Spending Review 2020 and OBR Forecast

Richard Burgon Excerpts

Wednesday 25th November 2020 Commons Chamber

[Rishi Sunak]

On the last numbers, there are 100,000 fewer children in absolute poverty than in 2010 and 750,000 fewer children living in workless households than in 2010. The hon. Gentleman asked about nurseries and early years. He will be pleased to know that an above-inflation increase in the hourly rate for nursery providers is contained in the spending review.

[Richard Burgon (Leeds East) (Lab) [V]]

A few months ago, the Conservative party was clapping public sector workers. Now it is cutting the pay of millions. This crisis should not be paid for on the backs of the working class, but it is. Over 2 million people are now paid less than the minimum wage—up fivefold. Sick pay is so low that people are forced to choose between their health and putting food on the table, and millions of people’s benefits—largely sick and disabled people—will rise by just 37p a week. Instead of forcing millions into poverty, will the Chancellor impose a windfall tax on those who have made super-profits from this crisis?

[Rishi Sunak]

The hon. Gentleman talked about those on the lowest pay. We accepted the recommendations from the Low Pay Commission to increase the national living wage by 2.2%. That will make a difference of £345 to full-time national living wage workers, as well as protecting those in the public sector who earn up to the average UK salary of £24,000, who will receive a £250 uplift.

Covid-19: Economy Update

Richard Burgon Excerpts

Thursday 22nd October 2020 Commons Chamber

[Rishi Sunak]

As ever, I am grateful for my hon. Friend’s advice and support. He is right: the business rates holiday we have put in place this year has provided over £10 billion of support to almost 1 million businesses. I know what a vital lifeline it is, so of course we keep all measures under review. Future fiscal policy is for Budgets, but I thank him for raising the point with me.

[Richard Burgon (Leeds East) (Lab) [V]]

When I previously asked the Chancellor about furloughed workers having to survive on less than the minimum wage, his callous response was that they would be “able to work elsewhere”, yet minimum wage workers in very high virus areas whose workplaces have been forced to shut will now have to live off just two thirds of the minimum wage. That is just £5.81 per hour—the minimum wage level of 11 years ago. Will the Chancellor introduce a wage floor so no such worker has to live off less than the minimum wage?

[Rishi Sunak]

We have addressed this point before, but I am happy to repeat it. Very low-paid workers will benefit from the flexibility and responsiveness of universal credit, and that is where the universal credit taper works. The way it works is that it will replace the falls in income with a top-up in universal credit worth about 63p in the pound. For example, a single person in their late 20s, working in hospitality and renting privately in a flat in a northern city, will receive about 92% of their original income on an after tax and after benefits basis.

Covid-19: Economic Package

Richard Burgon Excerpts

Tuesday 12th May 2020 Commons Chamber

[Rishi Sunak]

May I start by thanking my hon. Friend for everything he is doing not just for his constituents but in providing advice to me, using his own experience about how best we can support the economy and businesses at this time? I very much appreciate all the time and effort he has put into that and hopefully he can see the fruit of some of that work in the announcements that have been made. I can also give him that assurance on the tourism sector. That work is under way. The report talked about setting up a taskforce. I look forward to hearing his thoughts. I know how important it is to his constituency and others. The Culture Secretary and I look forward to engaging with him, creating a plan to make sure as many businesses as possible can safely open as soon as they can.

[Richard Burgon (Leeds East) (Lab) [V]]

Many minimum wage workers have been furloughed. They are now expected to get by on just 80% of the minimum wage, even though rents, bills and food prices have not fallen. Will the Chancellor implement guarantees, so that no furloughed worker is ever forced to live on less than 100% of the national minimum wage?

[Rishi Sunak]

The scheme, as it is designed, does provide income support of 80% of those wages. Indeed, where those wages are variable the scheme allows an average to be taken to benefit the employee. We have also strengthened the safety net, as I mentioned earlier. Crucially, employees who are furloughed are then able to work elsewhere as well to supplement their incomes. That flexibility is often unnoticed, but it is very helpful. I know many people are taking advantage of that to boost their incomes during this time and I think the scheme, as it is designed, provides the required support especially to those on the lowest pay.

Finance Bill

Richard Burgon Excerpts

2nd reading & 2nd reading: House of Commons & Programme motion & Programme motion: House of Commons & Ways and Means resolution
Monday 27th April 2020 Commons Chamber

[Richard Burgon (Leeds East) (Lab) [V]]

The coronavirus pandemic is the greatest crisis that most of us have ever lived through, so the values of solidarity, co-operation and support for—[Inaudible.]—are more important than ever at this critical time. In his March Budget speech, the Chancellor said that we were entering this crisis from a position of economic strength; for millions of people, that could not be further from the truth, and nor was it the case for our public services. A decade of austerity and a 40-year period dominated—[Inaudible.]

[Madam Deputy Speaker (Dame Eleanor Laing)]

Order. I hesitate to interrupt the hon. Gentleman—I do not know whether he can hear me—but the sound quality is very bad. Let us try again to see whether it improves; if not, I will have to move on to the next speaker and come back to the hon. Gentleman.

[Richard Burgon]

A decade of austerity and a 40-year period dominated by marketisation, deregulation and privatisation has left us less prepared to deal with this crisis—[Inaudible.]

[Madam Deputy Speaker]

Order. To be fair to the hon. Gentleman, I am going to interrupt him, because the House cannot properly hear what he is saying. I judge it would be better if we could come back to him later in the proceedings.

--- Later in debate ---

[Richard Burgon (Leeds East) (Lab) [V]]

The coronavirus pandemic is the greatest crisis that most of us have ever lived through, and the values of solidarity, co-operation and support for public services are more important than ever at this critical time. In his March Budget speech, the Chancellor said that we enter this crisis from the position of economic strength. But for millions of people, that could not have been further from the truth, nor was it the case for our public services.

A decade of austerity and a 40-year period dominated by marketisation, deregulation and privatisation left us less than prepared to deal with this crisis. The crisis has brought the failings of all that into sharp focus: weak public services, a broken social care system, a woeful lack of workers’ rights, a hollowed-out social security system, and a housing market that treats housing as an asset rather than a human right. The priority of the Government must, of course, be saving lives, but we must also do all we can to stop this public health crisis from becoming a social and economic crisis.

The Chancellor, since his Budget, has provided additional support. That is welcome, but it falls far short of what is needed. It is rightly said that this virus does not discriminate, but our society and economy do: that is clear from how many people are suffering in this crisis. Families in my constituency were struggling to get by before this pandemic. Many are now in crisis. The bills have not stopped, even if their ability to pay them has. Many were on poverty pay before the crisis. Now some are receiving just 80% of the minimum wage on furlough. The Government must act immediately so that no one is left on less than the minimum wage during this crisis.

We urgently need to see action over the shockingly low level of sick pay. It should be increased to real living wage levels, and we must ensure that millions of low-paid—mainly women—workers can access it too. We also still need to see much more support for renters, starting with rent suspensions, as well as social security set at levels that families can live on, not levels designed to punish them.

