Economic Growth

Stephen Hammond Excerpts

Tuesday 14th November 2023 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

I warmly welcome my hon. Friend the Chief Secretary to her new position. Last week we were all allowed to see the historic spectacle of the King giving his first speech to this House. There are many historic spectacles associated with the speech, and today, entertainingly, the shadow Chancellor played her role, which is to claim that nothing has ever gone right with the Government and that there is nothing in the King’s Speech at all.

Of course, on bald numbers the shadow Chancellor is wrong, because it is clear that since 2010 the UK has had the third-highest growth in the G7 and 3.9 million more people are employed. However, that does not mean that growth should not be a priority, especially given the long-term supply002Dside shocks this economy has had from covid and the current crisis in Ukraine—although that seems to be forgotten at the moment—causing other energy shocks. It is therefore encouraging that the preoccupation of the King’s Speech and of this Government is to promote economic growth.

It is right to start by talking about supporting the Bank of England in taking measures that will reduce inflation. Inflation is economically corrosive, and it is the job of Governments to be financially responsible. When inflation is stable at lower levels, we see the encouragement of personal savings, which is a benefit, we see less pressure for people from what is described as the cost of living, and we see businesses investing. It reduces some of the inefficiencies that economists talk about and rigidity in the economy. It is key that we take measures and encourage the Bank of England to bring down inflation in order to have higher growth.

One such measure is to ensure that, for the next part of the 21st century, we look at the industries that both the Government and the private sector can foster so that we see sustained economic growth. The United Kingdom has the chance to be the world leader in many high-tech industries. The shadow Chancellor was right to welcome what the Government did in the spring statement with 100% expensing; it is the right thing to do, because it encourages businesses to invest. However, we can make it permanent only if we do away with some of the grants and take other actions to make it fiscally neutral, and it is of more benefit if it does not go only into plant and machinery. I urge the Government to look at a system that allows research-intensive industries to put research and development costs into full expensing as well.

The industries of the future were mentioned in the King’s Speech. I welcome the measures that we will see and discuss in the Digital Markets, Competition and Consumers Bill and the Data Protection and Digital Information Bill. Another industry of the future in which we must ensure that we remain a world leader, having been a world leader in it for the last 40 years, is the car industry. We must do more to encourage the electric vehicle industry. There are some simple measures that the Government could enact to encourage more people to take up electric vehicles. The first is the stabilisation and equalisation of VAT, so that people charging their vehicles in a public or a private place pay the same rate. The second is to put a presumption on local authorities to have byelaws permitting safety gullies, to allow charging by those who do not have access to their own off-street parking. Those are simple things that the Government will do to encourage growth.

The Government rightly recognise the importance of the quality of infrastructure and getting more people to invest in it. One thing that was not in the King’s Speech but is being circulated is the new rail reform Bill. I welcome some of the measures in that Bill, but we will need to look again at it because there is far too much emphasis on what the public sector does, and not enough on what the private sector could do—it could do more.

I welcome, and hope to see more use of, initiatives such as the Mansion House compact. I encourage the Government to think about how first-time buyers could use their pension funds to fund deposits, using something similar to what we have with self-invested personal pensions, which allow people to take out 25% tax free.

Economic growth for everybody across the world is difficult to achieve at the moment, but there are measures in the King’s Speech—as, I have no doubt, there will be in next week’s autumn statement—that will allow that growth to prosper. I welcome the King’s Speech.

Financial Services Reforms

Stephen Hammond Excerpts

Tuesday 11th July 2023 Commons Chamber

[Andrew Griffith]

I thank the right hon. Gentleman for his support for growth and competitiveness. We have talked regularly about the need for regulators to improve their performance and deliver better outcomes for those whom they regulate. He talked about the 5%, and I emphasise that, ultimately, it is a voluntary pact; it is for the individual trustees to make those decisions, and the Government continue to have in place a strong programme of regulation. However, I hope he respects the fact that there is risk in inaction as well—the risk that our pension beneficiaries do not receive the pensions that they deserve or the sort of performance from their pension that other international long-term savers benefit from. He raises the issue of defined contribution and the liability for the taxpayer. Of course, that does not attach to defined-contribution schemes, which is why it is so important that they continue to benefit from the highest-quality regulation. I and my colleague the pensions Minister remain very committed to that and will continue to work with TPR and the FCA to ensure that that remains the case.

[Stephen Hammond (Wimbledon) (Con)]

I refer the House to my entry in the Register of Members’ Financial Interests. Like my hon. Friend the Member for West Worcestershire (Harriett Baldwin), I warmly welcome the work that my hon. Friends on the Front Bench have done. The Mansion House compact is a huge step forward, but does my hon. Friend the Minister agree that getting the Kent investment review reforms right, particularly on unbundling, will also help us to have high-quality research, enabling better decisions and more investment into high-quality firms?

[Andrew Griffith]

My hon. Friend, who knows so much about this topic and has engaged so lucidly on it, is absolutely right about the importance of investment research. It provides access to markets, makes our UK stock exchanges an attractive international venue, narrows spreads and drives fair valuations for investors and companies seeking investment. This is one example of where we inherited a European fact pattern that was not quite right for the UK. I look forward to pensioners, investors, savers and companies benefiting from our research review.

Financial Services and Markets Bill

Stephen Hammond Excerpts

Consideration of Lords message
Monday 26th June 2023 Commons Chamber

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to have an opportunity to contribute on the amendments made in the other place. I want to speak briefly about the accountability and scrutiny of the regulators, and the crypto and digital assets recognition in the Bill.

Chapter 3 refers in general to the accountability of the regulators and amendments 6 to 9 refer to the obligation to promote growth. The amendments are extremely important and I welcome the Government’s response to them and their setting the tone in accepting and working with such changes early on. International competitiveness is important for all our constituents. As Members have said, it is inevitable that consumer-focused elements in social media drive campaigns that rightly receive attention in the broader media, forcing change from regulators and established institutions, but the regulator must also strike a balance to ensure that businesses and the industry itself are internationally competitive. This is an important sector to the UK economy. As the Minister said in his introductory remarks, all constituencies will be affected by the Bill. There will be hardly a constituency that does not have someone employed in the sector, so amendments 6 to 9 on international competitiveness are important in striking the right balance between consumer demands for cash and ensuring that the sector is competitive so as to be sustainable over the long term.

Scrutiny and accountability of the regulators are also important. My right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) complimented the Treasury Committee, and it is important to do so, but Select Committees have limited capacity to scrutinise the role of all regulators on all occasions. I should probably declare an interest as a member of the regulatory reform group that is working to reform the approach that regulators take, hence my comments on the international competitiveness of sectors in general. The regulatory reform group has highlighted that there could be a role within Parliament for a Joint Committee to scrutinise the activities of regulators, to ensure that measures such as the clauses on international competitiveness are lived up to and met.

Has the Minister formed a view about how the scrutiny referred to in the Bill can best be achieved, because clearly that will be not in the Bill but in regulations thereafter? It is up to the House to decide on how best to scrutinise this, but the Joint Committee as suggested by the regulatory reform group is a good starting point for the debate. Does the Minister recognise that there is a strong need for additional parliamentary scrutiny of the regulators, and not only in financial services, although this Bill enables him to comment on that sector? It is good to see that my hon. Friend the Member for Wimbledon (Stephen Hammond), who also sits on the regulatory reform group, is present. Brexit has provided a great opportunity to deliver for many of our constituents, but it can only do so if the regulators take a different, more proactive and positive approach to supporting industries, rather than, as some might say, restricting them, in addition to the excellent work done by the Treasury Committee and other Select Committees thereafter.

