Counter-terrorist Asset Freezing Regime: April-June 2019
John Glen Excerpts(4 years, 8 months ago)
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The Economic Secretary to the Treasury (John Glen)
Under the Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010), the Treasury is required to prepare a quarterly report regarding its exercise of the powers conferred on it by part 1 of TAFA 2010. This written statement satisfies that requirement for the period 1 April 2019 to 30 June 2019.
This report also covers the UK’s implementation of the UN’s ISIL (Daesh) and al-Qaeda asset-freezing regime (ISIL-AQ), and the operation of the EU’s asset-freezing regime under EU regulation (EC) 2580/2001 concerning external terrorist threats to the EU (also referred to as the CP 931 regime).
Under the ISIL-AQ asset-freezing regime, the UN has responsibility for designations and the Treasury, through the office of financial sanctions implementation (OFSI), has responsibility for licensing and compliance with the regime in the UK under the ISIL (Daesh) and al-Qaeda (Asset-Freezing) Regulations 2011.
Under EU regulation 2580/2001, the EU has responsibility for designations and OFSI has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.
EU regulation (2016/1686) was implemented on 22 September 2016. This permits the EU to make autonomous al-Qaeda and ISIL (Daesh) listings.
The annexed tables set out the key asset-freezing activity in the UK during the quarter.
The attachment can be viewed online at: http://www. parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2019-09-04/HCWS1814/.
[HCWS1814]
Senior Managers and Certification Scheme: Extension to Financial Conduct
John Glen Excerpts(4 years, 9 months ago)
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The Economic Secretary to the Treasury (John Glen)
Today the Bank of England and Financial Services Act 2016 (Commencement No. 6 and Transitional Provisions) Regulations 2019 (SI 2019/1136 C. 35) are published.
In my Written Ministerial Statement of 3 July 2018 [HCWS823] I announced that the senior managers and certification regime would come into force for financial services firms regulated by the Financial Conduct Authority only—also known as solo-regulated firms—from 9 December 2019.I would like to update the House that, in these regulations, there will be two exceptions to the commencement date, for newer categories of solo regulated firms.
The first are benchmark administrators. This is a new category of authorised firm introduced by the EU benchmark regulation, which came into force on January 1 2018. The benchmark regulations included a transitional period such that these firms have until the end of 2019 to become FCA authorised. The SM&CR will commence for benchmark administrators on 7 December 2020 to allow the FCA to carry out a dedicated consultation for benchmark administrators before making final rules for the sector.
The second are claims management companies (CMCs). The Government have already legislated to bring CMCs within the FCA’s regulation, and applications for authorisation are currently being considered by the FCA. Firms awaiting full authorisation, but previously regulated by the Ministry of Justice will have temporary permission to operate. Not all CMCs will have gained full authorisation by December 9 this year, so the commencement regulations confirm that the SM&CR begins for these firms on December 9 this year, or at the date at which they receive full authorisation if this is later.
[HCWS1743]
Precious Metal Markets
John Glen Excerpts(4 years, 9 months ago)
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The Economic Secretary to the Treasury (John Glen)
I thank my hon. Friend the Member for Stafford (Jeremy Lefroy) for raising a set of complex but important issues with the rigour and grasp of detail in his analysis that has characterised virtually every speech that I have heard him make in his nine years in the House. I listened carefully to what he said and I am grateful for our earlier conversation, which helped me in preparing what I hope is an appropriate response to the points that he has raised. Although I cannot comment on individual cases, I would also like to express my sympathies for the constituent whose experience he referred to.
The precious metals market is an important part of our economy, as my hon. Friend said, and London is one of the most important gold trading centres in the world. They and markets like them have a real impact on individuals, households and businesses, which includes his constituent. Those markets underpin borrowing costs, exchange rates and the cost of food and raw materials, and they help firms and households to manage financial risks and investments. A well-functioning derivative market fulfils a vital role in that process.
Jeremy Lefroy
One point that I should have mentioned but did not is that precious metals, probably with the exception of gold, have many other uses—silver in antimicrobial products and platinum and palladium in exhaust pipes and reducing emissions—so they are extremely important, both as a store of value and in having real practical uses.
John Glen
My hon. Friend is absolutely right and draws attention to the ever-expanding functional use of these metals in ever more sophisticated ways.
Precious metals allow businesses around the world to hedge their risks by reducing uncertainty about future prices. For example, a mining company can agree a price today for the gold that it will extract in the next year, safeguarding itself against potential future price movements and providing certainty over its income. Attempted market manipulation, such as the type that occurred in the US, undermines integrity, reduces public confidence and impairs the effectiveness of the financial markets. We take this extremely seriously, and it is therefore vital that we do everything in our power to detect and prevent such abuse.
Additionally, gold plays an important role in nations’ reserve policy. The Treasury’s role is to ensure that its choice for the strategic composition for the benchmark asset allocation of the reserves, including gold, meets the policy objectives of the exchange equalisation account.
My hon. Friend raised several important questions, which I will attempt to answer. I want to refer first to the significant volumes of derivatives and his question about the potential risk for financial systems. Derivatives are an important risk management tool and are used to hedge positions in underlying assets against adverse movements. They allow financial institutions to identify, isolate and manage separately the market risks in financial instruments and commodities. It is internationally recognised in forums such as the G20 that derivatives need sound risk management. Global financial regulators work to ensure that the derivatives market has robust oversight, monitoring, reporting and controls. In the EU, the legislative framework, which includes the market abuse regulation and the markets in financial instruments directive, does this.
The market abuse regulation, or MAR, provides the Financial Conduct Authority, as the relevant national competent authority, with the powers it needs to detect and prevent financial market abuses, such as insider dealing, unlawful disclosure of inside information and market manipulation. The regulation has been regularly revised and updated, most recently three years ago in 2016. MAR covers all financial instruments traded on regulated markets, multilateral trading facilities and organised trading facilities in the EU. It also covers financial instruments not traded on such markets, where the instrument’s price or value is dependent on the price of a financial instrument traded on a regulated market, multilateral trading facility or organised trading facility. Included in this scope are exchange-traded commodity derivatives. This means that gold futures, for example, are in scope of MAR.
MAR imposes stringent requirements on UK trading venues and firms, which have a duty to detect and report market manipulation. Trading venues and firms are required to establish and maintain effective arrangements, systems and procedures to prevent and detect all types of market manipulation.
John Glen
These arrangements must allow for the analysis of each and every transaction executed, and order placed, modified, cancelled or rejected. UK trading venues are also obliged to report to the FCA, immediately upon detection, all orders and transactions, including any cancellations or modifications, that could constitute market manipulation, attempted market manipulation or any other type of market abuse.
Jeremy Lefroy
Is my hon. Friend able to confirm whether there has been any indication, not necessarily just in precious metal markets, of this nefarious practice of spoofing within markets in the UK?
John Glen
I am just coming on to that, and I will make reference to some of the observations that have been made.
We are confident under MAR that where market abuse behaviour relates to exchange-traded commodity derivatives, as in the J.P. Morgan case, we have robust transparency systems and controls in place. Furthermore, in terms of enforcement, there have been examples in similar markets where traders have been caught attempting a similar type of market manipulation. For example, in 2013 a trader was fined almost £600,000 by the FCA for the manipulation of exchange-traded oil and gas futures.
The recent J.P. Morgan manipulation case in the US involved activity on a US-regulated exchange. The FCA’s regulatory scope obviously does not extend to oversight and enforcement in the US market. The FCA’s remit covers instruments traded on UK markets. The US authorities, therefore, have a remit over this behaviour, and it is in their competence to act against it on behalf of consumers.
On the manipulation of bullion markets, it is important to distinguish between the underlying market for commodities and the market manipulation of exchange-traded commodity derivatives. With regard to the former, precious metals are global commodities, where price is determined by the forces of demand and supply.
It should be noted that the Government have already taken action to ensure that specific commodity benchmarks for price setting are in scope of the market abuse regime. The London Bullion Market Association gold price and silver price—the global benchmark prices for unallocated gold and silver delivered in London—are within scope of the UK’s domestic benchmarks regime, which is the world’s first framework for regulating benchmarks. This means the administrators of those benchmarks, and those firms submitting to them, became subject to FCA authorisation and regulation. Manipulating the benchmarks is a criminal offence. The benchmarks are also regulated under the EU benchmarks regulation, which will supersede the UK regime when it comes fully into force in 2020.
My hon. Friend raised the potential risk of “paper gold” contracts, which are designed to reflect the market price of gold. Investors may use the contracts for hedging or speculative purposes, and without any overall intention to receive or deliver the physical asset. For example, a customer may have a claim on a bullion bank account provider for an amount of gold without physically possessing it.
This type of activity, relating to unallocated gold, does not guarantee an equal exchange for metal. Therefore, the risk that delivery is not met as part of the contracts should not undermine the overall market, given that this delivery is not guaranteed and the risk is priced into the instrument.
