Buy-Now, Pay-Later Products
Tulip Siddiq Excerpts(1 month ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
Buy-now, pay-later (BNPL) products have seen increasing use among many UK consumers, helping some to manage unexpected costs. In the six months to January 2023, the Financial Conduct Authority’s (FCA) financial lives survey reported that 14 million consumers used BNPL products.
When provided in a responsible manner, BNPL can provide a useful and affordable source of credit. However, as identified by the 2021 Woolard review, it also has risks. For example, BNPL firms are not required to comply with the provisions of the Consumer Credit Act 1974, and BNPL firms solely offering these types of agreements do not need to adhere to the FCA rules that apply to other consumer credit products. The Government are therefore concerned that consumers using BNPL do not have access to key protections.
On 17 October, the Government published a consultation setting out their plans to fix this by bringing the sector into regulation. The consultation will be open for six weeks until 29 November.
The Government’s approach has been informed by five key principles:
Consumers must have access to simple, clear, understandable and accessible information;
consumers should have protection when things go wrong;
consumers should only be lent to if it is affordable;
regulation should be proportionate so that consumers have continued access and choice; and
regulation must be introduced urgently to ensure consumers are protected and the sector has certainty. Once implemented, the Government’s proposals will deliver on these principles.
Under the proposals, BNPL firms will need to be authorised by the Financial Conduct Authority and will be subject to ongoing supervision. The FCA will be able to set appropriate rules on assessing affordability and creditworthiness, reducing the risk that borrowing is unaffordable. They will also be to set rules on how firms should resolve complaints, including allowing consumers to take complaints to the independent Financial Ombudsman Service.
Consumers will have access to key legal rights, such as section 75, which will make it quicker and easier for consumers to get refunds.
The Government are also proposing to disapply certain information requirements in the Consumer Credit Act 1974 that, if applied to BNPL, could lead to poor consumer outcomes. Instead, the FCA will be able to utilise their powers to apply more appropriate disclosure requirements in its rulebook. This will ensure that consumers can actively engage with the information that firms provide, allowing them to make informed decisions before entering into a BNPL agreement, throughout the duration of the agreement, and especially when they encounter financial difficulty.
Given the need to act urgently—and because HM Treasury has already undertaken previous consultations on this topic—this consultation will be shortened to six weeks. After reviewing feedback, the Government will bring forward legislation as soon as possible. The new regime will come into force 12 months after the legislation is made, once the FCA has finalised its detailed rules. The consultation is available on
https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024.
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Draft Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024
Tulip Siddiq Excerpts(1 month, 1 week ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024.
It is a pleasure to serve under your chairmanship, Mr Dowd. The UK’s financial services sector is central to driving growth in the wider UK economy. The Government have committed to reinvigorating the UK’s capital markets, driving innovation and investment in the economy, and enabling the growth and scale-up of innovative green technologies. To that end, we are taking action to address barriers to both the supply of and demand for UK productive investments.
This statutory instrument forms part of a package of reforms to the assimilated EU law that governs the rules that maintain the safety and soundness of UK insurance firms, known as Solvency II. The reforms address demand-side barriers by reducing insurers’ regulatory capital requirements, releasing billions into firms’ balance sheets and incentivising insurers to invest in the UK. These legislative reforms were announced in November 2022 and came into force on 31 December 2023 and 30 June 2024. This statutory instrument makes necessary provision to maintain the reforms and the wider regulatory regime on the revocation of the relevant assimilated EU law on 31 December 2024.
In summary, this statutory instrument preserves a significant cut in the regulatory capital buffer known as the risk margin, maintains the regulatory requirements on insurance groups and undertakings in Gibraltar, and makes further amendments required as a result of changes to the Financial Services and Markets Act 2000 and other legislation.
I will now turn to the detail of what the regulations do. They restate provisions on the calculation of the capital buffer known as the risk margin that would otherwise be repealed at the end of this year. They also affirm the Prudential Regulation Authority’s power to make rules permitting insurers to adopt proportionate approaches to determine the risk margin. The regulations provide that UK supervisory arrangements for Gibraltarian firms will continue unchanged until the broader Gibraltar authorisation regime, legislated for in the Financial Services Act 2021, comes into force.
The regulations empower the PRA to publish results for individual firms within scope of the PRA’s life insurance stress tests, which are generally the largest firms in the life sector. That is in addition to the sector-level results that the PRA has been publishing since 2019. This safeguard provides additional transparency to the market around the resilience of life insurers. It mirrors the approach taken for the results of stress tests for banks.
Finally, the regulations make a number of technical amendments to existing legislation, including the Financial Services and Markets Act 2000, to support implementation of the Government’s package of Solvency II reforms. For example, the regulations amend the definition of both insurance and reinsurance, undertaking to remove references to assimilated EU law. They also remove the definitions of third-country insurance undertaking and third-country reinsurance undertaking, which are not relevant now that the UK is not part of the EU.
Other parts of the regulations make changes that are consequential to the proper functioning of the reformed regime, including for the necessary retention of the risk margin and Gibraltar regulations that I have already noted.
The regulations may sound quite technical, but they are an essential component to complete reforms to the prudential regulatory regime for insurers by the end of this year. The hon. Member for Havant, who sat on the Government side when we went through the entire Financial Services and Markets Act, will be well briefed on what we are doing. I hope the Committee will join me in supporting the regulations and I commend them to the House.
Tulip Siddiq
I associate myself with the comments of the hon. Member for Havant on the ambition and resilience of our financial services sector. I agree that we should be very proud of it.
In response to the point made by the hon. Member for St Albans, I will keep an eye on and will review the risk she mentions. She will be pleased to know that this Government are resetting the relationship with the EU, by not ramping up divisive rhetoric with our closest trading partners. We are making sure we have a productive relationship with them. I will keep an eye on the risk she mentions.
I thank both hon. Members for sharing our ambition in Solvency II. I know that the reforms are technical in nature, but they are an important step in our shared hope, across the Chamber, to reform the UK’s insurance sector. We all want to generate growth and investment in our country and I hope the Committee will support me in supporting these reforms. We want to have a smooth transition to the reformed Solvency II regime by the end of this year.
Question put and agreed to.
Financial Services: Bank of England MREL
Tulip Siddiq Excerpts(1 month, 1 week ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
The Government’s response to their consultation concerning enhancements to the special resolution regime noted that the Bank of England would consider whether any changes to its indicative minimum requirements for own funds and eligible liabilities (MREL) thresholds would be appropriate [1]. The Bank of England has today published a consultation, “Amendments to the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)”. The consultation sets out the Bank’s intention to ensure that the MREL regime remains proportionate and evolves over time, reflecting the enhancements delivered in the Bank Resolution (Recapitalisation) Bill as well as other wider developments, and taking into account feedback from industry.
The Government welcome the publication of these proposals for consultation and recognise the importance of ensuring that the MREL regime maintains financial stability while being calibrated in a way that supports competition and competitiveness within the UK’s financial services sector. In this context, the Government note the interaction between some of the proposals set out by the Bank on its approach to setting MREL and the Bank Resolution (Recapitalisation) Bill, and welcome the Bank’s proposal to take the new mechanism for recapitalisation into account when setting MREL for firms with a preferred transfer resolution strategy. This will contribute towards ensuring that the MREL regime is proportionate, while remaining consistent with the Government’s intention that the mechanism is primarily focused on the resolution of smaller banks.
The Government are clear that the primary intent of the Bill remains to provide a new mechanism to help address the failure of smaller banks when resolution by means of a transfer to a private sector purchaser or a Bank of England-owned bridge bank is in the public interest. The Government and the Bank are also in agreement that the Bank should not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and corresponding MREL requirements for larger banks, or to rely on the mechanism when resolving such larger banks unless in exceptional circumstances. The Bank’s consultation also confirms this position.
The Government intend to update the special resolution regime code of practice to make this point clear and have published draft updates on gov.uk.[2] These and any subsequent updates will be subject to consultation with the banking liaison panel, to ensure appropriate engagement with industry.
The Government note that one of the Bank of England’s MREL proposals will require changes to secondary legislation. The Government will therefore engage with industry on the necessary changes. Subject to feedback on the Bank’s consultation and the Government’s engagement with industry, the Government will look to make the changes necessary to facilitate these proposals.