I turn to chapter 2 generally and clauses 21 and 22 and clause 65 referring to cryptoassets and digital assets and distributed ledger technology, or stablecoins as others would refer to them. The Minister will be aware that I have raised cryptoassets and digital assets on a number of occasions and called for strong direction. I pay tribute to the Government, as the Bill gives the framework for a clear policy direction so that regulators can rightly support and offer confidence to those getting involved in the sector. This is also an opportunity to start delivering on some of the calls made in the Kalifa review and to provide the certainty that many seek as they research cryptoassets, digital assets and distributed ledger technology. When can we look forward to the strong policy direction that we need to ensure that the UK is ahead of the curve in this sector and repeats the fantastic success that the fintech sector has had as a result of the clear policy direction and framework given in the past?

[Stephen Hammond (Wimbledon) (Con)]

As many colleagues across the House have said, the Bill addresses one of our most important industries and therefore is one of the most important Bills we will be considering in this Session. At the outset the Government said their aim with the Bill was to make UK regulation appropriate and proportionate, to be internationally competitive, to boost growth and to enable better outcomes for consumers and business, and those themes come through strongly in the Lords amendments. I should have said at the outset that I refer the House to my entry in the Register of Members’ Financial Interests.

It was a pleasure to serve on the Bill Committee, which the Minister conducted in a constructive way, listening to a number of comments about accountability and transparency, which I shall come on to later. In Committee we spent a lot of time discussing financial inclusion, and the hon. Member for Glenrothes (Peter Grant) was critical of the Minister and rejected the proposal for having arrived late. Actually, that guard for financial inclusion is already in the substance of the consumer duty being digested and implemented by the FCA. Much as I am sometimes cautious about what a regulator says, the fact of the matter is that the regulator says that it has those powers already.

I will not detain the House on the work that the Minister has done on deforestation, because my right hon. Friend the Member for Epsom and Ewell (Chris Grayling) has spoken about that more eloquently. I ask the House to think carefully and to support the Government’s amendments in lieu on the net zero objective, because the amendments in lieu sensibly ensure not only that the Bill builds on the Climate Change Act 2008 and the Environment Act 2021, but that regulators consider the exercise of their functions “relevant” to the making of such contributions. At I said at the outset, the Government intended the Bill to be both appropriate and proportionate, and for regulators conducting functions in this area, “relevant” seems to be a key point.

The Minister will know that throughout Committee, I was keen to discuss the secondary competitive objective and ensuring transparency and accountability. Throughout Committee, my hon. Friend the Member for North Warwickshire (Craig Tracey) and I raised issues about membership of panels, metrics and the need for reports, and I congratulate the Minister on listening, because, with some of the amendments that he proposed on Report and the tranche of Government amendments coming from the Lords, the Bill has a lot of good. Much as I agree with my right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) that a Joint Committee of the House to scrutinise and hold the regulator transparent would be the perfect solution, I do not think we should let perfect get in the way of good, and there is a lot of good in this Bill, particularly with a number of the amendments that create a need for a report. I also congratulate the Minister on looking at the membership of panels. Far too often, there is a temptation of regulators to mark their own homework, and we must ensure that does not happen if the regulator is to be accountable and, therefore, regarded as effective.

It is clear that the secondary objective is a secondary objective, but if we are to have a thriving financial services industry in the future, this jurisdiction must enjoy international confidence and be internationally competitive. It has been said any number of times, but the costs of becoming a new entrant—with new applications, in some cases—are 14 times more than in other jurisdictions. That cannot be right. The movement in this Bill to sort that out and place a burden on the regulator for international competitiveness is key.

My final point, the Minister will not be surprised to hear, is that I am pleased to see what amendments 37 and 38 do. They seem utterly sensible and in line with the need, first, to be transparent, as in amendment 37, and secondly, to be appropriate and proportionate, as in amendment 38. When the Government produce the secondary legislation, I am keen that they define carefully the metrics for how the reports that the regulator produces are judged, to consist of operational effectiveness, the health of the market and the regulatory burden, as well as international comparisons, because that will be the key test of the Bill. I know he will take those things on board in future discussions. I look forward to supporting the Government this evening.

[Anna Firth (Southend West) (Con)]

I rise to speak in support of Lords amendments 72 to 77, which seek to protect the right to free cash access services for customers. I thank the Minister very much for his hard work in preserving this valuable resource and also for listening to and engaging with Back Benchers from all parts of the House.

Funding for Major Infrastructure Projects

Stephen Hammond Excerpts

Wednesday 3rd May 2023 Westminster Hall

[Wera Hobhouse]

My hon. Friend’s intervention goes straight to the issue. What were the initial contracts the Government signed with contractors? We have to scrutinise the plans for delivery to make them viable for taxpayers. To pick up my hon. Friend’s point, the National Audit Office has said that the decision to delay will lead to additional costs and potentially a more expensive project overall. The Transport Secretary himself even admitted that the delay would not save money—I would be interested to hear how much it will cost the taxpayer. I agree with my hon. Friend that, whatever our views are on HS2, it is important to know what the overall delay will cost the taxpayer.

The Institution of Civil Engineers says that delaying HS2 could make the building process

“more difficult as construction firms shift their focus to other countries.”

Whether or not we agree with HS2, this incessant delay and further uncertainty benefits no one.

Another example of this Government’s short-sightedness is the M4 to Dorset coast strategic road network, which is due to undergo major upgrades. This is a matter of great importance to my Bath constituents. The present strategic route is a mixture of the A36 and A46 and goes right through the centre of Bath—a world heritage site. My local Liberal Democrat council has rightly argued that the route should not go through Bath. I recently met with the Under-Secretary of State for Transport, the hon. Member for North West Durham (Mr Holden), and National Highways to hear more about how the M4 to Dorset coast study is progressing.

National Highways said that the route through Bath has high accident rates, is heavily congested and has more cars passing through than it was designed for; it also said that the A350 route via Chippenham delivers greater benefits and has fewer challenges. However, it is still considering using the Bath route. I understand that money does not grow on trees, but why are the Government not giving enough attention to the long-term benefits to people, which include health? The A36-A46 route through Bath is not fit for purpose. The Government know this, but they are paralysed when it comes to promoting and delivering alternative routes.

The Government also fail to deliver for rail electrification. We need to electrify our railway to get to net zero. The Railway Industry Association notes that an electric railway is the cheapest to operate, saving £2 million to £3 million per vehicle. Electric trains are also up to 300% more reliable than diesel trains, and are three times more efficient than diesel or hydrogen trains. Electrifying our railway is a no-brainer. However, the Government cannot see past the short-term cost. Network Rail has said that 278 miles of track must be electrified every year to reach net zero. Last year, the Government added only 1.4 miles of newly electrified track.

[Stephen Hammond (Wimbledon) (Con)]

The hon. Member is making an interesting speech, and I agree with some of what she has said, but let us be clear: the reason so little track was built was because Network Rail failed to deliver it. That is not the Government’s fault; that is an implementation fault. Network Rail has actually underspent its investment budget in the last two control periods. It is not a question of money not arriving or the Government not doing their job; Network Rail is supposed to deliver the project but has failed to do so.

[Wera Hobhouse]

I thank the hon. Member for his intervention; I have already answered half the points he raises. The problem is that the Government need a scrutiny process to ensure that those contracts are delivered on time and on budget. There seems to be something wrong with the Government’s system to keep track of them, because in the end, big infrastructure projects are national projects, and the Government should have some interest in how they are delivered.

Bath has a big air pollution problem. The council has tried to address the issue by introducing a clean air zone, amid considerable opposition, but the electrification of the line through Bath has been on hold for years, and dirty diesel trains are still going through the city. How can I persuade my constituents that it is reasonable to stop them from driving their diesel cars through Bath when the public transport alternative is still operating on polluting diesel fuel? Air pollution kills. Not getting on with electrification is a complete dereliction of duty, not just to our net zero plans but to public health—and that costs a lot of money if we get it wrong.

