Draft International Monetary Fund (Increase in Subscription) Order 2024
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft International Monetary Fund (Increase in Subscription) Order 2024.
It is a pleasure to serve under your chairmanship, Sir Graham. The International Monetary Fund marks its 80th anniversary this year, and the UK is a founding member. It plays a key role in what is known as the global financial safety net, ensuring global economic stability, facilitating long-term economic growth and prosperity, and supporting poverty reduction around the world.
The IMF operates as a global lender of last resort, providing crucial financial assistance to countries in crisis and supporting their return to a stable economic footing. This helps to prevent economic instability overseas from spilling over into the British economy. The IMF’s wider role in providing regular economic and financial monitoring, macroeconomic policy advice and capacity development on critical issues facing the global economy, such as the green transition, digitalisation and artificial intelligence, is welcomed by its many members.
As a major open economy, the UK gets significant value from the IMF’s independent assessment and policy advice. That does not mean that we always agree, but open discussions and an exchange of views on the state of the UK economy are vital for both sides. Indeed, the Government look forward to the IMF’s managing director visiting London next week as part of the fund’s latest fact-finding mission.
It is critical to the IMF’s ability to act as the world’s lender of last resort that it remains adequately resourced. In December, as part of our efforts to reinforce the role of the IMF at the centre of the global financial safety net, the IMF board of governors, on which the Chancellor of the Exchequer is the UK governor, agreed to reduce the fund’s reliance on borrowed resources and restore the primary role of quotas in its lending capacity.
I will explain how this works. The money that the IMF loans to its members comes from member countries through their payment of quotas and borrowed resources. A member’s quota reflects its size and relative position in the world economy, and borrowed resources are bilateral agreements between individual members and the fund.
Under the agreement by the board of governors, IMF resources will be maintained at current levels by increasing quotas by 50% while decreasing borrowed resources—formally called new arrangements to borrow and bilateral borrowing agreements—by the same amount. The UK has a responsibility to implement this agreement alongside the other IMF members by 15 November 2024 at the latest.
The UK’s subscription to the IMF is denominated in the IMF’s unit of account, known as special drawing rights. This draft order will increase the UK’s current quota subscription to the IMF by SDR 10 billion, ensuring that we deliver on our share of the overall quota increase. Once in effect, the proposed quota increase will replace the bilateral borrowing agreements.
The overall net increase in the UK’s commitment to the IMF will be SDR 3 billion, given the UK’s proportionately higher quota share compared with the borrowed resource that the UK currently extends to the IMF. In recent years, the IMF has been at the centre of the international response to many crises with a significant economic impact, such as Russia’s illegal war in Ukraine and the covid pandemic. Demands for financial assistance from the IMF remain at record levels, with more than 32 active IMF programmes.
The UK’s maximum commitment and legislative ceiling to IMF quota stands at SDR 20.155 billion, which is approximately £21.94 billion at today’s exchange rate. The draft order will raise the UK’s ceiling for lending to the IMF to SDR 30.2 billion, equivalent to £31.64 billion. I want to make it clear—it is crucial that all hon. Members understand this aspect—that an increase in the UK’s quota subscription to the IMF does not represent an up-front financing commitment; rather, it simply increases the potential amount of financing from the UK that the IMF can call on via quota subscriptions.
The increase in quota has no direct impact on public borrowing or debt, because quotas are loans and can be refunded at short notice if needed. A loan to the IMF is a loan to the most creditworthy institution in the world, because the IMF holds preferred creditor status. In essence, that means that the IMF will be repaid by those it has made loans to even if every other creditor is not. When the IMF calls for financing from the UK, we swap some of our assets for a claim on the IMF. That amounts, in effect, to exchanging one class of safe asset for another. Lending to the IMF therefore does not —I repeat, does not—represent public spending and such loans do not detract from money that is needed in the UK.
It is essential that the UK plays its part and fulfils its responsibility to strengthen the multilateral system in a more crisis-prone world by increasing its ceiling for lending to the IMF via quota. In so doing, we are implementing our international agreements. I hope that hon. Members will join me in supporting the draft order, which I commend to the Committee.
Oral Answers to Questions
Bim Afolami Excerpts(1 week, 1 day ago)
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Jim McMahon (Oldham West and Royton) (Lab/Co-op)
The Economic Secretary to the Treasury (Bim Afolami)
The Government acknowledge the vital contribution that co-operatives make to the economy. The “Co-operative and Mutual Economy 2023” report found that co-operatives generated a combined annual turnover of £41 billion, a 3.7% increase from 2022 levels.
Jim McMahon
As the Minister outlines, co-operatives are worth £41 billion to the UK economy; moreover, they are, on average, 10% more productive than other businesses, twice as likely to survive the first five years of trading, and have higher rates of investment than other private businesses. What more can the Government do to encourage more co-operatives to thrive? Does he believe, as I do, that the creation of co-operative development agencies in every region has to be part of that?
Bim Afolami
I thank the hon. Gentleman for his point. I note his long-held interest in the co-operative sector, and the work that he does on it. So, what are the Government doing? They are doing two things specifically. First, they recently took the further step of backing the Co-operatives, Mutuals and Friendly Societies Act 2023; they also commissioned the Law Commission to review the Co-operative and Community Benefit Societies Act 2014 to make sure that co-operatives can do as much as possible to benefit the wider economy.
Alexander Stafford (Rother Valley) (Con)
Over the past two years, Rotherham Council has spent £240,000 promoting co-operatives and employee ownership. Does the Minister agree that this huge amount of money would be better spent on fixing potholes and opening youth clubs, rather than on an ideological viewpoint, with no measurable outcome for the people of Rotherham?
Bim Afolami
I do not wish to comment specifically on Rotherham, but the best way of promoting co-operatives in general is to allow them to thrive as best they can, and to support their members in doing what they do best, which is to help their local economies—not necessarily through huge amounts of public subsidy, but through doing what the co-operative movement was founded to do, which is, as I have said, to support local economies and local people.
Kerry McCarthy (Bristol East) (Lab)
Vicky Foxcroft (Lewisham, Deptford) (Lab)
The Economic Secretary to the Treasury (Bim Afolami)
On 9 June 2023, the Ministry of Justice launched a programme to raise awareness of the Mental Capacity Act 2005 in relation to how and when to access child trust funds. The first part of this programme is a new toolkit. The Ministry of Justice will continue that programme of work to raise awareness of how to obtain legal authority to access a child trust fund, for which a court fee waiver is available.
Vicky Foxcroft
The only way for parents of young people without capacity to access their child trust fund is through a deputyship order. After consulting on the introduction of a mental capacity small payment scheme, which would allow a suitable person temporary access to release the funds, Ministers opted not to legislate, and instead introduced a toolkit, as has been said. Over 80,000 young people in England and Wales remain locked out of their child trust fund, so would the Minister agree to look at this again?
Bim Afolami
I thank the hon. Lady for her question, and I know how avidly she campaigns in this area. The House should know—and you should know, Mr Speaker—that I recently met my right hon. Friend the Member for Horsham (Sir Jeremy Quin) and the hon. Member for Sheffield Central (Paul Blomfield) to discuss this very issue. I am very happy to meet the hon. Lady as well to discuss it and to see if we can get a solution, because we do want to get this problem fixed.
Sir Jeremy Quin (Horsham) (Con)
I am grateful to the Minister for the meeting to which he referred. Will he compliment financial institutions that are doing their utmost to make it easier for their disabled customers to access their child trust funds and, if his ministerial colleagues can find a way of making that easier across the board, would that have his support and that of his colleagues in the Treasury?
