Financial Services and Markets Bill

Lord Sharkey Excerpts

Committee stage
Wednesday 25th January 2023 Grand Committee

Moved by

[Lord Sharkey]

1: Clause 1, page 1, line 6, leave out subsection (1) and insert—
“(1) The Treasury may by regulations revoke any legislation referred to in Schedule 1 provided that—(a) the regulators have drafted and, where necessary, consulted on rules that are ready to be enforced, where it is appropriate, to replace the legislation, and(b) any such revocation or replacement which represents a significant divergence from current rules or practice has had the opportunity to be scrutinised by the relevant Parliamentary select committee and the views and recommendations of that committee or those committees have been taken into account.”Member’s explanatory statement
This is a probing amendment to allow debate on possible means of Parliamentary scrutiny of the changes generated by the implementation of Clause 1 and Schedule 1.

[Lord Sharkey (LD)]

My Lords, the purpose of the amendment is to allow debate on the possible means of parliamentary scrutiny of the many legislative changes that will be brought about by the implementation of Clause 1 and Schedule 1.

The question of meaningful parliamentary scrutiny was frequently mentioned in all parts of the House at Second Reading. There seemed to be consensus that there is nothing in the Bill that would enable proper scrutiny of the changes proposed by the Bill. The whole wider question of parliamentary scrutiny was debated at length in the Chamber on 12 January. That debate was on the report from the DPRRC called Democracy Denied? and the report from the SLSC called Government by Diktat. The titles of the reports accurately represent their urgent concerns.

The debate was led by the noble Lords, Lord Blencathra and Lord Hodgson of Astley Abbotts, the respective chairmen of the Select Committees. There were 35 speakers, 34 of whom were sympathetic to the notion that our system of dealing with delegation is defective and does not provide effective scrutiny. Regrettably, there is plenty of evidence that that is the case, and much of it is presented vividly in those two reports. There is also plenty of evidence to support the view that Governments try, when they can, to bypass real parliamentary scrutiny, and plenty of evidence that the balance of power between Parliament and the Executive has been shifting in favour of the Executive.

I noted at Second Reading, as did the noble Lord, Lord Hodgson, that the Bill seems likely to generate more than 250 pieces of secondary legislation or binding rules. That might seem like a lot, but, in reality, it is just a very small and very important subset of the estimated 4,000 pieces of legislation to be revoked, amended or substituted in the Retained EU Law (Revocation and Reform) Bill, and it may be more than that if the National Archives find any more down the back of their sofa, in addition to the 1,300 which the Government have already overlooked. The scales of 250 to the retained EU law Bill’s 4,000 plus may be very different, but the underlying problem is exactly the same: how can parliamentary scrutiny be effectively and proportionately applied to those proposed legislative changes?

As things stand, the Bill provides that some of the proposed changes will be subject to the negative procedure and some to the affirmative procedure; for others, it is not clear whether they will be subject to any procedure at all. In practice, that amounts to no parliamentary scrutiny at all. The negative SI procedure is not scrutiny of any kind, nor is the affirmative procedure. If SIs cannot be amended and are not voted down, they are not scrutiny. In reality, our SI procedures are legislative theatre. Our recent debates and comments at Second Reading have shown a strong feeling across the House that, as a means of scrutiny, our current SI procedures are simply not fit for purpose. It does not help to have the Government insisting, as I am certain the Minister will, that they do in fact provide meaningful scrutiny. I am equally certain that she will not provide us with any evidence that that is the case.

The amendment suggests a way of achieving a modest amount of parliamentary scrutiny over the regulation-making powers in the Bill. The first part of the amendment simply places in the Bill the exact text of an important commitment made by the Treasury in paragraph 16 of its memorandum to the DPRRC. It says that, as a condition of the Treasury’s power to revoke, the regulators must

“have drafted and, where necessary, consulted on rules that are ready to be enforced, where it is appropriate, to replace the legislation”,

and so on. I am not certain of the force of a Treasury commitment made in a memorandum to a parliamentary committee, and that is one reason why I think it should be in the Bill: to put beyond doubt that the commitment is legally binding.

However, there is another reason for inserting the memorandum text: that is, to be able to ask the Government what the tests are for “necessary” and for “appropriate”, who decides, and how, whether the tests have been satisfied, and how much of this will be transparent. Without such detail, the commitment may be completely meaningless. I would be grateful if the Minister could address those points when she replies.

The second part of the amendment says that before the Treasury can, by regulation, revoke any legislation in Schedule 1:

“any such revocation or replacement which represents a significant divergence from current rules or practice has had the opportunity to be scrutinised by the relevant Parliamentary select committee and the views and recommendations of that committee or those committees have been taken into account.”

That is a rather broad-stroke first attempt at triage and at inserting a scrutiny mechanism. It is intended to identify a subset of changes that represent significant alterations in policy or practice and to provide the opportunity for the relevant committees to scrutinise these if they choose and to require the Treasury to take into account any views or recommendations expressed by the committees. The word “significant” is obviously key. We will need some specified tests for significance or perhaps leave it to the discretion of the relevant committees to decide for themselves. The amendment is not prescriptive about what form any committee scrutiny might take; that seems best left to the committees themselves.

I am sure that debate will generate improvements on Report or entirely different and better methods of ensuring that Parliament can play a meaningful scrutiny role with respect to the provisions in the Bill and perhaps make a contribution to addressing the similar but numerically much larger problem presented by the Retained EU Law (Revocation and Reform) Bill.

I conclude as I did at Second Reading by saying that the structure of our financial services regime is far too important to be left to the Treasury and the regulators alone. Real parliamentary scrutiny is vital, but it is entirely absent from the Bill. I look forward to hearing the contributions of other noble Lords. I beg to move.

[Baroness Noakes (Con)]

My Lords, as this is the first day of Committee, I declare my interests as recorded in the register, in particular that I hold shares in listed financial services companies. I will not comment on the government amendments in this group; I am taking those on trust.

I share the desire of the noble Lord, Lord Sharkey, for Parliament to be involved in the new rules that will replace retained EU law, but this is part of the larger issue of how there will be parliamentary accountability of the regulators. A number of us have tabled amendments of slightly different varieties on how to achieve that in the Bill. I for one will not contribute to that issue in this debate, because it is better saved until the various mechanisms that some of us have proposed are debated later in Committee.

I have two amendments in this group: Amendments 244 and 245. At Second Reading I acknowledged that the replacement of retained EU law on financial services would take some time, but I felt that the process needed the discipline of a hard stop along the lines of the Retained EU Law (Revocation and Reform) Bill. I have not copied that Bill, with its deadline of the end of this year, but I have instead proposed one three years later: that is, on 31 December 2026.

That will doubtless disappoint some hardliners among my Brexiteer colleagues, but I see that as a pragmatic compromise between getting the issue fixed and letting the regulators do a proper job in turning EU rules into something that works for the UK or indeed, whenever possible, removing the rules entirely.

