Draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024.
It is a pleasure to serve under your chairmanship, Sir Roger.
Allow me briefly to take the Committee through the background and purpose of the draft order. The European Bank for Reconstruction and Development is a multilateral development bank headquartered in London. It provides high-quality project financing to support economic and private sector development in 40 different countries. The UK is the bank’s joint second-largest shareholder and hosts the EBRD’s headquarters in Canary Wharf, London.
The UK engages with the EBRD on several UK foreign, development and economic policy priorities across its countries of operation, including assistance for Ukraine, supporting the transition to a green, low-carbon economy, and promoting equality of opportunity for women, young people and other underserved communities. The EBRD has been a long-standing partner to Ukraine. Over the past 30 years, it has been the largest institutional investor in Ukraine, with more than €20 billion invested in almost 600 projects. The bank provides technical assistance, lending, guarantees and grants to support policy reform and financial assistance in key sectors including energy, infrastructure and agribusiness. The UK welcomes the EBRD’s distinctive contribution to supporting Ukraine’s resilience and recovery in the face of Russia’s illegal invasion. The EBRD’s support since 2022 has amounted to over €4.5 billion for essential priorities, including supporting Ukraine’s critical national infrastructure against deliberate and repeated attacks by Russian forces.
The UK and other shareholders have agreed that the EBRD should continue its operations to support Ukraine, and that this support should be long-term and predictable. Given the exceptional circumstances in Ukraine and the EBRD’s commitment to sound banking principles, continued financial support was not possible without additional shareholder support. Last year, shareholders concluded that a paid-in capital increase is the most effective, efficient and broad-based means of enabling the EBRD to continue to finance Ukraine. Accordingly, in December 2023, the UK and other shareholders agreed to increase the EBRD’s paid-in capital by €4 billion.
The draft order is being made to enable the Government to participate in the capital increase in proportion to its current shareholding, with a contribution of €343.6 million paid in five equal annual instalments between 30 April next year and 30 April 2029. As determined by the OECD’s Development Assistance Committee, 71% of that contribution will be classified as official development assistance. The capital increase enables the EBRD to continue to support Ukraine’s resilience and recovery during wartime and in reconstruction through the provision of high-quality project financing, while securing the EBRD’s financial standing and its ability to maintain support to its other countries of operation.
With the additional capital, the EBRD plans to provide a sustained level of annual investment to Ukraine of about €1.5 billion during wartime, increasing to €3 billion annually once reconstruction begins. Over the course of a decade, that will result in tens of billions of euros of financing for Ukraine as the EBRD leverages the paid-in capital on the financial markets. I hope the Committee will agree that this complements the UK’s military and fiscal support for Ukraine and enables the EBRD to continue providing financing in support of the sustainable development goals across its countries of operation.
This is a topic that all parts of the House have been united on in support of Ukraine. I therefore recommend the draft order to the Committee.
Tulip Siddiq
It is always a pleasure to see the hon. Member for Grantham and Bourne in his place. I thank him for his support for the measure, and he is right to ask those questions.
The other shareholders of the bank have confirmed their intention to participate in the capital increases. That includes other members of the G7. I am happy to write to the hon. Member with specifics if that would be helpful.
The capital increase will ensure that the EBRD can increase lending to support Ukraine’s resilience, while maintaining activity in all its countries of operation; it is not dependent on other factors. In 2023, the EBRD’s total investment in Ukraine was €2.1 billion, compared with a total investment of €13.1 billion across all countries of operation.
The hon. Member also asked about climate change. The EBRD’s aim is for more than 50% of its total investment in 2025 to be towards green projects, reducing net annual greenhouse gas emissions by at least 25 million tonnes. Since 2006, the EBRD has invested €49 billion in more than 2,600 green projects, which are expected to reduce carbon emissions by 124 million tonnes yearly. I thank the hon. Member for his constructive comments and his questions.
The draft order will enable the UK to participate in a capital increase for the EBRD, which will improve the bank’s financial capacity to increase lending to support Ukraine’s resilience while maintaining activity in all countries of operation. I am happy to write to the hon. Member on the point about the G7 countries. I hope the Committee will join me in supporting the draft order.
