Counter-terrorist Asset Freezing Regime

Harriett Baldwin Excerpts

Thursday 5th November 2015 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

Under the Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010), the Treasury is required to report to Parliament, quarterly, on its operation of the UK’s asset freezing regime mandated by UN Security Council resolution 1373.

This is the 18th report under the Act and it covers the period from 1 July 2015 to 30 September 2015. This report also covers the UK implementation of the UN Al-Qaida asset freezing regime and the operation of the EU asset freezing regime in the UK under EU regulation (EC) 2580/2001 which implements UNSCR 1373 against external terrorist threats to the EU. Under the UN Al-Qaida asset freezing regime, the UN has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under the Al-Qaida (Asset-Freezing) Regulations 2011. Under EU regulation 2580/2001, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

Annexes A and B to this statement provide a breakdown, by name, of all those designated by the UK and the EU in pursuance of UN Security Council resolution 1373. The two individuals subject to designations, which have been notified on a restricted and confidential basis, under sections 3 and 10 of TAFA 2010 are denoted by A and B.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 30 September 2015:

Equitable Life Payment Scheme

Harriett Baldwin Excerpts

Tuesday 3rd November 2015 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

As at 30 September 2015, the Equitable Life Payment Scheme has now issued payments of nearly £1.08 billion to 915,453 policyholders. This means the scheme has now paid 88% of eligible policyholders, and 92.9% of the money due. The scheme will today be publishing a further progress report, which can be found at: www.gov.uk/equitable-life-payment-scheme.

The scheme has made major efforts to trace policyholders, including extensive electronic tracing methods, writing to policyholders’ last known addresses, a national advertising campaign, working with other Government Departments and liaising with group scheme trustees. As announced at the summer Budget, a final attempt to trace policyholders has been made through the Department for Work and Pensions (DWP) by the DWP sending letters to all untraced policyholders due £50 or more for whom the scheme holds a national insurance number and other data such as their name. These letters have now been sent. Despite this there remain approximately 125,000 policyholders whom the scheme has been unable to pay.

As the Chancellor announced in the summer Budget on 8 July, the scheme will be closing to new claims on 31 December 2015. Any policyholders who still believe themselves to be eligible are encouraged to call the scheme on 0300 0200 150 before 31 December 2015. The scheme can verify the identity of most policyholders on the telephone, which means any payment due can usually be received within two weeks. This will not affect the yearly payments made by the scheme to with-profits annuitants, which will continue for the duration of those annuities. The scheme has written to all with-profits annuitants to make them aware of this.

In the summer Budget, the Chancellor also announced that payments to non-with profit annuitant policyholders who receive pension credit will be doubled. Any policyholders who have made a claim from the scheme by the time it closes on 31 December and are receiving pension credit on that date will receive this second payment without having to take any action.

Policyholders can check their eligibility for pension credit using the Government’s pension credit calculator at: www.gov.uk/pension-credit-calculator.

[HCWS286]

Oral Answers to Questions

Harriett Baldwin Excerpts

Tuesday 27th October 2015 Commons Chamber

[David Mowat (Warrington South) (Con)]

11. What progress his Department has made on implementing ring-fencing proposals to enhance the stability of major banks.

[The Economic Secretary to the Treasury (Harriett Baldwin)]

The Government are fully committed to implementing a robust and effective ring-fencing regime, and we remain firmly on track for the separation of banks by January 2019. We passed the last legislation implementing the Independent Commission on Banking ring-fencing recommendations this year, and the Prudential Regulation Authority is currently consulting on the second tranche of implementation rules before publishing the final rules this year.

[David Mowat]

I thank the Minister for that answer. In 2012, the then Governor of the Bank of England said that unless these regulations were tightly specified there was a risk of their being watered down before implementation in 2019. We now see Barclays joining RBS and Lloyds in requesting significant waivers. Will the City Minister reconfirm the Government’s commitment to Vickers and the design principles within the legislation?

[Harriett Baldwin]

Of course, the Government remain as committed as ever to implementing a robust ring-fencing regime, as recommended by the Independent Commission on Banking. Obviously, I am not going to comment on speculation about how individual banks would like to implement their ring-fencing rules, because that is a commercial decision for banks, as long as they remain compliant with the considerable restrictions imposed by the legislation. Their deadline is the start of 2019.

[John Pugh (Southport) (LD)]

There is a lot of crying wolf and worried bleating from the banks on this subject of ring-fencing. Is the Minister aware of any banks that have decamped to foreign parts because of it?

[Harriett Baldwin]

The Government are delighted that the UK recently, once again, topped the poll as the No. 1 location for a global financial centre. We believe that our legal system, language, geographical location and brilliant skilled workforce, and many other factors, contribute to this being an excellent place to locate a global financial services firm.

[Neil Carmichael (Stroud) (Con)]

12. What steps he is taking to tackle the productivity gap.

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[Carolyn Harris (Swansea East) (Lab)]

T3. Given the growing evidence that fixed-odds betting terminals are being used as a prime vehicle through which to launder money, will the Chancellor assure the House that there will be a prominent focus on the machines in his upcoming anti-laundering action plan?

[The Economic Secretary to the Treasury (Harriett Baldwin)]

The hon. Lady will be aware that we are in the process of considering how we implement the fourth anti-money-laundering directive. We will be looking closely at the evidence, and I encourage her to get in touch with me.

[James Morris (Halesowen and Rowley Regis) (Con)]

T8. The Black Country local enterprise partnership has done an excellent job in bringing jobs and investment to the black country, but does the Chancellor agree that the time has come for local enterprise partnerships to work together with the west midlands combined authority to deliver further growth, jobs and investment for the west midlands region? [Interruption.]

Draft Financial Services and Markets act 2000 (regulated activities) (amendment) (No. 3) order 2015 draft financial services and markets act 2000 (relevant authorised persons) Order 2015 draft financial services and markets act 2000 (Misconduct and appropriate regulator) order 2015

Harriett Baldwin Excerpts

Thursday 22nd October 2015 General Committees

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I beg to move,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 3) Order 2015.

[The Chair]

With this it will be convenient to consider the draft Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015 and the draft Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015.

[Harriett Baldwin]

It is customary to say what a pleasure it is to serve under your chairmanship, Mr Nuttall, but in this case I genuinely mean it because of our previous close association when I was your Whip. For the sake of brevity, I shall refer to the orders as the Relevant Authorised Persons Order, the Misconduct and Appropriate Regulator Order and the Regulated Activities (Amendment) Order.

The Relevant Authorised Persons Order and the Misconduct and Appropriate Regulator Order are related, so I am glad that the Committee has agreed to consider them together. It might be helpful for me to start by outlining the background to the legislation. In December 2013, Parliament passed the Financial Services (Banking Reform) Act 2013. Among other things, it provided the legislative framework for implementing the recommendations of the Parliamentary Commission on Banking Standards. That included making provision for introducing the senior managers and certification regime for the banking sector—banks, building societies, credit unions and certain systemically important investment firms. As right hon. and hon. Members may be aware, the Government have now included in the Bank of England and Financial Services Bill provision to extend the regime to all other types of financial services firm, but the two orders I am describing are part of the original programme to apply the new regime to banking.

When the Parliamentary Commission on Banking Standards reported in June 2013, it made a number of recommendations for reforming how individuals who work in banks are regulated. Those recommendations formed the basis for what is now the senior managers and certification regime and include a tougher regulatory approval regime for a small number of the most senior individuals in a bank; an annual certification by banks that other key individuals are “fit and proper”; and rules of conduct covering a wider range of bank employees, not just those subject to regulatory pre-approval.

The Relevant Authorised Persons Order will extend the scope of the senior managers and certification regime to include UK branches of foreign banks. It was initially decided to confine the senior managers and certification regime only to UK institutions—that is, businesses incorporated in the UK. That includes those global financial institutions that operate here through a UK subsidiary company, because such a company is incorporated here so counts as a UK institution in its own right. Not included are global banks that operate here through a UK branch, because a branch is not a separate legal entity from its parent and so is not incorporated in the UK. Nevertheless, a branch can have senior managers and staff who might be subject to annual certification or required to comply with the rules of conduct.

The fact that a branch is not separate from its parent was bound to raise a number of issues that could not be considered fully at the time. A power was therefore included in the Financial Services (Banking Reform) Act 2013 to enable the Treasury to bring branches of foreign banks into the senior managers and certification regime, after appropriate consultation. The consultation document was published last November and the Government announced in March that they would make the necessary order. Subject to parliamentary approval, from 7 March 2016 all parts of the senior managers and certification regime will apply to all foreign banks that operate in the UK through branches, the same date on which the senior managers and certification regime comes into force for UK banks.

It might be helpful to clarify two further points for the Committee at this stage. First, the 2013 Act also includes a new criminal offence relating to decisions that cause a bank to fail, which is sometimes called the reckless mismanagement offence. That offence was also recommended by the parliamentary commission and was included in the Act along with the senior managers and certification regime provisions. It can be committed only by persons who are senior managers in banks, building societies and systemic investment banks. The offence, however, is not part of that regime and I want to make it clear that the order does not extend the new offence to UK branches of foreign banks. There is no power in the 2013 Act to do that and it would also not be appropriate to do so. The offence concerns decisions that cause a bank to fail and, as a branch is not a separate legal entity from its parent, it can fail only if the parent fails. The failure of a branch, and any action arising from that, can be taken only by the authorities in the parent’s home state.

Secondly, I assure the Committee that the UK regulators have the powers to ensure that the regime can be applied flexibly and appropriately to different types of branch. They can also differentiate, where appropriate, between “passporting” branches from other European economic area states, “non-passporting” branches from countries outside the EEA, subsidiaries and UK-owned banks.