I am not convinced that, left to themselves, the FCA and the PRA will prioritise the task of dealing with the full corpus of retained EU law, especially once the first batch of relatively easy issues has been dealt with. A deadline is a simple device in order to incentivise them to get on with it or risk losing the related law entirely.

If my noble friend resists the notion of a statutory deadline, even though it is government policy for retained EU law generally, perhaps she will explain what sticks and carrots the Treasury has at its disposal to get the job done within a reasonable timeframe. I do not think it reasonable to have this large body of EU law left in limbo for any considerable period of time.

--- Later in debate ---

[Baroness Penn (Con)]

No, that discussion was not had. The powers are constrained in that they relate to the provisions in place to transition away from and replace retained EU law, rather than going beyond that.

Amendments 242 and 243, put together, enable provisions subject to the negative procedure under an Act other than this Bill to be included in affirmative regulations made under the Bill. This is a procedural change with well-established precedent. Where any element of a statutory instrument is subject to the affirmative procedure, the combined instrument would also be subject to the affirmative procedure, so there will be no reduction in parliamentary scrutiny.

To conclude, the Bill will repeal retained EU law to establish a model of regulation based on FSMA. It will do so in a way that prioritises growth while moving in a sequenced and measured way, and through scrutiny, engagement and consultation. At this stage, I hope the noble Lord, Lord Sharkey, will feel able to withdraw his amendment and that other noble Lords will not move theirs when they are reached. Subject to providing that extra clarification to the noble Baroness, Lady Kramer, I intend to move the government amendments when they are reached.

[Lord Sharkey (LD)]

I thank all noble Lords who have spoken. I did ask the Minister about the Treasury’s assertion, or guarantee, that it will have replacements where necessary for the stuff that gets repealed, and about the tests for what is “necessary” and what is “appropriate”, how they will be applied and how transparently. I would be grateful if the Minister could write to tell me the answer to my question.

If we are to rely on SIs as a means of scrutiny of the measures in the Bill, that is the practical equivalent of having Parliament largely bypassed in this discussion. We need two fundamental mechanisms for effective parliamentary scrutiny: an effective means of triage and an effective means of revision. I am sure we will return to those issues either later in Committee or on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Financial Services and Markets Bill

Lord Sharkey Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Sharkey (LD)]

My Lords, we welcome the overall objectives of the Bill but have some significant reservations. In the absurd five minutes allowed, I will focus on the reservations rather than the merits of the Bill.

We have very serious reservations about the wholesale bypassing of parliamentary scrutiny that the Bill could bring about. We are sceptical about the merit of the proposed new growth and competitiveness objectives. We are concerned about the extension of the SMCR, and disappointed by the imbalance in the Bill between regulatory modifications in the interests of the financial services sector and measures to protect the interests of consumers.

Schedule 1 sets out what retained EU law is to be revoked, modified or replaced. I counted at least 250 items. Some will be subject to the negative SI procedure, some to the affirmative SI procedure and some to no parliamentary procedure at all. What all this means is that this wholesale transposition, modification, repeal and replacement exercise is not subject to any meaningful parliamentary scrutiny. We need to find a way of allowing the relevant Select Committees to initiate proper inquiries into the drafts of proposed changes that they see as important and have this done before any instruments are laid before Parliament or changes are made without reference to Parliament. Parliament should not be used as a kind of consultee. The structure of our financial services regime is far too important to be left to the Treasury and the regulators alone.

I turn to Clause 24 and to the proposed addition, as a secondary objective, of growth and competitiveness to the existing FCA and PRA objectives. There does not seem to be much in the way of compelling evidence for this. In fact, much of the evidence and testimony points in the other direction. This has all been tried before. Many commentators laid a part of the blame for the 2008 crash on these objectives; that is why we repealed them in 2012. Andrew Bailey said then that it did not work out well

“for anyone including the FSA.”

Writing in the Financial Times a month ago, Sir John Vickers, who was the fons et origo of some of this, concluded:

“For the UK economy, it would be best to reject this addition to regulators’ objectives.”


Over 50 economists and policy experts wrote to the Government in May with similar misgivings; so did Which? and, tellingly, so did the FCA’s own consumer panel. We will return to the issue in Committee.

The next area I want to touch on is the extension of the SMCR. The proposal is to extend, mutatis mutandis, the existing regime to FMIs—a good idea if the current SMCR had worked, but it has not. The current version of the SMCR has not produced the results intended or envisaged. In fact, I can recall only a single case of a truly senior manager being held to account: that was the egregious Jes Staley at Barclays. This is not because the financial services sector has forsworn misbehaviour. We will want to return to this issue in Committee.

I now turn to measures to protect consumers. The last time we discussed imposing a duty of care, it was agreed that the FCA would examine the case. The FCA has decided that preferable to a duty of care was a new set of rules for firms’ behaviour called the new consumer duty. This consumer duty is due to come into effect at the end of July, a year after the final rules were published in a 90-page paper, helped by a 114-page guidance note. Not only is this extremely complex and yet another very heavy burden on firms, but it is very unclear that the new duty is superior in any way to a simple duty of care. Critically, it omits private right of action provisions. We will bring forward amendments to replace this consumer duty with a duty of care and a private right of action. We will also bring forward amendments to extend the FCA’s perimeter to cover lending to SMEs, which have suffered at the hands of predatory and unscrupulous lenders.

We will bring forward an amendment to relieve the plight of the mortgage prisoners. These are people who, in the collapse of 2008, had their mortgages acquired by the Treasury and then sold on to various inactive lenders and American vulture funds. Since then, these people have been trapped on very high SVRs. This is entirely the Treasury’s fault. It has caused and still causes immense suffering to many thousands of families. We will try to put that right.

Money Laundering Regulations: Politically Exposed Persons

Lord Sharkey Excerpts

Monday 28th November 2022 Lords Chamber

[Baroness Penn (Con)]

I absolutely agree with my noble friend on the importance of that word and of a proportionate approach being taken in the implementation of these regulations. I know that concerns have been raised in the past. We have convened previous meetings with the FCA and the banks to make this message known to them. Hopefully, the points of contact that we have provided will provide a further remedy to any noble Lords who are affected. We are also looking at the broader system to see whether we can change the designation of domestic PEPs. However, we need to look very carefully at this and take our time to make sure that we do that work properly.

[Lord Sharkey (LD)]

My Lords, the FCA guidelines, which are five years old, make clear that Members of this House should be treated as low risk unless there are other factors at play. There is no point to these guidelines if they are not being enforced. What assessment have the Government made of the FCA’s record on enforcement of the guidelines? Have any sanctions ever been imposed on those who break them?