The Chancellor recently said that the financial support for those affected by the coronavirus crisis will need to be paid back at some point. When we draw up the list of who should pay, at the top must be the super-rich, who have profited from a decade of tax giveaways from the Conservative party. There must be no question of us repeating the injustice of the past decade while working-class people have paid with their wages frozen and their services cut. This crisis has underlined who we really rely on: workers deemed unskilled or undeserving of proper pay rises just a few weeks ago. When this is over, we have to build a country that treats those workers and working-class families across the country with the respect that they deserve, and which they have not been shown for far too long.

Finance Bill

Richard Burgon Excerpts

Monday 27th June 2016 Commons Chamber

[Kirsty Blackman]

I appreciate the chance to deal with insurance premium tax. Reducing tax was raised by the SNP at some length last year, when the Government increased it by about 3.5%, from 6% to 9.5%. We were a bit concerned that this amounted to an incredible hike with very little warning, possibly setting a precedent.

I want to make it clear that we are not against spending additional money on flood defences. Given the climate change issues that we face and the devastating impact of floods on communities, we think that is a good idea and we completely understand why the UK Government are choosing to spend money on it. My issue is that raising insurance premium tax might be the wrong way of doing so—I do not want people to be discouraged from taking out insurance. The Minister said that the clause might mean only a minor change in people’s bills, but I am concerned less about the 0.5% increase than about the precedent that has been set by what is happening this year and what happened last year. My main fear is that the UK Government will decide on a further increase.

This morning the Chancellor said that the UK economy was affected by the fact that the markets were currently volatile, and that that volatility would continue. In such circumstances, we do not want people to worry about their future finances, and not to take out insurance because the economy is uncertain and they do not know how the financial situation will develop. It is necessary to have home insurance, just as it is necessary to have motor insurance, but premiums have increased significantly, mostly because of problems caused by climate change. Although the average increase will be £1, people who have been hit by flooding are having to pay massive premiums, and the 0.5% increase is likely to have a disproportionate impact on them.

We do not intend to press the clause to a vote, because we do not want Members to have to stay here longer than they have to, but I appreciate the opportunity to speak about it. Let me end by emphasising that our concern relates to the longer term. Although 0.5% is a fairly minor hike, if the amount continues to rise year on year there will be an additional problem for household budgets, and a negative impact every year.

[Richard Burgon (Leeds East) (Lab)]

I am pleased to be able to add my contribution to those already made by Members on both sides of the Committee.

As my hon. Friend the shadow Financial Secretary has said, the Bill is rooted in unfairness, and we fear that this tax change may engender further unfairness if it is passed on to customers. Clause 129 increases the standard rate of insurance premium tax from 9.5% to 10%, initially from this October, and all premiums, including those in the special accounting scheme, will be subject to it from February 2017. The Chancellor also announced in the Budget that the funds generated by the increase would be allocated to increased spending on flood defences. What concerns us is how this will affect the insurance market, how it will affect the millions of customers who need access to insurance, and how effectively it will deliver the flood defences that we so desperately need.

This is the third increase in insurance premium tax under the current Chancellor, following increases in 2011 and in last year’s Finance Bill. The first increase was from 5% to 6%, a comparative leap of 20%. Last year’s increase was from 6% to 9.5%, and there was then a 58% leap. This year’s 0.5% increase to 10% is therefore comparatively smaller. Some insurance companies have welcomed the fact that it was not larger, but it follows hot on the heels of the previous change. The frequency of increases is picking up, and that frequency is causing concern.

In March, Ben Flockton of PricewaterhouseCoopers said that of

“concern to many insurers is the prospect of gradual but frequent rate rises.”

David Jordorson, of the Association of British Insurers, said recently that the association had urged

“HM Treasury and HMRC to revisit the arrangements for how rises are implemented”

in order to

“put members on a clearer footing when future rises come”.

Perhaps the Minister will put us straight on whether the Government expect to hold the current rate where it is after the Finance Bill, for the next five years or for just one year—or will we see a further change in the autumn statement? I am sure that the industry, consumer groups and policyholders will be hanging on to our words in this debate.

The latest increase brings the standard rate of the tax up to a total of 10%, which is a doubling—a 100% increase —since 2011. Cumulatively, these three rate rises being passed on to customers would have a real impact on disposable incomes and on policy uptake. We understand that this change will have an impact on 26 million drivers and 20 million households. It will also hit 3 million pet policies and 3 million private medical policies. Our concern is that the industry will pass on this cost to its customers. Moneysavingexpert.com put it bluntly when it said:

“Millions of households and motorists will pay more...a further rise in the cost of pet, car, mobile, contents, buildings and private medical insurance”.

James Dalton, director of general insurance policy at the Association of British Insurers, said:

“Another increase in Insurance Premium Tax would be a raid on the responsible that laser-targets those who do the right thing. It will hit those on low incomes and increase the risk that some people reduce their cover or stop insuring altogether.”

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants said that

“the rise will affect anyone who has home or car insurance wherever they live.”

More recently, in the last few weeks, the AA has published its latest British insurance premium index, covering the first few months of 2016. It found that the average quoted “shop-around” premium—that is, the average of the five cheapest quotes for each customer in a variety of scenarios—had jumped by 5.4% to £114.52 a year at the end of March 2016. So the emerging evidence is of an increase in cost of insurance to the customer.

I will come to the issue of flood defences later, but the Chancellor stated in his Budget speech that this measure was also intended to help to fund the cost of flood defences. I want to raise the issue of flood insurance, including that provided through the Flood Re scheme, which is already increasing costs for customers. Of course we on these Benches support the introduction of Flood Re, but insurers are having to pay a total of £180 million to Flood Re, and that is being passed on. In a survey by the Financial Times, seven out of the 10 largest home insurers said they would pass all or some of the levy directly to customers. I understand that 350,000 properties are currently expected to benefit. We believe it is vital that those in flood-prone areas can access the insurance they need, particularly as the instances of flooding as a result of climate change appear to be on the increase.

What will be the impact of the insurance premium tax and the Flood Re levy being passed on to customers? Our concern is the effect on take-up for those on the margins—that is, those hit by other attacks on income in this Finance Bill, in the Chancellor's Budget and, who knows, in his emergency Budget yet to come, as well as those hit by successive cuts to pay, pensions and protection of welfare payments over the past six years. The Government’s policy paper relating to the change in the Bill states:

“The measure is expected to have a small impact on individuals and households purchasing insurance which is not exempt from IPT, if insurers choose to pass on the IPT rate rise to customers”.

I would like to take this opportunity to ask the Minister what the term “small impact” means. Which individuals and households will be impacted upon? What discussions did the Treasury hold on the likelihood of the increase being passed on to customers, both with insurance providers and with consumer groups?