[1] https://assets.publishing.service.gov.uk/media/66992907ce1fd0da7b59285b/Bank_Resolution__Recapitalisation__Bill_-_Consultation_Response.pdf
[2] https://www.gov.uk/government/publications/banking-act-2009-special-resolution-regime-code-of-practice-revised-march-2017
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Bank Ringfencing Reforms
Tulip Siddiq Excerpts(1 month, 1 week ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
The statutory independent review of ringfencing and proprietary trading led by Sir Keith Skeoch, which reported in March 2022, made recommendations to improve the operation of the ringfencing regime.
The Government will implement a package of reforms as soon as parliamentary time allows. The reforms will improve competition and competitiveness in the UK banking sector and support economic growth, while maintaining financial stability.
The reforms will include:
the introduction of a secondary threshold to exempt retail-focused banking groups from the regime—where investment banking activity accounts for less than 10% of Tier 1 capital;
new flexibilities to allow ringfenced banks to operate globally, subject to Prudential Regulation Authority rules;
measures to encourage more investment by ringfenced banks in UK small and medium-sized enterprises;
measures to reduce the compliance burdens associated with the regime; and
an increase in the primary deposit threshold for ring-fenced banks from £25 billion to £35 billion.
[HCWS125]
Oral Answers to Questions
Tulip Siddiq Excerpts(2 months, 3 weeks ago)
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Noah Law (St Austell and Newquay) (Lab)
The Economic Secretary to the Treasury (Tulip Siddiq)
The Government are already taking action to fix Britain’s economic foundations, with a new approach to growth with three pillars: stability, investment and reform. Sustainable public finances are necessary for economic stability and long-term growth, and the Government will set out the difficult decisions needed to secure the public finances in the Budget on 30 October. The Government have already announced a fiscal lock to support policy stability by ensuring that fiscally significant announcements are subject to an independent Office for Budget Responsibility assessment.
Noah Law
Given the fiscal inheritance that we have been left, the Chancellor has already had to make some difficult decisions to ensure that economic stability. Workers and pensioners just above the personal allowance threshold have already borne much of the brunt of the previous Government’s cost of living crisis and fiscal drag, putting many in a precarious position. What steps are the Government taking to ensure that, if there is to be further fiscal drag, these groups are prevented from shouldering further burdens?
Tulip Siddiq
I should have welcomed my hon. Friend to his place.
It was the previous Government’s decision to maintain tax thresholds at their current levels until 2028. We have inherited an extremely difficult fiscal situation, meaning that we cannot undo everything they did, but the Prime Minister has been clear that those with the broadest shoulders should bear the heavier burden. The Government are providing £0.5 billion, including the estimated Barnett consequential, to extend the household support fund in England for another six months, to 31 March 2025. It continues to be our aim to support those who are most in need. The household support fund is specifically used by local authorities to help the most vulnerable households cover the cost of essentials such as food, energy and water.
Josh Babarinde (Eastbourne) (LD)
The cost of temporary accommodation is spiralling out of control, and it is a source of economic instability for local government. Eastbourne borough council leader Stephen Holt, together with 118 cross-party council leaders, wrote to the last Government to ask for urgent support and to propose a number of solutions, but they were completely ignored.
Will this Chancellor meet me and local government leaders, including Eastbourne’s, to discuss what immediate support she can provide to help councils across the country to tackle the temporary accommodation crisis?
Tulip Siddiq
I thank the hon. Gentleman for his question. Having served as a local councillor for many years, I very much recognise the problem that he describes. I am sorry to hear about this troubling situation, and I will refer his comments to the Secretary of State for Housing, Communities and Local Government and make sure that he gets the response he should have had before.
Bill Esterson (Sefton Central) (Lab)
The Minister refers to the £22 billion black hole in the public finances left by the last Government, and which they hid from the British public. Does that not highlight just how important it is to ensure transparency and independent analysis of economic decisions?
Tulip Siddiq
I thank my hon. Friend for his question. Upon taking office, as he says, we discovered a £22 billion black hole in the public finances that had been left by the previous Government, and we have now uncovered a litany of unfunded Conservative spending commitments. We recently learned that the deficit is now £4.7 billion higher than the OBR forecast in March because of the previous Government’s economic recklessness. We will rectify this, and we will set out a clear spending plan, and an ambitious plan to get the country back into stable economic conditions, at the Budget.
Sir Julian Lewis (New Forest East) (Con)
Given that the House of Commons Library estimates that the covid disaster cost the country between £315 billion and £415 billion, can the Minister explain how it is that even her own questionable figure of a £22 billion black hole is not a great deal higher?
Tulip Siddiq
I think I thank the right hon. Gentleman for his question, but may I point out gently to him that, had our economy grown at the average rate of other OECD economies over the last 13 years, it would have been £140 billion larger? I also point out that under the Conservatives the tax burden rose to its highest level for 70 years. I will take no lessons from the Conservative party, because the last Government oversaw the biggest drop in household real disposable incomes since records began.
Helen Morgan (North Shropshire) (LD)
Banking Services: Rural Northumberland
Tulip Siddiq Excerpts(2 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I commend my hon. Friend the Member for Hexham (Joe Morris) for securing this important debate, which I think is his first Adjournment debate. I also congratulate him on being the first Labour MP for Hexham. His Wikipedia entry famously boasts that he broke a 100-year streak of Conservative MPs to be in this place. If that is not an accolade, I do not know what is. Just before I came to this debate, I was having dinner with my hon. Friend the Member for Warwick and Leamington (Matt Western). I mentioned to him that I was answering a debate called by our hon. Friend the Member for Hexham; our hon. Friend will be pleased to know that he said that Hexham is the most beautiful place he has ever been to in his life—I would say other than Hampstead and Highgate, obviously.
I thank all hon. Members who have contributed to this important debate. The fact that they have stayed behind at a quarter past 10 on a Monday, on their first day back to Parliament on a one-line Whip, demonstrates their commitment. I know that this issue affects many of our constituents, and hon. Members are absolutely right to champion it.
Lizzi Collinge (Morecambe and Lunesdale) (Lab)
I thank my hon. Friend the Member for Hexham (Joe Morris) for securing the debate. Does the Minister agree that the conditions in rural areas make it particularly difficult for people to take up the alternatives given by banks, such as digital access? Despite the fantastic work of Broadband for the Rural North in my constituency, many of my constituents do not have access to broadband, and access to digital banking is simply out of reach for many.
Tulip Siddiq
I thank my hon. Friend for her intervention. I know that she is a doughty champion for her constituents. I hear what she says about her rural constituency. Mine is not a rural constituency, but I speak to people across the country who are really struggling with digital connectivity, as she outlines. It is something that the Government are taking very seriously, and we are aware of the obstacles in the way of people trying to access services online.
I am pleased that this is my first parliamentary debate as the Economic Secretary to the Treasury, because this is an issue that is close to my heart, and one that I am determined to try to address. It is a privilege to be able to use this office to tackle some of the country’s most important issues, as my hon. Friend just said. Ensuring access to banking and supporting financial inclusion featured very highly in our manifesto, which all Labour Members were elected on. We want to ensure that our constituents manage to access the services that they deserve.
Before I get on to the meat of the topic, I will briefly provide the context. Although many people have benefited from changes to the UK’s banking landscape, such as the ease and convenience for some people of remote banking, it is clear to me that others have found it a lot more challenging. According to the consumer organisation Which? over 600 branches in the UK have closed since 2015. Bank branch closures have significantly impacted those in communities who need access to in-person banking services. I am really sorry to hear about some of the specific cases that have been raised. My hon. Friend the Member for Hexham talked about his 74-year-old constituent who has to travel so far. That example particularly stood out to me, because that should not be the case.
I assure my hon. Friend that the Government understand the importance of face-to-face banking, and banking access, to our communities. Not only is it is key to the health and vibrancy of those communities, but as he pointed out, it helps them to drive forward and benefit from our country’s economic growth, and the rural economy. To anyone listening to the debate, please be in no doubt that the Government share the objective of enhancing access to banking services, and we will be prioritising the delivery of that accordingly.
