an operating licence. That is what we are talking about today. Frankly, someone would need to raise millions in equity to get a banking licence.

The problem for mutual banks is that many investors struggle to understand what a mutual is. Ultimately, the mutual might offer good long-term returns, but there are no opportunities for those bumper dividends or speculative gains that people might traditionally associate with banking. That is part of a model that invests in communities, supports people and has people as part of the process. People think about credit unions; this is about what the 21st century co-operative banking models might be.

One of the challenges holding back the co-op movement is an antiquated piece of legislation. Let me be clear: the passage of the Co-operative and Community Benefit Societies Act 2014 was very welcome and helped to level the playing field. The capital requirements regulations are a hangover from Disraeli’s time. Those provisions can be traced back to the Industrial and Provident Societies Act 1876. I am talking about simply removing them from the legislation, because the requirements that they make are already covered for co-operative banks by other forms of prudential regulation in the Bill. Their existence creates an artificial level of complexity for the setting up of co-operative banks.

I do not want to go into too much detail, but the law currently prevents co-operative societies from being banks if they have what is called withdrawable share capital. That restriction was imposed in 1876; things have moved on. First, we now separate and have strong regulation of banks’ capital adequacies, as we discussed earlier in the Bill process. Furthermore, we have clear and specific regulation setting out how co-operative withdrawable share capital can safely be used to help to capitalise banks. It is firmly established today that societies retain the absolute right to suspend share withdrawals, giving their capital the essential features of equity under international and UK accounting standards.

If mutual banks were able to add withdrawable share capital to their mix, that would help to enable them to diversify their offer to investors and therefore broaden the range of investors to whom they could be marketed. It would open up significant opportunities for co-operative banks to get off the ground, because they would have the ability to raise the equity that they need to get a banking licence. Surely, Members from all parties can agree, in good Christmas cheer, that such competition in our banking sector would be a good thing, so it would also be a good thing to remove this archaic piece of legislation on capital equity from the legislation book.

The Bill is about financial services, and the co-operatives throughout the country want to offer financial services. The Minister may still be drawing on pot 3, on the Ghosts of Christmas past and present, but on the Ghost of Christmas future, in the Lords or on Report, might he give us a glimmer of hope, Tiny Tim-style, that he will listen to the co-operative banking sector? They have written to him in support of this amendment and I know he has met representatives from the sector to look at what more he can do to support them. I hope he will remove these pieces of red tape and take back control of the mutual sector this Christmas.

[John Glen]

I am grateful for the enticement to be generous, but I was quite generous on new clause 8. I gave some positive indications about the intentions of the Government, and I look carefully at everything that is said by Members from across the Committee. I am very engaged with the mutual banks and with the co-operative sector generally, which I will say more about in a moment.

This amendment aims to remove the restriction which prevents co-operative societies holding withdrawable share capital from carrying out the business of banking. I share the interest of the hon. Member for Walthamstow in how the mutual model of financial services can add much-needed diversity and competition to the sector. Treasury officials and I have had constructive conversations with individuals seeking to set up regional mutual banks, and I look forward to continuing those. I will not mention their names, because they are going through different regulatory processes, and I am told that that is sensitive and so I should not do so. I try to help them.

Ensuring that banks hold the appropriate capital is critical to a stable and functioning financial system. It is therefore important that we consider any legislative changes in this area. I have thought about the amendment, and there are several immediate concerns about the potential risks to financial stability and consumer protection, which the Government have a duty to consider.

I will set out our most pressing concerns. As the global financial crisis highlighted, sufficient regulatory capital is needed by financial institutions as a source of resilience and to ensure losses can be effectively absorbed. To ensure capital fulfils this function, capital held by banks must always be readily available to absorb losses, which cannot be the case where investors can withdraw capital. Enabling co-operative banks to hold withdrawable share capital, as this amendment intends, could place consumer deposits at risk, create an inconsistent regulatory regime between co-operative and non-co-operative banks, and cause risks to the stability of the financial system, if it led to banks being inadequately or inappropriately capitalised.

I have had representations from the prospective regional mutual banks sector that they would seek to use this amendment to issue additional tier 1 capital instruments, or contingent convertible bonds. These are complex instruments that would need further thought to ensure they fulfilled their purpose within the legislative framework for co-operatives. It is also unlikely that the ability to raise additional tier 1 capital would be very beneficial to regional mutual banks currently, given they are at the early stages of their development where raising core equity capital is the priority.