The Government’s policy paper also says that no equalities impacts have been identified. The Association of British Insurers has highlighted the fact that many families face insurance bills around £100 higher as a result of last year’s increase. We are concerned that this is a tax burden that will ultimately be paid by ordinary people taking the responsible approach and insuring their homes and motor vehicles. What will it mean for those on lower incomes? Will younger or older drivers be disproportionately adversely affected? How will the change’s impact be monitored? Our worry is about the impact of rising costs, contributing to our overall concern about the Finance Bill as a whole. That is why, when the last change to insurance premium tax was discussed in the previous Finance Bill just a few months ago, my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) tabled an amendment.

Oral Answers to Questions

Richard Burgon Excerpts

Tuesday 7th June 2016 Commons Chamber

[Mr Gauke]

One of the hon. Gentleman’s hon. Friends asked earlier about encouraging business investment, which we want to encourage because it is through having an environment in which businesses invest that we see improved productivity, the conditions for growth and people benefiting from higher wages. I say to the hon. Gentleman, and to the House as a whole, that pursuing policies that favour business investment and encourage businesses to invest, such as cutting CGT and corporation tax, is important for all our constituents.

[Richard Burgon (Leeds East) (Lab)]

In 2010, the Chancellor told this House that raising capital gains tax was necessary to

“create a fairer tax system.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

Given that the Chancellor is now cutting capital gains tax—overwhelmingly to the benefit of the richest 0.3% of people—what does he think has changed?

[Mr Gauke]

As I outlined a moment ago, the purpose of the tax measures is to encourage people to invest in businesses. The changes are specifically targeted at companies—the cut in CGT does not apply to residential property—and put in place an environment in which businesses can grow and prosper. That is absolutely the right approach to follow. I remind the hon. Gentleman that there are other countries that have taken different approaches, of which he has been full of praise. It is not quite working out in Venezuela, is it?

Bank of England and Financial Services Bill [Lords]

Richard Burgon Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 19th April 2016 Commons Chamber

[Harriett Baldwin]

My right hon. Friend, who is an extremely wise and knowledgeable person—I will not refer in any way to his age—highlights an important point. He also emphasises the behavioural characteristic of the recency effect. Inflation is well below the 2% target today, but only during the lifetime of the last Parliament it was above 5%. Even during the six years that I have been a Member, we have tested the parameters of the inflation target. I do not think there is any need for us to make any changes to that target this afternoon.

I will conclude by speaking briefly to amendments 6 and 7 and new clause 13. The first part of amendment 6 states:

“The Comptroller may enquire into the Bank’s success in achieving its stated policy objectives but shall not enquire into the desirability of such objectives having been set.”

The Bill, as drafted, will already have that exact effect.

The second part of amendment 6 directs how the Comptroller and Auditor General should submit his reports. Parliament has delegated to the Comptroller discretion over the content of National Audit Office reports and the timing of their publication, and it is important that this independent officer of Parliament is able to use his judgment on how Parliament and the public are best served. The National Audit Act 1983 provides that the Comptroller

“may report to the House of Commons the results of any examination”.

Once he has reported to the House, it is open to any Committee of this House to inquire into matters on which he has reported. There is an in-built incentive for prompt publication as it mitigates the risk of the report’s conclusions being overtaken by events.

Amendment 7 would disapply restrictions in the Financial Services and Markets Act 2000 on the disclosure of specially protected information in relation to reports by the Comptroller and Auditor General. Information is specially protected under these rules if it is held by the Bank for the purposes of monetary policy, for financial operations supporting financial institutions in maintaining financial stability, or for private banking purposes. Similarly, new clause 13, in the name of the hon. Member for Bishop Auckland (Helen Goodman), would remove three corresponding exclusions in the Freedom of Information Act 2000. I hope I can persuade the House that each of the three categories of protected information is entirely sensible.

The first category applies to the Bank’s monetary policy functions. How we communicate monetary policy is extremely important. It moves markets in substantial ways and every detail of the published minutes is scrutinised for predictions of future changes. Managing disclosure while making sure information is presented in a timely way is vital. That is why the original legislation creating the Monetary Policy Committee in 1998 set out the full range of disclosure requirements, including publication of the minutes and of a quarterly inflation report. Since then, the Bank has implemented the recommendations of Governor Warsh’s review of MPC transparency. Through the Bill, we are supporting full implementation of the recommendations of that review.

The second exclusion applies to

“financial operations intended to support financial institutions for the purposes of maintaining stability”.

Hon. Members will understand that if the Bank has to extend emergency liquidity assistance, very careful communication is a critical element of preserving stability. Any covert assistance will be reported privately to the Chairs of the Treasury and Public Accounts Committees, while broader liquidity schemes for institutions, such as the special liquidity scheme and the discount window facility, may be announced to the markets.

Finally, the Bank’s very limited private banking services are excluded from FOI requests. We often forget that the Bank of England also provides private banking to customers. As I am sure hon. Members will agree, it would be entirely inappropriate to subject ordinary bank customer information to disclosure.

[Richard Burgon (Leeds East) (Lab)]

I rise to speak to amendments 6 and 7 in my name and that of my hon. Friends, but I first want to turn to new clause 1 and Government new clause 12 on the appointment of the FCA chief executive.

I came to the House ready to speak in support of new clause 1, which seeks to give the Treasury Committee a formal role in the appointment of the chief executive of the FCA. In my view, new clause 1 is better placed to guarantee the competence and independence of the regulator than the new clause in the name of the Chancellor, which in our original reading of it did too little to change the status quo. New clause 12 was tabled in response to the new clause tabled by the Chair of the Treasury Committee, the right hon. Member for Chichester (Mr Tyrie). We had a similar debate in Committee on an amendment about the appointment process for the chief executive of the Prudential Regulation Authority.

Since 2008, Select Committees have routinely held pre-appointment hearings for a number of public appointments, and some candidates have not been approved. The coalition Government developed the scrutiny agenda when the Chancellor agreed in 2010 to the Treasury Committee having a power of veto over appointments to the Office for Budget Responsibility. The Public Accounts Committee has a veto over the appointment of the Comptroller and Auditor General. Appointments to the Monetary Policy Committee and the Financial Policy Committee of the Bank of England are made by the Chancellor of the Exchequer, and are then subject to a confirmation hearing by the Treasury Committee. The Treasury Committee has powers over the chair and board members of the Office for Budget Responsibility, an arrangement that the Chancellor told the Treasury Committee he would put in place

“because I want there to be absolutely no doubt that this is an independent body”.

The Minister will be aware that, when it examined the proposals for the future FCA in 2013, the Treasury Committee made a number of recommendations on the accountability of the new body to Parliament, including that the legislation should provide that the chief executive of the FCA be subject to pre-appointment scrutiny by the Treasury Committee. I recall that the Treasury Committee was disappointed by the Government response, particularly in view of the deficiencies in the accountability mechanisms for the Financial Services Authority.

As we have heard, the view of the Treasury Committee was set out in the Treasury Committee Chair’s letter to the Chancellor of the Exchequer on 26 January, following the appointment of the current PRA chief executive, Andrew Bailey, to be the next leader of the FCA. In that letter, the right hon. Gentleman set out his Committee’s view that it should have a veto over the appointment and dismissal of the chief executives of both the FCA and the PRA. Indeed, the letter said that the FCA’s chair, John Griffith-Jones, told the Committee, when he met its members on 20 January, that there was merit in that proposal.

