Contingent Liability Notification and Disclosure of Asset Sale

John Glen Excerpts

Tuesday 2nd April 2019 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

I can today confirm that I have laid a Treasury minute informing the House of the contingent liability that HM Treasury has taken on in authorising the sale of a portfolio of NRAM (formerly part of Northern Rock) loans acquired during the financial crisis under the last Labour Government. This sale generates proceeds of £4.9 billion for the Exchequer and the portfolio will be sold to Citi. The majority of financing is being provided by PIMCO.

Rationale

The previous Government intervened in the financial sector to preserve financial stability; this policy objective has now been met, and these assets should be returned to the private sector. The proceeds from this sale will reduce public sector net debt. This marks a major milestone in the plan to recover taxpayers’ money and exit from the Government’s shareholdings in NRAM and Bradford & Bingley.

Format and Timing

The Government, UK Asset Resolution (UKAR) and UK Government investments concluded that this sale achieves value for money for the taxpayer having (i) conducted a rigorous analysis of whether market conditions were conducive for the sale of this portfolio; (ii) considered whether the transaction was likely to generate sufficient competitive tension to lead to a properly competitive process; and (iii) conducted an assessment of the fair market value for the assets. The sale made use of a two-round bidding process, which has been shown to create competitive tension through the bidding process and been used for previous sales of UKAR assets.

Contingent Liability

On this occasion, due to the sensitivities surrounding the commercial negotiation of this sale, it was not possible to notify Parliament of the particulars of the liability in advance of the sale announcement.

The contingent liability includes certain market standard time and value capped warranties and indemnities confirming regulatory, legislative and contractual compliance. The maximum contingent liability arising from these warranties and indemnities is approximately £1 billion. There are further remote fundamental market-standard warranties which are capped at £4.9 billion.

Fiscal Impacts

I can confirm that the sale proceeds of £4.9 billion are above the Government’s hold valuation. In 2019-20 the sale reduces public sector net debt (PSND) by £4.9 billion, as well as reducing public sector net liabilities (PSNL) by £182 million, and public sector net financial liabilities (PSNFL) by £149 million. PSNFL and PNSL are reduced by different amounts as PSNL also takes into account provisions against the loans that are being released. Public Sector Net Borrowing (PSNB) will increase by a total of £750 million by 2023-24. PSNB is increased by the sale as the Government will no longer receive the interest payments associated with these assets.

The impacts on the fiscal aggregates, in line with fiscal forecasting convention, are not discounted to present value. The net impacts of the sale on a selection of fiscal metrics are summarised as follows:

Bilateral Loan to Ireland

John Glen Excerpts

Monday 1st April 2019 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

HM Treasury has today provided a further report to Parliament in relation to the bilateral loan to Ireland as required under the Loans to Ireland Act 2010. The report relates to the period from 1 October 2018 to 31 March 2019.

A written ministerial statement on the previous statutory report regarding the loan to Ireland was issued to Parliament on 15 October 2018, Official Report, column 33WS.

In line with the agreed repayment schedule, the first repayment on the principal of the loan from Ireland falls due on 15 April 2019. HM Treasury will update Parliament when this payment has been received, and report on it fully in the next statutory report.

[HCWS1473]

Supervision of Co-operative Bank 2008-13: Independent Review

John Glen Excerpts

Wednesday 27th March 2019 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

On 6 March 2018 I laid a direction before Parliament using the powers conferred by sections 77(1) and (2) and 78(5) and (6) of the Financial Services Act 2012 (“the Act”), to require that the Prudential Regulation Authority (“the PRA”) should undertake an investigation into supervision of the Co-operative Bank plc between 2008 and 2013. The direction required that the PRA appoint an independent person to undertake the review and that the review should be completed within one year. The PRA appointed Mr Mark Zelmer, a former Deputy Superintendent of the Office of Superintendent of Financial Institutions, Canada, and previously a senior official at the Bank of Canada, to undertake the review.

The PRA presented the completed report setting out the findings of the review to HM Treasury on 4 March 2019. In accordance with section 82(6) of the Act I have today laid the report before Parliament. Copies of the report are available in the Vote Office and Printed Paper Office and as required by section 82(2) of the Act the report will also be published on the Government website.

The report makes detailed recommendations for the PRA and the Bank of England (“the BoE”) relating to supervisory policy and practice. The PRA and the BoE welcome the Report’s recommendations and have today published a document responding to them.

https://www.bankofengland.co.uk/prudential-regulation/publication/2019/pra-and-banks-response-to-the-independent-review-of-the-co-operative-bank.

The Financial Conduct Authority has also welcomed the report. While the report contains no formal recommendations for HM Treasury, Mr Zelmer observes that in future relevant authorities should continue to engage early and regularly on firm-specific issues where necessary. The Treasury agrees with this observation, while ensuring that we continue to respect the independence of the regulators.

I would like to thank Mr Zelmer for his work in undertaking the review and producing this report.

[HCWS1457]

FCA: Retained Provisions of the Consumer Credit Act

John Glen Excerpts

Monday 25th March 2019 Written Statements

[The Economic Secretary to the Treasury (John Glen)]

In 2014, the Government fundamentally reformed the consumer credit market, by transferring regulation from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). This more robust regulatory system is helping to deliver the Government’s vision for a well-functioning and sustainable consumer credit market which is able to meet consumers’ needs.

As part of the transfer, the FCA was required in regulation 20 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014 to undertake a review of the “retained provisions” of the Consumer Credit Act 1974.

In February 2016 the FCA published a Call for Input setting out its approach and seeking responses from stakeholders. In August 2018, the FCA published an interim report, which set out initial views and invited feedback. The FCA has now completed this review, and the Treasury has laid the final report before Parliament. Copies of the document are available in the Vote Office and the Printed Paper Office.

The Government welcome the FCA’s report, and the significant analysis undertaken by the FCA during the course of the review. The Government will consider the report and whether further reform of the consumer credit regulatory regime is needed.

[HCWS1442]

Draft Electronic Commerce and Solvency 2 (amendment etc.) (EU Exit) Regulations 2019

John Glen Excerpts

Wednesday 20th March 2019 General Committees

[The Economic Secretary to the Treasury (John Glen)]

I beg to move,

That the Committee has considered the draft Electronic Commerce and Solvency 2 (EU Exit) Regulations 2019.

It is a pleasure to serve under your chairmanship this afternoon, Mr Bailey.

As the Committee will be aware, the Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018 to deliver that, and a number of debates on statutory instruments have been held in this place and the House of Lords. This statutory instrument is part of that programme.

These draft regulations will fix deficiencies in UK law on the financial services elements of e-commerce, to ensure they continue to operate effectively post-exit. The statutory instrument also fixes deficiencies in an EU Commission delegated regulation that sits under the EU securitisation regulation and sets out further detail of the Solvency 2 regime. The approach taken in that legislation aligns with that of other statutory instruments laid under the EU (Withdrawal) Act 2018 to provide continuity by maintaining existing legislation at the point of exit, but amending it where necessary to ensure that it works effectively in a no-deal context.

On the substance of the statutory instrument, currently the electric commerce directive 2000 implements a regime to facilitate greater cross-border e-commerce activity in the EEA. E-commerce refers to commercial activity that takes place online only. The regime allows EEA firms to undertake online-only activity in an EEA state other than their home state, without being subject to regulation in that EEA country, on the basis that such firms will be subject to relevant regulation in their home state. In the field of financial services, that means that an EEA firm, excluding Solvency 2 insurers, can undertake online-only activity in the UK without needing authorisation from the Financial Conduct Authority. That is implemented in UK legislation through a provision in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, which excludes EEA e-commerce firms from needing FCA authorisation.

In a no-deal scenario, the UK will be outside the EEA and not subject to the e-commerce directive. As a result, the reciprocal arrangement that permitted EEA e-commerce providers to operate in the UK without being regulated in the UK will no longer be valid. The exclusion in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 will therefore be revoked, to prevent EEA e-commerce financial services providers from being able to undertake online-only financial services activity in the UK without the appropriate authorisation from the FCA.