Bim Afolami
I thank my right hon. Friend for his question. Indeed, working with not just the Ministry of Justice, but the Department for Work and Pensions is key to deliver this, as is working with the Financial Conduct Authority to ensure that any financial institution that does the right thing does not lose out or face any regulatory issues. That is indeed something that has my support and that of the Treasury, and we will work across Government to get this right.
Andrew Rosindell (Romford) (Con)
Dr Thérèse Coffey (Suffolk Coastal) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
My right hon. Friend is right that this issue is critical. I am pleased that the ISSB recently announced its intention to commence a research project on a nature thematic standard, carefully considering the TNFD’s recommendations. His Majesty’s Government have established a formal mechanism to assess the ISSB standards for suitability for the UK to ensure that with a general sustainability standard, and more specifically with a climate sustainability standard, we are doing the right thing for the UK. The Government will publish an implementation update on sustainability disclosure requirements shortly to provide further information for industry—watch this space.
Richard Burgon (Leeds East) (Lab)
Sir Jacob Rees-Mogg (North East Somerset) (Con)
The Bank of England has said that quantitative tightening is not an official part of its monetary policy targeting, yet it is at risk of costing, fiscally, £179 billion in losses underwritten by the Treasury. That is having a major effect on the fiscal situation of the country. Will His Majesty’s Government encourage the Bank of England to hold these bonds to maturity, taking the carry cost rather than taking the hit from selling them in the market and crystallising an enormous loss?
Bim Afolami
In relation to the asset purchase facility and how that has worked over recent years, it is not His Majesty’s Government’s—or indeed the Treasury’s—intention to change the way in which that works with the Bank of England, but as with all measures, the Chancellor keeps everything under close review.
Kerry McCarthy (Bristol East) (Lab)
Nick Fletcher (Don Valley) (Con)
The best way for a business to thrive and for customers to receive a great service is for companies to employ individuals on merit. Does the Chancellor agree that the recent overreach by the Financial Conduct Authority and the Prudential Regulation Authority regarding their equality, diversity and inclusion policies is a step too far, and that it is inevitable that those policies will have a negative effect on us all?
Bim Afolami
My hon. Friend makes an important point. It is important that the FCA bears in mind that it should not be distracted from its core focus on conduct and regulation by things that are more marginal for the people and businesses it oversees. I urge the FCA to take into account the representations made by my hon. Friend and by industry in that regard and many others.
Sir Jeremy Quin (Horsham) (Con)
The lifetime ISA is a positive instrument, but I understand that under its terms there are circumstances under which savers lose not only the benefits of the ISA but also part of their capital investment. That does not seem right; will the Minister please meet me to discuss it?
Bim Afolami
I am happy to meet my right hon. Friend to discuss the lifetime ISA, which is a fantastic product brought in by this Government to help young people to get on the housing ladder. I am happy to meet him to discuss ways in which we can make it more accessible for more people in more circumstances.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
On a point of order, Mr Speaker.
Financial Conduct Authority: Accountability
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The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to be here. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for raising this extremely important issue for debate. Neither he nor the House will be surprised to hear that the Government agree—and I very strongly agree—that accountability for the financial services regulators is of the utmost importance. Before I was in my current post, I set up, chaired and ran the Regulatory Reform Group, which brought together over a dozen Members of this House to think about how we reform the regulatory and accountability structures in this country. I have thought and been concerned about that issue for many years.
The right hon. Member for Orkney and Shetland and other Members will be aware that the FCA is operationally independent and must act to advance the objectives that Parliament has set for it. Independence of the regulators, however, must be balanced with clear accountability; appropriate democratic input, for which this debate is one forum; and transparent oversight. That is why the FCA is fully accountable to Parliament and the Treasury for how it discharges its functions.
To ensure that the regulators consider the financial services sector’s critical role in supporting the British economy, as the right hon. Gentleman pointed out, last summer we gave the regulators new secondary objectives to facilitate the international competitiveness of the UK economy and its growth for the medium to long term. By putting growth and competitiveness at the heart of our regulatory system, while retaining the primacy of protecting the safety and soundness for financial services firms and the wider system, we will ensure that the sector remains at the forefront of the global economy. It is vital that we hold the FCA to account for delivering on those objectives; I take that responsibility very seriously.
I will come on to some of the remarks made by the right hon. Gentleman, in no particular order. What comes to my mind first is that he mentioned the FCA’s so-called naming and shaming proposals, which have been covered in the media and elsewhere. The Chancellor has been publicly clear that he thinks the FCA should rethink that approach, and I share his view completely. I am particularly interested in, and strongly support, the remark made by the right hon. Gentleman that it is most often the small players that see the sharp end of that approach. What that does to innovation, competition and actual money for individuals invested in those small players, be they customers or shareholders, is very significant. The right hon. Gentleman explained eloquently that the impact of being named and shamed very early could be significant. I want to put on record, following up on what the Chancellor has said publicly, that I believe the FCA should rethink that and rethink it quickly.
Wendy Chamberlain
That is my concern, given what I have heard today in relation to access to cash. One real concern of communities is that banks rush to leave town and leave one bank standing. When we think about banking hubs and communities, we are thinking about ensuring that the most vulnerable have access, so it is really important those bigger players are held to account. Does the Minister agree?
Bim Afolami
The hon. Lady makes an important and fair point. I agree with her that access to cash—which, as she knows, this Government legislated for—needs primacy in the way she has described. Banking hubs are a replacement when several banks have shut in a town or large village, and I believe that the assessment criteria relating to where they come in and the speed of the roll-out should be looked at again. To be fair, that is not down to the FCA. The expected timeframe for it to finish its consultation on access to cash is the third quarter of this year, and although the FCA is part of that process, it is worth saying that it is not the primary driver; the primary driver is the industry.
Let me come to a case that I know is close to heart of the right hon. Member for Orkney and Shetland: the failure of Midas Financial Solutions. Mr Alistair Greig perpetrated a large-scale fraud over a period of several years, lying to those who trusted him with their pensions and life savings. Those were people who had done the right thing in their lives—they had done everything right—and because of the fraud of that individual and his company, they lost out. The FCA intervened in 2014, following the receipt of intelligence related to the Midas scheme. The Financial Services Compensation Scheme was subsequently able to compensate eligible customers for a significant portion of what was lost, and Mr Greig was charged, found guilty of fraud and imprisoned.
It is imperative that the FCA continues to robustly enforce its rules and standards, not just against firms that are carrying out blatantly fraudulent activity as in the case of Midas, but to ensure that all the firms it supervises meet high standards and deliver high-quality outcomes. The FCA operates a risk-based approach, not a zero-failure regime. It is important Ministers say this: we are not in a world—nor should we aim to be in one—where it is impossible for anything to go wrong ever. What we have to do is say to the FCA, “Your job is to maintain a high standard and high quality in the market for all the firms you supervise.”
Mr Carmichael
I have absolutely no argument with the Minister on that point—it is absolutely sensible—but the fact of the matter is that the regulator was told not once, not twice, but three times, and each time it failed to take the appropriate action. It was sometimes just as basic as putting people through to the wrong extension when they phoned. The truth of the matter is that if my constituent and the 94 others who took legal action had not stuck with it, nobody would have got any compensation from the FCA. That is why there is surely a basic point of fairness and justice here: having been the ones who got the money for everyone, the money that they spent getting that compensation should be recognised.