Work has already started. Obviously, we have not been in Government for very long, but even before the election we committed to working closely with banks to roll out at least 350 banking hubs, which will provide individuals and businesses up and down the country with critical cash and banking services.
Ian Lavery
Banking hubs are in many ways very helpful. However, will the Minister consider reviewing the criteria? I have an issue in my constituency where the distance of the nearest bank is one tenth of a mile too short to get a banking hub. Because of that, they are considering not putting a banking hub in place. Is there potential to review the criteria, to support the most vulnerable people in our communities?
Tulip Siddiq
I absolutely hear what my hon. Friend says about protecting vulnerable people in our constituencies. That is why a lot of us stood for the Labour party: because we want to protect the most vulnerable. I will come on to LINK, which provides the banking hubs, but if he does not mind writing to me and laying out exactly what the issue is, I can write to him about the topic and about the criteria, because it sounds as if there is a very small matter that needs looking at and I am happy to do so. I will talk later about LINK, but I ask him to make representations as well.
Jim Shannon
I congratulate the Minister on attaining her office and wish her well in it. I think she referred to 350 banking hubs, which I presume means across the whole of the United Kingdom of Great Britain and Northern Ireland—I hope so. If not, I ask her to confirm that the same progression and the enthusiasm that she is showing will also happen in Northern Ireland. I ask her one other thing, about which I spoke to the hon. Member for Hexham (Joe Morris) beforehand. Setting up banking hubs seems to take forever. We all want them in place. Is that something that the Minister can help us with?
Tulip Siddiq
No Adjournment debate would be complete without an intervention from the hon. Member, so I am glad he intervened; I was waiting for him to do so. I share his frustration about the slowness of the roll-out—I pushed for it when I was in opposition and asked why it was taking so long. I will address this point in my speech, but I can reassure him that with as much influence as I have in our office, we have been asking for the banking hubs to be set up and ready. We are hoping to achieve 100 banking hubs by the end of this year, but I am conscious that they take a long time to set up. It is to do with the planning process, but that is not an excuse. I would like to speed up the roll-out, because I feel it has been dragging on for a long time. I absolutely share his frustration.
As the hon. Member might know, 60 banking hubs have already opened. As I said, we anticipate that 100 will be open at the end of this year, but I agree that it is frustrating to have to wait and watch. We want them to be up and running so that our constituents can make good use of them. We want to ensure that the hubs mean that people and businesses can withdraw and deposit cash, because we know that people still use it. They will deposit cheques, pay bills and make balance inquiries. They will also contain dedicated community bankers from the largest banks in the area on a rotating basis, to help people and businesses carry out wider banking services.
The decisions on the locations of future banking hubs will be made by LINK, which is the banking industry’s cash co-ordinating body. It will consider criteria such as population size, the number of retailers in the community and the availability of alternative bank branches. Communities can ask LINK to carry out an assessment of the local area; I urge my hon. Friends the Members for Blyth and Ashington (Ian Lavery) and for Hexham to make to LINK the case that has so convincingly been made to me. At the end of the day, we have asked it to make the decisions, but I can help in the process as well.
Looking forward, I expect the banks to consider carefully whether the needs of a local community are being adequately served when thought is given to where the banking hubs should be rolled out. However, I also want the industry to ensure that the range and quality of banking services provided in hubs are delivering for customers up and down the country. There is no point in having a banking hub if it does not meet the specific requirements of the town.
Adam Jogee (Newcastle-under-Lyme) (Lab)
I welcome the Minister to her place. If you will indulge me, Madam Deputy Speaker, I suspect that the Minister will want to note, as I do, the passing of Nicky Gavron, who was a Deputy Mayor of London, a very good friend of mine and a constituent of the Minister’s. She died on 30 August, and I wanted to ensure that it was acknowledged in the House.
I congratulate my hon. Friend the Member for Hexham (Joe Morris) on securing this important debate, in which I have two quick questions to put to the Minister. First, will she outline what conversations she has had with the banks to ensure that they put people over profit? I am very proud to represent Newcastle-under-Lyme. I know that she has not visited; if she had, she would agree that it is the most beautiful place in our country. Secondly, how can we ensure that the importance of accessibility is acknowledged not just in words but in deeds?
Tulip Siddiq
I thank my hon. Friend for his intervention and associate myself with his comments about Nicky Gavron, who was my constituent and a great friend. She worked with us in London Labour when my hon. Friend was—dare I say it—a very young man. We worked with her for many years, and it was very sad to see her go.
I can assure my hon. Friend that I speak to the banks every day to ensure that they know what our values are and how we want them delivered. Beyond banking hubs, I am saying to them that communities need key banking services to ensure that they have accessibility, cash withdrawal and deposit services—particularly our local businesses and charities, which often deal in cash and need convenient ways to deposit their takings, but also everyone who uses cash to make everyday purchases.
According to UK Finance, cash remained the second most popular payment method last year, so it is not right to dismiss and question the idea that people still use cash. Overall data shows that cash coverage in the UK remains good. According to Financial Conduct Authority analysis, over 99% of the UK urban population is within one mile of a free withdrawal cashpoint, and over 98% of the UK rural population is within three miles of one. I hope that that reassures hon. Members.
However, it is important that coverage is maintained, so I welcome the FCA’s forthcoming rules on access to cash, under which designated banks and building societies will be required to assess the impact of a closure on a community’s ability to access cash. If a closure results in a gap in provision, firms will be required to put in place a new service that meets the community’s needs. That could mean a new ATM deposit service or a banking hub. Where a new service is recommended, firms will need to ensure that it is place before they are able to close the existing service, to avoid gaps emerging in access to cash. Those rules will come into force on 18 September, which I am sure will be welcomed by Members across the House.
We recognise that banking has changed through a shift towards online and mobile access, which mean that customers have more ways to access banking services conveniently and securely. Banking users have clearly taken up those opportunities; recent FCA data shows that almost nine in 10 adults bank online. However, that does not mean that everyone has the means, confidence and skills to use those services, as many hon. Friends have said. We recognise that although we live in an increasingly online world, part of the population, including in my constituency, remain digitally excluded.
As a Government, we are committed to improving connectivity and digital access for all constituents. We will continue to support the roll-out of a modernised broadband infrastructure through Project Gigabit, closing the digital divide for remote areas of Britain. The Government have already started the renewed push to reach full gigabit coverage by 2030. This month we have announced funding of £800 million to improve broadband for over 300,000 rural homes and businesses. Thinkbroadband reported in August of this year that approximately 84% of the UK can now access a gigabit-capable connection. Although the majority of premises will be covered by commercial activity or Project Gigabit, the Government are considering alternative ways to improve connectivity for the parts of the UK where that is not possible. If constituents or Members write to me, we will bear their areas in mind.
I thank everyone for their thoughtful contributions, but this will not be my last speech on this matter. I want to take my hon. Friend the Member for Hexham, and other Members who have spoken, along with me on my journey, working together with the financial services sector and the public to deliver financial services. I want to mention quickly the post office network—[Interruption.] I don’t have time, do I, Madam Deputy Speaker? You are looking at me. I will just say that the Government are committed to looking for ways to strengthen the post office network. The Secretary of State met the chair of the Post Office to discuss that and other important issues, and the Government protect the post office network by setting minimum access criteria to ensure that 99% of the UK population lives within three miles of a post office, with around 11,000 branches in the UK.
Madam Deputy Speaker, you have been very kind and allowed me a bit more time, so I will finish by thanking my hon. Friend once again—
The Economy
Tulip Siddiq Excerpts(6 months ago)
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Tulip Siddiq (Hampstead and Kilburn) (Lab)
I thank the Minister for advance sight of his statement.
Of course it is welcome that the rate of inflation is finally slowing after three years of the Government missing every single target, but the tone-deaf victory lap we are seeing from the Government today will feel like a slap in the face to the British people who, after 14 long years of Conservative chaos, are still significantly worse off. While Conservative Ministers are popping champagne corks over the rate of food price rises, the cost of the typical family shop has gone up by nearly £1,000 since 2019—so those families will not be celebrating—and while the Chancellor and the Prime Minister gaslight ordinary British families by suggesting that the cost of living crisis is over, the costs for a two-earner household are more than £150 a week higher than they were before the last election.