In Committee, I flagged up this matter and said it would be helpful to know whether the Chancellor had shared his thinking on such calls to extend pre-appointment hearings and the power of veto to those two positions. Now we have had his reply. It was in the Minister’s ring binder. As she said, it was “exciting” to hear the contents of it, and we got a fantastic insight into the fireside exchanges within the Government. Labour Members believe that the Treasury Committee should have greater authority over the future of financial regulation in this country.

On Government new clause 12, it is unclear what would happen in the period between the appointment of the chief executive and him or her appearing before the Committee. Would they be left in limbo, or would they in fact be settling into their new post? Would we be disappointed—in practice, would it simply be business as usual, with the Treasury Committee not given the power that we all believe it deserves? We do not believe that simply requiring any new chief of the FCA to appear before the Committee within three months of appointment delivers anything particularly new. It is reasonable to expect that any new postholder would appear before the Committee within that timeframe in any event, whether or not that appearance was codified.

--- Later in debate ---

[Mark Field]

I have a brief question on amendment 6. Although I accept that transparency and openness are the spirit of the age and we cannot necessarily move entirely against that—[Laughter.] We do our level best some of the time. I am sure that the Treasury will be at the vanguard of this. Does the hon. Gentleman accept that, at times of great difficulty, when there are issues about the stability or functioning of the UK’s financial banking system, it would be appropriate not just for the Treasury Committee but for the Treasury itself to have some say in suggesting when openness should not be fully fledged? The safeguards that he has put in place in the amendment refer only to the Treasury Committee; does he not see that there might be instances when Ministers rightly have concerns about issues of stability that should be protected from open transparency at least for a time, although there could then be a move to make the minutes and other things more open at some future point, once the particular threat had passed?

[Richard Burgon]

I thank the right hon. Gentleman for his intervention. It may be that transparency is the spirit not just of the age but of the future—we shall see. I draw his attention to the wording in the amendment:

“The Comptroller shall submit reports arising from the exercise of his powers under subsection (6A)”.

It is not a completely open-book policy.

On new clause 2, which is in the name of the hon. Member for East Lothian (George Kerevan), Labour sees merit in the proposal for wider geographical representation on the board. In Committee, we tabled an amendment making the case for amending the composition of the court to ensure that different stakeholders were represented, including having dedicated places for customers and practitioners.

Similarly, we support new clause 13 tabled by my hon. Friend the Member for Bishop Auckland. She has a long track record in campaigning for greater transparency in financial services, and her new clause sits well with our amendments, as it seeks to empower the National Audit Office further by making the case for greater powers for freedom of information requests.

I now turn to new clauses 3 and 5, put forward by the Scottish National party and Plaid Cymru respectively. Both new clauses would change the name of the Bank of England. In fact the SNP was so keen to discuss its proposal that it tabled it twice. We discussed that measure in Committee and it is before us again. It seeks specifically to have the name of Scotland, as well as those of Wales and Northern Ireland, as part of the title of the Bank. The SNP has now been joined by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), who has taken a different tack and removed all national names; his new clause would mean that the name of the Bank referred solely to the currency—for the avoidance of doubt, that is sterling, not Stirling. We were happy to support the SNP’s proposal in Committee, recognising as it does the unifying role of the Bank—that has been expressed again today—as one which services all parts of the United Kingdom, and we will support it again.

New clauses 6, 7 and 8 and Government amendment 3 have a number of merits. New clause 7, in the name of the hon. Member for Carmarthen East and Dinefwr, sets out a new mandated objective for the Monetary Policy Committee to include maximum employment. New clause 6 proposes the nomination of representatives on the MPC from the devolved authorities of Scotland, Wales and Northern Ireland, and new clause 8 argues that the Bank should be more accountable for its decisions to those same bodies.

The Labour party has established a review into the mandate of the Monetary Policy Committee under former MPC member David Blanchflower. We have said previously that we will look at a wide range of ideas, including what can be learned from the US Federal Reserve. That will include considering the importance of growth, employment and earnings in the MPC’s deliberations. Indeed, on new clause 7, David Blanchflower has himself written in City A.M.—the favourite publication of the Labour Front-Bench team—that he will consider the issue of maximising employment in his review. He is also looking at the structure, size and, crucially, gender balance of the MPC, optimal policy rules, asymmetrical targeting and the relationship with fiscal policy, as well as the frequency of the MPC’s meetings.

Therefore, although we welcome the proposal for the Bank to report to the devolved authorities, we will not support the new clauses on the MPC today. We see merit in them as part of an ongoing debate, but look forward to considering and sharing the results of David Blanchflower’s review in due course. With that, I draw my comments on this group of measures to a conclusion.

--- Later in debate ---

[George Kerevan]

I should like to speak to amendments 1 and 2, tabled in my name, and in passing to amendments 8 and 9, tabled by Labour Members. I shall not press amendments 1 and 2 to a vote, but should Labour Members move on amendment 8 and the consequential amendment 9, we will support them.

There is much in the Bill to commend it to us and to the House, and much that will add to the regulatory regime and its performance in the UK. However, the worst part of this legislation—the time bomb ticking away inside it—is the Government’s attempt to shift legislation that they put in place only four years ago on the reverse burden of proof for major financial infractions. That is the nub of the matter. Legislation was introduced four years ago that identified senior managers in major banks and other financial organisations and stated that if a serious infraction of regulations was encountered on their watch, they would automatically be held responsible unless they could prove that they had taken due steps to prevent it from happening.

That legislation had a great deal of support in the House and among the public, because it was the one sure way of ensuring that those at senior level in the financial sector would not continue to do what they had done all through the 2007-08 crisis: blame everyone else and say that it was not their fault. The legislation made senior managers responsible, just as senior managers in other organisations and utilities have become responsible for major crises.

Why would the Government want to change that law before it even came into operation this month? That sends out the wrong signal. When we put legislation in place that has consensus behind it, we should try it and see whether it works. However, the Chancellor, whose constant refrain is that he has a long-term economic plan, has decided to change the legislation before it has even come into operation. That change sends out all the wrong signals. The Minister will probably say that the measure is disproportionate now that the Government have widened the number of people being caught up in the senior management regime to tens of thousands, and that applying the law could become problematic. I know all the explanations, but I put it to her that by reneging on legislation that was put in place with great fanfare four years ago before it is even operational, the Government are simply signalling to the rest of the world that they are loosening the regulatory bonds. They might think that they are not doing that, but they are sending out the wrong signal.

The Government have been sending out another signal as well. For years, the Chancellor and other Treasury Ministers have been telling us that we should pay lower taxes, that taxes are bad, and that we should keep more of our own money. Suddenly, however, when we discover that hundreds of thousands of people are setting up secret offshore bank accounts, the Government get all holy and moral, saying, “We didn’t mean you to do that!” This Government sometimes speak with two voices. Individual Ministers are honest and sincere, but they do not understand that they sometimes speak with one voice on taxes and regulation and then do the opposite. It sends out the wrong signal. The Government cannot go on blaming other people. They are to blame if they change the rule without having put it into force for at least a few years to see whether it works. That is why we must leave the provisions in the Financial Services Act 2012 until it has been proven that they do not work.