The Government commissioned the “Fair and Effective Markets” review in 2014 to restore trust in fixed income, currency and commodities markets. This review made several recommendations for the commodities markets, including the benchmark reforms I spoke of earlier. The review also established the FICC Markets Standards Board—the FMSB—an industry body to improve standards in wholesale fixed income, currency and commodities markets. The FMSB has already produced several industry-led standards and statements of good practices that have seen widespread adoption. The FMSB also supported work by the London Bullion Market Association to develop and issue the global precious metals code in May 2017. The code applies to the LBMA’s members’ dealings in the bullion market. It sets out the standards and best practice expected from market participants in the global wholesale precious metals market. It covers a wide range of topics, such as conduct, information to clients and the avoidance of market abuse. The code applies to LBMA members, who must publicly attest their compliance with it.
To conclude, I am confident that the robust regulatory framework in place in our country provides the FCA with the right tools in its regulatory perimeter to detect and respond to these attempts and ensure that the market works in a way that is fair and effective for all who wish to participate. I thank my hon. Friend for raising these important issues in the manner that he has. I trust that this response gives him considerable confidence in the sophistication of the regulatory regime that we have in place. There is never room for complacency in these matters. I acknowledge the concerns he has raised and I will take them on board as we look to the future.
Mr Speaker
Thank you. The Minister does speak in a most learned fashion on these important matters, responding in kind to the hon. Member for Stafford (Jeremy Lefroy), both of whom have benefited from tutorials from those who are in a position to proffer advice, from a Department renowned for its intellectual cream.
Question put and agreed to.
Oral Answers to Questions
John Glen Excerpts(4 years, 10 months ago)
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Kirstene Hair (Angus) (Con)
The Economic Secretary to the Treasury (John Glen)
I welcome the benefits that electronic payments are bringing to people and businesses across the UK. However, the Government recognise the importance of cash to many, particularly the most vulnerable members of society. That is why we have committed to safeguarding access to cash for those who need it. In the light of changing payment trends, the Government have created the Joint Authorities Cash Strategy Group. That Treasury-led group will seek to bring together the regulators and the Bank of England to inform and co-ordinate members’ activities related to cash and safeguard access for those who need it.
Kirstene Hair
I recently sent a survey about access to cash to thousands of my constituents. There was an overwhelming response, because they are terrified that we are going far too fast into a cashless society. The next time the Minister meets banks, will he raise with them the impact that rural banking hubs could have on our local communities, just as the pilot business hub has had in Birmingham?
John Glen
I recognise my hon. Friend’s excellent campaigning on this matter, which we have had meetings to discuss. The Government have no direct role in the matter, but we recognise the role that banking hubs have played for businesses across six trial sites. We are looking at that carefully, and I will be very happy to raise it with the banks when I meet them next.
Melanie Onn (Great Grimsby) (Lab)
Will the Government commit to working with cash machine suppliers to ensure that cash withdrawals remain free across the board? Charges disproportionately affect those on lower incomes, who make smaller cash withdrawals.
John Glen
Absolutely. We are looking into that. The Payment Systems Regulator, which was set up four years ago, is responsible for overseeing LINK. It has two schemes in place to safeguard access to cash in the most impoverished communities and to ensure that, when an ATM is vulnerable to closure, there is a responsibility to keep it open if constituents would have to go more than 1 km to access cash.
Peter Aldous (Waveney) (Con)
John Glen
I acknowledge the difficult situation that my hon. Friend has in Bungay. The Government-established Payment Systems Regulator is closely monitoring developments in ATM provision and, as I said, there are mechanisms in place to intervene. I am very happy to meet him to discuss the application of those to the situation in Bungay.
Gareth Thomas (Harrow West) (Lab/Co-op)
Given that post offices and credit unions provide easy access to cash, is it not now time to offer business rates relief to both to enhance the provision of cash and other affordable financial services?
Toby Perkins (Chesterfield) (Lab)
The Economic Secretary to the Treasury (John Glen)
While branch closures are commercial decisions for banks, I regularly engage with all key stakeholders on this issue and I recognise that it can be very difficult for some constituents, particularly if a branch is the last one in a community. The major banks have signed up to the access to banking standard, overseen by the Lending Standards Board, and that commits them to work with communities to minimise the impact of branch closures.
Toby Perkins
When the Government bailed out the banks, it was partly in recognition of the fact that banks were public services as well as profit-making businesses. I am disturbed—as will be the people of Staveley—by the Minister’s hands-off approach. Do not the Government either need to sit down with the banks and ensure they have a real commitment to having a bank branch in towns such as Staveley or adopt Labour’s proposal for a post bank so that we can have some Government control to make sure we have services where they are desperately needed?
John Glen
I have looked into the situation in Staveley and it will be served by a mobile bank following the closure. The post office, where a 24-hour ATM is available, is just a six-minute walk from Lloyds. The number of people visiting the counter at Lloyds bank in Staveley fell by 22% in the last year, so it is understandable why Lloyds has made that decision. The Government’s investment in the Post Office and its banking services facility is our solution.
Stephen Crabb (Preseli Pembrokeshire) (Con)
The Minister should make no mistake: communities up and down Britain are being deliberately starved of cash and banking services as the banks, with the support of Government, are trying to create a near cashless society. Can he say a bit more about what he is doing to help the more than 1 million poorer people who do not have access to a bank account?
John Glen
I recognise the difficulty and I am happy to meet my right hon. Friend to discuss the issues in his constituency. We have invested considerably in the post office network and I am meeting the Lending Standards Board to look at the mechanism for transfer to the Post Office and to consider solutions on a case-by-case basis.
Tom Brake (Carshalton and Wallington) (LD)
Julian Sturdy (York Outer) (Con)
The Economic Secretary to the Treasury (John Glen)
Borrowers who believe that they have been mis-sold a shared appreciation mortgage are able to take their complaint to the Financial Ombudsman Service. The Government are unable to comment on group action cases relating to this issue as we have no role in deciding whether cases may be heard in court. I note that the annual review of the Financial Ombudsman Service in 2003-04 said that in most cases it had not upheld complaints of shared appreciation mortgage mis-selling due to the information being satisfactory. That is the situation at the moment.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Eddie Hughes (Walsall North) (Con)
It has been a while since I asked the Chancellor about the blockchain and distributed ledger technology, so I was hoping that he could present an update on how the Treasury is embracing this new technology.
John Glen
I thank my hon. Friend for his question. The UK’s digital economy is thriving and is growing 10 times as fast as the wider economy. We are pursuing a range of measures to reinforce that leading position, and that involves implementing a 10-year action plan to unlock over £20 billion in finance growth in innovative firms and a further £7 billion for research and development since 2016, with internationally competitive research and development tax reliefs to support investment.
Diana Johnson (Kingston upon Hull North) (Lab)
As my right hon. Friend the shadow Chancellor has just pointed out, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) has made £30 billion-worth of spending pledges and the right hon. Member for South West Surrey (Mr Hunt) has made £13 billion-worth of pledges. The Chancellor has said it will not happen on his watch, but that seems to suggest that a magic money tree has been found in the barren soil of the no deal for which we seem to be heading.
I want to ask the Chancellor about the pledges announced by the current Prime Minister in the past few weeks, which unfortunately have not included any compensation for the infected blood community. How have the Chancellor and the Treasury prioritised and costed those announcements?
Co-operative and Mutual Businesses
John Glen Excerpts(4 years, 10 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a privilege to respond to this debate today on behalf of the Government. I would like to thank the hon. Member for Harrow West (Gareth Thomas) and my hon. Friend the Member for Wycombe (Mr Baker) for securing the debate, and the 11 Back-Bench Members who have spoken this afternoon about the enormous positive contributions that co-operatives and mutuals make to our economy and society.
I start by paying particular tribute to the hon. Member for Harrow West for his nearly two decades of leadership of the all-party parliamentary group for mutuals. In my rather more modest tenure of not even 18 months as Economic Secretary to the Treasury, he has lobbied effectively and constructively on these matters, and I will respond to the points he and other hon. Members have made in the course of this debate. I would also like to congratulate the hon. Member for Redcar (Anna Turley) on her recent election as Co-operative party chair and thank her for her contribution today.
The House has heard some impressive figures on the economic contribution made by co-operative and mutual organisations in this country and more widely across the globe. I would like to acknowledge the experience of my hon. Friend the Member for Stafford (Jeremy Lefroy), who brings great insights through his work in this country and also in Tanzania. That came over strongly in his thoughtful contribution and his suggestions.
Jeremy Lefroy
I thank the Minister for all the work that he does. Another major co-operative that is important to my farmers is an overseas-based one called Arla. It is based in Denmark, but it is a co-operative that works across borders for the benefit of all farmers—in Britain, Denmark or wherever else.
John Glen
Once again, my hon. Friend makes his knowledge clear. We should be looking to replicate the principles behind that model and to examine how we can extend it.
The all-party parliamentary group for mutuals found that mutuals generate over £130 billion of income each year but, of course, the contribution they make is about so much more than the raw numbers. Crucially, the House has also heard about the positive difference that such organisations make to people’s lives across the UK. I have been fortunate in my time as Economic Secretary to witness their impact at first hand. Last year, I visited 1st Class Credit Union in Glasgow, where I saw the effect of its work to help its members save and borrow responsibly. In my constituency, I am delighted to see my local co-operative, Chalke Valley Stores, flourishing as a community hub, providing a shop, café and post office to local people who might otherwise be underserved in this rural location. Various Members made the point about the welcome opportunities that exist, given the changes on the high street.