The Minister claims that the economy has turned a corner, but in reality the Conservatives’ record on growth has been nothing short of pitiful. If the UK economy had grown at the average rate of the OECD in the last 14 years, it would now be £140 billion larger—that is not just about lines on a graph; it would have meant an additional £50 billion in tax revenues to invest in our public services, and more money in working people’s pockets.
I noted with interest that the Minister quoted selectively from the IMF’s report. In that report, which he cited so triumphantly, the IMF confirmed that under the Conservatives the UK was suffering from the lowest growth in the G7, and just this week the IMF said that the longer-term growth prospects of the UK “remain subdued”. This is the Conservative party’s legacy: a poorer Britain, working people worse off, and the public realm in disarray. I think the Minister may also be slightly confused about his Government’s record on tax. On the Conservatives’ watch, the tax burden is the highest in 70 years, and under the Prime Minister’s tax plans households will, on average, be £870 worse off by 2028. Those are the statistics that the Minister missed out.
In contrast to the Conservatives, who have consistently failed to explain how they will pay for their £46 billion unfunded commitment to abolish national insurance, we in the Labour party have ensured that all our plans are fully costed. Let me also make it clear that a Labour Government would not be celebrating the inflation target finally being met for the first time in years. We would not be doing a tone-deaf victory lap for overseeing a decade and a half of stagnant growth. Instead, we have pledged to deliver economic stability with tough spending rules so that we can grow our economy and keep taxes, inflation and mortgages as low as possible.
The choice at the next election is clear: five more years of chaos with the Conservatives or stability with a changed Labour party. That is why the Government are running scared. Time after time, they have chosen to bottle it rather than go to the country, but I hope that, today of all days, the Prime Minister will do the right thing. It is time for this exhausted and failing Government to step aside in the national interest, call an election, and let the responsible party take charge.
Bim Afolami
Let me start by welcoming the shadow Minister’s remarks, and by saying that no one on the Government Benches—certainly not me—feels that times are not still tough for many millions of people. We are acutely aware of that, which is why we have worked so hard over the last few years to make the difficult decisions that are required for us to guide the country through the difficulties wrought by covid, the biggest pandemic in 100 years, and by the energy shock from the war in Ukraine. No one on this side of the House minimises the difficulties that people have gone through and that many are still going through.
Let me pick up a couple of points of fact. The hon. Lady quoted the IMF, and she mentioned selective quotations. I am afraid that she wins the prize on that one: the IMF was very clear about the fact that over the next five or six years, the UK will be the fastest-growing country in the G7 apart from North America. She also mentioned confusion. I think that she and her party are the ones who are confused: they are confused on the question of taxes. We have scored Labour’s tax plans, and they amount to an extra £2,094 over four years for the average person. Labour Members say that they want to grow the economy, and they say that they are pro-business—at least, that is what they tell business people outside the House—but they are putting in place a workers plan, led by their deputy leader, that will impose 70 new regulations on small businesses, far more power for trade unions and day-one rights on employment, and will ban flexible working. It will damage many of the things that make small businesses in this country successful.
Let me end by saying this: if we want a Government who will cut inflation further and grow the economy, we should not increase borrowing and increase taxes like the Labour party.
Finance (No. 2) Bill
(Except clauses 1 to 4, 12 and 13, and 19)
Tulip Siddiq Excerpts(6 months ago)
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The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure, as always, to see you in the Chair, Mrs Latham. Clause 20 begins the process of introducing legislation for a new type of investment fund—the reserved investor fund, which I will refer to from now on as the RIF. At Budget 2020, the Government announced a review of the UK’s funds regime, covering tax and relevant areas of regulation. The review had an overarching objective to make the UK a more attractive location to set up, manage and administer funds, as well as ensuring that UK investors can access a wide enough range of investment vehicles to suit their needs. In the years since, the Government have made a number of successful reforms. In order to build on these successes, the Government announced at spring Budget 2024 that we would be proceeding with the RIF.
The RIF will fill a gap in the UK’s existing fund offering by creating an onshore alternative to existing non-UK fund vehicles that are commonly used to hold UK real estate. Clause 20 provides a definition of the RIF and provides a power for the Treasury to make detailed tax rules through secondary legislation, consistent with the approach taken when introducing tax rules for other investment funds. A later statutory instrument will set out detailed tax rules for the RIF. The regulations will set out supplementary qualifying conditions for a RIF, entry and exit provisions, and rules that deal with breaches of one or more qualifying conditions.
The UK has a world-leading asset management sector. The RIF will play an important role in supporting that leadership by making the UK a more competitive destination for our fund management industry. Indeed, stakeholders from the financial services industry have already shown considerable support for the RIF. I therefore commend the clause to the Committee.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve on this Committee under your chairmanship, Mrs Latham. I am pleased to respond to clauses 20 to 24 on behalf of the Opposition. Clause 20, as the Minister set out, introduces the necessary powers to set the scope and design of the tax regime and rules for the RIF. Labour welcomes the introduction of the RIF, as it will add to the investment products available here in the UK, particularly for the UK commercial real estate sector. However, the trade bodies representing investment managers and real estate fund managers, the Investment Association and the Association of Real Estate Funds, have raised some concerns that I would like to put to the Minister.
There was a widely held expectation across the sector that RIF would broadly mirror the conditions of the existing authorised contractual schemes, or ACSs, but offer less regulatory supervision, freeing the RIF to become a more flexible investment vehicle for a range of more experienced investors. Due, however, to the Government’s decision to categorise the RIF as an alternative investment fund instead of a special investment fund, the RIF and the ACS will now differ in two key aspects. First, the supply of fund management services will be standard-rated at 20% as opposed to being VAT-exempt, and secondly, an alternative investment fund comes with a requirement to raise capital from a number of investors with a view to investing it in accordance with the defined investment policy for the benefit of those investors. That makes sense for large-scale, open-ended funds with an ongoing investment strategy, but it clearly is not designed for funds that do not have a specified investment objective, such as funds of one, joint ventures, co-investment vehicles and acquisition vehicles, which instead were created for a particular purpose such as repackaging and selling existing assets to new markets. Since they do not exist to raise additional capital, the requirements associated with alternative investment funds risk being an unnecessary burden and disproportionate when applied to the RIF.
Gareth Davies
I am always grateful to see the hon. Member for Hampstead and Kilburn in her place in opposition in these forums, and I appreciate her comments. I will first set out the background to the establishment of the RIF, which was based on significant consultation with industry to fill a specific gap for an unauthorised, contractual-based vehicle. As such, it was based on specific feedback from the industry. The hon. Lady asked a very reasonable question about classification of the fund, and I can tell her that that was considered to be part of the consultation, but in the end we decided to proceed with the structure that we have gone with in the legislation. However, we will of course keep that under review and continue to engage with stakeholders, and we will issue a report on the progress of the RIF in due course. Although we have not established it in the way that some may have wished us to, it is based on consultation and will be reviewed in due course.
Tulip Siddiq
I thank the Minister for his response. He said that he considered the options and decided to proceed with it as an alternative investment fund, but he did not actually set out the reasons why. Was there any reason why he decided that it made more sense to do that as opposed to a special investment fund, especially in line with the international comparisons that I gave?
Gareth Davies
This is designed specifically to fill a gap that was previously or currently filled by things such as Jersey property investment trusts. Where there are unauthorised, contractual-based schemes, we do not currently have a vehicle that fills that gap. What we are introducing with the RIF fills that gap and satisfies a vast amount of stakeholders who fed into the consultation, and we are proceeding with that today.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Economic crime (anti-money laundering) levy
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 21 increases the economic anti-money laundering levy for very large firms, meaning firms regulated for anti-money laundering purposes and which have UK revenue greater than £1 billion per annum. The charge for very large firms increased from £250,000 to £500,000 with effect from 1 April 2024. There is no change to the charge for firms with revenue below £1 billion per annum. The levy was introduced in the 2022-23 tax year as a source of sustainable funding for measures to tackle economic crime and support the delivery of the Government’s commitments contained in the economic crime plan 2. The Government made it clear during the public consultation that levy charges may be adjusted periodically in response to new information, inflation or under-collection. The adjustment is made in response to receipts falling short of the levy’s stated £100 million revenue target.