[Baroness Penn (Con)]

My Lords, as I have said, we have had an ongoing dialogue with the FCA around the guidelines. In turn, they have had engagement with those that they regulate. I do not have any statistics for the noble Lord on enforcement action. However, one area where we have some statistics is that, since 2018, the Financial Ombudsman Service has received fewer than 10 complaints in this area. That is not to say that people have not experienced problems, but I would encourage them to use the points of contact and, where they are experiencing problems, to advance those complaints, so that we can have better data with which to assess the impact of the issue.

Financial Markets: Stability

Lord Sharkey Excerpts

Thursday 3rd November 2022 Lords Chamber

Moved by

[Lord Sharkey]

That this House takes note of the importance of stability in the financial markets and its impact on pensions, mortgages and the rental markets.

[Lord Sharkey (LD)]

My Lords, I start, as is now traditional, by welcoming the return of the Minister, and by thanking the Library for the outstanding note it has produced for this debate.

The Motion before us seems simple: financial stability sounds like a common-sense kind of thing and obviously desirable. However, the reality is significantly more complex. There are at least two readings of the phrase “financial stability”. The first reading, in this context, is defined by the Bank of England, which has a statutory objective to protect and enhance the stability of the financial system in the United Kingdom. The definition is that

“financial stability is the consistent supply of the vital services that the real economy demands from the financial system (which comprises financial institutions, markets and market infrastructure).”

The FPC has qualified that definition by saying:

“Financial stability is not the same as market stability or the avoidance of any disruption to … financial services.”


This qualification was quite properly abandoned in dealing with the events of September and October.

The second reading of the words is the usual and common-sense one: things should not change violently, radically or without warning—and that definitely includes inflation. The mini-Budget of 23 September was probably the most incompetent, damaging and destabilising ever produced. It is still hard to believe that a Chancellor would put forward such a list of spending measures without any indication of how they were to be funded. It is astonishing that the Chancellor explicitly refused the offer of an input from the OBR. It defies belief that the Chancellor and Prime Minister took no account of the likely bond market reaction.

It is not as though the bond market reaction was unknown or of no importance: Bill Clinton famously encountered it when preparing the programme for his second term. His advisers told him that some of his policies would not be possible. Clinton said:

“You mean to tell me that the success of the program … hinges on the Federal Reserve and a bunch of”—


expletive deleted—“bond traders?” One of his advisers, James Carville, said at the time:

“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”


The bond markets certainly terrified our Government and probably most of the rest of us as well. Long-term gilt yields rose by 30 basis points on the day of the mini-Budget, and by another 50 in the next three days. On 26 September, the pound fell to $1.03, its lowest ever level. On 27 September, there was an initial fall in gilt yields and then a rise of 67 basis points. On 28 September, the Bank intervened with a short-term commitment to QE of up to £65 billion. In all, the Bank bought £19 billion of bonds to stabilise a market that the Government had directly caused to crash. That was added to the Bank’s existing QE stock of £875 billion. Given the asset-inflating effect of QE and the deflationary pressure imposed by the inevitable higher interest rates, some commentators noted that the Bank appeared to be driving with one foot on the accelerator and the other foot on the brake.

Katie Martin noted in the Financial Times on 7 October:

“The intricacies of bond yields rarely trouble the general population, but homeowners quickly figured out what this meant for mortgage repayments, making it a searing political issue. Plus, it all jacks up the price tag for the government’s plans”.


The Financial Times returned to the issue over two weeks later, with Patrick Jenkins writing:

“To describe the ‘mini’ Budget of outgoing prime minister Liz Truss and outgone chancellor Kwasi Kwarteng as ill thought-out is almost a compliment. If they underestimated how spooked the markets would be by £45bn of unfunded tax cuts, they clearly had no notion at all about the collateral damage it would cause—to mortgages, to government and corporate borrowing costs and most alarmingly to the £1.4tn defined benefit pension system, via the now infamous ‘LDI’ hedging structures buried within many schemes.”


So here we have rising mortgage costs, rising energy costs, rampant inflation, no increase in real wages over two decades and now a threat to the pension system. I think that it is entirely probable that neither Liz Truss nor Kwasi Kwarteng had heard of, or understood anything about, LDIs. I do wonder whether the Treasury had understood and had given sufficient warnings to the Prime Minister and the Chancellor. The Bank, the Pensions Regulator and the FCA certainly did know about LDIs: each of them has a partial regulatory role over some parts of the LDI sector, and each of these institutions has now written not very convincing letters of exculpation to parliamentary committees. We seem to have uncovered a remnant of the pre-crash regulatory regimes, where a plurality of regulators failed to deliver necessary oversight or control. It is surely time that the regulation of these LDI funds was made simpler, clearer and more rigorous, so that we can avoid further unpleasant surprises and outbreaks of finger-pointing. When the Minister replies, I would be grateful for her thoughts on the matter.

This all, emphatically, does matter. All this rather obscure and technical stuff has clear effects on the real economy: mortgage rates have been rising as the bank rate has risen—probably to 3% in a moment or two. In December, the average rate offered for a two-year fixed deal was 2.34%; by 3 October, it was 6.07%; by 18 October, it was 6.53%. Of course, this means a steep rise in mortgage repayments. The Resolution Foundation predicts that over 5 million families are set to see their annual mortgage payments rise by an average of £5,100 between now and the end of 2024. The chief economist of the Royal Institution of Chartered Surveyors took the view that mortgage arrears and repossessions would inevitably move upwards over the next year; of course, this influences the rental market.

In late October, Moody’s, having downgraded its assessment of the UK’s economic outlook from “stable” to “negative” because of instability and high inflation, also estimated that more than half of landlords looking for a new fixed-rate deal in 2023 or 2024 would be unable to remortgage without raising rents if mortgages were 4 percentage points higher. Given the fall in real wages, this might push rents up beyond what tenants could afford.

Rents were already rising anyway, driven by what Knight Frank described as

“an ever-deepening mismatch between supply and demand”.

Shelter has said:

“Private renters are disproportionately exposed to the cost of living crisis”


and

“the most likely tenure to already be in fuel poverty.”

When the Minister replies, I would be grateful if she could tell the House whether the Government are actively considering increasing the local housing benefit allowance rates—frozen since March 2020—to ensure that housing benefit keeps pace with inflation, as Shelter recommends.

The current economic situation and the ongoing cost of living crisis bear very heavily on households, exacerbated by uncertainty about the future. Is the triple lock on or off today? Will inflation really rise to 12%, as the Bank seems to think? Will benefits be uprated in real terms? What will happen to my energy costs? Is my pension safe? Will there be reasonable pay rises? What will happen to the NHS and our schools? The need for some assurance and stability in these uncertain times is absolutely clear.

