High-income Child Benefit Charge

Anneliese Dodds Excerpts

Tuesday 3rd September 2019 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to speak in this debate with you in the Chair, Mr Hollobone. I congratulate the hon. Member for South Thanet (Craig Mackinlay) on securing the debate, which has been very good and detailed. I will not repeat all the points he made, or indeed all those made by the hon. Members for Strangford (Jim Shannon) and for Glasgow Central (Alison Thewliss), because I agree with very many of them, but I want to underline some of the questions that I hope the Minister is able to answer, or at least some of the issues that his Department needs strenuously to take on board.

As was rightly mentioned, new research on the high-income child benefit charge indicates that much larger numbers of people are being drawn into the system than were initially. The Institute for Fiscal Studies indicated that since the £50,000 threshold has not shifted upwards, about 36% more people—370,000 more families— will lose child benefit in 2019-20 than in 2013-14. The system is now also interacting with changed tax systems for other sources of income, such as the system for those who eventually rely on rental income.

The Labour party has consistently objected to the removal of the universal nature of child benefit. Clearly, however, there are also practical reasons why the high-income charge is unfit. It has added unnecessary complications, many of which we have already heard about, and it has had a significant impact by requiring up to around half a million people to engage in self-assessment, which is not an easy process.

The hon. Member for South Thanet mentioned that about 6,000 cases of supposed over-claiming of child benefit have been written off by HMRC, which has handed out refunds of about £1.8 million. It would be helpful to hear from the Minister what work is being undertaken to ensure that all those who might benefit from some kind of refund of additional charges levied because of alleged over-claiming—I am not sure I like that term, to be honest—are aware of that.

I hope the Minister also deals with the suggestion the hon. Gentleman rightly made that the real-time information system could proactively be used to try to identify those who might be in danger of falling into this kind of trap. I am concerned to see yet again what appears to be a lack of co-ordination on what are often viewed as Department for Work and Pensions responsibilities but in practice are delivered by HMRC or in some other way by the Treasury. I was concerned just before the recess that the Minister’s Department did not seem to want to take responsibility for the clawing back of alleged overpayments of working tax credit from universal credit. It said that was a DWP issue. It is not; it is a Treasury issue. Yet again, we have a lack of co-ordination. That needs to be dealt with.

The high-income charge increases the complexity of the already incredibly complex tax system HMRC is expected to deal with, and having to deal with appeals arising from the charge increases the enormous burden that HMRC staff already face. We all know that HMRC has been cut more than any other European nation’s tax department aside from that of Greece, which I suspect is not an example we would want to follow. We see the burden on HMRC staff increasing all the time, not least given the prospect of a no-deal Brexit—we could hardly have ignored that at the beginning of the debate, given the noise from outside. Will the Minister say what resource HMRC is being given to deal with that?

I share the concerns about the impact of the high-income charge on families with sole earners, which was rightly emphasised by the hon. Member for Strangford and others. I also share the concerns about the impact of the charge on independence. It is part of what we might call a triple whammy of a whole range of measures, including what we have seen in relation to universal credit.

This debate has echoed many of the issues with childcare tax credits, where there has been a lot of confusion about things such as the relationship between parents’ incomes and who loses out as a result. The hon. Gentleman described how families often use child benefit to create an asset for their children. That has become increasingly important and relevant, as of course we no longer have the child trust fund.

It is important that the Minister explains what is being done to deal with the long-term problem of people inadvertently becoming unable to accrue state pension credits because they do not qualify for national insurance contributions or indicate that they want to be part of the system. Obviously, that disproportionately discriminates against women. There is already a huge gender pension gap. What are the Government doing to ensure that those who might be caught by this issue are not? I absolutely agree, having been through that process myself—I suppose I should declare an interest in that regard—that its impact is not obvious. There is no clear indication that it will result in a big reduction in a person’s retirement income.

It would also be useful to understand any possible disincentive effects of this measure. I am not sure that the case the hon. Member for South Thanet mentioned is as unlikely as all that. I remember from my childhood a family up the road who suddenly, very sadly, dropped down to a sole earner. They had nine children, and the father, as the sole earner, had to bring them up. What will the impact be in such cases if there is suddenly this kind of cliff edge? We have seen the impact of cliff edges with the overall family benefit cap. We are in danger of replicating that here.

I hope the Minister answers those questions. Obviously, I hope the whole high-income child benefit charge is abandoned. I do not expect him to make quite as dramatic an announcement here, but I hope he rules out any reduction in the availability of other universal benefits, given the kinds of issues we have discussed and the impact on equity.

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a great pleasure to serve in this reconvened Parliament under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for South Thanet (Craig Mackinlay) very much for calling this debate and drawing attention to this important issue, and for his thought-provoking and expert speech, which very much reflected his professional experience as well as his political commitments. I very much welcome that. He raised a lot of issues, and a wide range of issues were raised by the hon. Members for Strangford (Jim Shannon), for Glasgow Central (Alison Thewliss) and for Oxford East (Anneliese Dodds). I will come to all those. Let me address some of them in my opening remarks and then come to the specific questions that were raised.

As you will know, Mr Hollobone, child benefit was introduced in 1977. It has always been, and it remains, a universal benefit payable to individuals who are responsible for what is referred to as a qualifying child or children. Before 2013, there had been significant growth in the use of the benefit—rightly and importantly so; of course, that is why benefits exist—but it was recognised that, at a time of austerity, there was an anomaly, in that more than £1 billion a year was being spent in child benefit on higher-rate taxpayers. That was felt to be not merely imprudent from a financial standpoint but morally problematic. It would mean, as it were, taxing working people on low incomes to pay for the child benefit of those who earned considerably more.

