Financial Services (Banking Reform) Bill

Debate between Stella Creasy and Sajid Javid

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

I have had discussions with the FCA about this. We expect that by the end of next year the process will be set up, but there are a number of issues to be dealt with before that can be confirmed with more certainty. That is the time scale that the industry is working towards.

Let me move on to some of the other issues that were raised in relation to high cost credit. The hon. Member for Kilmarnock and Loudoun mentioned excessive bank charges, and I agree with her concerns. The Government are concerned about default charges across the unsecured lending market, not just the payday loan market. The Government are strengthening regulation for consumer credit across the board by giving responsibility to the FCA. The FCA recently committed to consider carrying out a thematic review of market practice in relation to fees and charges, once it has full regulatory authority over consumer credit.

I will turn briefly to the timetable for introducing a cap on the total cost of payday lending, which we discussed earlier. As the shadow Minister said, 2 January 2015 is just a back-stop. Of course I would like to see it introduced sooner, as I think we all would. However, as we have discussed, it is better to have a cap that works and protects consumers, rather than one that has been forced on the regulator by an artificial time scale. It is important to listen to the FCA, the regulator that will establish the cap, so it is worth reiterating what Martin Wheatley has said:

“It is very important that we are clear with you on the practical implications of any further shortening in the timetable, the principal one being that we believe it is impossible to have as strong a cap based on a shorter deadline. To such a tight timetable we would be forced to perform less analysis on the methodology and level for any cap, and so would be forced to set the cap at a more conservative level (that is, higher) to reflect the inherent legal risks. This cannot be the intended outcome from a consumer protection standpoint.”

It would be foolish for this House to ignore the FCA’s view, as I am sure we all share the objective of having a cap that works and protects consumers.

[Stella Creasy]

We know that 1 million families in this country have already said that they will pay for Christmas this year with a payday loan because of the cost of living crisis they are facing. The Minister is talking about delaying the introduction of any form of cap until 2015, so there is a real question about the impact that might have next Christmas, which will be the default position of not supporting the proposed amendment. Introducing even a conservative cap before next Christmas might do something to lessen the damage that those toxic types of lending are doing to people, given that the cost of living crisis will continue for the year ahead.

[Sajid Javid]

I thank the hon. Lady for her comments. As she will have noted from the letter I just quoted from Martin Wheatley, one of the concerns about a conservative cap is that it would be open to much greater legal risk. It would serve nobody in this House if there was some kind of legal challenge to a cap and how it works if the process has not been followed properly and if some people believe that the FCA has not followed its own rules, particularly on the time for consultation. Had the hon. Lady been here at the start of the debate, she might have heard that the Competition Commission’s investigation into payday lending, which is already under a tighter timetable than it usually has—it is normally around two years, but it has agreed to make that 18 months—will report in November next year. I think that everyone would agree that it is very important that the FCA takes into account the results of that investigation.

Oral Answers to Questions

Debate between Stella Creasy and Sajid Javid

Tuesday 10th September 2013 Commons Chamber

[Sajid Javid]

I must say that if the hon. Lady is genuinely interested in the challenges that families face, she should recognise the causes: Labour’s recession, the deepest in our post-war history; Labour’s record budget deficit, the deepest in our post-war history; and Labour’s bank bail-outs, the largest the world has ever seen.

[Stella Creasy]

With working families’ incomes on average 1,500 quid down and millionaires taking tax cuts, does the Minister really think that we are all in this together?

[Sajid Javid]

As the hon. Lady has already heard, all millionaires will be paying a higher tax rate under this Government than they did for the whole 13 years that the Labour party was in power. She should also welcome the tax cut we provided for the lowest income families, 25 million people, with 2.7 million taken out of taxation altogether. I note that the Labour party has recently talked about reintroducing the 10p tax rate, which they abolished. Well, I have news for it: all those people are now paying a 0% tax rate on that income.

Co-operatives

Debate between Stella Creasy and Sajid Javid

Wednesday 3rd July 2013 Westminster Hall

[The Economic Secretary to the Treasury (Sajid Javid)]

It is always a pleasure to serve under your chairmanship, Mr Hollobone, and I congratulate the hon. Member for Islwyn (Chris Evans) both on securing this very important debate and on putting forward his case so eloquently. He entered Parliament in May 2010 and he has already made an outstanding mark. I would like to respond to the issues raised by hon. Members, and I will try my best to capture them all, including some of the questions from the shadow Minister, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell).

As many hon. Members will be aware, the Government’s approach to mutuals was set out in the coalition agreement, where we committed to “promote mutuals” and “foster diversity” in the UK economy. That commitment, made in the Government’s founding document, underscores the importance that we attach to the sector. I would like to talk this afternoon about the contribution that the co-operative and mutual sectors make to the economy, and, I hope, to reassure all hon. Members of our determination to support them in their efforts.

First, however, I turn to the Co-operative Group itself, as raised by the hon. Member for Islwyn and other hon. Members. As the hon. Gentleman will be aware, the Co-op is at the forefront of the mutuals sector, with more than 4,800 retail trading outlets and an annual turnover of more than £13 billion. Clearly, the Co-operative bank is an important part of the Co-operative Group. I was pleased to see last month that the group has committed to strengthening the bank’s position, including through a commitment to inject capital. It would not be appropriate for me to say more, other than that the group is rightly taking action and strengthening its banking arm through that recapitalisation.