This statutory instrument amends an EU Commission delegated regulation that provides further detail on the provisions of Solvency 2. One provision of that delegated regulation sets out requirements for investments in securitisations that no longer comply with the risk-retention and qualitative requirements. Those requirements relate to changes introduced by the EU securitisation regulation —a piece of legislation that is being domesticated through an earlier statutory instrument.

With regard to the e-commerce directive, these draft regulations therefore revoke article 72A of the Regulated Activities Order, where the exclusion for EEA e-commerce financial service providers from the UK regulation lies. In addition, this statutory instrument revokes the bulk of the regulations in the Electronic Commerce Directive (Financial Services and Markets) Regulations 2002, which gave the FCA rule-making powers pertaining to incoming EEA e-commerce financial services providers. Those will no longer be relevant post-exit.

However, to help protect the interests of UK customers of EEA financial services firms, and those firms themselves, it is also necessary to implement a regime that allows contracts taken out under the current exclusion to continue to be legally serviceable. As such, this statutory instrument will implement a run-off regime, to allow EEA e-commerce firms legally to service financial services contracts that were taken out before the commencement of the instrument, and which utilise the exclusion in the Regulated Activities Order for a limited period of time.

Pre-existing financial services contracts taken out under the e-commerce exclusion will continue to be excluded from the scope of regulated financial services activities under the Financial Services and Markets Act 2000. The run-off regime is similar to the contractual run-off established by the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, which was debated by this House. This will enable EEA providers of e-commerce activity of a financial services nature to wind down their UK operations in an orderly manner. That will provide certainty and fairness to both providers and users of financial services, and demonstrate that the UK remains open for business and takes legal certainty and business continuity seriously.

The draft regulations also make minor changes to a Commission delegated regulation related to Solvency 2, to reflect changes introduced by the securitisation regulation. Specifically, the regulations correct a cross-reference and add references to the UK regulators. Those changes are necessary as they were not included in the statutory instrument related to the EU securitisation regulation. The Treasury has been working very closely with the Financial Conduct Authority in drafting this instrument, and February it published the instrument in draft, along with an explanatory policy note to maximise transparency to Parliament and industry.

In conclusion, the Government believe that the proposed legislation is necessary to ensure that online-only e-commerce financial services contracts taken out between EEA firms and UK consumers can continue to be legally serviced, and that the legislation, including retained EU law, will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope colleagues will join me in supporting these regulations and I commend them to the Committee.

--- Later in debate ---

[John Glen]

I thank the hon. Member for Oxford East and the right hon. Member for North Durham for their questions, which I will endeavour to answer.

As has been the norm, we have exchanged an analysis of the nature of this process, and the desirability of it. I think it was back in October that the hon. Member for Glasgow Central (Alison Thewliss) asked what the point of it was. I must admit, I have had some reflections on that myself. However, we are getting to the end, with the 54th statutory instrument and the 33rd Committee today. We have systematically brought SIs to Committee under the powers of the European Union (Withdrawal) Act 2018 and, as the hon. Member for Oxford East has shown, we have constructively scrutinised them. We have not agreed on every occasion, but I have sought to do that in as professional a way as possible in the circumstances. I will now examine the points that she has made.

On how the SI is named, I recognise the issues with Google but, as is the case with other pieces of legislation under this programme, it is necessary to group certain provisions together. I am not familiar with precisely how they are named. It is not a process that I have been involved in personally, but I imagine that there is a certain set of protocols, and I recognise that it is rooted in legal language. I cannot say more than that.

On the impact of no deal on e-commerce providers, those established in the UK will lose their exemption from other EEA countries’ laws that fall within the co-ordinated field as defined in the e-commerce directive. UK e-commerce firms will therefore want to prepare by checking for any compliance issues or additional legal requirement that they need to comply with in each EEA country in which they operate. UK providers of online services to EEA countries will need to continue to comply with a range of EEA countries’ individual legal requirements relating to online activities that already fall outside the scope of the directive.

The purpose of the directive was broadly—I think this touches on another point that the hon. Lady raised—around the alignment between different regulators. The purpose was to say that the domestic national competent authority regulator in an EEA country was sufficient in order to conduct financial services trade online with a UK consumer. That has been the broad understanding to this point. Obviously, if we entered into the undesirable no-deal situation, further legislation will be needed to safeguard UK consumers.

The hon. Lady asked why the changes to the Commission delegated regulation were not introduced in the securitisation regulations. The changes that needed to be made to the delegated regulation required further analysis which, due to timing constraints, the Government were unable to complete by the time those regulations were put before Parliament. To ensure that all relevant amendments were captured the Government therefore decided to spend more time on that analysis, and to introduce the changes through a further SI.

I have never said that this is a perfect process. We always envisaged, when we timetabled the SIs, that there would be a few at the end that would allow us to make provision where there would be some degree of aggregation. I recognise the hon. Lady’s point that the neatness, suitability and desirability of it at this stage is not as clear as it could have been, but that was an inevitable consequence of laying 1,000 pages of SIs in this condensed period.

[Anneliese Dodds]

I am sorry to rewind the Minister a bit, but I was not sure when he had finished his previous point. Just to be absolutely clear, we have been able to get some agreement, as I understand it, from the EU-level regulators that there would be reciprocal provisions on some other areas of financial services. Is the Minister suggesting that in this area we do not yet have that kind of agreement, and therefore that there could be problems with the continuation of contracts unless agreement is reached with those other regulators?

[John Glen]

In terms of reciprocity in a no-deal situation, actions taken in recent days and weeks give us that equivalence assessment. The scope and effectiveness of those going forward would not be fully compliant. We would then be in a situation, in the case of no deal, where we would need to undertake considerable examination and further legislation in that context.

On registration, EEA firms will need to notify the FCA but they will not need to register. That will not incur a fee. The right hon. Member for North Durham raised a number of points about evaluation and the time of the run-off. The maximum length of the run-off is five years. It is that long because of the scope of the contracts that could be involved.

The hon. Member for Oxford East asked about the assessment the Treasury had done of the number of contracts between UK consumers and EEA firms. It is very small because most UK consumers would not be comfortable entering into that sort of contract with an online-only company in the EEA. Our assessment and that of the FCA is that that number is, therefore, very small.

The right hon. Member for North Durham mentioned the territorial application of the legislation with respect to overseas territories. The SI does not affect the law in Gibraltar or the Crown dependencies, being Jersey, Guernsey and the Isle of Man. I do not know about the overseas territories. I do not know whether Gibraltar is a proxy for all of the overseas territories—I imagine so. I will write to clarify that matter because I do not wish to mislead the right hon. Gentleman.

We had a de minimis impact assessment because we anticipated very few contracts due to the limitations of the online activity and online-only business that exists. We expect EEA firms to use passporting instead of the e-commerce exclusion. I am happy to examine the matter in more detail. I will write to the right hon. Gentleman on that point and acknowledge that my answer is not adequate.

I hope I have answered hon. Members’ questions. I recognise this has been a long and arduous process. I would like to put on record my respect and thanks to the hon. Member for Oxford East for the constructive and thorough way in which she has taken the matter on and how we have engaged in these Committees.

I would also like to acknowledge the considerable support I have had from hon. Members on the Government side of the Committee, in particular the Lord Commissioner of Her Majesty’s Treasury, my hon. Friend the Member for Calder Valley, who has been with me on every single one, and the various Parliamentary Private Secretaries who have supported me.

I am not taking for granted that the Committee will agree the SI this afternoon but, in conclusion, I would say that we do need it to ensure that EEA firms providing e-commerce of a financial services nature can continue legally to service their contracts, and that the legislation functions appropriately if the UK leaves the EU without a deal or an implementation period. The SI also ensures that retained EU law remains accurate if the UK leaves the EU without a deal. I hope the Committee found my answers and explanation satisfactory and will agree the regulations.