Bim Afolami
I thank the right hon. Member for that point, which I will consider carefully while I discuss the accountability of the FCA to Parliament and the Treasury. The Financial Services and Markets Act 2000 establishes multiple ways for the Government, Parliament and the public to scrutinise the FCA—through, for example, its annual reports, which must set out how it has advanced its objectives. This year, down to the proposals of this Government and this Treasury, the FCA will for the first time report on how it has embedded its new growth and competitiveness objective. The Treasury can direct the FCA to include extra things in its reports. The FCA also regularly publishes a large amount of data on its performance—for example, on the time taken to respond to applications for authorisation—which demonstrates to the public whether it is meeting its targets. Indeed, the Treasury can shape the focus of the FCA by writing to it to set out which aspects of Government economic policy it should have regard to when advancing its objectives and carrying out its functions.
The right hon. Member mentioned concerns that had been shared with him about the internal culture, and pay decisions by the FCA. It is not appropriate for a Minister to pronounce on those things, beyond saying that I will be with him in scrutinising the annual report when it comes out to see in which areas those things are addressed. I am happy to discuss that with him, as well as the methods for accountability in that regard. It is also important that we set out through the Financial Services and Markets Act 2023 that the regulators are now required to respond annually to the recommendation letters. This provides greater transparency about how the regulators respond to Government recommendations.
The Treasury also has a range of powers to direct the FCA in certain exceptional circumstances. For example, it can require the FCA to conduct an investigation of relevant events where it is in the public interest. That happened once in relation to the FCA; in 2019, the Treasury directed the FCA to review the events relating to the failure of London Capital & Finance. After that report was done, the FCA subsequently accepted and implemented all recommendations, which included a significant overhaul of its operations through its transformation programme.
In addition to the Government and the Treasury, Parliament also has a vital role in scrutinising the actions and performance of the FCA. We have the Treasury Committee, and there is a new House of Lords Financial Services Regulation Committee, which regularly examines the work of the FCA. I would add that it is important that we think more about how we scrutinise in the most effective way. I fear that sometimes when it comes to the FCA, there are so many methods of accountability that it almost appears that there are none. They are so disparate, bitty and numerous that it is time consuming and expensive for the FCA, and often difficult to follow for Members of Parliament.
There is more work that we can do to streamline the process of accountability to ensure that it is rock solid and firm, and focused on not just consumer outcomes but ensuring the market works—and to do so in a way that makes sense for both Houses of Parliament. For example, between December 2019 and March this year, the FCA provided oral evidence to Select Committees on 36 occasions. That is a lot. In addition, there is constant discussion between Members of this House and the FCA. I think there is accountability, but we need to find ways to ensure that it is streamlined and more focused.
I hope I have reassured the right hon. Member for Orkney and Shetland that the Government take holding the FCA to account very seriously—I know that I do in particular. The legislative framework is designed to strike the right balance between the independence of the regulators and ensuring that they are held properly accountable. The Government have built on that accountability through the Financial Services and Markets Act 2023. This House, and Parliament as a whole, will be able to judge the FCA’s progress through things such as the upcoming report on how it has advanced its new secondary growth and competitiveness objective since it came into effect last year, and whether it takes account of the view of this House and the Chancellor on its naming and shaming proposals.
Question put and agreed to.
Access to Banking: Devon
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The Economic Secretary to the Treasury (Bim Afolami)
It is an absolute pleasure to respond to this debate, and I thank my hon. Friend the Member for East Devon (Simon Jupp) for securing it.
We know that our colleagues in this place all work hard for their constituents, but some go the extra mile. I would say that on this subject, like so many others, my hon. Friend is an exemplar of what can be seen in British politics and in this Parliament. His work on securing access to banking services in his constituency is second to none. I appreciate the strength of feeling across the Chamber on this topic. I share the concerns of many Members in light of the more than 600 closure announcements we have seen in the past year. Banks and building societies are essential in people being able to manage their money on a day-to-day basis, and they hold a privileged and important place in our society. As such, firms must ensure that all customers, wherever they live, have appropriate access to banking and cash services.
We need to be grown up about this issue. We all recognise, as my hon. Friend made clear in his remarks, that the world of banking has changed greatly in recent years. Reflecting that shift, customers have increasingly moved towards online and mobile access. That shift is apparent across many areas of the economy and society, not just in banking. Recent Financial Conduct Authority data shows that only 21% of British adults still regularly use a bank branch. In contrast, almost nine in 10 adults banked online or used a mobile app.
It is right that firms continue to innovate in response to changing customer habits and ensure that customers across the UK benefit from the latest developments in technology, but those changes in technology—this is a fundamental point, and I believe my hon. Friend will share my view—do not mean that access to in-person banking and cash services are no longer required. They remain vitally important to many people up and down the country in our constituencies. In times of need, or when more personalised support and services are required, such as in the examples that my hon. Friend mentioned, speaking to a real person face to face can be essential. More broadly, the wider societal benefits to our constituencies, our high streets and our market towns of bank branches are critically important.
In the light of those things, the Government have taken decisive action over recent years to ensure that access to cash is protected through the Financial Services and Markets Act 2023. It places a responsibility on the FCA to seek to ensure reasonable provision of cash withdrawal and deposit facilities, including free services for personal current accounts. Following the passage of that Act, the Government published a policy statement setting out our policies on access to cash. The FCA must have regard to that policy statement as part of its regulatory approach. The statement set out that people and businesses should be no further than 3 miles from a free cash access point.
As my hon. Friend mentioned, the FCA has recently held a consultation on its proposed regulatory regime in this area. Under the proposals, banks and building societies that are designated by the Government will be required to assess and fill gaps or potential gaps in cash access provision that significantly impact consumers and businesses.
As well as access to cash, the FCA has guidance on bank branch closures. While decisions on individual closures are rightly a commercial issue for firms—we do not want Government Ministers deciding where bank branches go, tempted and fascinated as I would be by that process—we expect firms to adhere to the FCA guidance. That guidance is clear that banks and building societies must ensure that they carefully consider the impact of planned closures on their customers.
Where firms fall short of those expectations, the FCA has the power to ask for closures to be paused or for other options to be put in place, and it will do so. It is important to make the point that the industry has made great strides to provide a range of initiatives through alternatives such as agreements with the post office or community outreach programmes in locations such as community centres, libraries and village halls. Shared banking hubs are, as we have heard, another exciting and popular innovation. Banking hubs are a clear example of pioneering, industry-led innovation to protect access in a changing landscape.
As my hon. Friend the Member for Mid Derbyshire (Mrs Latham) made clear, banking hubs can be a lifeline to communities. I am pleased that the Sidmouth hub has been opened, where my hon. Friend the Member for East Devon had the privilege of cutting the ribbon—or whatever they had him cut—but it is important that the House, and indeed everybody, knows that banking hubs can be a modern 21st century way to ensure access to cash and banking services. The Government strongly support this innovation.
These hubs help people and businesses withdraw and deposit cash, pay in cheques, and check their balance over the post office counter, and also provide a community banker who can help people with wider banking services, from making a transfer to providing support for fraud and scam victims. My hon. Friend mentioned victims in his constituency who he has been working with.
Hubs are deployed by Cash Access UK in response to a Link assessment of the community’s cash needs. To ensure there is no gap in the provision of services, the industry has committed that if a hub is recommended, the branch it replaces will not be closed for up to 12 months until that hub is open, and if there is a delay beyond that, a temporary hub will be put in place. To date, over 120 hubs have been announced across the country and 47 are open. This is a welcome programme, and it is a priority to me that the industry continues to deliver on this but speeds it up.