Question put and agreed to.
Draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024
Draft Consumer Composite Investments (Designated Activities) Regulations 2024
Draft Securitisation (Amendment) (No. 2) Regulations 2024
Draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024.
The Chair
With this it will be convenient to consider the draft Consumer Composite Investments (Designated Activities) Regulations 2024, the draft Securitisation (Amendment) (No. 2) Regulations 2024 and the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024.
Tulip Siddiq
It is a pleasure to serve under your chairmanship, Mr Efford. The regulations that we are introducing today will ensure effective, proportionate regulation for the financial sector by laying the groundwork for wholesale reform of consumer disclosure for financial services, and for effective prudential arrangements.
Let me turn first to the draft Consumer Composite Investments (Designated Activities) Regulations 2024. The packaged retail and insurance-based investment products regulation, or PRIIPs regulation, was designed to standardise disclosure across a wide range of financial instruments and across the EU in an attempt to improve transparency and enable comparison between products for retail investors. However, as many Members will be aware, the regime was overly prescriptive and burdensome with the one-size-fits-all template of the key information document, or KID, resulting in the presentation of misleading information to consumers on potential risks and returns. The previous Government took urgent action to address the most pressing issues with the KID in the Financial Services Act 2021, and the draft statutory instrument will deliver on this Government’s commitment to wholesale reform of these EU-inherited rules, with a new regime tailored to UK markets and firms.
The SI provides the Financial Conduct Authority with tailored rule-making and enforcement powers to deliver this long-called-for reform and to ensure its effective implementation. The new regime for CCIs will have tailored and flexible rules that address the key issues with PRIIPs and will support investors to better understand what they are paying for. The FCA’s consultation later this year will provide an opportunity for a full range of stakeholders to provide feedback on the new regime to ensure that it works as intended.
I return to the draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024. I have heard concerns from industry about PRIIPs. The current disclosure requirements have had unintended consequences on the investment trust sector specifically. Listed investment trusts are a British invention dating back 150 years, and they are unique to our country. Representing over 30% of the FTSE 250, and predominantly investing in illiquid assets—including infrastructure projects and renewables—they play an active role in supporting the Government’s growth agenda.
Investment trusts are a unique and well established type of closed-ended investment vehicle, and the Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these close-ended funds. The industry has told us again and again that the methodology is negatively impacting its ability to fundraise, and competitiveness. Therefore, this instrument will immediately exempt listed investment trusts from the current PRIIPs regulation and other relevant assimilated law as we finalise the replacement CCI regime, delivering on a key industry ask.
We have worked quickly to deliver these changes and firms are able to take advantage of this provision immediately, before the legislation takes effect, due to the FCA’s regulatory forbearance. This approach is intended as an interim measure, and investment trusts will be included within the scope of the new CCI regime, once it is in place. The FCA, recognising that the pace of legislative reform can be slow, has already implemented regulatory forbearance so that firms can take advantage of the provision immediately, before the instrument takes effect. In the long term, investment trusts will follow bespoke and tailored rules befitting the industry, and I encourage all sides to come together to find a sensible solution under the CCI regime.
Let me now turn to the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024, which make two amendments. The first is a technical change supporting the implementation of Basel 3.1, the final round of bank capital reforms following the global financial crisis. Bank capital rules are contained in the capital requirements regulation, part of assimilated law on financial services. This SI will enable revocations of these regulations, allowing the Prudential Regulation Authority to replace those rules in its rulebook, while ensuring that the PRA’s rule making remains subject to appropriate accountability and scrutiny.
The second amendment will expand the definition of a “recognised exchange”, from referring only to domestic investment exchanges to include those from overseas. This will enable stocks and shares from qualifying overseas exchanges to receive preferential prudential treatment when used as collateral to secure financial services, and will broaden our definition, making the UK comparable with international counterparts and ensuring that we are competitive.