Question put and agreed to.

Clydesdale Bank and SMEs

John Glen Excerpts

Tuesday 19th March 2019 Commons Chamber

[Angela Crawley (Lanark and Hamilton East) (SNP)]

(Urgent Question): To ask the Economic Secretary to the Treasury if he will make a statement on Clydesdale Bank’s treatment of small and medium-sized enterprises.

[The Economic Secretary to the Treasury (John Glen)]

The Government are committed to ensuring a strong, diverse and dynamic economy, where small businesses can access the credit they require in order to prosper and grow. As such, we expect the highest standards of behaviour across the financial sector, which is why a number of necessary changes have been introduced to restore public trust in financial services, such as the senior managers and certification regime. Although it would be inappropriate for me to intervene in individual cases, particularly when they are subject to ongoing legal proceedings, we must always remember the human element to each case. That is why the Government have been consistently clear that, where there has been inappropriate treatment of SMEs by their bank, it is vital that those businesses can resolve their disputes and obtain fair redress.

At the Budget last autumn, the Government set out their support for the Financial Conduct Authority’s plans to expand eligibility to complain to the Financial Ombudsman Service to small businesses and micro- enterprises. This will ensure that, from 1 April 2019, well over 99% of all UK businesses will have access to fast, free and fair dispute resolution. The Government have also been clear that banks need to work hard to restore businesses’ trust in their institutions, and have welcomed the banking industry’s commitment to establish two independent voluntary ombudsman schemes to resolve SME disputes.

I am extremely pleased that last week my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) agreed to sit on the steering group responsible for implementing these schemes, alongside Nikki Turner from the SME Alliance. That follows several months of intense engagement with the all-party parliamentary group on fair business banking. Although eligibility for the scheme to address historical complaints will need to be determined on a case-by-case basis, I encourage all SMEs that believe that they are eligible to apply once the scheme is up and running in September.

I am pleased that the sale of loan portfolios to third parties is now covered by the standards of lending practice—overseen by the Lending Standards Board—to which Clydesdale is a signatory. That means that it is now committed to ensuring that third parties that 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. I can also confirm that Andrew Bailey of the FCA has spoken to Clydesdale about the case in question.

The Government are not complacent about this serious matter. We will monitor the implementation of these new or expanded dispute resolution schemes, and we will continue to remind banks of the importance of restoring SMEs’ trust in them.

[Angela Crawley]

I asked for this statement on Clydesdale Bank’s treatment of SMEs in the light of my constituent John Guidi’s hunger strike in protest at his treatment by Clydesdale Bank and Cerberus Capital Management. I am aware that aspects of Mr Guidi’s case are sub judice, so I do not intend to refer to the specifics in any way that would prejudice the case.

In 1998, John Guidi built a business in the west of Scotland with a portfolio of almost 150 properties. Clydesdale Bank backed that business from the very beginning. Mr Guidi has told me that he was treated by bank chiefs as “a model customer”, and in only 15 years he built a property business worth £16 million. He never missed a payment, was in regular communication with bank bosses and appeared to have a great relationship with the organisation.

My constituent informed me that Clydesdale Bank changed the structure of his loans in 2002, introducing him to the tailored business loan. In 2014, Clydesdale Bank sold its tailored business loans to Cerberus Capital Management—an American private equity business. Mr Guidi says that this organisation aggressively pursued the debt and subsequently put his company into receivership a few months after purchase. As a result of my constituent signing a guarantee, he has personally been made bankrupt, and the company is pursuing his family home. He only has a few weeks before he is evicted and has taken the decision to start a hunger strike in protest.

This tragic case brings attention to the vulnerability of UK businesses to abusive treatment by lenders and vulture funds, and the inadequacy of current regulation in preventing it. Sadly, John is not alone. There are hundreds of people across the UK whose tailored business loans were sold by Clydesdale Bank to Cerberus Capital Management. Since 2010, Cerberus has acquired more than 1.2 million distressed or non-performing loans, worth more than $80 billion. Simply put, Cerberus is the world’s largest debt collector.

As we all know, so-called distressed loans are often anything but. Since the banking crisis of 2008, we have seen a sorry catalogue of thousands of instances in which banks have forced legitimate borrowers into distress through no fault of their own, and because loans to SMEs are not regulated properly, the customers have little or no redress. John now finds himself in that category. All he wants is a fair say before he loses his family home. He has requested that his case go to an independent arbitrator for a review.

Will the Minister join me in calling on both Clydesdale Bank and Cerberus to engage with my constituent urgently, and will he meet John to discuss how the lack of regulation in the banking industry has destroyed his business? Finally, is now not the time to pursue an independent financial tribunal to ensure that my constituent can receive adequate remedy from the dispute resolution of his case?

[John Glen]

I thank the hon. Lady for her points, and I will try to address them all. The decision to develop the dispute resolution service was taken carefully, after a lot of engagement with the industry. I am obviously aware of the press coverage around the case and of the extremely difficult circumstances faced by her constituent. I understand that enforcement action is currently on hold as legal proceedings have been brought against Clydesdale and Cerberus. I also understand that Clydesdale and Cerberus have offered to meet Mr Guidi.

The hon. Lady raises a number of points about a preferred alternative mechanism for resolving such situations. It is common across all jurisdictions for banks to sell off parts of their portfolio of debt at times. The question becomes what the appropriate mechanisms and safeguards are in those cases. The sale of debts to third parties is covered under the standards of lending practice, to which Clydesdale is a signatory. That means that it is committed to ensuring that third parties that 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 between the business and the third party that cannot be resolved.

I am very happy to meet the hon. Lady to go through the full extent of her outstanding concerns on the matter. I take the issue and this case very seriously.

[Guto Bebb (Aberconwy) (Con)]

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on raising this urgent question. As somebody who was involved with the all-party parliamentary group on fair business banking back in 2012 and 2013, the fact that we are still talking about businesses that were sold TBLs which have not received redress is somewhat shameful. I appreciate the very constructive comments made by the Minister. I also congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on his work as chairman of the all-party group. Is it not the case that these issues could have been resolved much earlier if, for example, the FCA had included TBLs in its original redress scheme, and would that not have resolved some of the issues now being faced by constituents of Members across this House?

[John Glen]

I acknowledge my hon. Friend’s long-standing efforts in this area. Before I was a Minister, I was a member of that APPG. The whole range of dispute resolution mechanisms that have taken place over the past 10 years all seem to have a very different story. As the Minister responsible, I was keen to ensure that we had a meaningful historical redress mechanism that would give discretion for the banks to examine these individual cases. I was also very keen that this House should be represented on that group. That is why having my hon. Friend the Member for Thirsk and Malton, with representatives from the SME Alliance, involved will allow full scrutiny of all the cases that have not been resolved adequately.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I thank the hon. Member for Lanark and Hamilton East (Angela Crawley) for securing this urgent question and for being a firm advocate on behalf of her constituent.

All people and all businesses in the UK deserve a mechanism that provides them with access to justice in the event that they end up in dispute with their financial services provider. Under your guidance, Mr Speaker, I will not comment on the specifics of the Guidi case. However, as many Members are aware, the issue of redress for SMEs against banks and other financial services providers is one that we have discussed in this place many times. At present, too many businesses are caught between the threshold for using the Financial Ombudsman Service and the cost and difficulty of using the full legal process to pursue a claim. So this issue is about more than just one case.

We must take decisive action to draw a line under historical cases like these, as well as ensuring that we have an adequate system of redress going forward. If we do not, then we have no hope of restoring the trust and confidence in business banking that this country so desperately needs. The debates that we have held so far have revealed a substantial coalition across the House for a full tribunal system, alongside a historical case review, that would look again at cases that have been settled by internal bank review processes. The Labour party, the Scottish National party, the Liberal Democrats, the Democratic Unionist party and many individual Conservative MPs certainly hold that view; it is only the Government who do not.

