Building Societies (Floating Charges and Other Provisions) Order 2016

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 6th June 2016 Lords Chamber

[Lord Lexden (Con)]

My Lords, I have a few comments to make on this order, and I do so as a member of the Joint Committee on Statutory Instruments. Our committee reported this order in draft for defective drafting in our 20th report of the previous Session on 9 March 2016. We did so because Article 6 of the order provided for the amendment of provisions that had been revoked.

It seems clear that the revocation was accidental. In other regulations made last year, the Treasury had intended to make only one or two modest amendments to a financial services order relevant to these matters, but instead it revoked the whole of that order. Since our committee published our 20th report, the Bank of England and Financial Services Act 2016 has received Royal Assent, and Section 37 of that Act reverses the mistaken repeal with retrospective effect. As a result, the defect in the draft order identified by the JCSI has been dealt with, so the way is clear for it to be approved by both Houses and made by the Treasury. Although this story has a happy ending, the fact remains that the statutory instrument was originally laid prematurely and as part of a number of errors by the Treasury.

[Lord Tunnicliffe (Lab)]

My Lords, it is a pleasure again to be debating a Treasury statutory instrument with the Minister. It is an innovation for us to have more than two speakers, and I thank the noble Lord, Lord Lexden, for his contribution. I agree that this is a technical and non-controversial order and, despite the august surroundings of the Chamber, we will not be opposing it.

However, I have two or three questions. From the Minister’s speech, the essence of the problem seems to be that a court can reclassify a charge as a floating charge, thereby making the security void. I do not always understand these orders but this point has completely lost me. If the Minister could take us through it in a little more detail, I would find that useful. The essence seems to be that security becomes void and therefore there are concerns about it.

Secondly, the Minister said that there could be the appointment of a receiver but not of an administrative receiver. I cannot see why there is a distinction between the two types of receiver.

Thirdly, I think the offending area relates to paragraph 4 of Schedule 9 to the 2013 Act, which I understand was commenced on 26 March 2015. Presumably, this problem emerged on commencement. It seems an awfully long time since 26 March 2015, so I ask the Minister why this order was not brought forward earlier.

[Lord Ashton of Hyde]

My Lords, I echo the thanks of the noble Lord, Lord Tunnicliffe, to my noble friend Lord Lexden for adding to our debate today; he probably tripled the amount of time that it would have taken.

I shall be quick. I note my noble friend’s comments. He is right that the JCSI commented on a provision in the statutory instrument that amended another provision in the Scotland Act. I say in parenthesis that Treasury lawyers disagreed with the JCSI on that point, but that is of no matter; as my noble friend said, the Bank of England Act, which the noble Lord, Lord Tunnicliffe, was involved in, corrected that. I pay tribute to the detailed scrutiny that the JCSI carries out on these points but I think we all agree that we can now go forward, thanks to the Bank of England Act.

I turn to the questions from the noble Lord, Lord Tunnicliffe. The floating charge could become void because if there were a legal case—for example, sorting out counterclaims between secured and unsecured creditors—the court could determine that the charge that everyone thought was a fixed charge was in fact a floating charge. Creditors are therefore worried about this because if that were the case—the noble Lord is absolutely right—there would be no secured position if the court had deemed that it was a floating charge, because before March 2015, building societies were not able to create floating charges. Therefore, if the court then decided that it was a floating charge and they were not able to provide them, the creditors would have no secured credit. In a sense, this order does not specifically even allow building societies to create floating charges, although they could; its real purpose is to provide certainty over the fixed charges. I am not saying that building societies will not create floating charges, but that was the main effect and intention behind the order in March 2015.

As regards administrative receivership and the fact that this concerns appointment of a receiver and not of an administrative receiver, that is simply because the Enterprise Act 2002 prohibited companies from appointing an administrative receiver to deal with floating charges. Now that as from May 2015 building societies are allowed to have floating charges, this puts the receivership arrangement on exactly the same footing as the company regime, which is why administrative receivers are prohibited for a floating charge.

The noble Lord, Lord Tunnicliffe, asked why this has taken so long. He is absolutely right that the original order to enable floating charges was commenced in March 2015. The delay between then and today was partly caused by the general election, but quite a lot of intricate work was also required to amend the Building Societies Act by draft affirmative order. This work involved consultation with officials in Northern Ireland and Scotland and clearing the draft with parliamentary counsel and the Joint Committee on Statutory Instruments. When the order was laid in early February, the further delay was caused by the JCSI and its scrutiny, which we all approve of, and it involved waiting for the provision to come into force, rectifying the mistake regarding the Scotland Act, which was dealt with, as I mentioned, by the Bank of England and Financial Services Act 2016. Therefore that is resolved.

Finally, there was an advantage in that the delay gave time for the building societies themselves to amend their constitutions to allow for this to come into effect. Therefore, there was some benefit. That is what happened in just over a year up to this coming into force in March.

This further legislation is required to ensure that the change the Government made last year to allow building societies to create floating charges is effective and helps building societies compete on a level playing field with banks. I hope that the House will join me in supporting this Motion.

Euro: Support for Joining

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 9th May 2016 Lords Chamber

[Lord Ashton of Hyde]

My Lords, I agree with the noble Lord that being a member of the euro and being a member of the EU are two different things. The Prime Minister has negotiated that we will have a special place in Europe, because the decisions of the EU will not depend on whether we are in the euro and we will be protected in the EU although we are not a member of the eurozone.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for his ringing endorsement of Gordon Brown’s leadership. Moving on, surely this debate is bigger than our currency; it is about what being a member of the EU really means. Does he agree that it is vital that over the coming days, we facilitate the broadest ranging debate possible, because it will be in so doing that the benefits of being a member of the EU will be demonstrated beyond doubt?

[Lord Ashton of Hyde]

My Lords, I agree with the noble Lord: there are many things apart from the economics of the situation. Security and safety against terrorism, the science base and many other things, not least our position in the world order, depend on our being in the EU.

Bank of England and Financial Services Bill [HL]

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Tuesday 3rd May 2016 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I, too, have some sympathy with the concern about PEPs. My bank managed to be very surprised that my son had repaid a debt. There is no question that banks have overreacted in this area. In general, banks seem to overreact to regulation. They do not seem properly to understand proportionality at individual level. It reminds one that one does not have a right to a bank account, and suddenly one realises that one would be a non-person without one. So it is right that we look for some protection for politically exposed persons—who could be in a very widespread group.

However, one must not lose sight of the fact that the Panama papers revealed just how widespread money laundering is and how much of it happens among politically exposed persons. As far as I know, no politically exposed person has been revealed in the UK, but in the wider world money laundering is a fact and it feeds terrorism and corruption.

We welcome this amendment as an effort to produce proper proportionality on this subject, but the balance must be maintained—and, just as we must be concerned about PEPs, we must be concerned about potential crime and the maintenance of public confidence in officials.

[Lord Ashton of Hyde]

My Lords, I am grateful to noble Lords who have replied. There seems to be unanimity that this is a serious issue that needs addressing and at least a partial acknowledgement that this is a start. We have accepted this amendment because we acknowledge that there needs to be a sensible approach to this problem.

The noble Lord, Lord Sharkey, mentioned that guidance exists already. In many of my replies to noble Lords, I am going to fall back on the fact that, having begun the process with this amendment, a lot will depend on the consultation about the regulations that we will bring in before 2017. I urge noble Lords to take part in that consultation so that all the points that have been made today and the concerns that people have heard about can be brought into that consultation so that we can get a sensible set of regulations, which this House will be able to look at, in place before 2017.

The noble Lord, Lord Sharkey, mentioned penalties. Again, the degree of penalties will obviously be part of the consultation and will be included in the regulations when they come in due course.

Banks: Unbanked and Underbanked

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 11th April 2016 Lords Chamber

[Lord Ashton of Hyde]

My Lords, underbanked means those who do not have access to the full range of services: people who are unable to access bank accounts in the way that most of your Lordships can.

[Lord Tunnicliffe (Lab)]

My Lords, this is an ongoing example of how the rich get richer and the poor get poorer. I am pleased that the question of what it means has been asked. The Financial Inclusion Commission found that the poverty premium—what it costs if you do not have a proper bank account—is something like £1,300 a year; that an estimated 2 million people took out high-cost loans in 2012 because, unlike us, they were unable to access any other form of credit; and that there is significant indebtedness among people who do not have adequate banking facilities. Can the Minister tell us how many people who have accessed these new, free accounts since they were launched in January will be eligible for universal credit, how many people who are entitled to universal credit still do not have an account and what steps the Government intend to take to ensure that all those who need an account to access funds will have one in time?

[Lord Ashton of Hyde]

My Lords, I tried to say that the whole point is to ensure that everyone who needs access to a bank account can have one. As the noble Lord will know, in the Budget this year the Chancellor designated nine banks under the payment accounts regulations to ensure that they provide access to bank accounts. I do not have all the precise numbers that the noble Lord asked for, but the policy commands support around the House for the view that whether or not you are on universal credit, everyone should have access to the banking system. That is exactly what this has achieved.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 14th March 2016 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, it is a pleasure once again to be in Grand Committee responding to a Treasury order so skilfully presented by the noble Lord, Lord Ashton of Hyde. The instrument is composed of three main issues: the first relates to the regulation of peer-to-peer lending; the second to provisions regarding the EU mortgage credit directive; and the third to clarifications surrounding small business finance. We will not be opposing the order today, but there are a number of questions that I would like to put to the Minister. The majority of my comments will be on peer-to-peer lending, particularly in the light of the recent publication of the FCA discussion paper on this issue, as well as the way in which the Government intend to carry out the commitments they made during the consultation process with peer-to-peer lenders and other interested parties.

