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.
UK Economy
Bim Afolami Excerpts(2 months, 3 weeks ago)
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Rachel Reeves (Leeds West) (Lab)
(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on the UK economy entering recession.
The Economic Secretary to the Treasury (Bim Afolami)
High inflation remains the biggest barrier to growth, which is why halving it is still our top priority. Thanks to decisive action supported by the Government, inflation has fallen from over 11% to 4%. The Bank of England is forecasting that it will fall to around 2% by early summer, in only a matter of months, which is much faster than previously thought.
It is important to put all this in context. Just over a year ago, the Bank of England was forecasting the longest recession in 100 years. That has not happened, and the British economy has proved resilient in the face of unprecedented shocks. Forecasters, including the Bank of England and the International Monetary Fund, agree that growth will strengthen over the next few years, with the IMF forecasting that we will grow faster than Japan, Germany, France, Italy and many others, on average, over the next five years. Wages have been higher than inflation for six months in a row, unemployment remains very low, and we are backing British business by delivering the biggest business tax cut in modern British history and rewarding work by cutting taxes for working people.
These are all reasons to be positive about the economy turning a corner. If we stick to our plan, we can be confident of seeing pressures reduce for families and of achieving healthy economic growth. At the autumn statement, we unveiled 110 growth measures, including unlocking £20 billion of business investment. This includes a substantial labour market package, delivering a tax cut to national insurance for 27 million people, as well as reforming pensions and extending investment zones. The real risk to economic growth and prosperity in this country is the fact that the Labour party has no plan for growth—no plan at all. While they may pretend that they have abandoned their £28 billion pledge, they are still committed to their damaging 2030 energy policy, which, as the Leader of the Opposition has said, costs £28 billion. All of us across this House know what that means: higher taxes and lower growth with Labour.
Rachel Reeves
The Chancellor should be here explaining why Britain has fallen into recession. Will the Minister explain why he has been left to answer these questions, and where exactly the Chancellor is? The Chancellor should be accountable to MPs and to our constituents, and answer for his failure in the House. What an insult to all those people who go to work every day and experience the reality of 14 years of Conservative economic failure that he has simply failed to turn up.
Does the Minister accept that the Prime Minister’s promise to grow the economy is now in tatters? Will the Minister explain why the economy is now smaller than when the current Prime Minister entered 10 Downing Street? Does the Minister accept the misery that this Government have caused homeowners with their kamikaze Budget, leaving a typical family renewing their mortgage paying an additional £240 every single month?
The Chief Secretary is also notable for her absence today, and was last seen refusing or simply failing to recognise that their target measure of debt as a share of GDP is rising, not falling. Following her rebuke this morning from the chair of the UK Statistics Authority about misleading the public, can the Minister inform the House whether the Chief Secretary will again be relying on incompetence as her best defence?
It is not good enough. The whole country knows that the economy is not working for working people under the Conservatives. It is time for change. If the Government seriously think everything is fine, why do they not take their record of failure and let the British people decide?
Bim Afolami
I am coming to that.
The right hon. Lady started by talking about the Chancellor; as Economic Secretary, I am perfectly entitled to answer on behalf of the Department and I will do so today. The main thrust of her remarks was on growth; let me deal with that in detail.
The first point to recognise is the international context that we all find ourselves in. [Interruption.] It happens to be true. For example—to describe that international context—10 EU countries were in recession in 2023. In relation to forecasts, the Office for Budget Responsibility’s original forecast was that there would be a contraction of 1.5% in the economy; we have significantly outperformed that. As I have said, the Bank of England forecast the longest recession in 100 years; we have significantly outperformed that. On wages, I think this is the sixth month in a row when wages have been higher than inflation, which, as I have said, we have more than halved.
On the Chief Secretary, what she was explaining is that we were and are meeting our fiscal rule, which is that debt will be falling in the fifth year of the forecast excluding the Bank of England. That is what she explained, and that is what I am reiterating for the House. [Interruption.]
Labour Members do not like hearing this, but they have absolutely no plan on the economy. We have been clear about our plan, and it is starting to bear fruit with wages, with cutting taxes for working people starting in January, with higher business investment as a result of our full expensing in the autumn statement. The shadow Chancellor does not have to take it from me; the Office for Budget Responsibility said that the two fiscal events in 2023—the Budget and the autumn statement—would represent the largest increase to GDP that it has ever scored. What I say to her and the House is this: our plan is working; stick with the plan and do not throw it away with the Opposition.
John Redwood (Wokingham) (Con)
It is good news that unemployment has stayed low by European standards, and the economy is still generating plenty of job vacancies. Will the Government take more steps to help more people into those jobs, so that we can get faster growth, bring down the benefit bill and boost their incomes?
Bim Afolami
The whole House knows that my right hon. Friend is somewhat of an expert on matters relating to the economy. To answer his point specifically, the national insurance tax cut was scored at the last fiscal event—the autumn statement—as significantly increasing the number of people in work. Although I will not speculate on fiscal events, that point has been very much noted by me and the whole Treasury.
Stewart Hosie (Dundee East) (SNP)
The Minister spoke about resilience, but the fourth quarter contraction in the economy was the biggest quarterly fall since early 2021 at the height of the covid pandemic, so I am not sure he is quite right about resilience. He also spoke about growth, but the Government told us in November that growth is not forecast to exceed 2% in any year in the forecast period. How modest the Minister’s ambitions are.
National debt is still approaching 100% of GDP—£3 trillion. The consequences of Brexit are suppressing growth, and that poses a challenge to the UK Government’s fiscal targets. Although it is welcome that inflation has fallen, prices remain high. Prices are not falling; they are simply going up slightly less steeply than they were a month or two ago. It is obvious that what the economy needs is growth, and the investment to generate that growth, but given that business investment, according to the Government, is forecast down this year by 5.6%, private dwelling investment is forecast down this year by 6%, and flat at 0% next year, and general Government investment is forecast down in ’25, ’26, ’27 and ’28, where will the investment for growth come from?
Bim Afolami
I deeply respect the right hon. Gentleman, and I will take his points one by one. On resilience, the way we get resilience for ordinary people and for households is to ensure that real household incomes increase. Since 2010, they are up 12%. We are trying to increase business resilience with our full expensing regime, which is revolutionary in the advanced world. Full expensing will enable more businesses to invest and will deal with the chronic weakness of the British economy, which is weak investment. That is why we are doing that.
The right hon. Gentleman mentioned growth. Growth is not as high as we would like, and that is the case across the whole of Europe and the whole of the industrialised world. That is why the Chancellor in the last fiscal event put in place 110 growth measures. We have a plan for growth over the long term, and we will deliver it. The right hon. Gentleman mentioned debt. To repeat the point I made to the shadow Chancellor, debt is falling in the fifth year of the forecast according to our fiscal rule, which excludes the Bank of England. That is not just the fiscal rule now; it has always been the fiscal rule.
The right hon. Gentleman makes the fair point that lower inflation does not mean that prices are falling. Indeed, lower inflation is a lower rate of increase. We all know that in this House. That is why bringing down inflation is so important, and the Opposition, with their plan to recklessly jack up borrowing and taxes to the extent of £28 billion, will increase inflation.
I repeat that investment has been a long-term weakness of the British economy. We are taking long-term measures to deal with it, and I hope that in the next fiscal event—the Budget—we will continue in that vein.
Sir Jacob Rees-Mogg (North East Somerset) (Con)
May I thank my hon. Friend for his distinguished service as a voice of His Majesty’s Government? I refer him to what the former chief economist of the Bank of England, Andrew Haldane, said today, referring to a “double blow” to the credibility of the Bank of England, which was late to put interest rates up and missed inflation, and has been slow to reduce them, hammering the economy. Does my hon. Friend agree that the Bank of England is no longer showing itself to be competent and that its independence must be questioned?
Bim Afolami
I do not think that I will quite agree with my right hon. Friend. It is very important that we leave the Bank of England to do its work and respect its independent mandate, but that, from the Treasury, we do what we can to bring inflation down and support it in that mandate. As I said, the Labour party’s plans—whether it claims to have dropped them or not—will lead to an increase in borrowing or an increase in taxes, which will significantly damage that aim.
Dame Angela Eagle (Wallasey) (Lab)
I think the Minister is failing the audition. Labour will not take lectures from him about borrowing, which was at 67% of GDP when we left office and is now nearly 100%. He is claiming that somehow growth is happening, but we are actually in a recession, which means that there is no growth; in fact, there is negative growth. GDP per capita fell in every quarter of last year, meaning that everybody is getting worse off under his appalling stewardship of the economy. Is it not time that the junior Minister went back to his boss and told him, “It’s all over. Time’s up. Call the general election.”?
Bim Afolami
It is definitely above my pay grade to call elections. In relation to GDP per capita statistics, which are important—the point of them is to try to get a sense of what is happening to individuals or to individual households and families—I would say—[Interruption.] Let me—[Interruption.] I wish the shadow Chancellor would allow me to respond. Real household incomes, which are as good a measure as any to see what is happening to individuals and families in our economy, are up 12% since 2010. If we are looking at people at the bottom of the income scale, the rise in the national living wage that comes in in April will mean a rise since 2010 of about 30% in real terms for people on full-time minimum wages. Those two statistics are examples of what has happened to real people on the ground.
Rachel Maclean (Redditch) (Con)
I thank the Minister for updating the House. Does he agree that people in Redditch and elsewhere are concerned about negative economic news—although it almost always turns out to be wrong? Most of all, does he agree that the greatest risk to my constituents in Redditch and those across the country is a Labour Government? Labour has said it can somehow magically get £28 billion of green growth benefits without paying for them. We all know that my constituents will be paying for that through extra borrowing and higher taxes.