I therefore have some questions for the Minister. First, do the Government agree with the Opposition that where there is evidence from complainants, the historical review process should be willing to consider cases going back to 2000? At present, only those going back to 2008 would be eligible. Secondly, are the Government willing to reconsider their view on the establishment of an independent tribunal system for dispute resolution in order to level the playing field between businesses and their banks? Thirdly, have the Government listened to those people arguing that the expansion of the ombudsman service alone will not solve the problem, as it does not have sufficient resource and capacity to get to the root of the problem, and the mooted compensation cap by the Government looks far too low?

Most of all, do the Government acknowledge that MPs want to see some real action and progress on this? It is disappointing that despite many hours of parliamentary debate and consensus on what must happen next, with agreement stretching across the Treasury Committee, the Opposition, the Financial Conduct Authority, the major banks themselves, such as TSB and Metro, and the all-party parliamentary group on fair business banking, the Government are still reluctant to join this consensus. We all want to be able to tell our constituents that these issues are resolved and simply will not be allowed to happen again.

[John Glen]

I thank the hon. Gentleman for his comments. I always listen very carefully to the constructive way that he presents his case.

Let me address the hon. Gentleman’s three core questions. First, the historical review process has been as set out, but there is discretion within that. I know that there will be a lively discussion at the first board meeting about how the handling of past cases will be considered. In terms of the disputes over how to resolve this, the role of the Financial Ombudsman Service is being expanded. Its representatives were in Parliament last week offering access to colleagues across the House, and I have visited them to examine what they are doing to recruit the extra resources needed to deal with this extra category. I think that this will work; I would not have made the decision otherwise. The other key consideration I have to balance is about the rapidity and efficiency with which the vast majority of cases—we are talking about 99% of businesses with a turnover of up to £6.5 million—will be able to get a resolution. That is why I think that the ombudsman service is the right way to go forward.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I thank the Minister for all the work he has done in this area. I do feel that we are making progress, but, understandably, the jury is out until we get to the place we need to be. I also thank the hon. Member for Lanark and Hamilton East (Angela Crawley) for tabling such an important question today. There are many issues with this. The case concerned follows a typical pattern. Over 10,000 of these tailored business loans were sold to businesses. It may be impossible for these businesses to refinance because of the exit fees. Personal guarantees were then required, and finance was withdrawn despite the fact that the businesses had never missed a payment. The FCA has looked at this and has said that these cases should be considered by the new dispute resolution scheme, which is good news for many people. I ask the Minister to impress on UK Finance that it makes sure that it suspends any proceedings in any of these cases until they have been reviewed.

[John Glen]

Again, I thank my hon. Friend for the work he has done in this area. I met representatives of UK Finance just a few hours ago, and I am aware of his correspondence overnight on this issue as he joins the board imminently. The key concern I would have is the extrapolation of one case, or a few celebrated cases—tragic cases—to say that they are normative of practices across the sector as a whole. He smiles because he knows that is a conversation we have had frequently. This historical dispute resolution mechanism is not designed as some sop, but as a meaningful mechanism to interrogate wrongdoing in the past and seek resolution for those individuals who remain dissatisfied.

[Kirsty Blackman (Aberdeen North) (SNP)]

I congratulate my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) on securing this urgent question.

The issue of transferring funds to an organisation such as Cerberus is far from the only one. The hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned businesses that did not have any debt issues whose loans were restructured and who were offered incredibly high and arbitrary repayment terms with incredibly high interest rates. That was completely inappropriate. The restructuring of debt should be tackled in the first place, and not just the transferring over. Nobody should be in the situation in which my hon. Friend’s constituent found himself.

The Minister said that these cases are not necessarily indicative of how everybody has been treated, but we have seen enough of them coming forward, and enough people losing their homes, losing their families, and, in some cases, losing their lives as a result. We know as parliamentarians that we see only the tip of the iceberg in the cases that come into our offices, and that there are probably many, many more that we have not seen and have not raised here.

It is clear from cases like the one that my hon. Friend describes that any system of voluntary redress is not working, and is probably not working in many of the cases that we see coming into our offices. I am concerned that the issue with voluntary redress schemes will also happen with the ombudsman scheme given that it is voluntary and not as all-encompassing as it could be. The Government can still take action and save face. What the Minister has said about the ombudsman system is interesting, but it is not the independent tribunal that we on the fair business banking APPG have been calling for. It does not go far enough on that basis.

The other thing that the Government have failed to do so far is to bring forward a massive, comprehensive review of banking culture to ensure that nothing like this happens again in future so we know that SMEs will not be treated in the same way as they were previously. It is incredibly important for our economy that SMEs can borrow, and they will not be able to do so if they do not trust the banking sector to treat them fairly. If the Government have to step in and ensure that this happens, then that is what needs to happen.

[John Glen]

I thank the hon. Lady for her comments. There are two things there, and one is the adequacy of the voluntary mechanism. To be fair, it is unclear how it will play out, because it has only just been established. I see from my engagement with the chief executives and chairmen of the banks a massive desire to ensure that this has teeth and can deliver. This is not about the Government saving face. It is about ensuring that this process is effective. I will have deep engagement with and take a close interest in this process, because it must be effective and thorough in its examination of these cases.

I take the wider point that the hon. Lady makes about banking culture. A lot has changed in the last 10 years, and many of these cases arose before that. We now have a very different regulatory environment, with the Prudential Regulation Authority and the FCA, which has changed things considerably, but I will reflect carefully on her comments.

[Stephen Kerr (Stirling) (Con)]

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on securing this urgent question. I had the opportunity recently to meet her constituent John Guidi, and I express my strongest concern for his welfare. Does the Minister accept that just one such example makes the case for introducing a financial services tribunal, to allow business owners to challenge financial institutions and have confidence that they will always be treated on the basis of fair play and justice?

[John Glen]

I have extreme sympathy for everyone who has had the sort of experience that this constituent has had, but I do not think it is right for any Government to make policy on the basis of one case. It is incumbent on Government to set out a framework and a policy that will deliver real answers to complex questions. I do not accept that the regulation of bank lending would be a good step forward. I understand the argument that it would give certainty to small businesses, but my view is that it would discourage a lot of lending, because there would not be the same appetite for lending if that regulation was as onerous as it would likely be.

[Martin Whitfield (East Lothian) (Lab)]

I join others in congratulating the hon. Member for Lanark and Hamilton East (Angela Crawley) on securing this important urgent question. We license and regulate banks to protect customers and because our economy requires SMEs to work as well as they do, but we also need to level the playing field of power between banks, SMEs and individual customers. There is overwhelming evidence that the banks have abused their position of power in the past. If I was at my most sympathetic, I would say that trust in the banking system is at breaking point. I actually fear we have gone beyond that. Is the Financial Conduct Authority really the answer to this, or has the time not come to have a financial services tribunal that SMEs, individual customers and banks can trust to resolve these problems, so that we can move forward?

[John Glen]

I have listened carefully to the hon. Gentleman a number of times. As I have said to him previously, we need an effective mechanism that small businesses can get reliable and efficient access to and answers from. I have seen the investment that has gone into the expanded provisions of the ombudsman service. I know that he is not convinced, but this matter is not set in stone forever. Obviously the service needs to deliver. In my conversations with the chief executive of the ombudsman service, as in my conversations with UK Finance and the chief executive of every bank, I have said that this is the top priority in this area of my portfolio.

[Paul Masterton (East Renfrewshire) (Con)]

Thank you, Mr Speaker, for granting this urgent question. I have met too many individuals in my constituency who ran serious, sensible businesses and were a model in their borrowing but whose lives have been ruined by the behaviour of unscrupulous banks. Thank you for giving us the opportunity to air this on the Floor of the House.

I understand from my constituent Ian Lightbody that, despite the tireless efforts of him and his CYBG Remediation Support Group, they have not had the courtesy of a response from the CEO and chairman of CYBG, which sums up the complete contempt and disregard of Clydesdale Bank’s senior management for small business owners. Will the Minister join me in demanding that the bank, as a first step, shows some courtesy to these individuals and at least engages with them?