From next month, the innovative finance ISA will be introduced for certain types of peer-to-peer lending, and advice to lenders entering into peer-to-peer loans will become a regulated activity. This is a welcome move. As the Financial Services Consumer Panel stated:

“It is important that anyone considering saving in a peer-to-peer ISA understands the risks associated with it, and they should be covered by appropriate levels of protection”.

However, there are questions as to whether or not this advice will be in place by April. The Yorkshire Building Society has estimated that more than 400,000 savers are expected to invest in this field. However, there were questions about the readiness of the financial advice sector to advise on the new products.

At the end of February, the Financial Times reported that the UK’s three biggest lending platforms have not yet been granted their status as fully regulated authorities by the Financial Conduct Authority, despite submitting proposals in October 2015. With only a few weeks before the ISA is introduced, will the Minister update us on how many peer-to-peer lenders have been granted authorisation status?

I turn now to the secondary market and the Financial Services Compensation Scheme. In their response to the consultation, the Government stated that:

“Due to the illiquid nature of peer-to-peer loans and the fact that a secondary market for every loan cannot be guaranteed, the government has decided not to require that investors should be able to withdraw any non-cash investments from the Innovative Finance ISA within 30 days. However, this should not preclude platforms that can facilitate withdrawals via their own secondary market from doing so”.

In the light of this decision, Andy Caton, executive director at Yorkshire Building Society, said:

“It is important that those who opt to invest in the new type of P2P Isa realise how different it is from the existing choices and that they will not receive Financial Services Compensation Scheme protection, access to their money could be difficult if required sooner than expected and, in extreme cases, could lose interest and capital”.

The FCA has declared its intention to consider whether the remit of the Financial Services Compensation Scheme should be extended to include peer-to-peer lending in 2016. Given this, will the Minister clarify the Government’s own opinion on covering peer-to-peer investments through the Financial Services Compensation Scheme? Will he clarify when he understands that the FCA will carry out this review and whether the required advice that this order provides will be extended to the secondary market?

Before turning to mortgage lending, I shall address the issue of set-up and ongoing costs in relation to the innovative finance ISA authorisation. The summary of the consultation document sets out clearly that of those respondents who answered question 1 on set-up costs, the majority predicted that they would have costs of £50,000 or more. These costs would include building the necessary technology platforms and legal advice, as well as costs to fund the ongoing operation through additional staffing and platform maintenance. In response, the Government committed that:

“Where available, further details of the potential costs to businesses of including peer-to-peer loans within ISA will be set out in a Tax Information and Impact Note, to be published alongside draft legislation later this year”.

I note that the only costs to which the Explanatory Memorandum refers are in paragraph 10.2. The Government estimate that there will be a one-off set-up cost of £1,500 and a £2,545 annual cost. Can the Minister explain why the Government’s predicted costing and the industry’s differ so significantly?

The second aspect of the order relates to the EU mortgage credit directive and is due to come into force next Monday, 21 March. As the Minister implied, this is the second order relating to this directive, it having originally been discussed on 19 March 2015. The directive provides for minimum regulatory requirements to protect consumers taking out credit agreements relating to residential property. It also imposes maximum standards on member states, particularly the provision of information in a standardised format for consumers.

As I said last year, these are entirely sensible provisions. However, the reason why we are returning to this issue is because, following engagement with those in the industry, there are a number of areas where legislative change is necessary in order to ensure that the objectives of the directive are achieved. The Government have decided to create a transitional period until 21 March 2017 before first charge mortgages that were entered into before 31 October 2004 and are currently regulated as consumer credit agreements must be regulated as mortgages. It is worth quoting the Financial Services Consumer Panel, which said last year that ahead of full implementation,

“there are challenges for firms in managing the shift to the new regime because of the relatively long sales process for mortgages”.

At the time it was made clear that the Government would consider whether further steps were necessary to smooth the process, so it is encouraging to see that they have done just that. With whom have the Government been engaging in order to come to this decision? Were the relevant stakeholders consulted in the drafting of this order?

Turning to buy-to-let mortgages, these are not generally subject to conduct regulations. However, the EU directive will introduce a new category of consumer buy-to-let lending that will be subject to regulation. Customer buy-to-let mortgages, as opposed to those taken out for business reasons, will be defined as loans for a property that is rented out but not,

“wholly or predominantly for the purposes of a business”.

This would be a family member living in the property, or intending to live in it in the future. Will the Minister go into more detail about how regulators intend to make this distinction between the two? What information will they ask of consumers in order to make this judgment, and how many mortgages do the Government anticipate will be impacted by this provision?

The third matter covered by this order relates to small business lending. The effect of this instrument is to exempt applications from referral to business platforms that are made by a broker instead of directly by a business. It would therefore be the responsibility of the broker to provide advice. How confident is the Minister that this advice will be provided, and do the Government expect this measure to have any impact on the ability of SMEs to access finance in general? As I said at the beginning, we will not oppose this order and are conscious of the implementation deadlines. However, I would be grateful if the Minister would address the issues that I have raised.

[Lord Ashton of Hyde]

My Lords, I thank the noble Lord, Lord Tunnicliffe, for his kind words, his questions and for agreeing to support—or, at least, not oppose—this order. He asked a number of very reasonable questions which I will do my best to answer. He asked how many peer-to-peer lending firms had been granted authorisations. The FCA has authorised seven P2P firms to date, so they will be able to offer the innovative finance ISA, should they wish to do so. The FCA is also currently considering a number of applications for authorisations, both from firms that wish to operate peer-to-peer platforms as well as those currently doing so on the basis of interim positions. It is important to stress that the FCA has a responsibility to authorise only those firms that meet its threshold conditions. It is trying to do so as quickly as possible before the implementation date and has increased the number of people working on these applications. However, it is important that the FCA does not lower standards before the implementation date, given that we hope this provision will last for many years. As I say, the relevant figure to date is seven.

The noble Lord asked whether the P2P loans within the ISA would be protected by the Financial Services Compensation Scheme, and asked for our views on that. Peer-to-peer lending is currently not covered by the Financial Services Compensation Scheme. We want the regulatory framework for this new P2P lending to be proportionate, especially when it is young and growing. It would increase regulatory costs if it was included in the scheme, so at the moment it is not currently considered proportionate to do so. However, the FCA is committed to reviewing that framework in 2016, and during that will consider again whether those P2P loans should be within the remit of the FSCS.

There was a question about the cost on the innovative finance ISA of introducing this scheme. The problem is that the relevant figures do not refer to the same costs. The Explanatory Memorandum refers to set-up costs and FCA fees for firms applying for authorisation to undertake the new regulated activity of providing advice, but the consultation estimate refers to firms intending to offer the IF ISA and includes costs such as setting up the IT infrastructure and hiring additional staff who may be required to offer and run the scheme. We expect that firms which incur those extra costs would benefit from doing so but the decision whether to do that is, of course, a commercial decision for them.

The noble Lord asked with whom the Government have been engaging in the lead-up to the implementation date and whether relevant stakeholders were consulted. The changes today—as the noble Lord mentioned, in some cases the second round of changes—are a result of continuing engagement, and one of the benefits of laying the orders well before the implementation date was to allow us to engage with the industry and regulators. In particular, during that time, we have worked closely with the Council of Mortgage Lenders and, obviously, the FCA itself.

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[Lord Tunnicliffe]

Did the regulator provide any advice to firms?

[Lord Ashton of Hyde]

I will have to come back to the noble Lord on that in due course, when I have got some advice myself.

On the number of mortgages that the Government anticipate will be impacted by these new provisions for buy-to-let lending, the introduction of the regulatory regime for consumer buy to let will not affect the vast majority of buy-to-let loans because they are predominantly taken out for business purposes. The impact assessment suggests that 11% of buy-to-let loans will be subject to this new regulatory framework. Based on the level of buy-to-let lending in 2015, this would equate to around 28,000 transactions. My advice is that I will have to write—I could have said that myself.

The last question that the noble Lord asked related to the last item that this order introduced in connection with the Small and Medium Sized Business (Finance Platforms) Regulations, which ensures that an unsuccessful application for finance made by brokers on behalf of small business is out of the scope of the regulations. That means that they do not need to be referred to finance platforms. The point here is that the business that is seeking alternative finance—not just from the big lenders—is already using a broker, who is able to advise on alternative sources of finance. The broker fulfils a role analogous to the finance platform and, of course, is incentivised to provide that advice and seek alternative sources of finance. We feel that nothing would be gained by requiring a bank to refer a failed application to the broker, so the Government do not feel that this will impact the amount of advice on alternative finance available, which they have increased by the finance platforms regulations.