The clause amends part 3 of the Finance Act 2022 to replace the current charge for very large firms with the new charge of £500,000 per annum. The change will impact an estimated 100 to 110 very large firms across the anti-money laundering regulated sector including, but not limited to, financial services, legal and accountancy firms.
No other aspects of the levy’s calculation or operation are changing and we therefore anticipate administrative impacts on affected firms to be negligible. This adjustment to the economic crime levy for the largest firms will put funding for measures to tackle economic crime on a sustainable footing, helping to protect UK citizens and make the UK a safer place to do business. Only the very largest firms will pay more and burdens will remain low. I commend the clause to the Committee.
Tulip Siddiq
We support the measures in clause 21 to raise the funds needed to tackle money laundering, fraud and other types of economic crime, but I cannot ignore the fact that the Government’s efforts to tackle economic crime have been a complete failure. Fraud and scams, for example, have rocketed under this Government, with at least £7.3 billion stolen directly from consumer bank accounts in the UK through fraud last year alone.
Last year, the Government published their fraud strategy to widespread criticism from industry for largely rebadging old measures and re-announcing existing national teams, such as the re-announcement on the replacement of Action Fraud from 2022. The consensus from experts in the industry is that the measures in the strategy will not significantly move the dial, as they do not establish a regulatory framework for tech companies and telcos to participate in the fight against fraud, including through data-sharing with financial services firms and enforcement agencies to enhance detection and prevention measures.
UK Finance, for example, has stated that it is increasingly difficult to understand the imbalance between the financial services sector’s contribution through the levy and that of other sectors that do not contribute but are known to be introducing risk into the same system. We also know that most scams originate on social media or via telecommunications networks yet those sectors do not face the same obligations regarding contributions, nor do they compensate victims defrauded through their platforms. Does the Minister agree with UK Finance? Does he accept that until the Government find a way to bring the tech giants to the table, efforts to tackle fraud and scams will continue to fail?
UK Finance has also raised concerns about the transparency of the levy and reporting on economic crime. On reporting for anti-money laundering purposes, I have heard from numerous City firms that, despite frequent requests, they receive little granular feedback on the impact their reports make. Does the Minister agree that better feedback and wider publicity around successes could help AML-regulated firms to see the value and importance of work in this area more clearly, keeping it at the forefront of their minds? What are the Government doing to ensure that happens?
Drew Hendry
This is a welcome move in principle and in targeting economic crime, but I would agree with the comments we have just heard—this does not shift things in the way that they need to be shifted in order to deal with the issue. It does not seriously tackle online crime, which is relatively rampant, with people being conned and funds being taken illegally. It does not really do much for fraud and economic crime and fails to tackle issues such as money laundering. There has still not been enough action on limited partnerships, for example, which continue to allow unknown individuals to funnel money through those mechanisms. Why are the Government not taking this issue more seriously than through these minor actions in the Bill?
Tulip Siddiq
We believe that individuals or companies generating wealth in the UK should pay their fair share, so we are in complete support of the aims of this clause. However, we have heard concerns raised by the Chartered Institute of Taxation about the effectiveness of the Government’s proposals and I would be interested to hear the Minister’s views on those concerns.
First, the Chartered Institute of Taxation has argued that the clause adds complexity to the tax system, because it uses income tax legislation to tackle perceived corporate tax avoidance. Clause 22 extends provision within the Income Tax Act 2007 to cover avoidance of any tax through transfer made by a closely held company. Could the Minister explain the thinking behind the Government’s decision to tackle corporate tax avoidance in this way, rather than through the corporate tax regime? Does he agree with the Chartered Institute of Taxation that it could add unnecessary complication to the tax system?
Secondly, the Chartered Institute of Taxation made the case that the Government’s position that any participator in a company is deemed to be involved in a company’s decision to move assets abroad is unfair. For example, a company may have several minority shareholders who have no participation in the running of the company. What is the Minister’s assessment of the case made by the Chartered Institute of Taxation that only major shareholders, directors and shadow directors should be assumed to be involved for the purposes of this legislation?
Thirdly, the Chartered Institute of Taxation has warned that these changes could damage the UK’s international competitiveness, because the test as set out in the legislation leaves too much discretion to HMRC, which compounds uncertainty for businesses. For example, a UK holding company that provides a loan to an offshore subsidiary that in turn generates profits could be caught by the changes, despite that being a routine transaction. The Chartered Institute of Taxation argues that that could lead to an increased number of inquiries and appeals to the tax tribunals and could seriously undermine the UK’s attractiveness for international headquarters.
What does the Minister make of those concerns? What steps will HMRC take to ensure that involvement and objection defences under the clause are not ambiguous or uncertain, and to ensure that those charges do not prove to be increased excessively for taxpayers?
My final point is that the changes introduced by clause 22 appear to be retrospective, as no date is specified whereafter transactions are affected; the clause says only that income arising after April 2024 is caught by the regime. Can the Minister confirm whether that is the case? Will commercial transactions that were carried out many years ago, but from which income arises after April 2024, still be caught?
Nigel Huddleston
I thank the hon. Member for Hampstead and Kilburn for her comments. We very much appreciate the input that we have received from stakeholders and interested parties, including the Chartered Institute of Taxation. Some of those points are about broader issues around the TOAA regime, rather than specific to this legislation, but we do hear what they have to say.
I will respond to the hon. Lady’s points about the changes that apply to companies when the TOAA regime is primarily about individuals. The transfer of assets abroad legislation is an anti-avoidance provision aimed at preventing individuals from avoiding a tax charge by transferring an asset to a person overseas while still being able to enjoy the income of that asset in some way. It would be easy for an individual to sidestep the legislation by transferring such an asset to a company that they controlled before the company then made the transfer abroad. The legislative changes are aimed at preventing that situation and ensuring that the TOAA rules are applied as intended.
On the point about the legislation being broad, let us not forget that it is being brought in in response to the Supreme Court judgment; we are trying to make sure that it acts as intended throughout. The intention of the legislation is to put the situation involving transfers by companies back to how HMRC considered it operated before the Supreme Court decision. The transfer of assets abroad legislation aims to stop that tax avoidance.
It is also important to remember that the legislation does not bring a tax charge when the transfer is for genuine commercial reasons or when tax avoidance was not the purpose of the transfer. The new legislation gives individuals the opportunity to exclude themselves from the tax charge if certain conditions are met. We respectfully disagree with the CIOT on some of those conditions. We have outlined some of those, and HMRC will produce further guidance in due course.
On the retroactive criticism, the clause has retroactive effect because if it did not, it would have allowed individuals to abuse the loophole between the date of the Fisher judgment and the enactment of the legislation. Again, we do not believe that there will be a significant increase in complexity. The purpose behind the legislation is primarily to ensure that the regime acts as intended.
I will not go into the weeds on HMRC’s determination process—further guidance will be given—but HMRC will review the facts of a case to judge whether someone is directly or indirectly involved in the decision making of a company. It will accept evidence that shows whether someone is involved or not. However, any arrangements that are put in place purely to be used as evidence that an individual is not involved in the decision making of a company will be disregarded and a charge will be levied if the other conditions are met. As I said, HMRC will issue guidance on how it will approach the matter in due course. Decisions will be made based on the facts of each individual case.
I hope that I have given the hon. Member for Hampstead and Kilburn some assurance. We appreciate the concerns that have raised by key stakeholders, and further information and guidance will be forthcoming.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Minor VAT amendments
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 23 makes some minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. I will speak briefly about each measure in turn.
The DIY house builders’ scheme allows individuals building their own home, or converting a non-residential building to their own home, to recover VAT incurred on the cost. That puts individual house builders in the same position as property developers, who are able to sell new build residential property at a zero rate and recover the VAT they incur in the process of constructing new build properties. The scheme was simplified and made digital in December last year, which has significantly reduced the time taken for claims to be paid. Under the new process, only essential details are required on the claim form, eliminating the need for claimants to submit certain evidential documents up front. Based on the information provided on the claim form, HMRC can then request evidential documents to verify the claim.
Clause 23(1) will give HMRC a clear power under the DIY house builders’ scheme to require further evidential documentation, such as invoices, from the person who submitted a claim under the scheme. That will assist HMRC in verifying claims.