Just over a year ago, the Treasury blocked a £30 billion plan to electrify Britain’s railways over the next 30 years. The Government said that Great British Railways would produce a 30-year plan to electrify the railways. However, that organisation is not expected to be fully up and running until 2024 at the earliest—more dither and delay. We have not even seen the Government’s plans for a transport Bill. I am interested to hear from the Minister whether the Treasury is kicking electrification into the long grass.

Sustainability should be woven into all aspects of transport infrastructure policy, not just for climate but for health reasons, as I have mentioned. The Government recently announced that overall funding for active travel in the current parliamentary term is being reduced by £800 million. That includes a cut of dedicated capital funding by two thirds over the next two years. It is a backwards move and will counteract the tremendous progress we have seen in recent years.

I am a keen cyclist, and I try to do most of my journeys within Bath on my bike. I am fully aware of the benefits of supporting active travel, which far outweigh the costs. People walking, wheeling and cycling in 2021 saved 2.5 million tonnes of greenhouse gas, prevented 138,000 serious long-term health conditions and avoided more than 29,000 early deaths. Active travel contributed £36.5 billion to the economy in 2021, and with continued investment, that would only increase. I urge the Government to reverse the cut to active travel infrastructure, and help more people to actively walk, wheel or cycle to the places they need to go to. Will the Government support the Liberal Democrat’s plan for a £20 billion community clean air fund that will create new walking and cycle routes, as well as expanding bus routes and creating new council-led clear air zones for congested towns and cities?

The Government might claim that all those decisions were made to protect the public finances, but that is ironic, given their record of wasting money. Network Rail has spent more than £25 million on the new station at Reading Green Park. Its response to my written question had me wondering whether the decimal point was in the wrong place. The National Infrastructure Commission and the Climate Change Committee wrote a joint letter to the Government last year urging them to produce better plans to improve the resilience of infrastructure to climate change. Record temperatures last summer forced the cancellation of hundreds of train services, and flights were stopped at London Luton airport after heat melted the runway.

The Secretary of State for Energy Security and Net Zero, in his former role as Transport Secretary, warned that it will take decades to make the UK transport system resilient to extreme heat, but we do not have decades to wait. If we do not prioritise climate adaptation now, we will pay for it later. A full national-scale economic review of resilience and adaptation, led by the Treasury, is needed to quantify the value of climate adaptation, and therefore to incentivise investment in resilience. Investment in renewables is vital to combat climate change and preserve our energy security. If the Government had supported renewables harder, faster and earlier, my constituents would not be paying the price for Putin’s war now.

China is currently the biggest investor in renewable energy. It accounts for just under half of global energy transition investment. Cumulative growth in Chinese wind power between 2021 and 2022 was more than three times greater than in the US and more than seven times greater than in Europe. If we fail to prioritise renewable investment now, we risk moving our energy dependence from one autocratic power to another. If we want to be a global competitor, we must get our act together now.

The US Inflation Reduction Act and the EU’s Net Zero Industry Act will be transformative and will incentivise huge investment in new renewable technologies and crucial net zero infrastructure, but our Government are not following them. There was no new funding on Energy Security Day, and the Chancellor has refused to go toe to toe with the Inflation Reduction Act. The UK’s investment in the energy transition fell by 10% from 2021 to 2022. In contrast, similar investment rose by nearly a quarter in the US and by 17% in countries such as Germany. When will we see a real response from the Government? Global competition over talent and resources is fierce, but the Government seem content to be left behind.

The UK has huge competitive advantages in renewables such as tidal, yet the Government have failed to give the industry the funding it needs to prosper. We still do not have enough detail about how net zero investment is being defined. I hope the Minister will provide some clarification today. If other countries provide greater certainty for green investment, we will see investors and engineers leave.

When he was Chancellor, the Prime Minister used Britishvolt as a success story. He said that the factory would produce enough batteries for more than 300,000 electric vehicles a year. The former Prime Minister, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson), told the House that support for Britishvolt would be delivered, and that the Government remained 100% behind the project, yet within a month it had collapsed. It is clear that mistakes were made at the company, but is there really nothing that the Government could have done to prevent the loss of a strategic battery producer? It is emblematic of an erratic Government without a plan—a Government who change their mind with the wind. Why on earth would people invest in the UK when they cannot have any confidence in what the Government will do from one month to the next?

The Treasury should consider giving a statutory underpinning to the publication of a national infrastructure strategy every five years, as opposed to once every Parliament. That would provide greater long-term clarity to investors, supply chains and other stakeholders about the Government’s plans. It would provide developers with a clear, long-term timeframe to plan ahead with confidence when delivering projects. The Institution for Civil Engineers argues that that means that projects can be delivered quicker and at a lower cost. Will the Minister meet it to discuss the detail of how that change would work in practice?

After the 2019 election, the Government set out their intention to raise public investment to a level not sustained since the 1970s, but now that pledge is in tatters. The Resolution Foundation has said that an increase in public investment set at around 3% of GDP would not only improve our infrastructure but would boost economic growth by about 0.8% over five years. Its research found that that boost would still allow us to keep our debt-to-GDP ratio on a downward path. According to the same research, the UK’s public investment levels could have been a transformational £500 billion higher if they had kept up with the OECD average over the past two decades. I am interested to hear whether the Government think that we should be working to close the gap with OECD counterparts.

The quality of our national infrastructure will determine the quality of our lives. It impacts how we communicate, travel and power our homes. Infrastructure in the UK is now not fit for purpose. This Government have become so focused on the here and now that they are unable to consider the future. They are so used to short-term firefighting that they are unable to take the long-term decisions that would stop fires happening in the first place. They have failed to safeguard our public finances to ensure that we can afford the vital investments that our communities are crying out for.

We need an urgent overhaul of our infrastructure strategy and more focus on the long term. Only then can we fix our crumbling and outdated infrastructure and build a vibrant, sustainable country that is fit for the 21st century.

--- Later in debate ---

[Stephen Hammond (Wimbledon) (Con)]

It is a pleasure to see you in the Chair, Mr Sharma. I had not intended to make a speech this afternoon; I came to hear the hon. Member for Bath (Wera Hobhouse) and to intervene on her. Given the vast number of people here, however, I thought I might make a small contribution.

It is a pleasure to follow the hon. Lady. I agree with some of her speech; her closing point that quality of infrastructure determines quality of life is key and has been a fundamental tenet of what Governments of both colours have believed for a long time. I think her analysis of some of the problems was also pretty accurate, although she will not be surprised to hear that I do not agree with all of her solutions.

On the financing of infrastructure, the hon. Lady is right that the accountability bodies have not been as good at holding the institutions that are supposed to deliver the infrastructure to account. She is also right that for a long period the United Kingdom did not have a strategic vision. That is why seven or eight years ago the two bodies—the National Infrastructure Commission and the Infrastructure and Projects Authority—were set up. I think it is difficult to argue that the Government do not have a vision or that the National Infrastructure Commission has not provided the Government with one. The hon. Lady and I met Sir John Armitt at an afternoon meeting only recently; I think she was there when he talked about the launch of his new national infrastructure green solutions project.

There are two issues. First, the Infrastructure and Projects Authority was supposed to bring into Government the expertise that would allow the Government to be given scrutiny over projects. A major infrastructure project has at least four phases before it even starts implementation. A key part of that is the initial working with designers—the ability to design a project and to understand whether that project will fulfil the requirements that one might want.

Secondly, there is the whole issue of contracting and procuring the project, ensuring its longevity and providing certainty that it will deliver on the price. This must be a source of frustration for Transport Ministers, if not for Treasury Ministers. In setting the control period for the railways—I have to confess that in my short period as a Transport Minister this applied to the highways as well—the attempt was to provide some certainty about investment and therefore give certainty to the pipeline. If there is a pipeline of projects that developers and suppliers such as the Railway Industry Association see, the contract price will almost inevitably decline because there will be a certainty of project work.