I think that I have answered most of the questions, except whether the regulator provides advice, on which I will write to the noble Lord. Based on his helpful comments, I ask the Committee to join me in supporting this statutory instrument today.

Employment Allowance (Increase of Maximum Amount) Regulations 2016

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Wednesday 2nd March 2016 Grand Committee

[Lord Ashton of Hyde (Con)]

My Lords, I am pleased to introduce the Employment Allowance (Increase of Maximum Amount) Regulations 2016, the Employment Allowance (Excluded Companies) Regulations 2016 and the Social Security (Contributions) (Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2016. As all three sets of regulations deal with national insurance contributions, it seems sensible that they should, with the leave of the Committee, all be debated together.

The substance of the two instruments concerning the employment allowance was announced at the Chancellor’s summer Budget on 8 July last year. The NICs rates and thresholds for the 2016-17 tax year were announced as part of the Chancellor’s Autumn Statement on 25 November.

I will start with the Employment Allowance (Increase of Maximum Amount) Regulations 2016. The Government are committed to supporting businesses which want to expand their workforce. To that end, the employment allowance was first announced at Budget 2013 as a reduction of up to £2,000 a year for eligible businesses and charities on their employer NICs bill. In the year 2015-16, the allowance has benefitted almost 1.2 million employers, helping to cut the cost of employment in the UK. These regulations increase the employment allowance to £3,000 from 6 April 2016. The increase will further support businesses and charities to enable them to grow. As a result of this increase, 90,000 more employers will be taken out of employer NICs altogether. It also means that firms will be able to employ four workers full-time on the new national living wage next year without paying any employer NICs.

The Employment Allowance (Excluded Companies) Regulations 2016 focus the employment allowance on companies that support employment. As announced at summer Budget 2015, these regulations mean that limited companies where the director is the sole paid employee will no longer be able to claim the allowance from April 2016. This ensures that the allowance is focused where it should be, on its original objective of supporting businesses with the costs of employment. HMRC anticipates that there still will be around 1 million employers who will benefit from the employment allowance next tax year, taking this measure into account.

Lastly, I turn to the Social Security (Contributions) (Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2016. As you may be aware, these regulations contain some technical detail, so I hope noble Lords will bear with me while I explain their content. The consumer prices index rate of inflation is the basis of indexation for most of the national insurance contribution limits and thresholds. The CPI rate of inflation was minus 0.1% in the year to September 2015. As a result, not all of the national insurance contribution limits and thresholds will need to be changed for the 2016-17 tax year. The exceptions to this are the upper earnings limit, the upper secondary threshold, the upper profits limit and the new apprentice upper secondary threshold.

I start with the upper earnings limit, which is the level of earnings at which employees begin to pay class 1 national insurance contributions at the additional percentage rate. It is aligned with the point at which the higher tax rate is paid. From this April, the income tax personal allowance will increase above indexation from £10,600 to £11,000 and the point at which the higher tax rate is payable will increase from £42,385 to £43,000 in the 2016-17 tax year. The upper earnings limit will be increased from £815 to £827 per week from 6 April 2016 to maintain this alignment.

The upper secondary threshold is the level below which employers are entitled to a 0% rate of national insurance contributions on the earnings of employees under the age of 21. Since it was introduced in April last year, the zero-rate earnings band for employees under 21 has supported the jobs of more than 1.5 million young people. The UST will continue to be aligned with the upper earnings limit and will also be set at £827 per week from 6 April 2016.

From April this year, employers will also be entitled to a reduction in secondary class 1 NICs on the earnings of eligible apprentices under the age of 25. This will reduce the cost to employers of providing apprenticeships for young people. The new apprentice upper secondary threshold will be the level below which employers are entitled to a 0% rate of NICs on the earnings of relevant apprentices. Like the UST, it will be aligned with the upper earnings limit, and so it will be set at £827 per week from 6 April 2016.

Moving on to the self-employed, these regulations also set the upper profits limit for class 4 contribution liability. The upper profits limit is the level of profits below which the self-employed pay the main class 4 percentage rate of NICs on profits above the lower profits limit. The UPL also will rise to maintain alignment with the level at which the higher rate of income tax is payable—to £43,000 for the 2016-2017 tax year. These regulations also set the prescribed equivalents of thresholds and limits I have mentioned for employees paid monthly or annually.

In the 2016-17 tax year, employers will continue to pay contributions at 13.8% on earnings above the secondary threshold. Employees will continue to pay 12% on earnings between the primary threshold and the upper earnings limit, and 2% on earnings above that. This is in line with the commitment the Government made in the National Insurance Contributions (Rate Ceilings) Act 2015 to provide certainty for businesses and employees by locking in the main rates of class 1 NICs for the duration of this Parliament.

Finally, to ensure that the National Insurance Fund can maintain a working balance throughout the coming year—which the Government Actuary recommends should be one-sixth of benefit expenditure for the year—these regulations provide for a Treasury grant of up to 5% of benefit expenditure to be made available to the National Insurance Fund in the 2016-17 tax year. A similar provision also will be made in respect of the Northern Ireland National Insurance Fund.

I commend the draft Social Security (Contributions) (Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2016, the Employment Allowance (Excluded Companies) Regulations 2016 and the Employment Allowance (Increase of Maximum Amount) Regulations 2016 to the Committee.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing these regulations this afternoon. As he has outlined, there are three separate instruments before us today. I will start by addressing the two on the employment allowance before turning to national insurance limits and thresholds. The Opposition will not oppose any of the measures, but I will put a number of questions and clarifying points to the Minister.

Labour is committed to stimulating employment growth and in particular supporting SMEs, and therefore from the outset we have been behind the intent of the employment allowance. That said, it is not clear whether the policy is having the intended impact. The main reason stated by the Government for these changes is to make the employment allowance more focused on businesses that create and sustain employment, ensuring that the employment allowance is better targeted on employers who may take on additional staff, and so supports the objective of supporting employment. However, as the Chief Secretary to the Treasury openly admitted, there is a particular problem when it comes to,

“assessing how many jobs are created as a result of the allowance, because of the inherent complexity in that matter”—[Official Report, Commons, National Insurance Bill Committee, 21/11/13; col. 58].

Given the Government’s stated purpose, it is not at all unreasonable for us to judge the success of this policy against the number of people it enables SMEs to employ. However, due to the apparent impossibility of collecting the necessary data, how would we know? How can the allowance be targeted on particular gaps in small business employment if we do not know who is and who is not using the allowance to take on more staff? Indeed, according to the employment allowance impact report, only 34% of those surveyed stated that they planned to use the allowance to take on additional staff. The majority said that the money would be absorbed into the general revenues and expenditure of the business.

Increasing the allowance by £1,000 to mitigate the increased cost of the national minimum wage seems perfectly reasonable. However, can the Minister go into some more detail about the impetus behind the exclusion of sole-director companies? What were the reasons why further exemptions were felt appropriate? Can the Minister when responding make particular reference to whether the evidence of tax avoidance had encouraged the Government to respond in this fashion?

As I stated at the beginning, we support the measures, but perhaps it will be appropriate to offer a word or two of caution. In the report Awareness and Impact of the Employment Allowance–Research with Small Employers, the main reason for businesses not claiming the allowance was concerns around eligibility. Does the Minister anticipate whether further exemptions will be added? If so, the Government ought to be aware of the confusion that already exists among employers about who is eligible. It is also worrying that the understanding of the rollover mechanism built into the legislation is lower still. Does the Minister not agree that producing policy with the intent of easing the burden on SMEs can only be as effective as the knowledge of those whom the policy impacts? Without this, the efficiencies that the Government are making are pointless.

I turn to some of the specifics about the regulations themselves. The consultation was held for five and a half weeks, between 26 November 2015 and 3 January 2016. Why was the period so short? The Chancellor announced these measures in his summer Budget; surely consultation could have commenced during the Summer Recess?

A more significant point is that HMRC has not published a summary of the responses to the consultation in question. Its publication would be of value—I would be interested to see, for example, whether contributions were made by those who had started their own business and claimed the employment allowance, and what they believed the impact of the proposed restriction of the allowance to companies with a single director would have had on the ability to establish their company. Can the Minister say whether there are any such examples? Could he give a commitment to publish the consultation and place it in the Libraries of both Houses? Given the acknowledgment that data collection on, and analysis of, the employment allowance is difficult to come by, any information gathered on the issue would be of considerable value.

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[Lord Ashton of Hyde]

My Lords, I thank the noble Lord for his questions and above all for his party’s support for these regulations, which I believe was also given last year. When I have answered some of the questions, I think he may feel even happier about providing that support.

The noble Lord asked whether the employment allowance achieved its intended purpose of supporting employment, given that the impact report stated that only 34% of those surveyed planned to take on more staff. The aim of the employment allowance is of course to support businesses and help them to grow by reducing the cost of employment. Statistics published by HMRC at the end of October 2015 show that 1.17 million employers have had their employment costs reduced by the employment allowance. Of course, it is up to individual businesses to decide how best to use these savings. The latest research from the Federation of Small Businesses suggests that 29% of small businesses will use the savings to boost staff wages, 28% will employ additional staff and 24% will invest resources. However, this is one of a suite of measures and, as I said, it is up to them how to use the allowance.