UK Finance, the trade body representing the industry, has recently committed to a total of 225 hubs to be opened in the next 18 months. Like my hon. Friend and many in the House, I will be watching and holding it to account, and making sure that those hubs open as quickly as possible.
Miss Sarah Dines (Derbyshire Dales) (Con)
As the Minister knows, I represent Derbyshire Dales, where we recently had the closure of the last bank, the National Westminster bank, in Bakewell. That was the last bank in the Peak district. My concern is that the criteria for hubs exclude us, because Bakewell is too small: it has only 3,000 to 4,000 people and under the present criteria there have to be 7,000. What might work in Belper or another part of a district or county like Derbyshire, or indeed Devon, might not work elsewhere, meaning that people will be left behind. Will the Government look with the FCA at whether the criteria should be changed to take into account areas that surround a smaller town, where that smaller town might still be vibrant but not big enough on its own to qualify for a hub? What is the future in this area?
Bim Afolami
I thank my hon. Friend for her point and I should not have left her out when talking about the committed Members of Parliament who work on this area. I pay tribute to her for the number of times she has questioned me, badgered me and advocated for her community and constituents on this subject, and today is another good example. If she waits a few minutes, I will address her specific points directly.
It is important that hubs provide a good service to customers and the industry evolves its offer as it learns from the roll-out of the 47 hubs that are already open. Following recent discussions I have held with the UK high street banks and my roundtable with industry representatives and MPs last month, I am pleased that the industry has agreed to improve the services in hubs to ensure they are a genuine alternative to bank branches. My hon. Friend the Member for East Devon referred to some improvements he would like to see in his constituency.
Participating high street banks have committed to a range of improvements to the banking services provided in hubs, such as: first, having an agreed consistent and improved level of service provided by all firms; secondly, ensuring that personal customers do not need to bring their own devices to access services; and, thirdly, trialling various new services such as a customer liaison service and Saturday openings. Those improvements will make a big difference to participation and, indeed, to how welcome banking hubs are. I am grateful for the constructive and positive approach that I have seen from industry in its engagement with His Majesty’s Treasury, recognising the needs of its customers. I have written to all MPs and to the Chair of the Treasury Committee on the package.
I turn to the point made by my hon. Friend the Member for Derbyshire Dales (Miss Dines). Firms have provided me with reassurance that they will continue to revisit the criteria for locations to be eligible for a hub to ensure that they reflect customer needs, and that they will do so in particular following the publication of the FCA’s response to its recent access to cash consultation. That is important, because rural areas and smaller places such as Bakewell sometimes lose out.
I know that the industry will be watching the debate and will take what I am saying seriously. Let us revisit the criteria in a sensible way to ensure that they take account of areas that need banking hub services but are not currently accommodated. That is very important, and I will work with the industry to see what it can do to deliver on what I have just said from the Dispatch Box. I believe that the measures set out in the package mark a significant step forward from industry in ensuring that customer needs are being met, but I reassure the House that I will continue to monitor the roll-out of banking hubs closely.
I am grateful that we have had another chance to discuss this important topic. While branch closures are a commercial decision—and it is right that they are—I strongly believe that all customers, wherever they live and whatever their age, should have access that is appropriate for them to banking and cash services. I am grateful for the engagement I have had from the sector and the FCA on this important issue. I thank again my hon. Friend the Member for East Devon for bringing the debate to the Chamber, and I thank my hon. Friends the Members for Mid Derbyshire and for Derbyshire Dales—Derbyshire is the theme there—for their contributions.
Question put and agreed to.
Draft Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.
The regulations form part of the Government’s programme to deliver a smarter regulatory framework for financial services, using an approach to regulation that is tailored to the needs of the United Kingdom. Under this programme, the Government are delivering a regulatory framework that is logical, consistent and conducive to economic growth—rather like the Government as a whole—while preserving the robust regulatory standards that are the cornerstone of the attractiveness of UK markets.
The ability of a regulator to flex the application of its rules for individual firms is a useful regulatory tool that can enable a regulator to take into account a firm’s specific circumstances to ensure that rules are applied in ways that achieve the best regulatory outcome. That flexibility is not new; it has long been a feature of the UK’s regulatory regime and is supported by our regulators and the financial services industry as a whole.
Since it was introduced over 20 years ago, the Financial Services and Markets Act 2000, known as FSMA, has included such a tool. However, as part of our work to adapt our regulatory regime for the UK’s new position outside the European Union, the existing tool for flexing the application of rules was reviewed, and it was concluded that, while useful, it was not as effective as it could be.
The existing tool is provided by section 138A of FSMA, which provides that the Prudential Regulation Authority and the Financial Conduct Authority can disapply or modify a rule made under FSMA if a firm has requested it or if the regulator has the consent of the firm. However, section 138A contains a test that must be met before a regulator can do that. The regulator must be satisfied that the rules in question
“would be unduly burdensome or would not achieve the purpose for which the rules were made”.
That requirement in section 138A does not always allow for rules to be flexed, even where appropriate disapplication or modification of such rules would provide a better regulatory outcome.
The Government addressed that issue by introducing a new tool for regulators to flex their rules in a wider range of circumstances, which was legislated for through the Financial Services and Markets Act 2023 and is now set out in section 138BA of FSMA. Under section 138BA, the Treasury may specify regulatory rules that the relevant regulator can then permit a firm to disapply or indeed modify in some way. Section 138BA retains the approach by which a regulator can permit a firm to disapply or modify rules only if the firm requests it or the firm consents.
Adam Afriyie (Windsor) (Con)
On a point of clarity, I chair the all-party parliamentary group on financial technology, and I am conscious that many firms have been very firmly nudged to request the removal of licences, particularly around payments and onboarding of new customers. Just to be clear, are these regulations needed retrospectively to cover a lot of those voluntary submissions of licences, or is this purely a tidying-up exercise for the future?
Bim Afolami
I thank my hon. Friend for that point, and I will respond to him in two ways. First, this is typically about looking prospectively forward, so it is not envisaged that this power will be used retrospectively. However, I will write to him if the position is in any way more nuanced than I have just described. Secondly—I was going to come to this point later in my speech, but I may as well answer it now—it is very important that firms have appropriate dispute resolution mechanisms. Those are set out to make sure that no firm, under any circumstances, will be forced—or nudged—to do anything that it does not think is in its interest.
The regulations do two key things. First, they enable the PRA to permit a firm to disapply or modify any PRA rule. After careful consideration, the Government have concluded that the PRA should have the ability to permit a firm to disapply or modify any rule under section 138BA. That is because flexibility in the application of these rules is particularly important for banks, large investment firms and insurers that are regulated by the PRA. These complex institutions, with highly specialised business models, often require a highly tailored approach to ensure that they are appropriately regulated.
Secondly, the regulations apply certain procedural safeguards to PRA decisions under section 138BA, and this may address my hon. Friend’s point to some extent. When the PRA refuses a firm’s application or imposes conditions on a firm’s permission to disapply or modify rules, the PRA must issue a notice explaining its decision. When a permission to disapply or modify rules is given, the decision notice that the PRA publishes must be clear so that it is public knowledge that a particular firm is subject to tailored regulatory requirements. If an affected firm is aggrieved or somehow disagrees with a PRA decision, the firm may appeal by referring the decision to the upper tribunal, which is part of His Majesty’s Courts and Tribunals Service responsible for hearing appeals against decisions made by various public sector bodies, including the PRA.