Finally, the draft Securitisation (Amendment) (No. 2) Regulations 2024 extend a temporary arrangement allowing UK banks to treat EU securitisation products as though they originate from the UK, providing that they meet the standards of the “simple, transparent and standardised” framework. This means that banks and insurance firms holding such products may be able to benefit from preferential capital treatment. The current arrangement is due to expire at the end of December 2024, which would mean that no additional EU STS securitisations would be able to enter the temporary arrangement after that date. As that could impact the range of investment options for UK market participants, the Government are legislating to extend this arrangement to June 2026.
The EU securitisation regulation was recently incorporated into the European economic area agreement, and the EEA-European Free Trade Association states have indicated their intention to align themselves with the EU securitisation regulations over the course of 2025. The extension granted by this instrument will allow time for the EEA-EFTA states to implement these changes and for UK authorities to make a more informed decision about the non-time limited designation of EU STS securitisation products by June 2026.
These SIs will empower regulators to ensure that our financial services industry is subject to a rulebook that is fit for purpose, more proportionate, and tailored to UK markets. I know that the hon. Member for Grantham and Bourne is familiar with the regulations, as I have debated with him several times in Committee. I hope that he and the Committee will join me in supporting the regulations, which I commend to them.
Tulip Siddiq
I thank the shadow Minister—or perhaps temporary shadow Minister—for his support and associate myself with his comments about the financial services sector. It is a success story of our country. During the passage of the legislation that is now the Financial Services and Markets Act, he and I talked often about the importance of the financial services sector to the overall economy, but I will not associate myself with his comments on the Budget or rise to anything he says in that regard!
These SIs represents an important step in our approach to regulation for financial services, which we want to be proportionate, effective and tailored to the UK. We want to get the best out of our financial services sector. I encourage all interested parties to engage with the FCA as it consults on the proposed CCI regime later this year, because it is important to hear from the industry and ensure that we make regulation according to what it will thrive on.
I thank the Committee for listening to me speak for quite a long time. If Members have any questions, I would be happy to answer them. I thank the shadow Minister, and I thank the Whips for organising us today.
Question put and agreed to.
DRAFT CONSUMER COMPOSITE INVESTMENTS (DESIGNATED ACTIVITIES) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Consumer Composite Investments (Designated Activities) Regulations 2024.—(Tulip Siddiq.)
DRAFT SECURITISATION (AMENDMENT) (NO. 2) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Securitisation (Amendment) (No. 2) Regulations 2024.—(Tulip Siddiq.)
DRAFT PRUDENTIAL REGULATION OF CREDIT INSTITUTIONS (MEANING OF CRR RULES AND RECOGNISED EXCHANGE) (AMENDMENT) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024.—(Tulip Siddiq.)
Silicon Valley Bank UK: Bank of England’s Transfer Power
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
In March 2023, the Bank of England used its transfer power under the special resolution regime—provided for by the Banking Act 2009, as amended—to resolve Silicon Valley Bank UK by transferring ownership of the firm to HSBC UK.
Section 79A of the Banking Act 2009 requires the Bank to provide a report to the Chancellor of the Exchequer, my right hon. Friend the Member for Leeds West and Pudsey (Rachel Reeves), where it has used the power to make share transfer instruments or property transfer instruments to sell a firm in whole or in part to a commercial purchaser.
The Bank has provided this report to the Chancellor. The Government and the Bank of England are committed to transparency concerning the application of their resolution powers, so copies of the report have been deposited in the Libraries of both Houses, and the report is also available on the Bank’s website www.bankofengland.co.uk.
I thank the Bank of England’s staff for the dedication they demonstrated when they took swift and decisive action to protect financial stability and secure a good outcome for Silicon Valley Bank UK’s customers.
[HCWS197]
Draft Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024.
As always, Mrs Harris, it is a pleasure to serve under your chairmanship. I will take the Committee briefly through the background and the purpose of the draft regulations, which relate to the abolition of the pensions lifetime allowance.
The lifetime allowance was introduced to limit tax-favoured pension savings in registered pension schemes: it was the maximum amount of tax-relievable pension savings from which an individual could benefit over the course of their lifetime. At spring Budget 2023, the then Government announced that they would abolish the lifetime allowance. The Finance (No. 2) Act 2023 removed the lifetime allowance charge; this was done to incentivise those considering retirement to remain in employment, and to encourage those who had already left the workplace to return.