If it is true that, as the hon. Member for Oxford East said, it is now Labour policy to remove the high-income child benefit charge—she was perfectly clear about it, so I think it is true, but she is welcome to correct me if it is not—the Labour party needs to ask itself whether it thinks it appropriate to tax the wider population, including working people on low incomes, to pay the child benefit of those who earn considerably more. We also note that the cost to the Exchequer of such a policy is of the order of £1 billion to £1.5 billion.

[Anneliese Dodds]

I am grateful to the Minister for giving away. He is well aware that we opposed the measure at the time, as we did many other elements of the Government’s programme. We also criticised the tax cuts given at the same time to the highest earners and to profitable corporations, which in their magnitude over time were more substantial than what we are talking about now.

[Jesse Norman]

That is an ingenious attempt to link two issues that, in and of themselves, are not connected. One can have a policy on high income tax earners and the payment of child benefit to them and one can have an entirely separate policy about other aspects of the tax system. The question remains whether it is morally appropriate to give the benefit to those people, and the judgment in 2013 was that it was not the right thing to do. That was an important consideration.

If the hon. Lady is concerned about the wider picture, I remind her that—I think I am right in saying this—the top 1% of taxpayers pay a higher percentage of tax now than at any other point in our history.

[Anneliese Dodds]

rose—

--- Later in debate ---

[Mr Philip Hollobone (in the Chair)]

Order. The intervention is in the gift of the Minister, but I draw the House’s attention to the fact that the Minister has only 5 minutes left.

[Anneliese Dodds]

Thank you, Mr Hollobone. I merely state that the Minister is correct in relation to income tax, but not in relation to other taxes.

[Jesse Norman]

The judgment made in 2013 was that it was appropriate to claw back some of the money paid to people on higher incomes and that everyone should make a fair contribution to removing the deficit while supporting those on the lowest incomes. I think that was the right judgment. Of course, for a minority of claimants where either they or their partner earn more than £50,000 in adjusted net income, there is a requirement to pay the tax charge or to opt out of receiving child benefit payments and therefore not pay the charge.

It is a fair criticism, made eloquently by my hon. Friend the Member for South Thanet and others from across the House, that the charge does not take into account overall household incomes, so it is possible—and it does happen—that a single parent earning more than £50,000 is liable to the charge while a couple each earning up to £50,000 is not. That is because, as he said, the charge is a tax, calculated in accordance with the principles of individual taxation at the individual level alongside other tax policy. Here we have one of those difficult decisions for the Government about what is the right thing to do. The judgment made in 2013 was that it was better to take that approach than to base a charge on household incomes, because that would require HMRC to assess annually both household composition and the incomes of everyone in the 8 million or so households eligible for child benefit, which would effectively introduce a new means test, creating a substantial administrative burden on both the state and families. That is the dilemma.

The effect of the charge is to introduce a high marginal tax rate. That is an unattractive aspect of the policy; we should be clear about that. If I may say so, it is not a salutary lesson in how not to withdraw a benefit, because the alternatives of not levying the charge at all or levying it on a cliff edge rather than by gradual withdrawal are worse. It is open to others to take the view that one of the alternatives is better, and my hon. Friend may do so, but not subject to the fiscal constraints in which we have operated.

A series of questions were raised about HMRC communications. As my hon. Friend recognised, the Revenue and Customs took considerable steps to raise awareness of the higher income child benefit charge. It wrote to about 800,000 affected families when the charge was introduced. It also ran a high-profile advertising media campaign and included a prominent message about the charge in 2 million letters to pay-as-you-earn-only higher rate taxpayers. There was a considerable communication process.

Today, to respond to the question from the hon. Member for Strangford, information on the charge is included in packs for new parents telling them how to claim child benefit. The front page of the child benefit application form includes a prominent message about the charge to help people make a decision on whether they should claim and be paid child benefit, about the importance of claiming even if they do not receive payments, and about the important issue of eligibility, which was rightly highlighted in the debate. Guidelines are available online formally through gov.uk and through innumerable organisations and groups.

As my hon. Friend the Member for South Thanet mentioned, individuals who pay the charge need to make a self-assessment tax return and may face a failure to notify penalty if they do not. I think he will know that HMRC announced a review of cases where a failure to notify penalty was issued for three tax years. It reviewed 35,000 cases and responded by reviewing the amount for over 6,000 people.

There are many other points to cover in the short time that remains. My hon. Friend said that 500,000 people have been forced into self-assessment. I am happy to write to him on that. As he will be aware, the current number paying the charge through tax returns is 293,000. Of course, there are some 40 million people in pay-as-you-earn. He also said that the charge has dragged 1.2 million people into the system. I am not quite sure about that, but if he wants to contact me, I will be happy to assist him further.

The hon. Member for Glasgow Central said that the charge is a gendered policy. I do not think that is true at all, and many other aspects of Government policy do not reflect anything like that position, as she will be aware. For example, there is extensive work in supporting women as entrepreneurs and women in business.

Summer Adjournment

Anneliese Dodds Excerpts

Thursday 25th July 2019 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is always a pleasure to follow my hon. Friend the Member for West Ham (Lyn Brown). I was very disturbed to hear about the testimony that she mentioned, but equally I am pleased that she has voiced it in this House. I am sure that everyone heard it and was appalled by the details.

I rise to speak today because the House declared a climate emergency on 1 May. If anything, that emergency has become ever more evident over recent days. While we have been in this House, outside in our country the temperatures reached a record-breaking 39°. I pay tribute to all those emergency services who have been helping people to deal with the heatwave. They have been active in Paris as well, which has just itself reached a new record of 41°. In the Netherlands and Belgium, national records for temperature have already been broken this year.