One thing that this debate should therefore focus on is that if we want to get financing right—[Interruption.] You are probably waiting to hear how we are to get financing right, Mr Sharma, but that may have to wait until after the Division.

--- Later in debate ---

On resuming—

[Stephen Hammond]

I think I was just about to set out the key to getting the financing right. First, we must understand the long-term nature of the projects—a point to which the right hon. Member for Orkney and Shetland (Mr Carmichael) rightly referred. Secondly, if infrastructure is designed, contracted and procured in a way that is accountable but also looks at supply issues, a better contract is likely to be achieved. It seems clear to me that developing a long-term approach to infrastructure is the only way, at local, regional and national levels, because that will inevitably ensure good quality of life, and quality of economic performance.

In this country, major financing problems are often not about the money committed to a project at the beginning, but project creep. That results from an inability to go through those first three phases. I think in particular of the Great Western electrification upgrade, which the former Chancellor, George Osborne, signed off at £888 million. A huge number of unrealistic expectations were built into that quote. For instance, the infrastructure provider, Network Rail, suggested that it would be able to pile between 17 and 30 piles an hour. In fact, in the end, it was only achieving three, and unsurprisingly the whole cost of the project went up.

Equally, there were other institutional problems. An analysis of why there has been cost creep on several routes in this country is under way. One element is about understanding over-specification, as well as the right specification. There is a contractual professional liability issue, which, if solved, would help do away with some of the problems of cost creep. I could go into the technicalities of why we do not need to take out the complete specification for the possible movement of half an inch of earth over a 20-year period, which is costing a certain bridge project £20 million. That is really happening, because the contractor does not want to take out the liability. If the Government were to underwrite that liability, it would force that financing down. If we got technical matters right in the design, build and financing phases, it would affect a number of the issues that the hon. Member for Bath mentioned to do with the cost of projects increasing and pressure on the overall budget.

On the need for long-term certainty, I mentioned in my short intervention on the hon. Member for Bath that one reason that Network Rail gives for not being able to spend its budget is that it is not certain what projects it should be delivering. That is nonsense. Network Rail is the infrastructure deliverer for rail; it should be very clear about the projects, and it has timelines for them. We are talking about the financing of projects. The Minister would be well advised to talk to his colleagues in the Department for Transport about what we can do to make the successor body to Network Rail more responsive and more accountable for some of its cost.

The hon. Member for Bath quite rightly talked about decarbonisation and electrification. Rail accounts for about 10% of transport air pollution in this country. It seems to me, therefore, that getting the financing in place for the investment in decarbonisation projects and long-term electrification is key. She is right about the amount of electrification the country needs. A number of projects have been looked at, but that is simply not deliverable on a 10-year timescale. It may be deliverable on a 25-year timescale, so we need to plan for that.

We need to ensure that transport infrastructure makes interim investment in hybrids. There are plenty of dual-fuel opportunities for rail. There are battery alternatives for rail, which would reduce emissions immediately. If we focused on that, it would help drive down costs, because we would then consider not only interim rolling stock, but new electrified rolling stock.

My final point is this. We talk about financing infrastructure as if the only source of financing were the Government. There are plenty of ways of involving the private sector, and having it work alongside Government. I do not think anyone in this room would disagree that using private finance to help deliver the public good is sensible.

[Wera Hobhouse]

I completely agree, but there is also the issue of the long term. I go to meetings and listen. Private investors in green infrastructure or insulation projects, for example, ask time and again for longer-term planning, because that is the only way they can deliver. Does the hon. Gentleman not agree?

[Stephen Hammond]

Private investors ask for two things: certainty that the project they are involved in will be delivered; and the certainty of an operating licence for a period, so that they can get back their investment. Therein lies the second accountability problem. In the operational phase, one should ensure the operator’s accountability. Design, build and finance operational models are well known throughout the world, and have delivered major infrastructure projects across the world—and, at times, in this country.

We must not close our eyes to the fact that the UK is still an attractive place to invest for many people. It has legal and regulatory certainty, which other countries do not have. It has certainty of Government. The Government should look again at the opportunities for an electrification infrastructure bond. What are the opportunities for working with major institutions, such as Siemens, that produce the battery infrastructure that could be accelerated into the rail industry? There are many opportunities for the Government and the country to look beyond the Government’s providing all the finance.

The key issues coming out of this debate are these. There is not a lack of vision, but a lack of implementation. We need to ensure that the bodies are put in place, be it Highways England, Network Rail, Great British Railways or BT Openreach. We have talked today only about transport and hard, physical infrastructure, but the investment in digital infrastructure and human infrastructure is almost as important for quality of life, which is a debate in itself. Getting the design and implementation phases right will undoubtedly make the financing of major infrastructure projects easier.

Financial Services and Markets Bill (Ninth sitting)

Stephen Hammond Excerpts

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Dame Angela Eagle]

My hon. Friend makes an extremely good point: tech developments sometimes leave people behind. That is not usually deliberate; sometimes it is thoughtless. However, we in Parliament must ensure that all citizens in this country are able to participate in what is, increasingly, effectively a utility, even though it is not in public hands—I make no comment one way or the other about that. Being unable to access banking services for whatever reason is a real disadvantage, whatever an individual’s age or time of life.

That is a primary reason why we must ensure that what the market cannot provide, regulation provides. I am interested in what the Minister has to say about that. This issue will get bigger as more and more services go online. Regulation cannot happen merely at the end of a process, when access has completely disappeared. Even in some places where bank offices still exist, not everybody can access them. As a Parliament, we are people who point our regulators in particular directions to deal with emerging issues, and this is an important one. I look forward to what the Minister has to say.

[Stephen Hammond (Wimbledon) (Con)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I will make a short speech. It is more of a speech of curiosity. I listened very carefully to my next-door neighbour, the hon. Member for Mitcham and Morden, who said what most members of the Committee would probably say. She will know as well as I do that everybody looks at my constituency and thinks “leafy Wimbledon suburbia”. But she will also know that parts of south Wimbledon, of Raynes Park and of Morden town centre, which we share, have exactly the problems that she spoke about.

I may have misheard the hon. Lady, but she said that she did not wish to compel banks to stay open, or did not think that we necessarily could do so, and she spoke therefore about the establishment of banking hubs. What I am curious about is how banking hubs would be established. Are we saying that, as part of getting or maintaining a banking licence, there should be a contribution to a social fund, so that banking hubs can be established around the country? Are we saying that that levy should be extended, particularly because some of the harm that we are talking about is the rise of online banking? Should online banks make a contribution to the cost of those banking hubs? Or are we saying—I think it was said that the hubs should be inside local authority areas—that local authorities should offer them, for instance in town centres?

That is a genuine point of curiosity. As in previous discussions with the hon. Members for Kingston upon Hull West and Hessle, for Wallasey, and for Mitcham and Morden—my next-door neighbour—there is huge sympathy for ensuring that our constituents, including vulnerable constituents, have access to banking services. But we need to more tightly define the practicality of how we ensure that they have that access.

[Siobhain McDonagh]

I am completely open-minded about how the hubs are paid for, but they have to be paid for from the banking sector itself. I would not wish to put the responsibility on already overstretched local authorities. Many high street banks have had decades of loyal support from these customers, and they cannot just walk away from that responsibility and ignore them. They have been good, loyal customers. There should be a banking hub, but not at the point that the last bank closes. We need to have a view towards what happens in the future. There can be collaboration about sites, but there needs to be access to those services.

[Stephen Hammond]

That is extremely helpful in setting out the thought processes behind the new clause. One of the issues that the hon. Member for Hampstead and Kilburn might wish to clarify is that, if the hon. Member for Mitcham and Morden is correct, the new clause has to contain the stipulation that to get a banking licence in the United Kingdom, one needs to pay a certain amount of social levy so that banking hubs can be established. For me, that is the issue with the clause. I therefore suggest that the hon. Member for Hampstead and Kilburn might want to take it away and bring it back on Report, or have a discussion with the Minister about exactly how the levy that the hon. Member for Mitcham and Morden is effectively talking about is to be established. This new clause does not make that clear, and therefore, frankly, the practicality of the new clause—notwithstanding that we all agree with its intent—is clearly flawed.