In closing, these regulations make use of an important regulatory tool approved by Parliament in FSMA 2023. They provide the PRA with the flexibility needed to ensure that the application of prudential rules to banks, investment firms and insurers can be flexed only where appropriate to ensure that regulation of these large and complex firms is effective. They also ensure that the PRA is appropriately accountable and transparent. I hope the Committee will join me in supporting the regulations, and I commend them to the House.
Bim Afolami
I thank the hon. Lady for her points. In essence, the regulations give the PRA much more flexibility around the entire rulebook to apply to any specific firm. If the question is whether they will give the PRA the ability to change rules in relation to a particular subset of firms, the answer, of course, is yes. However, if the question—she also mentioned this in her remarks—is whether they will somehow speed up or change the pace at which the rules will be made or applied, that is not what they are meant for. So, yes, the regulations will give much more flexibility—and it is a policy question as to whether that is desirable in any particular circumstance—but they do not necessarily increase or decrease the speed at which such rules change.
Tulip Siddiq
I thank the Minister for that answer, and I understand what he is trying to say, but I would like to push this point. If we could speed up the IRB model approvals process for mid-tier banks currently on the standardised approach, that would help our country and the banking market generally, and both sides of the House obviously want to boost competition. I understand that that is not what this particular legislation will do, but have the Minister or the Treasury given any thought to the issue? In the long run, such a change would benefit the financial services sector.
Bim Afolami
In terms of where I agree with the hon. Lady, I did not just read about this in the Financial Times last year; I have met mid-tier banks, and I understand their challenges. Their concerns are valid, and we need to do everything we can to support that part of the sector. The regulations allow the banks to apply to the FCA in the way that the hon. Lady outlines. That is something that, if appropriate, I would be very happy to support. Yes, it is important that we have competition, but it is also important that we enable every type of business and every type of individual to be appropriately served by our financial services industry, and more firms offering more services in a way that is prudentially safe is positive to that.
Question put and agreed to.
Oral Answers to Questions
Bim Afolami Excerpts(1 month, 3 weeks ago)
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Nick Smith (Blaenau Gwent) (Lab)
The Economic Secretary to the Treasury (Bim Afolami)
I recognise that this has been a very challenging time for Safe Hands customers. The hon. Member will be aware that the FCA, as the independent regulator of the funeral plan sector, is responsible for dealing with specific cases. However, the Treasury and the FCA have worked closely throughout the process of bringing the sector into regulation, as well as during the implementation of the new regulatory framework.
Nick Smith
My experience of the FCA and the Safe Hands funeral plan fiasco is that it took six months to reply to my freedom of information request and pleaded commercial confidentiality to key questions, and that, despite being warned, the Treasury failed to support consumers moving from an unregulated sector into regulation. It appears to me that the Treasury missed opportunities to support consumers and is still shuffling its feet. At least 47,000 people are out of pocket to the tune of £60 million. They were trying to protect their loved ones from expensive funerals at the worst of times. Will the Minister consider an independent review of this matter? A constructive response is needed to ensure that Safe Hands victims can have confidence in a system that for too long has let them down.
Bim Afolami
I share the hon. Member’s anger at how Safe Hands customers have been treated. The business is under criminal investigation by the Serious Fraud Office and its administrators are bringing legal action against the former owner of the Safe Hands business. In the Treasury, we do not believe it is right to use taxpayer money to compensate consumers who lose out due to the conduct of unregulated firms; Safe Hands was not within the regulatory perimeter at that time. However, we have worked with the sector so that the two largest providers of funeral plans have agreed to provide significantly discounted replacement plans for the customers who have found themselves so badly treated.
Chris Stephens (Glasgow South West) (SNP)
Anna Firth (Southend West) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
I thank my hon. Friend for her question. First, it is important to note her consistent championing of this issue for her constituents, for which she deserves huge commendation. To her precise question, it is important that industry, not the Government, makes decisions about bank branches or banking hubs, but she has made her case very ably. I urge her to work with Cash Access UK and LINK to ensure that she has the best chance of securing one of those new 225 banking hubs, as outlined by the industry, in her constituency.
Paul Blomfield (Sheffield Central) (Lab)
Bim Afolami
I am happy to meet the hon. Member to discuss the precise circumstances of his constituent’s case. In general terms, it is a priority for us to ensure that people get access to that money if it is due to them.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I would like to join the Economic Secretary to the Treasury and my hon. Friend the Member for Southend West (Anna Firth) in discussing the closure of banks. Barclays bank, in particular, is both shameful and shameless in this regard. Does my hon. Friend agree that we need full transparency on the decisions made by Link and the Financial Conduct Authority? Something we learned yesterday that may be of interest to those in Chorley, Mr Speaker, is that the criteria take into consideration only the town plus areas within a 1 km circumference. That is not how the rural economy works. Will the Economic Secretary work with me to ensure that the criteria take into account the wider economy?
Bim Afolami
My right hon. Friend is another good example of a Member who is an excellent champion for her constituents, on this issue and so many others. As for her specific point, it is right for the industry to work out how it will increase provision and adapt the criteria for rural areas, but I will work with her to ensure that the banking hubs are rolled out in an equitable way, to rural as well as more urban areas.
Authorised Push Payment Fraud
Bim Afolami Excerpts(2 months ago)
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The Economic Secretary to the Treasury (Bim Afolami)
The Government take the issue of fraud very seriously and are dedicated to protecting the public from this devastating crime. According to UK Finance, in the first half of 2023 alone there were 116,324 cases of authorised push payment (APP) fraud, where a payer is deceived or defrauded into authorising a payment to a criminal.
To help combat fraud, the Government are working with industry to remove the vulnerabilities that fraudsters exploit; with intelligence agencies to shut down fraudulent infrastructure; with law enforcement to identify and bring the most harmful offenders to justice; and with all partners to ensure that the public have the advice and support they need.
Today, the Government have published draft legislation setting out their approach to allowing payment service providers to delay the processing of authorised push payments executed within the UK in sterling in circumstances where it appears there has been fraud or dishonesty. This fulfils a commitment in our ambitious fraud strategy to investigate this issue.
Currently, for most transactions, the Payment Services Regulations 2017 require that an outbound payment is processed by the end of the business day following the time of receipt of the payment order. The draft statutory instrument published today sets out that the Government intend to allow payment service providers to delay the processing of in-scope payments by up to four business days from the time of receiving the payment order. This will only be permissible where there are reasonable grounds to suspect a payment order from a payer has been placed subsequent to fraud or dishonesty perpetrated by someone else—excluding the payer—and those grounds are established by no later than the end of the next business day following receipt of the payment order. The delay may only be used where the provider requires further time to contact the customer or a third party, such as law enforcement, to establish whether to execute the payment.
Payment service providers will be required to inform customers of any delays, the reasons behind their decision to delay the payment, and what information or actions are needed to help the payment service provider decide whether to execute the order. However, this will not be required when doing so would be unlawful—for example, when doing so will contravene obligations under anti-money laundering or economic crime law.
The thresholds for any delay will ensure that payment service providers must have an evidential basis to delay a payment, while ensuring that suspicious payments are properly investigated and rejected as required. To help ensure that consumers and businesses do not incur any costs as a result of any delays to their payments, payment service providers will be liable for any interest or charges incurred by the payer resulting from a delay.
This measure applies only to authorised push payments executed within the UK in sterling. Small, medium and large businesses, which may have numerous obligations to make timely payments to suppliers, will be able to opt out of these provisions with the mutual agreement of their payment service provider.