From fishing and school meals provision in Plymouth to funeral savings in Stoke, we have heard a large number of relevant examples this afternoon. Whether it is a young family able to buy their first home thanks to a mortgage from their local building society, a community that comes together to keep their local pub or lido running, or an individual able to pay off their debts and start building up savings with the support of their community credit union, mutuals and co-operatives bring choice and agility to our financial system and economy, ensuring that it can meet the varied needs of society.
As we have heard, mutuals are diverse organisations, found in almost every sector of the economy, meaning that the opportunities and challenges can be different. Let me first talk about building societies. Earlier this year, I was pleased to attend a reception to mark the 150th anniversary of the Building Societies Association, which has been the keeper of the flame for the building society movement since 1869. Building societies have been around since almost a century before that, with largely the same core purpose as they have now: helping people to buy their own homes. Building societies provide almost a quarter of UK retail mortgages, including one in three of new mortgages approved in the last quarter.
Although the core purpose remains unchanged, building societies have not stood still. Modern branches offer video mortgage advice and banking on iPads. They are also driving some of the most interesting innovations in the mortgage market. For example, the Saffron Building Society has launched a guarantor mortgage, while Marsden is the latest building society to offer a joint borrower, sole proprietor mortgage. Those two schemes take into account the financial circumstances of family members in order to give first-time buyers a leg up on the property ladder. Meanwhile, the Ecology Building Society offers green mortgages for self-build properties and discounted borrowing for home improvements, which is another great example of how the mortgage market can respond to the needs of society and of the generations to come.
As for retirement lending, it is hugely encouraging to see regional building societies, such as those in Leeds, Nottingham and Loughborough, offering retirement interest-only mortgages.
Mr Sheerman
I was a chairing a Committee in another part of the House, so I was out of the Chamber for a little while, but I came back for the winding-up speeches. I think it would be a shame if Nationwide was not mentioned today, and Liverpool Victoria or LV=, which has an office in my constituency, is a great insurance mutual. We have talked a lot about little co-ops, but big co-ops are important, too.
John Glen
As ever, the hon. Gentleman has anticipated my future remarks. I have met representatives from those institutions on several occasions recently.
The examples given today show that regulation and innovation are not mutually exclusive, and that building societies are able to adapt to serve the changing needs in our society. Members have highlighted the need for a proportional regulatory approach, so that building societies can effectively compete with the big banks. The Government are committed to ensuring that capital requirements are implemented proportionately in order to support smaller lenders, such as building societies. The recent updates to the Basel international standards are a clear positive step towards more proportional capital requirements.
The Government have a clear commitment to implementing those standards and refining capital requirements in the UK. That is demonstrated by the inclusion of the capital requirements regulation II in the Financial Services (Implementation of Legislation) Bill. Where we identify other barriers holding building societies back, we have acted to remove them. For example, one of the first pieces of legislation that I brought forward as Economic Secretary was to enable building societies to join central clearing houses.
I know how vital credit unions are for the people and communities they serve, and I am pleased to see the strength of support across the House today. Building up savings with a credit union, or having the opportunity to take out a reasonably priced loan, is one way that we can prevent people from having to turn to high-cost credit or loan sharks. The Government have acted to support credit unions by legislating to increase the common bond from 2 million to 3 million potential members and raising the cap on the interest rate credit unions can charge from 2% to 3%.
The hon. Member for Harrow West asked about insurance mediation and the provision of hire purchase, and my hon. Friend the Member for Stafford referred to the impact of regulation on credit unions. ABCUL, the largest credit union trade body, is currently carrying out a sector-wide consultation on the future of credit unions and will complete its work in September. The consultation will consider the legislative framework and opportunities for further change. I will consider the outcome of that consultation with interest. I visited ABCUL’s conference in March and have had an active dialogue with the organisation while in office. The co-ordination of its requests has been somewhat fragmented over multiple trade organisations, but it has been helpful in conducting the consultation, and I look forward to taking things forward.
In last year’s Budget, we announced an affordable credit package to support social and community lenders. The package included a £2 million affordable credit challenge fund designed to generate innovative FinTech solutions to address challenges faced by social and community lenders, including credit unions, as they try to match the broader innovations in financial services. It also included a measure to make it easier for registered social landlords to refer tenants to credit unions, and a two-year pilot of a new prize-linked savings scheme offered through credit unions. The package is designed to support the credit union sector through increased membership, awareness and deposits, as well as encouraging participants to build up savings to help them cope with financial shocks. We used examples from other jurisdictions —the US in this case—to inform that policy.
I am pleased to announce today that we have selected 15 credit unions from across Great Britain to take part in the prize-linked savings pilot. They are East Sussex, Lewisham Plus, London Capital, Clockwise in Leicester, Nottingham, 1st Alliance, Merthyr Tydfil Borough, Riverside in Liverpool, South Manchester, Central Liverpool, Bradford District, Westcountry in Portishead, Commsave, Police, and Plane Savers. I congratulate the successful credit unions and look forward to seeing the pilot up and running as quickly as possible.
Jim Shannon
I am sure that I must have missed it—I hope I have—but did the Minister mention whether Northern Ireland is in the pilot scheme?
John Glen
I did not mention Northern Ireland in that list, but Northern Ireland obviously has a strong tradition in this area. There was a competitive process, and I would be happy to talk to the hon. Gentleman about a specific credit union.
Members from across the House have spoken of the benefits of the co-operative model and its potential to improve our public services and strengthen our communities. This Government have a strong track record of support for co-operatives. We passed the Co-operative and Community Benefit Societies Act 2014 to reduce legal complexity for co-operative and community benefit societies. My hon. Friend the Member for Wycombe spoke about the apparent inadequacy of that legislation, but we have introduced a range of legislative measures in addition to the consolidation Bill since 2014, including making it easier to register digitally as a co-operative.
We have also reduced red tape by equalising the audit treatment between small co-operatives and small companies. I am pleased that the Financial Conduct Authority, which runs the UK mutuals register, recently made several practical changes to support mutuals, including simplifying the forms, creating an online portal and removing the fees to access documents. Members also raised the challenges that co-operatives face when raising capital. We recognise that that can be an issue, which is why in 2014 we increased the amount of share capital that an individual member can put into a co-operative society from £20,000 to £100,000, and I am happy to consider further proposals. We have looked at some proposals before, but I am happy to re-examine them.
Some Members called for changes to social investment tax relief, which is designed to incentivise investment in social enterprises that are constituted to provide a social or community benefit. Community benefit societies, a form of mutual, may therefore be eligible, as their purpose is to benefit the wider community. Although other forms of co-operatives and mutuals may have a wider community benefit, it is not central or essential, and their primary purpose is to benefit their members.
The Government are currently conducting a comprehensive review of social investment tax relief to better understand what impact it has had on access to finance for social enterprises. The public call for evidence is currently open, and it closes on 17 July. We will publish a summary of responses later this year.
I recently met representatives from across the mutual sector at a session hosted by Co-operatives UK and Nationwide. We discussed some of the opportunities and challenges facing mutuals, many of which have been raised by Members today. Following the session, Treasury officials will host a mutuals workshop with Co-operatives UK in July to investigate in more detail some of the barriers faced by mutuals. This will be a good opportunity to explore how the sector and the Government can work more closely together and, importantly, how mutuals can build closer links across the sector.
The latest estimates show that public service mutuals in healthcare and other sectors are delivering more than £2 billion-worth of services across England. They are driving innovation, too, with two thirds saying that they have created new products or services over the past year. Over the last three years, the Office for Civil Society has been delivering a £3.5 million programme to help new mutuals to emerge and existing ones to thrive. It has run several roundtables to create a proposal on the future definition of public service mutuals, which is planned for launch this summer.
I thank all Members for their contributions today and for their ongoing support for the co-operative and mutual sector. I am pleased to see that the sector continues to thrive, from the building societies that can trace their origins back hundreds of years to the newest entrants to the market. I recently met the executive director of South West Mutual, who is from Plymouth and is working with the Royal Society for the encouragement of Arts, Manufactures and Commerce to develop proposals for regional co-operative banks across the UK.
The demand for a new form of co-operative finance is a good sign, and the public appetite for co-operative and mutual services remains strong. This Government will continue to be a strong supporter of the mutual sector. Like hon. Members present today, I will continue to advocate for the sector’s considerable contribution to ensuring that our economy serves the needs of everyone in society.
Breathing Space Scheme
John Glen Excerpts(4 years, 10 months ago)
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The Economic Secretary to the Treasury (John Glen)
With permission, I will make a statement on supporting people in problem debt. This is an issue close to my heart. As a former member of the all-party parliamentary group on hunger and food poverty, I have seen at first hand the hardship that problem debt can cause. Now that I am in a position to bring about change, I am focused on improving the lives of the most disadvantaged.