[Andrew Griffith]

I once again note the strength of feeling on both sides of the Committee. The hon. Member for Mitcham and Morden has spoken in a number of debates on clauses of the Bill about the importance of bank branches to our constituencies and local communities. When I visit her constituency to see the opening of the new cash machine, perhaps I will be able to review the provision for myself.

Financial Services and Markets Bill (Fifth sitting)

Stephen Hammond Excerpts

Committee stage
Thursday 27th October 2022 Public Bill Committees

[The Chair]

We now come to amendments 43 and 45, in the name of Peter Grant. Would any member of the Committee like to move them? If not, we will move on to amendment 46.

Clause 24

Competitiveness and growth objective

[Stephen Hammond (Wimbledon) (Con)]

I beg to move amendment 46, in clause 24, page 37, line 13, leave out “facilitating” and insert “promoting”.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 47, in clause 24, page 37, line 31, leave out “facilitating” and insert “promoting”.

Clause stand part.

[Stephen Hammond]

It is a pleasure to see you in the Chair, Dame Maria, and to serve under your chairmanship. I would again guide the Committee to my entry in the Register of Members’ Financial Interests.

For many of us, chapter 3 of the Bill is hugely important because it looks at the accountability of regulators. As the Bill could hugely increase their powers, the themes that many of us explored during the evidence session—of transparency, accountability and proportionality—are fundamental. Clause 24 deals with the secondary objective. Regulation and regulatory culture are some of the biggest factors affecting the competitiveness and attractiveness of a jurisdiction.

This is not about a race to the bottom. Any jurisdiction that is not well respected and well regulated, with tough regulation and an independent regulator, will fail on the international stage. It is about ensuring the regulator’s accountability, particularly for the objective. We heard evidence from major City trade organisations last week, and Emma Reynolds from TheCityUK said to us:

“it is important that the regulators are not marking their own homework”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 18, Q28.]

Charlotte Clark from the Association of British Insurers made a similar point.

It is clear that there is a track record, but we must make sure that the regulators stay on track and are held to their duty regarding the new secondary objective. Amendments 46 and 47, which are fairly simple, would change “facilitating” to “promoting”. Facilitating almost implies letting something happen, perhaps through disregard. There should be active promotion of the secondary objective to remain internationally competitive. Internationally, we would not be alone in taking such action. The Swiss Financial Market Supervisory Authority is required to take particular account of the effect that regulation has on competition, innovation and the international competitiveness of Switzerland. There is a very similar objective for the Monetary Authority of Singapore, and no one anywhere will suggest that those are not well regulated, competitive international markets.

London trade bodies, such as the London Market Group, suggest that in the UK, some regulatory costs are up to 14 times what they are in other places around the world. When we look at the one-size-fits-all approach sometimes taken by the Financial Conduct Authority, it is clear that a distinction needs to be drawn. If we are not careful, the objective could be subsumed in others and forgotten. If we want London to be the global financial centre, we should have regard to the secondary objective. I want the Bill to set out more clearly regulators’ accountability for this objective, the intention, and regulators’ role regarding the objective.

[Craig Tracey (North Warwickshire) (Con)]

As ever, it is a pleasure to serve under your chairmanship, Dame Maria. I refer to my interest, which I declared at the start of Committee proceedings. I welcome the Bill, and particularly clause 24 because of its competitiveness duty, for which I have campaigned for quite some time. I would prefer it to be a primary objective, and perhaps the Minister will look into that, but if we keep it in its current form, then we have to go further for it to be meaningful. There must be proper metrics to ensure that the regulator follows up on it. For that reason, I support the amendments put forward by my hon. Friend the Member for Wimbledon.

In the evidence sessions, I was surprised to hear that the FCA was not aware of any other regulator that had a competitiveness duty. That is quite worrying. It seemed slightly detached from what our competitors are doing. We need to ensure that the FCA is pressed hard on this issue, and that there is a clear, stated objective for them to promote competitiveness in the industry. To be clear, this is not at all about lowering standards. The FCA said in its evidence that it considers jurisdictions such as Hong Kong, Japan, Singapore and Australia to be robust financial centres. They all have a competitiveness duty, so a duty of that kind can be beneficial.

Let me put this into context by giving the example of insurance-linked securities. The FCA created regulations regarding them, which Singapore then lifted—took and used. Because of Singapore’s competitiveness duty, we lost one firm midway through the process. In the same timeframe, 15 firms have been regulated there, against five in this country. The estimated loss is around $700 million. That is money out of our economy that could come our way with just this simple change.

There is a similar story on captives. We do not have any set up here. The reason cited is over-burdensome regulation. The industry agrees that there needs to be regulation, but it needs to be proportionate, and we need to ensure that it does not block investment in this country. I hope the Minister will consider the amendments and see what can be done to strengthen the measures.

--- Later in debate ---

[Andrew Griffith]

The hon. Lady is right to pull me up on my failure to address her point, although later clauses and amendments also address it. I am familiar with TheCityUK’s proposal, and the Government are prepared to look at that area. She gave an example of the regulators helping the real economy through sustainable investments, and potentially reporting some metrics against that. That is worthy of consideration.

[Stephen Hammond]

I should have said at the beginning that I warmly welcome clause 24. The purpose of the amendments was to tease out the Minister’s exact thoughts. I was pleased to hear that he thinks there is regulatory step forward. I was also pleased to hear that the Government may look again at some of the wording in chapter 3. Will he meet me and colleagues, perhaps next week, or some time in the future? With that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 24 ordered to stand part of the Bill.

Clause 25

Regulatory principles: net zero emissions target

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

[The Chair]

With this it will be convenient to discuss clause 26 stand part.

--- Later in debate ---

[Dame Angela Eagle]

Again, there is largely agreement about the aims of clauses 25 and 26. We are on the cusp of a complete transformation in the way our economies have to work. Sometimes, I think we do not quite understand the extent of the transformation that will be needed and the speed at which it will have to be done, given that we are so behind in our attempts to reach net zero and avoid catastrophic climate change. It really is the last few hours, in terms of the biodiversity and climate stability of the Earth, for us to be able to do this.

The scale of the required transformation is mind-boggling. Virtually every piece of infrastructure in existence in our society will have to be transformed. That will have to be done through public-private partnerships, investment to lead the market in areas where there is market failure and investment in innovation in financial services to help to provide that investment, but also through proper regulation, which is what these clauses are about. All those things have to be done in a timely way to create the circumstances for realising all the capital investment potential that will be needed to make this change happen, especially in established economies with old infrastructures, which are often the largest emitters of carbon, as it happens. All of that has to be done virtually in parallel, so that we can try to reach these important targets.

It is very important that, through these clauses, the Government have agreed to incorporate the legislative target of reaching net zero by 2050 into this part of financial services law. However, they have amended it by replacing what was there before—the “have regard to sustainable growth”—with the target. Is that the right way to go about it? By getting rid of that “have regard”, do we lose an opportunity to make progress, rather than just focusing on a future output? That is not a philosophical question; it is a practical one. Why have the Government decided to replace the “have regard”, rather than enhance it? Will the Minister reassure us that, in the context of having to retool the way we do almost everything in all our infrastructure, we could not have gone with both? Will there be the potential for people to think, “We’ll put everything off until closer to 2050,” because the “have regard” has been replaced with an end-date output target? Can the Minister justify why the Government thought that was the best approach?