Stella Creasy (Walthamstow) (Lab/Co-op)
The Minister says the Government’s priority is backing British business, cutting inflation and reducing the pressure on British families. When the Government admit this measure will increase inflation, when British business is tearing its hair out at the chaos caused by not knowing what the charge will be and who will pay it—with less than 10 weeks to go—and when British consumers will find that it causes food shortages and an increase in food prices, why on earth are the Government going ahead with the Brexit border tax? Will the Minister commit here and now to cancelling it, so that we can stop this inflationary measure—yes or no?
Bim Afolami
I thank the hon. Lady for focusing on inflation. She is right that it is critical, and bringing it down is a focus for the Government. The House has heard her point about the European Union, but I would add that we have a clear plan for bringing down inflation, which we will continue to carry out. She has to ask those on her Front Bench why they do not have one.
Sir Edward Leigh (Gainsborough) (Con)
For too long, too many people in the Treasury—not my hon. Friend, who is an excellent Minister—have thought that the best way to grow the economy is to fill the country with more and more people. Will the Government recommit to insisting that anyone who comes here to work should earn the average UK earnings of around £33,000 a year? That means no shortage schemes and no exemption for care workers or the NHS, but that in those sectors we pay proper wages, we get people off benefits—too many people are on them, dragging down our economy—and we seriously cut mass legal migration; and, by the way, if there is a general election, let us give our people something to vote for.
Bim Afolami
My right hon. Friend makes an important point about migration. I completely agree that we need higher earnings for British people, not an economy where we import too many people and keep earnings down. That is why we have been focusing on raising the national living wage and ensuring that ordinary household incomes will go up as a result of this Government’s policies, as I have explained. It is worth pointing out that certain things happened last year, such as people fleeing Ukraine and Hong Kong, which meant that the immigration numbers were particularly high. The broad thrust of what my right hon. Friend said is correct: we want a high-skill, high-wage economy.
Emma Hardy (Kingston upon Hull West and Hessle) (Lab)
I do not know whether the Minister realises quite how infuriating people find watching his Government tell them, “Everything is fine”, “It is all going really well” and “There’s nothing to see here”, when every day they feel poorer and small businesses are closing. If the Prime Minister and the Chancellor cannot face reality, how on earth can anyone trust them to solve the economic crisis that their Government created?
Bim Afolami
Let me be clear with the hon. Lady, whom I have a huge amount of time for as a very good Member of Parliament: it is not our position that everything is okay. There has been a challenging international context: a once-in-100-years pandemic, and an energy crisis caused by Putin’s war in Ukraine. This Government have done everything we possibly can to build an economy for growth, and I hope we have her support.
Sir Desmond Swayne (New Forest West) (Con)
What distinguishes this recession is the 800 jobs that have been created every day since this Government came to power in 2010—the very antithesis of anything ever achieved by a Labour Government, who have always left unemployment higher than they found it—is it not?
Bim Afolami
It is—and I would add something else: the figures for home repossession were much higher when there was a recession under the Labour Government in 2008-09, in comparison with our record now, and unemployment now is much lower than it was then. Though we are in challenging times, the economy is turning a corner. Our record compares very favourably Labour’s.
Keir Mather (Selby and Ainsty) (Lab)
The Chancellor said last May that he was comfortable with the prospect of a recession. Now that my constituents in Selby and Ainsty are suffering under that recession’s effects, would the Minister chalk it up as a job well done?
Bim Afolami
The hon. Gentleman will do well. There is nobody on the Government Benches who welcomes adverse economic situations for anybody. That is why we are doing everything we can—straining every sinew—to grow the economy. All the measures I have laid out will continue, but they would be put at risk by those on his Front Bench being in office.
Duncan Baker (North Norfolk) (Con)
Before I came to this House, I was a director of quite a large retail group in North Norfolk. No one has made the point that in the last quarter of the year the country saw Babet, Ciaran, Debi, Elin, Fergus and Gerrit—six major storms and floods. How many were there in the previous year? Absolutely none at all. Will the Economic Secretary tell everybody that of course the economy will not function properly in the grip of storms and floods every fortnight? We are not in recession, but the more we talk it up, the more we will be.
Bim Afolami
I thank my hon. Friend for that question—I would say that the loss of large retail groups in Norfolk is the House’s gain. His point about the international context is serious and important. Although Labour Members do not like to hear it, facing a once-in-100-years pandemic and Putin’s illegal war in Ukraine, which caused energy prices to skyrocket, will have adverse impacts on the economy. The country understands that and the House understands that; the Labour Front Bench should also understand it.
Wera Hobhouse (Bath) (LD)
This recession is a direct result of the choices that this Government have made. Years of potential growth have been missed, and the Government have failed particularly to capitalise on the green transition. Green investment will be worth £1 trillion globally by 2030, including half a million jobs in this country. When will the Government bring forward a green investment programme to match the ones in the US or in Europe?
Bim Afolami
First, our record on decarbonisation beats anywhere else in the G7, so we do not take lessons from the United States or any other country in that regard. In relation to the green investment plan by 2030, the hon. Lady should direct her ire at those on the Labour Front Bench for not being clear as to what their plan is. The Leader of the Opposition says—[Interruption.] Well, it is important because politics is a contest of ideas, as indeed it is a contest between two parties. If Labour Members believe they can spend an extra £28 billion without that having an impact on taxes and borrowing, they are trying to pull the wool over the eyes of the British people.
Vicky Ford (Chelmsford) (Con)
The past couple of years have been very difficult economically, and I certainly do not treat the state of our economy as the giggle-fest that Labour Members seem to be having today. Over the past few weeks, I have met many businesses in my constituency—large and small—and a number have told me that they feel conditions are getting better, demand is growing and orders are coming back. Constituents have also told me that they have noticed food prices dropping in our supermarkets. Does the Minister agree that the most damaging thing that could happen to our economy now would be for those on the Labour Benches to continue to talk our economy down?
Bim Afolami
My right hon. Friend is correct that things are starting to get better for many people across the country, including small businesses. We have more than halved inflation, which is now down below 4%; we think that in the coming months it will go to 2%, which is the target. Of course, once it hits that target, we hope that interest rates will also start coming down, which will make a big difference to ordinary people up and down the country.
Sir Stephen Timms (East Ham) (Lab)
I applaud the Minister’s willingness to take on this unenviable assignment, unlike his right hon. Friends. The international context that he refers to is that Japan and the UK are the only G7 countries in recession. Inflation in the UK, which he has referred to, is the highest in the whole G7. Why is the UK economy doing so much worse than comparable economies elsewhere?
Bim Afolami
The right hon. Gentleman makes an interesting point, but I would say that our economy entered difficult times at a different point in the cycle from certain other economies. To fully assess the performance of all economies, we have to wait for the end of this whole period, so I would not prejudge exactly at this stage. I simply say that the difficulties we are facing have affected every single economy, although the nature of different economies means that they are affected at different times. We are putting in place comprehensive growth measures and comprehensive measures to bring inflation down. I also note that UK interest rates are roughly middle-of-the-pack compared with other countries of comparable size. We will keep all this under review and, at the next fiscal event, will take further measures to increase our potential growth rate over the long term.
Alexander Stafford (Rother Valley) (Con)
Does the Minister welcome the news that the South Yorkshire Mayor has finally recognised the economic importance of Doncaster-Sheffield Airport and is at last starting to use the powers given to him to begin the process of getting it up and running again? Does he agree that that has taken far too long—it is years since the airport closed —and that the South Yorkshire Mayor should have used his powers years ago, rather than waiting until nine weeks before he is re-elected?
Bim Afolami
I thank my hon. Friend for pointing out once again what a brilliant champion he is for his constituency. I am sure his constituents have heard that comment, and that he will continue to make that point.
Sir Chris Bryant (Rhondda) (Lab)
Lordy, lordy! It is like listening to the Red Queen in “Alice Through the Looking Glass”, who invented six impossible things before breakfast! How on earth can we have confidence in what the Minister says when the UK Statistics Authority had to tell off the Chief Secretary to the Treasury, the right hon. Member for Sevenoaks (Laura Trott), for making false claims about tax cuts; when Evan Davis had to school her at length and she refused even to understand how wrong she was about debt falling as a percentage of GDP, when it is going up; and when the Minister himself actually said that the NHS accounts for 42% to 43% of everything the Government spend, when it is only 15%? Can he confirm one fact: these two years will see the biggest fall in living standards since records began? That is why people are going to vote the Government out, isn’t it?
Bim Afolami
I have already explained the Chief Secretary’s comments. In relation to my own, I was referring to current spending and not overall spending. I clarified that as well. Look, there have been difficulties for so many millions of people across the country and, as the hon. Gentleman knows, I have never sought to minimise that from this position or from any other position in the House. We have faced once-in-a-hundred-years challenges. The Government have faced them and taken the right action to deal with them. The cost of living support package is worth over £100 billion, to the tune of more than £3,700 per person. We have dealt with those challenges and we have a plan now to grow the economy to grow our way out of them. I am afraid that Labour Members and the Labour Front Bench do not have that sort of plan, which is why I would not make the assumption that he makes about the election.
Scott Benton (Blackpool South) (Ind)
The number of those who are on long-term sickness benefits in Blackpool has increased fourfold over the last few decades. That represents an enormous loss of potential, and it is also hurting economic growth and productivity. The Government’s proposed reforms in this area are to be welcomed, but rather than delaying them until next year, what is preventing the Government from bringing them in this year?