The most comprehensive survey of household and individual finances is the FCA’s excellent Financial Lives Survey. The next survey is due to be published early next year, but the FCA has just released some of the findings from its 19,000 respondents—they make for very distressing reading. One in four adults in the UK was either in financial difficulty or would fall into trouble if they had a financial shock. Nearly 8 million people were finding it a heavy burden to keep up with their bills—an increase of 2.5 million people in the last two years—as wage growth fails to keep pace with inflation, which is now at a 40-year high.

Over 4 million people missed a bill or loan repayment in the six months to February and, unsurprisingly, these problems were worse in the most deprived areas of the United Kingdom. About 12% of people in the north-east and 10% in the north-west are struggling financially, compared with 6% in the south-east and the south-west. Already, by the end of June, over 2 million households were behind with their electricity bills and just under 2 million behind with their gas bills. Citizens Advice reports a sharp rise in people being forced on to prepayment meters, which are more expensive. Can the Minister confirm that to address at least some of this, benefits will be uprated by inflation? Can she stop our energy companies moving customers to prepayment meters?

Of course, the real question is what should be done about the mess we are in. How can a measure of stability be restored to our financial lives, our real incomes and the institutions on which we depend? We may know more on 17 November; I do not expect the Minister will be able to say anything of any substance about what the Autumn Statement might contain, but some things are already clear. Last week, the Institute for Government, of which I was a governor for five years or so, and the Chartered Institute of Public Finance and Accountancy published their annual government performance tracker, and it is worth quoting at some length from the introduction. It states:

“Public services are in a fragile state. Some are in crisis. Patients are waiting half a day in A&E, weeks for GP appointments and a year or more for elective treatments. Few crimes result in charges, criminal courts are gummed up, and many prisoners are still stuck in their cells under more restrictive regimes without adequate access to training or education. Pupils have lost months of learning, with little prospect of catching up, social care providers are going out of business or handing back contracts, and neighbourhood amenities have been hollowed out.”


The report goes on to say:

“These problems have been exacerbated by the Covid crisis but are not new. After a decade of spending restraint, public services entered the pandemic with longer waiting times, reduced access, rising public dissatisfaction, missed targets and other signs of diminishing standards … Governments since 2010 may have been seeking efficiency over resilience but achieved neither.”


All this is simply a preamble to the report’s conclusions that most services do not have sufficient funding to return to pre-pandemic levels of service and performance:

“There is no meaningful ‘fat’ to trim from public service budgets. If the government wishes to make cuts in the medium-term fiscal plan, it must accept that these are almost certain to have a further negative impact on public services performance.”


Perhaps the Minister when she replies can tell the House whether she agrees with the IfG and CIPFA in their conclusions and, if not, why not.

The economy needs stability of purpose, policy and direction. People and business need a stable and reasonably predictable environment in order to plan, save and invest. People need stability because many families have very low resilience to financial shocks or steep movements. The Government could make a start on all this. They could honour the triple lock. They could raise benefits in line with inflation. They could devote scarce resource to where it is most needed and most productive. They could be open and honest about the state of the economy and what that really means for us and for our children. I look forward to hearing the contributions from other noble Lords and to the Minister’s reply and I beg to move.

--- Later in debate ---

[Lord Sharkey (LD)]

My Lords, I thank the Minister for her response, much of which we will no doubt return to frequently. I also thank all other noble Lords for their contributions.

On 23 September, the day of the mini-Budget and the beginning of the period of extreme financial and political instability, Mark Carney was being interviewed by the FT in New York. In that interview, he pointed out that in 2016 the UK economy was 90% of the size of Germany’s but in 2022, even before the crisis, it was less than 70%. We need to put this right but we must not do that by increasing the burden on the poor, the sick and the old.

Motion agreed.

Savings (Government Contributions) Bill

Lord Sharkey Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 12th January 2017 Lords Chamber

[Lord Sharkey (LD)]

My Lords, the provisions in the Bill appear at first glance to be quite straightforward. The Bill sets up the mechanisms to create lifetime ISAs and a Help to Save scheme. As the noble Baroness, Lady Drake, noted, the total cost to government in 2020-21 of the LISA is estimated at £830 million. The total cost to government of the Help to Save scheme in the same period would be £70 million. This is a very small amount. Can it really be correct? I would be grateful if the Minister could confirm that the impact assessment has this right. If it is right, does it not say something about the scale and ambition of the scheme? Does it not amount to tinkering?

According to the impact assessment, both schemes are driven by a desire to increase the level of household savings. In particular, the LISA will help young people to save flexibly for the long term and provide help with buying a first home. Help to Save will help working families on low incomes build up a rainy-day savings fund. All this sounds laudable, but there are some obvious questions and worries about both schemes.

The first worry is that neither scheme seems particularly likely to have much real impact. Both could be characterised as yet more confusing tinkering with the housing market and the tax system. Both are ways of avoiding directly addressing fundamental problems and both add to the complexity of an already very complex system. Neither scheme faces up to what is a major problem for households; namely, the level of debt that they already hold.

This debt is now again as high as it was in 2008. In the year to 30 November 2016, consumer debt rose by 10.8% and there are fears that, especially among less well-off households, some of this rise is being used to fund normal living costs when real wages are declining. The expected rise in inflation would make this problem worse. It may be true that increased debt-fuelled consumer spending is driving current economic expansion, but this is not a sustainable position. And it is true that for many households, particularly the low-income households targeted by Help to Save, paying down debt is a better option than saving.

The Government have correctly identified two real problems: the difficulty that most people now have in buying a first home and the lack of any financial cushion for those on low incomes. But the solutions to these problems need to be systemic and enduring; they need to be more than tinkering. To solve the housing problem, we emphatically do not need more demand-side schemes; we need more supply. Nothing else will have, or has had, any significant effect.

In July last year, your Lordships’ Economic Affairs Committee, of which I am a member, published a report which addressed the housing crisis. The report was called Building More Homes and, unsurprisingly, that is what it recommended. In particular, it noted that the private sector, as currently incentivised, would not build the number of homes needed, that the Government had no real prospect of reaching its target of 1 million new homes by the end of the Parliament, and that this target was itself much too low. The Committee recommended among other things that the cap on local authority borrowing to build homes be lifted. Only by doing this did we see any prospect of any real relief to our housing crisis. We did not feel that the many existing demand-side initiatives were likely to have much real effect. Most of these initiatives simply push those near the ownership threshold over the line. They probably contribute to price inflation and certainly do not provide large-scale or comprehensive help across tenure types.

I feel that this will be true of the LISA scheme in the Bill before us. It is not just that the measure is more demand-side tinkering, which it is; there is another serious problem and it is one of confusion. This issue was raised frequently as this Bill went through the Commons. The potential for confusion arises, as many noble Lords have said, from making a choice between a LISA, an employer’s pension scheme and auto-enrolment. How is this important choice to be made? Who will offer impartial guidance?