[John Glen]

Yes. I am happy to take up the case of Mr Lightbody and ensure that he gets a conversation with the right people.

[Wes Streeting (Ilford North) (Lab)]

It is not just in calling for a financial services tribunal that the Treasury Committee has joined the consensus. We have also echoed the concern, based on widespread evidence we received, that the regulatory perimeter needs to be looked at in respect of commercial lending. We urged the Government not to adopt a “wait and see” approach. Having looked at the Government’s response to our inquiry into SME lending and listened to the Minister this afternoon, I think the Government do indeed appear to be taking a “wait and see” approach. When will we see more concrete action to give all business owners the confidence they need that whenever malpractice occurs—it does occur, and it is too widespread—they will see justice and accountability?

[John Glen]

I thank the hon. Gentleman for his question. I have set out the expanded remit and role of the ombudsman service and the extension of the money that can be provided. I have also set out the engagement I have had with UK Finance on historical cases. I respectfully say to him that these are very early days—it is only two months since this decision was made, and I look forward to seeing urgent progress.

[Norman Lamb (North Norfolk) (LD)]

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on asking this important question. Along with effective dispute resolution, a properly functioning banking and financial services sector that commands the trust of the British people relies on brave individuals who are prepared to blow the whistle on wrongdoing within the institutions where they work. Does the Minister agree that it has become increasingly clear that we need enhanced protection so that people feel able to speak out and a regulator that is prepared to stand up for, support and protect whistleblowers when the going gets tough?

[John Glen]

I recognise that we need in the Financial Conduct Authority and the PRA regulators that are able to take appropriate action in a timely way to deal with disputes where they have responsibility. I have regular conversations with the FCA and encourage it to look at different matters. I will obviously be concerned about how the expanded ombudsman service and the redress mechanism work, and nothing is ruled out in the future.

[Joanna Cherry (Edinburgh South West) (SNP)]

I congratulate my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) on securing this important urgent question. Like many Members, I have constituents whose businesses were successful and would not have gone under had the banks not mistreated them. Does the Minister agree that the FCA should issue strict guidance that the banks should not destroy any documentation relative to ongoing disputes before the historical compensation scheme is established, and if they do so, they should be sanctioned?

[John Glen]

The hon. and learned Lady makes a reasonable point. It would be perverse to shred relevant materials in the context of a provision that they have entered into freely, showing a lot of good will, to try to find resolution and get to a better point of trust between the public and themselves.

[Christian Matheson (City of Chester) (Lab)]

This is not just about one case. The description that the hon. Member for Thirsk and Malton (Kevin Hollinrake) gave of the sale of tailored business loans is identical to the case of my constituent. Furthermore, that constituent has clear, documented and contemporaneous evidence of deliberate false representation by the bank to the Treasury Committee, the Financial Ombudsman Service and the FCA. I venture to say to the Minister, for whom I have a lot of respect, that this is widespread across the banking sector. We have seen the activities of the Royal Bank of Scotland Global Restructuring Group in attacking SMEs. Much as I support the idea of a tribunal, surely now is the time to go further and have a full public inquiry into the character of banking.

[John Glen]

I thank the hon. Gentleman for his comments. The key issue for many of these people, who have been waiting for a very long time—sometimes up to 10 or 11 years and longer—is to make sure they can get access to a mechanism that interrogates the evidence and deals with it swiftly. I was not indicating to my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) that we should not say there are not parallels or themes, but I just feel that we have to look at the evidence on a case-by-case basis. I am certain that there is good will in the dispute resolution mechanism to interrogate thoroughly past cases that are unresolved.

[Sammy Wilson (East Antrim) (DUP)]

We acknowledge the work that the Government have done to date, and the point the Minister made about the need to strike a balance between banks being able and encouraged to lend and, at the same time, meeting the interests of their customers. Does he agree with me that an equally important balance is that between powerful financial institutions that have all the resources—and sometimes the resources of the state—behind them and small businesses that have been damaged economically by the actions of those banks and very often do not have the resources to fight back? Despite all the measures undertaken, 10 years down the line many are still seeking redress, still finding themselves blocked by the actions of the banks and now, ahead of the historical compensation scheme coming in, finding themselves forced into the courts and perhaps having their cases dealt with before the scheme comes in. Does he not agree that now is the time for an independent financial services tribunal, and for the FCA to make it clear to the banks that, ahead of the historical compensation scheme coming in, no further court action should be taken against individuals?

[John Glen]

I believe the dispute resolution service that has been set up gives the scope to go back over 10 years of disputed cases, and there is a desire to provide quick access. As the right hon. Gentleman points out, some of these cases have been going on for far too long. The situation is that the banks were in a very bad place with respect to the power they wielded over individuals and small businesses. They want to sort this out, and that is why they have engaged constructively in the construction of this dispute resolution service.

[Bill Esterson (Sefton Central) (Lab)]

Like other Members who have spoken, I have a number of constituents whose businesses were ruined by the actions of the banks. I think this is a much larger-scale problem than the Minister perhaps implied in some of his earlier answers. It is about an imbalance of power in the relationship between the banks and their customers. The banks have had years to provide redress and they have had years of a voluntary system in that regard, so how is a new voluntary tribunal system going to provide the redress the banks need to provide? Surely the time will come when the Minister will need to make this a mandatory system to provide the justice needed by small business customers who were ruined?

[John Glen]

We have not in recent times had a system set up to give quick access in relation to disputes over the past 10 years, and my concern was to provide something that is effective and deals with all the issues that have been raised over the time I have been in office.

[Stewart Hosie (Dundee East) (SNP)]

Given the personal cost of this—destroyed businesses, personal bankruptcy, mental health pressures, suicide and now a hunger strike—many of these people will not have the ability or the stomach for a historical review. Moving forward, may I tell the Minister that there is little confidence, including from the Treasury Committee, that the FOS has the ability, capacity or expertise to do the work it has been asked to do? I hope the Minister will listen—I am sure he will—to those in all parts of this House who are saying there is now an unanswerable argument for an independent financial services tribunal.

[John Glen]

I thank the hon. Gentleman for his question, and I have responded to I think nine debates in this Chamber and in Westminster Hall on this matter. I am very aware of the pitch and the breadth of concern that exists on this matter and the urgency in getting some outcomes that actually deliver for our constituents, and I will continue to work towards that aim.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

I think the hon. Member for City of Chester (Christian Matheson) hit the nail on the head. Let me give the House an example. A couple of years ago, when the Clydesdale proposed to shut its branch in my home town of Tain, I had a meeting with it and representatives of a highly successful local fish-processing business, and the Clydesdale was at pains to say, “Yes, we’re going to shut the branch, but you can use the post office locally.” Well, a fat lot of good that was, because the post office was too small, and I have raised that several times in this House. Now, in the next few days, that post office is going to close, and we will have no Clydesdale branch and no Royal Bank of Scotland branch in my home town. What good is that to SMEs? It is useless for business. I back the hon. Gentleman all the way: the time has come for a full inquiry into these banks, which, in my opinion, are completely out of control.

[John Glen]

As has been discussed in numerous debates, the changing face of the high street bank causes considerable concern for our constituents. We have a protocol in place on the relationship with the Post Office and, from memory, I think something like 97% of people in this country live within three miles of and have access to a post office. I think the hon. Gentleman needs—

[Jamie Stone]

Not in my constituency.

[John Glen]

The hon. Gentleman needs to reflect on the fact that there will not be a one-size-fits-all approach across the whole of the United Kingdom, and the banks are willing to look at individual solutions in different circumstances. I would be very happy to meet him to discuss that further.

[Peter Grant (Glenrothes) (SNP)]

There is probably no more appropriate Member to have raised this than my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) because, as Members will appreciate, Clydesdale is in fact the historical name for a great part of the constituency that she represents.

