Financial Services and Markets Bill

Tulip Siddiq Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

I thank the Minister and his officials for all the information about the measures in the Bill that they have shared in recent weeks and for how they have co-operated with me.

As the Minister said, the Bill implements the outcomes of the future regulatory framework review and attempts to set out a clear direction of travel for the regulation of the City post Brexit. It is important that the UK is able to take advantage of this opportunity to create a more competitive financial services sector and to strengthen our regulatory standards for financial stability and consumer protection outside the UK. After more than a decade of stagnant growth, averaging just 1.8% a year, and with the current dangers that face our economy, enabling the City to thrive will be fundamental to the delivery of the tax receipts we need to fund public services and support people through the cost of living crisis.

We on the Opposition Benches broadly support the Bill as it stands. In particular, we welcome clauses 1 to 7 and 8 to 23, which empower the UK, the FCA and the PRA to tailor regulation to meet our needs outside the EU. The Labour party recognises that the City is now in a place very different from where it was in 2016. The consensus view across the sector now is that the ship has sailed on regulatory equivalence with Europe, but regulatory divergence with the EU has the potential to produce many opportunities for the sector and the wider economy, such as the reform of Solvency II to unlock capital for investment in the green transition.

EU regulation can often be over-restrictive, particularly in respect of financial technologies, as the Minister will know, and we welcome the fact that the Bill enables regulators to take a more outcomes-based approach to areas such as fintech. However, Europe will always remain an important market for our financial services sector. In 2021, exports of financial services to the EU were worth £20.1 billion—that is 33% of all UK financial services exports.

Since 2018, the value of UK financial services exports to the EU have fallen by 19% in cash terms, and there has been little progress in securing trade deals for our financial services around the world. I have to say to the Minister that the sector is disappointed that the Government have so far failed to finalise a memorandum of understanding on regulatory co-operation, or to negotiate with the EU for the mutual recognition of professional qualifications for our service sectors. I hope that when the Minister sums up he will tell us what impact he believes the Bill will have in securing those important agreements with the EU and boosting financial services exports more generally.

The Minister will know that I like to ask a series of questions when I deal with him, and I am afraid there is more to come. Let me turn to clause 24. We support the principle that there is a role for the FCA and PRA to advance international competitiveness and growth. We on the Opposition Benches are strongly committed to supporting the City to retain its competitiveness on the world stage and to ensuring that the UK remains a global financial centre outside the EU. But it is also right that financial stability and consumer protection remain the priority for regulators. Any compromise on those important objectives would be self-defeating.

[Caroline Lucas]

I completely accept the hon. Lady’s point about our being a competitive financial centre, but does she agree that there is a real opportunity to be a competitive green financial centre? As that opportunity is time-limited—other countries are moving faster than we are—does she agree that a secondary objective in respect of climate and nature will be essential to ensure that we regulate in a way that allows us to make the most of that potential?

[Tulip Siddiq]

I thank the hon. Lady for her intervention. I will come on to that issue later in my speech. It felt as though Conservative Members did not agree with her, but I agree with what she said.

[Wera Hobhouse (Bath) (LD)]

Further to the previous question, does the hon. Lady agree that one does not exclude the other?

[Tulip Siddiq]

rose—

[Wera Hobhouse]

I am referring to competitiveness and having a green agenda.

[Tulip Siddiq]

I had to think for a second about what the hon. Lady was referring to, but she is absolutely right. I agree with her on that, and I will address it a bit later in my speech.

The Opposition particularly welcome the inclusion in the new secondary objective of a focus on the medium-term and long-term growth of the UK economy. Financial services are already an important driver of growth in the UK, but much more can be done to support the sector to invest in companies in every sector and every region in the country, to deliver long-term growth and well-paid jobs in the real economy. I understand that clause 26 requires the PRA and FCA to report annually on the new secondary objective, but will the Minister confirm in his closing speech whether that will include being held to account specifically on the advancement of long-term growth in the real economy?

That brings me on to the provisions in clauses 27 to 46, which deal with accountability more broadly. The Bill facilitates an unprecedented transfer of responsibilities from retained EU law to the regulators. We recognise the need for a rethink of how the FCA and PRA are held accountable by democratically elected politicians and Governments. We particularly welcome clause 36, which will formalise and strengthen the role of the Treasury Committee in holding regulators to account. However, as my hon. Friends the Members for Wallasey (Dame Angela Eagle) and for Kingston upon Hull West and Hessle (Emma Hardy) said, we need to be able to scrutinise decisions taken by the Treasury, and I hope the Minister will elaborate on that. Any new powers allowing greater involvement of and policy input from Government in the FCA’s and PRA’s rule making process must be carefully balanced with the need to protect their regulatory independence. We will be scrutinising these provisions closely in the weeks ahead.

The UK’s reputation for regulatory independence is a key driver of our competitiveness on the world stage, as I am sure the Minister will agree. Equally important, however, is ensuring that the City has a clear direction of travel on post-Brexit reform. I was worried about that, because over the summer the now Prime Minister made a series of off-the-cuff policy announcements and people around her were spreading rumours, which left the sector in a state of uncertainty about her Government’s plans for this Bill. The Minister has today confirmed that the intervention powers, or so-called call-in powers, will be included in the Bill through an amendment. I am disappointed that the Government have decided to cause greater uncertainty in the City by introducing a significant change at this stage, and I hope he will reassure me that they will publish the details of these new powers as soon as possible. I would also be grateful if the Minister would confirm in his closing remarks whether the Government have plans to abolish the FCA and PRA. That would seem to undermine many of the provisions in the Bill.

I also wish to discuss the issue of access to cash and banking services, which some Members have spoken about. The Opposition broadly support the Bill, but we are concerned that there are some serious gaps in it as it stands. Of course, we strongly welcome clauses 47 and 48, which will finally, after years and years of Government delay, protect access to cash. The industry, and particularly the major banks, should be applauded for coming together to help protect cash services at the end of last year, in advance of this legislation being put on a statutory footing. But the Bill does nothing to protect essential face-to-face banking services, which the most vulnerable in our society depend on for financial advice and support.

On this Government’s watch almost 6,000 bank branches have closed since 2015, and the “Community Access to Cash Pilots” report found significant overlap between those reliant on cash, estimated at about 10 million people, and those who need in-person banking support. Those without the digital skills to bank online, people in rural areas with poor internet connection and the growing number of people who are unable to afford to pay for data or wi-fi as the cost of living crisis deepens are at risk of being left behind. Banking hubs or other models of community provision, such as banking kiosks, will need to be part of the solution. These are spaces where dedicated staff can provide vital face-to-face support for those who need it, and tackle digital exclusion by teaching people how to bank online.

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

Does my hon. Friend share my concern that although a great deal is offered by the hubs, they do not deliver? They certainly do not for those of us who live in cities, as people require the bank most days if they are dependent on cash, and they are just expected to get the bus.

[Tulip Siddiq]

I agree with my hon. Friend, and I have seen examples of that in my constituency, especially the parts where people are from lower socioeconomic backgrounds.

[Jim Shannon (Strangford) (DUP)]

The hon. Lady is outlining the case on behalf of those who live in rural communities, who comprise about 50% of my constituents. A number of banks have closed in our constituency—I believe there have been 10 or 11. Each of those banks—Danske Bank, Ulster Bank and all the others—has made exorbitant profits. I am not saying that they should not make a profit, because they should, but their profits are so high that they could well keep their branches open to ensure that people who live in a rural area can have access. Does she agree with me on that?

[Tulip Siddiq]

I agree with the hon. Gentleman’s point, especially as regards constituents in rural areas. I hope the Minister will take on board the comments that are being made.

I was delighted to hear the announcement from the Cash Action Group this week that the sector will be launching additional banking hubs on a voluntary basis, but these services must be protected by legislation. Will the Minister kindly set out in his summing up when the Treasury will be publishing its cash access policy statement, and whether it will ensure that in-person services are protected under the legislation?

It is also disappointing that the Bill fails to address the growing problem of financial fraud. Labour fully supports clause 62, which enhances protection for victims of authorised push payment scams, but the Bill does nothing to strengthen fraud prevention. Under this Government, the amount of money stolen directly from the bank accounts of hard-working people and businesses through scams and frauds has reached an all-time high of £1.3 billion. That would be bad in a normal time, in the best of times, but it is especially bad when we are in the middle of a deepening cost of living crisis. This Government have completely failed to get to grips with modern fraud and scams, such as identify theft and online scams, which have seen people’s lives stolen and their economic stability put at risk.

The former Business Secretary, who is now the Chancellor of our country, was asked about fraud earlier this year. He dismissed it, saying that fraud and scams are not a part of most people’s everyday lives. That is breathtakingly out of touch. Why does he think that? It is shocking. Martin Lewis, the money saving expert, said at the time that

“denigrating the experience that people in this country have with scams, and the lives that have been lost or destroyed because of scams, is an outrage. And he must and needs to apologise if he has any shred of decency in him.”

We still have not received an apology from the Chancellor, but he can put things right by taking immediate action to rectify the amount of fraud and scams that people are facing. I ask the Minister to explain in his closing statement why his Government continue to fail to take fraud seriously and push responsibility solely on to the banks. The Bill ignores the fact that digitally savvy criminals are increasingly exploiting a range of financial institutions, such as payment system operators, electric money institutions and crypto asset firms, to scam the public. In his summing, can he also please explain why the Bill would only provide for the reimbursement of fraud victims who send money using the faster payment system, and why other payment systems have not been included? That seems baffling.

Another area in which I feel the Bill lacks ambition is support for the mutual and co-operative sector. While clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wider range of products, the Bill does little to address the outdated regulatory regime faced by credit unions, building societies and co-operative banks. We have seen numerous building societies threatened with demutualisation in recent years, while the number of mutual credit unions has plummeted by more than 20% since 2016. Unlike the USA and many other European countries, the UK is uniquely lacking in mutually or co-operatively owned regional banks. That lack of diversity in the financial services sector has had devastating consequences for financial inclusion and resilience, with many desperate families forced into the arms of unethical lenders. I have seen that first hand in my constituency, especially in Kilburn.

A clear first step in addressing this issue would be to require the Financial Conduct Authority and the Prudential Regulation Authority to have an explicit remit to report on how they have considered specific business models, including credit unions, building societies and mutual and co-operative regional banks, to ensure they are given parity of esteem with other providers. I would be grateful if the Minister addressed that in his closing remarks—I recognise that I have asked many questions that I want him to answer.

Turning briefly to food speculation, Global Justice Now has brought to my attention concerns that the Government’s proposed reform to the position limits regulations under MiFID II have not been adequately assessed for commodity market speculation risks. I ask the Minister to provide some reassurance that these reforms will not adversely impact commodity prices, such as energy and food prices, in the midst of a cost of living crisis, and to explain what role the regulators will play in monitoring this.

Finally, turning to the points that have come from the Opposition Benches, it is striking how little the Bill has to say about green finance. We of course welcome clause 25, which formalises the responsibilities of the FCA and PRA under the Climate Change Act 2008—introduced, I remind the House, by the last Labour Government—but the Government promised much more radical action. Indeed, we were promised that the UK would become the world’s first net zero financial centre, but instead, we are falling behind global competitors.

A recent report from the financial services think tank New Financial revealed that the UK is a long way behind the EU in both share and penetration of green finance in capital markets. It is possible that the Minister has not read that report; I am happy to send him a copy. If he reads it, he will see that it says in black and white that the UK is behind the EU. It found that green finance penetration in the UK was at half the level of the EU, and roughly where the EU was four years ago. When the Minister closes, if he does not agree with me, will he please explain why nothing in this Bill commits the Government to introduce sustainability disclosure requirements, a green taxonomy plan, or a green finance strategy for the sector? If he does not agree with the report I have quoted, could he tell me whether it is wrong?

I look forward to debating and, hopefully, addressing these issues with the Bill when it is in Committee. Once again, I thank the Minister in advance for his closing remarks, which I am sure will give detailed answers to all the points I have raised today.