Problem debt places a heavy burden on households and can lead to family breakdown, stress and mental health issues. The Government have taken steps to prevent problem debt from occurring and to support those who have fallen into it. We have reformed the regulation of consumer credit and widened access to professional debt advice, and we are helping to build individual financial capability. Today, I can update the House on the Government’s plans to go further, with the introduction of a breathing space scheme and a statutory debt repayment plan. I am grateful for the support of the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst), whose private Member’s Bill and ongoing work have made a key contribution to the scheme becoming Government policy.
For people who are just getting by, even a small income shock can provoke a cycle of debt dependence that can be difficult to escape. If then faced with invasive debt enforcement, it is no wonder that many people in problem debt simply disengage. The first step to countering problem debt is to ensure that consumer credit firms are properly regulated, because loans should not be made to people who cannot afford to repay them. The Government have empowered the Financial Conduct Authority to ensure that firms lend responsibly, protecting consumers from over-borrowing. At Budget 2018, we announced new measures to increase access to affordable credit by helping foster a larger, more vibrant social lending sector.
In parallel, we have put in place support to help people make good financial decisions. The new Money and Pensions Service brings together three existing publicly funded money and pensions guidance services into one new organisation, providing free support and guidance on all aspects of people’s financial lives. Importantly, it also has a statutory duty to develop and co-ordinate a national strategy to improve people’s financial capability. Despite those preventive measures, I recognise that many people still fall into problem debt. For such people, further support is required.
Seeking professional advice is a vital step in moving towards a sustainable debt solution. That is why we have increased public funding for free professional debt advice to almost £56 million this year, delivering 560,000 sessions in England, but more needs to be done. The Money and Pensions Service estimates there are up to 9 million over-indebted people in the UK, but only a fraction of them access free debt advice each year. That is why I can announce today that, following consultation, the Government will deliver on their manifesto commitment to introduce a breathing space scheme for people in problem debt.
The scheme has two parts which, together, will protect debtors from creditor action, help them get professional advice on their debt problems, and help them pay off their debts in a sustainable way. Breathing space will provide debtors with a 60-day period in which interest and charges on their debts are frozen and enforcement action from creditors is paused. Creditors must not start new court action, communications with debtors relating to enforcement of their debt must stop, and benefit reductions to reclaim debt will pause. During the time, debtors will have to seek professional debt advice to find a sustainable solution to their debt problem. These protections will encourage people in problem debt to seek advice earlier and give them the headspace to identify the right debt solution for them.
The statutory debt repayment plan is a new debt solution that will extend the breathing space protections to debtors who commit to fully repaying their debts in a manageable timeline. Importantly, the payment plans will be flexible to changes in debtors’ life circumstances to remain sustainable over the long term. If someone’s disposable income decreases, their payments will go down, and vice versa.
The breathing space scheme will make a real difference to the most vulnerable families across the country, and I recognise the sense of urgency across the House to deliver this policy quickly. I am committed to delivering the scheme swiftly, working closely with key stakeholders to make sure that it works in practice. The Government will lay regulations on the breathing space element of the policy before the end of the year, and we intend to implement it in early 2021. We will continue to develop the statutory debt repayment plan to a longer timetable.
In addition, I am pleased to announce that the Government will go beyond their manifesto commitment in two areas. As many of us hear in our constituencies, people’s experiences of problem debt are changing. As I have seen at first hand, it is wrong to assume that over-indebtedness is simply a product of taking out too much credit. Many people struggle to meet essential bills and can end up owing money to multiple creditors in the public and private sectors. For the policy to be successful, it must properly reflect the issues that debtors are dealing with. I can therefore announce today that the breathing space scheme will cover a broad range of debts—not just financial services debts, but arrears owed to utility companies and to central and local government, including council tax arrears, personal tax debts and benefit overpayments. That broad protection will make the policy effective for debtors and fair to creditors.
The House will recognise the strong links between mental health issues and problem debt. Up to 23,000 people in England each year struggle with problem debt while in hospital due to mental health issues. The breathing space scheme must work for everyone facing problem debt. In particular, it must be open to the most vulnerable in society. To that end, I can confirm that people receiving treatment for mental health crisis can enter breathing space without seeking advice from a debt adviser, which could be a significant barrier for many.
The protections will last the entirety of an individual’s crisis treatment, followed by a further 30 days to allow them to get back on their feet and decide whether they wish to enter the main breathing space scheme or work out another solution for their debts. As mental health issues often recur, there will be no limit to the number of times that an individual can enter via this mechanism. I thank the hon. Member for Liverpool, Riverside (Dame Louise Ellman), the right hon. Member for North Norfolk (Norman Lamb) and my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer) for their dedicated work on this issue, and I thank the Money and Mental Health Policy Institute for raising this important issue.
Millions of people struggle with problem debt and the burdens that it brings. The Government have committed to helping people take control of their finances and get back on a stable financial footing. The breathing space scheme that I have described today will help to fulfil that commitment, and I commend this statement to the House.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
I begin by thanking the Minister for his courtesy in giving me advance notice of this statement, which we broadly welcome. There has been a growing consensus for some time about the need for something less dramatic than formal insolvency proceedings which offers hope to people with problem debts that there can be a way out. That is what the breathing space scheme should be—a space to let people get back on their feet, perhaps overcoming a health issue, a period of unemployment or something else that has adversely affected their lives.
There will always be disagreement between the Opposition and the Government on the necessity of the austerity policies that have blighted the country since 2010, but no one can deny that household debt in the UK is large, growing, and problematic for many people. The big change that I have seen in my constituency is that people are using credit not just to buy a car, a new sofa or a washing machine, but to pay their living costs at the end of the month—for food, dinner money, and children’s clothes. The worst is when people, unable to take control of their own affairs, go from one short-term credit product to another, compounding the costs and liabilities they are incurring and sometimes ending up in hock to illegal moneylenders as the only option they have left. One of my constituents in such circumstances ended up suicidal.
We want this policy to work, and my questions for the Minister are in that spirit. First, can he say why a 60-day period has been chosen as optimal? Going back to the need to let people overcome whatever problems they face, I have always felt that the period may need to be longer.
Secondly, will the Minister confirm my understanding that all debts will be covered, including public sector debts like council tax arrears and benefit overpayments? I very much recognise the obliteration of local government finances over the past nine years and, alongside colleagues, I presented a petition to Downing Street this morning on how bad it has been for councils like mine in Tameside. Council tax arrears are one of the biggest causes of the bailiffs being called, and we need such arrears to be included, too.
In addition, will the Minister look specifically at the issue of guarantor loans? Under such loans another person, typically a family member, accepts joint liability for the debt. I had another case of this type from a constituent in Stalybridge just this week. If the breathing space period does not apply to these loans, the burden will simply pass and offer no relief, which would be counterproductive.
Ultimately, this policy will work only if there are sufficient sources of advice and support for people to access during the breathing space period. It is a reality that such services—citizens advice bureaux, local authority and housing association advice centres, and so on—have been put under massive strain over the past few years. So what strategy do the Government have to significantly improve the capacity in this area? Whatever initiatives have been pursued to date, and whatever merit they have, there is no doubt that we need to go further.
Finally, in the famous words of Archbishop Desmond Tutu:
“There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in.”
As well as a change of economic policy, we believe it is time to regulate further the interest that can be charged on overdrafts and credit cards, to look at the marketing of credit to vulnerable people, and to ensure there is real and effective financial education in schools.
There is a lot to do. This statement is a move in the right direction, but let us make sure we keep going in that direction.
John Glen
I thank the hon. Gentleman for his typically positive and constructive remarks, and I will try to address the five key points he raises.
First, the 60-day time period is longer than our manifesto commitment of six weeks and is the product of listening to the consultation responses and to the experience of the mechanism in Scotland. Overall, it is seen as the right solution.
Secondly, the hon. Gentleman asked which debts are included. I tried to set out in my statement that the scheme is extremely broad, covering public sector debts and arrears. He asked about bailiffs and their role. Of course, the Ministry of Justice completed a consultation exercise in February and will respond in due course. There is also Cabinet Office guidance on the fairness of debt collection. He makes a reasonable point.
Thirdly, the hon. Gentleman asked about guarantor loans, which are an emerging new category of high-cost credit. Such matters are regulated by the Financial Conduct Authority, and I had a conversation just this morning with its chairman. I spoke to Andrew Bailey, its chief executive, earlier this week on the need to be vigilant across all emerging forms of high-cost credit, which is under ongoing review.
Fourthly, the hon. Gentleman asked about capacity and capability in the area of debt advice. I envisage that the creation of the Money and Pensions Service as a new single entity will bring much better co-ordination of the available advice. As I mentioned, the Government spent £56 million last year, and 85,000 more people were seen than in the previous year. We are looking at how that advice can become consistently of a higher standard.
Finally, the hon. Gentleman asked about the long-term causes and the regulation and marketing of high-cost credit products. Following the recent issues at London Capital & Finance, I directed the FCA to examine what happened, and I have asked my officials in the Treasury to conduct a separate review of how regulation works. We have to continue being vigilant on this evolving space, and the increased digitalisation of the availability of high-cost credit means that the regulation and oversight needs to keep pace.