When regulation is being refocused on net zero, there will be those who wish to greenwash what they are doing—I will use that phrase; the Minister understands what it means—in order to continue to attract investment and piggyback on the good will of people who wish this change to happen when, in the case of those companies, it is not happening. I suspect there is a little bit of that going on at the moment. How does the Minister envisage enforcement mechanisms and proper regulation being put in place to ensure that greenwashing is not going on everywhere? Such greenwashing would move us away from meeting the target. Not only would it be to the detriment of consumer interests; it would squeeze out more genuine activities, firms and investment if it were allowed to be too prevalent.

[Stephen Hammond]

I am not sure whether I am supposed to, Dame Maria, but I refer the Committee to my entry in the Register of Members’ Financial Interests.

Like many Members, I welcome the thrust of clause 25 and think it is important that we are setting the principle of net zero in legislation. However, I agree with my hon. Friend the Member for North Warwickshire. Clause 26 amends FSMA 2000 in relation to the content of the annual report. I will not go through all the arguments that we may well make when my hon. Friend’s new clause is debated, but I want to register with the Minister my concern about the phrase “in its opinion”. There is a reputational risk for the regulator, as much as for anyone else, if someone were to examine it later. I will not detain the Committee any longer, but I will want to speak to this point quite extensively when my hon. Friend’s new clause comes up.

I ask the Minister to look at the phraseology and consider whether it is appropriate. As we have all said in Committee, during the evidence sessions and in widespread discussion of the Bill, the need for clear metrics, regulatory transparency and regulatory accountability is key. That is one of the things we have all welcomed in the Bill.

[Tulip Siddiq]

We welcome clause 25 and the new regulatory principles for the FCA and the PRA, which will require the regulators, when discharging their general functions, to have regard to the need to contribute towards compliance with the Climate Change Act 2008—legislation that, I remind the Minister, was brought in by a Labour Government.

However, we think that the Bill lacks ambition on green finance. The Government promised much more radical action. We were promised that the UK would become the world’s first net zero financial centre, but we are falling behind global competitors. In the evidence session, William Wright, the managing director of the New Financial think-tank, stated that the UK is a long way behind the EU on both the share and the penetration of green finance in capital markets. Research by the think-tank has suggested that green finance penetration in the UK is at half the level of the EU and roughly where the EU was four years ago.

I will discuss what the Opposition would like to see in the Bill on green finance when we discuss new clause 9. For now, will the Minister set out what assessment he has made of the impact that clause 25 will have on investment decisions and other financial service activities in the sector?

In the evidence session, William Wright suggested that there is “a disconnect” between the Government’s stated position that the UK is already a global leader in green finance and the ambition for the UK to become the leading international green finance centre. Does the Minister really believe that the provisions in clause 25 are sufficient to close that gap? How much further will the Government go on this agenda? Does the Minister think we have been as ambitious as possible in the Bill, considering that the problem is on our doorstep and is so important for future generations?

Financial Services and Markets Bill (Third sitting)

Stephen Hammond Excerpts

Committee stage
Tuesday 25th October 2022 Public Bill Committees

At the moment, that activity is far too often not regulated, so my amendment has been designed to allow the Treasury to make regulations to bring within the scope of the Bill the particular loophole that has been at the heart of a lot of investment and pension scams that I have had to look into on behalf of my constituents. I suspect that every Member of the House will have constituents who have been affected by this issue.

[Stephen Hammond (Wimbledon) (Con)]

I understand exactly what the hon. Gentleman is trying to do with the amendment, and I have a lot of sympathy, but I am not clear about its scope and extent. Is he trying to ensure that the Treasury starts to regulate crowdfunders? That is potentially what the amendment would allow. It is a very widely drawn amendment, and I seek clarification on this point.

[Peter Grant]

If it became clear to the Treasury or the relevant regulator that crowdfunders were using funds for illicit purposes, rather than for genuinely good causes, I would expect the Treasury and the relevant regulator to step in. My amendment is designed to put primary legislation in place to allow the regulators to step in, and to allow the Treasury to take action, if it becomes clear that there is a problem, regardless of whether that is through crowdfunding or any other method of raising finance. The important part of the amendment is about finances being raised as a way of raising capital. The amendment does not in any way imply that it would cover, for example, crowdfunding for a good cause or to raise funds for someone who has had a serious accident. That would not be covered by the wording of the amendment.

I can understand the concerns, and I am quite happy if someone can come up with better wording—possibly in an amendment to a different piece of legislation—that achieves the aim of the amendment, but I am utterly convinced that there is a serious weakness in our current regulation. As currently worded, neither this Bill nor the Economic Crime and Corporate Transparency Bill will close down that loophole sufficiently.

At Blackmore Bond, the abuse that was taking place was stopped after it was too late. At Safe Hands Funeral Plans, the abuse that was taking place was stopped after it was too late and people had lost their money. The selling of mini-bonds to the general public, which is what Blackmore Bond was up to, is now outlawed, so action has been taken on that specific kind of abuse. Funeral plans are now regulated, so action has been taken on that specific kind of abuse. I do not want the regulator or the Treasury having always to see where the next specific company disguise is going to be, however; I want them to have the power to regulate based on how businesses take money from the general public.

With those comments, I look forward to hearing the Minister’s response. If he is not minded to accept the amendment, I hope that we can get an assurance that the intention behind it will be addressed at a later stage.

[Emma Hardy]

I have a general question on the clause and the designated activities regime. In the consultation response document produced by the Treasury—“Financial Services Future Regulatory Framework Review: Proposals for Reform. Response to Consultation” to be precise—some consultation respondents were concerned about what activities would physically be regulated, what constraints were to be placed on the powers of the Treasury and what the consequences for failing to comply with the regulator’s rules would be. I have not yet seen their concerns answered by the Minister. Will he address that?

[Stephen Hammond]

It is a great pleasure to serve under your chairmanship, Dame Maria. Will the Minister clarify quickly proposed new section 71S? The power in subsections (3) to (7) is an exceptional power, rather than a regular power.

[Andrew Griffith]

The amendment seeks to make it clear that offers of non-equity securities to retail investors—for example, as cited, retail bonds—can be brought into regulation through the designated activities regime. That is the important subject we are talking about. That regime—the DAR—has been designed to allow for the proportionate regulation of activities involving interactions with financial markets in the UK and conducted by many that are not traditional financial services firms. In essence, it is the core scope of regulation. The DAR includes a range of activities, such as an activity connected to the financial markets or exchanges of the UK, or an activity connected to financial instruments, financial products or financial investments issued or sold in the UK. Any of those can be designated under the DAR. Our contention is that it is therefore already sufficiently broad in scope. We will discuss that further when we consider clause stand part later.

Offers of non-equity securities to retail investors as proposed by the amendment would fall within the definition of the DAR should the Government wish to designate that activity in future. Indeed, proposed new schedule 6B of the Financial Services and Markets Act 2000, which is to be inserted by the Bill and which provides illustrative examples of the types of activities that His Majesty’s Treasury may designate, includes

“Offering securities to the public.”

I can therefore give my hon. Friend the Member for Wimbledon the comfort that he seeks, in that the provision does extend to crowdfunding, which was his specific point.

Financial Services and Markets Bill (First sitting)

Stephen Hammond Excerpts

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[The Chair]

Before we start hearing from the witnesses, do any Members wish to make any declarations of interest in connection with the Bill?

[Stephen Hammond (Wimbledon) (Con)]

I guide the Committee and witnesses to my entry in the Register of Members’ Financial Interests.

[Craig Tracey (North Warwickshire) (Con)]

I chair the insurance and financial services all-party parliamentary group and am a former insurance broker.

--- Later in debate ---

[Peter Grant]

Q I was thinking particularly about the powers to stop the damage from being done, rather than simply the power to pay financial redress, which usually takes a long time, is very stressful for victims and sometimes comes too late for victims who do not live long enough to see the compensation. The gross misbehaviour of a large number of financial advisers led to that scandal and many others. Are you telling us that, as it stands, the Bill does not give you significantly greater powers to intervene and get these people out the market as soon as you realise there is a problem?