--- Later in debate ---

[The Economic Secretary to the Treasury (Richard Fuller)]

With the leave of the House I would like to speak for a second time, and I will start by thanking right hon. and hon. Members for their contributions to the debate. As the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) has just said, I welcome the broad support across the House for the Bill.

As has been clear throughout the debate, I am really a small person standing on the shoulders of the two giants responsible for the Bill—my hon. Friend the Member for Salisbury (John Glen) and my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak). I will seek to address what I can of what has been said in the time available—[Interruption.] Shush. Where I am not able to, I shall write to colleagues where I feel that I can add something meaningful. I also look forward to Committee, where I will be able to address some of the points in more detail.

As I said in opening the debate, this is an important and ambitious Bill that seizes opportunities afforded by EU exit to make important reforms to the regulation of financial services. As my right hon. Friends the Member for Richmond (Yorks) and for South Northamptonshire (Dame Andrea Leadsom) and my hon. Friend the Member for Salisbury said, the resilience of the United Kingdom financial services market as we exit Brexit has been much stronger and greater than the naysayers said. Once again, people who talked down our country have been proved wrong.

There were questions on a number of areas, but I will start with access to cash, which was raised by a several Members. The UK Government remain absolutely committed to protecting consumers and supporting inclusion. The impact of bank branch closures should already be understood, considered and mitigated where possible so that all customers, wherever they live, and especially the most vulnerable, continue to have appropriate access to face-to-face banking services. Meanwhile, innovative, shared bank hubs allow customers of participating banks to withdraw and deposit cash and seek support from a representative of their bank in person. It was pleasing to hear the contribution from my hon. Friend the Member for Cleethorpes (Martin Vickers) regarding the hub at Barton-upon-Humber, and that of my hon. Friend the Member for Mid Derbyshire (Mrs Latham) about Belper. She mentioned the knock-on benefits that banking hubs can have on high streets both in Belper and in other parts of the country. My hon. Friend the Member for Vale of Clwyd (Dr Davies) and the hon. Member for Mitcham and Morden (Siobhain McDonagh) spoke about the importance of financial hubs in their constituencies.

Those are an important part of access to cash, but the Bill also provides the FCA with powers to protect access to cash specifically. Where appropriate, the FCA could exercise the powers in the Bill to prevent a branch closure where in doing so it is seeking to ensure reasonable provision of cash access services. That may be the case, for example, if a closure would result in a significant adverse impact in relation to accessing cash in that area. The Government expect such situations to be exceptional and temporary while alternative arrangements to meet cash needs are put in place, but ultimately that access to cash must and will be protected.

The Bill allows the FCA to determine standards to ensure reasonable access to cash access services. In determining reasonable access, the FCA may take into account factors that it considers appropriate, which may include appropriateness of facilities for vulnerable users, including cost, security availability and accessibility for, for example, disabled people. The FCA is developing its regulatory approach for access to cash and will consult in due course.

[Tulip Siddiq]

Does the Minister support free access to cash—yes or no?

[Richard Fuller]

I was about to come to that. As I said earlier, while I cannot give an assurance on free-to-use ATMs, I do expect us to return to the matter in more detail in Committee. I tried to write down those right hon. and hon. Members who used those four letters—F, R E and E—in describing their wish for access to cash. They included my hon. Friends the Members for Blackpool North and Cleveleys (Paul Maynard), for Cleethorpes and for Mid Derbyshire as well as the hon. Members for Kingston upon Hull West and Hessle (Emma Hardy), for Feltham and Heston (Seema Malhotra), for Richmond Park (Sarah Olney) and for Mitcham and Morden. As I said, we will return to these issues in Committee, particularly given the level of interest in them.

I turn to other matters. The shadow spokesperson, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), asked about the new secondary objectives for growth and competitiveness and whether they were aimed at advancing long-term growth in the real economy. Those secondary growth and competitiveness objectives will enable the PRA and the FCA to make rule changes to advance the long-term growth and competitiveness of the UK economy, including the financial sectors. The new objectives refer to the UK economy as a whole, including in particular the financial services sector.

The hon. Member for Richmond Park, who is in her place, and the hon. Member for Brighton, Pavilion (Caroline Lucas), who I do not think is in her place, talked in an intervention about whether the regulator should have a green objective. Including the net zero target specifically in the regulatory principles ensures that the Government’s commitment to reach net zero will be embedded in regulator considerations. Therefore, it is more appropriately progressed by regulators as a regulated principle, which means they will consider the Government’s target when they advance their own objectives. We heard a lot about what the Government are doing on green finance which did not pay enough regard to the progress the Government have made already on that. Let me just list it. The UK is rated No. 1 globally in the Z/Yen Global Green Finance Index. The UK has had the largest green gilt instruments globally. The UK had the first green savings account issued with the national savings fund. The UK is the first major economy to implement fully the taskforce for nature-related financial disclosures across both financial services and the real economy. The UK is the largest donor to multilateral climate investment funds. That is a record this Government can be proud of. That is a record that this country can be proud of as well.

The hon. Member for Kingston upon Hull West and Hessle asked about having regard to financial inclusion. The Government believe that the FCA’s current and ongoing initiatives around financial inclusion demonstrate that it can already effectively support the Government’s leadership of this agenda through its additional operational objectives and regulatory principles.

The shadow spokesperson asked how seriously Parliament should take the speculated proposals to merge the regulators. There are no plans to merge the PRA and the FCA. Again, she asked about the independence of regulators and how we can ensure the continued independence of our regulators. The legislative framework underpinning financial services regulation in the UK provides for the regulation to be independent of the Government.

My hon. Friend the Member for Wimbledon (Stephen Hammond), who I think may be in his place, asked about whether we could commit to an annual report on the key performance indicators of the regulators. Both regulators, I am pleased to say, will be required to report on their performance against their growth and competitive objectives on an annual basis. This will be similar to the PRA’s current reporting requirements for its secondary competition objective. My hon. Friend also asked about the important issue of cost-benefit analysis panels and what the accountability of the regulators will be. The Government expect that the panel will operate in the same way as other statutory panels, where they appoint external members. Ensuring the right membership of panels is crucial to their success in promoting and challenging a range of expertise.

The Chair of the Treasury Committee, my right hon. Friend the Member for Central Devon (Mel Stride), asked an important question about the Bank of England’s independence. I can tell him and the House that the Chancellor today met the Governor. I refer him and other hon. Members to Her Majesty’s Treasury’s statement on that meeting. The Chancellor affirmed that the UK’s long-standing commitment to the Bank of England’s independence and its monetary policy remit. The Chancellor and the Governor agreed that getting inflation under control quickly is central to tackling cost of living challenges.

My right hon. Friend the Member for Richmond (Yorks) asked whether the European regulations on PRIIPS will be reformed. Yes, the Bill will repeal and retain EU law for PRIIPS. He also asked about ringfencing and whether ringfencing will be reformed. The Treasury welcomes the comprehensive set of recommendations to the Independent Panel of Ring-fencing and is committed to publishing a Government response later this year.

There were many other questions, particularly on MRAs—mutual recognition agreements—crypto-assets and other issues. I will have to write to Members, given the amount of time available. On the important issue of scams and fraud prevention, which was raised by many Members, I acknowledge the seriousness of the issues we face, but I do not accept that the Government and regulators are not taking action to prevent fraud, both in relation to financial services and more widely. The Government are clear that prevention is better than cure and that a multifaceted approach is needed to tackle fraud. The shadow City Minister asked what we were doing beyond financial services. I point to the Online Safety Bill, which the Prime Minister committed to in the House today.

There were many, many issues also raised that I have not had time to refer to today, but that just indicates the wide breadth and importance of the Bill. The Bill capitalises on our freedoms outside the EU by bringing forward an ambitious set of reforms that assert the UK’s global leadership in financial services, and I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022

Tulip Siddiq Excerpts

Monday 18th July 2022 General Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve with you in the Chair, Ms Ali.

The Opposition are committed to supporting the global effort to combat money laundering and the financing of terrorism. The Minister will be pleased to hear that we are broadly supportive of the draft regulations and will vote in favour of them. We welcome, in particular, the new travel rule for cryptoassets and the duty on regulated firms to carry out continuous anti-money laundering checks. I am sure the Minister will agree that many of the measures could have been introduced months ago. We are still waiting for the long overdue second economic crime Bill, so perhaps the Minister will be able to update me on the Government’s progress on that.

I have a number of questions about the draft regulations. As before, I am happy for the Minister to write to me if he does not have the answers to hand. First, on the regulations on cryptoasset firms, I welcome regulation 5, which requires cryptoasset firms to record information on the sender and receiver of cryptoasset transfers. That will introduce much-needed transparency to the sector, but it will not come into effect until September 2023. The Minister will be aware that kleptocrats linked to Russia are rushing to convert their assets into cryptocurrencies to avoid the sanctions put in place in response to Russia’s invasion of Ukraine. What assessment has the Minister made of the risk that the delay in implementing the regulations will allow Kremlin-linked individuals to avoid sanctions?

I also have a question about regulation 10, which removes the obligation to build a bank account portal. Transparency International has warned that that will leave the UK’s anti-money laundering regimes significantly weaker than the EU’s. Spotlight on Corruption believes that a portal would have allowed law enforcement and anti-money laundering supervisors to access information on the identity of holders and beneficial owners of banking payment accounts and safe deposit boxes, therefore supporting criminal investigations and the recovery of the proceeds of crime. Why did the Minister arrive at a different conclusion from the anti-corruption experts, despite the Government not even publicly consulting on regulation 10?

The Minister said that the Government decided not to build a bank account portal because of the potential cost to the public and private sector. Could he set out the estimated costs to the public and private sectors of building the portal? Again, if he does not have the information to hand, I am happy to have it later. Could he explain the method used to determine that the cost outweighs the potential benefits of a portal to our economy and society as a result of increasing the capacity of enforcement agencies to investigate and recover the proceeds of crime?

Let me turn now to the consequences of the draft regulations not applying to the UK’s Crown dependencies —the Channel Islands and the Isle of Man. The Secondary Legislation Scrutiny Committee in the other place highlighted that this is a potential cause of concern because it risks bad actors in the UK financial services sector moving to the Crown dependencies to avoid anti-money laundering checks. Could the Minister confirm whether he will work with his equivalents in the Crown dependencies to ensure that the changes introduced today are reflected in their regulatory regimes?

Finally, I want to ask the Minister about the relationship of the draft regulations to the Economic Crime (Transparency and Enforcement) Act 2022 and its long overdue second part. The statutory instrument makes minor changes to the 2022 Act to ensure that discrepancies in company records are reported in a timely manner. That seems sensible enough, but does the Minister accept that it will have little impact if the Government continue to delay the second economic crime Bill and a reform of Companies House? We have been promised the Bill for months, but it is yet to materialise. Can the Minister update us on the timetable for the Bill?

The Minister will be happy to know that the Opposition support the draft regulations, but I hope he can address some of the concerns I have outlined.

Oral Answers to Questions

Tulip Siddiq Excerpts

Tuesday 17th May 2022 Commons Chamber

[John Glen]

I thank my hon. Friend for her question. As she will know from the letter that I sent her this morning and from our conversation with industry representatives together a few months ago, this is quite a challenging issue to resolve. I cannot direct the banks to open, and keep open, these accounts, but I will continue to engage with her and with UK Finance to see whether more progress can be made in the coming weeks.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

The Government have lost £4.3 billion of taxpayers’ money through fraudulent covid schemes. Now we learn that a large chunk of that money is going into the hands of terrorists, organised crime gangs and drug dealers. Will the Minister reassure me that he is taking the reports seriously and update the House on the total number of investigations the Government are undertaking that relate to covid fraud?

[John Glen]

I can absolutely reassure the hon. Lady that the Government take the issue very seriously. That is why at previous fiscal events the Chancellor has invested £100 million in a taskforce to deal with it. When we designed a number of the interventions, protecting taxpayers was a real consideration. It is also the case that we needed to act swiftly to assist those businesses and if we had not made some of those interventions at the time, many businesses would have gone under. We continue to engage carefully on the matter.