The Finance Act 2024 removed the other elements of the lifetime allowance from the pensions tax regime, from 6 April 2024. This was an enormous task: the entire pensions tax regime was structured around the existence of a lifetime allowance. Many other aspects of the regime, such as allowable pension and lump sum benefits, were calculated by reference to the lifetime allowance. It took over 100 pages of primary legislation to remove the lifetime allowance and replace it with other rules to make the pensions tax regime operate correctly in its absence. That included the introduction of new allowances. Additional secondary legislation was then needed to provide further administrative and technical detail.
Since the Finance Act 2024 and the regulations that followed it, His Majesty’s Revenue and Customs has continued to work with industry representatives to ensure that the legislation operates correctly. In doing so, HMRC has identified some errors that need to be corrected.
The draft regulations will amend schedule 29 to the Finance Act 2004 to facilitate the correct calculation of crystallised pension rights for the purposes of the trivial commutation lump sum. They will amend schedule 36 to the 2004 Act so that the calculation of the pension credit factor is dependent on the standard lifetime allowance at the time the rights were acquired. They will correct the calculation of the additional lump sum amount in respect of scheme-specific lump sums and will modify the availability of a member’s overseas transfer allowance where a member has a pre-commencement pension in payment. They will also amend subordinate legislation to ensure that a lump sum paid in reliance on an erroneous transitional tax-free amount certificate remains an authorised payment, with any excess subject to marginal rate taxation.
The draft regulations are necessary to ensure that pension tax legislation can operate as intended. Without them, pension scheme administrators face uncertainty, and some taxpayers could receive an unintentionally more advantageous outcome than they would have if the lifetime allowance had remained in place. I hope you are with me, Mrs Harris!
These changes will put certain members in a less advantageous position. To mitigate the impact, HMRC has engaged with the pensions industry to suggest that affected payments be delayed until the regulations are in place. Most pension providers have followed that advice.
The majority of pension scheme members have been able to access the correct benefits since the lifetime allowance abolition legislation was completed earlier this year. A very small number of individuals, mainly those with large pension pots, have been inconvenienced; in some cases they have been unable to access their benefits because of some technical flaws in the legislation. The draft regulations will correct the tax position for those individuals and will allow the pensions tax regime to operate as intended. I commend them to the Committee.
Tulip Siddiq
I thank the Opposition spokesperson for supporting the draft regulations. The Government announced in August, through an HMRC pension schemes newsletter, that we would make the legislative changes needed to complete the abolition of the lifetime allowance. That is what we are doing in the draft regulations, which will come into force on 18 November and will have retrospective effect from 6 April 2024. We have no plans to reintroduce the lifetime allowance, but we keep all taxes under review as part of our process.
The draft regulations will conclude the work to abolish the lifetime allowance, addressing issues raised by the industry and providing certainty to pension schemes, administrators and pension savers. I hope that the Committee will join me in supporting them. I know that they are highly technical, so I thank the Committee for putting up with me talking for a long time.
Question put and agreed to.
Oral Answers to Questions
Tulip Siddiq Excerpts(1 year, 3 months ago)
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Sonia Kumar (Dudley) (Lab)
The Economic Secretary to the Treasury (Tulip Siddiq)
Increasing economic productivity is a key mission in the Labour Government’s growth agenda. After 14 years of weak productivity, depressed living standards and unfunded spending commitments, we are adamant about bringing our country into an upward trajectory, using the national wealth fund and the significant planning reforms that we are bringing together to ensure a decade of national renewal for our country.
Kevin Bonavia
Across the UK, the hospitality sector generates £93 billion per year. In my constituency, there are many examples of local entrepreneurs, including on the old town’s High Street and in our neighbourhood centres, who provide an excellent service for residents and visitors alike. What can my hon. Friend do to help our hospitality services grow in Stevenage and across the UK?
