Financial Services: Mansion House Speech
Tulip Siddiq Excerpts(1 year, 5 months ago)
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Madam Deputy Speaker (Caroline Nokes)
Mr Speaker is very disappointed that the Chancellor of the Exchequer has not come to the House in person to update us on last Thursday’s Mansion House speech, which included important new policy announcements on a range of issues, including the consolidation of local government pension funds. I am sure that Members would have welcomed the opportunity to question the Chancellor personally on it. Mr Speaker is very sorry that the Chancellor has not seen fit to come here herself.
The Economic Secretary to the Treasury (Tulip Siddiq)
I apologise on behalf of the Chancellor for the fact that she could not be here. If there are any specific questions for her, I will ensure that she knows what they are, and that she personally writes to Members.
With permission, Madam Deputy Speaker, I will update the House on the Government’s work to support the growth of the UK economy. The financial services sector is the jewel in the crown of the UK economy, as I am sure everyone across the House will agree. It is one of our largest and most successful sectors, employing 1.2 million people and making up 9% of gross value added, and the UK is the second largest exporter of financial services in the G7. On Thursday night at Mansion House, the Chancellor placed the sector at the heart of the Government’s growth mission and, building on the economic stability and public investment that the Budget provided earlier this year, she set out a plan for investment and reform of the sector.
The plan builds on the rapid work that the Government have already done to support the growth of the sector. One week into office, the Government welcomed the biggest changes in the UK’s listings regime in more than three decades; in our first month we launched the landmark pensions review and in September we delivered the final stage of the post-crisis capital reforms for banks, working closely with the Bank of England, strengthening our banking system while also protecting lending to the wider economy.
The package that the Chancellor set out at Mansion House builds on those steps, beginning with a commitment to develop a comprehensive plan to grow our financial services sector. In spring next year, the Government will publish the first ever financial services growth and competitiveness strategy, giving the financial services sector the confidence it needs to invest in the long term by setting out our plans for the sector over the next 10 years. Published alongside our modern industrial strategy, it will be clear-eyed about our strengths, proposing five priority growth opportunities: fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance markets, and capital markets, co-designed with voices across the financial services sector.
From the base of long-term stability, the Chancellor also laid the foundations for getting even more investment into our country. The Government have already confirmed our plans to capitalise our flagship investment vehicle, the National Wealth Fund, to invest in the industries of the future. To support investment in our green industries, the Chancellor’s speech confirmed the Government’s next steps to deliver a world-leading sustainable finance framework.
The Chancellor also set out our plans in another key area that I know has generated interest across the House: pension funds. The UK has one of the largest pension markets in the world, but pension capital is often not used enough to drive investment and growth in our economy. Thanks to the excellent work taken forward by the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Wycombe (Emma Reynolds), the Chancellor announced the interim report of the pensions investment review. The report sets out our plans to harness the collective size of our pension funds to create larger pools of capital for investment, supporting pension funds to invest at scale. To do that, we will deliver a significant consolidation of the defined contribution market and the Local Government Pension Scheme in England and Wales, providing better outcomes for savers while supporting investment for growth. Indeed, we could unlock around £80 billion-worth for investment in private equity and infrastructure through those actions alone, according to domestic and international comparisons.
Alongside economic stability and higher levels of investment, the Chancellor’s Mansion House speech put reform at the heart of the Government’s growth agenda. The Government’s approach to regulation is a core part of that. Across our economy, we will upgrade our regulatory regime, reviewing the guidance we give to the Competition and Markets Authority and other major regulators to underline the importance of growth. That includes our financial services regulators. While it was right that successive Governments made regulatory changes after the global financial crisis to ensure that regulation kept pace with the global economy of the time, it is also important that we learn lessons from the past. Those changes have resulted in a system that sought to eliminate risk taking, and in some cases they have had unintended consequences that we as a new Government must now address.
Regulation has costs as well as benefits. It has costs for firms when they are spending large sums on compliance and not using that money to innovate and to grow, and it can have costs for consumers, for example by restricting access to financial advice that could help them to plan for the future. While maintaining important consumer protections and upholding international standards of regulation, we therefore feel that now is the moment to rebalance our approach and take forward the next stage of reforms needed to drive growth, competitiveness and investment. To support that aim, the Government issued new growth-focused remit letters to the financial services regulators to make clear that the Chancellor and I fully expect them to support the Government’s missions on economic growth.