On 9 October last year, the Government announced their intention to create a new, single public financial guidance body to provide debt advice, and money and pensions guidance. This new body will replace the Money Advice Service, the Pensions Advisory Service and Pension Wise. The consultation was launched on 19 December last year and closes on 13 February. This new replacement single body will not be in place before autumn 2018. The LISA will be introduced next April and Help to Save a year later, at the latest—both before the new financial guidance body is in place. This seems like bad timing.

The Government clearly do not believe that the current financial guidance system is working well, and they will replace it. But in the meantime, it creates further financial complexity for individuals by introducing these new products. This is surely dangerous, especially if it leads to individuals making wrong decisions about pension provision or if low-income households are encouraged to take up Help to Save when they would be better off paying down debt. This is not a small or trivial problem. For many low-income households, saving may be an unsatisfactory and expensive substitute for debt repayment. Who will these households turn to for impartial advice?

The Bill itself is silent as to who will manage the LISA and Help to Save schemes, although it says that LISA account holders will be able to transfer their holdings between plan managers. It also talks of “account providers”—plural—for the Help to Save scheme. This all sounds as though there will be more than one provider for each scheme. However, in the Commons, on 17 October, Jane Ellison explained that both schemes would in fact be administered by,

“a single provider, National Savings & Investments”.—[Official Report, Commons, 17/10/16; cols. 607-8.]

Why is this? Why are the Government introducing a monopoly supplier across both these products and what is the point of the transfer provisions in this Bill if there is no one to transfer anything to? I would be grateful if the Minister could tell us why the Government have chosen to establish these monopolies. Can she say whether the Government considered commercial or mutual alternatives? If they did, why did they reject them or, if they did not consider them, why not?

It seems to me particularly important that we have answers to these questions in view of the provisions in paragraph 3(2) of Schedule 1, which seems to give the Treasury unlimited powers over claims for LISA bonuses and—more alarmingly—allows delegation of these powers to HMRC. This seems intrinsically unhealthy and probably not acceptable to potential commercial or mutual providers. Can the Minister say whether the Government have discussed these provisions with potential commercial and mutual plan managers and if so, what the response was? Schedule 2 gives the Treasury more or less the same powers to amend by regulation the details of the Help to Save product. It is extremely odd that Schedule 2 contains an entire section—part 3, paragraph 9—that defines an authorised account provider for Help to Save when there is to be only one monopoly provider. Is this a case of the Government changing their mind as the Bill progressed through the Commons, or of the Government preparing the ground for the introduction of multiple providers? I hope that it is the latter. The Minister was asked about this situation in the Commons, in particular why credit unions could not be providers of Help to Save schemes. There was no convincing or clear answer. When challenged, the Minister asserted that multiple providers would not offer value for money. As Gareth Thomas observed, no costings were produced to justify this claim; in fact, no evidence was given for it at all.

Rather confusingly, however, in the closing stages of the Bill in the Commons the Minister displayed an evident sympathy for using credit unions and a willingness to reflect on the idea. Can the Minister, therefore, update the House on the Government’s thinking on alternative providers for both schemes, and in particular on credit unions as providers for the Help to Save scheme? Can the Minister commit to allowing credit unions to be providers, and to allowing and encouraging alternative providers for both schemes?

--- Later in debate ---

[Baroness Neville-Rolfe]

I take note of the noble Baroness’s point. There is a balance here. I have set out why we have got to where we have got to. Indeed, I look forward to debates on the statutory instruments for this Bill in the fullness of time. I am sure nobody has ever said that before.

The noble Lord, Lord Sharkey, asked about other providers. He referenced a discussion in the other place about the involvement of credit unions. We have appointed NS&I as the scheme provider to remove significant administrative and compliance costs associated with allowing different providers to offer accounts. An option where we fund NS&I to provide accounts while allowing other providers to offer accounts on a voluntary basis would not provide value for money, but—this answers his question—we shall not rule out the option for a range of providers to offer accounts as long as they deliver national coverage. We felt that the credit union did not do that. That is why the Bill has been drafted to accommodate different models of account provision, although other models are not in the current plan.

[Lord Sharkey]

I am grateful to the noble Baroness for that answer and I understand the position the Government have taken. Are there ongoing conversations with credit unions and other commercial suppliers of both these schemes?

[Baroness Neville-Rolfe]

I believe that the Economic Secretary to the Treasury has had some discussions of which the noble Lord may be aware, but I should not want to suggest that we are about to change the situation. I have made it clear that the provision is written in an appropriately broad fashion. I can also confirm that the Government are not restricting the number of lifetime ISA providers. Provision will be open to any provider with the appropriate HMRC and FCA approvals.

When it comes down to it, this money Bill is all about supporting people who are trying to save, whether through increased support to those on low incomes through Help to Save or through the increased flexibility and choice for younger savers offered by the lifetime ISA. This is a Bill that supports people trying to do the right thing—those who want to save and to be financially prepared for the future. I am therefore pleased to commend this Bill and to ask the House to give it a Second Reading.

Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015

Lord Sharkey Excerpts

Monday 2nd March 2015 Grand Committee

[Lord Newby (LD)]

My Lords, I shall speak also to the draft Financial Services and Markets Act 2000 (Miscellaneous Provisions) Order 2015. I am pleased to introduce these statutory instruments.

The Government have fundamentally reformed regulation of the consumer credit market, transferring regulatory responsibility from the Office of Fair Trading to the Financial Conduct Authority on 1 April last year. The FCA is better resourced and more empowered than its predecessor and has been equipped with flexible rule-making powers to ensure that it keeps pace with developments in the market. The FCA regime is already having a significant positive impact and is helping to deliver the Government’s vision for an effective and sustainable consumer credit market that is able to meet consumers’ needs.

The raising of standards will improve further as the FCA undertakes authorisation assessments to assess firms’ fitness to trade—a process that has already begun for those industries regarded as the riskiest, including payday lending—and these instruments to be debated today help to support the effectiveness of the FCA’s regulatory regime.

First, the e-commerce order provides the FCA with powers to tackle credit firms, including payday lenders, which abuse their rights under the e-commerce directive to evade FCA rules. As noble Lords will be aware, the Government have taken robust action significantly to improve protections for consumers in the payday lending market. The Government transferred regulatory responsibility to the FCA’s powerful new regime and legislated to require the FCA to introduce a cap on the cost of payday loans.

The Government strongly welcome the payday lending rules introduced last year by the FCA, including limits on rollovers and the use of continuous payment authorities, and tougher requirements around affordability assessments. On 2 January, the FCA’s cap on the cost of payday loans came into force, as required by the Government. Consumers are far better protected under the FCA regime. The FCA has a wide-ranging enforcement toolkit to take action where wrongdoing is found, and the rigorous authorisation process for payday lenders is under way.

FCA regulation is already having a dramatic impact on the payday market—indeed, the FCA found that the volume of payday loans fell by 35% in the first six months since it took over regulation. These data are from before the cost cap took effect in January.