Tulip Siddiq
I am fully aware of the assets of my hon. Friend’s constituency, including the neighbourhood centres that he mentions, and the surrounding villages, which host amazing music festivals. I recognise the contribution of the hospitality sector in Stevenage to the UK economy, and I know he is a great champion of the borough business club. I am confident that our Government’s growth mission will ensure that hospitality businesses in Stevenage continue to grow. The Government look forward to working with organisations such as UKHospitality to facilitate that.
Sonia Kumar
“Invest 2035: the UK’s modern industrial strategy” identifies advanced manufacturing as a growth-driving sector. Manufacturing in Dudley accounts for 40.4% of jobs; that is double the national average. What steps are the Government taking to support and revitalise the manufacturing sector in Dudley, given its historical significance to the local economy, and its potential contribution to the UK’s overall industrial strategy?
Tulip Siddiq
As my hon. Friend rightly says, we identified advanced manufacturing as a growth-driving sector in the recently published industrial strategy Green Paper. I know how important manufacturing centres such as the Very Light Rail National Innovation Centre are to Dudley and the UK economy. We are committed to supporting advanced manufacturing through the industrial strategy, which, alongside sector plans, will be developed in partnership with businesses and stakeholders ahead of publication in spring 2025. I hope that she will contribute to that. Jobs will be at the heart of our industrial strategy, backed by employment rights that are fit for a modern economy.
James Wild (North West Norfolk) (Con)
Investing in transport infrastructure will boost productivity, so is the Chancellor listening to Members from across the east of England and across the House, and will she back the Ely junction rail upgrade, which delivers benefits of £5 for every £1 invested?
Tulip Siddiq
As the hon. Member will know, the Chancellor listens carefully to everything that is said in the Chamber, and I am sure that she has noted what he has said.
Jim Allister (North Antrim) (TUV)
We in Northern Ireland were told that, as a result of having dual access to the EU market and the United Kingdom market, we would see an increase in inward investment and economic productivity. Recently, Invest NI has had to admit that there has been no uptick in investment, because access to the EU market is counteracted by barriers from the GB market—that is clear. Do the Government now recognise that that was a mis-sold proposition?
Tulip Siddiq
I think we were mis-sold a lot of things by the previous Government, if that is what the hon. Member is talking about. I remind him that we had the investment summit recently, where we secured £63 billion of private investment, creating more than 38,000 jobs. That is more than double what the previous Government secured in 2023.
Mr Will Forster (Woking) (LD)
Katrina Murray (Cumbernauld and Kirkintilloch) (Lab)
“Buy now, pay later” is attractive to young people who are trying to survive on zero-hours contracts with irregular hours. What assurances can the Chancellor give me that the coming regulations will protect this group from problematic debt?
The Economic Secretary to the Treasury (Tulip Siddiq)
The proposed regulations will drive high standards of conduct among “buy now, pay later” firms, ensuring that consumers receive clear information and have access to strong protections. Our proposals will also allow the Financial Conduct Authority to require “buy now, pay later” firms to carry out affordability checks, ensuring that firms lend only to borrowers who can afford to repay.
Sir Ashley Fox (Bridgwater) (Con)
During the last election campaign, Labour candidates across Somerset said that a Labour Government would cut energy bills by £300. Will the Chancellor set out the timescale for fulfilling that promise?
Buy-Now, Pay-Later Products
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
Buy-now, pay-later (BNPL) products have seen increasing use among many UK consumers, helping some to manage unexpected costs. In the six months to January 2023, the Financial Conduct Authority’s (FCA) financial lives survey reported that 14 million consumers used BNPL products.
When provided in a responsible manner, BNPL can provide a useful and affordable source of credit. However, as identified by the 2021 Woolard review, it also has risks. For example, BNPL firms are not required to comply with the provisions of the Consumer Credit Act 1974, and BNPL firms solely offering these types of agreements do not need to adhere to the FCA rules that apply to other consumer credit products. The Government are therefore concerned that consumers using BNPL do not have access to key protections.
On 17 October, the Government published a consultation setting out their plans to fix this by bringing the sector into regulation. The consultation will be open for six weeks until 29 November.