I turn now to the Misconduct and Appropriate Regulator Order, which makes some necessary technical changes to legislation before the senior managers and certification regime comes into operation in the banking sector next March. The first of those simply ensures that the revised provisions relating to enforcement action by the Financial Conduct Authority will cover cases where an approved person has been knowingly concerned in a breach of regulatory requirements imposed by the Alternative Investment Fund Managers Regulations 2013, which implement the EU alternative investment fund managers directive in the UK.

The second group of technical amendments make some consequential changes to section 204A of the Financial Services and Markets Act 2000. Section 204A sets out which of the Financial Conduct Authority and Prudential Regulation Authority is responsible for enforcing certain requirements in that Act. The order makes changes to section 204A to ensure that the PRA can enforce new requirements where it is the lead regulator for the senior managers and certification regime. If the order were not made, the FCA would have to enforce obligations that should be, in effect, owed to the PRA.

I will move on to the Regulated Activities Order. In March, Parliament approved the Mortgage Credit Directive Order 2015, which ensures that the UK implements the EU mortgage credit directive on time and with a limited impact on the UK mortgage market. That order was due to come into effect in March 2016 to prevent gold-plating.

Since that order’s approval, the Government have been actively monitoring the progress of the mortgage industry towards implementation, to ensure a smooth transition in which customers do not see any disruption. During the course of that routine monitoring it came to light that, owing to the complexity of layering a new wave of legislation on top of existing legislation, in some areas the order did not achieve what was intended. The Government therefore decided to act quickly and make a small number of amendments to the scope of regulation, to ensure that the regulatory framework continued to operate as intended.

The order makes a number of changes to ensure that the existing legislation delivers on previously agreed policy. The most significant of those is to ensure that mortgages dating from before 31 October 2004 that are currently regulated as credit agreements will be regulated as mortgages from 31 March 2016. That is part of the Government’s widely supported aim to consolidate the regulation of mortgages within a single framework, reducing the burden on firms and ensuring that customers get a consistent experience.

Taken together, these statutory instruments are another important step in ensuring that the UK’s financial system is resilient and works for the good of the nation. I hope hon. Members will therefore approve them.

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[Harriett Baldwin]

It is good to hear from the hon. Member for Leeds East, whom I welcome to his post. I am sure that this will be only the first of many exciting box office events in which he and I will participate.

Much of the proposed legislation is technical, but he is right to emphasise the principles that we are applying to regulation of the financial sector. At the heart of our aspirations is a strong, healthy and well-regulated sector, which works for all the individuals whom we represent in this place. The aim of our regulatory regime is to ensure that we have a proportionate and appropriate balance to reflect the legal characteristics with which we are dealing.

The hon. Gentleman asked a range of specific technical questions, the first about the inclusion of pre-2004 mortgages and the decision on their regulation. They were previously included in the consumer credit regime, due to historical reasons relating to the introduction of mortgage regulation at the time, but the Government believe that legislating to combine all the mortgage regulations under one regime is more appropriate. We have been working closely and in consultation with the industry in the process of finalising the regulations, which will reduce costs for such firms, because they will be able to observe one regime. That particular change has been supported widely by the industry and ensures that consumers will continue to be protected.

The hon. Gentleman asked about the regulations’ exclusion of bridging loans, which, as he knows, are short term in nature. Equitable bridging loans have always been unregulated. We did not intend the draft orders to change the status quo, so those types of bridging loans will remain unregulated. However, as with all such legislation, we will continue to keep things under review.

The hon. Gentleman asked about the consistency of the regime and in particular the criminal offence. He will appreciate that in extending the regime across the whole financial services industry, we are replacing the approved persons regime, which was so discredited and noted to be in need of change by the Banking Commission. In the interests of fairness, we believe that it is important to deliver that consistency across the industry. The regime provides for the right balance of consistent regulation for a wide range of different firms. Given the foreign branch regime, it is appropriate to treat them as we are proposing.

In conclusion, the draft orders make some necessary, albeit uncontroversial, changes to the overall financial services regime. They strike the right balance between ensuring that consumers are protected and that firms are well regulated. The Committee has scrutinised the measures in detail and I ask it to support the orders.

Question put and agreed to.

draft financial services and markets act 2000 (relevant authorised persons) order 2015

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015.—(Harriett Baldwin.)

draft financial services and markets act 2000 (misconduct and appropriate regulator) order 2015

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015.—(Harriett Baldwin.)

Money Laundering and Terrorist Financing (Risk Assessment)

Harriett Baldwin Excerpts

Thursday 15th October 2015 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

Money laundering can undermine the integrity and stability of our financial markets and institutions. Countering terrorist financing is also important in protecting national security and forms a key part of the UK’s counter-terrorism strategy.

Money laundering is a global problem and the laundering of proceeds of overseas corruption into or through the UK fuels political instability in some countries. The European Commission’s 2013 impact assessment of anti-money laundering and terrorist financing points to global criminal proceeds potentially amounting to some 3.6% of global GDP; around US$2.1 trillion in 2009.

The Government have already taken steps to improve the anti-money laundering and counter-terrorist financing regimes including by:

launching the Economic Crime Command in the National Crime Agency in 2013;

publishing the UK anti-corruption plan in 2014 and setting up a new specialist international corruption unit in the NCA;

strengthening the confiscation regime under the Proceeds of Crime Act 2002 and creating a new offence for participation in organised crime;

introducing a reporting process for anti-money laundering (AML)/counter-financing of terrorism (CFT) supervisors, improving the transparency and accountability of supervision and enforcement in the UK;

building asset confiscation enforcement (ACE) teams to crack down on those who refuse to pay their confiscation orders, contributing to the recovery of £199 million last year, the highest amount on record;

forming a new partnership with the financial sector to create the joint money laundering intelligence taskforce;

and launching a review of the suspicious activity reports (SARs) regime.

Today, the Government are publishing the UK’s first national risk assessment of money laundering and terrorist financing. It identifies and assesses the UK’s money laundering and terrorist financing risks, drawing on data from UK law enforcement and intelligence agencies, anti-money laundering supervisors, Government Departments, industry bodies and private sector firms.

The national risk assessment has found that while the UK’s response to money laundering and terrorist financing risks is well developed, more could be done to strengthen the UK’s anti-money laundering and counter-terrorist financing regime, including in the following areas:

the understanding of certain types of money laundering, and particularly in relation to “high end” money laundering, where the proceeds are often held in bank accounts, real estate or other investments, rather than cash;

the consistency of the UK’s supervisory regime, and specifically the understanding and application of a risk-based approach to supervision;

the priority given to combatting money laundering by law enforcement agencies and the effectiveness of their response.

The Government will take forward these findings in a comprehensive action plan. The priorities for the action plan will include:

fill intelligence gaps, particularly those associated with “high end” money laundering through the professional services sector;

enhance our law enforcement response and build more effective public-private sector partnerships, to tackle the most serious threats;

address the inconsistencies in the supervisory regime that have been identified;

work with supervisors to improve individuals’ and firms’ knowledge of money laundering and terrorist financing risks;

increase collaboration between law enforcement agencies, supervisors and the private sector to support prevention and detection.

The Government are committed to ensuring that the anti-money laundering regime is effective and proportionate, with businesses and regulators taking a risk-based approach to implementation. The Better Regulation Executive is leading a “red tape” review into the UK anti-money laundering regime to identify for example where companies are confused as to what is required or are undertaking unnecessary activity which diverts attention away from where there are real risks. The results of this review will inform the action plan.

The UK is periodically assessed under mutual evaluations by the Financial Action Task Force. The national risk assessment and the action plan will be kept under review and will inform the UK’s next evaluation.

A copy of the report has been deposited in the Libraries of both Houses.

[HCWS244]

Finance Bill (Third sitting)

Harriett Baldwin Excerpts

Tuesday 13th October 2015 Public Bill Committees

[The Economic Secretary to the Treasury (Harriett Baldwin)]

What a pleasure it is to serve under your chairmanship this morning, Sir Roger, after our short break. I welcome the hon. Members for Wolverhampton South West and for Leeds East to the Opposition Front Bench. I hope that they remain there for a long time. I also pay tribute to the work of the hon. Members for Worsley and Eccles South (Barbara Keeley) and for Wirral South (Alison McGovern), who worked so hard in that role before the break.

The changes made by the clause mean that banks will no longer be entitled to tax relief for compensation payments made in relation to their misconduct and mis-selling. That will protect the Exchequer from banks’ past management failures and ensure that the sector makes an appropriate contribution to restoring the public finances.

Let me start by providing some background to the tax rules in this area. Fines are generally treated as non-deductible expenses in calculating companies’ profits liable to corporation tax. That means that the fines imposed on banks as a result of their conduct have had no direct impact on UK tax receipts; in fact, they have actually benefited the Exchequer due to a change in rules enacted by the Government. That is not the case, however, for banks’ customer compensation payments. Such payments are generally treated as deductible expenses for corporation tax purposes, reflecting the fact that they are non-punitive and often the straightforward reimbursement of income on which businesses have already been taxed. As a result, compensation payments made by banks in relation to the mis-selling of financial products have, until this point, impacted directly on corporation tax receipts.

The scale of banks’ compensation payments in recent years has been unprecedented. More than £25 billion has already been paid out or provided for in relation to the mis-selling of payment protection insurance, with a further £1.8 billion paid or provided for in relation to the mis-selling of interest rate products. Crucially, the exceptional levels of banking sector compensation are persisting. New PPI provisions exceeded £2 billion in the first half of 2015 alone, with cumulative provisions now well in excess of initial market expectations and continuing to grow. In that context, the Government believe that the existing tax rules have become unsustainable. It is not acceptable that post-crisis corporation tax receipts continue to be depressed by conduct failures that in some instances took place more than 10 years ago. The clause therefore makes a change to address that.