Clause 23(3) is a minor update to the existing powers that allow for reform of the VAT terminal markets order. The order reduces VAT administration burdens on commodities traded on specified markets, so the power will allow for simplifications to support businesses trading those commodities. The Government previously announced their intention to reform the order to reflect current market practices and to keep pace with market changes, such as trades in new products, including carbon credits. This clause takes that commitment forward.
Finally, subsections (4) and (5) make changes to ensure that VAT interest rules operate as intended. For most major taxes, the Finance Act 2009 requires HMRC to pay interest on amounts due from HMRC to taxpayers, and to charge interest on late payments to HMRC. Historically, that regime did not apply to VAT, which had its own interest rules. Harmonising the rules on interest was an important step in delivering the Government’s ambition to build a trusted, modern tax administration system. Changes made by the Finance Act 2021 brought VAT interest in line with taxes such as income tax from 1 January last year. In implementing the new interest rules for VAT, HMRC has discovered some minor defects in the legislation, which without correction would force it to act in a way that conflicts with policy intent.
Clause 23 will therefore make two changes to the interest rules. The first will address the situation in which interest ought to be repaid to HMRC because, following an assessment or amendment that reduces the amount of VAT credit, the repayment interest due is also reduced. It was always intended that HMRC could recover all these amounts through a simple automated process that does not add to burdens for taxpayers and HMRC alike. The IT system can already operate, but the legislation, mistakenly, does not always allow that automated recovery. The change will ensure that HMRC can do so in all cases instead of needing a different, onerous process for a minority of cases that the original legislation did not cover.
The second change will make sure that VAT-registered businesses are always protected by a provision that creates a fairer basis for the calculation of interest where they owed money to HMRC over the same time that HMRC owed money to them. The original legislation failed to extend that safeguard to all scenarios in which that could happen with VAT, undermining the fairness of the interest regime. To ensure that all VAT-registered businesses are treated equally, the changes will be given backdated effect to 1 January 2023, when the interest rules were introduced for VAT.
Clause 23 makes some small changes to ensure that policy works as intended and to further Government commitments on reforming the VAT terminal markets order. I commend it to the Committee.
Tulip Siddiq
The Opposition support the changes that will assist with compliance checks by making online applications equivalent to paper applications. Has the Minister considered adding the online application as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client?
We also support the provisions for modifying the application of VAT for terminal markets, as that will allow for further reforms such as bringing trades in carbon credits within the scope of the Value Added Tax (Terminal Markets) Order. We feel that is a vital and necessary step in developing this important market.
We support the changes to legislation that governs the interaction between late payment interest and repayment interest for VAT. Has the Minister given any thought to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?
Drew Hendry
On clause 23’s minor VAT amendments, there is very little to disagree with. VAT should be paid where it is due, and HMRC should pay interest where it should pay interest. That is to be welcomed.
However, on Second Reading I pointed out the paucity of thought and imagination that had gone into providing real help for people across the nations of the UK, and the kinds of thing that the Government could have done but have not. The clause title, “Minor VAT amendments”, just highlights the problem with the entire Bill. The Government could have taken some action to deal with the issues for people in hospitality by cutting VAT and doing something meaningful for tourism, but no: they have chosen to make these minor adjustments. They could have used VAT as a mechanism for helping our high streets to create economic zones that could boost life back into vital high streets and centres. Instead, they have taken to tinkering with the VAT rules.
My question to the Minister is why there is such a lack of ambition in his Government. Is it that this is a fag-end Government in a fag-end Parliament that has run out of ideas, or is it just that they do not care?
Nigel Huddleston
Clause 24 makes further provision for collective money purchase arrangements. CMP arrangements are a new type of pension that have the benefit of pooling individuals’ pension pots to provide better incomes in retirement while limiting the liability of employers.
These changes will enable the Government to authorise the transfer of benefits to a member’s beneficiaries, such as their dependants, in the unlikely event that a member dies while a CMP arrangement is being wound up. That will ensure that such transfers do not incur an unauthorised payment charge of 55%, and it will deliver the Government’s commitment to provide the correct tax outcome for CMP arrangements.
The Pension Schemes Act 2021 introduced legislation to allow collective money purchase schemes to operate in the United Kingdom. This measure authorises the transfer of survivor benefits in collective money purchase pension schemes. This will ensure that Royal Mail Group, the first provider of a collective money purchase pension scheme, can launch its scheme as planned.
It is a complicated title, but with a simple purpose. As a result of these changes, an employee of Royal Mail will be able to sign on to a CMP, with all the benefits, without the risk of transferring survivor benefits being put through as unauthorised transactions. I therefore commend the clause to the Committee.
Tulip Siddiq
This clause is so uncontroversial that we give it our full support. For the first time, I agree with everything the Minister has said, and the Committee will be happy to know that I have no further questions for him.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Interpretation
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I will be very brief, because the clause is fairly straightforward. It provides for the use of abbreviations for a variety of Acts. For example, it provides for the use of “CTA 2009” as an abbreviation for the Corporation Tax Act 2009. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Short title
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill
Tulip Siddiq ExcerptsTuesday 21st May 2024
(6 months ago)
Public Bill CommitteesRead Full debate Finance Act (No. 2) 2024 2023-24 View all Finance Act (No. 2) 2024 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 21 May 2024 - (21 May 2024)
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure, as always, to see you in the Chair, Mrs Latham. Clause 20 begins the process of introducing legislation for a new type of investment fund—the reserved investor fund, which I will refer to from now on as the RIF. At Budget 2020, the Government announced a review of the UK’s funds regime, covering tax and relevant areas of regulation. The review had an overarching objective to make the UK a more attractive location to set up, manage and administer funds, as well as ensuring that UK investors can access a wide enough range of investment vehicles to suit their needs. In the years since, the Government have made a number of successful reforms. In order to build on these successes, the Government announced at spring Budget 2024 that we would be proceeding with the RIF.
The RIF will fill a gap in the UK’s existing fund offering by creating an onshore alternative to existing non-UK fund vehicles that are commonly used to hold UK real estate. Clause 20 provides a definition of the RIF and provides a power for the Treasury to make detailed tax rules through secondary legislation, consistent with the approach taken when introducing tax rules for other investment funds. A later statutory instrument will set out detailed tax rules for the RIF. The regulations will set out supplementary qualifying conditions for a RIF, entry and exit provisions, and rules that deal with breaches of one or more qualifying conditions.
The UK has a world-leading asset management sector. The RIF will play an important role in supporting that leadership by making the UK a more competitive destination for our fund management industry. Indeed, stakeholders from the financial services industry have already shown considerable support for the RIF. I therefore commend the clause to the Committee.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve on this Committee under your chairmanship, Mrs Latham. I am pleased to respond to clauses 20 to 24 on behalf of the Opposition. Clause 20, as the Minister set out, introduces the necessary powers to set the scope and design of the tax regime and rules for the RIF. Labour welcomes the introduction of the RIF, as it will add to the investment products available here in the UK, particularly for the UK commercial real estate sector. However, the trade bodies representing investment managers and real estate fund managers, the Investment Association and the Association of Real Estate Funds, have raised some concerns that I would like to put to the Minister.
There was a widely held expectation across the sector that RIF would broadly mirror the conditions of the existing authorised contractual schemes, or ACSs, but offer less regulatory supervision, freeing the RIF to become a more flexible investment vehicle for a range of more experienced investors. Due, however, to the Government’s decision to categorise the RIF as an alternative investment fund instead of a special investment fund, the RIF and the ACS will now differ in two key aspects. First, the supply of fund management services will be standard-rated at 20% as opposed to being VAT-exempt, and secondly, an alternative investment fund comes with a requirement to raise capital from a number of investors with a view to investing it in accordance with the defined investment policy for the benefit of those investors. That makes sense for large-scale, open-ended funds with an ongoing investment strategy, but it clearly is not designed for funds that do not have a specified investment objective, such as funds of one, joint ventures, co-investment vehicles and acquisition vehicles, which instead were created for a particular purpose such as repackaging and selling existing assets to new markets. Since they do not exist to raise additional capital, the requirements associated with alternative investment funds risk being an unnecessary burden and disproportionate when applied to the RIF.