The Government’s approach has been informed by five key principles:
Consumers must have access to simple, clear, understandable and accessible information;
consumers should have protection when things go wrong;
consumers should only be lent to if it is affordable;
regulation should be proportionate so that consumers have continued access and choice; and
regulation must be introduced urgently to ensure consumers are protected and the sector has certainty. Once implemented, the Government’s proposals will deliver on these principles.
Under the proposals, BNPL firms will need to be authorised by the Financial Conduct Authority and will be subject to ongoing supervision. The FCA will be able to set appropriate rules on assessing affordability and creditworthiness, reducing the risk that borrowing is unaffordable. They will also be to set rules on how firms should resolve complaints, including allowing consumers to take complaints to the independent Financial Ombudsman Service.
Consumers will have access to key legal rights, such as section 75, which will make it quicker and easier for consumers to get refunds.
The Government are also proposing to disapply certain information requirements in the Consumer Credit Act 1974 that, if applied to BNPL, could lead to poor consumer outcomes. Instead, the FCA will be able to utilise their powers to apply more appropriate disclosure requirements in its rulebook. This will ensure that consumers can actively engage with the information that firms provide, allowing them to make informed decisions before entering into a BNPL agreement, throughout the duration of the agreement, and especially when they encounter financial difficulty.
Given the need to act urgently—and because HM Treasury has already undertaken previous consultations on this topic—this consultation will be shortened to six weeks. After reviewing feedback, the Government will bring forward legislation as soon as possible. The new regime will come into force 12 months after the legislation is made, once the FCA has finalised its detailed rules. The consultation is available on
https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024.
[HCWS145]
Draft Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024.
It is a pleasure to serve under your chairmanship, Mr Dowd. The UK’s financial services sector is central to driving growth in the wider UK economy. The Government have committed to reinvigorating the UK’s capital markets, driving innovation and investment in the economy, and enabling the growth and scale-up of innovative green technologies. To that end, we are taking action to address barriers to both the supply of and demand for UK productive investments.
This statutory instrument forms part of a package of reforms to the assimilated EU law that governs the rules that maintain the safety and soundness of UK insurance firms, known as Solvency II. The reforms address demand-side barriers by reducing insurers’ regulatory capital requirements, releasing billions into firms’ balance sheets and incentivising insurers to invest in the UK. These legislative reforms were announced in November 2022 and came into force on 31 December 2023 and 30 June 2024. This statutory instrument makes necessary provision to maintain the reforms and the wider regulatory regime on the revocation of the relevant assimilated EU law on 31 December 2024.
In summary, this statutory instrument preserves a significant cut in the regulatory capital buffer known as the risk margin, maintains the regulatory requirements on insurance groups and undertakings in Gibraltar, and makes further amendments required as a result of changes to the Financial Services and Markets Act 2000 and other legislation.
I will now turn to the detail of what the regulations do. They restate provisions on the calculation of the capital buffer known as the risk margin that would otherwise be repealed at the end of this year. They also affirm the Prudential Regulation Authority’s power to make rules permitting insurers to adopt proportionate approaches to determine the risk margin. The regulations provide that UK supervisory arrangements for Gibraltarian firms will continue unchanged until the broader Gibraltar authorisation regime, legislated for in the Financial Services Act 2021, comes into force.
The regulations empower the PRA to publish results for individual firms within scope of the PRA’s life insurance stress tests, which are generally the largest firms in the life sector. That is in addition to the sector-level results that the PRA has been publishing since 2019. This safeguard provides additional transparency to the market around the resilience of life insurers. It mirrors the approach taken for the results of stress tests for banks.
Finally, the regulations make a number of technical amendments to existing legislation, including the Financial Services and Markets Act 2000, to support implementation of the Government’s package of Solvency II reforms. For example, the regulations amend the definition of both insurance and reinsurance, undertaking to remove references to assimilated EU law. They also remove the definitions of third-country insurance undertaking and third-country reinsurance undertaking, which are not relevant now that the UK is not part of the EU.
Other parts of the regulations make changes that are consequential to the proper functioning of the reformed regime, including for the necessary retention of the risk margin and Gibraltar regulations that I have already noted.