The Government are committed to preventing the gaming of the FCA’s regulatory regime, including the risk that lenders seek to relocate abroad and lend back into the UK. The important powers in this order will protect UK consumers by giving the FCA powers to take action against credit firms that abuse their rights under the e-commerce directive to establish themselves in another EEA member state but lend primarily to the UK. The powers will enable the FCA to require credit firms to comply with FCA rules—including, in the case of payday lenders, the price cap—or require them to seek full authorisation to continue carrying out their activities. The order therefore represents an important reinforcement of the FCA regulatory regime, helping to protect UK consumers from unfair costs and harmful practices.

I turn now to the miscellaneous order. This order will address a number of technical issues to ensure that consumer credit regulation strikes the right balance between proportionate burdens on business and providing robust protections for consumers. In particular, the order makes several provisions to minimise unnecessary regulatory burdens on firms.

For example, the order adjusts the working definition of a “domestic premises supplier”. This definition is important because it requires firms selling goods in a customer’s home to comply with the higher regulatory standards in the FCA’s “full permission” regime, thereby helping to protect consumers from the pressure-selling of goods or services on credit. However, it is important that this definition is drawn correctly to minimise unnecessary regulatory burdens on businesses and support the provision of goods and services to consumers.

The order ensures that firms providing goods or services in a home where no attempt is made to sell other goods or services, or anything extra provided is free of charge, are not regarded as “domestic premises suppliers”—for example, where a mobility aid supplier simply visits the customer’s home to measure up before a contract is signed, or where a kitchen supplier delivers and installs an item after it has been ordered. These firms can therefore benefit from the FCA’s lower-cost “limited permission” regime.

The order also makes a number of other technical adjustments to ensure proportionate regulatory burdens. For example, it ensures that solicitors—who are already subject to their professional regulatory regime—will not require FCA regulation when undertaking credit activities incidental to the firm’s professional services. I beg to move.

[Lord Sharkey (LD)]

My Lords, I will speak only to the first of the two orders before us. This order has the usual eye-catching name for such things: the Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015. A better and clearer name for the SI would be: “Closing a Gigantic Payday Lending Loophole”, because, as the Minister said, that is exactly what the SI does.

On 9 December 2013, in response to amendments put down by the noble Lord, Lord Mitchell, and by me, the Government finally accepted the need for strict control of payday lending. The FCA rules that followed capped the cost of payday loans and limited the number of permitted rollovers. They also created the conditions for real-time data-sharing by lenders in order to reduce the incidence of multiple simultaneous loans. The Treasury and the FCA are to be congratulated on that. Together, with some prompting from your Lordships’ House, they have entirely changed the nature of the payday loan sector in the United Kingdom. What started out as outrageous and cruel usury has been reduced to more or less sensible costs and more or less sensible limits. The capacity of payday lenders to inflict terrible damage, as they were doing, on the most disadvantaged has been severely reduced, and I am pleased to be able to say that many payday lenders have simply shut up shop in the UK as a consequence of the new regime.

I do not think that the situation is ideal yet because, for many of us, the number of rollovers is too high, there is not yet a proper real-time database of loans outstanding and there is no mechanism for automatically preventing multiple simultaneous loans. Of course, as we speak, payday lenders are busy changing their business models in ways that will require continued vigilance on our part. We will have to see how all that works out.

In the debate of 9 December 2013, I raised for the first time the question of what seemed to me a gigantic loophole in the proposed new regulations. This was the loophole to do with the e-commerce directive, which we are discussing. As the Minister said, this directive would allow any payday lender to avoid our regulation if they were based elsewhere in the EEA and were trading in the UK only electronically. This would mean that any payday loan company could continue to operate in the UK but entirely outside our rules, caps and limits if it were based in the EEA and had no bricks and mortar presence here in the UK.

I asked the Treasury at the time what it intended to do about this. I had subsequent conversations with the Minister and officials about the problem. This order is, as the Minister correctly said, the solution to that problem. It closes the gigantic loophole in the regulations. If payday loan companies based abroad now try to use the e-commerce directive to avoid UK regulation, they can now be stopped from operating in the UK or forced to comply with our rules if they want to continue to operate in the UK. This is a very good and very necessary step forward, and I am delighted that the Government and the FCA have acted.

As the Minister said, this new order adds to the protection against the immoral and unscrupulous exploitation of the most vulnerable people in our society. However, it is a Treasury order and it is written in the Treasury’s normal, deathless—meaning, obvious-on-the-face-of-it—prose, which means that there are just a couple of questions that I would like to ask the Minister.

New Regulation 11A lists the kinds of activities that the order will apply to. Can the Minister say whether this list includes debt management companies? I know that he is aware of the wholly unacceptable charges and practices of some companies operating in this sector.

New Regulation 11B (2)(a) seems a little ambiguous. It says that the authority must be satisfied that the incoming provider,

“directs all or most of its activity to the United Kingdom”.

The question is: how is “most” to be interpreted here? Does it mean “most” by weight of advertising, “most” by number of customers or “most” by the value of lending to those UK customers? How will the authority arrive at a measure of whichever interpretation of “most” it wants to use? I very much hope that my noble friend the Minister will be able to say that the FCA will be able to use all or any of the above interpretations and that it will be able to use, as a conclusive determination, whatever measures it considers reasonable.

Those are details but, in this area, detail is often absolutely critical. However, I do not want the detail to overshadow my congratulations to my noble friend the Minister and the FCA. They have closed a potentially very damaging loophole in the payday regulations.

[Lord Tunnicliffe (Lab)]

My Lords, I start by welcoming the noble Lord, Lord Sharkey, to our debates. The noble Lord, Lord Newby, and I feel flattered that we are now three instead of our usual two on these instruments. The noble Lord, Lord Sharkey, and colleagues on my Benches are to be congratulated on the campaign they have waged on this issue. The noble Lord’s description of the e-commerce directive and a gigantic loophole is absolutely valid, and I join him commending the Government on closing that hole. However, we believe that this is only part of the way forward. The payday scandal has been attacked in the sense that many unscrupulous operators have been driven out of the market, and that will go further, but we wish to promote safer and more ethical forms of lending. We will try to ensure that co-operatives and mutual ownership models are able to compete on a level playing field. We will look to give greater power to local authorities to eliminate the spread of payday lending shops in town centres, and we will want to investigate ways in which to support mutuals—for example, by improving the regulatory structure in which they operate and making available support from the British investment bank. The sad fact is that we have problems in our society that mean that short-term loans are needed. It is not just about driving out the bad guys; it is about creating opportunities for a new breed of good guys. We already have credit unions to turn to as an example.

On the second order—and I thank the Minister for showing us how the two orders fit together—the Explanatory Memorandum makes perfect sense, except for the part of it that he explained, which I am left having trouble understanding. Paragraph 7.1 says:

“To extend the scope of the limited permission regime in relation to ‘domestic premises suppliers’”.