I hope that answers the hon. Gentleman’s questions.
Dame Caroline Spelman (Meriden) (Con)
I welcome this statement and the Government going beyond their original manifesto commitment. It gives me a chance to thank my citizens advice bureau, which has done fantastic work on debt rescheduling during my 22 years as an MP.
Does the Minister welcome the Church of England’s initiative to teach financial literacy in its primary schools, and would he encourage rolling out such an approach to prevention more widely?
John Glen
I welcome my right hon. Friend’s observations on the Church of England’s interventions on financial literacy. The ongoing challenge is to develop national consistency in the delivery of financial education and advice. A number of initiatives are under way, one of which is trying to get financial services providers, particularly the banks, to work in a more co-ordinated way. I am happy to endorse the work of the Church of England, which has been a significant partner in improving financial literacy across the country.
Kirsty Blackman (Aberdeen North) (SNP)
I am pleased that the UK Government have decided to put this in place and have set out the mechanism for doing so. In Scotland we have the debt arrangement scheme, which was launched in 2004 and significantly reformed in 2011, and a breathing space is built into that scheme.
Over £200 million of debt has been repaid since the reforms in Scotland, and 6,000 people completed a direct payment plan between 2011 and 2018, so I am pleased to see in the consultation responses published today that the Government have looked at how the system works in Scotland and have learned lessons. It is clear that, where the Scottish system has the powers to do so, we have the ability to trailblaze and lead the way.
In 2016, because of the debt arrangement scheme in Scotland, we had the lowest proportion of over-indebted people of any part of the UK. As austerity continues, we continue to see increases in the number of people suffering under the burden of debt. In 2017 there were 2.4 million children living in families with problem debt in England and Wales. StepChange, the debt charity, has said that 60% of those in problem debt fell into it because of an unexpected life event, and not because of poor money management—something external happened that changed their life, meaning they could no longer manage their debt.
I am concerned about why it will take the Government so long to implement the changes. Surely, as they already deal with a similar system in Scotland, most creditors should be able to take on the changes fairly quickly and roll them out over a wider group of people. Could this be done any quicker than 2021, which is the date I have seen in the papers?
John Glen
I thank the hon. Lady for her observations, and she is right that the Government have carefully listened to and observed the experience in Scotland. She asks about the timeline, and I have done everything I can to move this forward as quickly as possible. The challenge is to bring the sector along at the same pace and to ensure that we have complete commitment and sign-up to the process so that it will be a success. I am pleased that the chief executive officer of StepChange has said that he is particularly pleased to see the Government’s confirmation that debts owed to the Government will be included in the scheme. We are working very carefully, and this is the timeline to which we have to work.
Fiona Bruce (Congleton) (Con)
I thank the Minister for the proposals, which will help some of the most vulnerable and their families and, I believe, save lives. Will he clarify which stakeholders he will engage with to ensure effective implementation, and will they include debt advice charities such as Christians Against Poverty, which does such excellent work in this field?
John Glen
My hon. Friend is right to draw attention to the excellent work of Christians Against Poverty, which is indeed a key stakeholder. We engage widely with the sector, including the Money and Mental Health Policy Institute, StepChange, the Money Advice Trust and the charity National Debtline—it really is a collaborative effort—and I am pleased with their response to where we have got to.
Jack Dromey (Birmingham, Erdington) (Lab)
Debt ruins lives. Debt harms health. Debt damages relationship. Debt holds back children. In extreme circumstances, debt kills. When the Financial Guidance and Claims Act 2018—it established the Money and Pensions Service—was being taken through the House, the Government made a commitment to move on a breathing space scheme. Today’s announcement is therefore welcome, particularly the action being taken to defend the interests of those suffering mental ill health. In welcoming today’s announcement, I urge the Government to ensure that the new arrangements are properly resourced and that there is a sense of urgency in their implementation, because the sooner they are put in place, relieving that terrible burden that afflicts so many people in our country, the better.
John Glen
I am extremely grateful to the hon. Gentleman for his comments. He played a significant role in the passage of the legislation that led to today’s announcement. He urges me once again on the timeframe, and I can assure him that my Treasury officials are working as rapidly as possible, but we must also ensure that it actually works. One of the questions he asked me previously, about what is included in the scheme and the range of public sector debts, has been a significant driver in those conversations. I acknowledge and take on board his comments.
Vicky Ford (Chelmsford) (Con)
I absolutely welcome the breathing space scheme, which will help people facing debts that they cannot repay. I join other Members in thanking citizens advice bureaux and organisations such as the Trussell Trust that help to signpost people to better debt advice. It has told me that young people, in particular, can get enormously concerned about their mobile phones being cut off, because if they lose their phones they lose their communications and any hope of finding work, for example. Will the Minister confirm that this will cover a wide range of debts and mean that people need not worry about losing their homes or their communications while their debts are sorted out?
John Glen
I am extremely grateful to my hon. Friend for those observations and for mentioning the Trussell Trust, which is headquartered in my constituency and has done a lot of work in this area. The principles underpinning the scheme are based on the Insolvency Service’s system and include all debts covered by the system. There are a small number of exceptions—for example, deductions for child maintenance payments—but we have designed this so that it is meaningful. It is not about a holiday from ongoing payments; it is about dealing with arrears and debt. The expectation is that when people join the scheme they will continue to pay for everyday expenses as they occur.
Catherine West (Hornsey and Wood Green) (Lab)
Is the Minister aware of Debt Hacker, a free online tool that I launched here in the House of Commons? It is run by activists and uses FCA rules that are poorly understood by the general public to help consumers to get back their £50—or however much it is—from companies that use extortion to get money out of others. Is he also aware, given his broader role in the Treasury, of the fact that it is mainly NHS and public sector workers who are in this debt trap, because wages have not kept up with housing, energy and other costs?
John Glen
The hon. Lady raises two points. I was not familiar with the Debt Hacker app, but I will seek it out because it sounds like a very worthwhile initiative. I respectfully say to her that in the fourth quarter of 2018 debt as a percentage of household income was 139%, whereas 10 years previously it was 160%. I recognise that households are experiencing strain, but it is not quite as dire as she makes out.
Sir Edward Leigh (Gainsborough) (Con)
Loan sharks are the unacceptable face of capitalism, but this is a complex area and the Government should proceed with caution. Confidence in the market, and in capitalism more generally, depends crucially on the payment of debt. I very much hope that the Government will consult widely with the industry, particularly with credit card companies, and consider piloting, because there are unintended consequences of Governments, in their dying days, trying to virtue-signal and regulate more but actually doing more damage than good. Therefore, please may we have piloting and widespread consultation?
John Glen
I am grateful to my right hon. Friend for his observations. This is not virtue-signalling; it is delivering on a manifesto commitment with the sectors involved, carefully and methodically. We rightly have a robust regulator with powers to deal with exploitative credit providers. As I indicated earlier, we are not complacent. I observe his concerns about ensuring that we implement this appropriately and with the wide assent of the industry.
Nick Smith (Blaenau Gwent) (Lab)
I welcome the breathing space scheme, which will certainly be helpful in Blaenau Gwent, because we discovered that Wonga lent £1 million a year to our borough’s residents. I suspect that a 60-day period will not be enough. The fact is that although citizens advice bureaux are great, we have insufficient guidance and support in our borough. I think that 90 days might be necessary, or perhaps even more, so I ask the Minister to think carefully about that possibility.
John Glen
We certainly keep all matters under review, but the 60-day period has not come from nowhere; it has come from deep engagement with the sector. As Joanna Elson, the chief executive of the Money Advice Trust, has said,
“this new scheme could well be a game-changer in our efforts to tackle problem debt as a society.”
I recognise that there are a range of views, but we have looked at what is out there and considered the Scottish experience, and we believe that this is the right policy response.
Several hon. Members rose—
John Glen
The hon. Lady makes a very reasonable point about the nature of the training for debt advisers. I cannot give her a specific commitment on that, because there are so many partners involved, but I will look into it and see what can be done to advance that very reasonable observation about the quality of advice given.
Steve McCabe (Birmingham, Selly Oak) (Lab)
I welcome the proposals, although it has taken us since 2017 to get to this point and it is going to take another two years to get the first part operational. I am glad the Minister is moving swiftly and not dragging his feet.
Two problems for people who get into debt, particularly over tax credits or benefit clawback, are the interest charges that are applied as they try to repay and the management fees charged on top by debt-recovery agencies, which mean that the debt increasingly expands. The Minister could have a direct input on both those things; why does he not put a ceiling on those charges, rather than simply using a freeze?
John Glen
The hon. Gentleman makes an interesting point, but that is not an area for which I have direct responsibility. Reclaimed overpayments—for example, from universal credit—will be included in the scheme. I cannot comment on things that are outside my control, but I hear his point about doing this as quickly as possible.