To monitor the impact of this legislation and ensure it is used in a proportionate manner, the FCA will engage with payment service providers over reporting requirements in respect of compliance with the new provisions.
This legislation does not make any changes to the Payment Services Regulations 2017 with regard to inbound payments, whereby a payment service provider receives a payment from another payment service provider. This is because there are already obligations under financial crime legislation for payment service providers to delay inbound payments in certain circumstances. Therefore, the Government consider that legislative change for inbound payments is not required.
The Government welcome feedback on the drafting of this statutory instrument by 12 April 2024 and will engage with the financial services industry on this. The Government will then lay these regulations before Parliament in summer 2024. It is intended that these regulations will come into force by 7 October 2024 to align with the Payment Systems Regulator’s timelines for the introduction of mandatory reimbursement for APP scams.
The draft legislation and an accompanying policy note can be found at the below link https://www.gov.uk/government/publications/the-payment-services-amendment-regulations-2024-policy-note
[HCWS335]
Budget Resolutions
Bim Afolami Excerpts(2 months ago)
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The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to close these three days of debate on the Government’s spring Budget. Before I get on to more contentious points, I will start on some common ground.
We all know that the last few years have been tough for our country. We all know that this Government have spent more than £400 billion on protecting lives and livelihoods after covid. We all know that Putin’s war in Ukraine sent energy prices to unprecedented highs, and that this has had a huge impact on our economy.
Since 2023 this Government have principally worked to three economic priorities: halving inflation, growing the economy and reducing the national debt. We have made good progress on each of those priorities. [Interruption.] Opposition Members should wait for it. Inflation has more than halved, going from 11% to 4%. Our economy is expected to grow faster than many of our major European neighbours and partners over the medium term. The IMF predicts that over the coming four years we will be the third quickest growing economy in the G7. The OBR has confirmed that national debt is on track to fall in line with our fiscal rules.
Members across the House may say, “A lot done; a lot more to do”, but this prudent and responsible Budget takes us one step closer to tackling the inflation that has harmed the economy, to dealing with the low growth and poor productivity that has hampered us, and towards a brighter future. We have already had much success. That is why we are able to afford to cut national insurance for 29 million people. We will responsibly go further than that, as long as the country can afford it.
Peter Dowd (Bootle) (Lab)
Asked last week about the Government’s commitment to abolish national insurance contributions, the Minister said
“we’d like to continue along that track”—
more of a cul-de-sac, in my humble opinion—but today the Minister has been silent on that plan for a huge £46 billion unfunded tax commitment. Will the Minister tell us if it is still the Prime Minister’s plan to resurrect the Trussonomics mini-Budget package of last year?
Bim Afolami
It is not our plan to resurrect anything from the mini-Budget. We have our plan and we set it out in our Budget.
As the son of a doctor and a pharmacist, as many of us are on the Government Benches, I am mindful that any good doctor will say that in order for the medicine to work, one has to complete the course and stick to the plan. This Budget sticks to the plan we set out in 2023 and has three key objectives: to reward work, to grow the economy and to improve productivity. Before I get on to those points, I will address some of the remarks made by hon. Members during the debate.
The hon. Member for Makerfield (Yvonne Fovargue) made a point about some of the most vulnerable in our country and their access to credit. I commend her long-standing support for her constituents, including the most vulnerable. We are extending the household support fund, as she will know, and we are making it easier to access the debt relief order. The right hon. Member for East Ham (Sir Stephen Timms) welcomed the decision to extend the household support fund. In response to his question about making the fund permanent, that is a decision for the next fiscal event, whenever that will be.
I say to Members of all parties who are concerned for the most vulnerable that this is a Budget and a Government for them. Since 2010, the real income—the take-home pay—of those working full time on the national living wage is 35% greater than it was in 2010. On rewarding work, thanks to the actions that this Government have already taken, falling inflation means that wages in real terms are on the up, even while unemployment is low. In response to the question raised by the hon. Member for Liverpool, Walton (Dan Carden), real household incomes overall have increased by 8% since 2010. But we all know that we can go further. The simplest and most effective way to do so is by reducing people’s taxes and getting rid of the double taxation on work, which means reducing national insurance.
I was listening carefully to the shadow Chief Secretary to the Treasury, who is a man I rather like. [Hon. Members: “Ah!”] I rather admire him. We came to the House at the same time. We are practically the same age—he is about five months younger than me, but let us not go into that. But I was very surprised to hear him say—he can intervene on me if this is not correct—that it was “morally abhorrent” to cut national insurance.
Darren Jones
I always welcome the chance to return to the Dispatch Box. Just to answer the hon. Gentleman’s question, I said that it was morally abhorrent to abolish national insurance contributions at a cut of £46 billion a year with no plan to pay for it. The Minister has the opportunity once again to tell us how he is going to fund the £46 billion.
Bim Afolami
This is great fun, Mr Deputy Speaker. I say to the shadow Chief Secretary that we have been very clear about this. We have cut national insurance by a third in the last two fiscal events. It is our long-term ambition to do so and to eliminate this double taxation on work. If Labour Members do not believe that we should eliminate this double taxation, they should say so.
Bim Afolami
No, I will not give way. I wish to make some progress.
My hon. Friends the Members for St Ives (Derek Thomas), for Broxtowe (Darren Henry), and for North West Norfolk (James Wild) saw the wisdom and the importance of cutting national insurance by a third and what that means for ordinary people. From April this year, we will have taken a third off, which means £900 a year for the average worker. Some Opposition Members sniffed at that. They do not think that that is very much money. We know that, for millions of people across the country, that will make a huge difference to their lives, and we are very proud to support it.
Over and above the national insurance cuts, this Budget sets out a plan that rewards hard-working families. A lifetime of work should support the job of a lifetime: being a parent. For too long, hard-working parents have been unfairly penalised by our tax system—I am very glad that the hon. Member for Richmond Park (Sarah Olney) from the Liberal Democrats recognised that and supported our plans. That is why we are raising the child benefit threshold to £60,000 and increasing the level at which the support is completely withdrawn to £80,000. This is not done out of some ideological fancy. We are doing it because it will encourage growth in the labour market and generate an increase in work hours equivalent to around 10,000 people entering the workforce full time. So this one act on childcare that the Chancellor has put forward will save nearly half a million families an average of around £1,300 per annum in addition to the national insurance cuts.
We also want to support those who make a career out of childcare, which is why, building on our announcement at the last Budget to extend 30 hours of free childcare a week to all children aged nine months and older of working parents, my right hon. Friend the Chancellor said that the Government will guarantee the hourly rate to ensure that private childcare providers can step up to deliver this offer.
Secondly, as many Members across the House have noted, this is a Budget for long-term growth. Growth means more opportunity. Growth means greater prosperity for families and firms. And, yes, growth means higher funding for our public services.
Alan Brown
The Minister knows full well that the autumn statement had £20 billion of future cuts to public services and this Budget bakes it in. The Institute for Fiscal Studies has called it a conspiracy of silence from both Labour and the Conservatives. He talks about long-term growth and an increase in public services, but will he come clean about that £20 billion cut and what the Government will do about it?
Bim Afolami
I thank the hon. Gentleman for that point. If he looks in the Red Book, he will see that the forecast for the next spending review period is that real-terms spending on public services—the whole House should hear this, because I have heard lots of discussion from Opposition Members about cuts and slashing—will go up every year by 1% in addition to inflation. We are building on a stable foundation for that growth. Against the backdrop of economic uncertainty, business investment—one of the chronic difficulties for our economy for generations—grew last year, and will be about 11% of our GDP this year.