The noble Lord made a point about information and asked how we can target the employment allowance to specific gaps in small business employment if we do not have the data about who is using it. There are already positive indications to suggest that employment allowance is being widely claimed by the small business community. The impact report states that nearly seven in 10 eligible businesses with fewer than 50 employees are claiming the allowance. That report was compiled when the scheme had been running for less than a year. Since then, figures show that 1.17 million employers have benefited and, at the moment, 98% of the benefit of the allowance goes to small and medium-sized businesses—by which I mean those with fewer than 250 employees.

I turn to the regulations on excluding single-director companies from employment allowance. The impetus, as the noble Lord put it, behind these is to reinforce the objective of the allowance as a means to support wider employment and to help to ensure that it is focused on reducing the cost to companies of expanding their workforce or taking on their first employee.

On the question of eligibility for the allowance, whether further exemptions will be added to it and potential confusion from the changes, the report on awareness and impact on employment that the noble Lord cited was published last July and represents a snapshot of the research carried out between November 2014 and January 2015. Since then, the Government have published take-up figures and, at the end of 2014-15, the take-up rate stood at 89%—a quite substantial improvement—with more than 1 million employers claiming the allowance. As I mentioned, the mid-year estimate was 1.17 million employers. We are encouraged by those statistics and think that the early concerns set out in the report have eased with the passage of time, but, of course, the Government continue to monitor the effectiveness of employment allowance and its contribution to wider government aims.

The noble Lord asked why the technical consultation on single-director companies was so short. In fact, the tax consultation framework sets out that the consultation period for this sort of secondary legislation is four weeks, and this consultation was a bit longer, at five and a half weeks, because of the Christmas break. It was closed in early January to enable the measure to come into effect in April, as announced. As for a summary of the responses to the consultation on the single-director company measures, paragraph 8.1 of the Explanatory Memorandum provides a short summary of the comments made in response. It was quite short, and we have no plans to extend that because the essence of the replies is contained in that short summary.

The noble Lord asked, in relation to the paragraph in the Explanatory Memorandum on the technical consultation on excluded companies, whether the responses to the consultation informed the action taken to assist small businesses. That paragraph relates to the technical consultation. The responses to the consultation were useful in assisting HMRC to write the guidance for the measure, which will be published in due course on the government website GOV.UK.

The territorial application was mentioned. I can confirm that all these measures will apply to the whole of the United Kingdom, as set out in paragraphs 5.1 and 5.2 of the Explanatory Memorandum on the employment allowance changes. The paragraph that the noble Lord cited was included in relation to all the SIs to assist the Speaker in the other place by drawing attention to the fact that the instrument does not need to be certified for the purposes of the English votes procedures in the other place.

There was slight confusion about the Government increasing the upper earnings limit, meaning that employees have to pay more national insurance contributions on their earnings. The proposed increase in the upper earnings limit will maintain the alignment with the point at which the higher tax rate is paid. This will increase to £43,000 next year, which is slightly above inflation. At the lower end, the CPI rate of inflation, as I mentioned in my opening remarks, has been minus 0.1%, so those rates have been frozen. That is consistent with the approach taken in the past when the retail prices index was negative, which led to the thresholds being frozen for the 2010-11 tax year.

[Lord Tunnicliffe]

I may have suffered from a touch of brain fade, but did the noble Lord respond to my question about the extent to which tax avoidance had been a feature in the single-director exclusion?

[Lord Ashton of Hyde]

I did not, or at least I did in the sense that I made the point that it was focused on helping businesses to employ people. This brought it in line with the original policy, so I made it into a positive point and I did not specifically mention avoidance. However, we think that overall, in line with the policy, it is right to focus it on creating employment.

The new policy on apprenticeships starting in April will involve the abolition of the class 1 national insurance contributions for young apprentices under the age of 25. That will obviously reduce the cost of employing an apprentice, which is part of the Government’s strategy to support high-quality apprenticeships. It is part of a wider strategy, which will also introduce the UK-wide levy on employers with pay bills over £3 million to fund the step change needed in apprenticeship starts and help to achieve the 3 million apprenticeship starts this Parliament, which is part of our policy.

I was asked how many people will be affected by the under-25 national insurance relief. The impact assessment published with the regulations notes that an estimated 180,000 employers offer apprenticeships in the UK and are likely to benefit from this measure. The BIS apprenticeship data in England for the 2013-14 academic year show that around 500,000 apprentices under the age of 25 were employed throughout the country. HMRC estimates that there are around 130,000 apprentices in England aged 21 to 24. This group will be directly affected by this measure, with those under 21 already benefiting from the zero NIC rate since April 2015.

I think that I have dealt with most of the questions. Of course, if I have not covered them all, I will certainly look through the record of the noble Lord’s speech and write to him. I repeat that I am grateful to him for his support and I commend these regulations to the Committee.

Andrey Lugovoy and Dmitri Kovtun Freezing Order 2016

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Wednesday 10th February 2016 Grand Committee

[Lord Tunnicliffe (Lab)]

As the Minister has outlined, this instrument creates a freezing order that prohibits persons from making funds available to or for the benefit of Andrey Lugovoy and Dmitri Kovtun.

The Home Secretary stated her intention to pursue this course of action in response to the publication of the report by Sir Robert Owen into the death of Alexander Litvinenko. The report, which was published last month, confirmed that Andrey Lugovoy and Dmitri Kovtun were responsible for the death of Alexander Litvinenko, a British citizen, and that it was sanctioned by the Russian state at its highest level. It was an unparalleled act of state-sponsored terrorism and, as my right honourable friend Andy Burnham, the shadow Home Secretary, made clear in the other place, we welcome the measures that the Home Secretary announced in response to the findings. We therefore fully support this order today.

The conclusions could not have been more clear or harrowing. While we fully back the order, as the Minister might expect I have a number of questions about its specifics and how it relates to what the Home Secretary said last month, particularly with regard to whether further asset freezing is being considered.

I have some specific questions about the order itself. Given the nature and necessity for it to be produced as quickly as possible, it is completely reasonable that no consultation or impact assessment was carried out. However, I have questions about the process of the review that this instrument is required to go through in accordance with the Anti-terrorism, Crime and Security Act 2001. Paragraph 12.1 on page 3 of the Explanatory Notes states that the Treasury is obliged to keep the freezing order, and therefore the instrument, under review. What form will these reviews take, and how frequently will they take place? Will they be subject to parliamentary scrutiny? In relation to that, can the Minister go into more detail about whether this order is indefinite or subject to an expiry date? What conditions will it be subject to?

The order requires that the Treasury gives notice to those whom it is directed against. Is the Minister able to tell us whether either of the individuals in question have made representations to a member of the Government regarding this order?

On a technical point, paragraph 3.3 of the Explanatory Notes explains that, disregarding minor or consequential changes, the territorial application of this instrument includes Scotland and Northern Ireland. Will the Minister set out what these minor and consequential changes are and whether they will have implications for the policy outcome?

I turn to wider concerns and how they relate to this order. I note that the Home Secretary said in her Statement in the other place:

“I have written to the Director of Public Prosecutions this morning asking her to consider whether any further action should be taken, in terms of both extradition and freezing criminal assets”.—[Official Report, Commons, 21/1/16; col. 1570.]

This is of particular importance because, as Sir Robert’s report confirmed that no individual committed these crimes alone, a network of people have known about and facilitated this crime. We understand that Mrs Litvinenko has also prepared a list of names to be submitted to the Government of people who have aided and abetted the perpetrators, against whom she believes sanctions should be taken. What further asset freezing is the Home Secretary considering and what legislation, secondary or otherwise, would be required? Are these asset freezes being considered for other named individuals besides Andrey Lugovoy and Dmitri Kovtun?

The Explanatory Notes mention the risks relating to asset flight. Has there been any suggestion of asset flight since the publication of Sir Robert’s report on 21 January, and noon 22 January, when this order retrospectively applies from?

Finally, we welcome the Home Secretary’s announcement that Interpol notices and European arrest warrants are in place. However, given that these two individuals are reported to be travelling, can the Minister say whether the Government are working with all EU, NATO and Commonwealth allies and asking for immediate co-operation not only on whether they are prepared to take similar action to that outlined this afternoon but also on extradition?

I appreciate that the Minister may have to consult his colleagues in the Home Office on some of these points so may not have all these answers to hand today. If this is the case, I would appreciate it if he would write to me. The far-reaching implications of the report’s findings cannot be overstated and clearly more work needs to be done to deliver justice, which may or may not include further asset freezing. I reiterate that we are committed to working with the Government to bring this about, and end by saying once again that the Opposition completely support this order.

[Lord Ashton of Hyde]

My Lords, I thank the noble Lord for his general support for this order. I will do my best to answer his questions. I am glad that he supports the order; I do not look forward to answering his questions when he does not support an order.

As I set out in my opening remarks, the Government take the conclusions of this inquiry very seriously. While the inquiry’s finding of probable state-sponsorship of Mr Litvinenko’s death comes as no surprise, we are determined to demonstrate that we will take action to deter those who threaten our national security and the rule of law. National security is of great importance to us all, and any attempt to undermine it must be met with a carefully considered and proportionate response.