DRAFT ALTERNATIVE FINANCE (INCOME TAX, CAPITAL GAINS TAX AND CORPORATION TAX) ORDER 2022

Tulip Siddiq Excerpts

Tuesday 17th May 2022 General Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under you in the Chair, Sir Edward. The Labour party is completely committed to ensuring that every religious community in the UK is able to benefit from the opportunities that access to finance can offer—whether that is taking out a student loan to attend one of our world-leading universities, setting up a new business or getting a mortgage to buy a house and start a family. For a significant number of British Muslims, having to take an interest-bearing loan would exclude them and their families from higher education or home ownership. Interest is prohibited in Islam, as it was in Christianity until the middle ages. Thousands of Muslims living in the UK today adhere to the core concepts of Islamic economics, of which the description of riba, the Arabic word for interest, is perhaps the most significant. That is why the role of the UK’s Islamic finance sector is so important; it currently supports more than 100,000 retail customers across the UK by offering alternatives to interest-based products.

The City of London is one of the leading centres for Islamic finance in the western world, and the Opposition want to see this vibrant sector continue to thrive and grow. The Minister will be pleased to know that we therefore wholeheartedly welcome the Government’s draft regulations today, which will help provide a more level playing field for the providers of conventional and Islamic financial products.

By providing for the equal treatment for tax purposes of Sharia-compliant home purchase plan providers and regulated peer-to-peer platforms with traditional mortgage and loan providers, the regulations are also an important step forward for financial inclusion. I am sure the Minister will agree that my hon. Friend the Member for Bradford West (Naz Shah) and Lord Sheikh of Cornhill have done some fantastic work in highlighting the role that Islamic finance plays in tackling financial exclusion in the Muslim community. They are co-chairs of the all-party parliamentary group on Islamic finance and have long campaigned for the changes introduced today, which will provide many Muslims with a greater choice of financial products.

The Minister will not be surprised to learn that I have a series of questions for him. Although the Government have taken a welcome step today, will he explain why no such progress has been made on perhaps the other greatest barrier to financial inclusion in the Muslim community—the introduction of Sharia-compliant student loans? For nine years, successive Prime Ministers have pledged to address the shameful situation in which many young British Muslims, faced only with the option of an interest-bearing student loan, have not been able to attend university.

An October 2021 survey by Muslim Census, an organisation that gathers data on Muslims living in the UK—

[The Chair]

Order. Student loans are not part of the proceedings. You can refer to them briefly, but please do not give a long speech on student loans. They are not part of what we are talking about.

[Tulip Siddiq]

With all due respect, I think they are connected, but I will listen to the Chair’s comments. I would like the Minister to tell us why, despite the Government identifying the solution to this problem six years ago, they continue to stand by as thousands of Muslim students are giving up on university education. I hope the Minister can answer that point.

I want to raise the concerns of the APPG on Islamic finance regarding stamp duty land tax. The APPG has warned that the draft regulations fail to address the fact that Islamic fintech companies, which are regulated by the Financial Conduct Authority, are unable to benefit from the alternative finance rules that relate to stamp duty land tax, because of how a financial institution has been defined in the regulations, which do not recognise Islamic fintech companies as equivalent to banks or building societies. Although the UK may be the leading hub of Islamic finance outside of the Muslim world today, growth in the sector is increasingly driven by fintech. In the absence of a comprehensive strategy for Islamic fintech, the UK is at risk of falling behind its global competitors in Islamic finance. Has the Treasury considered the impact on the UK’s Islamic finance sector of the omission of Islamic fintech companies from the extension of the financial institution definitions for the purposes of SDLT?

We welcome and fully support the draft regulations, but why was there no progress over nine years on the introduction of Islamic student finance, and what reassurance can the Minister provide that his Government will support and champion the interests of the Islamic fintech sector?

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022

Tulip Siddiq Excerpts

Monday 25th April 2022 General Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hosie. The Labour party is completely committed to supporting the global effort to combat money laundering and terrorist financing. The Financial Action Task Force has long warned about the major weaknesses in the United Arab Emirates’ anti-money laundering framework, not least its chaotic approach to registering companies, which makes it near impossible for law enforcement agencies to find out what is behind a suspicious company registered in the country. I will come to the Financial Action Task Force’s decision on Zimbabwe later, but it came as little surprise when that intergovernmental organisation decided—correctly, in my opinion—to add the UAE to the greylist of high-risk countries at its meeting last month. We on the Labour Benches therefore wholeheartedly support the regulations, and welcome the inclusion of the UAE in the UK’s list of high-risk third countries for money laundering.

However, the Minister will not be surprised to hear that I have a few questions for him. Will he explain how we got here? As Spotlight on Corruption—a campaign group that works to end corruption within the UK and wherever the UK has influence—and others have pointed out, the UK Government are supposedly a key partner of the UAE in tackling illicit finance. The Government must take some responsibility for the UAE’s failure to improve its anti-money laundering controls.

The co-operation between the UK and the UAE dates back to 2019, when the Foreign, Commonwealth and Development Office appointed an illicit finance policy lead at the British embassy in Abu Dhabi as part of the UK Government’s newly deployed serious and organised crime network, while the 2020-2021 Gulf strategy fund programme committed to improving the UAE and UK’s joint ability to tackle illicit finance and last year’s integrated review vowed to increase the UK’s co-operation with our close partner, the UAE, to tackle global illicit financial flows.

Indeed, last September the Home Secretary went as far as to describe this co-operation as a “new landmark partnership” to

“raise professional standards on countering money laundering.”

Will the Minister set out exactly what went wrong? Why did the UK Government’s so-called “landmark partnership” fail so terribly at improving the UAE’s anti-money laundering controls? As he will know, that failure has had tragic consequences. It has been reported in The Guardian, The New York Times and elsewhere that Russian kleptocrats linked to the Kremlin are now moving their assets to the UAE to avoid western sanctions. As a country, we cannot stand by as Russia exploits the UAE’s lax financial system to fund its bloody war in Ukraine.

I understand that as part of the UK and UAE’s illicit finance partnership, there are annual meetings between the Home Secretary and the UAE Minister of State to ensure progress on money laundering. Will the Minister tell us what work the Government have been doing in the lead-up to that meeting to press the UAE to take the necessary steps to prevent illicit finance from Russia and elsewhere from flowing through its economy? Does the Minister agree that if the UK is to successfully influence the UAE to crack down on money laundering and terrorist financing, his Government must first get its own house in order?

For years, the Government have stood by as dirty money from Russia and elsewhere flooded the UK’s financial services sector. It was only after the Russian invasion of Ukraine in February this year that the Government finally passed an economic crime Act. Even then, Ministers had to be dragged through the Lobby to rush through legislation that could have been passed years ago.

The job of closing down the London laundromat of dirty money is only half done. To restore the UK’s international reputation, the Government must fast-track the publication of the much delayed register of overseas beneficial ownership of property in the UK, and urgently implement reform of Companies House to crack down on shell companies hiding cash in Britain. Only then will the UK have the moral authority to exert influence over the UAE and our other international partners in the fight against global money laundering.

Finally, I want to ask the Minister about his Government’s approach to the UK’s autonomous list of high-risk third countries. I am not overly concerned about the removal of Zimbabwe from the list; Zimbabwe is not a major international transit centre for dirty money, and the UK’s financial services sector has limited interaction with companies and individuals linked to its Government. However, I want to hear reassurances and details from the Minister today on how his Government will continue to monitor money laundering and terrorist financing risks linked to Zimbabwe, despite the country’s removal from the list.

Will the Minister explain why Russia is not included on the UK’s list, despite the huge threat that dirty money from Russia poses to our national security? Although we support the Government’s policy of automatically including countries added to the international greylists and blacklists, surely it would be in the UK’s interest to include on our high-risk list certain countries, such as Russia, regardless of whether or not the Financial Action Task Force has decided to omit them.

For all their tough talk on dirty money from Russia, the Government have yet to convince us that they are committed to cracking down on money laundering in the UK and abroad, and that has been demonstrated by their delay on Companies House reform and the failure of their partnership with the UAE to improve that country’s anti-money laundering regime. We welcome the regulations, but ultimately the UK is simply following the lead of the Financial Action Task Force. The Government have to do much better than this if they are serious about ending the UK’s reputation as a safe haven for dirty money. I hope the Minister will answer the questions that I have set out.

Midas Financial Solutions Collapse

Tulip Siddiq Excerpts

Tuesday 22nd March 2022 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I beg to move,

That this House has considered the matter of the people affected by the Midas Financial Solutions collapse.

It is a pleasure, as ever, to serve with you in the Chair, Mr Stringer, and I am grateful to the Backbench Business Committee for allowing time to bring the matter before the House. I do so for a number of reasons, some to do with the people directly affected by the collapse of Midas Financial Solutions, but also because the case brings to us bigger issues that require attention and, potentially at some point, reform.

Another reason for bringing the matter to the House is that I know from my constituency casework that, bad though the situation around Midas Financial Solutions is, it is far from the only case. I have another such constituency case, although I will not refer to it as criminal proceedings are still live and it would therefore be improper to do so. However, the position of those investors in Midas Financial Solutions Ltd who took the legal action against Sense, the principal of Midas Financial Solutions, remains highly unsatisfactory.

Related to that position, it appears to me that the workings of the Financial Conduct Authority, and before it the Financial Services Authority, require close parliamentary scrutiny, particularly the inability to focus on the needs of the consumer, rather than the various other professional parties that come within its ambit. It is worth reflecting that, in this case—which forced the FSA to act in 2014, although it had been aware of much of it beforehand—it took until 2020 and court action by 95 of the investors for the FCA to apologise in writing. That illustrates the obstruction that seems to lie at the heart of much of the complaint handling by the FCA.

Finally, there are issues around the future pattern and shape of regulation. The law as it stands leaves us, effectively, with two tiers of protection, and I suggest that that requires to be addressed.

Today’s debate is the latest junction in a road that has represented six years of casework for me. I have been consulted with, worked with constituents who have lost tens of thousands of pounds—some have lost hundreds of thousands of pounds—and engaged with people throughout the north-east of Scotland, as well as Orkney and Shetland, as Midas Financial Services Ltd was based in Aberdeen. The managing director was Alistair Greig, who was convicted of fraud involving £13,281,671.25. For his role in the fraud, he was sentenced to 14 years’ imprisonment, which was reduced on appeal to 10 years. The fraud ran from August 2001 to October 2014.

The pretence at the heart of the fraud—that money was being placed in short-term deposit schemes with Royal Bank of Scotland for fixed periods—was essentially fairly simple, but this turned out to be, bluntly, a Ponzi scheme. We are not focusing on RBS today, but I will mention in passing that one of my constituents rather dryly observed that throughout the scheme RBS had demonstrated a quite remarkable lack of curiosity. The prosecutor at the trial said that Greig had used the funds from Midas Financial Solutions (Scotland) Ltd

“as his own personal slush fund.”

My constituents would prefer not to be named, as Shetland is a small community and it is not difficult to work out who has lost sums of this sort. I have worked closely with the group that organised and corralled the 95 investors to raise legal proceedings, and I pay tribute not just to my constituents, who have been dogged in their pursuit of the action, but also Colin Stewart, who was one of the main actors in bringing the group together.

We have to bear in mind that the sums involved are massive—tens or hundreds of thousands of pounds—and represent life savings or perhaps an inheritance. These are not investment bankers in the City of London who are just taking a bit of punt with last year’s bonus. These are massive amounts of money to the people involved, and it is money that none of the people to whom I have spoken could afford to lose. One of my constituents remains £80,000 out of pocket to this day.

I pay handsome tribute to some of the legal practitioners involved. Robert Morfee was the solicitor when I first became involved, and more recently it has been Philippa Hann, who has prosecuted the case for her clients in a way that reflects very well on the best traditions of the legal profession. My constituents have been very fortunate to have her on their side.