The Financial Ombudsman Service plays a vital role for consumers in getting redress. That will not change, but reform is needed to create a sure environment. We will work closely with the Financial Conduct Authority and the FOS to develop a new agreement between the two institutions, with clear expectations on how they co-operate, including on historic market practice and mass redress events. The Government welcome the call for input that asks for views on how to improve the rules governing how the FOS operates.
The Government’s ambitions for reform are much wider than regulation. Building on our work to improve the UK’s listing regimes, we are unlocking funding for our capital markets and legislating to establish, by 2025, PISCES—the private intermittent securities and capital exchange system—which is an innovative new stock market to support companies to scale and grow. We are also supporting innovation in the financial services sector by launching a pilot to deliver a digital gilt instrument using distributed ledger technology, as my written statement sets out.
Insurance markets are pivotal to supporting growth and creating resilience by helping us to manage risk. The Government have launched a consultation on captive insurance, where a new approach could cement the UK’s position as a leading financial services centre.
As the House will know, this Government prioritise the growth of the mutuals sector. We have launched a call for evidence on the credit union common bond, asking regulators to report on their mutuals landscape to support their growth, and welcoming the establishment of an industry-led mutual and co-operative business council.
The Chancellor also published the national payments vision to set out the Government’s ambition for this vital sector, ensuring that our approach to regulation allows firms to grow and innovate, and including decisive action to progress open banking and to support our fantastic fintech businesses.
Finally, we are working with tech platforms and telco networks to reduce the scale of fraud originating on their platforms. The Chancellor, the Home Secretary, and the Secretary of State for Science, Innovation and Technology, have written to leading tech and telecom companies, calling on them to go further and faster, with clear action to reduce the level of fraudulent activity that exploits their platforms and networks. We will be monitoring that closely in the coming months.
This is a significant package to support the growth of the financial services sector and invest in the wider economy. I have heard lots of murmuring from Opposition Members while I have been speaking, which I hope shows their approval for our overall package. I look forward to working across the House to deliver these important reforms from the first Labour Mansion House speech in 14 years.
Mark Garnier (Wyre Forest) (Con)
I thank the Minister for advance sight of her statement, and I congratulate the Chancellor, via the Economic Secretary, on her maiden speech to Mansion House. It has gone down broadly very well, and we are pleased that she recognises the City for what it is. The Minister rightly points out that the UK hosts a competitive and global financial centre, but changes to regulation must not be burdensome, and they must be worked through properly with the industry. When and where the Government take steps to enhance the performance of that sector, they can be guaranteed of our support. As the Chancellor mentioned in her Mansion House speech, in a generous tribute to her predecessor, much of the regulation reform discussed today was started under a Conservative Chancellor. I therefore wish to put on record recognition for my right hon. Friend the Member for Godalming and Ash (Jeremy Hunt) and the work he did in that area.
Before I turn to the substance of the statement, inevitably I will talk about the Budget. It is worth reminding the House of the most pressing parts of the Chancellor’s Budget, which she left out of her Mansion House speech. In her speech she mentioned the word growth no fewer than 41 times, but we have to look at the facts. When the Conservatives left government, we had the fastest growing economy in the G7, but now growth has halved. The Chancellor’s increase in national insurance means that businesses are picking up the tab to pay for Labour’s open tap on spending. She will no doubt have read the letter sent to her by 200 hospitality businesses, highlighting job losses across their sector and a wider range of sectors. Despite all her talk about growth, business groups and economists agree that Labour’s approach to the Budget is choking the momentum of our economy. Britain deserves a Government who back growth, empower investment and deliver prosperity. I hope that the Minister today will admit to the British public that while she talks about growth, her party’s plans to grow the economy fall short of an economic growth agenda.