I turn to some of the questions that the noble Lord asked. To start with, he asked a very reasonable question about the Explanatory Memorandum stating that we have to keep the freezing order under review. Under the Anti-terrorism, Crime and Security Act, the Treasury is required to keep under review whether the measure should be kept in force or amended. We will continue to monitor the information we have and will take any further action should the situation develop. However, the freezing order will lapse two years after it was made, as set out in Section 8 of the 2001 Act. We will continue to monitor the evidence, and if the order is still in force after two years, we will consider at that point whether it is necessary and proportionate to make a new order.

--- Later in debate ---

[Lord Tunnicliffe]

One question the noble Lord does not seem to have answered is whether other individuals implicated in the case are being considered for freezing orders. Perhaps his quite numerous team have the answer to that question between them.

[Lord Ashton of Hyde]

As the noble Lord may know, Mrs Litvinenko’s lawyers provided a list of people who she felt should have further action taken against them. Some are members of the Russian authorities who are already under sanctions relating to Crimea and activities in Ukraine. The rest of the list is being considered by the Home Secretary, but so far no action has been decided upon.

I believe that I have answered all the questions. We think that an order under the Anti-terrorism, Crime and Security Act is an appropriate way to send a clear message, and we believe that both of the tests required under the Act to make this order have clearly been met. I am grateful for the contributions from noble Lords, and I commend the order to the Committee.

Payment Accounts Regulations 2015

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 7th December 2015 Grand Committee

[Lord Ashton of Hyde]

My Lords, once again, I thank the noble Lord, Lord Tunnicliffe, for his support and in-depth scrutiny of these rather extensive regulations. I will try to answer as many of his questions as possible.

The noble Lord felt some joy over my remarks. I am always anxious to give noble Lords as much joy as I can—and hope I always do so. However, in this case I will disappoint the noble Lord a bit. We do not think that these regulations have been gold-plated, if by gold-plating we mean making the regulations more onerous than they need to be, either by commission or omission. We used the latitude available to the UK within the directive to maintain existing policies on financial inclusion, such as on fees. For example, the directive allows banks to charge reasonable fees for basic bank accounts but we are not doing that because the existing agreement does not do it and so it would be to consumers’ detriment. We are using the flexibility not to do that.

We could have required all banks to offer basic bank accounts, but we chose not to do that because we want to maintain access to basic bank accounts for UK customers without discouraging newer, smaller entrants. That point has been raised in other debates. We welcome competition in banking and want to help challenger banks. I am glad to say that at the moment 25 are applying for licences. We want to limit the impact on the industry wherever possible.

The noble Lord asked what types of firm, other than banks and building societies, might be within the scope of these regulations. We want to minimise any negative impact. The directive allows member states to exempt certain entities from the application of all or part of its provisions, so we have used that flexibility where organisations offer some form of payment service, such as for credit unions, municipal banks, National Savings and the Bank of England. Ultimately, it will be for firms themselves to determine whether each of the accounts they offer falls within the scope of the regulations and whether the regulations therefore apply to them. We have been as clear as we can within the directive to determine what payment accounts are covered, but we have used the recitals to explain some of the accounts that are excluded, and broadly, the Government’s view is that current accounts or any other account that is used for normal day-to-day payment purposes are covered.

[Lord Tunnicliffe]

What would be the process if a firm made a misdetermination of an account? In other words, if it took a view that a particular product was not covered by the regulations but the correct interpretation of the regulations would be that it should be, what process would come into play to require that firm to correct that decision?

[Lord Ashton of Hyde]

The competent regulator is the Financial Conduct Authority. Ultimately, enforcement action could apply, but in the normal course of dealings, particularly with new regulations, I would expect a conversation to take place with the regulator if there was any doubt. For the vast majority of current accounts, it will be straightforward, but if there were a grey area around the edges, I would expect a sensible conversation to take place with the FCA. In the normal course of events, banks and other financial institutions are required to have an ongoing relationship with their regulator. I would expect that to apply unless something serious went wrong, in which case enforcement action could take place.

Action to comply with the payment accounts directive will certainly not prevent the UK pressing ahead with domestic initiatives to improve competition in banking, provided that the initiatives remain consistent with the regulations. The CMA’s provisional findings, which were published at the end of October, still need to be consulted on. It will issue its final report next spring, and the Government stand ready to take action as appropriate once we have those final recommendations.

I turn to packaged accounts, which also offer separate services such as car insurance, breakdown insurance or something like that. The consultation the Government produced set out the Government’s intended approach to packaged accounts in the draft regulations, which firms scrutinised and commented on. After these regulations have been made, if they are agreed to, the FCA will also consult in the usual manner on any changes to its handbook that it considers necessary to give effect to those regulations, including on packaged accounts.

In addition to its public consultation, the FCA will continue to engage with relevant industry stakeholders to discuss the implementation of the measures, including the extent to which services and their terms and conditions need to be identical to be caught.

The noble Lord referred to the Money Advice Service and asked when the comparison website that it has to set up will be ready. The comparison website will need to use, where applicable, the terms set out in the linked services list. We expect the final list to be published by the FCA during the first half of 2017, once the EU-wide standardised terms and definitions have been adopted by the European Commission. Although the Money Advice Service may choose to set up the website sooner, there is no obligation for it to do so until six months after the FCA publishes the final linked services list.

Disclosure of Exporter Information Regulations 2015

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 7th December 2015 Grand Committee

[Lord Ashton of Hyde (Con)]

My Lords, these regulations, which were laid before both Houses of Parliament on 17 November this year, seek to allow Her Majesty’s Revenue and Customs to disclose a limited set of information relating to individual UK exporters and the goods they export. The following information will, I hope, help noble Lords to place this in context.

This legislation promotes the Government’s growth agenda and their efforts to support both UK exporters and small businesses in the UK. It is also in line with the Government’s open data strategy. This seeks to place as much relevant data into the public domain as is reasonable and to reuse collected data for more than one purpose where it is efficient to do so.

By bringing accurate, reliable information about exporters and their products into a single, easily accessible place, the regulations will enable those who provide export services to identify their customers and make it easier for foreign buyers to identify UK suppliers and buy their products. It will also help to increase the export potential of small businesses.

The information to be disclosed will be limited to the following items: business name and address; a code to identify the types of goods exported, known as the “commodity code”; a description of the goods covered by the commodity code in question; and the month and year of export. Similar information in relation to importers has been available to the public for many years, and this measure seeks to bring exporter information into line with that.

The information originates from customs declarations made to HMRC at the time the goods are exported and will be made available via a unique HMRC website called uktradeinfo.com. There will be no charge for accessing it. The same legal disclosure standards relating to importer information will be applied and the same website will be used to disclose the information. Commercial confidentiality will be protected to avoid disclosure when fewer than three exporters export goods under the same commodity code in the same month. Again, this mirrors the arrangement in place for importers. Information relating to the export of sensitive or strategic goods will similarly be protected from disclosure. Again, this mirrors what is already in place for importers. At present, importers may write to HMRC to request removal or opt-out from the disclosure of importers details. HMRC plans to match this opt-out facility for exporters. The opt-out will not be granted automatically. Consideration will be given when the exporter feels disclosure may compromise them or their business interests. This measure was subject to a formal consultation; out of a total of 15 responses, five respondents expressed concerns over disclosure of their information. The measures that I have set out will provide adequate safeguards against such unwanted disclosure. I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the noble Lord for introducing this order so thoroughly and informatively. The draft Disclosure of Exporter Information Regulations permit the sharing of certain information on exports for use by both the public and private sectors. We will not oppose these regulations today as we want a more productive and effective export system, but the Minister will not be surprised to hear that I have a number of questions and points of clarification, which I hope he will be able to address in his closing remarks.

HMRC has previously not been allowed to share this information publicly. However, the Small Business, Enterprise and Employment Act 2015 provided it with a power to make these regulations and it authorises the disclosure of specific data in relation to the export of goods. The categories of information are: a business’s name and address; commodity code; description of the commodity code covering the goods; and the month and year of export. Can the Minister explain the criteria for why these areas of information were chosen and what information was ruled out of being made available?

A separate but related point concerns the issue of confidentiality. What measures are in place to ensure that the confidentiality of data is maintained? We have seen in recent months that the UK is susceptible to online breaches, so I am sure that businesses would be grateful for any reassurances that the Government can give. Furthermore, do the Government have any means of putting at ease the concerns raised by one respondent that publishing details would lead to them receiving unwanted marketing mail?

Any measures that could help to improve Britain’s export market are welcome. The latest figures show that these efforts are sorely needed. Last year, the number of UK companies who sell their goods and services abroad fell. Yet in 2011, the Prime Minister said that he intended to increase the number of UK exports by the end of the decade. Are we on course to meet those targets? According to the British Chambers of Commerce, at the present rate of progress it will take until 2034 to double exports. Who does the Minister think is more accurate—the Prime Minister or the British Chambers of Commerce?

A clear area where improvement can be made—extremely apt since this past weekend was Small Business Saturday—is in supporting small businesses access the export market. While more than 40% of larger companies are exporters, only one in 10 small businesses sell their goods and services abroad. How will the regulations we are debating today assist, in particular, SMEs?