Alistair Greig operated as an appointed representative, which is a term of art, of Sense Network Ltd, a network of financial advisers. As I said earlier, this was actually a Ponzi scheme operated by Alistair Greig. The true nature of the scheme was eventually exposed by a whistleblowing notice in August 2014, leading to enforcement action against Midas and Mr Greig by the Financial Conduct Authority in September 2014. That investigation revealed that 279 members of the public had contributed £12.8 million to the scheme, but that only £379,000 remained at that point.

Proceedings were taken by 95 claimants against Sense as the principal and supervisor of Midas. They were unsuccessful both at first instance and on appeal, on the basis that it was held that the obligations of Sense for its appointed representative were strictly limited to the exact terms set out in the appointed representative agreement between them, which included which product providers Midas could use. Where Midas used a different product provider, that was held to fall outside the responsibility of Sense, despite the fact that the claimants were not made aware of that nor could they have discovered it from any publicly available source.

I want to labour this point for a second, because it is material. The FCA, and before it the FSA, made it clear in everything it ever said to members of the public that they should check the status of the people with whom they were doing business—there are online registers available for ready inspection. However, the truth of the matter is that whether or not the actions of the appointed representative are covered, as they should be by having a principal such as Sense Ltd, is something that someone coming in off the street to invest their money cannot know. Indeed, that ran to the very heart of the difficulties faced by those who invested with Midas Financial Services.

It was also disclosed in the course of the court proceedings that there were good reasons for Sense, the Financial Services Authority and the Financial Conduct Authority to know that Alistair Greig was dishonest and was not fit and proper to be registered and authorised by them. In fact, it was revealed that the Yorkshire Building Society had found him to be selling mortgages under false pretences. The management of Sense Network was aware of that but allowed Mr Greig and his firm to continue as an appointed representative of Sense Network.

The effect of the court’s decision was to create a two-tier system of protection for UK investors. The court upheld that the private contract between the principal and the appointed representative, not the publicly available information on the FCA register, defines the business for which the principal is responsible. Even though the customer would not know what the arrangement is between the principal and the AR, that arrangement will govern the acts for which the principal is responsible. As a result, the customer will be in the dark and potentially at risk—more so than if they had done business with the principal directly. Where the advisor is not an appointed representative but is directly authorised by the FCA, the consumer will be protected in relation to the business that it is permitted to undertake and which is listed in the publicly available register. If Midas had been directly authorised, the claimants would have been protected.

The judgment is relevant to any appointed representative acting outside its private agreement with its principal. The fact that the investment in this case was a Ponzi scheme is irrelevant to the decision that the judge made and the consequences for the general public. Any client of an appointed representative advised in relation to anything that falls outwith the agreement with the principal will leave the client without protection entirely, without their knowledge. In the Midas case, obviously the staff at Midas did not inform the claimants that the advice fell outside the agreement with their principal. One wonders whether they would have even understood the significance of it had they done so. The judgment now leaves consumers at the mercy of unscrupulous ARs acting in breach of their private agreement with their principal, for which the principal avoids liability despite the law providing for it to seek damages from the AR for breach of that contract. The principal can take action against the appointed representative, but the customer—the consumer—cannot.

As well as taking the court action, the claimants took a complaint to the FCA about the failure of its predecessor, the Financial Services Authority, to take steps to prevent Mr Greig from operating in the financial services sector. The process for authorisation requires a test to ensure that those accessing the public are fit and proper individuals. The test requires honesty, competence and capability, together with financial soundness. The regulator had three opportunities to identify Mr Greig as dishonest and to remove him from the industry before he was able to defraud it. The regulator did not uphold the complaints in respect of the first two opportunities, but it did expect that it should have taken further steps.

The judgment of the complaints commissioner overseeing the work of the FCA, which was published on 27 May 2020, is significant, and I want to draw the House’s attention to two parts of it. The first relates to section 348 of the Financial Services and Markets Act 2000, which details the policy on sharing information. The commissioner states:

“I have queried the FCA’s position on this, and it has explained that, while the general criteria by which decisions were and are made are not covered by s348, explaining how they were applied to a particular case is likely to involve breaching s348 because it may disclose confidential information received by the FCA.”

The protection in section 348 is all about protection for the FCA and those who are authorised, not protection for consumers. That is what I suggest requires some attention. The commissioner concluded:

“The view of section 348 is problematic, because it makes it hard to understand why the regulator has made decisions, and can lead to an erosion in public confidence. In your”—

that is, the claimants’—

“response to my preliminary report, you argued that you ought to be able to see any unpublished policies applying at the time in order to be able to respond. I have considerable sympathy with your point of view, but the fact is that for regulatory reasons the FCA considers that detailed policies of this kind should not be published. I invite the FCA to consider whether it might be more open about the historic policies of the FSA, but that is as far as I can go.”

As far as I am aware, it has never made any such explanation.

In relation to the information provided by the Yorkshire Building Society, the commissioner is blunt:

“I recognise that you—and many others—might be surprised to learn that the FSA considered that reports suggesting mortgage fraud should not necessarily be followed up. I was surprised when I learned this. The fact that a major building society felt it necessary to remove advisers from its panels because of concerns about their integrity might be seen as a good reason for the regulator to make significant further inquiries.”

That was information that went to the FSA in 2008. It did not act then, and did not act when further information was given to it in 2012. As a consequence, the activities of Alistair Greig were allowed to continue unchecked for at least six years. When Greig’s activities were eventually exposed, legal action was taken. Although the complainants were unsuccessful, it was held that there was eligibility as—I have lost the term of art; as a collective investment scheme, which would open the door to compensation under the Financial Services Compensation Scheme.

Most of those who suffered loss as a consequence of the activities of Alistair Greig were able to avail themselves of that, and many have been compensated in full. The fact is, however, that that route only came to light as a consequence of the legal proceedings that were taken by Colin Stewart and the 94 other investors. They would never have been able to make that claim to the FSCS, but for the fact that they took the court case, even though that was ultimately unsuccessful. The 95 are still out of pocket to a collective tune of £2 million in legal fees. My constituent has been left with an £80,000 shortfall for the money he invested. It seems wrong to me that, even where the FCA is entitled to make ex gratia payments, for fairly opaque reasons in this case, it has refused to do so. I call on the FCA, and hope the Minister will also use his office to impress on it the unsatisfactory nature of that.

Quite apart from the legalities, if the FCA acted so badly and inadequately that it had to issue a letter of apology in June 2020 to the people who had invested, but will not do anything to make good the losses sustained by my constituents and others in exposing conduct, which the FCA should have exposed, something has gone badly wrong. It is in that sense that the House should now have an interest.

It is clear to me from my dealings with Midas and other cases that the regulation of the financial services sector is enormously complex—far too complex for people entering the sector in good faith, with no experience or understanding of how it works—and it is not consumer-friendly. It is focused on protecting those charged with its regulation and the bodies that are regulated, rather than the consumers, who will ultimately be left out of pocket when it all goes wrong. That is what has happened with Midas Financial Solutions, and that is something that the Government now need to consider with some urgency.

We have spoken elsewhere in the House about the attitude that fraud is somehow a victimless crime—it is not as direct as housebreaking or crimes of violence. My constituents who are tens of thousands of pounds of their savings and hard-earned cash out of pocket would not agree with the assessment that fraud is a victimless crime. We pay the Financial Conduct Authority a lot to regulate, and we deserve better.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

Just to clarify, the right hon. Gentleman said that the legal costs were nearly £2 million, whereas the figure I found was £1.5 million. Is he contesting the official figure or does he have further information?

[Mr Carmichael]

I was given the figure by my constituents—of course, it was a collective action. Even if it was £1.5 million, it is still chunky money in terms of being left out of pocket and it still hits particularly hard. There is the financial and also the emotional cost to those who had to take the action to make the FCA do its job.

[Tulip Siddiq]

I absolutely agree with the right hon. Gentleman: it is a chunky figure, regardless of whether it is £1.5 million or £2 million. I just wanted to clarify whether he had additional information that I had not received. I thank him for his answer.

[Mr Carmichael]

I have struggled this morning to resist the temptation to be drawn down into the weeds. I have had six years of dealing with this matter. The complexities, technicalities and minutiae are incredibly involved. I have learned more about the regulation of financial services than I would have believed possible or desirable, but the message for the House is fairly clear: the system is not working. It has left my constituents and others significantly out of pocket. But for the fact that they were prepared to take legal action, every one of the 279 investors would have been out of pocket. For that reason, the system requires further scrutiny by the Department.

Mr Stringer, I have taken rather longer than I intended. I await the Minister’s reply with interest.

--- Later in debate ---

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Stringer. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing this important debate, and for the work he has done to highlight how his constituents, and others in north-east Scotland, were affected by the Midas Financial Solutions Ponzi scheme, and the overall awful impact that fraud has on communities across the country. It was a powerful and inciteful speech, and I learned a lot about the background of the case. Even though I had done some reading on it, I learned a lot more of the details, and the more I learn about them, the more alarming the case seems.

Fraud is an incredibly serious crime. It can destroy lives and tear communities apart. The hon. Member for Gordon (Richard Thomson) rightly pointed out that the tragic thing about the Midas case was that many of the victims knew each other, and even convinced others to invest. That is known as affinity fraud, which results in whole communities not only losing money but feeling guilty over having brought friends and loved ones into the scams. For the people affected who are watching today, I want to say that they have no reason to feel guilty. The only person responsible for this horrendous crime is Alistair Greig, and I hope the people affected know that.

It was heartbreaking to read about the victims of Greig’s fraud. Every Member who spoke on this, and so powerfully, has said that. I came across one story of an individual who invested their life savings in Midas to pay for their sister’s long-term dementia care and lost everything. To make matters worse, despite Midas being closed down at the end of 2014, the victims had to wait until July 2019, and the judgment of the Court of Appeal, before they were able to access the Financial Services Compensation Scheme.

Victims have been put further out of pocket after being forced to pay the legal costs for the various court cases, which we have already had a bit of a discussion on today. The hon. Member for Strangford (Jim Shannon) and I have both mentioned the huge amount of legal costs. That is something that no one should have to go through. That is why I was taken aback by the comments made by the Business Secretary last month when he suggested that fraud is a lesser crime, not experienced by people in their day-to-day lives. The Business Secretary should say that to Norman Masson, a self-employed builder who told the High Court in Edinburgh during Greig’s trial that he fell victim to fraud that caused him severe anxiety, losing over £30,000 that he was going to use to help his daughter with a mortgage deposit; or to 69-year-old Mark Ansell of Durris who is no longer able to retire, having been conned out of his savings by Grieg.

I am also worried about the fact that reports of fraud are up by 33% in 2021. Despite that, the Crown Prosecution Service has cut the number of specialist fraud prosecutors by more than a quarter over the past six years, from 224 at the end of 2015 to 167 by the end of 2021. Does the Minister wish to comment on that? Indeed, the Government’s former Minister for Counter Fraud, Lord Agnew, stated in his resignation letter that the Government’s record in tackling fraud is “lamentable” and that they have little interest in the consequences of fraud to our society. It was a shocking admission from the former ally of the Prime Minister.

There are many questions that the Government must answer about the specific warnings leading up to the collapse of Midas. Why were so many warning signs ignored? The hon. Member for Gordon said that in July 2012, Greig lied to the then FSA in an email, in which he wrote:

“I can confirm I have never been removed from a mortgage panel.”

That outright falsehood could have been easily disproven by some very basic investigative work.

Another missed opportunity came when a whistleblower, Richard Evans of Banff-based Structured Financial Planning, contacted the FSA to raise concerns in October 2012. For reasons that are difficult to fathom, the FSA still failed to intervene at that point, despite being told directly that something was wrong. If regulators and law enforcement agencies had acted when they first saw evidence of foul play, much of Greig’s fraudulent activity could have been prevented and a lot of the people affected could have been spared.