[Richard Burgon]

I rise to speak to new clause 14, amendment 8, and amendments 9 and 10, which are consequential on amendment 8, tabled in my name and those of my hon. and right hon. Friends. I will first discuss new clause 14 on combating abusive tax avoidance arrangements and then our amendment on the reverse burden of proof, or the presumption of responsibility, as I choose to call it, for senior managers in the banking sector.

Labour tabled new clause 14 in the wake of Panama papers leak, which the hon. Member for East Lothian (George Kerevan) just mentioned. The new clause sets out that combating abusive tax avoidance should be established as new regulatory principle for the FCA, and requires the FCA to

“undertake, in consultation with the Treasury, an annual review for presentation to the Treasury into abusive tax avoidance”.

The new clause makes it clear that the new principle should involve

“measures to ascertain and record beneficial ownership of trusts using facilities provided by banks with UK holding companies or entities regulated by the Bank of England or the FCA, control of shareholders and ownership of shares, and investment arrangements in an overseas territory outside the UK involving UK financial institutions.”

Members will be aware that Labour published its tax transparency enforcement programme following the Panama papers leak, and the release of the information that thousands of companies listed in the Mossack Fonseca papers have financial services provided by UK banks. Our programme makes it clear that Labour will

“work with banks to provide further information over beneficial ownership for all companies and trusts that they work for.”

The new clause seeks to establish a procedure to enact that.

Last week, the Government announced a deal on the global exchange of beneficial ownership. We of course welcome that as an initial step, but it is insufficient. The measures announced by the EU this week are also welcome, but they do not go nearly far enough, because they require only partial reporting. My hon. Friend the shadow Chancellor said last week:

“The turnover threshold is far too high, and Labour MEPs in Europe will be”

doing the right thing in

“pushing to get that figure reduced much lower to make it more difficult for large corporations to dodge paying their fair share of tax.”—[Official Report, 13 April 2016; Vol. 608, c. 369.]

Banks need to reveal the beneficial ownership of the companies and trusts with which they work. That means establishing a record of ownership of the companies and trusts supported by UK banks, whether or not the owners are resident in the UK. We must ensure that Crown dependencies and overseas territories enforce far stricter minimum standards of transparency for company and trust ownership, but when UK banks are involved, it is right that a record is maintained of the beneficial owners that they advise.

The tax expert Richard Murphy has written that Jersey, Guernsey and the Cayman Islands are

“cock-a-hoop at having rebuffed calls from David Cameron that they must have readily accessible registers of beneficial ownership even for the use of UK law enforcement agencies”.

The shadow Chancellor said in response to those calls that the

“agreement is a welcome step in the right direction but it fails to do anything to tackle the tax havens based in British Overseas Territories. Failure to take responsibility for these British Dependencies substantially undermines the effectiveness of this agreement.”

Similarly, we are aware that the Financial Conduct Authority wrote to banks urging them to declare their links to Mossack Fonseca by 15 April. The FCA’s call on UK financial institutions to review links with Mossack Fonseca is welcome, but the regulator should recognise the need for complete transparency to retain public confidence.

The FCA should seek full disclosure and act without delay. The slow, drip-drip responses of the Prime Minister’s office in recent weeks have served only to fuel public concern and have been very much a lesson in how to raise suspicion unintentionally. The FCA should publish details of which financial institutions it has written to and why; what information it has asked them to provide; and what action it will take, now that the 15 April deadline has passed. Importantly, it cannot allow banks and their subsidiaries to conduct an open-ended internal investigation, but must establish an early deadline for the disclosure of all information on their relations with Mossack Fonseca, so that the regulator can take all necessary action. Campaigners Global Witness responded by saying:

“These are welcome first steps…but the UK authorities are missing the wider point. Mossack Fonseca is no bad apple; it is just one small part of a much deeper problem.”

That is why it is necessary for us to have a clear direction of travel towards recording beneficial ownership of trust services by UK banks, as we are seeking to do with this new clause.

Given the widespread concerns about tax avoidance, the British public, who bailed out the country’s banking sector, deserve to know the facts about the role of UK banks in this unfolding story. With new clause 14, Labour has made a positive and practical proposal to take steps to increase tax transparency and publicly available information on the beneficial owners of companies and trusts registered in tax havens.

Let me now deal with the remainder of the amendments. Labour’s position was set out clearly on Second Reading and in our amendments in Committee: removing the reverse burden of proof—the presumption of responsibility—is unreasonable, unwise and, I am sorry to say, risky. We continue to support the current legislation, which was agreed by the Chancellor and in both Houses as recently as in consideration on the Financial Services (Banking Reform) Act 2013. That is why we have re-tabled our amendments on keeping the presumption of responsibility. It should not be forgotten that this measure was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it

“would make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations.”

The presumption of responsibility, as currently set out in legislation, applies to senior managers. It means that to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, necessary. Misconduct and misdemeanours in financial services are not merely a tale from history. In 2015, for example, the FCA had to fine firms more than £900 million, and we have also seen the LIBOR scandal, foreign exchange fines and the mis-selling of payment protection insurance to the value of up to £33 billion. The presumption of responsibility is so reasonable and necessary that the policy was introduced with cross-party support; that should not be forgotten.

The 2013 Act applied the presumption of responsibility, through the senior managers and certification regime, to all “authorised persons”. This Bill extends that authorised persons regime to a wider range of businesses but has watered down the presumption of responsibility to a mere “duty of responsibility”. The vast majority of people working in the financial sector were not, and are not, affected by the existing legislation, and would remain unaffected should our amendment pass. That is why the legislation was passed by Government Members in the first place.

In December 2013, speaking of the stricter measures being introduced by the Government, including the reverse burden of proof, the then Economic Secretary to the Treasury, the right hon. Member for Bromsgrove (Sajid Javid), said:

“The introduction of this offence means that…in future those who bring down their bank by making thoroughly unreasonable decisions can be held accountable for their actions…Senior managers could be liable if they take a decision that leads to the failure of the bank…The maximum sentence for the new offence…reflects the seriousness that the Government, and society more broadly, place on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.”—[Official Report, 11 December 2013; Vol. 572, c. 252.]

On that, at least, I agree with the right hon. Gentleman. It is a shame that there has been a change in position.

--- Later in debate ---

[Jonathan Edwards]

My hon. Friend makes my point entirely. There is no issue of principle at stake; this is about finding the mechanism for delivery.

This issue has received considerable media coverage in Wales. Considering that we are only two weeks from the Welsh general election, I suggest to Treasury Ministers that the election prospects of their candidates in Wales may be damaged if they choose to ignore the strong views of the people of Wales on this matter.