On the substance of the reforms that the Minster has outlined today, we believe that the objectives that the Chancellor is attempting to achieve with her Mansion House reforms are broadly the right ones. First, it goes without saying that delivery of the reforms that the Conservatives started in government is to be welcomed, including the focus on growth; my right hon. Friend the Member for Godalming and Ash (Jeremy Hunt) legislated to ensure that financial services and markets regulation has a secondary growth duty. It is regrettable that the Government could not publish the final version of the pension investment review or the pension Bill in time to accompany this statement.
As I turn to my questions, I should make it abundantly clear to the Minister and the House that these reforms must remain focused on delivering the best deal for pension savers. While additional investment is welcome, the pension market should not be treated as a Government cash cow for public investment if it loses sight of the paramount objective of delivering a secure return for savers. It is true that unlocking greater investment and delivering greater returns for pension savers can come together—both can happen at the same time—but I must push for the publication of the finer details of this policy. The emphasis must still be on pension savers. While greater investment and greater returns can come together, security in retirement is what the pension industry is all about.
Work to reconcile those two aims was furthered by my right hon. Friend the Member for Godalming and Ash when he announced reforms earlier this year, which included requiring pension funds to publicly disclose how much they invest in UK businesses compared with those overseas, and disallowing schemes that performed poorly for savers from taking on new business from employers. Can the Minister confirm that those reforms remain Government policy, and that nothing she is announcing today changes those policy strands?
Can the Minister set out a timeframe for the proposed mega-funds? Some 86 local authority pension funds will be consolidated into just eight. What are the criteria on which the Government have chosen eight? Why not one, 10 or 15? The Government note that the local government pension scheme in England and Wales has
“assets…split across 86 different administering authorities…with local government officials and councillors managing each fund.”
Can the Minister clarify whether each of the 86 local government pension funds will have a stake in each of the eight mega-funds, or will they each be allocated to just one mega-fund, thereby possibly distorting the risk profile of that pension fund?
The Government state that the consolidation into a handful of mega-funds will enable the funds to invest more in assets such as infrastructure. Can the Minster confirm whether the “infrastructure” that the Government mention in their press release refers to both public and private infrastructure projects? On the topic of infrastructure, what is the expected return on Government-owned infrastructure projects? Will pensioners ever be mandated to take lower returns to support the Government’s investment objectives? The Minister with responsibility for pensions, the hon. Member for Wycombe (Emma Reynolds), who is in her place, gave rise to some ambiguity about whether there will be mandating of pension fund investment in Government projects in her Financial Times article this morning. Furthermore, will the trustees overseeing these mega-funds be restricted by the Government as to what they can invest in, or will they be free to choose their investment and risk profiles?
The Government also state:
“A new independent review process will be established to ensure each of the 86 Administering Authorities is fit for purpose.”
Can the Minister give any further detail on that review? Who will be running it, for how long will it be running, and what is considered “fit for purpose”? How many of these funds would have to be considered not fit for purpose for the Government to reconsider the number of mega-funds?
To conclude, we support what the Government are trying to do with their reforms, many of which are ours, but questions remain about the detail of the policy. We will scrutinise the detail of the legislation when published. I finish as I started—by saying that the Government are talking about investment and growth, but have just delivered a Budget that downgrades growth and crowds out business investment. Those things are not compatible, and we urge the Government to put forward a workable plan for growth. They must not rely solely on the financial services sector to bail them out.
Tulip Siddiq
I thank the Opposition spokesperson for his comments. I think he welcomed the news, although I am not quite sure. He spoke a lot about the ex-Chancellor, the right hon. Member for Godalming and Ash (Jeremy Hunt), who did a lot of work in this space. I remind the House that the ex-Chancellor said that there was
“Much to welcome in the Chancellor’s Mansion House speech today.”
The Opposition have said that these are “broadly” good reforms; I thought I would remind the Opposition spokesperson of that. I also remind him that we are not interested in sticking-plaster politics. We have a long-term vision for the economy, which is why we are looking at using the national wealth fund and the industrial strategy to ensure that we grow the economy.