Does the Minister accept that no form of redress can ever be good enough once a business has gone bust and the owners of the business and their families have been put through 10 years or more of hell? What assurances can he give us that any future scheme of redress will become active and effective when there is still time to save businesses that, in the vast majority of cases, have operated lawfully within the rules and have been successful businesses? These businesses would not have been targeted if they had not been successful.

[John Glen]

I am grateful to the hon. Gentleman for his question. He expresses exactly why I think it is so urgent that we get on and get the banks to engage in this historical dispute resolution mechanism and look at the detail, so that they are in a position to give compensation urgently. People have been waiting too long, and where such evidence exists, the banks need to respond appropriately and swiftly.

[Jim Shannon (Strangford) (DUP)]

First, I thank the Minister for his response on these issues. As he knows, I have met him on a number of occasions with my constituents to do with their problems, and I just want to put on the record the desperation that they feel. Yesterday, some of them attended the Irish schools— St Patrick’s Day—cup final to protest about Danske Bank, with “Shame on you” on their yellow hi-vis vests to highlight the issue. The Minister quite clearly knows that their story is dreadful—he has seen it—as it all too often involves health issues. When it comes to financial redress, it is compensation we are after. Has the Minister had any opportunity to address the issue of compensation, particularly the issues of the Danske Bank in Northern Ireland, which has false-changed my constituents?

[John Glen]

I do not personally have investigative powers, but I do recognise the need to have compensation. That is why we have an increased compensation threshold in the Financial Ombudsman Service, and nothing is ruled out with respect to the resolution mechanism. I would like to acknowledge the work that the hon. Gentleman puts in, and I thank him for his email at 9 am on Boxing day, but I was just surprised he had a day off.

Treasury

John Glen Excerpts

Monday 18th March 2019 Ministerial Corrections

The following is an extract from the First Delegated Legislation Committee on the draft Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019.

[The Economic Secretary to the Treasury (John Glen)]

Any amendments to fix the exit deficiencies would have to be made known to the Treasury, and any new binding technical standards derived from this ongoing review will also have to come from the Treasury and will have to be laid under the affirmative procedure.

[Official Report, First Delegated Legislation Committee, 20 February 2019, c. 9.]

Letter of correction from the Economic Secretary to the Treasury.

An error has been identified in my response to the hon. Members for Glasgow Central (Alison Thewliss) and for Stalybridge and Hyde (Jonathan Reynolds).

The correct statement should have been:

[The Economic Secretary to the Treasury (John Glen)]

Any amendments to fix the exit deficiencies would have to be made known to the Treasury, and any changes to binding technical standards derived from this ongoing review will also have to be made known to the Treasury.

Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019

John Glen Excerpts

Monday 18th March 2019 General Committees

[The Economic Secretary to the Treasury (John Glen)]

I beg to move,

That the Committee has considered the draft Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019.

May I say what a pleasure it is to serve under your chairmanship, Mr Bailey? As the Committee will be aware, the Treasury has been undertaking a programme of legislation to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury has been laying statutory instruments under the EU (Withdrawal) Act 2018 to deliver that, and most of them have now been debated and approved and are in place for exit day should they be needed. The SI being debated today is one of the final parts of the programme. I believe it is the 51st SI and the 31st debate in which I have taken part.

The instrument revokes a number of pieces of UK domestic law and retained EU law that it would not be appropriate to keep on the statute book after exit. It also makes amendments to a number of financial services EU exit SIs to reflect other instruments that have been laid as part of the wider legislative programme, corrects minor errors identified in legislation after making and makes amendments to ensure consistency between EU exit instruments.

Turning to the substance of the SI, it has five main components. First, the SI amends UK domestic law to ensure continuity with other legislation that has been amended under the 2018 Act. Specifically, it makes amendments to primary and secondary legislation that does not fall within the remit of changes made by other instruments. Specifically, the SI removes references to EU institutions and regimes in four Acts of Parliament: the Insolvency Act 1986, the Financial Services and Markets Act 2000, the Income Tax Act 2007 and the Corporation Tax Act 2009. The amendments will ensure that provisions that are irrelevant in a UK-only context are not retained on the UK statute book. The SI also makes minor technical amendments to seven pieces of secondary legislation to reflect changes made by other legislation. For example, it updates the definition of “credit institution” as introduced by the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019.

Secondly, the SI makes minor technical amendments to 12 other financial services EU exit instruments that have been previously debated by the House. A number of the amendments are being made in this instrument because they are consequential on other instruments that have only recently been made, such as the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019. A minority of the amendments correct drafting errors and improve the clarity of drafting. For example, a duplicate provision is omitted from the Bank of England (Amendment) (EU Exit) Regulations 2018, as the same amendment is made by the Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.

At this point, it would be appropriate for me to acknowledge the enormous amount of work done by my colleagues in the Treasury to minimise the number of amendments that have been necessary. We are talking about 10 or 12 in 1,000 pages of SIs.

Thirdly, the SI revokes three UK statutory instruments that relate to EU regimes that will not be applicable to the UK in the event of a no-deal exit, given that they implement EU law that is being revoked at exit day under separate instruments.

Fourthly, the SI makes amendments to or revokes retained EU law to ensure consistency with other EU exit instruments that have been made and to remove references to EU institutions that will no longer be relevant post-exit. For example, part of regulation 33 revokes EU regulations providing for functions and administration of the European Central Bank.

Finally, the SI makes transitional and saving provisions to address deficiencies that arise from the UK’s withdrawal from the EU and to limit disruption to the financial services industry if the UK leaves without a deal. For example, a minor change is made to article 7 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, which excludes deposits held in lawyers’ client accounts from being regulated under financial services law, as they are already regulated by the Law Society. European-registered lawyers are currently included in the exemption, and the SI ensures that the exemption will continue for a limited period after Brexit. A transitional regime is also made for group supervision under the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019, so that where a group is supervised by an EEA supervisor, the relevant provisions that impose requirements on the Prudential Regulation Authority as a group supervisor do not apply for a period of two years after exit day.

The Treasury has worked closely with the financial services regulators in the drafting of the EU exit instruments amended by the instrument. We have also engaged extensively with the financial services industry on the instruments to which the SI relates. In summary, the Government believe that the proposed legislation is necessary to ensure that the UK has a coherent and functioning financial services regulatory regime once it leaves the EU, and that the legislation will continue to function appropriately if it leaves the EU without a deal or an implementation period. I hope hon. Members will join me in supporting the regulations, which I commend to the Committee.

--- Later in debate ---

[John Glen]

I thank the hon. Member for Stalybridge and Hyde for his comments. I acknowledge the courteous and thorough way in which he has gone about his work. Where there have been differences between us, he has raised them in the spirit of constructive scrutiny, and he has worked extremely hard with his team. As someone who was responsible for supporting the shadow Chancellor in a previous era, I know how challenging it is to do that sort of work, so I pay tribute to his office and those who have supported him. I will thank my hon. Friends at a later point, because I still have more to do.

The hon. Gentleman raises significant and substantive points. I cannot assist him with respect to the timing of the Financial Services (Implementation of Legislation) Bill. I acknowledge that the Bill is outstanding, but at this point in time I am not in a position to give him the information he seeks.

The hon. Gentleman referred to the move from negative to affirmative process. I undertake to write to him about that. My understanding is that it was moved in that direction because of the sheer volume of small amendments. I reassure him that it was always envisaged when this process was designed, and when I saw that spreadsheet back in October, that there would be mop-up measures given the nature of the complexity of the exercise.

I reassure the hon. Gentleman that there have been no meaningful policy changes through this SI. These are technical changes, often to remove reference to the EU, and the drafting errors are a significant minority. Nevertheless, I will reflect fully on his comments and where I can offer him some more substantive words of reassurance I will do so.

Having given that response, I hope that the comments I made on the necessity for this SI in ensuring a functioning and coherent legislative and regulatory regime for financial services have been heard. I commend this regulation to the Committee.

Question put and agreed to.