Greig was taking cheques from people, putting them into a private bank account and then spending it like it was his own money. It is frankly shocking that at no point did enforcement agencies question why £13 million had been paid into his account by hundreds of different people; that should have been a red flag. As the hon. Member for Strangford said, Greig’s victims deserve to hear how the Government have learned from these failures. What reassurance can the Minster provide to the public that his Government are taking concrete steps, working with regulators and enforcement agencies, to prevent a crime on the scale of the Midas fraud ever happening again?

Finally, I shall pick up on the point raised by the right hon. Member for Orkney and Shetland on the lack of clarity about the nature of the contractual relationship between regulated advisers and appointed representatives. As the right hon. Member pointed out, Midas was an appointed representative of another firm, Sense Network Ltd. That meant that Sense was able to avoid liability for the losses that Midas had incurred, which seems grossly unfair, and I wonder whether the Minister wants to comment on that as well. As seen both in the Midas case and the Greensill scandal last year, the complexity of those contractual relationships is putting the public and taxpayer’s money at risk.

In July 2021, the Treasury Committee reported on lessons from Greensill Capital. It recommended that,

“The FCA and HM Treasury should consider reforms to the appointed representatives regime, with a view to limiting its scope and reducing opportunities for abuse of the system.”

Could the Minister please explain why, despite the fact that Midas’s abuse of the appointed representatives regime first came to light almost seven years ago, the Treasury has still not brought forward proposals for reforming the system? Does he have plans to reform the system?

The Midas scandal demonstrates that fraud is an incredibly serious crime, which can have devastating consequences for victims and their communities. I want to finish by asking the Minister a few questions. I am sure he will answer them properly because he is diligent when it comes to detail.

Does the Minister recognise that fraud is indeed a serious crime, and does he recognise how much it affects our constituents? Does he recognise that fraud and error under the Chancellor have cost taxpayers an estimated £11.8 billion? Will he tell us what we all want to know: what are his Government doing to protect the public from fraudsters? We are all constituency MPs, even if we have a Front Bench role, and we want to protect our constituents from fraud. Will the Minister help us by outlining plans to do that?

Oral Answers to Questions

Tulip Siddiq Excerpts

Tuesday 15th March 2022 Commons Chamber

[John Glen]

The Government have worked closely with the US and the EU on a whole range of interventions. We have sanctioned 500 individuals and entities, including 386 members of the Russian state Duma. We have also worked with the US on the expulsion of banks from the SWIFT banking system, cut off 3 million Russian companies from capital markets and seen $250 billion wiped of Russian stocks. We will continue to work closely with our allies to ensure that our response continues to be comprehensive.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

The Government have once again delayed the long-overdue reforms to Companies House that could have deterred illicit finance, prevented covid fraud and provided vital information to the authorities. I will ask the Minister an important question, and I want him to update the House accurately. How many Russian-linked individuals and businesses have been wrongly given Treasury-backed covid-related business support?

[John Glen]

We worked to give widespread support to lots of individuals across the economy. I cannot give the hon. Lady the exact chapter and verse on individuals who have been supported, but we will continue to work on Companies House reform, which will be the most significant reform of the companies register in 170 years, and later this year we will publish a second economic crime plan and fraud action plan to address the threats that we continue to see.

Public Service Pensions and Judicial Offices Bill [Lords]

Tulip Siddiq Excerpts

Report stage
Tuesday 22nd February 2022 Commons Chamber

[Mr Clarke]

It is a pleasure to open this debate. I wish briefly to remind Members why this is such an important piece of legislation that we must ensure we get right. Our public servants provide vital services on which we all rely and their unwavering commitment has been particularly vital during the covid pandemic. We have an obligation to continue to provide guaranteed pension benefits to reward those workers for their dedicated service, and must do so on a fairer basis and in a way that ensures that pensions are affordable and sustainable in future.

Let me turn to the amendments that I have tabled, which are largely technical ones to ensure the Bill works smoothly. New clause 7 makes it possible for the judicial pension scheme 2022 regulations to be subject to the made affirmative procedure rather than the draft affirmative procedure, which is the usual process for judicial scheme regulations. The Bill closes all current judicial pension schemes to future accrual on 31 March this year, so the change is necessary to ensure that the new pension scheme is in place for all judges on 1 April. There will therefore be no gap in judicial pension arrangements.

The provision in the new clause is an exceptional use of the made affirmative procedure in respect of judges’ pensions. It is limited to scheme regulations for the judiciary that are made within 28 days of Royal Assent, so it will be used only to make the judicial pension scheme 2022 regulations. It will not apply to any other public service pension schemes, which are generally made under the negative procedure, nor will it apply to any future amendments to judicial pension schemes.

The remainder of the amendments that I have tabled are minor and technical, with the aim of ensuring that the Bill is applied effectively and consistently. Amendment 19 relates to the commencement provision and simply ensures that different provisions in the Bill can come into force at the appropriate time.

Amendments 1 to 14 simply clarify the wording in various clauses in chapter 1. Together, the amendments give schemes the flexibility to implement the prospective and retrospective remedy in the way that is most efficient for their members.

Amendment 16 ensures that the remedy applies correctly to local government scheme members who were formerly members of other public service pension schemes. In particular, it makes sure that former members of other schemes are not disadvantaged because they previously participated in a scheme with a lower normal pension age.

Amendment 17 provides that the power under clause 81 for local government new scheme regulations to make provision regarding special cases must be exercised in accordance with Treasury directions issued by either Her Majesty’s Treasury or the Department of Finance in Northern Ireland.

On judicial offices, amendment 18 changes the extent of schedule 3 to ensure that if Welsh Ministers or the Department of Justice in Northern Ireland make subsequent changes to the list of devolved offices in schedule 3 using the power conferred on them by clause 125(1), incorrect text will not remain in statute in other parts of the United Kingdom.

Amendments 20 and 21 change a reference to the Special Educational Needs Tribunal for Wales to its new title, the Education Tribunal for Wales, thereby ensuring that a relevant sitting in retirement office is created in the Education Tribunal for Wales.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

The pandemic has underlined the contribution made by the public sector workforce to this country. Public sector workers do so much to keep us all safe. Our brave doctors and nurses and those in the police, fire service and other public service professions deserve security and a high standard of living in retirement, so it is so important that the Government provide decent pensions on a fair and equal basis.

As the Minister knows, we welcome the Bill’s main provisions, and particularly the attempt to bring in a remedy in respect of the discrimination against younger members of the new pension schemes established by the coalition Government between 2014 and 2016. We also strongly support the introduction of reformed scheme-only design, which will mean that the cost of the legacy schemes will no longer be included in the cost control mechanism, along with the Government’s proposal to widen the margin of the cost corridor from 2% to 3% of pensionable pay. Those changes will provide greater certainty for members and for the taxpayer.

However, the Minister will not be surprised to hear that we have a number of concerns about the Bill. It is wide ranging and several Members have tabled amendments. I have a limited amount of time, so I will focus on the Opposition Front-Bench team’s primary concerns about the Bill and speak to the amendments that I have tabled on the Opposition’s behalf to address them.

First, I wish to highlight the concerns of public sector employees and trade unions about the lack of clarity on how the remedy, which I remind the House is estimated to cost around £17 billion, will impact the future value of members’ pension schemes. In the Committee debate on 27 January, the Minister stated that

“no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations.”––[Official Report, Public Service Pensions and Judicial Offices Public Bill Committee, 27 January 2022; c. 10.]

That commitment is welcome but, as the TUC and others have said, it does not address the question of whether the remedy will be included in future valuations of the cost control mechanism.

Were the cost to be included at a later date, members could see their benefits cut and their contribution rates increase. I remind the House that the Public Accounts Committee warned that such an outcome would be fundamentally unjust as some of the cost of the Treasury’s £17 billion mistake would be passed on to members. Will the Minister please clarify whether the estimated £17 billion cost of the remedy will be included in the valuations of pension schemes under the cost control mechanism at some later date?

Secondly, I wish to discuss the Government’s proposal to introduce a so-called symmetrical economic check to the cost control mechanism. As the Minister will be aware, many public sector workers and their representative organisations believe that the proposals break the Treasury’s 25-year guarantee that no further fundamental reforms would be made to public service pensions following the 2011 settlement with trade unions. The Minister told us in Committee that

“the Government do not believe that the reforms breach that guarantee.”––[Official Report, Public Service Pensions and Judicial Offices Public Bill Committee, 27 January 2022; c. 36.]

However, I found a press statement issued by the Treasury on 20 December 2011 that makes it clear that the guarantee covered significant reform to the cost control mechanism, and the Paymaster General in the Conservative Government at the time said that it represented a “settlement for a generation”.

Does the Minister recognise that his Government’s proposal for an economic check risks undermining the Bill’s purported aim of restoring public service workers’ faith in their pension schemes? The National Education Union, the TUC and PRS have all warned that the proposals unfairly penalise pension scheme members for public sector pay constraint and lower-than-expected life expectancy. In practice, this will likely mean that any downwards breach of the cap will trigger the economic check. It seems the economic check is unfair, so will the Minister now accept that the Government must go back to the drawing board and rethink their proposals? I will be grateful if he addresses that issue.

--- Later in debate ---

[Mr Clarke]

I thank my hon. Friend for what he has said, and I can confirm that we will be accepting the new clause. It will have the Government’s support this afternoon.

The hon. Member for Edinburgh West (Christine Jardine) raised a number of important points, but I will deal first with her new clause 4, which relates to fairness for members of public service pension schemes. This is also relevant to the point raised by the hon. Member for Hampstead and Kilburn.

Let me begin by reassuring the hon. Member for Edinburgh West that equal treatment and fairness for all members, including those with protected characteristics, remains a central tenet of the Bill. The Government have conducted a full equalities impact assessment of the Bill, which was published when it was introduced. In addition, when making the necessary changes in the scheme rules to deliver remedy, bodies will carry out any appropriate equalities analysis for their specific schemes, in compliance with the Equality Act 2010. Indeed, many schemes are currently concluding public consultations on the changes in scheme regulations to implement the prospective remedy. The Government intend that a similar exercise will take place when it comes to schemes making further changes in their scheme regulations to implement the retrospective remedy, prior to 1 October 2023.

The Bill also provides that, from 1 April 2022, all public service workers who remain in service will do so as members of the reformed schemes, which provide career average, or CARE, benefits. CARE schemes offer fairer outcomes to those who experience lower salary progression over the course of their careers. A number of women and those with other protected characteristics are likely to be better off under CARE schemes, on average. Moving on to guidance for members, I wholly agree that clear, accessible and accurate guidance—

[Tulip Siddiq]

I am grateful that the Minister is answering all the questions that I posed in my speech, but I want to go back to the question that my right hon. Friend the Member for Hayes and Harlington (John McDonnell) asked. The Minister has said that he will write to us. Can he write both to me and to my right hon. Friend, and can he be explicit that this will be not a member cost but an employer cost? Can he confirm that he will be explicit when he writes to us on that particular point?

[Mr Clarke]

The cost sits with both members and employers, but the liability rests with the Exchequer in relation to the £17 billion cost of remedy. That is how this sits. I will indeed commit to writing to clarify all these points, and I will write to the hon. Lady and the right hon. Gentleman.

Judicial diversity and recruitment were the next issues raised by the hon. Member for Edinburgh West. I emphasise that this is an important measure for ensuring that we deal with the covid backlog in our courts, which is why we need to look at raising the mandatory retirement age. We are conscious of the need to consider the wider issues around judicial diversity and to ensure that we have a judiciary that is truly representative of the public that it serves. The Ministry of Justice publishes annual official statistics on this issue that provide a detailed annual picture.