Gareth Davies
I am always grateful to see the hon. Member for Hampstead and Kilburn in her place in opposition in these forums, and I appreciate her comments. I will first set out the background to the establishment of the RIF, which was based on significant consultation with industry to fill a specific gap for an unauthorised, contractual-based vehicle. As such, it was based on specific feedback from the industry. The hon. Lady asked a very reasonable question about classification of the fund, and I can tell her that that was considered to be part of the consultation, but in the end we decided to proceed with the structure that we have gone with in the legislation. However, we will of course keep that under review and continue to engage with stakeholders, and we will issue a report on the progress of the RIF in due course. Although we have not established it in the way that some may have wished us to, it is based on consultation and will be reviewed in due course.
Tulip Siddiq
I thank the Minister for his response. He said that he considered the options and decided to proceed with it as an alternative investment fund, but he did not actually set out the reasons why. Was there any reason why he decided that it made more sense to do that as opposed to a special investment fund, especially in line with the international comparisons that I gave?
Gareth Davies
This is designed specifically to fill a gap that was previously or currently filled by things such as Jersey property investment trusts. Where there are unauthorised, contractual-based schemes, we do not currently have a vehicle that fills that gap. What we are introducing with the RIF fills that gap and satisfies a vast amount of stakeholders who fed into the consultation, and we are proceeding with that today.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Economic crime (anti-money laundering) levy
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 21 increases the economic anti-money laundering levy for very large firms, meaning firms regulated for anti-money laundering purposes and which have UK revenue greater than £1 billion per annum. The charge for very large firms increased from £250,000 to £500,000 with effect from 1 April 2024. There is no change to the charge for firms with revenue below £1 billion per annum. The levy was introduced in the 2022-23 tax year as a source of sustainable funding for measures to tackle economic crime and support the delivery of the Government’s commitments contained in the economic crime plan 2. The Government made it clear during the public consultation that levy charges may be adjusted periodically in response to new information, inflation or under-collection. The adjustment is made in response to receipts falling short of the levy’s stated £100 million revenue target.
The clause amends part 3 of the Finance Act 2022 to replace the current charge for very large firms with the new charge of £500,000 per annum. The change will impact an estimated 100 to 110 very large firms across the anti-money laundering regulated sector including, but not limited to, financial services, legal and accountancy firms.
No other aspects of the levy’s calculation or operation are changing and we therefore anticipate administrative impacts on affected firms to be negligible. This adjustment to the economic crime levy for the largest firms will put funding for measures to tackle economic crime on a sustainable footing, helping to protect UK citizens and make the UK a safer place to do business. Only the very largest firms will pay more and burdens will remain low. I commend the clause to the Committee.
Tulip Siddiq
We support the measures in clause 21 to raise the funds needed to tackle money laundering, fraud and other types of economic crime, but I cannot ignore the fact that the Government’s efforts to tackle economic crime have been a complete failure. Fraud and scams, for example, have rocketed under this Government, with at least £7.3 billion stolen directly from consumer bank accounts in the UK through fraud last year alone.
Last year, the Government published their fraud strategy to widespread criticism from industry for largely rebadging old measures and re-announcing existing national teams, such as the re-announcement on the replacement of Action Fraud from 2022. The consensus from experts in the industry is that the measures in the strategy will not significantly move the dial, as they do not establish a regulatory framework for tech companies and telcos to participate in the fight against fraud, including through data-sharing with financial services firms and enforcement agencies to enhance detection and prevention measures.
UK Finance, for example, has stated that it is increasingly difficult to understand the imbalance between the financial services sector’s contribution through the levy and that of other sectors that do not contribute but are known to be introducing risk into the same system. We also know that most scams originate on social media or via telecommunications networks yet those sectors do not face the same obligations regarding contributions, nor do they compensate victims defrauded through their platforms. Does the Minister agree with UK Finance? Does he accept that until the Government find a way to bring the tech giants to the table, efforts to tackle fraud and scams will continue to fail?
UK Finance has also raised concerns about the transparency of the levy and reporting on economic crime. On reporting for anti-money laundering purposes, I have heard from numerous City firms that, despite frequent requests, they receive little granular feedback on the impact their reports make. Does the Minister agree that better feedback and wider publicity around successes could help AML-regulated firms to see the value and importance of work in this area more clearly, keeping it at the forefront of their minds? What are the Government doing to ensure that happens?
Drew Hendry
This is a welcome move in principle and in targeting economic crime, but I would agree with the comments we have just heard—this does not shift things in the way that they need to be shifted in order to deal with the issue. It does not seriously tackle online crime, which is relatively rampant, with people being conned and funds being taken illegally. It does not really do much for fraud and economic crime and fails to tackle issues such as money laundering. There has still not been enough action on limited partnerships, for example, which continue to allow unknown individuals to funnel money through those mechanisms. Why are the Government not taking this issue more seriously than through these minor actions in the Bill?
Tulip Siddiq
We believe that individuals or companies generating wealth in the UK should pay their fair share, so we are in complete support of the aims of this clause. However, we have heard concerns raised by the Chartered Institute of Taxation about the effectiveness of the Government’s proposals and I would be interested to hear the Minister’s views on those concerns.
First, the Chartered Institute of Taxation has argued that the clause adds complexity to the tax system, because it uses income tax legislation to tackle perceived corporate tax avoidance. Clause 22 extends provision within the Income Tax Act 2007 to cover avoidance of any tax through transfer made by a closely held company. Could the Minister explain the thinking behind the Government’s decision to tackle corporate tax avoidance in this way, rather than through the corporate tax regime? Does he agree with the Chartered Institute of Taxation that it could add unnecessary complication to the tax system?
Secondly, the Chartered Institute of Taxation made the case that the Government’s position that any participator in a company is deemed to be involved in a company’s decision to move assets abroad is unfair. For example, a company may have several minority shareholders who have no participation in the running of the company. What is the Minister’s assessment of the case made by the Chartered Institute of Taxation that only major shareholders, directors and shadow directors should be assumed to be involved for the purposes of this legislation?
Thirdly, the Chartered Institute of Taxation has warned that these changes could damage the UK’s international competitiveness, because the test as set out in the legislation leaves too much discretion to HMRC, which compounds uncertainty for businesses. For example, a UK holding company that provides a loan to an offshore subsidiary that in turn generates profits could be caught by the changes, despite that being a routine transaction. The Chartered Institute of Taxation argues that that could lead to an increased number of inquiries and appeals to the tax tribunals and could seriously undermine the UK’s attractiveness for international headquarters.
What does the Minister make of those concerns? What steps will HMRC take to ensure that involvement and objection defences under the clause are not ambiguous or uncertain, and to ensure that those charges do not prove to be increased excessively for taxpayers?
My final point is that the changes introduced by clause 22 appear to be retrospective, as no date is specified whereafter transactions are affected; the clause says only that income arising after April 2024 is caught by the regime. Can the Minister confirm whether that is the case? Will commercial transactions that were carried out many years ago, but from which income arises after April 2024, still be caught?
Nigel Huddleston
I thank the hon. Member for Hampstead and Kilburn for her comments. We very much appreciate the input that we have received from stakeholders and interested parties, including the Chartered Institute of Taxation. Some of those points are about broader issues around the TOAA regime, rather than specific to this legislation, but we do hear what they have to say.
I will respond to the hon. Lady’s points about the changes that apply to companies when the TOAA regime is primarily about individuals. The transfer of assets abroad legislation is an anti-avoidance provision aimed at preventing individuals from avoiding a tax charge by transferring an asset to a person overseas while still being able to enjoy the income of that asset in some way. It would be easy for an individual to sidestep the legislation by transferring such an asset to a company that they controlled before the company then made the transfer abroad. The legislative changes are aimed at preventing that situation and ensuring that the TOAA rules are applied as intended.
On the point about the legislation being broad, let us not forget that it is being brought in in response to the Supreme Court judgment; we are trying to make sure that it acts as intended throughout. The intention of the legislation is to put the situation involving transfers by companies back to how HMRC considered it operated before the Supreme Court decision. The transfer of assets abroad legislation aims to stop that tax avoidance.