In fact, over the last 19 years, five new records have been broken for summer temperature in Europe, going back to 1500. Think about that: the five hottest summers in Europe since 1500 have occurred just in the past 19 years. But my constituents tell me that what we have experienced here in Europe is as nothing compared with the experience of many of their families in the global south. Two years ago, people living in the Punjab had to put up with temperatures of 52°. Farmers in Jamaica have been experiencing drought after drought after drought, and children living in Bangladesh are becoming more malnourished as extreme weather event follows extreme weather event.

Just yesterday, three scientific studies were published that showed that the temperature changes we are currently experiencing are happening faster and more intensively than at any point over the past 2,000 years. What has been our response? Well, Parliament is about to adjourn. I agree with my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) that we will still be working, but Parliament will not be sitting. In any case, since 1 May it has felt like business as usual.

I have talked to lots of children and young people in my constituency about the climate crisis. In fact, many of them have come to speak to me during mass lobbies on the topic in this place. I know how concerned many of them are about the crisis; in fact, many of them at local schools have been producing posters with their views about the environmental crisis. I find it heartbreaking to see their images of the climate breakdown—of what they think it will be like if we do not act—but I am inspired by their passion and determination to do something about it.

Those children and young people, and their parents, have been asking me to ask questions in this place on their behalf. Those questions include things like: why are we still building homes in this country that are not zero carbon? Why we are spending only 2% of our transport budget on cycling and walking? Why is part of our aid budget still going towards supporting fossil fuel-based technologies in the global south? Why have we seen feed-in tariffs abolished and a block on onshore wind? Why are we denying our country the benefits of the 400,000 extra jobs that would come from a green new deal?

When we return to Parliament, I hope it will not be to the chaos of an impending no-deal Brexit, but even more fundamentally it must not be a return to business as usual. When we come back at the beginning of September, it must be to a legislative programme that meets the aspirations of those children and young people and their parents, that faces up to the climate crisis, and that actually embodies the meaning of the term “emergency”: a situation that demands an immediate response.

NHS Pensions: Taxation

Anneliese Dodds Excerpts

Monday 8th July 2019 Commons Chamber

[Elizabeth Truss]

The answer to my hon. Friend’s first question is that the Health Secretary is currently in discussions with the British Medical Association and other health representatives about precisely what can be done, and of course the consultation will come out shortly. Some of the issues he mentioned in terms of legislation will clearly be a matter for the new Prime Minister and Administration, but the fact that my hon. Friend has raised this urgent question today will draw to people’s attention the urgency of this issue and one would expect it to be considered very early on by a new Administration. The point I was trying to make earlier is that there is a fundamental distinction between how we deal with the issues in the NHS, on which the Health Secretary is leading, and the broader issue of our pension system, which is there to encourage people to save. That has to be considered in a holistic manner so we cannot just design it around one workforce. It has to be designed to work for everybody in both the public and private sectors. That takes time of course, and we are working through some of the conclusions of the reforms that took place a few years ago.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I am grateful to the hon. Member for South West Bedfordshire (Andrew Selous) for asking this urgent question. It follows a Westminster Hall debate two weeks ago on this issue, when Members from across the House raised concerns about the Government’s mismanagement of the interaction between their pensions relief policies and the NHS pension schemes.

The worst-case scenario that we all feared has become a reality. Hospital leaders are raising the alarm that waiting lists for routine surgery have risen by up to 50%. Unless this issue is dealt with, there is a risk that the approach of the end of the financial year will lead to even greater levels of working to rule after the summer.

The changes that have led to these issues relate to the interaction of the taper, which George Osborne introduced in the summer Budget of 2015, with other rules on tax reliefs and the three NHS pension schemes. Despite decisions being taken around these measures some time ago, there appears to have been next to no communication by the Government with representative groups about this issue until the crisis had already begun. That is very different from the “constant review” that the Chief Secretary to the Treasury has just referred to.

It is fair that tax reliefs should be consistent with other core principles of taxation and that the pension allowance should decline progressively for those people who earn high incomes. However, at issue here is the interaction of that system with the NHS pension schemes, on which the representative organisations maintain they were not properly consulted. Many consultants are only now becoming aware of their liabilities. I asked two weeks ago, and I ask again, whether the Government believe that their communication with those affected has been sufficient. Furthermore, does the Chief Secretary to the Treasury believe it is acceptable that many of those affected have not even received pension statements in a timely manner, due to delays by Capita? Surely that is only exacerbating these problems.

The Government have maintained—the Chief Secretary to the Treasury did this again a moment ago—that this issue will be solved by the 50:50 pension option proposed in the NHS people plan released last month. However, a number of representative bodies have already expressed concerns about this option. So my third and last question to the Chief Secretary to the Treasury is: what discussions has her Department had with the Department of Health and with those representative bodies about the 50:50 scheme? It has been painfully clear from the Westminster Hall debate, and again this afternoon, that there has been an abject lack of co-ordination across Departments on this issue.

I am sure that many of us are concerned about the lasting impact of today’s crisis. NHS staff retention is already poor. This issue is one of many affecting dedicated senior staff, with large numbers raising concerns about levels of stress and a general lack of resource. A whole variety of Government failures is driving these retention problems. Today’s crisis is likely to add to this, with confusion over pension relief pushing many to retire earlier than they previously would have done, or encouraging some to opt to take on additional private work. I am concerned not only for those consultants but for their patients. There are currently 100,000 NHS staff vacancies; that is one in 11 of all NHS posts. This latest failure will see yet more delays for people in desperate need of care, unless the whole of this Government, working together, get a grip.