Bim Afolami
I will take that point away. I think the hon. Gentleman is referring to the next financial year. At the next fiscal event, the Budget, the Chancellor will bear what he has said in mind.
Barbara Keeley (Worsley and Eccles South) (Lab)
Fourteen years of Conservative mismanagement of the economy are having disastrous impacts on working people. For example, musicians are waiting months to be paid because HMRC is failing to process A1 forms on time for musicians touring in Europe. The trade body LIVE—Live music, Industry Venues and Entertainment—told me that in one case 26 musicians, performers and sound engineers were not paid for more than three months after their tour to Spain, due to delays in processing A1 forms. Even worse, in response to written questions, I have been told that service standards for those forms will not be met by HMRC until at least April 2024. Does the Minister agree that those delays are totally unacceptable, particularly when our musicians are already having to cope with a challenging financial landscape, made worse now by the news of a recession?
Bim Afolami
I agree that we need to speed up the processing of A1 forms, as the hon. Lady describes. I am sure the Treasury heard that point and I will ensure my ministerial colleagues take what she says very seriously indeed.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
Whatever spin the Government may put on it, forecasts show that the economy has officially entered a recession. However, people out there have been suffering grinding economic pressure for years. Average energy bills are 59% higher than they were in 2022, and more than 600,000 Welsh households are in fuel poverty. Meanwhile, the profits of energy companies such as British Gas have increased tenfold to £750 million. This is the Minister’s chance to make a difference to every household. He has referred to the next fiscal event. Will he act to extend and backdate the windfall tax on energy companies that are currently profiteering from households everywhere?
Bim Afolami
The right hon. Lady is right that many people have had very challenging times over the last couple of years. Let me correct something that I previously said to the House: the increase in real household incomes since 2010 is actually 8%, while the increase in GDP per capita is 12%. I wanted to put that on the record. As for taxes, I cannot speculate about what will happen at the next fiscal event.
Clive Efford (Eltham) (Lab)
According to the forecast, in five years’ time debt will be higher than it is now. Is this a reasonable time to be talking about tax cuts, and does their doing so not suggest that the Government have learnt nothing from the Budget of September 2022?
Bim Afolami
I assure the hon. Gentleman that this Chancellor and this Government are very different from those in September 2022 to which he refers. As for debt, I repeat that we are keeping to our fiscal rule, which is and has always been that debt will be falling in the fifth year of the forecast—falling, once we exclude the Bank of England. That has always been our position, and it will continue to be the case.
Kenny MacAskill (East Lothian) (Alba)
The Minister has made no mention of the importance to the UK Treasury of North sea oil, and indeed the danger to the Scottish economy of the closure of Grangemouth Refinery. Given that the UK Treasury received £8 billion in revenues from the North sea last year and is expected to receive £6.1 billion this year, can it not find the tens of millions—not the tens of billions that it will receive in revenue—to ensure that the HydroCracker can be restarted and the profitability of the refinery increased threefold?
Bim Afolami
I will take away the hon. Gentleman’s specific point and ensure that the Treasury gets back to him, but his broader point about offshore oil and gas in the North sea is very important. It is critical that we support the oil and gas sector, not just for the tax revenues but for the livelihoods and prosperity of the United Kingdom, and this Government stand four-square behind it.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
There is overwhelming evidence that the lower the economic inequalities, the higher economic growth will be. We know from the Office for National Statistics that between 2021 and 2022 the disposable incomes of the poorest fifth of households shrank by 3.4% while those of the richest fifth increased by 3.3%, and that reflected the position in the preceding 10 years. What assessment has the Minister, or the Chancellor, undertaken to estimate the impacts of these increasing inequalities on our shrinking growth?
Bim Afolami
When we are talking about people at the bottom end of the income scale, it is important to note that those on the full-time national living wage—which we will be increasing by the largest ever amount in April this year—will be 30% better off than they were in 2010.
Charlotte Nichols (Warrington North) (Lab)
News that the UK is officially in recession comes as no surprise to my constituents, who have been battered by this Tory cost of living crisis. Food inflation is still double the headline rate of inflation, and that is not only affecting the price of the weekly shop but having a hugely negative effect on my local pub and hospitality sector, with many businesses on the brink. Instead of their fantasyland spinning that everything is going fine, what measures will the Government introduce to bring food inflation down?
Bim Afolami
As I have said many times this afternoon, inflation is a target for this Government: we aim to ensure that we continue to bring it down, and indeed we expect it to get to 2% in the coming months. In relation to food inflation specifically, at the last fiscal event we introduced full expensing, which will enable food manufacturers, supermarkets and others to increase their investment hugely, because it completely nets off against their tax—100% of the cost of their investment is netted off. The impact will be increased investment that will reduce their costs and reduce the cost of food in our shops. That is one of many measures that we are introducing to reduce food inflation.
Matt Rodda (Reading East) (Lab)
The Prime Minister said he was going to grow the economy and he has obviously failed: we are now in recession. In my constituency, families and small businesses are under severe pressure. Can the Minister possibly explain how he is going to address these very serious problems?
Bim Afolami
All I would say to the hon. Gentleman is that we are in a very challenging international context and we have performed better than the international forecasts. We had high inflation, which really bedevilled this economy a couple of years ago, but we have more than halved it. We have a plan to grow our way out of this, as was shown by the last fiscal event, where we unveiled, I think, 110 growth measures. That is our plan. The Labour Opposition do not have a plan. If this country sticks with our plan, we will grow our economy significantly over the coming months and years.
Patrick Grady (Glasgow North) (SNP)
The Minister keeps trying to hide behind the war in Ukraine and the impact of the pandemic, but the reality is that those are affecting every country in the world. Would he not admit that the exacerbating factor—the thing that has led most to economic decline, to massive labour shortages and to rampant inflation here in the UK—is Brexit?
Dame Diana Johnson (Kingston upon Hull North) (Lab)
The economy is in recession and the consequences for the public finances are not the fault of those people infected and affected through the contaminated blood scandal, the largest treatment disaster in the NHS. I was hoping to ask the Chancellor this question, but can the Minister confirm whether money has already been ringfenced to pay compensation to those people, as set out in the final recommendations on compensation by Sir Brian Langstaff in April 2023?
Bim Afolami
I believe that the right hon. Lady asked a similar question of the Chancellor at the last Treasury questions, and the Chancellor responded by saying that he was absolutely clear about the need to compensate people in the way that she has described. He will update the House in due course and indeed update her with further details in response to her question.
Dame Nia Griffith (Llanelli) (Lab)
The Prime Minister has failed to get growth and industry has completely lost confidence in this Government. With projects cancelled, HS2 cancelled, Building Schools for the Future cancelled, hospitals never built and an absolute failure to bring down high energy prices, it is no wonder that business investment forecasts are down. With the US and the EU incentivising investment, what is the Minister now going to do to get the investment we need in the green manufacturing industries of the future?
Bim Afolami
To increase investment we brought in full expensing at the last fiscal event, which should represent an increase over the forecast period of £14 billion of investment and deal with the chronic weakness of our economy over generations. That is what we are doing to increase investment. In relation to green investment in particular, what we are not doing is having a huge unfunded £28 billion plan—or maybe now it is not Labour’s plan; maybe it is a secret plan or maybe the Labour Front Benchers have stopped their plan. We have a responsible costed plan to increase investment; the Opposition do not have one.
Christian Wakeford (Bury South) (Lab)
Let’s try this again. Public sector net debt is set to rise from 89% of GDP this year to 92.8% of GDP in 2028-29, according to the most recent Office for Budget Responsibility forecast. In case the Minister does not understand, that number is higher than today’s. The Prime Minister promised to reduce debt, but it is increasing. The plan isn’t working, is it?
Bim Afolami
The Prime Minister and the whole Government are committed to reducing debt as we get to the end of this economic forecast period, which is what we are doing.
Justin Madders (Ellesmere Port and Neston) (Lab)
The Minister’s rosy picture of the economy shows a complete lack of awareness of what is actually going on in this country. He claims that the Labour party is somehow a risk to growth, but it is his party that has taken the country into recession. That shows a complete lack of self-awareness, too. That is the nub of the matter.
We are in a recession, yet the Chancellor is nowhere to be seen. I would have thought this was important enough for him to be here to answer questions. Given that growing the economy is yet another of the Prime Minister’s pledges that has not been met, who does the Minister think should carry the can for this failure: the Prime Minister or the Chancellor?
Bim Afolami
I will have to take the hon. Gentleman’s criticism of my self-awareness on the chin, but his broader point is serious. He is asking whether the Government and I are light-hearted or think that everything in the economy is absolutely fantastic, but it is not. That is why we have taken the measures that we have. It is why we cut tax for working people, beginning in January. It is why we are increasing business investment. It is why we had a more than £100-billion package of cost of living support, because we know how much many ordinary people in this country are suffering. And it is why we are trying to grow our economy overall, because that will result in greater prosperity for the country and more money for our public services. The Labour party puts all that at risk.
Janet Daby (Lewisham East) (Lab)
The Government are failing. An 81-year-old constituent told me that he cannot remember the economy and living standards ever being this bad. Can the Minister not see that, under his Government, Britain is worse off?
Bim Afolami
I do not agree with the hon. Lady. I will not repeat everything I just said to the hon. Member for Ellesmere Port and Neston (Justin Madders), but this Government and this Treasury are sticking to our plan for growth. That is all put at risk by the Labour party.
Richard Foord (Tiverton and Honiton) (LD)
The Office for Budget Responsibility assessed Boris Johnson’s trade and co-operation agreement, which sets out the trading relationship between the UK and the EU, at the beginning of last year, and it said that the TCA has reduced long-run productivity by 4%. Why does the Minister think that is?