I see the importance of extending the scope to domestic premises suppliers. I went to the order—and you know that you are driven to your limit when you actually read the order—and I found that,

“domestic premises supplier” means a supplier who … sells, offers to sell or agrees to sell goods, or … offers to supply services or contracts to supply services … to customers who are individuals while the supplier, or the supplier’s representative, is physically present at the dwelling of the individual”.

I am gripped of the importance of the regulations applying in those circumstances. The key issue is the caveat in sub-paragraph (3B), which says:

“A supplier who acts as described in sub-paragraph (3A) on an occasional basis only will not be a domestic premises supplier unless the supplier indicates to the public at large, or any section of the public, the supplier’s willingness to attend”,

and so on. It seems that the differentiation is on whether they advertise or not. If I have got that wrong, I would be grateful to the Minister for writing to me. I cannot see how the words of the provision translate to the picture that he has just described, with what I would have thought was almost peripheral to suppliers not being covered rather than this specific thing, whereby,

“unless the supplier indicates to the public at large”.

I do not know what that means other than that they are in the advertising business.

Finally, does the Minister know of any specific instances where the issues that the order remedies have manifested themselves, or is this anticipatory and intended to stop a problem before it arises? Is he satisfied with the FCA’s performance as a regulator so far, since it took up those responsibilities from the OFT?

Financial Services: Cold Calling

Lord Sharkey Excerpts

Monday 17th November 2014 Lords Chamber

Asked by

[Lord Sharkey]

To ask Her Majesty’s Government what steps they are taking to bring organisations which make cold calls connected with the promotion, or sale, of financial services or products under the regulation of the Financial Conduct Authority.

[Lord Newby (LD)]

My Lords, the FCA’s financial promotion rules apply to regulated financial services and products, and cover all forms of financial promotion, including cold calling. On consumer credit, the FCA requires regulated firms that accept business from unregulated lead generators to take reasonable steps to ensure that the business operates in compliance with legal requirements. The Information Commissioner’s Office can also issue a penalty of up to £500,000 to any organisation that breaches the legal requirements around cold calling.

[Lord Sharkey (LD)]

My Lords, 31 million adults say that they have been offered fee-charging debt management via cold calls and texts. When these calls are from intermediaries, as they usually are, they are not in fact regulated by the FCA. As a result, the callers are not obliged to tell of the existence of free debt management services, which would be the case if the calls came directly from the debt management companies. The FCA already bans cold-call selling of mortgages. Will the Government consider doing the same for payday loans and fee-charging debt management services?

[Lord Newby]

My Lords, all debt management companies themselves are required to advise on free debt management options at their first contact with a potential customer, so even when lead generators are being used there should be no cases in which people sign up for advice without having been told about the free alternatives. That is the key requirement. The circumstances that led to the banning of cold calling on mortgages a number of years ago, around the right to buy, were very different from the broader considerations that apply more generally.

Debt Management Organisations

Lord Sharkey Excerpts

Monday 28th July 2014 Lords Chamber

Asked by

[Lord Sharkey]

To ask Her Majesty’s Government what steps they are taking to ensure that debt management organisations serve the interests of their clients.

[Lord Newby (LD)]

My Lords, the Government have given the Financial Conduct Authority responsibility for protecting customers of debt management firms. Debt management firms are subject to binding FCA conduct rules and must treat customers fairly. FCA prudential and client money requirements are also being introduced to protect customers’ money. The FCA will thoroughly assess every debt management firm’s fitness to trade as part of the authorisation process from October this year.

[Lord Sharkey (LD)]

My Lords, half of the clients of fee-charging debt management companies do not know that there are equivalent free services. These clients are mostly recruited by cold calling and 31 million cold calls were made last year. The FCA says that it does not regulate these calls. Can the Minister say who does regulate them and are cold callers required to advise of the existence of free debt management services?

[Lord Newby]

On the second part of the noble Lord’s question, debt management companies will be required under the new rules to signpost consumers to free debt advice, which will be a major improvement. There are two elements of regulation of cold calling and unsolicited text messages. The ASA has some responsibility in that area and it has already taken action to ban payday lenders’ use of unsolicited text messages. As with its regulation of other financial services markets, the FCA is committed to ensuring that cold calling by phone, text or e-mail makes the identity of the firm and the purpose of the communication clear to those being called.

Queen’s Speech

Lord Sharkey Excerpts

Wednesday 11th June 2014 Lords Chamber

[Lord Sharkey (LD)]

My Lords, in last year’s debate on the Queen’s Speech I spoke about the situation in Cyprus. I thought we were then looking at the most favourable prospects for reunification that we had yet seen and I called upon the Government to increase their involvement. A year later, my cautious optimism seems not to have been entirely misplaced. Detailed negotiations are under way. The FCO has been very active and deserves congratulations for that. It has continued its informal dialogues with the diasporas, talked to civil society organisations and taken the bold step of inviting the Turkish Cypriot leader and his negotiator to London. This is the first time that Turkish Cypriots have been invited formally to London and it is a welcome step. None of this means, of course, that negotiations will be easy or successful.

On Monday, I attended a lecture at the LSE given by Dr Kudret Özersay, the Turkish Cypriot chief negotiator. Dr Özersay was frank about the difficulties but he was cautiously optimistic. He made a compelling point about the conditions for success. Clearly, the first condition is the production of a federal, bi-zonal, bi-communal plan acceptable to the political leaderships of both sides. However, if this plan is to gain popular approval in a referendum on both sides, it must pass one other test. Will acceptance of the plan produce a better state of affairs for the people of the north and the south, or, as Dr Özersay put it, will both sides recognise the harm to them involved in rejection of the plan? This was clearly not the case for the Greek Cypriots with the Annan plan.

The international community has a role to play here, especially the guarantor states and the EU. We cannot and should not intrude upon the negotiations—any solution has to be by Cypriots for Cypriots—but we can encourage and help make clear the benefits of reunification. Britain and the EU here have an opportunity to redeem past mistakes—Britain for allowing the divided island to join the EU in the first place; and the EU for the post-accession broken promises that it made to the north.

The situation in the eastern Mediterranean grows increasingly unstable and dangerous and the BBC is reporting that ISIS is now fighting for Tikrit after taking Mosul. This growing instability is a reminder that we need a Cyprus settlement this time around—not only because failure will undoubtedly provoke a deepening and hardening of the divisions on the island but because, regrettably, the behaviour of Turkey is becoming more worrying.

Turkey’s stability and orientation are vitally important to NATO and to the interests of the West in general. Turkey’s development has been hugely impressive: from authoritarian, agrarian and poor to democratic, industrial and relatively wealthy, but inclining once again towards authoritarianism. There is a sad record of imprisonment of journalists, of restrictions on the freedom of speech and of executive interference with the police and the judiciary. There is the danger of a deepening division between the secular west and the pious Anatolian heartlands. This is greatly to Turkey’s disadvantage, not only in its relations with the West but economically.