[Elizabeth Truss]

We acknowledge that there is an issue. That is why the Health Secretary is poised to launch the consultation—

Income Tax

Anneliese Dodds Excerpts

Wednesday 3rd July 2019 Commons Chamber

[Jesse Norman]

It is hard to make swingeing criticism of the idea of reliefs and then not indicate any that a Labour Government would propose to abolish. It raises the question whether the Labour party is serious about this. The hon. Gentleman described these reliefs as “corporate welfare” and giving away millions of pounds to large companies. All companies benefit that have qualifying investments and are subject to UK taxation in the way indicated; it is not just larger companies. Many of the reliefs he describes are negligible and therefore should not necessarily be the target of extensive review. He talks about the reduction in corporation tax as though it is a bad idea but neglects the fact that significantly more corporation tax has been raised following these reductions.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I am grateful to the Minister for being willing to give way. I am sure he is aware of the evidence repeated over and again by the bodies that have looked into this that the reason for increased corporation tax take was not the reduced rate of corporation tax—rather, it related to the return to profitability of banks and so forth. It was not related to the reduction in rate, and just about every authoritative study that has looked at this has suggested that.

[Jesse Norman]

Those companies’ return to profitability was the result of proper, prudent financial management. I remind the hon. Lady that in the specific case of the financial sector, the bank levy has taken billions of pounds a year more from the banks than the Labour tax that it replaced. I do not think her view has credibility.

The hon. Member for Bootle criticised the timetable, but it is designed specifically to keep uncertainty to a minimum. Far from the suggestion that it would create more uncertainty, the point of my saying that qualifying expenditure on new builds or renovations for which all contracts for the physical construction works were entered into on or before 29 October 2019 will be eligible for relief is precisely to give very clear direction to future investment. I do not agree with many of the points that he made.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 2nd July 2019 Commons Chamber

[Robert Jenrick]

The hon. Gentleman is absolutely right: there are disparities of income and productivity across the United Kingdom, and what he mentions will be one of the key objectives. But the shared prosperity fund is not our only intervention in this area: we are taking a range of measures, including significantly increasing the amount of public investment in infrastructure—to the highest levels in this country since the 1970s.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Despite pledges that the Government would provide details on the shared prosperity fund by the end of last year, the Chancellor has been silent on how much communities could lose from the £17 billion-worth of structural funds. The Chancellor has only now woken up to the danger, splurging nearly £10 billion, almost half that amount, on tax cuts for the well off—as advocated, of course, by the right hon. Member for Uxbridge and South Ruislip (Boris Johnson). Surely the only shared prosperity under the Conservatives is for those who are already well off.

[Robert Jenrick]

Clearly, it is not possible to progress this matter until we have greater certainty about our exit from the European Union. Those Members of this House who want to see this matter progressed should be voting to leave at every opportunity, as we on the Government side have done. The important thing to point out on regional disparities is that this Government are investing far more than the previous Labour Government. In fact, £430 million a week more in real terms is being invested by this Government than under the previous Labour Government on infrastructure in all parts of the UK.

Draft Double Taxation Relief and International Tax Enforcement (Israel) Order 2019 Draft Double Taxation Relief (Cyprus) Order 2019

Anneliese Dodds Excerpts

Tuesday 18th June 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve in this Committee with you in the Chair, Mr Hosie. I am grateful to the Minister for his opening remarks, and congratulate him on joining the Treasury team. I am sure this will be one of many double taxation agreements that we discuss. I hope he enjoys debating each one just as much as he has enjoyed debating these.

As the Minister has outlined, the Double Taxation Relief (Cyprus) Order 2019 amends the entry into force provisions of the 2018 DTA so that a person in receipt of a Government service pension can elect to continue to be taxed in accordance with the provisions of the previous 1974 DTA for a period of up to five years. As was mentioned by the Minister, this has been introduced in response to concerns raised by the Opposition and other members of the Committee when it met previously about the new regime’s potential impact on British servicemen and women who live in Cyprus and others. I am pleased that the Government listened and that they sought to introduce a transition period in the light of these concerns.

In relation to the Double Taxation Relief and International Tax Enforcement (Israel) Order 2019, I am pleased to see that the DTA is being updated. It is encouraging to see the UK broadly following the OECD model and adopting the base erosion and profit-shifting compliant principal purpose test. None the less, there are a couple of issues: taxation of royalties and the principal purpose test.

As many Members know, aggressive tax avoidance schemes have been developed by multinational companies, often using loopholes in the international taxation of royalties. By artificially locating the legal ownership of their intellectual property in avoidance-facilitating jurisdictions such as the Netherlands and Luxembourg, a multinational can avoid UK tax on UK royalties. These royalties are within the scope of UK income tax but UK DTAs with those jurisdictions create exemptions meaning only the avoidance-facilitating country may tax them. At my estimate, almost a third of our tax treaties currently create an exemption on royalties-withholding taxes, including the Netherlands and Switzerland. Israel does not have the same reputation for that type of activity as those countries, but I am concerned that the Government’s prevailing approach to royalties-withholding taxes in DTAs is leaving us vulnerable.

The Government introduced measures to prevent such abuse in the previous Finance Act, but previously negotiated DTAs appear to be preventing them from applying them to the most problematic jurisdictions. In particular, it appears that the intangible property measure contained within the Finance Act 2019 does not apply to the jurisdictions with which we have a DTA, so it would not apply in the case of these DTAs with Israel and Cyprus. It would be helpful to understand from the Minister, either now or in a letter afterwards, the Government’s intended scope of that measure—if all DTA-covered jurisdictions are exempted, it will be applied to only a handful of jurisdictions.

Secondly, although I am pleased that the Government are adopting the BEPS-compliant principal purpose test, I am concerned that the test remains largely untested. Tax justice activists and academics have raised concerns about the burden of proof necessary as part of the test. It would be helpful if the Minister could help us understand, either in Committee or via letter, how practically workable the Government believe the principal purpose test will be.

In conclusion, while putting together these DTAs, the Government surely need to more carefully consider how they interact with attempts they are making to control the use of profit-shifting via royalties through mechanisms such as those set out in the Finance Act 2019. Surely they also need to look more closely at the implications of their approach to the principal purpose test for the workability of the measures for HMRC.