At the Budget, we outlined next steps on the autumn statement’s £4.5 billion funding package for strategic manufacturing, which many Members mentioned, particularly the hon. Member for Birmingham, Edgbaston (Preet Kaur Gill). That delivers the next stage of expansion for our high-growth industries.
To complement that, we are committed to ensuring the UK has the most attractive investment tax regime of any G7 or large European country. We have the lowest corporation tax rate in the G7. At the autumn statement, to complement that support for business and for growth, we announced that we would introduce permanent full expensing, which allows companies to claim, in the first year, 100% capital allowances on qualifying investments. At this Budget, the Chancellor confirmed that draft legislation on extending full expensing further to assets for leasing will be published shortly. I am very glad that my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) and the hon. Member for Gordon (Richard Thomson) supported that investment.
The theme of today’s debate—improving productivity—was barely mentioned by Opposition Members. I echo what the Chief Secretary to the Treasury, my right hon. Friend the Member for Sevenoaks (Laura Trott), said in her opening speech: when it comes to our public services, what the public care about is whether their services improve. That means focusing on outcomes, not just inputs. Opposition Members are very, very fond of talking about inputs and how there are apparently there are all these cuts—this slashing and burning of public services—but they are not very fond of talking about our productivity plan and how we are investing to improve outcomes. I will tell you a secret, Mr Deputy Speaker: the reason they are not fond of it is that they know it would upset their union paymasters. That is why they do not want to talk about it. They do not believe in better public services, which would mean better value for money for the taxpayer, because they do not believe in better value for money. They do not believe in better support for frontline workers to actually do their jobs properly because they just want more money for their union paymasters. They do not believe in better results. They talk the talk but refuse to walk the walk, because they do not understand what it is to take any tough decisions.
I agree with something that the hon. Member for Ilford South (Sam Tarry) said. He said that we cannot cut our way to prosperity, and I agree. That is why we are investing in our productivity plan and investing comprehensively in the NHS, as my hon. Friend the Member for Watford (Dean Russell) set out compassionately and powerfully.
Bim Afolami
I will make some progress, and then I will give way.
From upgrading computer systems to using artificial intelligence to automate tasks, we will upgrade the NHS’s technology for the 21st century. That is only part of our programme of reform to bring the whole of Government into the digital era and generate productivity improvements, including through structural investment—and what a win it would be. The National Audit Office and the Office for Budget Responsibility, bodies that Opposition Members are always terribly keen to quote—[Interruption.] They should listen to what they have said about productivity and outcomes. The OBR says:
“Raising public sector productivity by 5 per cent”,
which will bring us back to where we were before the pandemic,
“would be the equivalent of around £20 billion extra in funding”.
That is why we are doing it. That is why the work that my right hon. Friend the Chief Secretary is doing is so important.
Before I conclude, I think we can all agree, including Opposition Back Benchers, that it is impossible to know where the Labour party stands on anything these days. We used to know where it stood. The sad thing about the one concrete plan that it did have is that there was a document listing all the projects under the £28 billion and going through every constituency. That was the only plan they had, but they have dropped it. They should talk to the right hon. Member for Doncaster North (Edward Miliband) as to whether he is happy about that.
Labour Members are confused and I feel sorry for them. [Interruption.] The hon. Member for Hampstead and Kilburn (Tulip Siddiq) is chuntering from a sedentary position, but I am coming to her next, don’t worry. Labour is so confused that, by the way she was going on, one would think that she was a disciple of Peter Thorneycroft and Nigel Lawson. She was so keen on low taxes and sound money that I almost wanted to invite her to join us on the Government Benches. But then I remembered something: in one of her first acts as a Labour MP, she decided to mount the barricades and nominate the right hon. Member for Islington North (Jeremy Corbyn) for leadership of the Labour party. I wonder whether she has told the Leader of the Opposition that that is where her heart lies.
Look, I do not want to be mean spirited—it does not suit me very well. It might surprise you, Mr Deputy Speaker, to learn that I actually rather admire the right hon. Member for Islington North. He believes in things and has ideas, unlike the shadow Treasury team, who do not even have the semblance of a coherent plan or any beliefs at all, as it turns out.
We know that this will not bother the shadow Chancellor. Where is she, by the way? She is probably too busy on her smoked salmon offensive in the City of London, pretending to love bankers, to have time to think of any new ideas.
The Secretary of State for Levelling Up, Housing and Communities (Michael Gove)
She is on Wikipedia, cutting and pasting.
Bim Afolami
She is cutting and pasting. I cannot see her, but if she needs ideas and is happy to come in, there is always the option—and she has done it before—to cut and paste from someone else. I do not want to mislead the House, Mr Deputy Speaker, but the shadow Chancellor does have one aspect to her economic plan—forgive me for forgetting about it—and, as the deputy leader of the Labour party knows, it is called the workers’ plan. True to form, the shadow Chancellor has cut and pasted this plan from the trade unions to such a degree that it might as well be called the unions’ plan. It gives sweeping licence to unions over our whole economy, which will kill jobs, hurt our productivity and undo the good work of this Budget and this Chancellor.
This Budget is a plan for the future, a plan for jobs, a plan for growth, a plan for productivity, a plan on the side of working people, and I commend it to the House.
Question put.
Draft Bank of England Levy (Amount of Levy Payable) Regulations 2024
Bim Afolami Excerpts(2 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Bank of England Levy (Amount of Levy Payable) Regulations 2024.
It is a pleasure to serve under your chairmanship, Ms Bardell. The Bank of England undertakes vital work in pursuit of its monetary policy and financial stability objectives, in line with primary legislation. To ensure that the Bank can recover fully and efficiently the costs of funding its important functions, it is necessary that the mechanism it employs to do so is reliable and stable.
The Bank’s current monetary policy and financial stability functions are funded by what is known as the cash ratio deposit scheme. Under the scheme, banks and building societies with eligible liabilities greater than £600 million are required to place a proportion of their deposit base with the Bank on a non-interest bearing basis. The Bank then invests those funds in gilts, and the income generated from such gilts is used to meet the cost of its monetary policy and financial stability functions. The scheme has resulted in significantly higher deposit sizes than were initially forecast and a lack of predictability for payers of a cash ratio deposit. Deposit sizes change in line with gilt yields, which have been lower than expected, meaning that the cash ratio deposit scheme has not been able to generate its target income from the investment of deposits and has therefore failed to fund fully the Bank’s policy functions. The shortfall to date has been funded from the Bank’s capital and reserves, meaning that it has not paid a dividend to the Treasury as Bank capital levels have fallen below target.
Following a review of the scheme in 2021, the Government set out their intent to replace the scheme with a Bank of England levy to provide greater certainty to firms on their contributions and to create a simpler and more transparent funding mechanism for the Bank. Sections 70 and 71 of the Financial Services and Markets Act 2023 made provision for that. The regulations before us make provision under the auspices of FSMA for the eligible institutions that do not have to pay a levy on how the cost is apportioned between eligible institutions that must pay a levy and how appropriate adjustments will be made for years in which a new levy is paid.
The Bank of England levy aims to create a simpler and more stable funding mechanism for the Bank’s policy functions. Under the new levy, for each year the Bank will estimate the amount that it needs to meet its policy costs; it will add any shortfall from the previous year and deduct any surplus. That is the anticipated levy requirement. The Bank will require institutions to submit data about their eligible liabilities and will usually take an average of the data provided between 1 October and 31 December in the previous year to calculate an institution’s eligible liabilities. The three-month reference period mirrors that used for the Prudential Regulation Authority levy, ensuring greater consistency across the levies and a simplification of the process for recovering the Bank’s costs. That is simpler for the institutions involved.