Heidi Allen (South Cambridgeshire) (Ind)
The announcement of the scheme is brilliant news and I welcome the statement enormously, and particularly the parts on the inclusion of Government debt in the scheme. I also welcome the fact that the Government have recognised the effect that debt has on people’s lives and their ability to get out of debt. However, I urge the Minister to look into the Government’s own policies—I suspect he knows what I am coming to. The five-week universal credit wait is a big issue. Advance payments are not the solution because they themselves are a debt and are putting vulnerable people further into debt. As I have said many times, the advance payment for the most vulnerable should be a grant, not a loan. As it is, we are handing out advance payments to around 60% of claimants. We are handing out the money anyway, so it is not going to cost us anything. It is just a cash-flow situation.
The Work and Pensions Committee has recently heard moving and horrendous testimonies from women who have been forced into sex work because they cannot make ends meet. We heard stories of women going into a brothel for around three days, working 20 hours out of 24 and coming out with £150 of earnings, and that gives them a roof over their heads as well. As our Prime Minister leaves office, I cannot believe that is the legacy she wants to leave behind. Please will the Minister look into this issue? It is also a Government debt.
John Glen
I acknowledge the hon. Lady’s deep interest in and work on this topic over several years. She has raised points to which it is difficult for me to respond because they are outwith my responsibilities. As she will know, in the Budget we announced a £1.7 billion package of additional financial support for universal credit. I acknowledge that the hon. Lady disagrees with one element, but that additional support did involve the reduction of the maximum deduction from the standard allowance, from 40% to 30%. I cannot speak for a policy area for which I do not have responsibility. I am delivering a breathing space scheme that covers a wide range of debts and reaches deep into public sector debts, which I was keen for it to do from the outset.
Ruth George (High Peak) (Lab)
As I set out in a recent Westminster Hall debate, the amounts being deducted from universal credit are a significant part of the reasons people fall into problem debt. I agree that a lot of that is down to Department for Work and Pensions policy, but I have seen many examples of people whose tax credit overpayments are being deducted from their universal credit, and of people being told that they have overpayments dating from 2006 or 2011, when they were supposed to have been written off. The average of £1,200 being deducted from people’s universal credit is contributing to their not having enough to get by or to pay their bills. Will the Minister and the Treasury please look into this issue as a matter of urgency and allow people to appeal against such deductions?
John Glen
The hon. Lady will know that, as I said in response to the previous question, that is an issue of the administration of benefits and is the responsibility of the DWP. I will certainly make her observations clear to my colleagues in Government. Universal credit over- payments will be included from day one. I will make sure that I fully address the hon. Lady’s points and write to her on the detail.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)
I very much welcome the statement and the action that will be taken from today, because research shows that each year more than 100,000 people who are in debt attempt suicide. The scheme has to be helpful in giving them the support they need and improving mental health. One suicide crisis period, particularly for young men, is early adulthood; will the Minister liaise with colleagues to ensure that financial education and support is available not only in schools but in colleges and universities?
John Glen
The hon. Lady makes a sensible point about the need for appropriate financial education at all levels. It needs to start early and endure through adolescence and into early adulthood. Several initiatives are under way to try to improve the quality of financial advice. The setting up of the Money and Pensions Service and its broader remit in this area is one part of that, but there are other partners, including our banks, through UK Finance, which is keen to do more. I very much take on board the hon. Lady’s observations.
UK Debt Management Office
John Glen Excerpts(4 years, 10 months ago)
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The Economic Secretary to the Treasury (John Glen)
The United Kingdom Debt Management Office (DMO) has today published its business plan for the financial year 2019-20. Copies have been deposited in the Libraries of both houses and are available on the DMO’s website, www.dmo.gov.uk.
[HCWS1622]
Local Bank Closures
John Glen Excerpts(4 years, 10 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Ms Ryan. I congratulate my hon. Friend the Member for Moray (Douglas Ross) on securing this important debate. I acknowledge the contributions of all who have spoken this afternoon. I have listened carefully to the speeches, and it is good to have seven of my hon. Friends from north of the border here. I will endeavour to answer the points substantively.
I gave evidence to the Scottish Affairs Committee this morning on this very issue. Straight after this debate, I hope to make a speech at the Which? cash summit, where I will set out the work being done by industry, the Government and regulators to ensure that access to cash is safeguarded. I recognise that this is a very important issue for many of our constituents. In my own constituency of Salisbury, I have seen bank branches close and I understand how difficult that is for communities. We have heard some specific examples this afternoon of the distress that can be caused when the process does not go smoothly. I recognise there are different opinions across the House about how the challenge should be met, and I will address those shortly.
Undoubtedly, the fact that the retail financial landscape is changing rapidly, as more consumers and businesses opt for the convenience, security and speed of digital payments and digital banking, is a significant factor. Ten years ago, cash accounted for more than three fifths of all payments in the UK; today, the figure is less than three in 10—and that is anticipated to fall to less than one in 10 in nine years, by 2028. In 2017, debit cards overtook cash for the first time as the most frequently used payment method in the UK.
I am very sensitive to the point made by the hon. Member for North Ayrshire and Arran (Patricia Gibson) that debit cards are not everyone’s choice; it is really important that we keep in focus the need to maintain access to cash. In 2018, two thirds of UK adults used contactless payments, 72% of UK adults used online banking and 48% used mobile banking. How we use financial services is changing and consumers have more choice than ever. It is an exciting time, but it is also a disruptive and potentially confusing time for our constituents.
Closing a branch is never an easy decision, but the decision will ultimately be a commercial one for the bank. The Government have been clear that we do not intervene in those decisions because industry is best placed to know what works best for its customers. I recognise that branch closures can be very disappointing for customers and the impact on communities must be understood, considered and mitigated where possible. I will therefore set out some of the ongoing work in this area—in particular, access to the banking standard and how it might be enhanced.
Douglas Ross
The Minister says that closing a bank is a commercial decision and the banks are listening to their customers. How can they be listening if they take those decisions prior to any consultation and if, when they are encouraged to engage, they do not even turn up?
John Glen
That behaviour that my hon. Friend experienced in his constituency is not best practice. It is not acceptable. It is very unfortunate when that happens. My job is to try to ensure that there is a systematic upgrade to the quality of the consultation and engagement from the banks, and I will now set out what is happening.
The access to banking standard has been noted by a number of colleagues today. Since May 2017, the major high street banks have been voluntarily signed up to the standard, which commits them to work with customers and communities to minimise the impact of branch closures. The standard ensures that banks keep customers informed about branch closures, and that the bank sets out its reasons for closure and the alternative options for continued access to services. How meaningful that consultation process is has been raised, on the basis that it happens when a decision has been made and not prior to the decision. I am looking into that. I have written to the Lending Standards Board and will be meeting its representatives to discuss the matter further.
The options for continued access should include specialist assistance for customers who need more help. For example, the Lending Standards Board, which monitors and enforces the standard, has told me it sees evidence of support from firms to assist customers in understanding and using alternative banking options. I recognise that that happens in some, but not all, cases. Such support might include digital experts being placed in the relevant branches to demonstrate how mobile and online banking works and assisting those customers who wish to use that functionality, as well as making introductions to nearby post offices and retained branches.
I continue to be very supportive of the access to banking standard and I value the commitment it places on banks to communicate the next steps for customers when the decision is made to close a branch, but I am aware of the concerns that colleagues have expressed about the standard. I confirm that I recently wrote to the Lending Standards Board to seek reassurances that the access to banking standard remains fit-for-purpose, and I intend to meet the chief executive to discuss matters further, drawing on the meetings I have had with various groups from all parts of the House and on the representations made so forcefully by colleagues this afternoon.
I turn to the Post Office. I was pleased to see the successful renegotiation of its commercial agreement with high street banks. That will enable 99% of personal customers and 95% of small and medium-sized enterprise customers to continue to carry out their everyday banking at one of the UK’s 11,500 post office branches; that is 91 more branches than there were in March 2018. I acknowledge the point that my hon. Friend the Member for Moray made about functionality and how not all functions can be carried out at the post office. That could evolve, but we already see aggregation of banking services at the sub-regional level when more specialist advice is required. The issue is about working out ways to solve that challenging problem. I am engaged in that work and am happy to explore that further with him.
As a result of the renegotiation, postmasters will see a considerable increase in fees for processing deposits, and the fees will rise further if transaction volumes continue to grow. An increase in fee income will help the Post Office and its network become more financially sustainable and will allow for investment in automation, training and security in post offices. Some £2 billion has been invested by the Government since 2010.
It is essential that more people know about the banking services offered by the Post Office, which is why I asked it to work together with UK Finance to raise awareness. According to a survey by Which?, only 55% of UK adults are aware that they can use their post office for banking services; that statistic was made clear this afternoon by my hon. Friend. The point he did not make was that 77% of those who had used the post office for banking said they would do so again. We are on a journey of understanding, as people become familiar with what can happen in a post office. After that work, UK Finance and the Post Office found that awareness had increased and committed to using community outreach to further improve awareness. I will continue to take a keen interest in the progress of that work.
Although many customers are satisfied with the Post Office’s banking services, I am aware that there are still some outstanding concerns—they have been mentioned this afternoon—such as with privacy and queueing. I have therefore written to my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst), the Minister in the Department for Business, Energy and Industrial Strategy responsible for postal affairs, to request that our officials continue to work closely to explore the issues.