Finally, I have asked before in Committee for an indication from the Government of the schedule of negotiation of DTAs. They have stated that they are trying to work through the corpus of DTAs to bring them into line with the OECD’s multilateral instrument. It would be helpful to have a clearer picture of the exact stage. Some are being renegotiated, and others are taking much longer. As mentioned by the Minister, the Israel measure has not been renegotiated since the 1970s. Others were changed after being in force for just a few years. It would be helpful to have a clearer perspective of where we are going.

Local Bank Closures

Anneliese Dodds Excerpts

Wednesday 12th June 2019 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to speak with you in the Chair, Ms Ryan, in this interesting and well-informed debate, and to sit across from the Minister. I was starting to get withdrawal symptoms because there have not been many statutory instruments recently, although I am sure the Government will rectify that.

I congratulate the hon. Member for Moray (Douglas Ross) on securing this debate, as I know that the issue has seriously affected many of his constituents and local businesses. For those without an intimate knowledge of north-east Scotland, let me underline that the communities we are talking about are often far apart. They either have next to no public transport, or it is of poor quality and very expensive. Local facilities are therefore incredibly important.

As the hon. Member for Motherwell and Wishaw (Marion Fellows) rightly said, we had a debate on a similar topic just a few days ago. It was mentioned that in certain circumstances an ATM might close on a high street that still has a number of different facilities. We are not talking about that in this debate; we are talking about situations where few facilities are available. This is not about duplication; it is often about the last services moving away. As the hon. Member for Strangford (Jim Shannon) said, this is about social and rural isolation.

High street banks are an essential part of our financial infrastructure and they help to support local economies and communities. The bank branch network has been shrinking at an accelerating pace. Many statistics have already been given, but the UK has lost nearly two thirds of its bank and building society branches over the past 30 years. In 2018 and 2019, banks and building societies will have closed, or planned to close, a total of 1,080 branches, and 3,318 branches have shut in the past four years. Banks have been closing at a rate of nearly 70 a month. Overall, a fifth of the population lives more than two miles from their nearest branch—and a good deal further away in some of the situations that have been mentioned.

The debate has focused particularly on Scotland, where there have been a large number of closures, with RBS alone closing more than 200 branches—a 70% reduction in just five years. There have been similar developments across the country. In the north-west, 425 bank branches have closed since 2015, and even in the south-east—I represent a south-east constituency—more than 410 branches have closed since 2015, including one in Headington in my constituency. Such closures occur everywhere, and they often have a particularly significant impact on the most disadvantaged people.

The recent debate on the Treasury Committee’s report on consumer access to financial services emphasised the importance of local banks at a time when many people are not able to access basic financial services. That disenfranchises them from many different activities.

Research shows that in 2006-07, more than 1 million people had no access to a bank account in their household. Although that fell to 660,000 in 2012-13, it increased to 730,000 in 2013-14. We are going in the wrong direction in terms of access to basic financial services. We need to be clear that in many cases the process is leading to people who are already digitally excluded being financially excluded. That point was very well underlined by the hon. Member for Berwickshire, Roxburgh and Selkirk (John Lamont).

There are also impacts for businesses, particularly small and medium-sized businesses. A YouGov poll showed that more than 68% of SME customers said that a branch was important, and 66% said they needed the bank branch because of the need to discuss issues face to face. The Federation of Small Businesses has done some interesting work on this. The situation in Lossiemouth when the town ran out of cash has happened in other places as well—it is not the only instance of that occurring. As the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) said, bank branch closures put a burden on businesses and organisations. Sports clubs were mentioned. They might be collecting a large amount of cash and want to be able to get rid of that cash to a bank branch, but they are not able to.

Worryingly, the situation is also leading to issues with SME lending. For example, the British Bankers Association pointed out that bank branch closures dampen SME lending growth by 63% on average in postcodes that lose a bank branch. That figure rises to more than 100% when an area loses its last bank in town. This is not just about inconvenience. It is a much bigger issue for many businesses, and is arguably part of the reason why we have not seen investment come back to the level we want.

The Opposition acknowledge the importance of dealing with this issue and have set out plans for a radical shake-up of the UK banking system, which needs a change to the law so that banks cannot close a branch where there is a clear local need. We believe that the duties of the Financial Conduct Authority need to be broadened, and that amendments are needed to the Financial Services and Markets Act 2000—particularly part 4A, which authorises banks to carry on regulated activity: the banking licence.

We would seek to amend the process substantively. I was pleased to hear a number of Members mention that, including the hon. Member for Stirling (Stephen Kerr). I will not go through all the details on how it should be amended, as others need to speak, but it is important that we see meaningful consultation. The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) also rightly underlined the fact that local authorities are often not part of the process, but they need to be.

The hon. Member for Moray and many other Members referred to the role of the post office network. There are strong grounds for believing that that role can be boosted, but not simply through it becoming the default option for offering services without any extra support. That is simply not sustainable. The Labour party has commissioned research to look at how a proper postbank network could be set up, how it could be financed and how it could operate. I hope the Government will look at that. The current approach is just not working, and we cannot rely on sub-postmasters who are already overburdened to deliver the services. A big part of the answer has to be to boost credit unions, as mentioned by the hon. Member for Ayr, Carrick and Cumnock (Bill Grant). I know the Minister is interested in that, but we need to do more.