I turn to the co-operative sector as a whole. The Government have made it clear that the co-operative sector is of great importance to the UK economy. That case was made especially well by the hon. Member for Corby (Andy Sawford). In fact, co-operatives are ingrained in our culture. As we have heard, the first recorded co-op in the world was set up in Scotland in 1761. Building on those foundations, the birth of the modern co-operative movement can be credited to the Rochdale pioneers, no less, in the mid-19th century, as we heard so well from the hon. Member for Rochdale (Simon Danczuk). He correctly said that I am a Rochdale boy, and it is something that fills me with great pride. There are people in this world who do not know where Rochdale is—however shocking that sounds—but when they are told that it is the home of the co-operative movement, they immediately recognise the town’s importance. I am sure that the hon. Gentleman would agree.

From those humble beginnings, a thriving co-operative sector has blossomed. The UK now has more than 6,000 independent co-ops, and there is a co-op in every single postcode area. Those organisations provide valuable services across a wide variety of industries, including agriculture, finance and energy production. However, we should also remember that although co-operatives focus on serving their members, they are also businesses. The co-op sector in the UK had an overall turnover of well over £36 billion in 2012, which is why, in line with the Government’s commitment to promote mutuals, we have taken steps to support the sector and to enable it to thrive further.

Last January, my right hon. Friend the Prime Minister announced the co-operatives consolidation Bill, which will be introduced to Parliament in December this year. Although the Bill will not contain any new legislation, it will put all co-op legislation in one place, reducing complexity and making it easier for new co-operatives to be set up. I know that that will be welcomed by the co-operative movement.

In addition, we will consult very shortly on a further package of measures to support the co-op sector, including making insolvency procedures available to co-ops, so that a troubled co-op has more chance of being rescued. The hon. Member for Rutherglen and Hamilton West (Tom Greatrex) rightly raised the issue of football supporters’ trusts. As he will know, the Football Association is concerned about the inability of those trusts to go into administration. The changes that we propose in the consultation will hopefully help to satisfy that requirement, and help that sector of mutuals—football supporters’ trusts and others—to thrive further. We will also consult on raising the amount of withdrawable share capital that an individual member can invest in one society, so that co-ops can more easily raise capital from their members.

A very important subsection of co-ops, as we heard, is the credit union sector, which provides a mutually owned option for customers looking to save, take out loans, or, in some cases, to get current accounts and even mortgages. We have heard many Members today speak about the sector eloquently, including the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), the hon. Member for Islwyn, and the hon. Member for Walthamstow (Stella Creasy).

We have taken a number of specific measures to support the sector. Most visibly, the Department for Work and Pensions co-ordinated a recent feasibility study to examine the future of credit unions. It was announced only last week that the Government will take forward the study’s findings. That includes the Department for Work and Pensions making a further investment of up to £38 million over the next three years in credit unions, with the aim of supporting the credit union sector to provide sustainable financial services for up to 1 million additional people.

The feasibility study also proposed raising the maximum interest rate that a credit union can charge to 3% a month. The Government have announced that we will take that proposal forward, and it will apply from April 2014. That will enable credit unions to break even on the low-value, short-term loans that are the most expensive to issue, and to become more stable over the long term. That will be an alternative, as we have heard from some hon. Members today, to other avenues for borrowing for short-term loans, such as payday loans.

[Stella Creasy]

It is fantastic to hear the Minister supporting credit unions doing short-term lending. If he recognises that credit unions can do short-term lending at capped rates, why does he not think that payday lenders could lend at capped rates and introduce a cap on the cost of credit?

[Sajid Javid]

The hon. Lady will know that we have rightly given the power to an independent regulator to set capped rates, if it thinks that is appropriate in future. That is the correct way to deal with the issue.

In the interests of time, I must plough on. If we are to consider the wider mutuals sector, we should also consider building societies, which remain another key focus for the Government. We set out our approach to applying the recommendations of the Independent Commission on Banking on building societies in “The future of building societies” consultation paper. The consultation closed last year, and we are now considering how best to treat building societies in line with our aims. We will set out our proposed approach in due course.

Several other questions were asked, and before I conclude, I will try to answer some of them as best I can. A number of hon. Members raised the issue of co-ops in the energy sector. The Department of Energy and Climate Change published a call for evidence on community energy in June 2013, and it will publish a community energy strategy for autumn 2013. That highlights the Government’s commitment to supporting community energy projects.

A number of hon. Members raised the issue of housing. I agree that the co-operative sector has an important role to play in housing, particularly because, between 1997 and 2010, we saw a decline in social housing in our country of more than 421,000 units. I think that the co-operative sector can make a contribution to turning that around, and it will benefit from Government funds that have already been made available, in particular, for affordable housing.

The hon. Member for Islwyn raised the issue of Northern Rock. We believe that the sale was in the best interests of the taxpayer, securing the long-term future of Northern Rock plc and increasing competition in the banking sector. The decision to proceed with the sale was based on the advice that the Government received from United Kingdom Financial Investments Ltd and independent advisers, having considered all bids and all other potential options.

Finally, in the interests of time, I will just address one more issue about the use of the name “co-op”, which was a good point made by the hon. Member for Rochdale. That is something, as he rightly identified, that is being looked at by the Department for Business, Innovation and Skills. I am aware that very strong representations have been made to the Secretary of State for Business, Innovation and Skills, not least by Ed Mayo of Co-operatives UK. The Business Secretary has committed to looking into the matter further and to making an announcement shortly.

In conclusion, I reiterate the Government’s support for the co-operative sector, and I thank all hon. Members who have taken part in today’s debate, especially the hon. Member for Islwyn for making his case so well.