I also note that the activity of deposit taking, in the form of withdrawable share capital that co-operatives and community benefit societies carry out under the present legislation, is subject to certain exemptions from regulatory requirements, which are applicable to other institutions carrying out business activities. These may no longer be appropriate if they were generally allowed to carry out the business of banking.

In conclusion, the Government believe that the fundamental issue is that it is not appropriate for deposit takers to rely on withdrawable share capital. In any case, certainly a measure like this would need further consideration of the legislative and regulatory implications rather than being introduced by way of amendment. I will continue to look carefully at these matters with the sector, but in the context of what I have said I ask the hon. Member for Walthamstow to withdraw her amendment.

[Stella Creasy]

I am so sorry to hear that the Minister is still listening to Marley rather than Bob Cratchit about the true spirit of Christmas. This is legislation from the 1800s. It is about £400 worth of share capital. It is outdated and needs a little more Christmas cheer. The Minister said that he would commit to working with the sector to get this amendment right, and if amended this Bill could be great. I think I will push the new clause to a vote—if nothing else, to put on the record that there are those of us who understand that co-ops want to move into the 21st century—and wish everyone a merry Christmas at the same time.

Question put, That the clause be read a Second time.

Financial Services Bill

Stella Creasy Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 13th January 2021 Commons Chamber

[Stella Creasy (Walthamstow) (Lab/Co-op) [V]]

I shall speak to new clause 7 in my name and those of over 70 other Members from across the House.

This Christmas, one in four consumers used “buy now, pay later” credit to pay for their Christmas shopping. It is a simple premise: these companies allow people to spread payments for items over a series of weeks, breaking what seems a high cost up-front into chunks they can take out on their debit or credit card, with no interest charged. There is a place for this industry in the UK, just as there is a place for payday lenders like Wonga, but Wonga is no longer with us because it used technology to exploit an age-old problem that many face: too much month at the end of their money. In lending to who it did and in the way that it did, ultimately Wonga went bust, but not before it had plunged millions in the UK into debt.

The companies in question say that it is not fair to compare—that this is just how millennials want to buy. Well, as old as I am, I do know this: when it comes to credit, if the deal is too good to be true, it probably is. Compare the Market research shows that these forms of credit have been used 35% more during the pandemic as everybody shops online. Most UK retailers have Klarna, Clearpay or Laybuy now as a payment option—indeed, it is often the first one people are given. Retailers pay for their services because they know that if people use them, they will probably spend more than they are meant to—on average 30% to 40% more. Which? research shows that 24% of users spent more than they planned to because such an option was available at the checkout. As the Minister said, many then end up taking out debt to repay that debt. If it looks too good to be true, it is.

Increasingly, consumers are being caught out, committing to more spending than they can afford. Twenty-seven per cent. of users said that they used the option because they could not afford the product they were buying outright in the first place. Currently, this slips through a regulatory loophole because the companies do not charge interest and make you pay within—[Inaudible.] It means that they do not have to abide by the existing information offers that other forms of credit have to.

FCA rules require lenders, before they lend, to highlight the key costs and risks of the credit product. Contrast that with the behaviour of these companies. Shortly before Christmas, the Advertising Standards Authority upheld my complaint about adverts by Klarna that involved social media influencers encouraging followers to use Klarna to buy products to improve their mood during lockdown: if they had mental health issues, debt was the answer. On its Twitter, it tells its customers who ask about its product that it is the “smoother” way to shop. You can get

“what you want, when you want”—

with no mention of what happens if you do not pay or checking of whether you can afford to repay. And because it is not regulated, there is no redress through the Financial Ombudsman Service either.

Ministers say, “Let’s wait for the FCA report”, and that they are ready to take swift and proportionate action. That is exactly what new clause 7 does. It ensures that whatever comes out of that review will get the parliamentary time to be put into practice within three months of the Bill becoming law. If we leave it longer, waiting and waiting as we did with the payday lenders, our constituents will suffer. Even the companies themselves, just like turkeys who think Christmas is a good idea, say that regulation should happen.

So much of the history of credit regulation in this country has been one of delay and dither—and debt as a result for our constituents. Constituents are now living through a time when millions are furloughed and many more are facing redundancy, so their income will get lower, not higher. I know that the Minister recognises that there is a problem here. I brought forward new clause 7 so that we can put his words into practice and make sure that it is not our constituents who end up paying the price later.

[Madam Deputy Speaker (Dame Rosie Winterton)]

We come to Angela Richardson on a three-minute limit.