Admiration of western values has long been a driving force in Turkey, both politically and culturally. However, unfortunately, the attraction of the West and of the EU has declined significantly in recent years. Prime Minister Erdogan’s then chief adviser, Yigit Bulut, recently called the EU,

“a loser, headed for wholesale collapse”.

Turkey’s last EU Minister and chief negotiator said:

“Turkey doesn’t need the EU. The EU needs Turkey. If we had to, we could tell them ‘Get lost, kid’”.

All this is bad news for the EU, for the West and for Turkey. Our influence has been allowed to wane.

Given the public hostility of France and Germany and the long delays in the accession negotiations, it is no wonder that many Turks no longer see the prospect of EU membership as either realistic or desirable. This is a cause for concern. The West needs Turkey as a friend and an ally. Her Majesty’s Government have always understood that, while others have not. We are currently engaged in persuading our EU partners of the merits of reform, and the merits of Turkish accession may not sit easily alongside these discussion. Nevertheless, I urge Her Majesty’s Government to persist in their strong advocacy of Turkish accession. Europe will be weaker and more vulnerable without it.

Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014

Lord Sharkey Excerpts

Monday 10th February 2014 Grand Committee

I hope I have reassured the Committee that these SIs will help to ensure that the Government’s plans for fundamental reform of consumer credit regulation run smoothly, and strike the right balance between improving consumer protection and ensuring that regulation is proportionate.

[Lord Sharkey (LD)]

My Lords, I shall speak to both orders. The first takes up little more than a page, while the Explanatory Memorandum attached to it takes up 49 pages. The second order takes up 30 pages and the Explanatory Memorandum for that also takes up 49 pages, but is essentially the same text as the first one. That is not a complaint: the Explanatory Memorandum is a model of its kind—it is clear, thorough and indicates clearly areas of doubt or uncertainty.

There is one area of doubt or uncertainty arising: the effect on SMEs—not as providers of credit but as customers of credit providers. The impact assessment estimates the cost of the measures over 10 years at £336 billion and the benefit at £689 million—an estimated net benefit of £353 billion. However, the impact assessment does not say how this net benefit is distributed. That is my first question: are SMEs net beneficiaries or is all the benefit delivered elsewhere?

The impact assessment also makes it clear that it expects a shrinking of the credit market. It estimates that 9,000, or 20%, of credit organisations will exit the market. It is true that these organisations represent only a small percentage by volume of total credit, but is this lost lending concentrated in the SME sector? That is my second question to the Minister. We know that net lending to SMEs continues to decline. Can the Minister provide some general reassurance that the measures before us will not make the position worse?

The note in paragraph 53 on page 13 of the impact assessment makes the point that the FCA’s most effective regulatory tools and framework to be brought about by these orders will be,

“effective in tackling known consumer detriment occurring in the non-mainstream lending market such as: payday loans, credit brokerage, debt management and home collected credit”.

That is an important improvement and I welcome it, especially as it will apply to payday loans. However, at first reading there seem to be some areas missing from the list. The impact assessment notes in paragraph 25 on page 8, as a rationale for intervention,

“that the market is not functioning as well as it should and the regulatory regime cannot keep pace with the market”.

However, as far as I can detect, no explicit mention is made anywhere in the orders or the Explanatory Memorandums of crowdfunding or peer-to-peer lending. As the Minister knows, these are rapidly growing credit areas, and ones that offer additional opportunities for SME funding. Can the Minister confirm for the Committee that crowdfunding and peer-to-peer lending will fall within the ambit of these orders? I think I heard the Minister say that that is the case for peer-to-peer lending, but I should like to know whether it is also the case for crowdfunding.

Before I conclude, I should like to ask the Minister a little more about the effects of these orders on payday lenders. The Minister has previously confirmed elsewhere that under the terms of the EU e-commerce directive, the UK has no power to cap the cost of payday loans extended by companies based in the EEA and trading only electronically in the UK. However, I notice in paragraph (5)(e) on page 16 of the second order that the authority has the power to prohibit the entry into credit agreements by an EEA authorised payment institution if that institution,

“engages in business practices appearing to the Authority to be deceitful or oppressive or otherwise unfair or improper (including practices that appear to the Authority to involve irresponsible lending)”.

Does this provision apply to payday lenders based in the EEA and operating only electronically here in the UK?

[Lord Tunnicliffe (Lab)]

My Lords, I welcome these two orders. It is the duty of Her Majesty’s Opposition to study secondary legislation and then to oppose it where we find errors and faults, but I have to say that I have not been as successful as the noble Lord, Lord Sharkey, in finding questions to pose to the Minister, so at least my words will give him a little time to collect together his notes on those technical areas. While we welcome the orders, my honourable friend in another place did ask one or two questions which seemed to be answered satisfactorily. As far as I can tell, the orders do their job. With the permission of the Committee, I should like in a sense to celebrate these orders because they represent the last hurdles of effecting the transfer of responsibilities for consumer credit from the OFT to the FCA. Over the past many months, we have all been concerned about the consumer credit market, in particular its grey areas and payday lending.

I, too, have studied all 49 pages of the impact assessment, although I did not find the same inconsistencies as the noble Lord. I did pick up an implication that the resources to be devoted to the area seem to be tripling from around £10 million per annum to £30 million, and I would be grateful if the Minister could confirm the extent to which new resources are being made available for this new activity. What does this represent in terms of resources and people at the FCA devoted to the consumer credit market? Will it involve the transfer of people from the OFT? Will it involve new and perhaps more capable people working in this market? Will there be a change in attitude and culture on the part of those working in this area?

As has been pointed out, there are some detailed areas, but the really serious evil here is the loan sharks, the rogue lenders and the payday loans market. That market is pretty worrying at every level, from the one-person operator through to major organisations. It involves probably some of the most vulnerable consumers in the land, who are people making decisions in very difficult and stressful circumstances. If ever a market needed intelligent, proactive government regulation, it is this one, and I hope that what the Government have designed will do it.

I would be grateful if the Minister could say a few words about how the regulators will be more proactive. The documentation makes the point that the FCA can be forward-looking and create regulations quickly. I would be grateful if the Minister could expand on that and give me some reassurance—in response to a point made by a colleague—that the new unit will be able to strangle products at birth; in other words, will be sufficiently proactive to sweep the market for the emergence of new products and move quickly to kill them before they do the social harm that we know they can do.

One of the aspirations of these changes is to bring rogue firms under control, which I think we all welcome. The problem is that it might increase opportunities for illegal operations. I feel as though I am in a pantomime now and saying, “Look behind you”, because notes are at the Minister’s right hand. To what extent will the unit work with the police where it sees the early emergence of illegal operations and stamp them out before they can create the evil which we know happens in communities under stress?