It is also important to remember that the legislation does not bring a tax charge when the transfer is for genuine commercial reasons or when tax avoidance was not the purpose of the transfer. The new legislation gives individuals the opportunity to exclude themselves from the tax charge if certain conditions are met. We respectfully disagree with the CIOT on some of those conditions. We have outlined some of those, and HMRC will produce further guidance in due course.
On the retroactive criticism, the clause has retroactive effect because if it did not, it would have allowed individuals to abuse the loophole between the date of the Fisher judgment and the enactment of the legislation. Again, we do not believe that there will be a significant increase in complexity. The purpose behind the legislation is primarily to ensure that the regime acts as intended.
I will not go into the weeds on HMRC’s determination process—further guidance will be given—but HMRC will review the facts of a case to judge whether someone is directly or indirectly involved in the decision making of a company. It will accept evidence that shows whether someone is involved or not. However, any arrangements that are put in place purely to be used as evidence that an individual is not involved in the decision making of a company will be disregarded and a charge will be levied if the other conditions are met. As I said, HMRC will issue guidance on how it will approach the matter in due course. Decisions will be made based on the facts of each individual case.
I hope that I have given the hon. Member for Hampstead and Kilburn some assurance. We appreciate the concerns that have raised by key stakeholders, and further information and guidance will be forthcoming.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Minor VAT amendments
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 23 makes some minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. I will speak briefly about each measure in turn.
The DIY house builders’ scheme allows individuals building their own home, or converting a non-residential building to their own home, to recover VAT incurred on the cost. That puts individual house builders in the same position as property developers, who are able to sell new build residential property at a zero rate and recover the VAT they incur in the process of constructing new build properties. The scheme was simplified and made digital in December last year, which has significantly reduced the time taken for claims to be paid. Under the new process, only essential details are required on the claim form, eliminating the need for claimants to submit certain evidential documents up front. Based on the information provided on the claim form, HMRC can then request evidential documents to verify the claim.
Clause 23(1) will give HMRC a clear power under the DIY house builders’ scheme to require further evidential documentation, such as invoices, from the person who submitted a claim under the scheme. That will assist HMRC in verifying claims.
Clause 23(3) is a minor update to the existing powers that allow for reform of the VAT terminal markets order. The order reduces VAT administration burdens on commodities traded on specified markets, so the power will allow for simplifications to support businesses trading those commodities. The Government previously announced their intention to reform the order to reflect current market practices and to keep pace with market changes, such as trades in new products, including carbon credits. This clause takes that commitment forward.
Finally, subsections (4) and (5) make changes to ensure that VAT interest rules operate as intended. For most major taxes, the Finance Act 2009 requires HMRC to pay interest on amounts due from HMRC to taxpayers, and to charge interest on late payments to HMRC. Historically, that regime did not apply to VAT, which had its own interest rules. Harmonising the rules on interest was an important step in delivering the Government’s ambition to build a trusted, modern tax administration system. Changes made by the Finance Act 2021 brought VAT interest in line with taxes such as income tax from 1 January last year. In implementing the new interest rules for VAT, HMRC has discovered some minor defects in the legislation, which without correction would force it to act in a way that conflicts with policy intent.
Clause 23 will therefore make two changes to the interest rules. The first will address the situation in which interest ought to be repaid to HMRC because, following an assessment or amendment that reduces the amount of VAT credit, the repayment interest due is also reduced. It was always intended that HMRC could recover all these amounts through a simple automated process that does not add to burdens for taxpayers and HMRC alike. The IT system can already operate, but the legislation, mistakenly, does not always allow that automated recovery. The change will ensure that HMRC can do so in all cases instead of needing a different, onerous process for a minority of cases that the original legislation did not cover.
The second change will make sure that VAT-registered businesses are always protected by a provision that creates a fairer basis for the calculation of interest where they owed money to HMRC over the same time that HMRC owed money to them. The original legislation failed to extend that safeguard to all scenarios in which that could happen with VAT, undermining the fairness of the interest regime. To ensure that all VAT-registered businesses are treated equally, the changes will be given backdated effect to 1 January 2023, when the interest rules were introduced for VAT.
Clause 23 makes some small changes to ensure that policy works as intended and to further Government commitments on reforming the VAT terminal markets order. I commend it to the Committee.
Tulip Siddiq
The Opposition support the changes that will assist with compliance checks by making online applications equivalent to paper applications. Has the Minister considered adding the online application as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client?
We also support the provisions for modifying the application of VAT for terminal markets, as that will allow for further reforms such as bringing trades in carbon credits within the scope of the Value Added Tax (Terminal Markets) Order. We feel that is a vital and necessary step in developing this important market.
We support the changes to legislation that governs the interaction between late payment interest and repayment interest for VAT. Has the Minister given any thought to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?
Drew Hendry
On clause 23’s minor VAT amendments, there is very little to disagree with. VAT should be paid where it is due, and HMRC should pay interest where it should pay interest. That is to be welcomed.
However, on Second Reading I pointed out the paucity of thought and imagination that had gone into providing real help for people across the nations of the UK, and the kinds of thing that the Government could have done but have not. The clause title, “Minor VAT amendments”, just highlights the problem with the entire Bill. The Government could have taken some action to deal with the issues for people in hospitality by cutting VAT and doing something meaningful for tourism, but no: they have chosen to make these minor adjustments. They could have used VAT as a mechanism for helping our high streets to create economic zones that could boost life back into vital high streets and centres. Instead, they have taken to tinkering with the VAT rules.
My question to the Minister is why there is such a lack of ambition in his Government. Is it that this is a fag-end Government in a fag-end Parliament that has run out of ideas, or is it just that they do not care?
Nigel Huddleston
Clause 24 makes further provision for collective money purchase arrangements. CMP arrangements are a new type of pension that have the benefit of pooling individuals’ pension pots to provide better incomes in retirement while limiting the liability of employers.
These changes will enable the Government to authorise the transfer of benefits to a member’s beneficiaries, such as their dependants, in the unlikely event that a member dies while a CMP arrangement is being wound up. That will ensure that such transfers do not incur an unauthorised payment charge of 55%, and it will deliver the Government’s commitment to provide the correct tax outcome for CMP arrangements.
The Pension Schemes Act 2021 introduced legislation to allow collective money purchase schemes to operate in the United Kingdom. This measure authorises the transfer of survivor benefits in collective money purchase pension schemes. This will ensure that Royal Mail Group, the first provider of a collective money purchase pension scheme, can launch its scheme as planned.
It is a complicated title, but with a simple purpose. As a result of these changes, an employee of Royal Mail will be able to sign on to a CMP, with all the benefits, without the risk of transferring survivor benefits being put through as unauthorised transactions. I therefore commend the clause to the Committee.
Tulip Siddiq
This clause is so uncontroversial that we give it our full support. For the first time, I agree with everything the Minister has said, and the Committee will be happy to know that I have no further questions for him.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Interpretation
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I will be very brief, because the clause is fairly straightforward. It provides for the use of abbreviations for a variety of Acts. For example, it provides for the use of “CTA 2009” as an abbreviation for the Corporation Tax Act 2009. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Short title
Question proposed, That the clause stand part of the Bill.
Draft Securitisation (Amendment) Regulations 2024
Tulip Siddiq Excerpts(6 months, 1 week ago)
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Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under you, Madam Chair. I thank the Minister for setting out the purpose of the statutory instrument before us today, which is complementary to the Securitisation Regulations 2024, which we debated in January. We supported those regulations in January and we will be supporting the ones before us today. We feel that these form part of an important package of reform aimed at developing a securitisation market in our country that contributes to growth in the real economy.
I have a couple of questions, which are based on the specific measures introduced by this SI. I welcome the fact that the PRA listened to our objections during its consultations and restored the existing language to do with confidentiality. However, I am sure the Minister will be aware that the sector still has concerns that the existing language creates some uncertainty. Does the Minister share those concerns, and has he raised the matter with the PRA?
Many of the industry’s concerns regarding risk retention and credit granting were not addressed in the current version of the rules, so will the Treasury be working with regulators to ensure that these concerns are taken into account with future policy developments?
Finally, in terms of next steps, which the Minister did outline, the FCA and the PRA expect to consult on further changes to their securitisation rules in Q4 2024 and Q1 2025. How confident is the Minister that these timelines will be met?