The clause makes banks’ compensation payments in relation to misconduct and mis-selling non-deductible for tax purposes from 8 July 2015. That will apply to compensation material enough to have been disclosed in banks’ accounts, albeit with an exclusion for compensation relating to administrative errors, system failures and the actions of unconnected third parties. The changes will also capture administrative expenses associated with that compensation, but will achieve that indirectly by requiring banks to apply a 10% uplift in calculating their non-deductible compensation expenditure. That will help to ensure that the changes are proportionate. It will also ensure that the Exchequer is protected from the large-scale compensation seen in recent years, but in a way that is administrable and recognises that banks, like other industries, will inevitably make compensation payments as part of their ordinary course of business. Overall, this is a fair and workable set of rules, which is forecast by the independent Office for Budget Responsibility to increase banks’ corporation tax payments by £1 billion over the next five years.

We have already taken action to reduce the sensitivity of corporation tax receipts to losses incurred by banks during the crisis. The changes made by clause 18 now do the same in respect of banks’ past misconduct and the exceptional levels of compensation it has given rise to. This is crucial in ensuring that taxpayers get a fair deal from the banking sector, which they stood behind during the crisis. I therefore commend clause 18 to the Committee.

[Rob Marris (Wolverhampton South West) (Lab)]

What a pleasure it is to appear in Committee before you, Sir Roger. It has been a good many years. I thank the Minister for her kind words and pay tribute to my predecessors in this role, who worked hard, including on this Finance Bill. It is a particular pleasure to be shadowing the hon. Member for South West Hertfordshire. He and I have crossed swords in previous Committees—it is getting on for 10 years ago. I always think it is a bit like that Texas festival, South by Southwest—we are South West Hertfordshire and Wolverhampton South West. I look forward to our debate.

It will not surprise the Committee, and in particular my hon. Friends, that the Labour party thinks that clause 18 is rather a good idea. I will not detain the Committee for long, but I want to make one point and raise one issue. It was on this very day in 2008 that one of the major banks in this country was nationalised—I believe it was Lloyds bank. I remember, because I remarked in the Commons, as a then Government Back Bencher, that happy days were here again, because we were nationalising a bank on Margaret Thatcher’s birthday. It seems to go with the zeitgeist of the current Labour party leadership.

[Harriett Baldwin]

On that point, I am keen to explore whether the hon. Gentleman supports that leadership.

[The Chair]

Order. I am going to throw the hon. Gentleman a lifebelt. That is strictly not part of the Bill.

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[Rob Marris]

Thank you, Sir Roger. As a shadow Minister, I think the Minister knows my response.

I have a question for the Minister—one that has just occurred to me, so I hope she will indulge me, as I have not had a chance to research it. The explanatory notes seem to suggest that this clause refer to banking, but the wording seems to suggest that it refers to corporation tax and deductions for compensation. All hon. Members will be aware that the largest car company in Europe—the second largest in the world—has been doing precisely what banks were doing leading up to the crash in 2008. Starting in 2009—which shows that the capitalists never learn and need regulating—the Volkswagen Audi group has been using computer algorithms and deception to con consumers. My personal view is that the Government, with the prosecuting authorities, should look at prosecuting Volkswagen executives if there is a case to answer that they obtained pecuniary advantage by deception—a breach of section 15 of the Theft Act 1968. However, my question for the Minister is this. Would clause 18, on the deductibility or non-deductibility from corporation tax of payments made by cheating companies, cover a company such as Volkswagen if it were adjudicated formally to have cheated?

[Harriett Baldwin]

Let me answer the hon. Gentleman’s question by agreeing that clause 18, given the way it is worded, applies only to banks. Clearly, it was introduced in response to the fact that the scale of bank compensation, to which I referred in my opening remarks, has been so significant. More than £25 billion has already been paid out, which has had a material and meaningful impact on the corporation tax receipts of Her Majesty’s Treasury. We have always been clear that we want banks to make a fair contribution to their historic costs and their potential impact on future risks to the economy.

The hon. Gentleman asked about compensation relating to the Volkswagen emissions scandal, which, as he is right to highlight, is a complete scandal. There is currently no intention to extend this measure. It is obviously early days in terms of the full scale of potential actions regarding Volkswagen, in particular Volkswagen in the UK and where the company pays corporation tax. However, I can assure the hon. Gentleman that the Government reserve the right to act decisively through legislation such as Finance Bills when they need to take steps to protect the public finances.

[Mark Garnier (Wyre Forest) (Con)]

On a point of clarification, the Minister mentioned that the costs of expenses incurred in addition to fines would also not be tax deductible. As she knows, under a section 166 agreement, the Financial Conduct Authority can ask a bank, at its own expense, to investigate an alleged misdemeanour. As I understand it from what she is saying, if that results in a fine, the section 166 cost is not tax deductible, but what would happen if it did not result in a fine and came off with a negative result? Would the section 166 undertaking be recoverable under tax?

[Harriett Baldwin]

My hon. Friend speaks with great insight and authority from his position on the Select Committee on the Treasury. I can explain to him that these measures are designed to tackle the material costs of compensation that are reflected, or provisioned for, in a bank’s accounts. In addition to that, a further 10% for the general costs of administration is attached. Were the costs that my hon. Friend refers to significant enough to require provision in the company’s accounts, they would be captured by this measure.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Banks established under Savings Bank (Scotland) Act 1819: loss allowance

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clause 20 stand part.

[Harriett Baldwin]

The changes made by clauses 19 and 20 ensure that special provisions for building societies in the loss-relief restriction legislation extend to savings banks, which share many of the same characteristics. This is a very narrowly targeted change to the legislation to ensure that it applies fairly across the sector and delivers on its stated policy objectives. Clause 20 makes a change to the definition of a bank for the purposes of bank-specific tax legislation, helping to ensure that it is aligned with regulation and delivers the intended policy outcome.

Let me start by explaining the background to clause 19. When a company makes a loss for corporation tax purposes, it is entitled to carry forward that loss and offset it against taxable profit arising in future periods. Legislation was included in the Finance Act 2015 to restrict the amount of profit that banks and building societies can offset with historical losses to 50% from 1 April 2015. This is designed to reduce the sensitivity of corporation tax receipts to losses incurred by banks during the financial crisis and subsequent misconduct and mis-selling scandals. The loss-restriction legislation includes a special provision for building societies, meaning that the restriction applies only to profits they make in excess of £25 million. That reflected a concern that the smallest building societies could otherwise be disproportionately impacted by the restriction, due to the fact that they are non-profit maximisers and reliant on retained earnings to build regulatory capital.

It has been brought to the Government’s attention that this provision does not accommodate banks incorporated under the Savings Bank (Scotland) Act 1819, which share many of the same characteristics as building societies and thus have the potential to be affected in the same way. The changes made by clause 19 therefore address that by ensuring that, from its inception, the legislation applies fairly and consistently across the sector. The changes will have a negligible impact on tax receipts. The independent OBR still forecasts that the loss restriction will increase banks’ tax payments by around £4 billion across the next five years, helping to ensure a fair deal for the taxpayer.

I will now turn briefly to clause 20. The Government have taken a number of steps to ensure that banks make a fair contribution to the public finances. That includes the bank levy, a tax on banks’ balance sheet equity and liabilities. The measures also include a restriction on the amount of profit that banks can offset by carried-forward corporation tax losses.

These policies, which will have raised over £30 billion in total by 2020-21, rely on there being a suitable definition of a bank within tax legislation. That definition needs to be able to take account of the differences between retail banks, investment banks and building societies. The current definition, which is based on regulatory concepts and supervision responsibilities, has been successful at targeting tax measures in accordance with the Government’s policy objective. However, as part of the modernisation of financial regulation, there have been recent changes to the regulatory terms used. Clause 20 aligns the definition used within tax legislation with those changes, and so ensures that investment banks supervised by the FCA remain within the definition, in line with the stated policy objective. The amended legislation will continue to apply to the same population and will continue to operate in the same manner.

Clause 19 represents a narrowly targeted change to the loss restriction legislation to ensure that it applies consistently across similar institutions. It is consistent with existing policy and immaterial in terms of sector-wide tax receipts. Clause 20 is a technical change to the bank tax legislation to ensure that it remains appropriately targeted and appropriately aligned with regulation.

[Rob Marris]

We seem to be dealing with the progressive clauses early on in our proceedings. That suits me and my party rather well: we like building societies, and I suspect that, were we to know more about savings banks in Scotland, we would like them as well, because they are not driven solely by profit, but do wish to make a surplus. I therefore encourage my hon. Friends to support clause 19.

As for clause 20, I have to confess—and this will not be the last time—that some of the technical matters are beyond me, although I appreciate that there is considerable expertise on the Committee and I thank the Minister for her explanation of this technical change. I have one question for her about the clause. It is a troubling one, but she may be able to allay my fears; if she cannot, I will be encouraging my hon. Friends to abstain.

As I understand it, the effect of clause 20, if enacted, would be retrospective to 1 January 2014—that is, a year and a half before the Budget on 8 July 2015. As a lawyer and as a Member of Parliament, I am always acutely concerned about retrospective legislation. I know it happens in Finance Acts in particular; it is common to backdate things to the date of the Budget, for example, and, on occasion, to the beginning of the tax year of that Budget. However, this is the second Finance Bill this year—one hopes it will be the last—and it is concerning to have retrospectivity, even if the measure is a very technical one.