My hon. Friend the Member for Ayr, Carrick and Cumnock (Bill Grant) made a point about credit unions and post offices. I welcome any feasible innovations in that space. The main trade body for credit unions is conducting extensive UK-wide consultation, and it will come back to the Government in September. I would be happy to explore with it how the solution he suggested might be acted on.
Related to bank closures is the issue of continuing access to cash. It is clear that for some people, cash remains their preferred, or only, method of payment for a variety of reasons. My hon. Friend the Member for Waveney (Peter Aldous) set out his experience, and that situation remains true for many people out of choice. Our financial system needs to cater for everyone in our society. Although it is exciting for many consumers, technology must not come at the expense of choice. There will therefore be no changes to our current system of notes and coins. We want to ensure that cash is available for those who need it, when they need it.
In 2015, we established the Payment Systems Regulator, a powerful economic regulator of the payments industry. Its objectives balance the need for competition and innovation on the one hand with the protection of consumer and business interests on the other. Through the creation of the joint authorities cash strategy group, we are acting to ensure a comprehensive approach to regulation in light of changing trends and preferences for cash. The Payment Systems Regulator is already examining the factors that affect the distribution of ATMs across the country. I was concerned by what happened in Lossiemouth: it is a good case study for the regulator to be examining during the early weeks of its work.
I welcome today’s announcement by UK Finance, the trade body for banks, that it too intends to explore key issues around access to cash, including the role of local areas and communities. The industry must continue to play its part, and developers should consider the needs of all customers as they design new digital banking products and forms of payment. We are seeing companies such as Square trying to increase the use of card payments in small towns. No one should be locked out of the benefits that technology brings.
I recently concluded a Westminster Hall debate speech with a call to arms to the industry to think about all consumers when developing its services, and I re-emphasise that here this afternoon. I welcome the innovations that banks are introducing to respond to changes in customer behaviour as more of us choose to bank on demand online or via an app, rather than visiting a branch. We cannot reverse digital innovation, and nor should we, given the benefits it brings to our constituents—I acknowledge once again the point made by the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) about his constituents’ experience of connectivity—but we need to find solutions for the whole of the United Kingdom. Improving digital and financial inclusion is key to ensuring that vulnerable customers are not left behind.
I will keep pushing the industry—someone mentioned the carrot and the stick: both are required—to move forward and do more. I hope Members will recognise that I have responded thoroughly to the points made. I am happy to continue the dialogue, but I am working to engage on the specific issues raised and to secure the improvements needed.
Mortgage Prisoners
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
I am grateful for the opportunity to speak on behalf of the Government about an issue which I know has caused widespread concern throughout the House. A range of matters have been raised in the 13 Back-Bench speeches that we have heard today. I will do my best to respond to the points that have been raised, but if I am unable to respond to all of them, I will write to the Members concerned.
I thank my hon. Friend the Member for Dover (Charlie Elphicke) for securing this important debate. He has worked tirelessly to raise awareness, both as a founder member of the all-party parliamentary group on mortgage prisoners and through his recent ten-minute rule Bill, the Banking (Consumer and Small Business Protection) Bill.
It may be helpful if I begin by briefly reminding the House of the background to this matter, and, in particular, the reasons why the Government have sought to tighten mortgage lending regulations in recent years. In the aftermath of the banking crisis, there was a consensus that the prevailing regulatory framework at that time had left UK borrowers exposed to lax lending practices, with lenders providing mortgages without adequately checking borrowers’ ability to repay them. That enabled some to secure self-certified mortgages, or mortgages with loan-to-income ratios of 120% or more.
The Government and regulators therefore substantially strengthened mortgage lending regulations to ensure that borrowers would be better protected in the future. The new regulations, resulting from the 2014 mortgage market review, require lenders to conduct thorough affordability assessments to consider evidence of customers’ income and expenditure before agreeing to a new loan. I believe that was the right thing to do. It ensures that consumers can only borrow what they can be reasonably expected to pay back, and in doing so it protects borrowers and lenders alike against future economic shocks.
A number of colleagues across the House have raised individual cases that they have encountered and meetings they have had with constituents who are looking in on proceedings today. It is undoubtedly the case that these strengthened regulations made switching to a new provider more challenging. That left some borrowers unable to switch even when they were up to date with repayments and had an unbroken repayments record. That has been mentioned a number of times in this debate.
I recognise that this is a hugely stressful and difficult situation for the individuals concerned, and it is clear to me that they face an unfair regulatory barrier. Therefore, it has been my priority as Economic Secretary to find a solution. That is why I instructed —not reluctantly or grudgingly, but determinedly and assuredly—Treasury officials to work with the FCA, which is ultimately responsible for regulations, to consider ways of helping trapped borrowers switch more easily in future. I recognise the frustration about the rapidity of the changes and I want to set out now where they are at and what we can expect in the coming weeks.
The FCA’s proposed changes will see its affordability test move from being absolute to relative. Questions have been asked about what that will mean but I cannot set that out today because the work is ongoing. However, I will say a little more about what is going to happen. It will enable lenders to accept switching consumers, providing they are up to date with repayments and are not borrowing more. The consultation for these changes will run until the end of this month and I then expect the FCA to implement these changes rapidly—later this year.
Let me give the House a practical example of the difference this will make for consumers. A borrower might have taken out a mortgage under the previous lighter touch regulations but their fixed rate deal has run its course and they are currently repaying their mortgage on a standard variable rate, in keeping with the terms of their existing mortgage contract—although I accept that these are terms that they never thought would lead to them being locked into that higher rate. If they are looking to switch to a new deal, the current affordability assessments may prevent them from doing so—and clearly they do—perhaps because the difference between their income and expenditure leaves little room for margin. However, under the new rules there will be no such regulatory barrier; instead a good repayment history can be used as the reasonable basis for a lender to offer them a new deal.
While I recognise that lenders will want to consider their commercial risk appetite to take on these borrowers, and I recognise and hear the calls from various colleagues across the House about assurances over who will provide these mortgages, I would like to take this opportunity to encourage the lenders to think hard about how they might best support those looking to remortgage to a more affordable deal. I have had conversations about that with chief executives and industry representatives in recent months and I see plenty of innovation across the mortgage market.
Gordon Marsden
The Minister is giving some fairly strong details about what he hopes may come out of the consultation, but that does not alter two facts. First, this will simply be an option, not an obligation. Secondly, given the track record of Cerberus, can the Minister give the House today any assurance that such companies will sign up to this?
John Glen
On the hon. Gentleman’s first point, the regulator is not making up these rules in isolation in an ivory tower. It is working with industry representatives to ensure that the changes it delivers will create an environment with an effective outcome. There is no point having a solution that does not solve the problem. I cannot set out the range of options that will exist, but I am confident that the work being undertaken by the FCA will lead to an effective outcome. I will come to the hon. Gentleman’s second point later when I talk about the points that he and others made about Cerberus.
Martin Whitfield
Did I hear the Minister correctly when he said that this will not extend to any sum beyond the existing loan, and that there will therefore be no facility to enter any of the equity that has accumulated, in some cases?
Peter Dowd
I completely understand where the Minister is coming from, but it would be helpful if, at some point—not today; I accept that—he could set out the catalogue of metrics that will be used to ensure that these regulations, this interpretation, whatever it is, are operating practically within six, 12 or 18 months.
John Glen
That is a reasonable point to make. This intervention has to be meaningful and it has to deal with the problem of mortgage prisoners. I am very clear about that, and we in the Treasury will need to look carefully at how we evaluate this. As I was saying, I see plenty of innovation across the mortgage market and I look forward to seeing what affordable options lenders can offer to mortgage prisoners who are looking to switch.
Let me turn to the Government’s sales of mortgage books to purchasers that are not active lenders. Much of this afternoon’s debate has focused on the firms that purchase these mortgage books. It is regrettable that the Government have not received any reasonable bids from active lenders, with feedback suggesting that they have limited appetite for these loans. However, I would like to make it clear to the House that the administrators of these mortgage books must be FCA-regulated, regardless of whether they are active lenders. Any consumer whose mortgage is held by one of these firms has full recourse to FCA protections, including treatment in accordance with the FCA’s “treating customers fairly” principles, and the ability to complain to the Financial Ombudsman Service.
I have heard the comments about borrowers having their reversion rates drastically increased. To safeguard against this during asset sales, the Government have put in place contractual protections that have been enhanced to ensure that the terms and conditions of the original loans are honoured and, in the latest asset sale, to ensure that future rate rises are in line with the rates charged by the largest active lenders. This means that a customer will be treated broadly the same as if their mortgage was with an active lender, with payments in accordance with their original contract terms.
Kevin Hollinrake
The FCA’s own consultation on this states that where firms sit outside the FCA’s regulatory remit, the solution is more challenging. So whatever the Minister says, the FCA believes that we will be making the situation in which a debt is sold on to an unregulated inactive lender more challenging.
John Glen
My hon. Friend made reference in his speech to the distinction between business debts and mortgage debts, but I will clarify my remarks on that specific point to him in writing.