I would like to assure members that the potential impact of what is being done is small. Compared with retaining the current mandatory retirement age of 70, a higher retirement age is projected to result in a 1% to 3% decrease in diversity growth in the medium to long term. I emphasise the word “growth” there. Overall, judicial diversity is still forecast to improve, and this measure would not reduce diversity overall. There would be only a slight reduction in the trend growth, which is going in a positive direction. We remain committed to increasing judicial diversity, and we have just launched an ambitious new magistrates recruitment plan to bring in younger and more diverse candidates. The MOJ plans to recruit 1,000 judges a year over the next few years, and 4,000 magistrates over that period. There will be a lot of change to the make-up of the judiciary.

The so-called pensions trap—the losses incurred by public service pension scheme members due to the closure of the legacy schemes—has been discussed at length throughout the passage of the Bill. The new clauses tabled by the hon. Member for Hampstead and Kilburn (Tulip Siddiq) and the right hon. Member for Hayes and Harlington appear to be intended to require the Chancellor to devise a way to compensate scheme members with remediable service for any reduction in future pension benefits resulting from the prospective McCloud remedy legislated for in clause 80. As I have noted, it is important to stress that the Government must not take action that would be contrary to the intention of the Bill to remove the discrimination identified by the courts and to ensure that all members are treated equally from 1 April this year by accruing service regardless of their age.

The Government must also safeguard the purpose of the reforms proposed by Lord Hutton and ensure that public service pension schemes are put on a sustainable fiscal footing. The Independent Public Service Pensions Commission stated that

“allowing current members to continue to accrue further benefits in the present schemes for many decades would be unfair and inequitable to the new members coming behind them.”

Compensating or carving out members with remediable service for the difference in pension age between their legacy and reformed schemes would effectively leave a protected class of public service pension scheme members beyond 31 March 2022, which could perpetuate the discrimination identified by the courts or give rise to new discrimination. It is worth noting that the Home Office is looking at this issue as we speak and will respond to its full consultation, in which the issue has been considered at greater length. I look forward to seeing the results of its work.

I turn to the contribution from the right hon. Member for Hayes and Harlington on the reforms to the cost control mechanism. The cost control mechanism is designed to ensure a fair balance of risk between public service pension scheme members and taxpayers with respect to the costs of the schemes. These reforms resulted from recommendations by the Government Actuary, and the Government are seeking to implement them following a full public consultation process. They are the reformed scheme-only design and the economic check. The economic check is essential to ensure stability and consistency across the scheme. It is also important to improve the higher bar for benefit reductions or contribution increases if the country’s economic outlook changes.

On the point about the 25-year guarantee, the Government do not believe that these reforms breach that guarantee. The elements protected by the 25-year guarantee were set out in legislation, and the cost control mechanism is not included there. The Government are making these changes following a detailed review of the mechanism by the Government Actuary and a full and open consultation process.

Amendments 22 to 24, tabled by the right hon. Member for Hayes and Harlington and the hon. Member for Hampstead and Kilburn, seek to reverse two decisions. The first reflects the cost of remedies in the mechanism of the 2016 valuation, and the second prevents the waiving of any ceiling breaches of the 2016 valuations that may occur. As I have already noted, the cost control mechanism is designed both to protect the value of schemes to members and to protect the Exchequer from unforeseen costs. At each scheme valuation, the mechanism assesses the benefits that have accrued and are accruing to members, to determine whether future benefit levels or member contribution rates need to be adjusted to meet the costs of the scheme.

The Government are clear that the remedy, by giving eligible members a choice between two sets of benefits, will increase the value of schemes to members, and this increase in value has therefore rightly been included in the mechanism for the 2016 valuations. The Government have decided that it would be inappropriate to reduce member benefits based on a mechanism that may not be working as intended, and clause 93 will therefore ensure that no member’s benefits will be cut or contribution rates increased as a result of the 2016 valuations.

Amendment 23, which would delete clause 93, would therefore reverse a decision that will protect members and would lead to significant cuts to member benefits for any schemes that breach the ceiling of the 2016 valuations. It is therefore important that clause 93 is preserved.

I am grateful to all hon. and right hon. Member for their contributions. With the exception of new clause 1, I hope I have demonstrated the reasons why I cannot accept these new clauses and amendments, and I hope hon. and right hon. Members will agree not to press them to a vote.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

New Clause 1

Guidance to public service pension scheme managers on investment decisions

‘(1) The Public Service Pensions Act 2013 is amended in accordance with subsection (2).

(2) In schedule 3, paragraph 12(a), at end insert “including guidance or directions on investment decisions which it is not proper for the scheme manager to make in light of UK foreign and defence policy”.’—(Robert Jenrick.)

This new clause would enable the Secretary of State to issue guidance to those authorities that administer public sector pension schemes, including the local government pension scheme, that they may not make investment decisions that conflict with the UK’s foreign and defence policy.

Brought up, and read the First time.

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

--- Later in debate ---

[Tulip Siddiq]

I echo all the thanks that the Minister has given, and I thank him for meaningfully engaging with me on this topic. I thank the shadow Treasury team, who helped a lot, all the Clerks who helped, my hon. Friend the Member for Reading East (Matt Rodda), who gave me a lot of support throughout the Bill, and my hon. Friend the Member for Hammersmith (Andy Slaughter), who made a sensitive speech during a difficult time. I might not have agreed with everything that my right hon. Friend the Member for Hayes and Harlington (John McDonnell) said, but he made an extensive and important speech.

I hope that the Minister will reply to me in writing, being explicit about how the cost will be shouldered. This mistake is being rectified by the Government, which is why we support the Bill, but we still have some concerns about it, so we would like to hear explicitly from the Minister about how the costs will be managed and that they will not be pushed to any of the members. Finally, I thank all the public sector workers who have kept us safe through all the years, and especially during the pandemic.

Question put and agreed to.

Bill accordingly read the Third time and passed.

[Mr Toby Perkins (Chesterfield) (Lab)]

On a point of order, Mr Deputy Speaker, the Government announced that they were doing a review of level 3 qualifications, with a view potentially to producing a list of level 3 qualifications that would no longer be funded. That list has not yet been produced, but the sector has the impression that it will be produced very soon. It is a matter of huge interest to many right hon. and hon. Members, so I wonder whether you or Mr Speaker have had any notification from the Government of their intention to come to this House and make a statement, and whether inquiries could be made to ensure that the list is not sneaked out at 5.30 pm on Friday, as has sometimes been the case, but is announced first to the House.

DRAFT MONEY LAUNDERING AND TERRORIST FINANCING (AMENDMENT) REGULATIONS 2022

Tulip Siddiq Excerpts

Monday 7th February 2022 General Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve with you in the Chair, Mr Robertson.

A trust can be an entirely legitimate way of managing assets. However, because trusts separate legal and beneficial ownership, they can be exploited to disguise foreign or illicit ownership of assets. That is why it is so important that the information on the beneficial ownership of trusts is made publicly available. As the Minister will be aware, both the OECD and the Financial Action Task Force have identified trusts as a serious money laundering risk in the UK. They have warned that trusts provide hostile foreign actors, including Russia, with an ideal route for hiding their dirty money in the City of London. In 2021 alone, Transparency International UK identified more than £5 billion-worth of property bought in the UK with suspicious wealth, one fifth of which originated from Russia. Ending the flow of unexplained wealth through UK trusts must form a key part of the crackdown on illicit finance from overseas.

The Opposition are therefore broadly supportive of the draft regulations. In particular, we welcome the introduction of a register of beneficial ownership for trusts and the principle that it should be open to some members of the public. This is a long overdue and necessary step in the fight against money laundering and terrorist financing in the UK. We support the addition of trusts such as those created for a minor or a vulnerable person to the list of exclusions from the regulations. We recognise that these trusts are highly unlikely to be used to conceal illicit finance.

I understand that the Government’s 2020 consultation found that people should have at least a year to register their trusts with HMRC. The Government’s inability to develop the TRS—the trust registration service—on schedule has made it necessary to extend the deadline to September 2022. Has the Minister considered whether this extension could allow money laundering to continue undetected for an additional six months? Although I recognise the need for the extension in the light of the Government’s failure, will he please explain why this failure happened and what steps he is taking to prevent future IT failures from undermining the UK’s efforts to crack down on illicit finance?

Although Labour broadly supports this secondary legislation, we have two serious concerns with the draft regulations as they stand. The first is the Government’s proposal to extend the deadline for updating changes to trusts on the register to 90 days. I listened to what the Minister said about special life circumstances such as bereavement, but this change would result in information on the register being three months out of date. Transparency International UK has warned that this would seriously hinder efforts to crack down on dirty money being laundered through UK trusts. The proposed extension contradicts the Government’s own 2020 consultation findings that any updates or changes to trusts must be registered within 30 days. The Government’s justification for this U-turn—that trustees should be provided with adequate time to make changes to the register after major life events, which the Minister reiterated—simply does not stand up to scrutiny. As the Government’s 2020 consultation found, in the majority of cases, 30 days would provide ample opportunity for trustees to make changes to the register.

Transparency International UK has sensibly called for the retention of the 30-day deadline, but with an option for trustees to apply for an extension in limited circumstances, such as those relating to major life events when there are legitimate reasons for needing more time. That is the sort of fair and balanced method that should inform the UK’s approach to money laundering. Instead, we find ourselves in the extraordinary situation where even US Department of State officials are warning the British press that London has become a safe haven for illicit Russian finance under this Government. Has the Minister considered what signal his Government would be giving to money launderers across the globe by U-turning on proposals for a tough 30-day deadline?

My second major concern with the draft regulations is the complete failure to address the warnings raised by civil society organisations, such as Transparency International UK, the Finance Innovation Lab and Spotlight on Corruption, about the public’s inability to access the register. Labour supports the principle established by the draft regulations that the register should be open to some members of the public. However, the Government have set an evidence threshold that in practice could deny access to the register to NGOs, journalists and private sector actors investigating dirty money.

The current regulations allow access to non-state investigators only if they can provide sufficient evidence to HMRC that the trust they are investigating is involved in money laundering or terrorist financing. That produces a Catch-22 situation: investigators’ ability to establish a trust’s link to criminality will often depend on access to information held in the register. That means our nation’s leading independent experts on corrupt wealth flowing into the UK from Russia and elsewhere could effectively have no access to the register, and puts the UK out of step with the regulations being developed in the EU, which allow for much higher access to trust registers. Will the Minister explain why the Treasury has not used the draft regulations to remove these Kafkaesque and bureaucratic barriers that prevent NGOs, journalists and others from investigating dirty money in the UK?

My main concern is that the gaps in this SI are part of a worrying trend of inaction from this Government. They have delayed the economic crime Bill, did not fully implement the Intelligence and Security Committee’s Russia report, and are now U-turning on trust regulation. Labour will support the draft regulations today to ensure that the register can get up and running, but I would like more reassurance from the Minister that he plans to bring forward further legislation to strengthen the UK’s zero tolerance of dirty money.

Public Service Pensions and Judicial Offices Bill [ Lords ] (First sitting)

Tulip Siddiq Excerpts

Committee stage
Thursday 27th January 2022 Public Bill Committees

[Mr Clarke]

To reassure the hon. Gentleman, the amendment is designed to prevent that from occurring. In other words, the fact that their employment was outsourced during that period would not constitute a gap of longer than five years, which would put that out of the scope of remedy. It is designed precisely to ensure that they do have protection, rather than that they do not.

Finally, amendment 36 defines a local government contracting-out transfer for the purposes of what I was just alluding to.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I will start by talking about our public sector workforce and the service they give to this country. The pandemic has highlighted how much we depend on the NHS and on teachers, police and other frontline professionals who keep us and our loved ones safe. It is only right that the state ensures that our public servants are secure in retirement by providing a decent pension on a fair and equal basis.

Labour therefore welcomes the main provisions in clause 1, in particular the attempt to introduce a remedy for the discrimination of younger members in the new pension schemes established by the coalition Government between 2014 and 2016. I recognise that the remedy the Government have opted to include in the Bill—the deferred choice underpin, or DCU—was the preferred option of the overwhelming majority of respondents to the Government’s consultation, including Unison and GMB—my trade union. However, I want to draw the Minister’s attention to the fact that trade unions continue to have concerns about the lack of clarity on how the remedy, expected to cost around £17 billion, will impact the future value of members’ pension schemes.