Bim Afolami
We built on the trade and co-operation agreement through the Windsor framework, and the Opposition do not propose to change it. Indeed, the TCA is fundamental to the stability of our relationship with the European Union, and I do not think the country would benefit from unpicking it once again.
Jim Shannon (Strangford) (DUP)
I thank the Minister for all his answers. The questions have not been easy. The Office for National Statistics has revealed that there was a 0.3% decline in GDP between October and December 2023. Given that the strength of the economy was, and still is, the subject of one of the Prime Minister’s pledges, what steps is the Minister taking to reverse this decline, and to re-instil confidence in the Government’s economic plans?
Bim Afolami
I have already laid out the steps that we are taking, and there is a critical need to make sure that all the regions of our country benefit from those steps. That is one of the reasons why we put so much effort and focus into investment zones over the last couple of years. We hope that these investment zones will continue to increase growth in the economy, not only at a macro level, but for people in every region of this country—particularly in Northern Ireland and the other regions that perhaps did not benefit from this country’s previous growth. We are committed to strengthening that regionally.
Building Societies Act 1986 (Amendment) Bill
Bim Afolami ExcerptsWednesday 7th February 2024
(3 months, 1 week ago)
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Julie Elliott
I thank the hon. Gentleman for reminding me of that situation, which affected an awful lot of my constituents, as Northern Rock and the vast majority of its members were based in the north-east. People still tell me on the doorstep today that they lost literally tens of thousands of pounds. The issue of malpractice and bad practice within building societies is separate from what the Bill does. If things are not being run correctly, there are other checks and balances that came in after the Northern Rock crisis to stop that—particularly the protection for deposits up to £85,000. It is a relevant point, but the Bill will not make that possible again; I am quite sure about that.
The specified debt instruments are not named either. Notably, this function is not to introduce risk into the process—it is to help to support building societies to remain comfortably solvent at a time when they need it most. Proposed new subsection 7(3)(e) of the 1986 Act is quite clear about sale and repurchase agreements. Clause 1(3) inserts appropriate new definitions into section 7 of the 1986 Act and gives the Treasury power to make regulations specifying the detail of funds and Prudential Regulation Authority rules. The regulations will be subject to the negative resolution procedure.
The approach has been consulted on by His Majesty’s Treasury and was backed by industry. It is what the sector needs, and this clause has the power to unlock billions. The removal of these considerations from the 50% wholesale funding limit means that building societies that want to can run much closer to the 50:50 ratio than the 70:30 or 80:20 ratios they do now. That is where my point about unlocking billions comes from. When we look at how many people are supported already and what a difference giving that freedom to the building societies can make, we see there is huge potential to help many more people access a mortgage for the first time.
Clause 2 amends schedule 2 of the 1986 Act to modernise the building society sector’s relationship with its members in line with company law. It sets out the possibility of holding and conducting building society meetings in a hybrid way so that persons who are not present together in the same place may attend, speak or vote. First, that is important to allow access to meetings for those who are unable to attend in person due to health or geographical issues. For example, the Nationwide Building Society is, as the label says, nationwide, so having hybrid meetings opens up the ability for more people to attend, because a physical meeting can be held in only one part of the country. The situation may well be different for smaller, local building societies, but the change is still important.
The second main argument behind the clause is simply that the change brings the building society sector into line with businesses and retail banks as defined in the Companies Act 2006. Building societies should not be held to different standards. The important mitigation is that it is down to individual building societies to consider what is best for them; if a particular building society wants to make the change, its members will need to vote on it and agree to it. That means that the clause does not enforce anything, but gives building societies the ability to change if their members want it; it gives more flexibility. I hope that helps any Members who might have worries about the clause. It is about putting building societies on a more level playing field with retail banks, and it is what the sector has asked for.
Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with company law. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.
Finally, clause 4 states the territorial extent of the Bill, which covers all of the UK, and when the Bill will come into force. It also makes it clear that modifications of company law to which assimilation can happen as described in clause 3 cover those made both before and after the Bill comes into force.
The Bill does a lot for a sector that needs it and has asked for it. Building societies support millions of people up and down the country, and are much more adept at supporting first-time buyers than other parts of the sector. The Bill gives them much more flexibility to do exactly that.
The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to speak to the Bill and, as always, to serve under your chairmanship, Mr Hosie. I congratulate the hon. Member for Sunderland Central on introducing it and on reaching Committee stage, which is no mean feat in this place for a private Member’s Bill.
It is clear from the hon. Member’s remarks that the Bill has the noble aim of supporting the future growth and success of the building society sector. As she said, it will do a lot for building societies, which have asked for this legislation—and the Government and the Treasury strongly support them. As my hon. Friend the Member for Mid Norfolk described, building societies are some of the best in the financial services sector for benefiting local connected communities, and that is the sort of activity we want to encourage.
The Bill will help by modernising legislation so that building societies can have more flexibility around their funding and certain corporate governance requirements. That delivers on the key asks from the sector. As the hon. Member for Sunderland Central said, it is rare that something gobbledegook can have a positive impact on people’s lives, but the technical amendments in the Bill—particularly around capital requirements, which I will explain briefly—will have a positive impact on the ability of building societies to contribute to their local communities in all our constituencies.
As member-owned financial institutions, the 42 building societies in this country work to support the financial resilience of communities throughout the length and breadth of the UK, because they encourage savings and responsible lending, and promote financial literacy and inclusion, which often gets lost. They also play a vital role in supporting their members to buy their own homes, and the hon. Member for Sunderland Central has spoken about the potential for the sector to further support first-time buyers. The Bill achieves all that by making provisions in three areas, which she has already set out, so I will give a shortened version.
First, the Bill amends section 7(3) of the 1986 Act. The year 1986 was a very—
Bim Afolami
Exactly—an auspicious year for me.
The Bill amends section 7(3) of the 1986 Act to exclude three specified sources of funding from the 50% wholesale funding limit for building societies. By excluding these sources of funding from the wholesale funding limit, building societies will be able to raise additional wholesale capital, which strengthens their arms to compete with retail banks while promoting competition within the financial services sector.
Mrs Natalie Elphicke (Dover) (Con)
My hon. Friend the Member for Mid Norfolk mentioned Northern Rock, which was a bank, not a building society, when it failed. Does the Minister agree that the provisions being brought in will allow greater access to capital so that building societies can flourish, while keeping in place the checks and balances that have made building societies so much better at being able to respond to the financial crisis than we saw with some of the banks?
Bim Afolami
It is worth explaining the dynamic, because it is not straightforward. In essence, the point of the Bill is to level the playing field between building societies and retail banks in this key area. Resilience, in terms of capital, will not be lower for building societies than for any of the retail banks with which we are all very familiar. That is the first point. The controls that are applied to retail banks by sophisticated people with sophisticated mechanisms will have the same capital requirements as building societies—so I agree with my hon. Friend.
Building societies will still be required to hold specified sources of funding for regulatory purposes. That is the key point. The reason we have the capital limits is that, if a shock happens—however rare or unusual that might be—we need to make sure that there is enough of a buffer of capital so that the building society or, indeed, the retail bank does not go bust. Over the last 15 years, we have been through a huge programme of reform to broadly increase the levels of capital by many multiples of what was required in the 2000s, so that that does not happen. Building societies will adhere to that in the same way as our retail banks. Moreover, building societies will still be required to ensure that at least 50% of their funding comes from their members—again, that is a critical way in which buildings societies are different from a typical retail bank—which ensures that the Bill has no impact on building societies’ important and unique ownership model.
Secondly, the Bill amends the 1986 Act to allow the option of real-time virtual member participation at building societies’ meetings, which, as everybody can appreciate, now happens across the corporate sector—it does not happen in Parliament, but that is for another day. This amendment can help to modernise the day-to-day practices of building societies, promoting wider membership engagement by making such meetings more accessible to a greater number of members. That matters particularly for building societies, because they have a membership model; the point is that members find them accessible and know what is going on.
Given that members can do things digitally and more flexibly in other areas of their lives, this small measure can have quite a big and positive impact on participation, but it is worth stressing that the decision on whether to hold hybrid meetings will be up to the members of each individual building society; the Government are not imposing the requirement for endless Zoom calls. If that is what people want, they can have them—they just have to vote in favour of making the relevant changes to the society’s rules by special resolution, which, if I recall my company law properly, requires passing a 75% threshold.
Thirdly and finally, the Bill will provide the Treasury with the powers to further align the constitutional provisions in part 2 of the 1986 Act that concern common seals and the execution of documents with modifications to company law. I do not need to explain to the Committee that common seals have sort of fallen out of general usage—although I have often fancied having one, because I think it would be rather fun to stamp various documents, rather than sign them. But that is now the past and we are bringing building societies into the modern day, which is positive.
Overall, the Bill will help to deliver important amendments to the Building Societies Act 1986 by modernising the legislation so that building societies can compete with retail banks, better serve their members and, to be perfectly frank, better serve the communities they are set up to support. The Government are fully committed to ensuring that all subsequent secondary legislation, which will be subject to parliamentary timetabling, is enacted as soon as possible. I commend the Bill to the Committee.
Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024
Bim Afolami Excerpts(3 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 (S.I., 2024, NO. 69).
It is a pleasure to serve under your chairmanship, Sir Robert. The Government recognise the threat that economic crime poses to the United Kingdom and are committed to combating money laundering and terrorist financing. Our commitment is recognised around the world. Illicit finance undermines the integrity and stability of our financial sector and can reduce opportunities for economic growth and legitimate business in our great country. The Government are bearing down on kleptocrats, criminals and terrorists who abuse the UK’s financial services sector. The Economic Crime and Corporate Transparency Act 2023 built on the Economic Crime (Transparency and Enforcement) Act 2022 to ensure that the UK has robust, effective defences against illicit finance.