Child Trust Funds

John Glen Excerpts

Wednesday 13th March 2019 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I congratulate the hon. Member for Bishop Auckland (Helen Goodman) on securing this debate; I recognise that she has taken a keen interest in the issue and has been a doughty campaigner on matters of childcare and child poverty, following her 11 months as a Minister in the last Labour Government. I also acknowledge and will try to address the points made by other hon. Members.

The Government share the commitment of hon. Members of all parties to supporting people to save at every stage of life, irrespective of income or background. Financial inclusion is one of my key priorities as Economic Secretary, and in the past year I have met many organisations and experts in the field. I strongly believe that learning financial skills at a young age equips young people to make better decisions when they are older, so I am pleased to have this opportunity to set out the Government’s view.

The Government introduced junior individual savings accounts in place of child trust funds in November 2011, providing continued tax incentives to encourage families to put money away for their children’s future. Under legislation introduced in 2015, existing child trust fund accounts can be transferred into a junior ISA, providing families with the flexibility to choose the right option for their child. The Government also sought to make specific provision for children in care; as the hon. Lady pointed out, we contracted the Share Foundation to work with local authorities to open a junior ISA account on behalf of looked-after children.

The Government currently pay £200 into the accounts of children who have been in care for at least one year. The Department for Education has provided the Share Foundation with funding totalling £531,624 for that administration, and 120,000 payments of £200 have been made to children in care since 2012. We want those children to leave care with money to their name and the means to continue saving as they become independent. I should stress that junior ISAs are just one element of our work to promote financial education among young people. We want all children to enter the world of work understanding the importance of budgeting and saving, so financial literacy is now taught as part of the citizenship curriculum for 11 to 16-year-olds.

Let me turn to the so-called lost child trust funds, which were the core of the hon. Lady’s speech. There are many complex and overlapping reasons for the lack of engagement, but the Government are working with industry to actively seek holders of the accounts. Child trust fund providers are required to send regular statements to the child’s last known address and are taking steps to trace those who have moved. They have a statutory obligation to send such statements on the child’s seventh, 10th and 15th birthday, but in line with Financial Conduct Authority guidance, most do so annually.

The national insurance notification letter that HMRC sends to all 16-year-olds has recently been amended to include details about how child trust funds can be located; the hon. Lady referred to the size and colour of the font used, which is clearly a matter that I can take on board and examine. I also draw hon. Members’ attention to HMRC’s online tracing tool, which is available via gov.uk. Of course, people can still contact HMRC by telephone or post if they so choose.

[Chris Ruane]

May I put to the Minister the same question that I put to my hon. Friend the Member for Bishop Auckland (Helen Goodman)? The Share Foundation was able to give her statistics on the distribution among socioeconomic groups, but when I tabled questions to the Treasury asking for exactly the same information, it was not available. When I asked for estimates by nation and region, that information was not available. When I asked what additional resources had been allocated to assist in locating child trust fund accounts, that information was not available either. Can the Minister supply it today?

[John Glen]

I am grateful for that question about the regional and income breakdown of the distribution of child trust funds. Such information is published by HMRC and discriminates by region and county and by whether additional contributions were made; no income distribution data is collected by HMRC. I am happy to look into the matter further; if I can give the hon. Gentleman any more information, I will write to him.

Looking to the future, approximately 6 million child trust funds have not yet been transferred to junior ISAs. The first of those accounts will mature next September, and a further 55,000 will mature every month thereafter until 2029. What young people choose to do with their money is ultimately a matter for them, but we want them to engage in the process so that they can make the best decision for their individual circumstances.

[Helen Goodman]

As I have explained to the Minister, the problem is that people cannot use the Government website to access their accounts if they do not have a payslip, a P60 or a passport. Will the Minister address that point? Hundreds of thousands of young people will be in that situation.

[John Glen]

The key question is how an individual child knows what they have. The hon. Lady’s allegation is that this money is lost, but it is not lost; it is just that the individuals have not come to the point at which they can engage with it, which will happen at age 16 when they get a letter with their national insurance number. At 16, they are allowed to make decisions about their investment choices for that fund, and at 18 they can access it. They get the letter, along with their national insurance information, at 16, the age when they can start making individual decisions about that money. I think it has been suggested that the Share Foundation should interrogate data from the Department for Work and Pensions, cross-reference it with HMRC’s, and somehow write to these individuals—

[Helen Goodman]

That is not what I said.

[John Glen]

Well, that point has been made in other forums. I am just trying to respond completely to the points that have been raised generally.

[Tonia Antoniazzi]

What plans does the Minister have to encourage eligible parents, and children when they turn 16, to access this money? Is it not the responsibility of the Government to do some kind of public awareness campaign to say, “Hey, look—here’s your investment that the Government made for you. This is how you access it.” Let us make this a can-do exercise.

[John Glen]

The key point is that children have access to this money when they are 18, but can influence decisions about it from the age of 16, when they are paying tax and have a national insurance number. They will gain that access mechanism when they secure their national insurance number. The hon. Member for Bishop Auckland made a point about how this issue should be depicted on the form when 16-year-olds get their NI number, but that number provides the key to unlock awareness of, and access to, the fund that has been invested for them.

[Helen Goodman]

I do not like to denigrate my former profession, but I do not think the Minister has been very well briefed. According to the Share Foundation, the lost accounts of the most wealthy number 54,000, the middle income 560,000, and the poorest 444,000. Those are not families in which the child is already 16 to 18; it includes all families. It means that the addressee has gone away. We do not know whether the address we have got is the right address for that group of people.

[John Glen]

The point I am making is that all individuals, no matter what their background is, will gain access to the funds at the point when they can gain their national insurance number, by reference to the letter that has been provided. I have had extensive conversations with my officials, and I note the hon. Lady’s reference to bureaucrats. She worked for over 20 years at the Treasury—I have the highest regard for it and the accuracy of the material it has given me.

No funds or accounts have been lost. All child trust funds have been managed by child trust fund providers—either by the original provider with which the account was set up, or by a subsequent provider to which the funds have been transferred. There are 69 providers currently managing child trust funds, and the Share Foundation’s analysis appears to be based on accounts held with just one provider: the Share Centre, which represents only 1.5% of the number of accounts. The hon. Lady might want to contradict that by extrapolating the data to all of them, but the Government are working together with the industry to encourage child trust fund holders to re-engage with their accounts.

As I said, we have developed an online tracing mechanism and recently amended the national insurance notification letter to 16-year-olds to include a reference to child trust funds. That happened in January in order to take into account the points raised. Any account holders who are unable to retrieve their account details online are encouraged to contact HMRC directly.

[Helen Goodman]

I have just explained to the Minister that to get through to the website, people must have other documents that—by definition—16-year-olds do not and cannot have. The system is not working. The Minister needs to rethink how the website works!

--- Later in debate ---

[John Glen]

I do not think that the hon. Lady’s raising her voice in an aggressive manner is going to help anyone. I have just set out the Government’s position and explained the detail of the provision. The hon. Lady has extrapolated some figures from one piece of analysis by one of the providers, which is not a reliable way of carrying on. I have told her about the action we took in January.

The issue is not just about the online portal, but about being able to call up HMRC. Last year’s Budget included a commitment to consult on draft regulations that will ensure that investments currently held in child trust fund accounts can retain their tax-free status after maturity. The consultation will take place later this spring, when the Government will lay regulations before the House, well in advance of the first accounts maturing in September 2020.

In summary, both junior ISAs and child trust funds allow parents and guardians to save on behalf of their children, tax free. People have the option to convert their child trust fund into a junior ISA, and we are working with providers to reunite dormant accounts with their intended owners. However, all remaining child trust funds will continue to enjoy tax-free status, even after they mature. The amount that young people can save in child trust funds and junior ISAs will increase by the rate of inflation in April—it is currently £4,260 a year.

[Chris Ruane]

I agree with my hon. Friend the Member for Bishop Auckland that the system is not working. As a way out, would the Minister consider meeting people who have sufficient knowledge—I would include my hon. Friend—or perhaps citizens advice bureaux, the Share Foundation and a panel of parents, so that some answers can be given to the questions that have been raised?