[Richard Burgon]

I support amendments 4 and 5, which were tabled by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). In Committee, the Minister highlighted the presence of the Royal Mint in Cardiff and its role in the production of our coins. In reflecting on that, it is worth noting that the pound coin reflects each nation, with the royal arms, the three lions and the oak tree for England; the thistle and the lion rampant for Scotland; the flax plant and the Celtic cross for Northern Ireland; and, of course, both the dragon and the leek for Wales. Since 2010, we have had pound coins celebrating the capital cities in the floral emblems of each nation of the United Kingdom. It therefore seems anomalous that Scotland, with its own Parliament, has its own banknotes and that Northern Ireland, with its own Assembly, has its own unique banknotes, yet that Wales, with its own flourishing Assembly, has no national identifier for circulating currency.

[Susan Elan Jones (Clwyd South) (Lab)]

If the amendments pass tonight and Wales is allowed to produce its own banknotes, I very much hope that some north Walians will be featured on them. Does my hon. Friend agree that such notes also represent a fine opportunity to showcase the great figures of Welsh literature and music?

[Richard Burgon]

My hon. Friend makes a fantastic suggestion, and I shall return in a few seconds to some Welsh figures from music, if not literature. It is important that all aspects of Welsh culture are represented when, as I hope, the Welsh people are able to choose who should feature on their banknotes and coins. A celebration of iconic Welsh scenes and places would also be appropriate. For example, there could be representations of the steel industry of Port Talbot, or the mining communities of the valleys—even perhaps the Tower colliery which, as those who know about the history of mining in Wales are aware, was run as a co-operative when miners used their redundancy payments to turn it into a successful venture. Such imagery would be well supported across the nation. Shirley Bassey and Nye Bevan, the father and founder of our NHS, have been suggested. It would be great to see Nye Bevan on a Welsh banknote. It might be a bit over the top to feature his famous quotes likening Tories to certain members of the animal kingdom, but that would be a matter for the Welsh people to decide.

My own personal suggestion, for what it is worth, is that given that it is now 30 years since the formation of that great Welsh rock band, the Manic Street Preachers, I would love to see them celebrated on a new banknote, although they might have ideological objections to doing so. It is also the 20th anniversary of “Everything Must Go”— I am talking not about the Chancellor’s policy on RBS shares, but the album of that name by the Manic Street Preachers. As the hon. Member for Carmarthen East and Dinefwr made it clear, however, it would be for the people of Wales, not those from Yorkshire or anywhere else, to decide who or what should appear on Welsh banknotes. In that spirit, I hope that the Conservative Government do not commit the cardinal error of snubbing the Welsh people’s desire for their own banknotes.

[Jonathan Edwards]

And there is an election in two weeks’ time.

[Richard Burgon]

I had not thought of that point.

The lack of any Welsh-themed banknotes is an error that the amendments are designed to put right. I would appreciate the Government agreeing to the proposal and investigating the possible costs and timeframes for such a change. Labour Members wholeheartedly and enthusiastically support these amendments.

[Harriett Baldwin]

Anyone would think that a Welsh general election was going on this afternoon, would they not? I am glad that we have had time to debate this issue this afternoon. I can remember the shock in Worcestershire when Elgar, whose birthplace is in my West Worcestershire constituency, was taken off the £20 note. It was certainly a very live political issue.

I know that we all have an emotional attachment to our banknotes, and I therefore sympathise with the desire of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) to make the case that he has made so ably this afternoon, along with other Members, for banknotes to have some Welsh characteristics. We shall not be able to agree to the amendment today, for reasons that I shall explain, but I hope that what I shall say about our new banknotes will give some cheer to our Welsh colleagues.

--- Later in debate ---

[Richard Burgon]

It is my pleasure to speak for the Opposition on Third Reading of the Bank of England and Financial Services Bill. The Chair of the Treasury Committee very kindly referred to the good humour and good nature I showed in one of my speeches. I am afraid that, if he were here now, he would be disappointed with the speech that I am about to make. People could be forgiven for thinking that I am returning to what some call my po-faced modus operandi.

The role of Government in legislating for financial stability and in ensuring that the Bank of England acts in the interests of the wider economy is to get the balance of regulation right. Righting the wrongs of the 2008 bankers’ crisis is an important task for any responsible Government—a task that Governments around the world have focused on fulfilling in the past decade. The task has been being attempted since the bankers’ crisis of 2008, and today the bankers’ Chancellor is threatening to set it back.

The Bill has seen a number of changes since it first appeared in the other place, some of them for the better, but the precipitate changes that the Government are making to financial services regulation through their new settlement with the financial sector, including through measures in this Bill, suggest that they have failed to learn the lessons of the 2008 bankers’ crisis.

The Bill is a missed opportunity. The measures we have challenged on Second Reading, in Committee and on Report include the proposed abolition of the Bank’s oversight committee, the proposed veto on the National Audit Office’s powers of investigation, the proposed downgrading of the power of the Prudential Regulation Authority to that of a committee of the Bank, and the proposed reversal of the presumption of senior managers’ responsibility for misconduct cases. However, we also welcome a number of measures, including the Lords-stage concessions on the powers of oversight for the Bank’s non-executive directors, the reversal of the veto on the NAO’s powers of investigation, and the measures announced on funding for illegal money-lending teams in Her Majesty’s Revenue and Customs.

We are disappointed that other proposals have not been accepted by the Government. The leak of the Panama papers in the past fortnight has reawakened public concern about our financial system. There has been publication of thousands of documents detailing the systematic use of tax havens for the registration of secretive trusts and shell companies that are serviced by UK banks and that hold trillions of pounds out of reach of HMRC—a state of affairs that rightly outrages people across the UK and the globe. That is why earlier today we offered the Government an opportunity to demonstrate their commitment to delivering the necessary tax transparency measures through our new clause 14.

That new clause, if the Government had supported it, would have instituted a new principle for the FCA: that of combating abusive tax avoidance arrangements, including by establishing a register of beneficial owners of trusts serviced by UK banks. Of course, that in itself is not sufficient, and Labour has set out its tax transparency enforcement plan. Earlier today, our new clause raised the vital issue of the UK banks’ involvement in the Panama papers, which the FCA has now asked them to report on.

The Government have set out initial plans but, with respect, they have not in our view grasped the bull by the horns. They have been dragged there by campaigners, charities and commentators who have rightly urged action on anti-abuse rules and country-by-country reporting. However, it is on the regulation of banks’ activity here in the UK, which has been such a dominant issue in recent years, that the Government have rolled back, watering down their proposals—or, should I say, U-turning on them.

Under the current presumption of responsibility that applies to senior managers, to avoid being found guilty of misconduct in an area for which they are responsible, they will have to show that they took reasonable steps to prevent that contravention. The Bill removes that onus on top bankers, an onus that is entirely reasonable, entirely proportionate and, as very bitter experience tells the British people, entirely necessary. Misconduct and misdemeanours in financial services are sadly not merely a tale from our history. In 2015, for example, the FCA had to fine firms more than £900 million. There was also the LIBOR scandal, foreign exchange fines and the mis-selling of PPI to the value of up to £33 billion, and the presumption of responsibility was so reasonable and so necessary that the policy was introduced with cross-party support. That should not be forgotten.