As under the cash ratio deposit scheme, if an institution has an average liability base up to and including £600 million, it will not pay any levy that year. If an institution’s average liability base exceeds £600 million, it will pay the levy. That ensures that the payment mechanism is fair, as only the largest institutions that benefit most significantly from the Bank’s monetary policy and financial stability functions will pay the levy. The cost paid by an institution under the levy will be apportioned according to the size of an institution’s eligible liabilities, meaning that larger institutions will pay a larger share of the costs. That is the same as under the cash ratio deposit scheme, so introducing the new levy does not mean that there will be relative winners or losers between the institutions that pay.
If an institution did not meet the threshold for paying the levy in the previous year, but it meets the threshold in a new year, the regulations deal with that as well. They stipulate that the firm would be treated as a new levy payer. This statutory instrument allows the Bank to treat new levy payers differently so that they contribute to the estimated policy costs for the specific year and do not have to contribute to any shortfall from the previous year or gain any benefit from surplus from the previous year. I hope the Committee will agree that that is a fair and proportionate approach.
The regulations will replace the cash ratio deposit scheme with a Bank of England levy—a simpler and more stable funding mechanism—while ensuring that no changes are made to the threshold at which firms will pay the levy or the broader important principle that larger firms will pay more.
Sir Robert Syms (Poole) (Con)
Presumably there could be an argument over whether someone has to pay the levy or what levy they have to pay. Is there an appeal process?
Bim Afolami
I thank my hon. Friend for that question. It is my understanding that there is not an appeal process, but the reason for that is that there is an agreed formula for when it occurs; the amount of levy that people will pay is not an art, but a science. As I say, it will depend on the size of the institution, just as the cash ratio deposit levy did, but this system is simpler and more stable. I hope colleagues will join me in supporting the regulations and I commend them to the Committee.
Bim Afolami
I shall do my best to answer the hon. Lady’s questions in the Committee. On her first question, there is no current plan to introduce non-bank financial institutions as part of this process; of course such questions are always under review, but I want to be clear with the Committee that there is no current plan in that regard. On the five-year budgetary plan, I will write to her, because I want to be precise with the answer but I am not equipped to answer right now. On the question of when the SI will come into force, I do not want to commit to a precise time, but I can assure her that we wish to that to happen at the earliest possible time.
If there are no more questions, I thank colleagues for this useful debate and I commend the regulations to the Committee.
Question put and agreed to.
Draft Bank of England Levy (Amount of Levy) Regulations 2024
Bim Afolami Excerpts(2 months, 3 weeks ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Bank of England Levy (Amount of Levy Payable) Regulations 2024.
It is a pleasure to serve under your chairmanship, Ms Bardell. The Bank of England undertakes vital work in pursuit of its monetary policy and financial stability objectives, in line with primary legislation. To ensure that the Bank can recover fully and efficiently the costs of funding its important functions, it is necessary that the mechanism it employs to do so is reliable and stable.
The Bank’s current monetary policy and financial stability functions are funded by what is known as the cash ratio deposit scheme. Under the scheme, banks and building societies with eligible liabilities greater than £600 million are required to place a proportion of their deposit base with the Bank on a non-interest bearing basis. The Bank then invests those funds in gilts, and the income generated from such gilts is used to meet the cost of its monetary policy and financial stability functions. The scheme has resulted in significantly higher deposit sizes than were initially forecast and a lack of predictability for payers of a cash ratio deposit. Deposit sizes change in line with gilt yields, which have been lower than expected, meaning that the cash ratio deposit scheme has not been able to generate its target income from the investment of deposits and has therefore failed to fund fully the Bank’s policy functions. The shortfall to date has been funded from the Bank’s capital and reserves, meaning that it has not paid a dividend to the Treasury as Bank capital levels have fallen below target.
Following a review of the scheme in 2021, the Government set out their intent to replace the scheme with a Bank of England levy to provide greater certainty to firms on their contributions and to create a simpler and more transparent funding mechanism for the Bank. Sections 70 and 71 of the Financial Services and Markets Act 2023 made provision for that. The regulations before us make provision under the auspices of FSMA for the eligible institutions that do not have to pay a levy on how the cost is apportioned between eligible institutions that must pay a levy and how appropriate adjustments will be made for years in which a new levy is paid.
The Bank of England levy aims to create a simpler and more stable funding mechanism for the Bank’s policy functions. Under the new levy, for each year the Bank will estimate the amount that it needs to meet its policy costs; it will add any shortfall from the previous year and deduct any surplus. That is the anticipated levy requirement. The Bank will require institutions to submit data about their eligible liabilities and will usually take an average of the data provided between 1 October and 31 December in the previous year to calculate an institution’s eligible liabilities. The three-month reference period mirrors that used for the Prudential Regulation Authority levy, ensuring greater consistency across the levies and a simplification of the process for recovering the Bank’s costs. That is simpler for the institutions involved.
As under the cash ratio deposit scheme, if an institution has an average liability base up to and including £600 million, it will not pay any levy that year. If an institution’s average liability base exceeds £600 million, it will pay the levy. That ensures that the payment mechanism is fair, as only the largest institutions that benefit most significantly from the Bank’s monetary policy and financial stability functions will pay the levy. The cost paid by an institution under the levy will be apportioned according to the size of an institution’s eligible liabilities, meaning that larger institutions will pay a larger share of the costs. That is the same as under the cash ratio deposit scheme, so introducing the new levy does not mean that there will be relative winners or losers between the institutions that pay.
If an institution did not meet the threshold for paying the levy in the previous year, but it meets the threshold in a new year, the regulations deal with that as well. They stipulate that the firm would be treated as a new levy payer. This statutory instrument allows the Bank to treat new levy payers differently so that they contribute to the estimated policy costs for the specific year and do not have to contribute to any shortfall from the previous year or gain any benefit from surplus from the previous year. I hope the Committee will agree that that is a fair and proportionate approach.
The regulations will replace the cash ratio deposit scheme with a Bank of England levy—a simpler and more stable funding mechanism—while ensuring that no changes are made to the threshold at which firms will pay the levy or the broader important principle that larger firms will pay more.
Sir Robert Syms (Poole) (Con)
Presumably there could be an argument over whether someone has to pay the levy or what levy they have to pay. Is there an appeal process?
Bim Afolami
I thank my hon. Friend for that question. It is my understanding that there is not an appeal process, but the reason for that is that there is an agreed formula for when it occurs; the amount of levy that people will pay is not an art, but a science. As I say, it will depend on the size of the institution, just as the cash ratio deposit levy did, but this system is simpler and more stable. I hope colleagues will join me in supporting the regulations and I commend them to the Committee.
Bim Afolami
I shall do my best to answer the hon. Lady’s questions in the Committee. On her first question, there is no current plan to introduce non-bank financial institutions as part of this process; of course such questions are always under review, but I want to be clear with the Committee that there is no current plan in that regard. On the five-year budgetary plan, I will write to her, because I want to be precise with the answer but I am not equipped to answer right now. On the question of when the SI will come into force, I do not want to commit to a precise time, but I can assure her that we wish to that to happen at the earliest possible time.
If there are no more questions, I thank colleagues for this useful debate and I commend the regulations to the Committee.
Question put and agreed to.