[John Glen]

On behalf of the Under-Secretary of State for Education, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), who is the Minister responsible for this area and is currently before a Select Committee, I would be very happy to offer a meeting with hon. Members to discuss this matter further. It is his responsibility, and I am sure he would be very happy to attend.

We have made efforts to provide young people with savings to draw on as they reach adulthood, and we hope this encourages further saving at every stage of life. The points made by the hon. Member for Bishop Auckland on access have been comprehensively addressed by the Government’s sending a letter to 16-year-olds.

[Helen Goodman]

They have not!

[John Glen]

I understand that the hon. Lady is not satisfied with my response. Meeting with the Minister would probably be the best way forward.

[Helen Goodman]

Will the Minister take on board my suggestion of writing to the recipient of the child benefit when the person turns 18? The Government writes to every mother across the entire nation, and that would be an opportunity to catch them in the net.

[John Glen]

The key point here is: when does somebody have access to make investment decisions as a young person? It is when they turn 16, and then they can access it when they are 18. Trying to overlap the letter with the mother when actually it is about the beneficiary, who is the child, is not the route to go down.

[Helen Goodman]

indicated dissent.

[John Glen]

The best way forward would be for the hon. Lady, who is clearly shaking her head and dissatisfied, to meet my colleague from the Department for Education. Hopefully, that will provide her with the answers she needs.

Question put and agreed to.

Draft Uncertificated Securities (Amendment and EU Exit) Regulations 2019

John Glen Excerpts

Tuesday 12th March 2019 General Committees

[The Economic Secretary to the Treasury (John Glen)]

I beg to move,

That the Committee has considered the draft Uncertificated Securities (Amendment and EU Exit) Regulations 2019.

It is a pleasure to serve once again under your chairmanship, Mr Sharma.

The Treasury is laying this statutory instrument under both the European Union (Withdrawal) Act 2018 and the European Communities Act 1972. The Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period there continues to be a functioning legislative and regulatory regime for financial services in the UK. This draft SI is part of that programme. It has been debated by the House of Lords and was approved on 25 February. The SI also uses the powers in section 2(2) of the European Communities Act to amend UK law as necessary to ensure that the directly applicable EU central securities depository regulation, or CSDR, operates effectively in the UK.

The draft regulations amend the Uncertificated Securities Regulations 2001, or USRs, which concern the registering and transfer of securities such as bonds or shares electronically on computer-based systems. Certain requirements within the USRs are also subject to the CSDR, which creates a common authorisation, supervision and regulatory framework for central security depositaries, or CSDs, across the EU. The SI makes the necessary changes to UK legislation to ensure that the EU regime operates effectively in the UK. The instrument also contains provisions to address deficiencies in UK law and retained EU law that arise due to the UK’s withdrawal from the European Union.

The changes to the USRs that implement CSDR will come into effect on the day after the draft regulations are made in Parliament in any scenario. However, the changes made under the EU (Withdrawal) Act to fix deficiencies in the legislation arising as a result of the UK’s withdrawal from the EU will only come into effect on exit day in the event that the UK leaves without a deal or an implementation period.

First, the draft regulations make amendments to ensure that the USRs align with both the EU regulation and the UK implementing legislation concerning the CSDR. That includes authorisation and recognition of CSDs and article 49 of the CSDR. Article 49 allows issuers the right to issue securities into a CSD in any European economic area member state. Accordingly, amendments have been made to ensure that no provisions in the USRs are incompatible with that right. By removing the duplication between CSDR and USR requirements for operators of relevant systems, the instrument provides clarity to the industry in the area. Further, USR operators now gain operator status by virtue of gaining authorised CSD, EEA CSD or third-country CSD status for CSDR purposes, not via the USR recognition regime, which will be revoked by this SI.

Secondly, the SI will provide transitional provisions for UK operators of systems that were approved under the USRs before 30 March 2017, when the period for CSDs to apply for authorisation or recognition under the CSDR began. That transitional power ensures that operators can continue to operate under the previous USR regime, pending their authorisation or recognition as a CSD under the EU CSDR regime. The SI also inserts a provision into the UK’s Central Securities Depositories Regulations 2014 that grants the Bank of England the power to charge fees to third-country CSDs. That is considered necessary in relation to its new role in recognising third-country CSDs following exit day. That role was granted by the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, which have been agreed by this House.

Finally, the draft regulations amend article 15 of the EU short selling regulation to change its scope from the EU to the UK. The change ensures legal certainty on the scope of that provision after exit day. To maximise transparency, the Treasury has worked closely on the instrument with the Financial Conduct Authority, the Bank of England and industry. The Treasury consulted on changes to the uncertificated securities regulations as part of implementing the CSDR in 2015, and undertook an informal consultation with industry in October 2018. The current form of the instrument, which includes EU exit changes, was laid on 17 January 2019.

Provisions relating to the consultation are dealt with in parts 1 to 4. Part 5 of the instrument deals with the EU exit changes.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

On the consultation that the Treasury has undertaken, I note that the instrument provides for a requirement for a statutory review within five years. Does the Minister have a position on how soon it may be necessary to review the instrument?

[John Glen]

I am sorry, but I do not have a position on that at this point in time.

[Mr Jayawardena]

What discussions have there been between the FCA, the Treasury and the Bank to determine the level of the fees the Bank can charge other than to meet the expenses incurred?

[John Glen]

I am sure that my hon. Friend will understand that the Bank of England routinely issues fees under many financial services regulations. This power is consistent with that general responsibility and will be exercised in consultation with those subject to the fee, as in all the other areas of regulation the Bank engages with.

Regulators and industry have welcomed the Government’s approach to the SI. The Government believe that the proposed legislation is necessary to ensure the smooth functioning of UK financial markets if the UK leaves the EU without a deal or an implementation period. Relevant parts of the SI are also needed in any scenario to ensure the effective functioning of the CSDR. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.

--- Later in debate ---

[John Glen]

I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their observations, and I welcome their broad agreement with the main elements of the SI. Both made significant observations on the fees. Why does this SI contain a provision on the Bank of England fees? As a result of the UK leaving the EU and the changes made by the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, the Bank of England will have the power to recognise third-country CSDs. On why the Bank of England collects fees for the FCA, this SI concerns the Bank of England fees only. The assessment of other countries charging fees is a decision for other jurisdictions, so I do not have any clear observations on that.

The hon. Member for Glasgow Central asked how the SI had changed since the 2015 consultation draft. A central aim of this instrument is to implement the right, under article 49 of the EU CSD regulation 2014, for issuers of securities to use a CSD established in any EU member state. The 2015 consultation draft instrument contemplated that the uncertificated securities regulations might be extended to apply to securities governed by a foreign law.

Following industry feedback, the Treasury changed its approach so the uncertificated securities regulations would not be extended to foreign law-governed securities where article 49 is used. In order to avoid duplication and to provide legal certainty, the 2015 consultation draft instrument removed provisions from the existing uncertificated securities regulations, which are now governed by the EU central securities depositories regulation 2014. This element has not changed.

The hon. Lady asked about the regulators’ resourcing and the impact of taking on provisions of this SI. We are confident that the regulators are making adequate preparations and are effectively allocating resources ahead of the end of March. They have considerable experience and technical expertise. We have participated in a large number of groups with them and I am confident they are well resourced and ready for all outcomes.

I acknowledge the broader points made by all three Members about the Bank of England’s fee-raising powers. I will evaluate thoroughly what has been said, and where I can bring greater clarity following discussion with officials, I will write to the Committee if that is appropriate.

The Government believe that the proposed legislation is necessary to ensure the smooth functioning of financial markets in the UK if it leaves the EU without a deal or an implementation period. Relevant parts of this SI are also needed in any scenario to ensure the effective functioning of the CSDR. I hope my comments clarify matters sufficiently and that the Committee will be able to support these regulations.

Question put and agreed to.