Turning to some of the specifics, it will be possible for exporters to opt out of the publication of this information by contacting HMRC. Have the Government an indication of how many businesses will opt out of the disclosure of information? Further, what criteria will the Government or HMRC use to judge whether an opt-out request is valid other than whether an exporter is moving goods of a nature which might give rise to security concerns?

There is no specific time or date at which the Government will review this policy. It seems that the first review should certainly be conducted swiftly to assess and evaluate the take-up. All this, of course, will mean more work for HMRC, at a time when its budget is being cut by 18%. It will make a hard job even harder.

Finally, I will briefly mention the consultation. I would like to put on record how grateful I am to the Delegated Powers and Regulatory Reform Committee for the additional information that it provided from HMRC about the Government’s consultation and for the more detailed analysis. The consultation ran from June to September last year and during this time the Government received 15 responses. Of those, only five were from businesses. Does the Minister really believe that this small number is enough to gauge public opinion? I look forward to his response.

[Lord Ashton of Hyde]

My Lords, I thank the noble Lord, Lord Tunnicliffe, for his support and for his interesting questions. I will answer them as well as I can, perhaps with a little help from my friends, but I may need to write to him about some of them.

On the areas chosen for inclusion on the website, these were selected following discussion with the Cabinet Office and they mirror the information that is currently published in respect of importers. Any more than that would allow confidential details of values, markets and customers to be transparent and would put HMRC at odds with other legal obligations towards data protection.

The noble Lord asked about confidentiality and the measures in place to ensure it, which, of course, is extremely important. Again—this will be a recurring theme—the same safeguards are in place as for the website for importers, which have been in place for 25 years. A lot of these features are merely replicating—

[Lord Tunnicliffe]

The noble Lord will allow that in 25 years the cyberworld has changed a little.

[Lord Ashton of Hyde]

I understand that and am not suggesting that it is as it was 25 years ago. I am merely saying that the importer system has been in place for 25 years and has been operating well, as I will show in a minute.

We will not publish things like national strategically sensitive data, such as data about armaments exporters and their products, or commercially sensitive data. For example, we will not publish data where there are only a small number of exporters of a given product and actual levels of trade could be identified or deduced. There is also the opt-out, which is possible for those exporters not covered by the exceptions I have mentioned. They will be able to ask HMRC to opt out in the same way that importers can. As far as online breaches are concerned, the idea of the website is to let people see this limited amount of information. We want them to see it.

The noble Lord mentioned unwanted marketing mail. We are not disclosing email addresses, although we will include a mail address. It is possible that some marketing mail will be received as a consequence of this development but, of course, part of the reason for introducing this measure is to help exporters market their goods to a wider audience.

The noble Lord talked about exports. The export target set by the Prime Minister for 2020 was ambitious and it remains so. We are one of the most open economies in the world so external weakness, particularly in our biggest export market, Europe, does reduce demand. The slowdown in world trade is expected to continue, resulting in the OBR forecasting a weaker outlook for UK export markets. We still think it is right to set a stretching ambition that will motivate us all to do everything possible. This is one small part of the strategy to help encourage exports.

Small and Medium Sized Business (Credit Information) Regulations 2015

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 23rd November 2015 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for his clear and thorough presentation of these two sets of regulations. As he outlined, these two statutory instruments will help small and medium-sized businesses access finance. The first instrument concerns the information available to finance providers of SMEs where the SME in question has given permission. SME lenders above a certain market share threshold will be required to share credit data on their SME customers with credit reference agencies for the purpose of credit scoring. CRAs will also be required to ensure that there is equal access to this data for alternative credit providers.

The second instrument addresses SMEs’ ability to access the finance they need in order to start and sustain their business models. The orders would require designated banks to refer details of SME applicants who are turned down for finance, with the SME’s permission, to private sector platforms that will facilitate contact with alternative finance providers that are looking to offer finance. The intent of both these measures is to ensure that the process behind SME lending is easier and that the present barriers experienced by many SMEs are removed. These are principles which the Labour Party wholeheartedly supports. The Federation of Small Businesses states that small firms account for 99.3% of all private sector business in the UK. They employ 15.6 million people and have a combined turnover of £1.75 trillion. The country’s economic success depends on small businesses thriving.

Given this, as my honourable friend Rob Marris said in the other place, we will not oppose these orders. That said, there are still a number of points that I would like to raise which I hope the Minister can clarify in his response. In 2012, the Breedon task force stated that the Government have a role to play in encouraging lending,

“through the disclosure of data that sits within public bodies.”

Can the Minister outline what the Government have done in the intervening three years to play their role? For example, did they encourage RBS and Lloyds Bank to lend particularly to SMEs? As has already been outlined, the first statutory instrument relates to the need to make credit information on SMEs more accessible. Can the Minister indicate what greater data sharing banks have done with non-bank providers? Are there examples of best practice that can be followed and will these be included in the implementation guide? The Explanatory Memorandum states that an implementation document will be produced; can the Minister set out a timeline for its introduction?

Turning explicitly to the finance platforms instrument, in section 10 of the Explanatory Memorandum the Government state:

“It has not been possible to monetise many of the benefits of this measure”.

Yet the impact assessment dedicates two pages to setting out the benefits for small businesses, saying that, applying these averages across the 25,500 successful businesses seeking loans from alternative providers via platforms suggest that this policy could increase the supply of credit to SMEs by approximately £1.4 billion. I ask the Minister very simply: which one is it? The Government can either provide monetised estimates or not; they cannot do both. I would be grateful for some clarification.

I would like to make a final point specially relating to these measures concerning credit reference agencies—CRAs. During the debate in the other place, the Financial Secretary to the Treasury said:

“The Government have not yet announced which CRAs or finance platforms will be designated under the draft regulations. The British Business Bank is currently undertaking a due diligence process on CRAs and finance platforms that have expressed an interest in becoming designated, and it will advise the Treasury on designation later in the autumn. The due diligence process will ensure that any designated CRA or finance platform has the required systems and processes to ensure that the obligations and policies within the draft regulations can be carried out, while providing the necessary protections for SMEs. That help will ensure that these policies are successful and have a significant positive impact on the SME lending market”.—[Official Report, Commons, Third Delegated Legislation Committee, 5/11/15; col. 6.]

While I accept that the necessary due diligence has to be carried out, it is regrettable that these regulations were introduced before a decision on the CRAs had been made. There may be a perfectly reasonable explanation, and I would be grateful if the Minister could say something more on this. Does he not think that a more informed and constructive debate could have taken place if we had had ready access to information about who the credit agencies are going to be? Finally, can the Minister say when he expects a full list of the CRAs and finance platforms to be available and whether further regulations will be required?

It is also up to CRAs, as I understand it, to apply to be designated under the credit information regulations. Will the Minister explain to the Committee the Government’s thinking on why that will not be compulsory? As I have already said, we support any attempts by the Government to make the life of small businesses easier, and that is why we are not opposing these instruments. They do, however, deal very much with the start of a small business’s life and, in ending, I would like to ask the Minister about the other end of the spectrum, which is of course inextricably connected.

Does the Minister not agree that, while it is all well and good enabling the start-up of more SMEs, this means very little in the long term if they are not sustainable because so many are held back by late payments? The Government are not doing nearly enough to compel larger businesses to pay their smaller counterparts. Does the Minister not agree that we need to promote a culture of prompt payment and that the Prompt Payment Code just does not go far enough? The Government need to start legislating to create these obligations, rather than expecting things to change by sticking to the status quo.

The SME access to finance study found that two-fifths, or 43%, of businesses say that they are concerned or very concerned about cash flow over the next 12 months, but their biggest problem, experienced by a quarter of SMEs, is late and failed payments from customers. Seventy per cent of small businesses do not grow—they remain small businesses—so, for the sake of their sustainability, it is vital that we get this right.

These are issues which we will be addressing in the Enterprise Bill. However, I would appreciate it if the Minister would respond to the points that I have made —if not now then in writing after the Committee.

[Lord Ashton of Hyde]

My Lords, I thank the noble Lord for his support for these regulations and I shall try to answer the questions that he asked. If I find that I cannot answer any of them in great detail, I shall be very happy to write to him.

I think that these draft regulations will generate a step change in the market for SME finance in terms of competition that could improve not only the amount of finance available to SMEs but also the cost and quality of services that small firms are offered. As I said in my opening remarks, a large body of evidence shows that there are currently market failures in the SME lending market, and these draft regulations will help to remove some of the barriers to entry identified by this evidence.

The noble Lord suggested that we should explore greater credit data sharing, and asked what the Government have done about greater data sharing for banks and non-bank providers. In fact, the regulations do just that: they apply to the UK’s major banks, which will be required to share data through the CRAs. The BBA and the major banks have been collaborative and supportive in ensuring that these regulations are effective in increasing the amount of data on SMEs that is shared on with finance providers. A footnote in the credit information Explanatory Memorandum or the finance platform Explanatory Memorandum gives the example of the sharing of data on VAT returns. That is another example of the Treasury—HMRC, in fact—consulting on credit and publicly held data.