In these sales, the Government also stipulate that there must be no financial barriers put in place to harm a consumer’s ability to switch to a new deal with another lender. Once this FCA rule change is implemented, consumers will be in a better position to change their mortgage, provided that they are up to date with their payments and meet lenders’ risk appetites.
Let me also address the point that was raised regarding the sale of commercial loan portfolios to third parties. Since the financial crisis, it has been clear that the standards of behaviour across the financial sector must improve—I have said it in all the debates that we have held in the 17 months that I have been in office—and that banks must work to restore the trust that businesses have in their institutions.
I concede that I have some differences with my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) over some of his assertions about what would be the best solution, but we have tried to work co-operatively where there is common ground, and that work is going forward. I am pleased that banks are now committed, through the standards of lending practice, to ensuring that third parties who buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute that cannot be resolved. That will help to ensure that all businesses can resolve disputes if they arise.
I thank my hon. Friend the Member for Dover for calling this debate. I have tried to address the points that have been raised. I believe it is right that the Government and the regulator introduced more stringent rules after the financial crisis. Rigorous affordability assessments are an important factor in ensuring that a borrower has the means to pay back their loan, as well as maintaining the financial stability of the UK. Unfortunately, however, a minority of borrowers have since found that they can no longer pass those strengthened affordability assessments, despite being up-to-date with their repayments. That is why the Treasury did act, and is working with the FCA to remove the regulatory barrier.
I recognise the urgency associated with securing this solution, and I am urgently working to ensure that the FCA delivers on both what it wants to deliver and what we have asked it to deliver.
John Glen
No; I shall continue.
Borrowers who would like to switch lenders, who are currently up-to-date with payments and not looking to borrow more, can expect to find switching to a new, cheaper deal easier once the FCA changes are implemented later this year and are adopted by lenders. That will apply to all borrowers, regardless of whether they are with an active or inactive lender. In the meantime, those borrowers whose mortgages are sold to a purchaser that does not offer new mortgage deals will continue to be protected by the FCA principles of “treating customers fairly”.
I hope that that is a full response. I will look carefully over the points raised and write to individuals on any that have not been addressed.
Funeral Plans: Regulation
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
I congratulate the hon. Member for Airdrie and Shotts (Neil Gray) on securing this debate, and I thank him for all the work that he has done on this topic with his colleagues. I hope that today marks a significant moment, following the excellent work that he has undertaken. I acknowledge the ambiguities that exist at this time. Although I will try to address a number of them in my response, I invite him to meet me and officials to go through them in detail so that we can fully absorb his concerns.
I also acknowledge the work that has been undertaken by other Members who have spoken in the debate, including, in particular, that done by the hon. Member for Swansea East (Carolyn Harris), who has an ongoing interest in this topic. I mention particularly the work that she has done with the children’s funeral fund. I hope that her Adjournment debate on 1 May, with the Under-Secretary of State for Justice, my hon. Friend the Member for Charnwood (Edward Argar), was of assistance.
On Sunday, I launched a consultation that outlines the Government’s proposal to bring all funeral plan providers within the remit of the Financial Conduct Authority. I will take this opportunity to outline the rationale behind that announcement and do my best to respond to the questions that have been raised.
Sadly, many of us in the Chamber will have had to plan a funeral for a loved one. It is a difficult, emotional and expensive experience, with an average funeral costing between £4,000 and £6,000. For the last 14 years, funeral costs have been rising at twice the rate of inflation—about 6% per annum—so it is understandable that people wish to make some of the arrangements in advance, giving them the peace of mind that their loved ones will not be left with difficult decisions or a large bill after they have passed on. Funeral plans allow people to make these arrangements, to pay for their funeral in advance and to lock in a price. The market for funeral plans has grown considerably in recent years, with sales rising by nearly 200% between 2006 and 2018. Almost 1.4 million plans are now held by individuals up and down the country.
The hon. Member for Airdrie and Shotts asked about the Government’s perception of what this intervention will do to the market. That is difficult to anticipate at this point, but we will look carefully at the responses throughout the consultation, which runs up to 25 August, and will be alive to those concerns. The huge growth in the market, combined with a largely voluntary regulatory framework, has given rise to some pretty shameful practices, with some companies taking advantage of people only trying to do the right thing by their families. It is clear that the market has outgrown the 18-year-old legislative framework and that more robust regulation is needed, as the hon. Gentleman explained to the House more than two and a half years ago.
I will briefly describe the current framework. At present, funeral plan providers who offer plans backed by either a trust or an insurance contract are excluded from FCA regulation. It appears that all funeral plan providers have structured their business such that they benefit from these exclusions. A system of voluntary regulation has been established by the FPA, which has done some good work covering about 95% of the market, as the hon. Gentleman pointed out, but the reports of poor practice have largely come from providers that are not FPA members. A system that allows market participants to choose whether to be regulated cannot be sustainable for a market of this size and nature—we are talking about £3.5 billion being invested by 1.3 million people—because only the reputable firms will choose to comply.
For these reasons and following reports of poor practice, I launched a call for evidence in June last year on the regulation of the funeral plan market. The Government sought views and evidence on how the market was operating and on the Government’s initial policy proposal to bring funeral plan providers within the FCA’s remit. In the light of the evidence received, it is clear that consumer detriment is present in the market, both at the point of sale and afterwards. At the point of sale, some providers and their distributors use high-pressure and misleading sales tactics to promote and sell funeral plans. Given the context—what these individuals are trying to do at a difficult time in their lives—that is particularly unacceptable. Standards of disclosure are also poor, leaving people unsure of what is included in their plan.
We have also found that after a plan has been purchased some providers remove high upfront costs in the form of commission or administration fees, which have been as high as £800, leading to concerns about whether there will be enough money left to pay for the funeral. Some funeral directors have also been named on plans without their knowledge or prior consent, and in some circumstances this has led to an alternative funeral director being appointed, with customers at that vulnerable time left confused about who will conduct the funeral service. There is also anecdotal evidence of conflicts of interest within some trusts’ investment strategies, and there are clear signs that consumers are being disadvantaged.
Perhaps the most striking finding, however, was that 84% of respondents agreed that regulation must be made compulsory, so there is clear demand from the market itself for enhanced regulation. Action must and will be taken. Consumers need to understand the products they buy and be confident they are well regulated. This should have wider benefits beyond the immediate funeral plan sector. Research by the CMA, which is investigating the wider market, has found that the vast majority of people do not shop around for a funeral, which is entirely understandable following a bereavement. A properly regulated funeral plan sector that enables people to plan ahead with confidence and shop around should have knock-on effects for competition in the wider funeral sector.
The FCA is best placed to take on responsibility for regulating the sector, although I acknowledge the concern about the cost and nature of that regulation and would be happy to discuss that with the hon. Gentleman in a meeting. We need to get that right, given the wide range of small family providers, and to make sure it is appropriate. The FCA would be obliged to consult on that. It is none the less a well-established regulator, accustomed to taking strong regulatory action when necessary, and it has the appropriate rule-making powers to tackle the conduct and prudential concerns that are identified in the market. It will be able to develop a targeted and proportionate approach to regulating the market, in line with its statutory objectives.
My Department has developed a full legislative proposal to bring funeral plans within the FCA’s remit. That framework will ensure that the Government meet their three stated objectives for the regulation of the funeral plan market. First, all funeral plan providers and their distributors will be subject to robust conduct standards via FCA rules. Secondly, the FCA will have the necessary powers to tackle the prudential concerns in the market. Finally—this was raised by the hon. Gentleman—consumers will have access to the Financial Ombudsman Service if things go wrong.
Jim Shannon
The hon. Member for Airdrie and Shotts (Neil Gray) referred to compensation. I want to ask Minister about this because it was discussed at the working group today. If someone pays for a funeral plan and the firm that takes the money goes bust or ceases to operate, will there be a method whereby people can get their money back?
John Glen
That would be resolved by the process in which we are currently engaged—the consultation process, and the proposals for legislation in the autumn—and my expectation is that that is what we shall be aiming for.
We should set the framework for a market that functions more fairly and in the interests of consumers. The future regulatory framework for funeral plans was set out, in detail, in a consultation that I launched on Sunday. The consultation will run for 12 weeks, and it will give stakeholders an opportunity to comment on the proposed legislative framework before the Government consider the responses and finalise their proposed approach.
The hon. Member for Airdrie and Shotts asked an important question about what would happen during the gap between now and the introduction of the full new regulations. Whatever regulatory route is chosen, a transition will be necessary. FCA regulation can be carried out via secondary legislation and will therefore be quickest. The membership of the existing regulatory authority—the self-defining one—clearly has some reputational benefits in the interim, and I would encourage consumers to use the FPA-regulated providers during that period. I recognise that there is a dispute about the most appropriate way forward. That is what the consultation will be about, and the Government will reflect carefully before presenting proposals.
I hope that I have responded adequately to the points that have been raised. I thank colleagues on both sides of the House for their contributions to the debate. This is a very important issue involving real human misery, and as the hon. Gentleman has said, what was happening was an outrage. I am determined that we will get this right for our constituents across the country and leave the market in a far better state.
Question put and agreed to.