At the centre of the UK’s legislative framework for tackling money laundering and terrorist financing are the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which set out various measures that businesses must take to protect the UK from illicit financial flows, such as conducting enhanced checks on business relationships and transactions with high-risk third countries. The 2023 Act changed how high-risk third countries may be defined under the 2017 regulations, and this statutory instrument implements that change. It removes the separate list of countries from schedule 3ZA and replaces it with an ambulatory reference to those countries listed by the Financial Action Task Force, which is the global standard setter for anti-money laundering and counter-terrorist financing. In practical terms, that means that countries listed by the Financial Action Task Force will automatically be in scope of obligations under these regulations.
By taking this approach, which was passed in the 2023 Act, we will ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing. Where countries have made significant progress to improve their defences against illicit finance, it is equally important that we recognise that and promptly remove such countries from the scope of high-risk countries in UK legislation.
Ahead of this update, the UK and Financial Action Task Force lists were already aligned. Indeed, the Government have always updated the UK list, since its creation in 2021, to reflect changes to the Financial Action Task Force list. The SI does not add or remove any countries from scope or change the obligations of regulated businesses. It delivers on Government policy in a streamlined way, ensuring automatic alignment with the Financial Action Task Force list without the need for frequent, routine secondary legislation coming to Committee Rooms such as this, enjoyable though the process is.
The SI also ensures that firms will be notified in a timely manner of updates to the lists and their obligations, thereby keeping them up to date as risks change. I reassure the Committee that if at any time the Government sees it fit to deviate from the Financial Action Task Force list, we retain the authority and autonomy to do so. In such cases, a statutory instrument will be brought before Parliament for consideration in the normal way. The measures in respect of high-risk countries are an important mechanism to mitigate the risks posed by illicit financial flows from overseas. We will continue to use them and the other tools available to respond to wider and emerging threats from other jurisdictions, including by applying financial sanctions as necessary.
The instrument will enable the 2017 regulations to continue to work as effectively as possible to protect our financial system. It is crucial in protecting British business and the financial system from money launderers and terrorists financers, so I hope colleagues will join me in supporting it.
Bim Afolami
I thank the Committee for its broad support. Let me answer the questions that Members have put to me.
The first question was about how one practically manages the process of including countries or not. Broadly speaking, the Financial Action Task Force is the centrepiece for how most countries—all the G7 countries and many others—deal with illicit finance. We do it in such a collaborative way globally because, frankly, in the modern world we can tackle illicit finance only by working in strong, close partnership with other countries. It is quite important that we have a degree of alignment on how we do that, but we of course retain the right as a sovereign nation, as everybody in the House would agree, to individually put countries on the list if we choose to. The instrument is a common-sense measure that will make it easier and faster to do that, rather than our having to wait for gaps in parliamentary time. Recesses and various other things come up that could mean there is a critical gap and illicit finance could get through defences. That is why we are doing this.
In response to the point made by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East about writing to the House, we will deposit a notice in the Library when we have done so, so that the House is kept fully informed.
On how the change is being communicated to businesses, the Treasury has active and frequent discussions with the private sector on this and many other matters, so Members should rest assured that businesses and financial institutions are kept closely up to date with what is going on. That is in addition to the publication of an advisory notice, which will be made when any countries are or are not put on the list.
I will have to write to the hon. Member for Cardiff South and Penarth on his point about the situation in Iran. I do not want to inadvertently mislead the House in any regard—I want to be very precise in my answer—so I will write to the hon. Gentleman about his questions in that regard.
On the Crown dependencies and overseas territories, we are committed to working with the overseas territories to tackle illicit finance, and we have long engaged with them on ways in which to do that. We continue to engage with the British Virgin Islands for its ongoing mutual evaluation, and we have supported it with its evaluation process. The BVI’s mutual evaluation report will be published after the quality and consistency checks required by the Financial Action Task Force. I cannot comment any further in relation to the BVI, but more broadly we are closely working with the overseas territories and Crown dependencies to ensure that they satisfy all the things that the Financial Action Task Force requires.
Stephen Doughty
In another capacity, I serve as the shadow Minister for the overseas territories. Will the Minister say a little about whether he will publish a list of how exactly the measures apply to all of the overseas territories, where compliance is and what governance mechanisms are in place? OTs and Crown dependencies obviously have different mechanisms for applying UK law; are they doing this by themselves or are we doing it for them? Will the Minister explain that in a bit more detail, perhaps in writing?
Bim Afolami
I am happy to follow that up, but I know that the Crown dependencies and overseas territories are subject to the same rules as any country in relation to the Financial Action Task Force, which is the centrepiece of the whole way in which we tackle this issue, so dealing with them is no different from dealing with any of the countries that are so listed—indeed, I have talked about the BVI. I am happy to follow up in more detail as the hon. Gentleman requires.
In conclusion, the Government are taking focused action to tackle economic crime. We know that the House is united on tackling illicit finance and we strongly support that. I have listened carefully to Members’ contributions, and it is the Government’s view that this statutory instrument will ensure that UK legislation remains up to date and best delivers on policy commitments. The new definition of high-risk third countries means that the UK automatically reflects changes to Financial Action Task Force lists, putting us entirely in lockstep with the international community on this issue while retaining the ability, if we so choose at any time, to put a country on or off our list.
Stephen Doughty
I appreciate the Minister’s generosity in giving way before he sits down. One issue that we have regularly raised regarding our sanctions regimes is the failure to actually prosecute or take forward implementation actions. I do not expect the Minister have the answer in front of him right now, but perhaps he could also outline in writing to the House—to myself and the Library—how many enforcement actions have been brought under the regime to date, and what the implementation mechanism will be for this measure. It is all very well to have the legislation and regulations in place, but unless we provide a deterrent effect against those who would seek to evade such measures, we are not going to be implementing the full picture.
Bim Afolami
I am happy to follow up with the absolute number—again, I do not want to get that wrong in Committee. The Financial Action Task Force takes the approach of working with countries to help to improve their systems. It is not an overtly punitive or aggressive approach; it is an approach that says, “How do we help to support you to make your systems less vulnerable to illicit finance and financial crime?” Of course, when we are dealing with private sector entities that seek to evade rules, they fall under the criminal sanction, as one would expect. I am happy to write to the hon. Gentleman about the precise number that he asks for; I would not want to get it incorrect. With that, I commend the regulations to the Committee.
Question put and agreed to.
Oral Answers to Questions
Bim Afolami Excerpts(3 months, 1 week ago)
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Mr Laurence Robertson (Tewkesbury) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
As the House knows, the path to lower interest rates is through lower inflation, which is why the Government are fully committed to supporting the Bank of England to get inflation back down to its 2% target. If mortgage borrowers fall into financial difficulty, our mortgage charter, which covers about 90% of the market, includes new flexibilities to help customers manage their repayments, on top of the Financial Conduct Authority’s rules on how lenders must treat borrowers.
Mr Robertson
Given that a lot of mortgage payers are suffering because of the rapid hike in interest rates, will the Government continue to talk to the Bank of England and mortgage lenders to see what can be done to bring interest rates down? That would help most people.
Bim Afolami
I completely agree on the absolute need to drive mortgage rates down, which is why we are supporting the Bank of England’s independent remit to bring interest rates down. We are also ensuring that we do not do things to make inflation worse, such as adding £28 billion to Government borrowing, which would increase inflation.
Marion Fellows (Motherwell and Wishaw) (SNP)
The rate for a two-year fixed mortgage remains more than double the level of December 2021. More than 900,000 borrowers are set to see their monthly payments rise by £500 or even £1,000 a month. Government Ministers are having to resign because of increasing mortgage payments. How does the Chancellor expect people in Scotland to cope with increased mortgage rates if his Ministers cannot?
Bim Afolami
I would say two things in response to the hon. Lady. First, the best thing we can do is to help people with the cost of living, not increase their taxes, as the SNP in Scotland proposes, and to maintain—[Interruption.] I will not get bored of saying this. Secondly, we maintain our support for the Bank of England driving inflation down. We have more than halved it. We will continue to do that, and interest rates will come right down.
Christine Jardine (Edinburgh West) (LD)
Rushanara Ali (Bethnal Green and Bow) (Lab)
The Economic Secretary to the Treasury (Bim Afolami)
Mortgage interest rates have fallen by more than 100 basis points from their peak in the summer. None the less, the Government have prioritised support for households that are vulnerable to cost of living pressures. We have introduced one of Europe’s largest support packages, and it is partly thanks to those measures that real incomes have proved more resilient than was anticipated. In the third quarter of 2023, real household disposable income per person was just 0.5% lower than in Q4 2019, versus the Office for Budget Responsibility’s autumn statement 2023 forecast that it would be almost 3% lower.
Rushanara Ali
I thank the Minister for his answer, but since his party’s disastrous mini-Budget fiasco under the previous Prime Minister, food prices have soared, extreme damage has been done to the economy and mortgages have skyrocketed. Every month 200,000 people are having to remortgage, the average monthly rate has risen by £240, and 1.6 million people will have to remortgage this year. Overall, after 14 years of a Conservative Government, people are more than £10,000 less well off than they were on pre-2010 trends. Is it not time that the Chancellor and his ministerial team looked again at the possibility of additional support for those who are facing mortgage and other financial distress? The Chancellor is frowning, but it is time that he took further action to support people in distress.