It is remarkable that only days after the leak of the Panama papers and the pressure on the Prime Minister to defend his creative financial arrangements, the Government can come to this House and defend their decision to reverse regulation that they chose to bring in back in 2013, following the comprehensive work of the Chair of the Treasury Committee, my colleague Lord McFall, and others on the Parliamentary Commission on Banking Standards. This measure, which the Government are yet to implement, has been rolled back by the bankers’ Chancellor under pressure from those who would have been scrutinised. This change of policy did not take place in isolation; as I say, it was part of the Chancellor’s new settlement with the financial sector.

Another idea that we supported today, alongside our Treasury Committee colleagues, was strengthening the role of the Treasury Committee in the appointment of the chief executive of the FCA. It is the Treasury’s influence over the FCA and financial regulation that has been the subject of so much debate and concern in the past year; there has been debate and concern about the removal of Martin Wheatley and the scrapping of the FCA review of banking culture. More widely, as part of the post-crash debate, there have been concerns about whether bank capitalisation and leverage would be at sufficient levels and whether a suitably strong ring-fence would be implemented.

Added to this toxic cocktail of the bankers’ Chancellor’s own stirring is his unhealthy obsession with flogging off the Government’s Royal Bank of Scotland shares at a huge cost to the public purse. I have previously asked the Minister whether the Government will establish a floor price for the sale of RBS shares, as they have with Lloyds shares—or do they accept that the Chancellor got it wrong when he said that his loss leader last year would lead to better sales?

There is also the issue of pension master trusts. In Committee, the Minister told my colleague the shadow Financial Secretary that the Government would bring forward legislation, but the Minister of State for Pensions has since told the Work and Pensions Committee:

“I have been pressing for a Pensions Bill but so far we don’t have one”,

even though the Government could not protect savers without one. Will the Minister say when the Government will take action?

This Bill is a missed opportunity to demonstrate how the Bank of England could carry out its work in the most efficient way possible, with transparency and accountability in its decision making, serving the interests of the people who have sent us here to represent them, and a missed opportunity to demonstrate that senior managers in the financial sector could continue to do their jobs while being effectively and appropriately regulated. These are more missed opportunities from the missed-target Chancellor.

The context of the Bill is vital to understanding our concerns, and the concerns and demands of the wider public. We are eight years on from the economic crisis—the bankers’ crisis, which brought the financial services sector and our country to their knees. The sector was rescued by the decisive action of the then Prime Minister.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

Does my hon. Friend agree that we should take over and run these dodgy banks that have been in trouble all these years?

[Richard Burgon]

The Prime Minister of the day did step in and take appropriate action. The important thing is that the lessons of the financial crisis and the banking crisis are learned. I believe that the Opposition have learned those lessons, but those on the Government Benches have not.

Do the Chancellor and the Government still not understand the widespread anger out there? Do they not recognise the public’s deep distaste for the ever-expanding horror story of bailed-out bankers not being brought to book? The Panama papers shone a light on the squalid practice of the super-rich squirreling away money offshore that Britain needs for our schools and hospitals, and to bring down the UK debt that has rocketed on the Chancellor’s watch. As I said on Second Reading, all that is taking place while there are cuts to pay, pensions, welfare, councils and services.

The public are right to remember that because of the behaviour of some top bankers, people whom this House is meant to represent lost their homes and their jobs. We should never forget that it was the bankers’ crisis that caused the deficit that this Government have relied on as their justification for their political choice to cut our public services, cut funding to our local authorities, cut the incomes of working people and cut support for the most vulnerable people in our communities. The global financial crash caused the huge increase in the deficit and stalled the economy. It also gave the Government the opportunity to carry out their long-harboured and decades-old ideological desire to cut public services and wither away the state.

We need a healthy and effective banking sector, but one that is appropriately regulated, serves the interests of the whole economy, does not hurt ordinary people or small and medium-sized businesses and delivers the vital investment our country needs for long-term growth. The Conservative Government’s climbdown on the presumption of responsibility, which they previously supported, will hinder, not help, the fulfilment of those ambitions.

Personal responsibility is vital for the operation of our regulatory systems. The Chancellor’s policy U-turn reduces precisely the personal responsibility that the Parliamentary Commission on Banking Standards recommended in its 500-page report. Scrapping a key measures before it has even had a chance to be tested makes no sense—unless, of course, the Chancellor is just following bankers’ orders. The startling and precipitous scrapping of a widely welcomed measure shows that there is a very real risk of failing to learn the lessons of the bankers’ crisis, and that is why we will oppose the Bill today. I urge all hon. Members to do the same.

Local Government: Ethical Procurement

Richard Burgon Excerpts

Tuesday 15th March 2016 Westminster Hall

[Richard Burgon (Leeds East) (Lab)]

I congratulate my hon. Friend the Member for Birmingham, Northfield (Richard Burden) on obtaining the debate, and I thank Martin Linton, the former Member of Parliament for Battersea, for the background work he has done. I declare an interest because I visited Jerusalem and the west bank recently with a Labour delegation funded by the excellent organisation Medical Aid for Palestinians, with which I am proud to be associated. As a Front Bencher, I do not want to speak for long, but I have a particular wish to speak because of my visit to Jerusalem and the west bank.

Like many Opposition Members, I was very concerned about the nature of the announcement that has been made. I was concerned that the Cabinet Office Minister announced the proposals not in the Commons—which was in recess—but at a press conference in Israel, with the Prime Minister of Israel, Benjamin Netanyahu. That announcement coincided with our delegation to illegally occupied Palestine.

People’s attention has already been brought to the statement by the Secretary of State for Communities and Local Government:

“Divisive policies undermine good community relations, and harm the economic security of families by pushing up council tax. We need to challenge and prevent the politics of division.”

I wish to say something about divided communities, after our recent delegation to the illegally occupied territories of Palestine. The experience that we had in the west bank clarified why some councils might want to take some action on illegal settlements. The policies pursued by the Government of Israel in allowing illegal settlements to flourish are a physical and political barrier to peace and a two-state solution.

I want to draw my brief remarks to a conclusion by asking the Minister whether he has been to the west bank and seen the Israeli settlements. Does he agree with UK Government policy that settlements are illegal under international law? Does he see any contradiction in the local authority devolution agenda when they are freeing up policy on business rates while freezing powers on pension investment and procurement decisions? Government regulations threaten councils with “severe penalties” if they fail to reflect foreign policy, but why is it so wrong to impose a ban or boycott with respect to settlements that the Government deem to be illegal?

[Peter Dowd (Bootle) (Lab)]

Does my hon. Friend agree that the point about sanctions and boycotts made by the hon. Member for Hendon (Dr Offord) was quite ridiculous? On that basis, why do we boycott Iran, Syria, Russia, individuals, Afghanistan, Ukraine and Zimbabwe? It seems to be an illogical position to take that we should not have sanctions or boycotts.

[Richard Burgon]

I agree with my hon. Friend that we should make democratic choice the key part of this debate but, after hearing some contributions from Government Members, I think that they are not in favour of democratic choice in relation to this matter.