As the debate has highlighted, it is becoming increasingly clear that we need to take action to deal with the shrinking bank branch network. The Government need to do more to invest in our communities and to support local high streets. Strengthening their approach to bank branch closures would be a straightforward way to deal with a number of issues. We need to take immediate action to preserve and build on our banking infrastructure to create a system that works and that serves a diverse range of customers and communities.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Anneliese Dodds Excerpts

3rd reading: House of Commons & Programme motion: House of Commons & Report stage: House of Commons
Monday 10th June 2019 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to speak on behalf of the official Opposition on Third Reading. It is also a pleasure to speak opposite the Exchequer Secretary, who has been left holding the baby no less than three times this evening—understandable, perhaps, given the immense turbulence currently occurring on the Government Benches. I echo his thanks to the officials who have been involved with the Bill and to all those who made so many contributions, particularly in Committee.

As we have said repeatedly, this is a meagre Bill. We have many concerns about it that have not been addressed during its passage and were certainly not addressed this evening. First, on sporting testimonials, we still lack clarity on the scope of the Bill due to its terminological ambiguity. We still do not have any proper projection from the Government with regard to its impact on charitable giving.

On termination payments, we remain deeply concerned that the Bill still leaves the door open to reducing the value of national insurance-free termination payments. As a result of the Bill—the Minister even acknowledged this in his speech just now—we could see a reduction in the amount of NI-free payments going to those who are losing their jobs through secondary legislation. That is completely inappropriate and something we will not accept. The Government themselves have admitted that the measures will exert downward pressure on wages. There will also be a negative impact on termination payments, because they will be passed on from employers to employees.

There are huge problems with our tax system. They are not dealt with by this thin and meagre Bill. As a result, we will be voting against it on Third Reading.

Consumer Access: Financial Services

Anneliese Dodds Excerpts

Thursday 6th June 2019 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to take part in this debate with you in the Chair, Mr Walker. I thank the right hon. Member for Loughborough (Nicky Morgan) for securing the debate and for the important work she undertakes as Chair of the Treasury Committee. I am particularly pleased that the Committee emphasised the importance of access to financial services and financial inclusion. As we have shown in this relatively short debate, it is an issue that potentially touches us all, because we can all become vulnerable, and access and inclusion are crucial elements of a functioning economy.

The beginning of the report features a quote from Sian Williams, the director of the Financial Health Exchange at Toynbee Hall, that stood out when I was preparing for the debate:

“We are in an environment where you have to be able to transact to survive.”

The statistics provide a very worrying picture, because many people are struggling. The Financial Conduct Authority estimates that 3% of UK adults cannot transact in that way because they have no current account and no alternative e-money account. That is a significant minority, and it includes some of the most vulnerable people. That indicates that much stronger action is needed.

I will focus my remarks on vulnerability, poverty, the availability of credit—particularly low-cost credit—post office banking, bank branch closures and the policy process in this area, particularly as it applies to basic bank accounts. The report quite rightly considers the relationship between financial exclusion and different types of vulnerability. Obviously, a consultation is going on at the moment on whether current definitions of vulnerability are appropriate. There is a very welcome focus on mental illness in the report.

I was struck by the right hon. Lady’s remarks and the case study she mentioned. Actually, we were promised that we would have so-called jam-jarring available within financial services by now. It is not standard, and nor is it standard in relation to how people are paid their social security. Often people request that kind of approach so that they can manage their money properly. They are doing the right thing in acknowledging that they might have issues, but they are not being aided by the technology. As the hon. Member for Motherwell and Wishaw (Marion Fellows) said, it is often the most technologically literate who have the greatest resources and can make use of technological innovations. That needs to be accelerated, but we also need to acknowledge that although technology can empower, it can discriminate as well.

I have had discussions with people involved with the Money and Mental Health Policy Institute, who have pointed out that although it is possible to use people’s financial transactions to pinpoint and identify vulnerability, such information could be used to ration services and access, as well as to facilitate them. If it is used, for example, to take people to a pop-up chat with an adviser, who can say, “Are you sure this is what you want to be doing? Can I help you?”, that is fine, but if it makes it harder for people with mental illness to access services that we benefit from, that is inappropriate.

The report rightly focuses on access for vulnerable groups, such as elderly and disabled people, and on a number of risks that technology can embed, which result in people being unable to access the most basic financial services. In many cases, that is getting worse because of issues such as the use of touch-screen technology, which was mentioned earlier, and the speed at which high street banks are closing. I will come back to that point later.

The report contains useful recommendations about vulnerable people’s access to financial services. I support the recommendation that the Financial Conduct Authority should consult on how power of attorney works in relation to financial services. If that is done properly with appropriate safeguards, it could improve the situation for many carers and those they care for. The discussion in the report about that is very helpful.

The discussion in the report about the Equality Act 2010 is very useful. The Labour party is committed to strengthening the Act and other anti-discrimination law. There is clear evidence, which is repeated in the report, that it is not being complied with in a number of areas, and that is simply unacceptable. The exchange between the hon. Member for Strangford (Jim Shannon), who is no longer in his place, and the right hon. Member for Loughborough was very instructive in that regard. I am sure that every Member in this Chamber has a whole bag of cases involving people with various vulnerabilities who have not been treated in the way that we would expect. That has to end, because it is discrimination.

The report touches on issues relating to low-income households at various points. The discussion of the loyalty penalty was very interesting. Citizens Advice’s work shows that the average consumer pays up to £1,000 per year more because of the loyalty penalty. That is clearly totally unacceptable. The Competition and Markets Authority noted that people on low incomes are much more at risk of paying the loyalty penalty. For people in the bottom 10% of income, it could account for up to 8% of their spending.

The CMA’s recommendation about transparency is welcome. There should be more accountability. Regulators should publish the size of the loyalty penalty in key markets and for different firms annually, but as the report states, just informing the public about the loyalty penalty for each firm is not enough. It is clear that regulators currently have little ability to protect customer interests in that respect, so we need to focus on that much more strongly. The time is right to reform the regulatory system in that respect and for many other areas of financial services. The Labour party commissioned a review by Prem Sikka, the academic, to look into some ideas for reform, and it has now been published.