On Second Reading on 5 January, the Under-Secretary of State for Justice, the hon. Member for South Suffolk (James Cartlidge) said

“liability…will fall on the Exchequer.”—[Official Report, 5 January 2022; Vol. 706, c. 112.]

That is an important commitment, but as Lord Davies of Brixton, a Member of the other place and one of the country’s foremost pension experts, has said, it does not address the question of whether the remedy will be included in the cost control mechanism at a later date. If this cost were to be included in a future cost control mechanism valuation, it would result in members receiving lower benefits and having to make higher contributions to their pension schemes. As the Public Accounts Committee has warned, this would, in effect, be unfairly penalising our public sector workforce for the Government’s economic incompetence by passing on some of the cost of the Treasury’s £17 billion mistake to members.

Can I ask the Minister to confirm, once and for all, whether the estimated £17 billion cost of the remedy will be included in future valuations of the pension schemes under the cost-control mechanism? If it is to be included, can he please set out how that will impact on the future value of members’ benefits and contribution rates? I think he will agree with me that our public servants deserve better than to be left in the dark, so I hope he will clarify this in detail.

Today, the Government have failed to address concerns about how pension scheme members will be protected from unscrupulous advisers. I know that Minsters have been reluctant to include pension scams in the draft Online Safety Bill, despite the spiralling costs of pension fraud and mis-selling. I would like the Minister to set out what steps he is taking to protect members from scammers, who may try to exploit the greater choice that this Bill provides by getting people to transfer out of the pension schemes in a way that is not in their best interest.

[Peter Grant (Glenrothes) (SNP)]

It is a great pleasure to serve under your chairmanship, Mr Sharma. Some of the comments that I will make today will repeat the assurances I asked for on Second Reading. Looking back over the Hansard record, I think I was the only Member who spoke in that debate who did not have their queries addressed in the Minister’s summing up—not that I was keeping track or feeling got at, at all.

I am grateful to the Minister for clarifying the query from my hon. Friend the Member for Glasgow South West; it should concern all of us that such a massive injustice almost slipped through the net. There have been dozens of chances for amendments to be made and for this Bill to be got right. I said on Second Reading that I was concerned that the number of very late amendments that the Government tabled in the Lords was an indication that there were still big gaps. Something as vital as not denying a public service worker their pension rights was missed because, as a result of a dreadful piece of legislation, their job was sold off to the private sector and then brought back in house again. For that potential injustice to have got this far, until the Government spotted it and brought them in, will leave us all at the end of today’s proceedings—and Tuesday’s if we sit then—still wondering what else is left that has not been picked up.

It is quite clear that, with some of the later amendments, the Government did not identify issues for teachers, whose length of service provision and their age sometimes will not fall into line with each other in a way that would be expected. Some of the later amendments suggest that the Government forgot that sometimes the Treasury does not decide things in Northern Ireland, but rather, it is the Northern Ireland Department of Finance that decides. How could such a crucially important piece of legislation have got to that stage without basic facts of the UK constitution having been picked up somewhere within Government?

I hope that when we come to those sections that the Minister will have the good grace to admit that sometimes there have been simple blunders by the Government, that mean we will have to consider these things as amendments rather than them being part of the substantive Bill.

--- Later in debate ---

[Mr Clarke]

I beg to move amendment 5, in clause 4, page 5, line 4, at end insert—

“(3A) In a case in which any of the person’s remediable service in the employment or office in question is excess teacher service, “the relevant Chapter 1 legacy scheme”, in relation to so much of the person’s remediable service as is excess teacher service, means the local government new scheme mentioned in section 98(2).”.

This amendment updates the definition of “the relevant Chapter 1 legacy scheme” for a case in which a teacher has excess teacher service. A definition of “excess teacher service” is inserted into clause 98 by a separate government amendment.

The amendment concerns only the interaction between the Teachers’ Pension Scheme and the Local Government Pension Scheme and covers the complex issue of future pension service. It updates the definition of the relevant Chapter 1 legacy scheme for a case in which a teacher has excess teacher service and specifies that that is the Local Government Pension Scheme—the LGPS. That allows the member’s excess service to be rolled back to the LGPS, where the member would have been eligible to join the LGPS had they not been moved to the reformed scheme. This ensures that the member’s excess service is rolled back to the correct scheme.

[Tulip Siddiq]

We very much support the clause.

Amendment 5 agreed to.

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

[Mr Clarke]

Clause 4 ensures that members are returned to the appropriate legacy scheme, which is the scheme that they would have been entitled to be a member of if they had not been moved to a new scheme on or after 1 April 2015. The apparently complex drafting does nothing more than that. The clause simply reflects that some legacy schemes contain different eligibility provisions.

Question put and agreed to.

Clause 4, as amended, accordingly ordered to stand part of the Bill.

Clause 5

Election for retrospective provision to apply to opted-out service

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

--- Later in debate ---

[Mr Clarke]

The amendments in this group deal with various specific scenarios which may apply to members with remediable service. Clause 19 provides that scheme regulations may make provision in relation to a member who has divorced or dissolved a civil partnership, and, where a pension sharing order is in place, to enable their pension to be shared with their former spouse or civil partner. Clause 20 provides for scheme regulations to make provision in relation to additional voluntary contributions paid during a member’s remediable service.

Clause 21 ensures that, where a member transfers their pension rights from one public service pension scheme to another, they still receive a deferred choice in respect of any remediable service that was subject to the transfer. Clause 22 provides that scheme regulations may make further provision about special cases. The provision that may be made under this clause, or under clauses 19, 20 or 21, includes provision corresponding to any provision in chapter 1 of the Bill or applying any provision of this chapter to persons specified in the regulations.

Clause 22(2) sets out a number of areas where provision may be needed in scheme regulations. These include matters such as the benefits payable to members who had tapered protection, which is termed “mixed service” here, and to members who had a right to buy out an actuarial reduction in relation to early payment of benefits in respect of their remediable service in a new scheme. The amendments that I am about to explain add four areas to ensure that schemes have the necessary powers to deal with specific cases in relation to children’s pensions, partnership pension accounts, redundancy and teachers’ excess service.

Amendment 6 delivers the commitment in the Government’s consultation and consultation response. It set out that where a member has died and a child pension is already in payment, which would otherwise be impacted by a decision taken by someone outside the child’s household, that pension will be protected. The amendment confers power to enable provisions to be made in scheme regulations about the benefits payable where a member dies in respect of surviving children who do not live in the same household as a surviving adult. Amendments 10 and 11 provide clarification by defining “adult survivor” and “child” respectively.

Amendment 7 extends the power to make provision about special cases in clause 22 to enable provision to be made in scheme regulations about excess teacher service. These amendments will allow the teachers’ pension scheme to process excess service cases using existing provisions of the Bill, such as clauses 14 to 17, to correct contributions and benefits whether the service is pensionable in the local government pension scheme or not. Amendment 37 defines “teacher”.

Amendment 8 concerns partnership pension accounts. The Bill already provides for members of the civil service who opted to have a partnership pension account to be reinstated to the appropriate legacy scheme where they so wish. However, there may be cases where that is not possible—for example where the member has died. The amendment therefore provides schemes with powers to make provision to take a different approach where needed to provide a remedy in such cases.

Finally, amendment 9 further amends clause 22 to permit scheme regulations to make provision for cases in which a person who has remediable service is made redundant. This will ensure that schemes are able to make provision for a member to make their deferred choice to receive new scheme benefits at the time their employment ends. This approach will be needed in cases where the member’s redundancy payment is calculated by reference to the pension scheme in which they have remediable service, which is the case, for example, in the armed forces. Amendment 12 inserts a definition of “made redundant”. I beg to move.

[Tulip Siddiq]

I understand that clause 22 permits changes to the existing and traditional pension scheme and allows for the deregistering of these schemes for tax purposes so that a lifetime allowance tax charge does not apply on the basis that judges are an exceptional case. In making that exception, is the Minister confident that it will not open the door to legal action from other professionals, such as senior doctors, perhaps, who may argue that they want similar treatment?

[Mr Clarke]

Yes, I can provide the hon. Lady with that reassurance. There is obviously the question whether what we are putting in place for judges is replicable for other professions, and we are confident it is not. That is due to the unique career path of judges, many of whom leave lengthy careers in the private sector to enter public service at the culmination of their careers, and where there is an expectation that, after having served as a judge, there can be no return to private practice. That is precluded uniquely for judges. Once they have made their decision to go to the bench, they cannot then return to practice. That distinction accounts for their very particular career path and very particular constrained options, which means there is a strong case that judges are a unique group for these purposes and therefore there is not discrimination for other professions.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clauses 20 and 21 ordered to stand part of the Bill.

Clause 22

Further powers to make provision about special cases

Amendments made: 6, in clause 22, page 19, line 20, at end insert—

“(da) provision about the benefits payable in respect of a child of a deceased member where—

(i) the member has remediable service in an employment or office, and

(ii) the child is not living in the same household as an adult survivor of the member;”

This amendment confers power to enable provision to be made about the benefits payable, where a member dies, in respect of surviving children who do not live in the same household as a surviving adult.

Government amendment 7, in clause 22, page 19, line 20, at end insert—

“(db) provision about cases in which a person has remediable service in an employment or office any of which is excess teacher service;

(dc) provision about cases in which a person has remediable service in an employment or office and also has service in an employment or office as a teacher which—

(i) takes place in the period beginning with the day after the closing date and ending with 31 March 2022,

(ii) is pensionable service under a Chapter 1 new scheme, and

(iii) is not remediable service;”

This amendment enables provision to be made where a teacher has excess teacher service or has service which takes place in the remedy period, is pensionable under a Chapter 1 new scheme, but would not have been pensionable under a Chapter 1 legacy scheme, or under a local government new scheme, if the unlawful discrimination rectified by the Bill had not taken place.

Government amendment 8, in clause 22, page 19, line 20, at end insert—

“(dd) provision about cases in which a person has a partnership pension account;”

This amendment confers power to enable further provision to be made about cases in which a person has a partnership pension account.

Government amendment 9, in clause 22, page 19, line 20, at end insert—

“(de) provision about cases in which a person is made redundant;”

This amendment confers power to enable further provision to be made about cases in which a person is made redundant.

Government amendment 10, in clause 22, page 20, line 17, at end insert—

““adult survivor”, in relation to a member of a Chapter 1 scheme who has remediable service, means a surviving spouse, civil partner or other adult who is entitled under the scheme to a pension determined (to any extent) by reference to the member’s remediable service;”

This amendment contains a definition required for the amendment of this clause that confers power to enable provision to be made about the benefits payable, where a member dies, in respect of surviving children who do not live in the same household as a surviving adult.

Government amendment 11, in clause 22, page 20, line 19, at end insert—

““child”, in relation to a member of a Chapter 1 scheme, means any individual who—

(a) is entitled to receive benefits under the scheme in their capacity as a child of the member, or

(b) would have been entitled to receive benefits under the scheme in that capacity on the assumption that any election under this Chapter was, or was not, made in respect of the member;”

This amendment contains a definition required for the amendment of this clause that confers power to enable provision to be made about the benefits payable, where a member dies, in respect of surviving children who do not live in the same household as a surviving adult.

Government amendment 12, in clause 22, page 20, line 19, at end insert—

““made redundant”: a reference to a person being “made redundant” includes, in relation to a member of the armed forces, a person becoming entitled to a redundancy payment under—

(a) Part 2 of the Armed Forces (Redundancy, Resettlement and Gratuity Earnings Schemes) (No 2) Order 2010 (S.I. 2010/832),

(b) the Armed Forces Redundancy Scheme Order 2006 (S.I. 2006/55), or

(c) the Armed Forces Redundancy Scheme Order 2020 (S.I. 2020/1298);”—(Mr Clarke.)