[Harriett Baldwin]

The hon. Gentleman is absolutely right that, where possible, we always try to ensure that this type of legislation has no retrospective effect. He is also right that that is an important principle that we apply in dealing with such Bills. However, I can reassure him that, as he will see from the impact assessment, there will be no change to the effect of the legislation in terms of its financial impact. The legislation will continue to apply to the same population as before and will continue to operate in the same manner. He is right to raise a general principle that we would seek to observe with regard to the Bill, but in this example, because the institutions in question are already being treated in this manner for tax purposes and for regulatory purposes, it is simply a case of the legislation catching up with the real world.

[Rob Marris]

Is the Minister suggesting, by talking about catch-up, that the regime has been acting outside the law for the best part of two years?

[Harriett Baldwin]

The wording in the legislation is being changed to reflect the way in which the system has been operating, and so the change will have no material or measurable impact. Given the regulatory changes that came into effect with the Finance Act 2012, the legislation was ambiguous, so I would describe the change as a clarification of the wording to provide certainty in the legislation to match what has been happening in the real world.

Banking Act 2009

Harriett Baldwin Excerpts

Thursday 17th September 2015 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 October 2014 to 31 March 2015. Copies of the document are available in the Vote Office and the Printed Paper Office.

[HCWS211]

National Insurance Contributions (Rate Ceilings) Bill

Harriett Baldwin Excerpts

Tuesday 15th September 2015 Commons Chamber

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I beg to move, That the Bill be now read a Second time.

This Bill implements our manifesto commitment not to increase national insurance contributions for employers and employees. It will be interesting to discover whether it will be opposed by Her Majesty’s Opposition now that their new leader favours a 7% increase in national insurance for higher earners.

Hon. Members will be aware of the Government’s strong record of significantly reducing the burden of national insurance. At Budget 2011, my right hon. Friend the Chancellor announced a £21 a week above-inflation increase to the employers national insurance threshold. In 2014 we introduced the employment allowance to support businesses and charities across the UK by saving them up to £2,000 every year, and that has already benefited well over 1 million employers. The Government are now going further, and hon. Members will recall that the Chancellor announced in the summer Budget that that saving would be increased to £3,000 from next April. That means that a business will be able to employ four people full time on the national living wage and pay no national insurance at all.

From April 2015, the vast majority of employers employing under-21-year-olds were lifted out of employers national insurance as well. The exemption will be extended to cover apprentices under 25, helping young people to stand on their own two feet and fulfil their aspirations.

[Lady Hermon (North Down) (Ind)]

I am sorry to intervene so early in the Minister’s speech, but for the sake of clarity will she explain the long title to the Bill, which appears to apply only to class 1 national insurance contributions? I presume that the other classes will be covered in due course.

[Harriett Baldwin]

My remarks will be so short that hon. Members will need to intervene quickly with their points of clarification on this five-clause Bill. The hon. Lady will be aware that in the summer Budget the Chancellor announced that we are asking the Office of Tax Simplification to look at class 2 and class 4 contributions. We are expecting that consultation, which opened on 21 July, to inform the Budget next year. She asks a sensible question and I welcome her curiosity.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

Can the Minister clarify what assessment she has made of the number of self-employed people who may apply for an exemption from paying class 2 contributions, especially as at least half of the increase in employment is self-employed people and, on average, self-employment incomes have fallen to less than £10,000?

[Harriett Baldwin]

We are very pleased that we are backing those who want to take a chance, start their own business and become self-employed. In fact, we have taken measures in previous Budgets to simplify the process so that self-employed people can consider making those contributions alongside their self-assessment.

[Mr Jim Cunningham (Coventry South) (Lab)]

Has the Minister done an impact assessment on public services—for example, the impact that the Bill will have on the national health service and benefits?

[Harriett Baldwin]

I am delighted to hear the first bid from the Opposition not to freeze national insurance for employers and employees. As the hon. Gentleman will know, national insurance contributes a substantial sum to the Exchequer and we have committed as a Government to continue to increase the amount of money that goes into the NHS.

[Mr Cunningham]

The Minister should not twist my words. I asked her about the impact of the Bill.

[Harriett Baldwin]

Of course, the impact of freezing national insurance for employers and employees is that throughout the life of this Parliament they can have the confidence that their national insurance rates will not change—a confidence they would not have if the hon. Gentleman had any say in it.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

The Minister’s team might helpfully do something about the fact that if one searches online for the impact of this Bill, one gets a 404 error message. It would be useful to have some view on the Bill’s impact.

[Harriett Baldwin]

I thank the hon. Lady for her sensible suggestion. I know that those who put together the impact assessment online will have taken her wise words to heart and will make a change. Clearly, when one brings in legislation to freeze national insurance rates, the impact is that there is no change in national insurance and therefore no impact to report.

[Rehman Chishti (Gillingham and Rainham) (Con)]

I have businesses in my constituency that work hard and do the right thing. They do not want to be clobbered with more taxes. The impact of the Bill is that if people do the right thing and work hard, the Government will support them to succeed in life.

[Harriett Baldwin]

I thank my hon. Friend for making that excellent point. The Government want to back small businesses, entrepreneurs and those who want the certainty over the next five years that if they employ four people on the new national living wage, they will not have to pay any national insurance because of the employment allowance.

[Debbie Abrahams]

May I press the Minister on the point I made in my earlier intervention, which she did not actually answer? What assessment has she made of the number of self-employed people who earn so little that they could apply for an exemption from class 2 national insurance contributions?

[Harriett Baldwin]

When one starts out in business, it is often the case that one earns a small amount, but it is those fantastic people who start businesses, often at their kitchen table, whom the Government are trying to back with the measures in the Bill, which will give them a certainty that they would not have if Labour were in charge.

[Andrew Stephenson (Pendle) (Con)]

Freezing NI is important for my constituents, many of whom are low wage earners and have benefited tremendously over the last few years from the dramatic rise we have seen in the personal allowance. Does my hon. Friend agree that hard-working people already pay enough in tax?

[Harriett Baldwin]

I certainly agree that the Government are keen to take steps to back an economy that continues to grow and to create jobs so that everyone can have the dignity of taking home a pay cheque or starting their own business. We have taken other steps in the Finance Bill to raise the amount that people can make before having to pay income tax, and that is what this Government stand for.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Surely the Minister has not forgotten that in the lifetime of the previous Parliament—from 2010 to 2015—no fewer than 24 tax increases were put on working people by her Government. The latest Budget also includes the tax increase on insurance premiums.

[Harriett Baldwin]

That is an extraordinary line of attack. The Government have nearly doubled the personal allowance—the amount that people can make before they pay income tax—from the £6,475 that the hon. Gentleman thought was appropriate at the end of the 2010 Parliament. That is what this Government stand for.

[Mark Spencer (Sherwood) (Con)]

Will the Minister comment on how successful the previous Government were in getting people into work? This policy is in addition to that record and will increase the number of people in employment, taking home a wage packet and providing for themselves.

[Harriett Baldwin]

That gives me a welcome opportunity to state that every Labour Government in history has left office with more people out of work than when they came into office. This is the party of working people and we created many jobs during the last Parliament, which no one expected, and we continue to back businesses and their growth through this Bill.

[Simon Hoare (North Dorset) (Con)]

My hon. Friend may be ruing her invitation to Members to intervene. In a constituency such as mine, where the main focus of economic activity is on micro and small businesses, one of the first questions that a potential employer asks is how much it will cost to take on an additional person. That is the engine that will grow the economy, and the Bill is extremely welcome.

[Harriett Baldwin]

My hon. Friend’s point is well made, because in North Dorset and around the country it is the small and micro businesses that are the engines of job creation. That is why the employment allowance is so important—it will mean that a small business taking on its first employee will not have to pay employers national insurance at all under this Government. Indeed, if every small business took on just one extra employee, we would have full employment. That is why the Government back small businesses.

[Kevin Foster (Torbay) (Con)]

One of the problems with national insurance contributions for employers is that they are a direct tax on employment, making it more expensive to employ someone in both the private and the public sector. It may be worthwhile Opposition Members noting that putting up national insurance contributions for employers would hit local councils severely, giving them an extra bill to pay. The Bill backs business, but it will also help public services by keeping their bills low.

[Harriett Baldwin]

My hon. Friend is right. The Bill’s measures strongly back business and other employers, many of whom will benefit from the employment allowance too.

The Bill legislates our commitment to provide certainty on national insurance rates for the duration of the Parliament. Hon. Members will be aware that our other commitments in the manifesto to lock taxes were that we would not increase the main rates of income tax and value added tax, as well as not increasing national insurance. The Finance Bill will deliver those commitments and this Bill delivers the commitment on national insurance.

[Rehman Chishti]

The Bill is very much welcome and goes hand-in-hand with what the Government are doing in other areas, such as the local growth fund. The Government have set aside £12 billion, £7 billion of which has already been spent on building homes and supporting businesses. The wider picture is that the Government are supporting businesses on the front line, creating homes, jobs and opportunities. That is the right way forward.

[Harriett Baldwin]

My hon. Friend is absolutely right. This is part of a package of measures the Chancellor announced in the July Budget.

[Dr Andrew Murrison (South West Wiltshire) (Con)]

The Office of Tax Simplification has been asked to look at proposals to merge income tax and national insurance. Will the Minister say where we are with that? In particular, what assessment has been made of its possible impact on pensioners?

[Harriett Baldwin]

My hon. Friend is correct. In the summer Budget, the Chancellor announced a consultation on behalf of the Office of Tax Simplification. It is currently undertaking its work. I expect my right hon. Friend to take its recommendations into account in due course.