Bim Afolami
This Government have introduced one of Europe’s largest support packages, worth more than £100 billion during 2022 to 2025. That is an average of £3,700 per household. The point about mortgage rates is that they went up everywhere across the world, to a higher level than ours in many jurisdictions such as the United States. I have already mentioned the work that we have done on the mortgage charter, helping hundreds of thousands of people to manage their mortgages, but the critical thing that we need to do is bring inflation down. She needs to talk to her shadow Chancellor and the shadow Treasury team about their plans, which would make inflation higher.
Mr Speaker
Order. I am not sure that “she” is a good word to use to other Members.
Bob Blackman (Harrow East) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
The Government are taking ambitious steps to grow the UK’s world-leading financial services sector, with widespread industry support. To take one example, reforms to Solvency II will help to spur a vibrant, innovative and internationally competitive insurance sector. The reforms will unlock £100 billion-worth of productive investment to grow the economy in every constituency over the next 10 years.
Bob Blackman
I thank my hon. Friend for his answer but, clearly, to grow the financial services industry, investors must have confidence that their money is safe. I have written to him about the Woodford equity scandal, of which there are many thousands of victims across the country. The Financial Conduct Authority refused to intervene, so will he now intervene and take action to ensure that the investors get at least a large part of their money back?
Bim Afolami
I thank my hon. Friend for his question, for writing to me and for standing up for the rights of his constituents. It is important the House knows that over 90% of investors voted to accept the scheme of arrangement. It is now up to the court to decide whether to approve it, and I therefore will not comment on it any further. I am happy to be in constant dialogue with him on this matter, as on many others.
Jim Shannon (Strangford) (DUP)
As the Minister knows, the Northern Ireland Assembly sits for the first time today to make a change for Northern Ireland. We would very much like to be part of the financial services sector, so what can he and the Government do to support the Northern Ireland Assembly in relation to the financial services sector, and to ensure that we in Northern Ireland can be part of this great country of the United Kingdom of Great Britain and Northern Ireland? Always better together.
Bim Afolami
I strongly echo the hon. Gentleman’s sentiments. I am very happy to engage with him and his colleagues from Northern Ireland to see what more I can do in the Treasury to work with him and, indeed, the Northern Ireland Executive, particularly to encourage our financial services institutions to invest more in Northern Ireland. I am very happy to discuss ways in which we can do that.
Daniel Zeichner (Cambridge) (Lab)
Bob Blackman (Harrow East) (Con)
The Economic Secretary to the Treasury (Bim Afolami)
I thank my hon. Friend for his question and I will write to him with the specifics of the answer.
Rebecca Long Bailey (Salford and Eccles) (Lab)
Richard Fuller (North East Bedfordshire) (Con)
Last July, following a debanking scandal, I wrote to the Economic Secretary to the Treasury about the risks of implementing so-called diversity, equity and inclusion policies. Far from being inclusive, their implementation has often been divisive, yet Labour put such policies at the heart of its financing and growth strategy just last week. Will my hon. Friend assure us that he will give clear direction to the Prudential Regulation Authority and the Financial Conduct Authority to avoid all the risks of so-called DEI policies?
Bim Afolami
I thank my hon. Friend for his question. I am studying those policies carefully. I am concerned about certain aspects of what is proposed, and I will be discussing the matter with the PRA and the FCA to make sure that we have sensible policies on this matter.
Peter Dowd (Bootle) (Lab)
Bim Afolami
I thank the hon. Gentleman for his question. Indeed, the Chancellor announced at the autumn statement last year that, over the next 12 months, the Government will consider selling shares in NatWest. That is all subject to value-for-money concerns and other matters, as he will appreciate, and it is market sensitive. Of course value for money will be at the heart of any consideration of the sale of shares, and the House will be kept fully informed over the coming weeks and months.
Martin Vickers (Cleethorpes) (Con)
My right hon. Friend and his colleagues will be aware of the challenges that businesses and households face in coastal communities. As the Budget approaches, may I urge him to be ever mindful of how we maintain the vitality of the economies in our coastal areas?
Living Standards
Bim Afolami Excerpts(3 months, 2 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to spend time with you and serve under your chairmanship, Mr Mundell. I want Members to be clear: I have heard the strength of feeling today. I am grateful for all the contributions. I want to start by saying that the issue is complex. Those who know me in the House know that I always try to take things seriously and think carefully about the issues. I hope to do so in my response.
I thank the hon. Member for Glasgow South (Stewart Malcolm McDonald) for securing today’s debate. I am pleased to have this opportunity to set out the measures that the Government are taking to support people across the United Kingdom during this difficult time and to respond to the points raised.
The shadow Minister, the hon. Member for Rutherglen and Hamilton West (Michael Shanks), speaks with the confidence of someone who has been here for years rather than months, so I commend him on his speech. I say to him gently that economic competence and credibility are key for any Government of any political colour in this country. When he talks about economic competence, he has to address the fact that the whole growth plan of the Labour party is a £28 billion green growth plan. That is a legitimate thing for any party to suggest, but, as the hon. Member for Glasgow South made clear, when a party has its entire economic strategy bound up in such a plan and then seems to flip-flop from one day to another about whether it is doing the plan—whether it is an ambition or a commitment, and when the money is going to be spent—what that says to investors, households and businesses all over the country and abroad is that there will not be economic competence if his party is in government. I ask him to reflect on that point.
I think that all of us in this place recognise the difficult times through which the people of this country and people across the world have lived. Putin’s illegal war in Ukraine caused an energy shock that was the kickstarter for inflation across the globe and created a perfect storm for vulnerable people. The Government have consistently fought back against covid alongside our Ukrainian friends and, critically from a Treasury perspective, against the economic headwinds that resulted from those external shocks. Over the past two years, the Government have provided one of the largest support packages in Europe.
I was struck by a remark from my hon. Friend the Member for Dover (Mrs Elphicke), who, if I may say so, is a fantastic Member of Parliament. If I recall, she mentioned that it was important that the Government were able to explain clearly to members of the public what support has been given in what different ways. She talked about utilities and various other important things across the economy. I agree with my hon. Friend that one of the things that, as the Government, we always have to work on—I will continue to do so, and I am sure that my colleagues will—is much more clearly demonstrating and explaining the support that is out there: the support that is being given. I will take that away and reflect on it very seriously.
This financial year alone, more than 8 million UK households on eligible means- tested benefits, 8 million pensioner households and 6 million people on eligible disability benefits received cost of living payments. That came on top of the significant universal support made available by the Government, as all households were eligible for the energy price guarantee, the £400 energy bills support scheme, the £150 council tax rebate, and fuel and alcohol duty cuts. Energy support alone has paid for almost half of the typical family’s energy bill from October 2022 to June 2023. Almost half—that is considerable support. It is in part thanks to those measures, and strong labour markets delivering robust wage growth, that growth and real incomes have been stronger than expected in the year before.
I know that the hon. Member for Rutherglen and Hamilton West, the shadow Minister, talked about growth and wages, and I want to address him precisely on this point. Aggregate real incomes have outperformed expectations, both from the OBR and independent forecasters, and are now 1.4% above pre-pandemic levels. In per capita terms, between 2010 and 2022, real incomes—so after inflation—have increased more in the UK than in certain major European economies, our competitors, such as both France and Italy.
Wages now are rising at a level ahead of inflation, contrary to what the hon. Member for Glasgow South said. Although we have been through a very tough time, and I do not minimise the difficulties that have occurred—indeed, I will talk about more of those throughout the rest of my speech—we are now at a point where the economy is turning a corner and wages are now growing at a rate faster than that of inflation.
Stewart Malcolm McDonald
I do not know where the Minister gets his figures from, but he should look at the research that came out last week from the Centre for Cities. If we take my home city of Glasgow, if wages had gone up at the rate they went up between 1998 and 2010, the average wage in Glasgow would be £23,500 higher than it is today. Why is that so? Why has it not gone up?
Bim Afolami
I thank the hon. Member for that point. I have not seen the report, but, to take what he has said as read, the reason why, since the financial crisis in 2008-09, economic growth—trend growth—in all the western world, particularly in Europe, is down on where it was before the financial crisis, is due to the financial crisis. Indeed, it was this Government who had to spend years from 2010 clearing up the mess left by the Labour party when they were in office. That is the core explanation for the difference that the hon. Member describes.
Thanks to the efforts of the Bank of England, supported by the Chancellor, inflation is less than half of its peak, falling to 3.9% in November 2023—the lowest rate in more than two years.
But I do not deny that the outlook remains challenging. Nor do the Government. That is why we announced further action in the autumn statement in November to support the most vulnerable. In April, we will raise local housing allowance rates to the 30th percentile of local market rents. That will make 1.6 million low-income households better off, with an average gain of £800 in the 2024-25 financial year.
We will also uprate all working-age benefits in full for 2024-25 by the September 2023 consumer prices index figure of 6.7%. Now, why am I being so precise about that? Because that is three percentage points higher than forecast earnings for ’24-25. This will help to support the most vulnerable while inflation continues to fall; 5.5 million households on universal credit will gain an average of £470—almost £500—in the ’24-25 financial year.
We are maintaining the triple lock, too, to support our pensioners, whose hard work helped to build this country. They are on fixed incomes and need to be looked after. The basic state pension, new state pension and pension credit standard minimum guarantee—we need to find a better description of that because it is very wordy—will be uprated in April 2024 in line with wage growth of 8.5% in the usual reference period. Let me give a sense of what that means in cash terms: in the coming financial year of ’24-25, the full yearly amount of the basic state pension will be £3,750 higher than in 2010. To put it more simply, that is about £1,000 more than if it had been uprated in line with prices alone. For individuals needing further support, local authorities in England continue to provide it through the household support fund, which is backed by £1 billion of funding. That means that, from 2022 until 2025, total support to help households with the cost of living will be over £100 billion, which is roughly an average of £3,700 per household.