These proposals are a step too far. Britain has a clear position on settlements: they are illegal under international law, constitute an obstacle to peace and threaten to make a two-state solution impossible. This is about democracy, and the proposals are an affront to democracy, choice and local power, and the comments of the hon. Member for Hendon (Dr Offord) are an absolute disgrace.

[Dr Offord]

Which ones?

[Richard Burgon]

The hon. Gentleman’s comments from a sedentary position and when he stood up to speak. His comments were an affront to local democracy.

[Mr Gary Streeter (in the Chair)]

As we move towards the Front Bencher’s speeches, may I thank you all for your co-operation in getting us through in time for the wind-ups?

draft Financial Services and Markets Act 2000 (Regulated Activities) (amendment) order 2016

Richard Burgon Excerpts

Monday 7th March 2016 General Committees

[Richard Burgon (Leeds East) (Lab)]

It is a real pleasure to serve under your chairmanship this evening, Ms Buck, and it is always a pleasure to serve opposite the Minister. As she says, the draft order amends provisions in the Financial Services and Markets Act. The House of Commons Library tells me this is the 34th order amending that Act. The draft order is about the regulation of a number of activities, including peer-to-peer lending and mortgage lending.

On peer-to-peer lending, we are aware that the innovative finance ISA will launch next month, following the Treasury consultation at the end of 2014 and the policy announcement in last summer’s Budget. Peer-to-peer lending is already a fast-growing sector of our financial services industry and the Government anticipate that the launch of the new ISA could significantly increase the number of individuals making use of the sector.

There is ongoing debate about the merits and potential pitfalls of peer-to-peer lending, about the significant returns that can be made on loans in an age of low interest rates and about the risks to lenders. The proposal to make the provision of advice to lenders on entering into a peer-to-peer loan a regulated activity appears to be entirely sensible, although, as ever, we have a number of questions.

First, I note that the Yorkshire Building Society has estimated that over 400,000 savers are expected to invest in this field, but there are questions about the readiness of the financial advice sector to advise on the new products. The Treasury consultation found that the majority of existing ISA managers said that they were not currently considering offering peer-to-peer loans within ISAs. The “Alternative Finance” report produced by Intelligent Partnership found that of 130 advisers, just 9% expect the peer-to-peer sector to form part of their advice process in the next 12 months.

The Association of Professional Financial Advisers’ response to the Treasury consultation states:

“We believe that this is a very nascent industry and that until it has an established track record, it should not be considered a mainstream investment for retail clients. We therefore welcome the fact that firms, holding themselves out as independent financial advisers, will not be required to consider investment in P2P agreements when making personal recommendations to clients.”

The FCA has since said in its consultation document on changes to its handbook that

“we are not proposing that firms holding themselves out as independent should be obliged to consider P2P agreements when recommending retail investment products to a retail client.”

It says that the sector is

“at an early stage of development”.

With that in mind, will the Minister set out why advice about the peer-to-peer ISA is being treated in such a way? Will there be a future review about a change of approach? When might one be carried out?

In addition to our questions about advisers’ requirements and their awareness of the products, we have general questions about the timing of the launch and ongoing developments in regulating the peer-to-peer sector. Adair Turner, the former Governor of the Bank of England, who raised concerns in interview on the “Today” programme, is the most prominent individual to do so in recent weeks. There has also been significant coverage of the collapse of the unregulated Swedish peer-to-peer firm TrustBuddy. I am aware that peer-to-peer lending firms have issued robust responses in their defence. In particular, Christine Farnish of the Peer-to-Peer Finance Association did so in the media and when I met her recently.

Sue Lewis from the Financial Services Consumer Panel was among a number of people who responded to the Treasury’s consultation. She said that investors must be aware of the risk:

“It is important that anyone considering saving in a peer-to-peer ISA understands the risks associated with it, and they should be covered by appropriate levels of protection.”

She flagged up the FCA’s intention to consider whether the remit of the financial services compensation scheme should be expanded to include peer-to-peer lending in 2016. The Treasury’s summary of the responses to the consultation said that a minority of respondents made the case for its inclusion. Will the Minister clarify the Government’s opinion of covering peer-to-peer investments with the financial services compensation scheme? When will the FCA carry out that review? Would it have been sensible to have concluded such a process before the launch of the innovative finance ISA?

This is the second order on the implementation of the mortgage credit directive, which will come into force this month. The first was debated in Committee in March 2015, before the general election. The explanatory memorandum to that order says that the UK is already in advance of many European countries in adopting the directive. The European Mortgage Federation stated that the UK’s mortgage market review already goes beyond the core provisions of the directive. The Council of Mortgage Lenders stated that UK lenders are ahead of most of their European counterparts in implementing the directive. UK firms have been given the opportunity to adopt the revised rules up to six months early. Many have chosen that option, and are therefore already complying with the directive’s requirements.

On the second-charge lending market becoming regulated by the FCA and subject to its mortgage rules, in 2014 the Financial Services Consumer Panel said that it is “odd” that that is not already the case, given that

“the second charge market has consistently suffered from a higher rate of repossessions than first charge mortgages.”

The panel said it was concerned that there is a regulatory gap between the consultation date and the directive’s implementation date this month, and that the FCA will not collect performance or sales data on second-charge mortgages. Will the Minister comment on the effect of that gap? Has the Department since responded to those concerns?

Furthermore, the directive distinguishes between business buy-to-lets and consumer buy-to-lets, which are classified as such if the borrower or an immediate relative of theirs has ever lived in the property or intends to live in it in the future. How does the Minister expect that to be implemented? How many mortgages does she expect will be affected in that way, and is there any possibility of misidentification or misallocation of the distinctions between consumer and business buy-to-let? What are the risks of that occurring?

Finally, on small-firm lending, the order will exempt from referral to finance platforms applications made by a broker instead of directly by a business. What impact might that have on small and medium-sized enterprises’ access to finance, given the ongoing concerns, of which we are all aware, about bank lending to small businesses, which we know are vital for innovation in our economy? I have no doubt that we could discuss the development of alternative finance, the mortgage markets and small-business lending at further length, but I will draw my comments to a close.

Oral Answers to Questions

Richard Burgon Excerpts

Tuesday 1st March 2016 Commons Chamber

[Mr Gauke]

There are nearly 100,000 firms employing fewer than 50 people that export goods to the European Union, and we want to assist them. Access to the single market is very important to those businesses and the 800,000 people they employ.

[Richard Burgon (Leeds East) (Lab)]

The plans to move towards quarterly online tax reporting are proving to be deeply unpopular with small businesses, so will the Chancellor confirm the impact on administration costs for small businesses of the Government’s plans for quarterly reporting to Her Majesty’s Revenue and Customs?

[Mr Gauke]

Overall, the Government are clear that HMRC’s target is to reduce the burden on businesses by £400 million by the end of this Parliament. Moving towards a digital taxation system is something that can help businesses to reduce their costs. We are consulting on the details, but let me make it absolutely clear that there will be no quarterly tax returns, as it has been wrongly reported that there will be in some cases.