Turning to the detail of this five-clause Bill, it provides that the rate of class 1 national insurance contributions paid by employees and employers must not exceed existing rates.

[James Cartlidge (South Suffolk) (Con)]

On a point of clarification—this may be a bit cheeky—I take it that we could reduce national insurance if we wanted to. The Bill would not stop us doing that.

[Harriett Baldwin]

That is not a cheeky question; that is a very sensible question. It is indeed the case that we will still be able to reduce levels of national insurance. This is only a ceiling, as is noted in the Bill’s title.

It has been the convention that the level of the upper earnings limit for national insurance is aligned with the level of the higher rate threshold for income tax. The Bill formally limits increases to the upper earnings limit, so that its annual equivalent amount cannot exceed the level of the higher rate threshold for income tax. Both the restriction on national insurance rate rises and changes to the upper earnings limit come into force on Royal Assent and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.

The Bill provides certainty for employers and for employees that the national insurance rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament, and that the upper earnings limit will not exceed the higher rate threshold. The Bill demonstrates the Government’s commitment to provide certainty on tax rates for the duration of this Parliament. I commend it to the House.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

As the Minister described, the Bill provides for the Government’s commitment, as set out in their manifesto, to a tax lock: a commitment not to increase the rates of VAT, income tax or national insurance in the next Parliament. The Bill provides for the national insurance element of that pledge. Such a measure has to remain separate from the Finance Bill currently going through Parliament, because statutory provisions regarding national insurance contributions cannot be included in the annual Finance Bill.

As we have heard, the Bill prevents any increase in the current rates of class 1 national insurance contributions paid by employees and employers for the duration of the 2015-20 Parliament. It also provides that the upper earnings limit cannot exceed the higher rate threshold, which is to say that the upper earnings limit cannot exceed the sum of the personal allowance and the basic rate limit.

Responding to the tax lock announcement during the election campaign, many people wondered why such a commitment etched into the statute book would even be necessary. If Ministers—indeed, the Prime Minister—commit to not raising income tax, national insurance contributions or VAT in the run-up to an election, surely such a commitment should be taken at face value. Apparently not in the case of Conservatives, who perhaps felt that the low levels of trust in their pledges were such that they would have to go much further. No wonder, when we consider that the Prime Minister made a similar commitment in 2010 not to raise VAT, only then to raise it to 20% after entering Downing Street.

[Harriett Baldwin]

Will the hon. Lady confirm that in her party’s manifesto, on which she just stood, there was a similar commitment not to increase national insurance rates, yet the new leader of her party has stated publicly that he would like to increase them by 7% for higher earners?

[Barbara Keeley]

I will come on to my party’s manifesto commitments in a very short while. I do not think it is helpful, and I am not going to respond, to any interventions or points made by Government Members that refer to things the current Leader of the Opposition said before he was Leader of the Opposition. [Interruption.] That is a different situation. What I have just said is that when the Prime Minister was elected in 2010, he raised VAT when he had said that he would not do so.

Beyond the broken pledge on VAT, which is a serious matter—[Interruption.] Government Members can sit giggling, but these are very serious matters that hit the country hard. It is worth remembering that the Prime Minister appeared to rule out cuts to tax credits when appearing in front of a special “Question Time” audience during the recent election campaign. Yet, we are due to vote later today on that measure, and the Government’s cuts to tax credits will leave some 8 million families on average over £1,000 a year worse off. That is a shocking broken pledge.

--- Later in debate ---

[Barbara Keeley]

I can assure the hon. Gentleman that Opposition Members do. It read:

“No one can see into the future. So a responsible chancellor ought to be duty-bound to keep options open, to be able to respond to events and adapt to unexpected changes in the economy, not close them off. Instead, the Conservatives are now committed to tying their hands behind their back, placing the taxes that provide roughly two-thirds of all government income – income tax, national insurance and VAT – wholly off-limits, come what may, for five years. This is madness.”

[Harriett Baldwin]

So it is not a gimmick then, but welcome certainty for families and business.

[Barbara Keeley]

The hon. Lady is not listening.

The Financial Times leader, to which I referred earlier, said:

“It is unwise for the Conservatives to bind their hands, legally or otherwise, against using tax rises to close the deficit. Much of public expenditure is unavoidable or politically protected”—

that is the important thing; these days certain budgets are politically protected—

“so that ever more savings need to be found from the shrinking funds for welfare, social care, justice and defence. It makes sense to leave oneself the option to turn to tax in times of adversity to smooth the path of consolidation.”

Nothing better reflects the gimmickry of this measure than the fact that the recent summer Budget included some significant revenue-raising measures that amounted to significant tax rises for millions of people. As the Office for Budget Responsibility set out, the tax-raising measures announced in the summer Budget amounted to nearly £16 billion of tax rises by 2020-21—we touched on this point last week—£3 billion of which will come from changes to vehicle taxation, as well as increases in the insurance premium tax, which will raise £8 billion by 2020-21.

Last week, we debated the increase in insurance premium tax, and as I pointed out then, some of the UK’s biggest insurers, including Aviva and RSA, have confirmed that they plan to pass on the cost of that tax increase to customers. Experts say that many people will now see their household insurance bills rise by between £50 and £100 a year, if they have more than one car and they insure their buildings and contents. I highlighted the fact, and still think it a serious point, that young drivers would be hardest hit, and many might wrongly take the risk of driving uninsured. In the last week, therefore, we have seen a £50 to £100 tax bombshell for millions of families, and this tax-lock Bill does nothing to guard against that.

What is more, the Government are yet to offer any assurances that they will not raise insurance premium tax further in subsequent Budgets. Given that a Conservative peer, Lord Northbrook, has called insurance premium tax an “easy target”, I invite the two Treasury Ministers present to say whether they will be increasing insurance premium tax any further. Would either like to say what their intentions are?

[Harriett Baldwin]

Madam Deputy Speaker, may I seek your guidance about whether we ought to be discussing something that Parliament settled last week or the Second Reading of this Bill?

[Madam Deputy Speaker (Natascha Engel)]

The hon. Lady is experienced enough to know that if she wishes to raise a point of order, she can do so by way of a point of order. However, the point she raises is a matter for discussion, so I invite the shadow Minister to respond, if she wishes.

--- Later in debate ---

[Barbara Keeley]

Indeed. I agree with my hon. Friend and I thank him for raising that point. I think that Ministers have got to think about what they are doing to public trust if they have to introduce gimmicks such as this Bill—it is a gimmick, and was seen as a gimmick by a host of commentators outside this place.

[Harriett Baldwin]

Will the hon. Lady give way?

[Barbara Keeley]

No, I have nearly finished.

As I have argued, the Bill provides no protection for millions of hard-working families, and if the statutory instrument on tax credits is voted through by Conservative Members, those families will be £1,000 a year worse off on average. That will be a direct result of the Chancellor’s fiscal decisions, and I believe many Conservative Members will come to regret it. Ministers should not be wasting their time on legislative gimmicks such as this so-called tax lock.

Finance Bill

Harriett Baldwin Excerpts

Tuesday 8th September 2015 Commons Chamber

[Michelle Thomson (Edinburgh West) (SNP)]

I will do something that feels slightly unusual and address my brief remarks to clause 43.

We know that there is a planned increase from 6% to 9.5%—an increase of 58%—but let us not forget that that also applies to administration costs. Throughout the debate, the figures have been evaluated and we have realised that the increase to house contents cover will affect about 20 million people. The people who are likely to move more frequently are those who are not owner-occupiers. Of course, that plugs into the argument, which has already been proven, that lower income groups pay more. The so-called poverty premium, which was explained by Donald Hirsch and backed up by the Joseph Rowntree Foundation, is therefore valid in this instance.

The Government state that the tax applies to only one fifth of all premiums, but that is the wrong measure. We should be concerned about the distribution of those premiums. Young drivers aged 21 to 29 make up 14% of the driving population, but 34% of uninsured drivers. Perhaps Adrian Smith of KPMG called it correctly when he noted wryly:

“All I can guess is that there were so many taxes David Cameron ruled out increasing that there weren’t so many left”.

If the driver for this proposal is an increase in tax-take, it should be noted that the rise in January 2011 actually saw a fall in tax receipts of 1.3% between 2011 and 2015. Despite that, the Government suggest that receipts are expected to grow by 1.9% year on year between 2015-16 and 2020-21. I wish I shared their confidence. It may be that higher income groups will drop their health insurance, which is included in their P11D liability. That would, of course, put more pressure on the NHS.

Although the tax is levied on companies, I believe that it will inevitably be passed to consumers. It seems somewhat anti-business that the insurance industry, having done the right thing in making determined attempts to reduce fraud and passing the savings on to consumers, is rewarded with such a significant tax rise over such a short timescale. Let us not forget that businesses will also be affected by the application of the increase to corporate premiums. My worry is that that will disproportionately affect small businesses, which continue to struggle with a range of factors in the current operating environment.

Ultimately, if insurance is about protection and the negation of risk, why should it be more expensive for those who have the most to lose—in other words, the lower income groups?

[The Economic Secretary to the Treasury (Harriett Baldwin)]

In responding to the debate, I hope to touch on many of the questions that have been raised by hon. Members.

Clause 43 increases the standard rate of insurance premium tax to 9.5%. The policy will increase the revenue raised from the tax and help to close the deficit.

Before I turn to the amendment, I will cover some of the points that have been mentioned. I confirm that the insurance charge includes the gross premium that the insurer chargers, including the broker commission and any other directly related costs. It is a charge on the insurer rather than on the individual. It is due on general insurance, which accounts for approximately one fifth of insurance premiums. As we have heard, it includes motor insurance, home insurance, employers liability insurance and medical insurance.