What is the principle here, because I know that I have just given the House a blizzard of figures? The principle is that this Government believe that the people of this country deserve to keep more of their hard-earned money and that, where we can, we should reduce their burdens, as long as it is fiscally responsible to do so and as long as we are supporting public services as we need to. This is not ideological; it is because it will reduce the cost of living and help to grow our economy. That is why, from the end of January 2024—it is 1 February—millions of employees across the country will see their main national insurance contribution rate cut from 12% to 10%. That means that the average worker on £35,400 will receive an annual tax cut of over £450 a year, and we are also cutting national insurance rates for the self-employed. This tax cut is worth over £9 billion a year, which is the largest ever national insurance cut to employees and the self-employed. I repeat: this helps with the cost of living and helps to grow the economy.
We are also delivering on our commitment to end low hourly pay. Although they may not have agreed with everything I have said, I am sure that Members across the House will support that. From 1 April, the national living wage will increase by almost 10% to £11.44, with the age threshold also lowered from 23 to 21 years old. That represents an increase of over £1,800 to the annual earnings of a full-time worker on the national living wage, and is expected to benefit more than 2.7 million low-paid workers.
These actions must be underpinned by a robust and growing economy. Only a healthy economy can spread jobs and opportunities through the country. Only a healthy economy allows the Government to make the long-term decisions needed to strengthen it. Growth is generated by providing individuals with the freedom to learn, the freedom to innovate and the freedom to succeed. That is why it matters so much to create the right environment for the private sector to thrive. That means prioritising the strengths of the UK and focusing on the biggest opportunities for growth.
How have we done that? We did that in the autumn statement, in which the Government set out plans to drive growth and productivity that the independent OBR has estimated will have increased business investment by £20 billion a year in a decade’s time. The OBR also estimated that the autumn statement would increase real GDP by 0.3%. That is one fiscal event! Key elements of the package include a new £2.5 billion “Back To Work Plan”. In combination with measures from the spring Budget last year, the OBR thinks that will add around 200,000 people to the labour market.
The hon. Member for Glasgow South made an interesting point about immigration and numbers and people and population. What I would say to him is that although one can always have a debate about the right level of migration—to some degree, it depends on the nature of an economy and what gaps need filling in the workforce—I think we can all agree that the primary aim of any Government should be to improve the prosperity of the people in the country by strengthening the economy. However, what we should not do is adopt the ideological position that it is inherently good to have high levels of migration, because we need to make sure that we have the right level for what our economy actually needs. Indeed, that should be the focus of our debate.
Making full expensing permanent represents a tax cut of over £10 billion a year for companies, meaning that they can invest for less—something that more than 200 businesses and trade bodies have called transformational for business investment. That is another example of the Government taking a long-term approach. The hon. Member for Rutherglen and Hamilton West playfully suggested that there are only weeks left of this Parliament, but we still have almost a year to go. I would not pre-judge the timing of any election, but I do think his suggestion may be a little premature. What I will say is that politicians often get accused of doing things for the short term—indeed, sometimes they do—but nobody can accuse this Chancellor and this Government of acting in that way.
Full expensing, a tax cut for businesses to improve their productivity over the long term, is worth about £10 billion a year. This is one of the most transformational long-term measures that will improve our country’s potential growth rate. That is a very good example of the measures I have been talking about. It underpins a strong, growing, robust economy, which allows us to provide the support for the vulnerable that I described at the start of my speech. Indeed, we have provided over £4.5 billion in funding for the UK’s strategic manufacturing sectors.
It is important to note that we are talking about the entire United Kingdom, not just London and the south-east. That is why we used a combination of local growth policy and national economic policy, taking into account the inequalities that exist at all levels of decision making—I do not deny that—to underpin our approach to tackling them. According to the Department for Levelling Up, Housing and Communities, the UK Government provided a package of cost of living measures worth £7 billion in Scotland, more than £3.5 billion in Wales and more than £2 billion in Northern Ireland to help households and businesses weather the impact of soaring energy prices between 2022 and 2024.
I am reminded of the point made by my hon. Friend the Member for Dover that a single Government Department should be responsible for housing and household costs. I do not think that we will do another reorganisation of government, but Ministers and my officials in the Treasury work very closely with DLUHC. I am happy to hear any ideas from her about how we can do that more effectively, but it is important that we do not spend too much time working out how to reorganise Departments, and that we focus on the issues at hand.
Mrs Elphicke
I am grateful to the Minister for addressing that issue directly, but does he acknowledge that the timeframes for the investment and spending settlements are not within the control of the Treasury, but within the control of the regulatory frameworks that are in place? The ability for either DLUHC or, indeed, the Treasury to bring them all together in a meaningful way is currently limited. It was in that spirit that I hoped he would reflect on the impact of all these things on households, and on how they build up for the individual household purse.
Bim Afolami
I thank my hon. Friend for that remark. I am very happy to think about and consider more deeply how we make sure that—whether it is a regulatory impact, is at national policy level or is legislation made in this House—we focus on achieving the right outcomes for the right people at the right time. I can give her that commitment today.
All households in Scotland, Wales, Northern Ireland and England were provided with support, but the poorest households gained the most. The average level of support was most generous in the devolved nations, compared with the UK average. Alongside that, we have announced a comprehensive levelling-up strategy that not only addresses the immediate challenges but lays the groundwork for sustained prosperity. As part of that, we are continuing to support local growth through funds such as the £2.6 billion UK shared prosperity fund and the £3.2 billion towns fund. The shared prosperity fund empowers local leaders who know their areas best to take the action that best meets the needs of their local labour markets. In addition, the refocused investment zones programme will catalyse high-potential knowledge-intensive growth clusters across the UK in our key future sectors, bringing investment into areas that have traditionally underperformed economically.
The three watchwords of the hon. Member for Glasgow South were prosperity, fairness and resilience. He expressed uncharacteristic pessimism about the idea that they would be addressed by this Government or in the coming weeks and months of this Parliament, but I want to make the case for why we are doing that. On prosperity, I mentioned full expensing, tax cuts in national insurance and various other measures that support all regions of the UK. They are designed to build long-term prosperity in our economy. They deal with our economic weaknesses and build on our strengths.
On fairness, I think I have comprehensively set out today the support that is being given to the most vulnerable —indeed, to a majority of households. That is done in order to be fair.
I should not stray out of scope and go into other policy areas, but the fundamentals for resilience are having a robust, sustainable economic growth strategy that, over time, increases the growth rate of our economy. Upon that foundation everything else is based.
In conclusion, these measures are a clear demonstration of the Government’s unwavering commitment to promote living standards and support households up and down the country. We firmly believe that the key to a prosperous future lies in creating opportunities for everybody. The boost to the national living wage and the historic reduction in national insurance are powerful tools in driving employment and improving living standards. By putting more money into the pockets of hard-working people, we are not just bolstering their financial wellbeing but fuelling economic growth.
As always, we need to balance support for households with fiscal sustainability. As I have said, the economic position remains challenging. Inflation has more than halved, but it remains too high: it is not at our 2% target. We are not complacent about that, which is why the Government remain steadfast in our support for the Bank of England as it acts to reduce inflation.
Our long-term objectives are crystal clear—increasing prosperity, improving the long-term growth rate of our country, improving our resilience, levelling up every corner of this country and fostering sustained economic growth. It is through these robust economic policies that we lift communities, create opportunities and enhance the quality of life of all our citizens.
Our commitment to growth is not about numbers in a spreadsheet. It is not for the short term; it is for the long-term, tangible improvements in living standards that result from a thriving economy. We continue to keep all options under review as we take tough decisions to drive down debt and inflation and increase our prosperity. These complex issues affect all our constituents, wherever we call home. I thank all Members for their constructive contributions.
Overseas Funds Regime: EEA Equivalence Assessment
Bim Afolami Excerpts(3 months, 2 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
Today I am notifying the House about the Government’s decision regarding the equivalence assessment for states in the European economic area, including European Union member states, under the UK’s overseas funds regime.
Asset management makes an invaluable contribution to the health of both the UK economy and individuals’ savings. The UK sector is the second largest globally and manages the savings and pensions of millions of UK citizens. Asset managers often set up their investment funds internationally, marketing their funds to investors in the UK and around the world.
In the Financial Services Act 2021, the Government legislated for a new overseas funds regime, to create a more streamlined process for overseas investment funds to be sold to UK investors. Given the importance of funds domiciled in the EEA to the UK market, it was determined that an equivalence assessment of the EEA would be the first to be conducted under this regime.
Today I can confirm that, following a detailed assessment, the Government have found the EEA states, including the EU member states, equivalent under the OFR. To enact this decision, secondary legislation will be required, when parliamentary time allows. The Government do not intend to require the funds assessed to comply with any additional UK requirements as part of this equivalence determination at this time.
This decision will apply to undertakings for the collective investment in transferable securities except those which are also money market funds, as there is ongoing regulatory development in this area.
In accordance with the principles set out in the guidance document for the UK’s equivalence framework for financial services, the UK will monitor this equivalence decision on an ongoing basis, in light of UK and EEA regulatory developments.
Separate to the assessment of the EEA, the Government recognise that there are ongoing regulatory developments in relation to sustainable disclosure requirements. The Government intend to consult on whether to broaden the scope of SDR to include funds recognised under the OFR. The Government will ensure that there is adequate time for industry to adapt to any future requirements.