The points that the hon. Member for Motherwell and Wishaw made about access to cash were very relevant. Even with the current standards, we all know from our constituencies and elsewhere that there are pockets where access to cash is not available. It tends to be in areas where people have low spending power and are incredibly reliant on cash that there is not the provision that we expect.

The report did not examine the relationship between poverty and financial exclusion, as the 2017 report by the Financial Exclusion Committee in the other place did. I completely understand that the Treasury Committee had a slightly different focus. It would be useful to look at that issue in more detail, because in the Financial Exclusion Committee report, Gingerbread reported that single parents and low-income households often find that they are disproportionately excluded from financial services. Lower-income people often pay much more for financial services, compared with those with greater incomes. The Child Poverty Action Group said that that is the case, despite the fact that most low-income households manage their limited resources well. We are often told that the answer for people with few resources is to manage their money better. Well, many of them are extremely good at doing that already, and I was very pleased that the right hon. Member for Loughborough confirmed that. The Lords report also looked at the so-called poverty premium and how it exacerbates the effects of financial exclusion. It is important that we bear that in mind and continue to look at it.

Problems in accessing lower-cost credit primarily affect low-income households, and it is good that the report looked at that in detail. It praised the Government for their proposed pilot of a no-interest loan scheme in the 2018 Budget, but that arguably does not go far enough in tackling consumer debt. We still do not have a clear timetable for when that measure will be implemented. The Labour party and I believe that it is essential to go further. For example, we should cap the total amount that a person can pay in bank overdraft fees and interest payments on credit card debt. People who get caught by overdraft fees often use other forms of credit to pay it off because it is such an expensive debt and is extremely bad for them.

It is unfortunate that the Government have not really grasped the issues relating to debt enforcement. That is becoming more of an issue in many parts of the country, particularly given changes to the withdrawal of funds for council tax relief. Individuals are now being pursued for small amounts of money in many parts of the country. This report and the Justice Committee’s recent report show that we need much stronger action against poor practice in the debt enforcement industry. We should implement many of the measures recommended in the Treasury Committee report and, for example, introduce tougher regulations on debt enforcement firms, such as changes to terminology in payment letters. We must ensure that the language is understandable to people with varying literacy levels, and that information about how to seek help with debt is given equal prominence to demands for payment.

The report also examines the issue of those who are unable to access affordable credit because they lack a credit history. We believe that the Government’s approach so far has been inadequate. Obviously, there has been the pilot, and they have tried to get the private sector to take this forward. We need to have more of a discussion about how to ensure that people can build up a credit history. I hope the Treasury Committee will continue to do that, but the discussion in the report was useful.

Let me move on to the post bank and bank branch closures. The Labour party is looking at research that we commissioned on how the post bank approach can be revitalised and how we can ensure that it provides good quality services that are good for both the Post Office and local communities. We think it could be possible to do that on the basis of the research that we commissioned. There could be 3,600 additional post bank branches, compared with what we have currently. That would help communities that are currently struggling with access to banking facilities, and in many cases would also help high streets. We think that using and building on the existing infrastructure is probably the most sensible way forward. This is not about tweaking; it must be more fundamental. We cannot just load more activities on to already pressed postmasters. The comments of the hon. Member for Gordon (Colin Clark) were useful in that regard. This is not just about the post office network; we need other reforms elsewhere in the financial ecosystem, and we must also focus on the behaviour of the big banks. I concur with many of the comments of the hon. Member for Motherwell and Wishaw in that regard.

I want to talk a bit about the policy process in this area—in particular, the perils of not having a strong focus on implementation, and the initial legislation. The basic bank account legislation initially arose out of the EU payment accounts directive. Research conducted by Citizens Advice shows that, in practice, basic accounts are often still not very visible to consumers who might want to use them. Banks’ processes for determining what kind of account to give people rely too much on credit checks, and applying for a basic account is still too difficult for many people. The Committee recommended that the FCA should mandate banks to relax the restrictions on basic bank accounts and make them available to all—that is very sensible—and that it should require financial services to report how many basic current account openings they have rejected. That would be very helpful.

One particular problem that I have come across is that many of the most vulnerable and most excluded customers are informed that they cannot have a basic bank account because there has previously been some indication of fraud related to their financial activity, but no evidence of that has to be provided. In many cases, that fraud could be due to manipulation by others—for example, if people have been subject to domestic violence—or it could be because people had been addicted to substances and previously led chaotic lifestyles that are now behind them. Christians Against Poverty is concerned about that; it needs to be looked into and I hope the Government will do so.

We need a much stronger focus on the issue of access to financial services. We have mainly talked about access to basic banking—the Committee has a lot on its plate, so I do not want to suggest that it should deal with even more—but the savings infrastructure is another area in which there have been some worrying developments. Some 57% of UK adults do not have savings beyond £5,000. Help to Save was an interesting idea but it has not yet had the traction that many of us would have hoped. We still urge the Government to try to incorporate the credit union sector more closely with that initiative, and I hope that in future, the Government will view credit unions much more as part of the solution to many of the problems than they have in the past.

[Nicky Morgan]

I thank the hon. Lady for the many points that she is making. Did she, too, pick up Scope’s briefing for the debate, which makes the point that disabled people have an average of £108,000 less in savings and assets than non-disabled people? That is quite a staggering amount of money.

The Committee looked at household savings and debt last year. We might have a little issue with our agenda at the moment, but I take her invitation to perhaps return to that at some point.

[Anneliese Dodds]

I am very grateful to the right hon. Lady for raising that point. That is a staggering statistic, which is due to a whole range of factors: the support that people receive, their ability to participate in the labour market, and the savings infrastructure. She raises an important point: people living with a disability are very often at much greater risk of needing to tap into savings at different points, particularly when, sadly, many sources of support for doing things such as home alterations have dried up. It is really important that we listen to Scope about that.