The regulations may sound quite technical, but they are an essential component to complete reforms to the prudential regulatory regime for insurers by the end of this year. The hon. Member for Havant, who sat on the Government side when we went through the entire Financial Services and Markets Act, will be well briefed on what we are doing. I hope the Committee will join me in supporting the regulations and I commend them to the House.
Tulip Siddiq
I associate myself with the comments of the hon. Member for Havant on the ambition and resilience of our financial services sector. I agree that we should be very proud of it.
In response to the point made by the hon. Member for St Albans, I will keep an eye on and will review the risk she mentions. She will be pleased to know that this Government are resetting the relationship with the EU, by not ramping up divisive rhetoric with our closest trading partners. We are making sure we have a productive relationship with them. I will keep an eye on the risk she mentions.
I thank both hon. Members for sharing our ambition in Solvency II. I know that the reforms are technical in nature, but they are an important step in our shared hope, across the Chamber, to reform the UK’s insurance sector. We all want to generate growth and investment in our country and I hope the Committee will support me in supporting these reforms. We want to have a smooth transition to the reformed Solvency II regime by the end of this year.
Question put and agreed to.
Financial Services: Bank of England MREL
Tulip Siddiq Excerpts(1 year, 3 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
The Government’s response to their consultation concerning enhancements to the special resolution regime noted that the Bank of England would consider whether any changes to its indicative minimum requirements for own funds and eligible liabilities (MREL) thresholds would be appropriate [1]. The Bank of England has today published a consultation, “Amendments to the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)”. The consultation sets out the Bank’s intention to ensure that the MREL regime remains proportionate and evolves over time, reflecting the enhancements delivered in the Bank Resolution (Recapitalisation) Bill as well as other wider developments, and taking into account feedback from industry.
The Government welcome the publication of these proposals for consultation and recognise the importance of ensuring that the MREL regime maintains financial stability while being calibrated in a way that supports competition and competitiveness within the UK’s financial services sector. In this context, the Government note the interaction between some of the proposals set out by the Bank on its approach to setting MREL and the Bank Resolution (Recapitalisation) Bill, and welcome the Bank’s proposal to take the new mechanism for recapitalisation into account when setting MREL for firms with a preferred transfer resolution strategy. This will contribute towards ensuring that the MREL regime is proportionate, while remaining consistent with the Government’s intention that the mechanism is primarily focused on the resolution of smaller banks.
The Government are clear that the primary intent of the Bill remains to provide a new mechanism to help address the failure of smaller banks when resolution by means of a transfer to a private sector purchaser or a Bank of England-owned bridge bank is in the public interest. The Government and the Bank are also in agreement that the Bank should not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and corresponding MREL requirements for larger banks, or to rely on the mechanism when resolving such larger banks unless in exceptional circumstances. The Bank’s consultation also confirms this position.
The Government intend to update the special resolution regime code of practice to make this point clear and have published draft updates on gov.uk.[2] These and any subsequent updates will be subject to consultation with the banking liaison panel, to ensure appropriate engagement with industry.
The Government note that one of the Bank of England’s MREL proposals will require changes to secondary legislation. The Government will therefore engage with industry on the necessary changes. Subject to feedback on the Bank’s consultation and the Government’s engagement with industry, the Government will look to make the changes necessary to facilitate these proposals.
[1] https://assets.publishing.service.gov.uk/media/66992907ce1fd0da7b59285b/Bank_Resolution__Recapitalisation__Bill_-_Consultation_Response.pdf
[2] https://www.gov.uk/government/publications/banking-act-2009-special-resolution-regime-code-of-practice-revised-march-2017
[HCWS135]
Bank Ringfencing Reforms
Tulip Siddiq Excerpts(1 year, 4 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
The statutory independent review of ringfencing and proprietary trading led by Sir Keith Skeoch, which reported in March 2022, made recommendations to improve the operation of the ringfencing regime.
The Government will implement a package of reforms as soon as parliamentary time allows. The reforms will improve competition and competitiveness in the UK banking sector and support economic growth, while maintaining financial stability.