Sheldon Mills: I think that what we would have said—I would need to look at the record to see the context—is that, effectively, we have to go through due process and understand the evidence and the data that would be there to see how those independent financial advisers are behaving. Therefore, the speed and processing of that may be what we were referring to.

If I remember at the time in relation to the British Steel pension scheme, the law was changed to allow people to exit their pensions under pensions freedoms. There was a range of issues in relation to understanding how independent financial advisers were going to respond to that. The speed and pace with which they did respond led to issues such as some of the challenges that British Steel pension holders have now. To confirm: there is nothing the Bill that specifically gives us additional powers in relation to those individuals.

Sarah Pritchard: I want to come in on a slightly broader point, which is that in the transfer of retained EU files, which encompasses part of the Bill, there are some EU files where, at the moment, the FCA will have limited lawmaking powers. The Bill will provide a framework that, file by file, the FCA will need for rule-making and enforcement powers to be considered at that time. That does not answer your question specifically in relation to British Steel, but it provides a mechanism, so you go through that analysis and assessment file by file.

[Stephen Hammond]

Q I thank the panel for coming this morning. I have two questions. Can we be clear that in the UK regulatory landscape and the international financial regulatory landscape there are public interest tests that are operated but do not affect the operational independence of regulators?

Victoria Saporta: In the financial regulatory space, the only example I know of where there is a test whereby the Government—I am not talking about Parliament—can intervene and revoke regulatory rules is in Australia. APRA—the prudential regulatory authority in Australia—has never been exercised. Whenever the IMF has done financial sector assessments, it has been critical. There are provisions, again in Canada, but the US system does not have any. It is Congress who can revoke material pieces of regulatory standards within 60 days. This is my understanding of it in financial regulation, which is separate to how it might exist in other types of regulation.

[Stephen Hammond]

Q But in the US there is obviously a different system in terms of the scrutiny of the financial system, which is probably why that power is vested there. I think that, from what Mr Mills said, there is actually already a public interest test in the CMA.

Sheldon Mills indicated assent.

[Stephen Hammond]

I just wanted to ensure that was on the record. Can we talk a bit about the metrics and transparency you might use to show that you are meeting the secondary objective—that the cost-benefit panel’s analysis will be transparent—and also how you consider you will need to show that you have met the accountability tests?

Sheldon Mills: Sure. I am happy to start with that. We are waiting to see the final description of the clause on competitiveness. Its current iteration talks about competitiveness and growth. It also talks in terms of the medium and long-term growth of the financial services sector and the UK economy. We have started to think about what the input measures we might see. Those are the things we can act upon ourselves.

A good example of that would be our gateway—our authorisations process. Is it as efficient as it can be? Does it place unnecessary burdens on time, pace and the application of it? That can help with the entry of firms into the UK. That is important. We are doing work on our gateway now. That is something on the input measures, but we then need to think about the outcomes. It is important to think about what data and metrics are available that have a causal chain between some of the activity we have—our authorisations activity, our policy activity and so on—and the outcomes we are seeking to achieve. One of the challenges we have is that the data on the link between financial services activity and growth and competitiveness—regulatory activity—is not significant. That said, we are looking proactively to see what measures we can find.

There are also two components to those outcomes. There is the activity that our financial services industry is providing, such as lending and support in terms of insurance and so on to UK firms and overseas. Then there is an outward form of competitiveness, thinking about how our UK plc financial services industry is doing in exporting financial services across the world. Both of those will be outcomes we will need to find measurements on.

Finally, there is the meta outcome. There is certainly Office for Budget Responsibility data that talks about sustainable growth. What is the higher level growth-type outcome you can look at and seek to link? I do not have the full gamut of that, but we are working very closely on it, so that we can provide measures and metrics that can support our use of the objective.

[Stephen Hammond]

Q And those would be transparent?

Sheldon Mills: Of course, absolutely. We will be transparent on that.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

Q Good morning. Sheldon, I read a speech of yours before about financial inclusion; I know it is something you care about. On the Treasury Committee, we have had a conversation similar to the one we are about to have. You probably know what I am going to ask you.

The Government have opted so far to not have a “have regard” for financial inclusion in the Bill. Do you believe that such a “have regard” for the FCA would ensure financial inclusion as a greater priority for the regulator? What else could be done with the Bill to ensure that financial inclusion is given a greater prominence?

Sheldon Mills: I hope we won’t have the same conversation as before. We have done some more work on financial inclusion following our conversations. Our position is still the same: we do not think we need a “have regard” on inclusion. We don’t think that that would add to our ability to act within our remit in line with our objectives. We have our consumer protection power and we have put in place our new consumer duty, which asks firms to meet a higher standard. We feel that we have sufficient powers to fix any problems that we feel we need to solve.

As we discussed last time, the regulator’s role is to support firms and the market to deliver to as many consumers as possible, including those who are vulnerable or might be excluded. However, we do not do that alone; we do that with partners such as Government, local authorities, charities and others. In relation to that, we are taking a proactive role and arranging a financial inclusion policy sprint in the autumn, working with Fair4All Finance and others. We will bring as many actors as possible into that space, using our innovation labs to work through the types of innovative activity we can put the financial services industry to in terms of tackling financial inclusion.

At the moment, we do not think we need a “have regard” given our current remit and the powers we have.

--- Later in debate ---

[Tulip Siddiq]

Do you have anything to add, David?

David Postings: I don’t really, no.

[Stephen Hammond]

Q Good morning, panel; thank you for coming. In their evidence to us a moment ago, the regulator said they would be transparent with regard to their responsibilities for accountability in the metrics and reporting of CBA, but Emma, in your written evidence to us, you suggest:

“The Financial Services and Markets Bill should be amended to include a power to require regulators to transparently report metrics”.

I wonder if you could comment on that a little, please.

Secondly, you have mentioned proportionality, and again in your written evidence to us you suggest that there may necessarily need to be more of it when we consider the risk, the nature and the scope of businesses, who they are there for and who their customers are. Does the Bill set the right tone for proportionality, or do you think there is still more we should consider?

Emma Reynolds: To take your first question, we think it is important that the regulators are not marking their own homework with regard to the secondary objective. We welcome what the PRA said earlier and the discussion paper it has put out, but we do think the Treasury could take upon itself a power to demand that the regulators report more frequently and when the Treasury has some concern about whether they are meeting the new secondary objective. We do think the Bill should go further in that regard. We do not want this objective to just be in an Act of Parliament and for it to never really be a reality. The question is, “Does this bite?” That is what a lot of our members are saying. We think there are ways that you could hold the regulators to account on that.

Does the Bill set the right tone on proportionality? At its core, it is an enabling Bill, so the proof will really be in the pudding. We hope so. Hopefully, the secondary objective will mean that the regulators will take that very seriously—that their regulation should be proportionate—so we hope so, but it remains to be seen.

[Stephen Hammond]

Q So, like you have just said with regard to the first question, we should look at ways of making sure that that is firmly set down, rather than just a principle.

Emma Reynolds: Indeed.

[Martin Docherty-Hughes]

Q May I ask you both about clauses 21 and 22, and digital settlement assets? Ms Reynolds, you talked about high standards. I wonder if you could both say whether you agree that the definition of a digital settlement asset is satisfactory and robust enough to safeguard consumers. It is rather broad.

David Postings: I think it needs to be broad, because the digital asset environment can change quickly, and if you define things too narrowly, you risk missing the next wave of change. Yes, I think it is good and wise to define it broadly.

--- Later in debate ---

[Emma Hardy]

Is there anything you want to add, Karen?

Karen Northey: No, I think I covered it earlier.