This amendment ensures that the power to make provision about cases in which a person is made redundant covers any case in which a member of the armed forces becomes entitled to a redundancy payment under the instruments listed.

Clause 22, as amended, ordered to stand part of the Bill.

Clause 23

Power to pay compensation

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

--- Later in debate ---

[Mr Clarke]

This group of amendments relates to chapter 3, concerning the remedy to the discrimination for local government workers. Let me begin by setting out why there are separate provisions in the Bill relating to local government schemes.

In line with the reform processes applied in other parts of the public sector, local government schemes were reformed by the Government following the review undertaken by the Independent Public Service Pensions Commission. In the local government schemes, however, trade unions, employers and the Government agreed to implement transitional protections for members nearing retirement in a different way. Under that approach, all local government scheme members moved to the new and reformed career average schemes from 1 April 2014 in England and Wales and from 1 April 2015 in Scotland and Northern Ireland. That differed from the approach in other public service pension schemes, where protected members stayed in their legacy schemes.

In their reformed schemes, protected local government workers were given the benefit of underpin protection, providing them the value of their legacy final salary pension if that would have been higher than their reformed scheme pension. Following the Court of Appeal’s judgment, which held that transitional protection unlawfully discriminated against younger workers in the judicial and fire schemes, the Government accepted the wider implications that the judgment had for all schemes, including local government.

Policy consultations were undertaken for local government in 2020. Chapter 3 of the Bill provides the necessary powers to address the discrimination in those schemes, which will be done by extending the statutory underpin to younger members who did not originally have protection. The new clauses in this grouping are designed to ensure that a comprehensive remedy is in place for local government workers. The changes include replacements for clauses 77 and 78, which set out the main principles of the remedy as it will apply in local government.

As many of the new clauses are of a technical nature, I will not explain each in detail, but I hope that the Committee will find it helpful if I explain their themes. I will of course be happy to turn to specific new clauses if members of the Committee have any questions. The first theme is to ensure that, where appropriate, there is a consistent approach with other public service pension schemes. The new clauses will therefore provide equivalent powers to those that already exist in respect of the other public service pensions schemes covered in chapter 1. The new clauses cover technical matters, including compensation, special cases and interest payments. They are necessary to ensure that the complexities arising can be addressed robustly across all workforces.

New clause 3, which is a replacement for the existing clause 77, makes an important change to broaden the scope of eligibility for remedy in local government to align it with all other public service schemes. Under the amended approach, members who were in pensionable service on, before or after 31 March 2012 would be in scope of remedy if they leave local government and return within five years, as well as meeting qualifying criteria. The change ensures that, for example, women are not disadvantaged by their increased likelihood of having breaks in employment, which may be due to childcare.

The second theme is to ensure that the powers reflect the particular circumstances of the local government schemes and the differences in how remedy works there. New clause 4, which is a replacement for the existing clause 78, permits scheme regulations to require that separate periods of pensionable service are aggregated or joined up for underpin protection to apply. That is an important principle in the local government pension scheme, which is locally administered. In England and Wales alone, there are 86 administering authorities. To avoid administrative complexity, established policy is that where scheme members have multiple periods of pensionable service, those are each treated separately unless they are aggregated together. Allowing scheme regulations to require aggregation will ensure that underpin protection can be provided in line with that policy, and that substantial administrative complications in the coming decades are avoided.

New clause 3 also ensures that scheme regulations can reflect another aspect of remedy that is unique to local government schemes. When transitional protections were originally negotiated in the sector, it was agreed that the period of protection should cease when a member reaches their legacy scheme normal pension age, usually 65. In line with the Government’s 2020 consultation proposals, it is proposed that that approach is retained, subject to an overall requirement that underpin protection must cease for all members by 31 March 2022. That is crucial to ensure that, going forward, all LGPS members accrue pension on the same career average basis. The amended clause 77 would ensure that underpin protection reflects this policy intent.

The new clauses also make amendments to ensure that the remedy applies correctly to local government staff who were compulsorily transferred from their employer as a result of outsourcing and were entitled to pension protection. That change is consistent with that made in chapter 1, as we discussed earlier. For those members, the time they spent in a private sector pension scheme will not count towards a “disqualifying gap in service”, which we discussed earlier, when assessing their eligibility for the remedy.

Turning to the final theme, some clarifying changes have been made to ensure that the Bill works as intended. In particular, new clause 5 sets out transitional arrangements making it clear that existing scheme regulations providing for underpin protection are to be treated as being made under the powers in the Bill. That change ensures that it is clear that the same legislative framework applies to the members originally protected and those who have been subject to the discrimination found by the courts. It means that scheme regulations can fully remove the differences between the two groups.

Finally, clause 79 provides important definitions for the terms “local government new scheme” and “local government legacy scheme” as they are used in chapter 3. They are important to the meaning and effective application of the clauses in the chapter, so I recommend that that clause stands part of the Bill. I hope that my explanations regarding the new clauses, which ensure a full and robust remedy for the local government workforce, have been helpful to the Committee.

[Tulip Siddiq]

I am grateful for the explanation given by the Minister. We support the changes to the local government pension scheme and the other technical amendments, in particular those that aim to broaden the scope of members’ eligibility for the proposed remedy.

[Mr Louie French (Old Bexley and Sidcup) (Con)]

I rise to declare an interest. Although I have no financial interest in the local government pension scheme, I am still a sitting councillor until May this year, and I sit on the pensions committee. I apologise if I should have made my declaration sooner.

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[Mr Clarke]

The cost control mechanism is designed to ensure a fair balance of risk between public service pension scheme members and taxpayers with respect to the costs of those schemes. Clause 86 would ensure that there are no cuts to member benefits or increases to member contributions as a result of the cost control mechanism at the 2016 valuations. New clauses 1 and 2 are designed to replace and supplement the clause while preserving its existing effect. That goes to the point that I was discussing with the hon. Member for Hampstead and Kilburn at the outset of this morning’s proceedings.

The cost control mechanism was introduced following the recommendations of the Independent Public Service Pensions Commission in 2011. Although the commission recommended a mechanism to protect the Exchequer from increased costs, the Government went a step further and introduced a mechanism that is symmetrical, so also maintains the value of pensions to members when costs fall. At each scheme valuation, the mechanism assesses scheme costs against a base level. If those costs move beyond a certain amount compared with the base level, member benefits or contribution rates must be adjusted to bring costs back to target. All the main reformed public service pension schemes are subject to the cost control mechanism.

The intention was for the mechanism to be triggered only by unforeseen and unpredictable events. In 2018, the Government Actuary was asked to review the mechanism after the provisional results of the 2016 valuations suggested that the mechanism was too volatile and not operating in line with its objectives. The review commenced in 2020 and his final report was published in June 2021. It contained several recommendations on how to improve the mechanism. Following a full public consultation process, the Government confirmed in October last year that it would take forward three reforms to the mechanism in time for the next scheme valuations. All three reforms are recommendations by the Government Actuary.

New clause 1 sets the legislative framework for the implementation of two of those reforms: the reformed scheme only design and the economic check. A reformed scheme only design means that costs associated with the old legacy schemes are excluded from the mechanism. That will make it more stable and reduce intergenerational unfairness, because comparatively younger members’ benefits or contributions will not change based on the cost of legacy schemes to which they had little, or no, access. That transfers the risk associated with legacy scheme costs to the Exchequer, but ensures consistency between the set of benefits being assessed and the set of benefits potentially being adjusted.

The economic check will ensure consistency between member benefit or contribution changes and changes in the wider economic outlook of the country. There will be a higher bar for benefit reductions or contribution increases if the country’s long-term economic outlook has improved. That will equally apply to benefit increases or contribution reductions if the long-term economic outlook has worsened. The economic check will therefore operate symmetrically for the benefit of both members and taxpayers. It will operate in a transparent way and be linked to an objective and independent measure of expected long-term earnings and GDP growth from the Office for Budget Responsibility. Given that the economic check can only offset or prevent breaches, not cause them, the likelihood of changes to member benefits or contributions will decline.

As some members of the Committee will know, the Government also consulted on a third proposal to widen what is called the cost corridor, which will be implemented through secondary legislation in due course. That, again, is designed to reduce volatility. All three proposals will make the mechanism more stable and allow it to operate more in line with its objectives, giving members greater certainty with respect to their retirement incomes. The changes also reproduce, with technical changes, some subsections of the clause as it stands.

New clause 2 replaces clause 86 as it stands in the Bill. The change will ensure that there will be no cuts to member benefits or increases to member contribution rates as a result of the 2016 valuations. Again, that goes to the important point that we discussed at the outset—members will not lose out. However, any benefit improvements that are due will be implemented.

[Tulip Siddiq]

We welcome the proposal in new clause 1 for a reformed scheme only design, which means that the cost of the legacy schemes will no longer be included in the cost control mechanism, but will the Minister provide clarity on a number of points? As he has said, it is a very technical Bill, so please bear with me.

On Second Reading, the Chief Secretary to the Treasury stated the Government’s intention to introduce secondary legislation in due course to widen the margin of the cost corridor from 2% to 3% of pensionable pay. Labour broadly supports that, and I recognise that it aims to provide greater certainty for members and the taxpayer, but, were the cost corridor to be widened to 3%, any upward breach of the CCM might potentially have a larger impact on members, as I am sure he recognises. Will he be willing to commit to publishing impact assessments of the proposed changes to the cost corridor for each public service scheme, to evaluate how members would be affected? Additionally, will the Minister confirm what mechanisms are to be put in place to monitor potential breaches of the cost corridor in the scheme, to ensure that members are given advance notice of possible changes in the value of their benefits?

We have far more serious concerns about new clause 2, which introduces a symmetrical economic check to the cost control mechanism. We object to such a scheme being introduced at such a late stage. It appears as if Ministers are making last-minute amendments to steamroller controversial elements of the Bill through without proper scrutiny. I want reassurance from the Minister that that is definitely not the case.

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[Mr Clarke]

I thank all Members for their contributions, which I will take in turn. I hope to provide significant reassurance.

On the point that the hon. Member for Hampstead and Kilburn made about the widening of the cost corridor, the Government published a full impact evaluation as part of the consultation response on 4 October 2021, so that detail is available and is modelled.

To the point of the hon. Member for Reading East just now, the cost corridor is being addressed in regulations because the current 2% corridor exists under current powers, so we are simply amending 2% to 3% and do not need to introduce anything new.

As for the 25-year guarantee and the assurances given when the pension reforms were first introduced, the Government do not believe that the reforms breach that guarantee. The elements protected by the guarantee are set out in legislation and the cost control mechanism is not included among them. The Government are making these changes following an independent and thorough review of the mechanism by the Government Actuary’s Department and a full and open consultation process. As the GAD’s report makes clear, it does not seem possible for the mechanism to protect the taxpayer unless it considers the wider economic outlook, and the symmetrical operation of the economic check acts to protect members as well as the taxpayer.

The reforms will fundamentally lead to a more stable mechanism, with both benefit reductions and improvements becoming less likely. That aligns with the spirit of the guarantee which, as the hon. Member for Hampstead and Kilburn quite rightly said, is all about certainty. There is absolute conviction that that is in everyone’s interest including, most importantly, scheme members.

As for how the situation is assessed and to the point of the hon. Member for Glenrothes about how we manage the long-term GDP expectation, the check will be linked to the Office for Budget Responsibility’s independent and objective measure of expected long-term GDP growth and the long-term earnings assumptions. The check will operate purely mechanically with no scope for interference from individuals or groups from within Government or outside. It will be an independent, objectively assessed measure by the OBR. There is no sense in which any Minister from whatever party is in government at whatever time would have the ability to intervene in that process. I hope that provides reassurance on all those points.

[Tulip Siddiq]

I thank the Minister for that explanation. Is there an impact assessment for each scheme?

[Mr Clarke]

We have modelled the full detail. In so far as there is any particular point of clarification that the hon. Lady would like, I will happily write to her after these proceedings to provide whatever we can.