The noble Lord asked what the Government have been doing to help SME lending with RBS and Lloyds, in which the taxpayer has a large share, albeit diminishing. Although RBS and Lloyds are mainly publicly owned, it was always a feature of that arrangement that operational decisions are not made by Ministers—that was never the Government’s approach. The best way of ensuring that the banking sector, including RBS and Lloyds, is in a position to lend to SMEs is to ensure that the overall economic situation is suitable for that, and that there are good lending conditions. Policies such as funding for lending were also designed to help banks in that regard. We established the British Business Bank to support the development of diverse finance markets for smaller businesses, bringing together the management of new and existing schemes into a single commercially minded institution. That bank will manage up to £2.65 billion of existing schemes and deploy a further £1.25 billion on new programmes.

The noble Lord asked why these regulations are being made before the CRA implementation guide is published. The banks and the CRAs, with input from the Government, have put together a technical specification guidance document that is aiding the IT development programmes being undertaken, and which will ensure that banks and CRAs can comply with their obligations. The document is therefore being used effectively and will be published in due course. However, a publication date has yet to be confirmed.

We said in the impact assessment that the benefits cannot be monetised. In it, we tried to put the costs to business and banks and took a conservative position, saying that although we expect the regulations to result in an increase in lending, we would not monetise and take notice of them. So, there may well be a benefit, but we do not take credit for that in the impact assessment. We are trying to give a worst case scenario but we obviously expect there to be a benefit; otherwise, we would not do this. It was simply a question of being sensible and not monetising something that is not definite.

The noble Lord asked why the CRA designation is not compulsory, as it is for the banks. In many ways, the situation with CRAs is the other way round. It is for the benefit of a CRA to be designated and to have available all this data. The issue for the Treasury in designating a CRA is to make sure that it is capable of dealing with and protecting the data. It is therefore important that CRAs are able to show that they can deal with data in line with the data regulations. We want to set the framework by these regulations so that, when the designation due diligence process takes place, we can get the system up and running as soon as possible. This is a framework which will allow the position to take off as soon as the designations are made.

Bank of England and Financial Services Bill [HL]

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Wednesday 11th November 2015 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I support the amendment from the noble Lord, Lord Sharkey. One of the main concerns of the Financial Services Consumer Panel has been the uneven playing field between paid-for and not-for-profit debt management services. People are being exposed to poor debt advice, as the noble Lord said, and this needs to be addressed both directly and in the round.

The central concern is this curse of our modern time: cold calling. Something could be done quickly. A Labour amendment was voted through in this House during the passage of the Consumer Rights Act on caller identification, but it has not yet been commenced. In response to my noble friend Lady Hayter, the noble Baroness, Lady Neville-Rolfe, stated that the Government were about to begin a consultation on caller ID. Can the Minister say now, or in writing at a later date, what the timetable is for this consultation? When can we expect to see some action on this issue?

Are the Government considering any other measures that could help tackle unsolicited market practices? They include the automated reporting of nuisance calls; the collation of nuisance calls—for example, more than 100 complaints and the calling number’s owner could be automatically referred to Ofcom, the Information Commissioner’s Office and perhaps the police; and appropriate victim redress for persistent cold calls from the same organisation.

The concern highlighted by the noble Lord, Lord Sharkey, is important in its own right, and so is the whole issue of cold calling. The two come together in this amendment, which we support.

[Lord Ashton of Hyde]

My Lords, the Government share the concern of the noble Lord, Lord Sharkey, about long-standing problems in the debt management market. Indeed, I have had the pleasure of answering questions from the noble Lord on this subject, and had a subsequent meeting with him and officials from the Treasury. We agree that it is imperative that vulnerable consumers in this market are treated fairly by firms and provided with the services that meet their needs.

As the Committee will be aware, responsibility for consumer credit regulation, including debt management firms, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The ensuing, more robust regime is dramatically improving consumer protections. The Government have ensured that the FCA has wide enforcement powers to take action where its rules are breached. There is no limit to the fines that it can levy and, crucially, it can force firms to provide redress to consumers.

Debt management firms are in the first group of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and practices. Every debt management firm will have to demonstrate compliance with the FCA’s rules and principles, including the requirement to treat customers fairly. Firms which do not meet the FCA’s threshold conditions will not be able to continue in the market. Decisions on those authorisations are due to take place—the first ones by the end of this year.

The FCA has also introduced tough new rules to protect consumers in the debt management sector, and the FCA actively monitors that market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. The FCA requires that all advertisements and other promotions must be clear, fair and not misleading, and it is able to impose tough sanctions where wrongdoing is found.

Regarding the noble Lord’s specific points about unsolicited marketing, the financial promotions regime applies to those providing debt management services. The FCA requires that unsolicited marketing by phone, text or email makes clear both the identity of the firm and the purpose of the communication so that the consumer can decide whether to proceed. This was highlighted by the noble Lord, Lord Sharkey.

The FCA also requires regulated debt management firms that accept leads from lead generators to satisfy themselves that business has been procured fairly and in accordance with data protection and privacy in electronic communications law. More broadly, in 2014 the Department for Culture, Media and Sport published its Nuisance Calls Action Plan. This set out the actions being taken by government, regulators, consumer groups and industry to tackle nuisance calls.

Importantly, the FCA has already committed to undertake a review of unsolicited marketing calls, emails and text messages from consumer credit firms, which will begin early next year. The Government believe that requiring the FCA to take a particular course of action before this review has taken place would limit the FCA’s ability to exercise its powers independently and would not necessarily achieve the desired result.

In answer to the question, “Why not act now?”, asked by the noble Lord, Lord Tunnicliffe—and I think that the noble Lord, Lord Sharkey, implied that even if he did not say it directly—it is worth noting that, if additional requirements for debt management firms were introduced at present, those firms would be required to alter their internal processes. That would cause disruption to the FCA’s ongoing authorisation process, which is due to begin producing results within the next couple of months.

I shall take advantage of the offer from the noble Lord, Lord Tunnicliffe, to write to him on the caller ID review timetable, because I do not have that to hand.

In summary, the authorisation process is well under way and will not take a year, and the FCA review of unsolicited marketing calls will begin early next year, so I submit that the noble Lord’s amendment is not appropriate at this time. I therefore ask him to withdraw it, confident in the knowledge that he will continue to hold the Government to account on this subject.

Bank of England and Financial Services Bill [HL]

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 9th November 2015 Lords Chamber

[Lord Tunnicliffe]

My Lords, I will try not to make this a habit, but I find the case persuasive.

[Lord Ashton of Hyde (Con)]

My Lords, this has been a brief debate. I am sorry that it falls to me yet again to argue numbers with the noble Lord, Lord Sharkey, and I am afraid to disagree with his argument.

This is a superficially simple amendment which seeks to change the balance of the membership of the Financial Policy Committee by increasing the number of external members from five to six. The noble Lord, Lord Sharkey, was again correct in outlining the numbers on the FPC as they stand today: namely, the governor, the three deputy governors and the executive director for financial stability strategy and risk, who are the internal members; and the five other members, who I would describe as external, who are the chief executive of the FCA and the four members appointed by the Chancellor. There is also a non-voting member from the Treasury. This gives an equal balance of voting membership between the Bank executives and those from outside the Bank. The Bill adds two new members to the committee—the deputy governor for markets and banking and an additional external member—which preserves the existing balance between the executive and non-executive members of the committee.

We think that that is appropriate: it strikes the right balance between ensuring sufficient input from the Bank of England’s executive and internal expertise and supporting the external, non-executive members’ role of providing a challenge to members’ thinking. Crucially, the committee can draw on the expertise and resources of the Bank, while the non-executive members provide a strong challenge function by bringing outside perspectives and expertise to the committee’s discussions and preventing groupthink.

Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Tuesday 27th October 2015 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, as the Minister has outlined, the three statutory instruments before us make a number of technical changes to the Financial Services and Markets Act 2000, as amended, which relate specifically to the expansion of the senior management and certification regime—or SM&CR—mortgage regulation and the extension of powers to the Prudential Regulation Authority. As my honourable friend Richard Burgon MP said in the other place, we will not oppose the orders—I want to place that on record again today. My party is committed to ensuring that we have a financial services sector that works in the interests of the public and we want to work with the Government to ensure that.

Banking regulation seems—in this House at the least—to be the flavour of the month, what with these orders today and the Second Reading of the Bank of England and Financial Services Bill only yesterday. Last night, we had a constructive and wide-ranging debate on what a modern and effective banking sector should look like. It was encouraging that we should have such passionate, experienced and committed colleagues engaging with this issue.

Some of the observations made last night have relevance today. Without wishing to detain your Lordships for very long, I want to ask the Minister a number of questions about how these small but nevertheless important changes fit into the Government’s broader proposals.

The Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order extends the regulation governing individuals working in the UK banking sector to cover UK branches of foreign banks and investment firms. I note that the Economic Secretary to the Treasury said on Thursday that these changes would come into effect in March 2016, the same time as changes for senior managers in UK institutions. Can the Minister say today, or perhaps in writing at a later date, how many non-UK institutions which have a branch in the UK this will affect?