The reforms will include:
the introduction of a secondary threshold to exempt retail-focused banking groups from the regime—where investment banking activity accounts for less than 10% of Tier 1 capital;
new flexibilities to allow ringfenced banks to operate globally, subject to Prudential Regulation Authority rules;
measures to encourage more investment by ringfenced banks in UK small and medium-sized enterprises;
measures to reduce the compliance burdens associated with the regime; and
an increase in the primary deposit threshold for ring-fenced banks from £25 billion to £35 billion.
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Oral Answers to Questions
Tulip Siddiq Excerpts(1 year, 5 months ago)
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Noah Law (St Austell and Newquay) (Lab)
The Economic Secretary to the Treasury (Tulip Siddiq)
The Government are already taking action to fix Britain’s economic foundations, with a new approach to growth with three pillars: stability, investment and reform. Sustainable public finances are necessary for economic stability and long-term growth, and the Government will set out the difficult decisions needed to secure the public finances in the Budget on 30 October. The Government have already announced a fiscal lock to support policy stability by ensuring that fiscally significant announcements are subject to an independent Office for Budget Responsibility assessment.
Noah Law
Given the fiscal inheritance that we have been left, the Chancellor has already had to make some difficult decisions to ensure that economic stability. Workers and pensioners just above the personal allowance threshold have already borne much of the brunt of the previous Government’s cost of living crisis and fiscal drag, putting many in a precarious position. What steps are the Government taking to ensure that, if there is to be further fiscal drag, these groups are prevented from shouldering further burdens?
Tulip Siddiq
I should have welcomed my hon. Friend to his place.
It was the previous Government’s decision to maintain tax thresholds at their current levels until 2028. We have inherited an extremely difficult fiscal situation, meaning that we cannot undo everything they did, but the Prime Minister has been clear that those with the broadest shoulders should bear the heavier burden. The Government are providing £0.5 billion, including the estimated Barnett consequential, to extend the household support fund in England for another six months, to 31 March 2025. It continues to be our aim to support those who are most in need. The household support fund is specifically used by local authorities to help the most vulnerable households cover the cost of essentials such as food, energy and water.
Josh Babarinde (Eastbourne) (LD)
The cost of temporary accommodation is spiralling out of control, and it is a source of economic instability for local government. Eastbourne borough council leader Stephen Holt, together with 118 cross-party council leaders, wrote to the last Government to ask for urgent support and to propose a number of solutions, but they were completely ignored.
Will this Chancellor meet me and local government leaders, including Eastbourne’s, to discuss what immediate support she can provide to help councils across the country to tackle the temporary accommodation crisis?
Tulip Siddiq
I thank the hon. Gentleman for his question. Having served as a local councillor for many years, I very much recognise the problem that he describes. I am sorry to hear about this troubling situation, and I will refer his comments to the Secretary of State for Housing, Communities and Local Government and make sure that he gets the response he should have had before.
Bill Esterson (Sefton Central) (Lab)
The Minister refers to the £22 billion black hole in the public finances left by the last Government, and which they hid from the British public. Does that not highlight just how important it is to ensure transparency and independent analysis of economic decisions?
Tulip Siddiq
I thank my hon. Friend for his question. Upon taking office, as he says, we discovered a £22 billion black hole in the public finances that had been left by the previous Government, and we have now uncovered a litany of unfunded Conservative spending commitments. We recently learned that the deficit is now £4.7 billion higher than the OBR forecast in March because of the previous Government’s economic recklessness. We will rectify this, and we will set out a clear spending plan, and an ambitious plan to get the country back into stable economic conditions, at the Budget.
Sir Julian Lewis (New Forest East) (Con)
Given that the House of Commons Library estimates that the covid disaster cost the country between £315 billion and £415 billion, can the Minister explain how it is that even her own questionable figure of a £22 billion black hole is not a great deal higher?
Tulip Siddiq
I think I thank the right hon. Gentleman for his question, but may I point out gently to him that, had our economy grown at the average rate of other OECD economies over the last 13 years, it would have been £140 billion larger? I also point out that under the Conservatives the tax burden rose to its highest level for 70 years. I will take no lessons from the Conservative party, because the last Government oversaw the biggest drop in household real disposable incomes since records began.
Helen Morgan (North Shropshire) (LD)