Some 80% of the insurance market is exempt, including reinsurance, long-term insurance such as life insurance and permanent health insurance, and the permanent health insurance that is used to pay for critical illness insurance.

Travel insurance and insurance that people purchase on warranties with, for example, white goods, is already charged at the considerably higher rate of 20% to prevent VAT avoidance. That, too, is unaffected by the change. It is important to remember that there is no VAT overall on insurance.

The new rate for the taxable insurance premiums will begin to apply with effect from 1 November 2015. In the tax year 2016-17, it will raise an extra £1.4 billion, which can be used to reduce the deficit. If insurers pass on the increase, it will affect businesses and households, particularly by increasing the cost of their property and motor insurance. However, we expect that any impact on consumers will be modest. Most households and businesses have some form of general insurance and any impact of a rate rise is therefore shared by a large number of people and organisations, as we have heard. To give some idea of what that means, if insurers chose to pass on the whole increase, the average household expenditure on insurance would increase by 70p per week.

We do not anticipate that the tax increase will reduce the number of people taking out general insurance. Even if insurers choose to pass on the increase, any increased costs will be a very small proportion of the overall cost of insurance. As the insurance market is competitive, customers affected by the change can shop around to find a policy that best fits their needs.

[Barbara Keeley]

I hope the Minister will address the point I made about the impact of insurance costs on unemployed people. I quoted BBC research, but work done for MoneySavingExpert.com found that there is an enormous differential when people lose their jobs. In one case, insurance for an office manager to insure her vehicle went from £359 a year to £1,034. It is all right to talk about averages of £10 here or £12 there, or even £50 for young people, but insurance premiums can be disproportionately increased by unemployment. That point was made in the social media debate on the Budget, and that is one reason why I have taken it seriously. The increase is unfair, because it hits people straight away when they become unemployed. We must start to reflect on that.

[Harriett Baldwin]

I will come to the distributional points raised by questions from hon. Members but, with the greatest respect, the situation the hon. Lady describes would be unaffected by the changes the Government propose this afternoon.

We heard from my hon. Friend the Member for Croydon South (Chris Philp) that the increase must be seen in the context of significant Government action to reduce costs for the insurance industry and for motorists. We are taking a lot of action to reduce insurance fraud. According to the Association of British Insurers, insurance fraud alone adds an average of £50 a year to average household insurance costs. Our previous action to reduce the cost of fraudulent claims includes a ban on referral fees in personal injury cases and reform of the regulation of whiplash claims. Those actions have been welcomed by both industry and consumer groups. The insurance fraud taskforce is due to report at the end of the year with suggestions on how further to reduce the cost of insurance fraud.

In the summer Budget 2015, my right hon. Friend the Chancellor announced a further consultation to establish how to introduce a cap on fees charged by claims management companies, and a fundamental review of the regulation of claims management companies, which is due to report in 2016. I note with interest the point my hon. Friend the Member for Croydon South made about banning outbound calls. More generally, the Financial Conduct Authority is working on how to encourage people to shop around for insurance, which will ensure that people find the best deal for their circumstances and that the market remains competitive.

The Government have been working hard with the insurance industry to develop the Flood Re scheme, which will continue to allow insurers to offer affordable home insurance. The hon. Member for Kingston upon Hull North (Diana Johnson) and I both have constituencies where there are a lot of flood-prone properties—I pay close interest to the topic. Of course, properties built after 2009 will be exempt from the scheme because we do not want to incentivise builders to build in flood-prone areas.

[Diana Johnson]

I fully accept that; in fact, I think it is absolutely right. The problem for me and my constituents is that 90% of the city of Hull is below sea level. Anything that is built will, by definition, be on a flood plain. A bit more thought has to be given for areas of the country. It is not just Hull; other low-lying areas will find themselves in this difficulty.

[Harriett Baldwin]

The hon. Lady makes a very good point. She and I come across the same sorts of issues in our casework, and a lot of London is built on a flood plain. In some cases, I have had to work with specialist insurance broking to find a broker service. The British Insurance Brokers’ Association is very useful in that regard. I am sure she and I will continue to pay close heed to how the Flood Re scheme is delivering for our constituents.

A number of hon. Members raised the issue of motor insurance, particularly for young people. My right hon. Friend the Member for Wokingham (John Redwood) asked whether technology could help young people with the costs of their insurance. Young people can currently take the opportunity to install a telematic device. Many insurers will reduce the cost of motor insurance in those situations.

I am able to reassure hon. Members on the impact on young drivers’ insurance premiums. Young drivers pay a much higher premium at the moment, but the overall cost impact of this change for young drivers in their 20s is estimated to be 25 pence a week and the overall impact for a driver aged 17 or 18 about £1 a week. Obviously, all tax increases are unwelcome, but this needs to be set against the fact that drivers are currently saving about £9 every time they fill up their vehicles.

[Barbara Keeley]

The figures I was given from the industry were that the increase in duty alone on the average premium paid by a young driver would be from £90 to £142.50. That is not 50p or 25p a week; that is £1 a week. Various points have been made about fuel duty, but this is a tax that has to be paid. This is a very serious increase for young people who are being hit in the other ways that I outlined.

--- Later in debate ---

[Harriett Baldwin]

The hon. Lady and I can duel with statistics all afternoon, but I wanted to point out that it was the 17 and 18-year-olds who pay a substantial amount more than those in their 20s. I think she is probably quoting statistics relating to 17 to 25-year-olds. Nevertheless, the changes need to be seen in the context of the amount that young drivers are saving and the opportunities they may have from using a telematic device to measure their driving performance.

Finally, I want to say a word about implementation. We recognise that the insurance industry needs notice to effect the changes. We have tried to ensure a smooth implementation of the new rate by following the approach agreed by industry representatives and HMRC back in 1995. That sets out transitional arrangements required by the insurance industry to account for the tax at the new rate. The rate, as we said, comes into effect on 1 November, which provides a period of nearly four months from the date the measure was announced. There is a further four-month statutory concessionary period for insurers who have elected to account for the tax using a special accounting scheme. In simple terms, the concessionary period ensures that premiums for policies beginning before 1 November will be taxed at the current rate effectively until 1 March 2016.

That leads me to the Opposition’s amendment, which proposes that a report be produced on the impact of the change in the standard rate of insurance premium tax as soon as three months from the enactment of the Finance Bill. It calls for the report to be undertaken very soon at a time when the impact of the rate will have hardly begun. That is why we will not agree to the amendment this afternoon and encourage the hon. Lady to withdraw it.

The impact of any increase in the rate of insurance premium tax will depend on whether insurers change their prices to pass on the increase. As I have said, it is a tax on insurers, not customers, and we are aware of at least one insurer—we heard earlier of another example—that has pledged to absorb the cost of the increase for at least one year. We think this is partly because insurers have benefited, and will continue to benefit, from the reductions in corporation tax announced in the Budget. Any such benefit might encourage more of them not to pass on this additional cost.

We have investigated what the overall distributional impact would be if all insurers passed on the entire rate rise. If the entire rate rise of 3.5 percentage points were passed on, households in the top income decile would pay just over £1 a week more for their insurance, while the additional costs for those in the bottom income decile would be less than 40p a week. We calculate that almost two thirds of the overall distributional impact will fall in the top half of the income distribution.

[Suella Fernandes (Fareham) (Con)]

Does my hon. Friend agree that this slim and modest tax rise should be viewed in the context of the falling cost of home insurance and comprehensive car insurance and our commitment not to increase VAT, national insurance or income tax? Overall, will not these policies benefit householders and families?

[Harriett Baldwin]

My hon. Friend is right to point out the overall context; this measure should not be seen in isolation. The cost to businesses was mentioned earlier. I am sure that Members will welcome the fact that, according to the British Insurance Brokers’ Association, the overall cost of insuring a commercial vehicle has fallen by more than 13% in the past 12 months alone.

I hope that I have answered hon. Members’ questions, particularly those about young drivers and household flood insurance. In particular, I want to support the points my hon. Friend the Member for Croydon South made about personal injury claims management.

In drawing my remarks to a close, I must stress that most households will see very little impact from the increase in the standard rate of insurance premium tax. It will remain at a low rate compared with many other countries and will certainly not make the UK a less attractive place to do business. I therefore ask that clause 43 stand part of the Bill and request that amendment 1, tabled by Opposition Members, be withdrawn.

[Barbara Keeley]

I do not propose to withdraw the amendment. The reason for it is the lack of a full analysis of where the impact of the increase will be felt and the groups that will be most affected. I have been quite disturbed by the complacent attitude of some Government Members, including the Minister. I have quoted many senior industry figures on the impact on their business and industry and the strength of their feelings about this tax, which they have called a stealth tax. I will quote some additional comments. Janet Connor, managing director of AA Insurance, said:

“That premiums have been falling seems to be the Chancellor’s justification for the tax increase but he is wrong. His timing couldn’t have been worse; not only are premiums starting to rise but the tax can only lead to even greater premium increases than could otherwise be expected over coming months.”

She continued:

“There is no justification for this underhand and unfair tax increase.”

I have quoted various insurance organisations, but the ABI said:

“UK drivers benefit from one of the most competitive motor insurance markets in the world. But with pressure on claims costs”,

which some Government Members have recognised,

“and an increase in insurance premium tax adding an additional £12.80 to the cost of the average policy…other factors are starting to put up costs.”

The key thing is that a range of factors are in play, despite our having had a successful couple of years, which has reduced premiums and rates. I hope Ministers will not continue to be complacent about the cost of premiums for young drivers and the danger of under-insurance or no insurance.