[Stephen Hammond]

Q May I refer to my themes of transparency, accountability and proportionality? Charlotte, in your written evidence you say that the Bill should be amended to achieve the correct balance between customer protection and proportional regulation, and that the opportunity for improved accountability is falling short. I rather detect from your evidence that you agree with what Emma Reynolds said about the regulators marking their own homework. Will you comment on that? Karen, in your written evidence you talk about an evolutionary rather than a revolutionary approach to regulation. Could you explain what you mean by that?

Charlotte Clark: That language is really important. How do we get things like transparency and challenge into the system? I am not sure that writing it into legislation necessarily leads directly to it, but there is something about getting the right mechanisms, the right debate and the right challenge between Parliament and the regulators, without undermining their independence. This is such a big change. I do not think any of us could be completely certain that we have got it right, but it is about making sure that we have got the right balance and the right mechanisms to hold people to account.

[Stephen Hammond]

Q So you are suggesting that we should make some other amendments to the Bill to make sure that those things are there. Sally-Ann asked another witness earlier about the need for culture change.

Charlotte Clark: A good example is the cost-benefit analysis panel. At the moment, the regulators appoint people to that panel. That could be fine; it might not be. You might want a bit more independence in there and a bit more scrutiny. You might want to think about what those processes are. It is those sorts of areas where they could imbue cultural change. Dave Postings had the example of the consumer duty, whereby they told us what the cost was but not the benefits. We all have our favourite examples of regulatory change where we think, “You haven’t quite made the argument for this; you haven’t quite shown that this is going to be beneficial.” Making sure that changes is one of the things we would want to see.

Karen Northey: I will pick up on the second part of your question, on evolution versus revolution. It comes back to the fact that there is a significant amount of legislation to be reviewed. This is kicking off and enabling a significant review. Our members believe there are a lot of things in European legislation that work, and we do not want everything to go.

I harp back to the figures I mentioned before: £4.6 trillion out of £10 trillion is overseas assets. That relies very heavily on a concept called delegation, which allows UK asset managers to manage European funds. From our point of view, it is fundamental that we operate in a global regulatory framework in a way that does not put at risk what is a significant success story and a significant source of revenue and growth for our country.

The reviews that the Bill enables should be done in a targeted way, focused on those measures that will make the most amount of difference in terms of allowing the UK industry to work better. But we have always said that we are not looking for regulation to be torn up and suddenly having no regulation. This is about making modifications that will make a significant difference to our industry here in the UK.

[Stephen Hammond]

Q The Bill intends to do that; it is not intending to rip up regulation. It intends to make us more competitive, while ensuring the primary objective.

Karen Northey: Absolutely, and I think the process that comes has to be done in a way that is sequenced in the right way to allow proper consultation and proper input.

[Peter Grant]

Q Ms Clark, can I come back to your comment earlier about insurance companies having been set up in Gibraltar and elsewhere offshore but not in the UK? Do you have reasonable grounds to believe that the UK regulatory environment has been a significant factor in those decisions? Can you point to particular regulatory requirements that are preventing people from setting up insurance companies here?

Charlotte Clark: Why would you set up in Gibraltar and sell into the UK market? There is not a big market in Gibraltar.

Financial Services and Markets Bill

Stephen Hammond Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

I was not expecting to be called quite so early in the debate, given the panoply of talent on these Benches and the Benches opposite. In the interest of brevity, I will briefly concentrate on three aspects of the Bill. First, I want to guide the House to my entry in the Register of Members’ Financial Interests.

This is one of the most significant Bills that this House is likely to look at in this Session of Parliament because, as the Minister has said, the realignment of the regulatory architecture offers a unique opportunity to become more nimble, more agile, more accountable—I hope—and more pragmatic in our approach to regulation. The most important parts of the Bill take forward the future regulatory framework. Requiring regulation to comply and to promote international competitiveness will address the widely held concerns that regulators have in the past used their powers narrowly and over-cautiously to reduce risk, thereby reducing innovation, increasing costs and decreasing consumer choice, which has overall been detrimental to competition.

Creating what is, let us be clear, a secondary objective of international competitiveness and growth is absolutely right. Having this objective in place will neither undermine the regulators’ independence nor cause any prospect of a financial crash. I also do not believe, as some have said, that it is in any way a push for the lowering of standards. The industry knows that proportionate and effective regulation by an accountable regulator is the key to international competitiveness. I was interested to hear the Minister say that he thought we in this House should look again at the accountability structures of regulators. I welcome this objective, and I also welcome the cost-benefit analysis panel, which again plays into the objective of ensuring a nimble, agile regime that protects consumers while taking up the opportunities post-Brexit.

However, with the secondary objective and the cost-benefit analysis panel, there is a concern that regulators must be accountable both to this House and to the Government, but in particular to this House. I welcome the setting out in practice of some of the key performance indicators for the regulator and I recognise and welcome the Sub-Committee of the Treasury Committee, but I hope we will be able to discuss this in Committee and I urge the Minister to think about whether amendments are needed to include an obligation on the regulators to state how any new regulation will meet and further the objective of international competitiveness. I hope he will also consider an annual report, at least on the delivery of those objectives, which should include some measurement against specified key performance indicators. There should be no suggestion that the regulators are being allowed to mark their own homework.

I am sure that the Minister will clarify this later, but the cost-benefit analysis panel needs either to have external members—that must be explicit—or to make it clear that it is taking external advice. It ought also to be clear exactly what criteria are being used to measure cost-benefit analysis. Those measures would help considerably in terms of accountability. I do not believe that scrutiny and accountability affect the independence of either the PRA or the FCA. As my hon. Friend the Member for Salisbury (John Glen)—who I have had the pleasure of questioning in this House a number of times—knows, I want to see this industry thrive. It is key to the whole of the United Kingdom, because two thirds of the jobs in the industry are outside London. I think he too would accept that scrutiny and accountability do not threaten the regulators’ independence. They are important if we are to have a regime that continues to be internationally renowned.

I have been fortunate enough to be a member of the Treasury Committee in the past, and I hear entirely what my right hon. Friend the Member for Central Devon (Mel Stride) has said. However, I would suggest to him that as a result of the pressures on the membership of the Treasury Committee and the Sub-Committee—I accept that they have the same powers—caused by the extra work, we should open a debate on whether the House needs to think again about whether just having a Sub-Committee of the Treasury Committee is adequate, given the importance of this industry to jobs and growth across the country. I will ask the Minister, perhaps in discussions, to consider yet again a Joint Committee of both Houses on financial services, which is what happens in other jurisdictions.

I welcome so many measures in the Bill, but let me touch briefly on just one. Others will talk about the revocation of retained EU law and a number of other aspects about which Members have already spoken, but I urge the Minister to press ahead with mutual recognition agreements. They are another key way to ensure that the United Kingdom’s financial services remain at the forefront of global financial trade. It is extremely welcome that we are pressing ahead with Switzerland, but I urge the Minister to continue to press ahead with the powers that the Bill allows to be implemented and the regulators to give effect to. With those words, I warmly welcome the Bill, and I look forward to supporting it.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 17th May 2022 Commons Chamber

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

Obviously we are all clear that all fraud against the Exchequer is an outrage and totally wrong. That is why we have established a £100 million taxpayer protection taskforce, which is precisely determined to focus on that. We also have a new fraud function within Government, which is heavily focused on making sure that we address those issues. We are determined to make sure that, where there has been wrongdoing, we crack down on it and recover the money to the maximum extent that we can. Obviously, when introducing these schemes, we had to balance the imperative of speed of delivery against the risks, and I think we struck the appropriate balance at that time.

[Stephen Hammond (Wimbledon) (Con)]

There was widespread welcome for last week’s announcement that the Government will introduce a financial services and markets Bill. Can my right hon. Friend confirm that the intention of that Bill will be to ensure that future regulation is proportionate, that the regulator is publicly accountable and that we intend to maintain the international competitiveness of this great industry?

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

Absolutely I can. I note the observations of some economists yesterday; we will have an obligation on regulators to take account of competitiveness and of where we are in the global context.