As the Minister will know, one of the changes made in the Bank of England and Financial Services Bill is the extension of the SM&CR to the entire financial services industry—not just senior managers in banks but to credit unions and investment firms from 2017. Once the expansion comes into effect, does the Minister expect non-UK institutions which have a branch in the UK to be included?

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 3) Order 2015 will mean that from 31 March 2016 mortgages dating from before 31 October 2004, which are currently regulated as credit agreements, are regulated instead as mortgages. The Government claim that the proposed changes are necessary for the EU mortgage credit directive to work as intended. The Economic Secretary to the Treasury stated:

“During the course of that routine monitoring it came to light that, owing to the complexity of layering a new wave of legislation on top of existing legislation, in some areas the order did not achieve what was intended”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 22/10/15; col. 5.]

For clarification, can the Minister confirm that these are just credit agreements which relate to property? Can he also indicate the scope of the aforementioned monitoring and the precise issues covered to bring about such change? I also understand that my honourable friend in the other place asked why pre-March 2004 mortgages were being regulated and not those after March 2004.

Finally, the Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015 confers powers to the PRA over individuals working in financial services, specifically in cases relating to the alternative investment management regulations. It also extends to the PRA the ability to take disciplinary action. We understand that the order is required so as to ensure that the appropriate regulators have sufficient powers to carry out their functions. However, I have a number of points on which I seek clarification.

Will the changes in the role and structure of the FPC as a full committee of the Bank and the desubservisation—if there is such a word—of the PRA alongside the creation of the new Prudential Regulation Committee require that these orders be amended again? Paragraph 5(1) of the aforementioned order states that:

“The Treasury must from time to time—

(a) carry out a review of the relevant provisions of the 2000 Act;

(b) set out the conclusions of the review in a report, and

(c) publish the report”.

I would be grateful if the Minister could go into more detail about the process and practice of this, in particular the timing. Does “from time to time” mean once a Parliament, once a Session or once a decade? I understand that the Minister may need to write in order to set this out in more detail.

Throughout the creation of this new regime, the noble Lord, Lord Hodgson of Astley Abbotts, has brought us the worm’s-eye view of the situation. I am not privileged to be a worm in the City, merely a worm at Westminster, but I recall that we spent many an hour layering clause on clause into the various Bills to define the difference between the PRA and the FCA. I am pleased to hear from the noble Lord, Lord Hodgson, that it is as clear as ever. I will be fascinated to hear the Minister’s reply, but I recognise that he may not be able to finesse it too accurately today, so perhaps I may be copied in to any letter he promises to his noble friend Lord Hodgson.

[Lord Ashton of Hyde]

My Lords, we have had a brief but productive debate today and I am grateful to noble Lords for their constructive contributions. I am particularly grateful for allowing me to write if necessary to provide comprehensive answers. However, I will try to respond to some of the points, and I will make sure that I write on anything that I leave out. I will also certainly write to the noble Lord, Lord Tunnicliffe, with any answers that I give to my noble friend Lord Hodgson, who is, as always, too modest. As was said before somewhere else, my noble friend may be a worm, but he is certainly a glow worm.

My noble friend started off by asking me about the relationship between these orders and the Bill referred to by the noble Lord, Lord Tunnicliffe, the Bank of England and Financial Services Bill, which received its Second Reading last night. These orders largely complete the banking reform Act work programme, applying the senior managers and certification regime to banks, building societies, credit unions and PRA-regulated firms. The Bill will extend the regime to all other authorised persons under the Financial Services and Markets Act 2000—that is, to the rest of the financial services industry. So the proposed changes in the Bank of England and Financial Services Bill will not change any of those relationships.

My noble friend mentioned the question of duplication of effort when both regulators have enforcement powers, and of course that situation applies now. Nothing that we are doing today will change that. In answering the point, I can tell my noble friend that each regulator will enforce its own rules or directions to ensure compliance with or obligations owed to it. Further, it will usually be clear which rule or other requirement has been broken and therefore which regulator needs to enforce it, but the PRA and the FCA have a statutory duty to co-ordinate the exercise of all their functions, including enforcement. That applies today and will not change.

The question is why they both need enforcement powers, and the reason is that they both make rules or are the lead regulator for other requirements, which means that they must have such powers. Each regulator has a different statutory remit, so that they can simultaneously have an interest in different aspects of the same situation. However, I take the point made by the noble Lord; it is something that I was aware of when I worked in the City. If you are an institution that is fortunate enough to be under the regulation of both of those regulators, it is obviously important. However, they do co-ordinate and will continue to do so because they have, as I say, a statutory obligation in that regard.

[Lord Tunnicliffe]

Could the Minister assure me that he is a representative of the party of deregulation?

[Lord Ashton of Hyde]

I am able to give that assurance.

Both regulators look at fitness and propriety. Both the PRA and the FCA are concerned with whether an individual is fit and proper. This is the position now; the senior managers and certification regime does not change that. That is why, as I said before, both regulators may need enforcement powers.

To answer my noble friend’s question, there will not be another regulator. The PRA and FCA will run the senior managers and certification regime in the same way that they are involved in the approved persons regime, so there is no change in that. To follow on from the point raised by the noble Lord, Lord Tunnicliffe, there will not be another regulator. The PRA will have an enforcement role only when obligations are owed to it. As I said, normally which regulator matters is clear from primary legislation because they have different remits and focus.

The noble Lord, Lord Tunnicliffe, asked for some sense of the numbers. I will give him some today, but if I have not given him all the numbers he wants I am happy to write later. Obviously I will copy in my noble friend Lord Hodgson. There are currently about 155 banks and nine PRA-regulated investment firms. Those are investment banks that do not have a deposit-taking commission. These 164 firms will be within the senior managers and certification regime from next March as a result of the changes made by the banking reform Act. This order will add between 155 and 175 foreign banks, split approximately 50:50 between EEA and non-EEA firms.

The banking reform Act also brings approximately 45 building societies and approximately 550 credit unions into the senior managers and certification regime. Any foreign equivalents of these firms would be included as banks. Less than 10% of those banks would be considered large. The Bank of England and Financial Services Bill will not add any banks or other deposit-takers to the SM&CR. The Bill will add only insurers, investment firms and consumer credit firms, assuming that it is passed.

[Lord Ashton of Hyde]

I will not try to give a comprehensive answer today, but I will make the point that that was the position with the Financial Services Authority, which both Houses of Parliament decided was not an effective regulator. Everyone accepts that there were problems with having one regulator and that tripartite system. I will not go beyond that, but I take the point; I have noted it.

The noble Lord, Lord Tunnicliffe, asked whether the changes to the PRA required changes to these orders; they are not required. He also asked whether the regulated activities amendment order only affects credit agreements relating to property—I refer here to equitable loans that are normally used in Scotland—and the answer to that is that it does. If there are other points, I will take advantage of both noble Lords’ suggestions and write when we have reviewed what I have said today.

Can I make a couple of final points about the orders under consideration? First, the relevant authorised persons order is not about placing a more onerous regime on UK branches of foreign banks or for that matter letting them off the hook. We aim to ensure a proportionate and appropriate regime that reflects the status of branches and the nature of the business that they do.

The misconduct and appropriate regulator order makes some necessary technical changes arising from the introduction of the senior managers and certification regime. Finally—

[Lord Tunnicliffe]

Before the Minister sits down, does he have any initial reaction to my question about what “from time to time” means? It is quite difficult to get a more vague description of an interval.

[Lord Ashton of Hyde]

Luckily, I do have an answer to that. “Time to time” leaves scope to have a practical approach and the Treasury will keep under review how often it will consider the orders. The first review must be within five years. Each review must be at least every five years after that. At the moment that is where we are. I will consider the points that the noble Lord made in more detail and if I have anything more to add I will write to him.

The regulated activities amendment order will ensure that the PRA and the FCA have the right powers to regulate the mortgage market effectively, ensuring that both new and existing customers are protected from bad practice. I therefore ask the Committee to join me in supporting these statutory instruments today.

Vehicle Excise Duty: Carbon Dioxide Emissions

Debate between Lord Ashton of Hyde and Lord Tunnicliffe

Monday 29th June 2015 Lords Chamber

[Lord Ashton of Hyde]

The noble Baroness’s interest in this subject is well known and I agree with her that there are many things that could be done. However, it is about more than just vehicle excise duty—55% of nitrous dioxide emissions come from sources other than transport. However, I take the point about the Supreme Court judgment. We are committed to working towards full compliance with that and are reviewing the UK air quality plans, which will be finalised by the end of 2015. Consultations will take place before that.

[Lord Tunnicliffe (Lab)]

My Lords, Defra, in its policy paper dated 8 May 2015, states:

“Air pollution, for example from road transport, harms our health and wellbeing. It is estimated to have an effect equivalent to 29,000 deaths each year and is expected to reduce the life expectancy of everyone in the UK by 6 months on average, at a cost of around £16 billion per year”.

Does the Minister stand by that statement and does he agree that all future government modelling of the economic impact of changes to vehicle excise duty must consider these very significant costs?

[Lord Ashton of Hyde]

The noble Lord makes an important point. I agree with what Defra said; that is why the Government are investing more than £500 million between 2015 and 2020 to support the uptake of ultra-low-emission vehicles, with the aim of all new cars having no tail-pipe emissions by 2040.