Currently, EEA funds which were marketing in the UK prior to EU exit are able to continue doing so under temporary arrangements. This arrangement was due to expire at the end of 2025.
Today, I can also confirm the Government’s intention to extend this arrangement until the end of 2026, to ensure funds are able to smoothly transition to the OFR.
Today’s announcements demonstrate the Government’s commitment to maintaining a safe, open and globally integrated financial system, enabling international financial services business by reducing barriers and frictions, where safe and practicable.
[HCWS220]
Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024
Bim Afolami Excerpts(3 months, 2 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Cttee has considered the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024.
This instrument makes an update to financial services legislation to make operating a pension dashboard service a Financial Conduct Authority-regulated activity. Let me begin by saying that the Government have long held the ambition of delivering pension dashboard services to the public. It is very important that individuals can easily access and view data about their pension savings in one place and at their convenience. Executed well, pension dashboards can deliver significant benefits to consumers, providing better access to information about their pensions held in different schemes. These days, people often have many different schemes.
The instrument will bring a step change in how people engage with their pension savings and will finally allow people to have a full picture of those savings. Equipped with that information, individuals will be better able to plan for their retirement, seek financial advice and guidance, find lost pension pots and make informed decisions. The Government are supporting the development of the digital architecture needed to make pension dashboards a reality, as well as facilitating the development of a Government-backed pension dash-board by the Money and Pensions Service. We have also supported the development of multiple private sector pension dashboards. Different individuals will have different needs, and this will ensure that a wider range of platforms exist to suit such needs.
However, we are clear that this multiplicity of providers can only take place with a suitable and robust regulatory framework, recognising that consumers using pension dashboards could be vulnerable to unfair potential harms. During the passage of the Pension Schemes Act 2021, the Government committed to bringing the operation of a pension dashboard service within FCA regulation. This order amends the regulatory perimeter to make operating a pension dashboard service that connects to the Money and Pensions Service’s digital architecture a regulated activity. Once in force, it will mean that anybody choosing to operate a pension dashboard will need to be authorised and regulated by the FCA.
Ian Lavery (Wansbeck) (Lab)
This new legislation refers to a lot of personal data about individuals’ pensions, and the Government have suggested that commercial bodies will also be involved. Can the Minister give guarantees about the protection of the data of individuals concerned?
Bim Afolami
I thank the hon. Gentleman for his point. The whole Committee knows of his strong commitment not only to those in his constituency but those across the country when it comes to protecting people from unfair potential harms. He has illustrated that commitment with his question. I would say two things in response. First, the reason we are making this a regulated activity is precisely to protect individuals, whether it is their data or protecting them from being open to potential scams or anything else. That is why under the regulated activity the FCA will be watching anybody who operates a pension dashboard service. Secondly, the reason we are not just having one Government dashboard service but a multiplicity of private providers is that different people will want different things, and different institutions will operate in different ways. It is important to ensure that we have the right competition, but that competition needs to be underpinned by safety and security. That is why this is being made a regulated activity.
Firms that are authorised by the FCA and are granted permission to undertake the new regulated activity will have to follow the rules set by the FCA. As hon. Members may be aware, the FCA consulted on rules for pension dashboards last year. We will continue to work with the FCA as it develops its response. In conclusion, this instrument delivers an important change to ensure that appropriate consumer protections are in place while progressing our ambitions for pension dashboards. I hope the Committee will join me in supporting this measure, which I commend to the House.
Bim Afolami
A lot of interesting points have been made, and I will address those made by the hon. Member for Hampstead and Kilburn, who raised the broader policy agenda around open banking. In response to her question about whether I will take a holistic view, the answer is yes. It is important to see all of these things in one picture, and I am doing a lot of work with the industry on that.
However, it is important to see that there are fundamental differences between the goals of open banking and pension dashboards—and this also addresses some of the points made by the hon. Member for Glenrothes. Open banking seeks to enable data sharing and increased competition and innovation in the banking market, whereas pension dashboards will help increase consumer awareness and understanding of their pensions. Therefore, in terms of what the purpose of those services are, we are talking about a difference between producers and consumers. One of the key differences is that it would be very unusual for somebody not to know the provider of their bank account, whereas we know that people have lost track of their pensions—often because they have so many different pots.
On the hon. Lady’s question about whether pension dashboards will use the Government’s One Login service, the short answer is that I do not know, but I am happy to write to her on that. I confess that I will have to check that myself, and I thank her for that question. On the hon. Lady’s question about timing, this SI is the beginning of the process whereby, as soon as possible, we will make sure that the architecture is developed safely.
That takes me on to not just the hon. Lady’s point, but also the point made by hon. Member for Glenrothes about minimising the risk of people losing their data. It is important for the Committee to know that no data is stored on pension dashboards. As a result, it is not possible to mass-harvest individuals’ data via dashboards technology. As for the Money and Pensions Service, security standards are designed to ensure that the ecosystem interface of qualifying pension dashboards meet the appropriate level—
Peter Grant
I appreciate the Minister’s reassurances, but he will be aware that it was not possible for anybody at Fujitsu to mess about with the information held on Horizon until somebody discovered that it was possible. Without going into too much detail, at what level of expertise and at what level of independence from the whole project are the assurances of IT security being tested?
Bim Afolami
The hon. Gentleman asks at what level. In terms of the Money and Pensions Service, it is the National Cyber Security Centre that is advising specifically on these. I am happy to talk to him about it in future weeks and months, but that is the level of seriousness with which we take this issue.
When it comes to other private sector providers, as we talked about at the beginning of the debate, the FCA will determine at which point they are able to connect to the technical architecture. There are various dependencies, including the time required for them to familiarise themselves with the rules, when the architecture is ready and various other things, but the FCA will determine that. Why? I go back to the whole purpose of this statutory instrument: the FCA will make sure that this is a regulated activity to address the concerns of the Committee and others, because it is very important, as we all agree.
The SI introduces an important addition to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to ensure that pension dashboard operators are appropriately regulated and that consumers are protected. I am glad that there appears to be broad support from the Committee for the aims of the order. I thank Committee members for this debate, which I hope they have found informative, and I hope that they will join me in supporting this secondary legislation.
Question put and agreed to.
HM Treasury and Bank of England Consultation Response
Bim Afolami Excerpts(3 months, 3 weeks ago)
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The Economic Secretary to the Treasury (Bim Afolami)
The Government have today laid the response to the Bank of England and HM Treasury’s consultation paper, “The digital pound: a new form of money for households and businesses?”—(CP 970).
The Bank of England and HM Treasury have been exploring the concept of a UK retail central bank digital currency (CBDC), or “digital pound”, issued by the Bank of England. A digital pound would be a new form of digital money for use by households and businesses for their everyday payment needs, and a complement to physical cash and other means of payment. However, it is important to stress that no decision has yet been made to build or issue a digital pound, either for corporates or for the public.
Alongside cash, a digital pound would help to ensure that central bank money remains widely available and useful in an ever more digital economy, continuing to support UK monetary and financial stability. It would also provide a public platform for private sector innovation, promoting further competition, efficiency and choice in payments. Many other countries are also exploring the issuance of CBDCs.
No decision has yet been made to build or issue a digital pound, but given changes in money and payments, as well as developments in other countries, we believe there is merit in further preparatory work. This work will allow us to build the necessary skills and put in place the technical capability to introduce a digital pound in a timely manner, were the decision made to do so in the future.
The consultation paper sought feedback from the public on a set of design proposals for the digital pound. The Government and the Bank of England are grateful to everyone who provided their feedback, which will be carefully considered during the ongoing design phase. Respondents from a range of industries and organisations were supportive of the design proposition set out in the consultation paper, while many other respondents raised concerns about the implications of a digital pound for access to cash, users’ privacy, and control of their money. The Government and the Bank of England recognise the critical importance of building the public’s trust in a digital pound.
The consultation response sets out commitments that the Government and the Bank of England are making in response to the feedback received in the consultation, including that primary legislation would be introduced before any launch of a digital pound. Today, the Government and the Bank of England are committing that this legislation would include measures to guarantee users’ privacy and control over how to spend their money. The response also reiterates the Government and the Bank of England’s commitment to protect access to cash. The digital pound, issued by the Bank of England, would be a complement to cash and not a replacement for it.
This consultation response sets outs the steps we are taking to reinforce public trust in the design of a digital pound before any decision is made:
Before any launch of a digital pound, the Government have committed to introducing primary legislation. This means that the digital pound would only be introduced once Parliament had passed the relevant legislation. A further consultation exercise would be held prior to the introduction of legislation.
Privacy, and preventing Government programmability, would be a core design feature of the digital pound issued by the Bank of England.
The Government and the Bank of England would not access users’ personal data, and legislation introduced by the Government for a digital pound would guarantee users’ privacy. Today, the Bank of England is committing to exploring technological options that would prevent the Bank from accessing any personal data through the Bank’s core infra- structure.
The Government and the Bank of England would not program a digital pound, and legislation introduced by the Government for a digital pound would guarantee this.
The Government have already legislated to safeguard access to cash, ensuring that it would remain available even if a digital pound was introduced.
The feedback to date will help to inform our work on the design of the digital pound. We will continue to engage with parliamentarians, the private sector, civil society, academia and the public to develop our proposals for a digital pound, so that we are prepared, should a decision to build a digital pound be taken in the future.
The document is published online at:
https://www.gov.uk/government/consultations/the-digital-pound-a-new-form-of-money-for-households-and-businesses.
Copies of the document are also available in the Vote Office.
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