Graeme Trudgill, the executive director of the British Insurance Brokers Association, has said:

“Insurance has been seen as a special case in terms of taxation as it is a social good”.

Ministers seem to be ignoring the fact that it is a special case, in that it is a social good. We must take that into account.

--- Later in debate ---

[The Second Deputy Chairman of Ways and Means (Natascha Engel)]

With this it will be convenient to consider the following:

Clause 17 stand part.

That schedule 2 be the Second schedule to the Bill.

Amendment 3, in schedule 3, page 74, line 4, leave out “8%” and insert “the relevant percentage”.

This amendment would replace the 8% rate of surcharge in the Bill with a new rate to be set in regulations.

Amendment 4, page 74, line 7, at end insert—

‘(1A) For the purposes of subsection (1), the “relevant percentage” is a percentage of the company’s surcharge profits for the period, not exceeding 8%, which the Treasury shall specify in regulations; and such regulations may specify different percentages in respect of different levels of surcharge profits.

(1B) Regulations under subsection (1A)—

(a) shall be made by statutory instrument, and

(b) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.”.

This amendment would require the Treasury to set the level of the surcharge in regulations, and would allow for different tiers of surcharge. The regulations would be subject to approval by the House of Commons.

That schedule 3 be the Third schedule to the Bill.

New clause 1—Impact of changes to the bank levy rate and of the banking companies surcharge—

“(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the overall impact of the changes made by sections 16 and 17 of, and schedules 2 and 3 to, this Act, on:

(a) the structure of bank balance sheets;

(b) the long-term tax revenue from the banking sector; and

(c) competition and diversity within the banking sector.

(2) The Chancellor of the Exchequer must lay a copy of the review before both Houses of Parliament.”.

[Harriett Baldwin]

What a pleasure it is to serve under your Chairmanship this evening, Ms Engel.

Clauses 16 and 17 and schedules 2 and 3 make changes to the banking tax regime. They will ensure that banks continue to make a fair contribution to the economic recovery in a way that does not harm the UK as a global financial centre or affect banks’ ability to support the economic recovery.

It might be helpful if I set out the background to the Government’s approach to taxing the banking sector. In his first Budget in 2010, my right hon. Friend the Chancellor announced the introduction of the bank levy, an entirely new tax on banks’ balance sheets, equity and liabilities. The levy had two objectives. First, at a time when banking profits were low, it was designed to ensure that banks made a fair contribution to the taxman to reflect the risks that they pose to the UK economy —risks that were made very clear in the extraordinary events of 2008. Secondly, the levy was designed to complement the developing regulatory regime by providing incentives for banks to reduce the size of their balance sheets and support their activities with more stable forms of funding.

Measured against those objectives, the bank levy has undoubtedly been successful. It raised more than £8 billion across the last Parliament and is forecast to raise a further £17 billion by 2021. It has played a key role in increasing the stability of the UK banking sector, with banks now holding more capital against their assets and being less reliant on short-term risky funding. It has helped to satisfy the UK’s resolution financing obligations under the EU bank recovery and resolution directive, thus supporting the more orderly resolution of banks in crisis. Despite those successes, the Chancellor has been consistent about the need for balance in ensuring that banks pay a fair contribution, while ensuring that this supports the UK as a global financial centre and banks’ ability to support the wider economy.

The Government believe that, as the sector returns to profit, a change is required to maintain that balance. The reforms in the clauses achieve that over the coming Parliament and beyond. The first change is a gradual reduction of the bank levy. Clause 16 reduces the bank levy rate to 0.18% from 1 January 2016 and sets out further reductions to the main rate over the following five years, resulting in a rate of 0.1% from January 2021. The Government have committed to exclude non-UK subsidiaries from the bank levy charge from January 2021, a change we are committed to legislate for in this Parliament.

Clause 17 introduces a surcharge on banking sector profit from January 2016. That is a new 8% tax on the corporation tax profits of regulated banking entities within banking groups. It will apply to profits that exceed £25 million across a group, disregarding the losses that banks have carried forward from periods before the surcharge’s introduction. The first £25 million will benefit from the reductions in the main rate of corporation tax—from 20% today to 19% and then to 18%—included elsewhere in the Bill, giving the UK the lowest rate of corporation tax in the G20. It means that the overall rate of corporation tax will be slightly lower for banks than it was in 2010.

The OBR forecasts that the surcharge will raise £6.5 billion from the sector by 2021. That revenue more than offsets the cost of reductions to the bank levy rate. It means that banks will pay an additional £2 billion in tax over the period, increasing banks’ total additional contributions beyond £23 billion.

[Helen Goodman]

Like many hon. Members, I am sure the Minister has had many letters from small banks and the building societies about the fact that the surcharge will be imposed on them. The Building Societies Association says that it expects it will cost them £630 million over the lifetime of the Parliament, which would be sufficient to fund at least £4 billion in new mortgage lending. That means 15,000 or 20,000 new homes. The effect of including building societies is therefore to make it more difficult for 15,000 or 20,000 families to have a new home. Will the Minister consider whether that is a good idea?

[Harriett Baldwin]

I hope the hon. Lady recognises that the rate paid by building societies and smaller banks will be lower than it was at any time when she and the Labour party were in government. In fact, the measure brings the corporation tax rate to a level lower than when the Conservatives took power in 2010. In addition, 90% of building societies will be exempt from the charge because the first £25 million is exempt from the surcharge.

At the same time, we believe that the changes in clauses 16 and 17 will create a fairer, more competitive and more sustainable basis for taxing the UK banking sector. By rebalancing banks’ contributions towards a tax on profits, future charges will be more aligned with profit and capital accumulation. That reduces the risk of tax affecting banks’ decisions on where to invest and helps to ensure that tax does not impact banks’ ability to lend to businesses and individuals.

By aligning banks’ contributions with their activities in the UK, the changes recognise and reduce the impact of tax on UK banks’ ability to compete in overseas markets. They help to reflect the impact of regulatory reforms, which have reduced the risk of those overseas operations to the UK economy.

I shall draw my brief remarks to a close. The Government firmly believe that banks should make a fair contribution to the economic recovery. However, that contribution must be balanced with the need to maintain the competitiveness of the UK and to support lending to the wider economy. The changes in the clauses provide a better balance between those two objectives, and do so while providing long-term certainty and stability to the sector, and short-term revenue to the taxman. I therefore hope that clauses 16 and 17 and schedules 2 and 3 stand part of the Bill.

[Alison McGovern]

I, too, will make some brief remarks. I rise to speak to the Opposition’s new clause 1, which relates to clauses 16 and 17, concerning the Government’s changes to the bank levy rate for 2016 to 2021 and the introduction of a new surcharge of 8% on bank profits.

Before I begin my remarks and before I forget to ask the Minister, Members will be aware that the changes the Government are introducing are quite controversial in some quarters. Building societies have been expressing deep concern. However, I think I just heard the Minister say that 90% of building societies will not be affected by the changes because of the threshold. Will the Minister tell me, either in her remarks later or in an intervention now, whether she means 90% by number of institutions or 90% by size of building societies in total? The statistic does not reflect the concern that building societies have expressed in recent weeks. I will await her answer whenever she sees fit to give it to me.

Taken together, the clauses will completely reshape the structure of bank taxation in the UK, as the Government move from a tax on bank balance sheets towards a tax on bank profits. Alongside the impact on the banking sector itself, the clauses also have significant implications on tax receipts for the Exchequer. It is our belief that the changes have the potential to damage the competitiveness and diversity of our banking sector. New clause 1 calls for an urgent review to establish the impact of the new measures. Before coming on to the detail of new clause 1, I will briefly examine the case for a reduction in the bank levy in more detail.

When the bank levy was introduced at the start of the previous Parliament, the Chancellor made it very clear there were two separate objectives behind the policy. First, it was designed as a revenue raiser, with the Chancellor targeting an income of £2.5 billion each year from receipts of the levy. The second objective was to cause banks to change the structure of their balance sheets. This was explained by the then Exchequer Secretary, the hon. Member for South West Hertfordshire (Mr Gauke), who said the levy was

“intended to encourage banks to move to less risky funding profiles, and…reflective of economic risk”.—[Official Report, 12 July 2010; Vol. 513, c. 733.]

He went on to dismiss the idea of a tax on bank profits, as it would not create the same kind of behavioural effects as the levy.

In and of themselves, either of those goals was perfectly reasonable and was supported across the House. However, it quickly became obvious that the two goals were incoherent in practice, because as banks changed their balance sheets the revenue from the levy went down. This caused the Government to raise the levy again and again, with a total of nine rises in just five years. Now, having marched the banks to the top of the hill, the Chancellor plans to march them back all the way down again with cuts to the levy every year, finishing with a rate of 0.1% by the end of the Parliament. After 10 years of this Chancellor, we will have had a total of 13 different bank levy rates—what a mess.

The Chancellor claimed in his Budget statement that the bank levy needs to be reduced because the levy has worked. That is an interesting theory given that the revenue target, one of his policy objectives, has been missed consistently. The main question for the Minister is this: if the Government believed that increasing the bank levy had a positive behavioural effect on the banks, does the Minister believe that reducing the level will have a similar effect in the opposite direction? I thought I understood the Minister to say that she did believe there would be some behavioural effects of the change. Perhaps she might say a bit more about that.