We must also acknowledge that the ride has been bumpy and we are not moving forward in every area as we would want to. Research from the Friends Provident Foundation and the University of Birmingham suggests that in 2006-07 there were just over 1 million people with no household bank account access, and although that number fell to 660,000 in 2012-13, the trend was reversed in 2013-14 when the number rose again to 730,000. We need to understand what is not right here, and we need much stronger action.

I commend the Treasury Committee for its focus on the issue, particularly on the impact on the lives of vulnerable and low-income people. The Opposition will continue to campaign for reform of the financial services sector to ensure greater access to financial services and, as a result, a stronger economy for everyone.

[Mr Charles Walker (in the Chair)]

Minister, if you are inclined to speak until 3 o’clock, please do not, and allow two minutes for the right hon. Member for Loughborough (Nicky Morgan) to respond.

Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

Anneliese Dodds Excerpts

Wednesday 22nd May 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve on the Committee with you in the Chair, Mr Robertson. I am grateful to the Minister for his explanatory remarks but, as the Opposition have mentioned many times before, we have grave concerns about the use of secondary legislation to make sweeping changes to the statute book. Those changes could have a material impact on our financial services, and could affect jobs and consumers alike.

My right hon. Friend the Member for Delyn was absolutely right that the possibility that these measures will be revoked has become rather less hypothetical, given the comments made recently, including today. It is therefore essential that we look at these changes very carefully.

The official Opposition have frequently warned that this process risks creating drafting errors that are difficult to identify and may be found only after the legislation is enacted, despite our best attempt to provide legislative scrutiny. This instrument is an abject lesson in the perils of this process: it essentially comprises a collection of corrections to deficiencies, ambiguities and errors made in previous rounds of secondary legislation. That just goes to show that, as we stated at the time, the previous legislation passed in this place was rushed. Too much pressure has been put on already overburdened civil servants, who have been expected to do the impossible in some cases. This instrument corrects errors in six other statutory instruments. Who is to say how many more instruments will need to be corrected, and how many errors will go unnoticed until it is too late?

Many of us have argued that the situation has been compounded by the fact that the Government have been determined to opt for a series of different pieces of legislation, making minor amendments to them once the interactions between them have been determined, rather than having a coherent approach from the beginning. Colleagues who have been in these discussions previously will remember that we have asked for a Keeling schedule-like approach, whereby it would be possible to see the timings of the amendments made by the various pieces of legislation passed in this place. Of course, those statutory instruments have generally amended other pieces of legislation, which themselves have often been amended by other pieces of legislation. This is a horrendously complicated set of circumstances.

The Government have now withdrawn no fewer than 73 statutory instruments in the current Session. That is far more than usual, and we can only assume that much of the reason is the kind of drafting errors that we are talking about today. The Minister, perhaps understandably, tried to normalise the situation and suggested that—I hope I am capturing his words correctly—with any legislation, errors are made from time to time. This level of error, ambiguity and lack of clarity is, to my knowledge, unprecedented. Perhaps other Committee members remember this kind of thing happening previously. I am a new Member, but from what I understand about parliamentary history, I think this is fairly unusual.

The Minister suggested that all the changes that had to be in place for the immediate period after the UK leaves the EU were ready before 31 March. Is that reliant on some kind of threshold for the amount of legal difficulty that would be created by having ambiguity or inconsistency? Did the Government think, “Well, it will take a bit longer for a firm to get round to suing us or taking legal action about one issue, rather than another”? These issues are significant, because they are about allocating responsibility to different bodies, and indicating what firms are and are not able to do and what regimes they come under. These are important matters.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend agree that if we had left on 29 March with no deal and these instruments had come into being, large areas would not have been covered? That is being corrected today.

[Anneliese Dodds]

My concern—despite the Minister’s comments, I know he is trying to do his very best in difficult circumstances—is that it is not clear what criteria have been used to determine which are the really serious errors, inconsistencies and ambiguities, and which can just be altered later. As I say, perhaps the Government took a view about how long it would take for those problems to crop up in normal practice, but we need a bit more information.

There is also the issue that more powers will be transferred to the Financial Conduct Authority and the Prudential Regulation Authority. At the same time, concerns have been raised about Andrew Bailey’s comments suggesting that the UK would favour a lower-burden approach to financial regulation after we leave the EU, which some have interpreted to mean deregulation. Given that the Government have yet to provide us with information about their vision for their post-Brexit regulatory framework, it would be interesting to know whether the Minister thinks those who are concerned about a policy of deregulation are justified in their concern.

My Opposition colleagues and I have also raised concerns on numerous occasions about FCA funding. The FCA maintains that it is committed to keeping an overall budget that is flat in real terms, despite the rapid increase in responsibilities. Of course, the European Securities and Markets Authority, or ESMA—the regulator on the European level—received funding from member states, so when its responsibilities increased, member states could decide to provide additional funding. As the Minister has mentioned many times, the FCA’s status is different: its funding is provided by the bodies that it regulates. That may mean that it takes longer for the FCA to raise additional funds in the event of additional responsibilities. It may also increase the requirement for funds on bodies that are struggling, particularly as a result of a no-deal Brexit chaotic market situation.

As the Opposition have said before, this is one of many reasons why the FCA is not always automatically the appropriate choice for this massive transfer of powers from ESMA. That is also clear from Charles Randell’s comments that Brexit planning will mean “difficult decisions elsewhere”—his words, not mine—leaving many concerned that a lack of capacity at the FCA might also lead to deregulation, whether or not that is a conscious determination on its part. Again, it would be helpful to hear from the Minister whether he is also concerned about Brexit pressure leading to a reduction in what the FCA is able to achieve in areas that I know are important to him, such as consumer protection and the treatment of vulnerable customers.