The OBR’s economic and fiscal outlook shows that the future revenue projections are based on the assumption that banks will continue to reduce their balance sheets. Will the Minister explain, for the purposes of clarity, on what basis that assumption has been made? If anything, the new policy framework seems to be incentivising banks to grow their balance sheets, especially outside the UK—that seemed to be what the Minister indicated just now in terms of competitiveness outside the UK—and to reduce their profits. Why is this the incentive structure the Government want to adopt? It is completely at odds with the stated policy objectives of the past five years and bears little relation to wider economic objects. Are the Government not breaking their principle that banks should be taxed according to the economic risk they pose to the economy, as the Minister mentioned?

--- Later in debate ---

[George Kerevan (East Lothian) (SNP)]

I will be brief, Mr Howarth. I just wanted to respond to some of the points made by my colleague the hon. Member for Wyre Forest (Mark Garnier). Nobody from my side of the House disputes that the bank levy was in need of reform. Indeed, he made it sound far too well organised and manufactured; it was ad hoc, arbitrary and unpredictable, and it definitely needed to be replaced by something more predictable. Therefore, we are in no way rejecting the notion of moving to a surcharge on profits, which could be an effective way of raising the funds from the banks and, in a sense, of surcharging them for the social service that we provide through the Treasury in protecting them.

I do not go as far as the hon. Gentleman in relation to what I would describe as the gentle blackmail from HSBC and Standard Chartered Bank. If anyone looks at the turmoil in the Asian markets and in China at the moment, they will not think that it was a good moment for a bank to shift their headquarters from London to Hong Kong.

Let us accept that there will be a change. Our view is that we need a mechanism that allows the Treasury to use statutory instruments to vary the rate and the application of the surcharge as it evolves and as we learn whether it is impacting adversely on some banks, building societies and mutuals. That is all we are saying. We are trying to find common ground with the Chancellor. We are moving in the same direction, but the Government are rushing the application. They are making it too uniform and are choosing arbitrarily a rate of surcharge that is simply designed to reproduce the current level of tax yield. That is a bad way of approaching how we manage the surcharge on the banks.

I suppose the essence of the argument—this is really where I want to go—is that there are differences between the challenger banks and the larger banks. Those differences are not just based on their level of profit. It is quite clear that it is proportionately more expensive for the smaller banks to provide the capital to support the credit risk in their loans once it is weighted against their risky assets. We know that from the work that has been done by the Competition and Markets Authority, and I would prefer to take its view rather than the special pleading from the banks—even the special pleading from the challenger banks.

The Competition and Markets Authority has looked at the expense to the different scale of banks in providing the capital to support their credit risk. It has come up with figures that say that on a typical £100,000 loan to a small business, a challenger bank, or a bank of that scale, has to put aside roughly £8,000 per £100,000 loan, compared with about £6,000 from one of the very large banks. The mathematical reason for that is quite simple; it is not rocket science. The smaller bank with the smaller balance sheet is carrying proportionately more systemic risk on each loan. When a small bank loses a customer or has a non-performing loan, it is quite costly to it given the scale of its balance sheet. Therefore, when we start doing the risk-weighted analysis, it will have to put more capital by; it will cost it more. It is economies of scale. Big banks have economies of scale. A specific non-performing loan to a small business is a relatively small risk to the larger bank, so the cost to it will be small. It follows on from the matters of big and small economies of scale. Nevertheless, they act as a barrier to the smaller banks being able to grow.

If we impose a uniform profits surcharge on all the banks, there is a higher real burden on the smaller banks. I would like the Treasury to take that into account as we move along, and have the powers to be able swiftly to shift the rates. I was trying not to be prescriptive in laying down how we would set different levels for different kinds of banks; I wanted a system to evolve. I want the Treasury to have the powers to do that so that if it does prove to be more costly for the challenger banks and to be taking more from their profits and their ability to raise capital, we might think about different kinds of banding, and that would be up to the Treasury to consider. We are simply saying that the smaller banks have different cost structures and therefore different risk elements, which means that imposing a single levy on profits across all the banks, big and small, is a bit too arbitrary and a bit too ad hoc. In other words, it brings us back to the sort of problems that we had with the original bank levy.

[Harriett Baldwin]

It has been a great pleasure to have my Opposition shadow, the hon. Member for Wirral South (Alison McGovern), in the Chamber today making the points that she has. I sincerely hope that next week she will continue to be my Opposition shadow, because it is clear that she takes her role very seriously. I know that she supported the hon. Member for Leicester South when it came to nominating the leader of her party, so I hope that her point of view prevails when it comes to the announcement on Saturday.

[Alison McGovern]

I thank the Minister for giving way. First, I supported my hon. Friend the Member for Leicester West (Liz Kendall). Secondly, I thought I liked the Minister.

--- Later in debate ---

[Harriett Baldwin]

You are quite right, Mr Howarth. What I wanted to say was that one would not believe from the remarks that the hon. Member for Wirral South made at the beginning of the debate that the banking system had fallen into massive failure, meaning that this Chancellor had to take steps in 2010 to sort out the country’s banking system and the deficit. Listening to the hon. Lady this evening, one would have thought that banks were then paying less tax than they are today but in fact, after the changes in clauses 16 and 17, the banking sector will pay the lowest rate of bank tax in the G7.

One would also not believe from the remarks we heard at the beginning of the debate that over the 13 years for which the hon. Lady’s party was in power there was no increase in competition in banking. There were more than 20 inquiries into banking competitiveness, but they were obviously unsuccessful. The hon. Lady asked a number of questions, and although I do not want to detain the House for long with this entertaining discussion I want to respond to some of the points raised in the debate.

I was asked a couple of times about building societies, and I said that 90% of building societies would be unaffected by these changes. Obviously, the vast majority of building societies do not make a profit of more than £25 million a year, so the sector will benefit from the reduction in corporation tax over the life of this Parliament down to 18% by 2020.

[Alison McGovern]

I asked the Minister specifically what that 90% meant— 90% by number, or by size?

[Harriett Baldwin]

Absolutely, and it is 90% of all building societies. Clearly, a handful of building societies are big enough to be able to pay the additional levy contained in these clauses and, even after the surcharge, they will still be paying a lower rate of corporation tax than they were paying under the previous Labour Government. With the hon. Lady’s conversion to lower taxes, she should be welcoming and celebrating the fact that the Budget announces these long-term changes.

The hon. Lady also asked whether the numbers in the Red Book take into account the corporation tax changes, and indeed they do. She asked about revenues after 2020-21 and I am delighted that she recognises that it will be the Conservative party that will be making those decisions after the next general election. She asked about the Ernst and Young forecast in today’s papers, and even she got the giggles when she raised the forecast, which is really quite laughable. It takes into account only one side of the equation in terms of the potential rise in the take from bank corporation tax.

The hon. Lady asked about competition, and I have mentioned the competition track record of her party when in power, but it is helpful to be able to talk about the range of things my party did in the last Parliament to improve bank competition. It is a strong focus of this Government. I am glad that the SNP spokesman, the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), mentioned the ambition to have 15 new banks receive a banking licence. I understand that there are a large number in the pipeline. Indeed, one new bank has already got its licence this year.

--- Later in debate ---

[Alison McGovern]

I know that the Minister is trying to rattle through this quickly, but I have a question. We can all trade previous Governments’ records—I could draw attention to the impact on mutuals and building societies generally in 1986—but let us talk about the future. Clearly these changes will have an impact on building societies, which offer consumers a unique proposition because of their structure. Will she commit this evening to ensuring that the changes she is making will not harm the mutual banking sector?

[Harriett Baldwin]

Again, I am surprised that the hon. Lady seems to want me to keep mentioning the rate of corporation tax, because it is now lower for building societies than it was when her party was in power—it seems an extraordinary line of attack. Yes, a handful of building societies are large enough to pay the surcharge, but 90% of them—by number—will not only be unaffected by the change, but will benefit. Capital formation and the ability to retain earnings within the mutuals will improve as a result of the corporation tax reductions that we are introducing, which she opposed in the manifesto she stood on at the general election.

In conclusion—I will be quick, because I know that the Committee wants to express an opinion—I commend clauses 16 and 17 and schedules 2 and 3 to the Committee, and I respectfully request that the hon. Members for Wirral South and for Kirkcaldy and Cowdenbeath do not to press amendments 3 and 4 and new clause 1.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.

Schedule 2 agreed to.

Schedule 3

Banking companies: surcharge

Amendment proposed: 3, page 74, line 4, leave out “8%” and insert “the relevant percentage”.—(Roger Mullin.)

Question put, That the amendment be made.

UK Asset Resolution: Consumer Credit Act

Harriett Baldwin Excerpts

Tuesday 8th September 2015 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I can today update the House following previous statements on 11 December 2012, Official Report, columns 20-21WS, and 11 December 2014, Official Report, columns 52-53WS, on the Consumer Credit Act (CCA) litigation case undertaken by NRAM plc (formerly Northern Rock (Asset Management) plc). I can now confirm that following the High Court judgment in December 2014 and the subsequent decision taken by the boards of UK Asset Resolution (UKAR), the NRAM holding company, and UK Financial Investments (UKFI), to pursue an appeal, the Court of Appeal overturned the High Court judgment in July 2015 and found in favour of NRAM. The Court of Appeal confirmed that customers who took out unsecured loans of more than £25,000 under agreements that incorrectly stated these loans were regulated under the CCA are not entitled to the same rights and remedies as those customers who took out loans that were regulated under the CCA. The UKAR statement is available at: http://www.ukar.co.uk/media-centre/press-releases/2015/23-07-2015?page=1

UKAR had estimated the cost if it had to remediate affected customers to be £279 million plus any future interest accruing on these accounts before remediation is made. A provision for this amount was included in the Treasury group accounts and following the Court of Appeal judgment this provision has been removed.

[HCWS180]