I will answer a few of the hon. Gentleman’s questions, but if I do not get to all his pension questions, the Minister with responsibility for pensions is happy to meet him. I point out that our public services are crumbling, and that we inherited a £22 billion fiscal black hole from the previous Government. We had to make difficult choices to fix the foundations of the country and restore desperately needed economic stability in order to allow businesses to thrive. He pointed out that hospitality businesses were contacting him. More than half of employers will see either a cut to or no change in their national insurance bills. To support the hospitality industry, we are permanently cutting business rates for retail, hospitality and leisure from 2026. That comes alongside a 40% relief on business rate bills next year for thousands of premises.
We are committed to delivering economic growth by boosting investment and rebuilding Britain, which is exactly what our Budget did. The interim report of the pensions investment review, which the hon. Gentleman had a lot of questions about, put forward proposals to drive scale and consolidation in the defined contribution workplace market. The Local Government Pension Scheme is still consulting. The final version will come out in spring next year, but as I said, the Minister for pensions is happy to speak to him. There is international industry consensus that the scale and consolidation benefit investment and savers, and that these measures could unlock around £80 billion of productive investment.
On the hon. Gentleman’s questions about the reforms taking autonomy away from local authorities, under the proposals in the consultation, each administrating authority would retain control over the most impactful decisions by setting their investment objectives and strategic asset allocation. The consultation proposes that implementation of the chosen strategy be delegated to investment experts in the asset pool, who are best placed to execute the investment objectives to meet the desired investment outcomes. I hope that reassures him that we will not take autonomy away from the authorities.
The hon. Gentleman talked about the overall package of boosting UK economic growth and benefiting pension scheme members. The objectives are complementary. Driving consolidation and tackling waste in the pension system ensures that schemes can achieve the necessary economies of scale and efficiencies to pursue diversified investment strategies. I reassure him that assets such as infrastructure and private equity are seen as part of the balanced portfolio, and can enhance savers’ returns. They will boost economic growth, so he does not need to worry about that, and we will benefit the communities where pension savers live.
The hon. Gentleman spoke a lot about what the previous Government did. They talked a lot about pensions, but they actually never did anything. We have shown in the first few months of a new Labour Government that we mean business, and we have our action ready to go. By next spring, he will see the full details in the Bill.
Madam Deputy Speaker (Caroline Nokes)
I call the Chair of the Treasury Committee, Dame Meg Hillier.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I draw the House’s attention to the fact that a family member works for Allied Irish Bank, and to the fact that I am a trustee of a pension fund.
I want to ask my hon. Friend about the remit letter for the Financial Conduct Authority. Just as the pushmi-pullyu in “Dr Dolittle” did not know which way to go, there is a danger that if we try to pursue the secondary objective while protecting consumers, consumers could lose out. Could she set out clearly how she expects the FCA to ensure that it maintains its approach of protecting consumers? Could she pick up on the comment from the hon. Member for Wyre Forest (Mark Garnier) about whether there will be any move to mandate pension funds to invest in UK infrastructure?
Tulip Siddiq
I thank my hon. Friend for that question. On pension funds, we are not looking at taking that action right now, but I will let her know when we take further action. On the remit letters, we are committed to financial inclusion and to ensuring that consumers are looked after. That is why, in their remit letters, I have asked regulators to have regard to that, and why I have made it clear that our top priority is to promote growth and international competitiveness. The laser focus, in the remit letters, is on growth, but they are not intended to encompass the entire scope of the Government’s vision for the sector. She should be in no doubt that consumer outcomes are top of our agenda. I have made that clear in every meeting I have had with the regulators.
Daisy Cooper (St Albans) (LD)
We welcome any reforms that will provide an effective route to growth without putting undue pressure on people’s savings, so we look forward to seeing more details from the Government. In the meantime, I press Ministers on their broader goal of getting investment in innovation. Constituents in St Albans report that their small and medium-sized enterprises have invested in innovation. They have successfully applied for research and development tax credits, only for His Majesty’s Revenue and Customs to claw them back. It is right that HMRC tackles errors and fraud, but thanks to Conservative inaction, it is now widely accepted that a number of SMEs are seeing their valid claims rejected or withdrawn, while others are simply not applying for the tax credits at all. Will the Minister please conduct an urgent review of HMRC’s approach, with a particular focus on whether it is undermining the growth and innovation of the SME sector?
Tulip Siddiq
I thank the hon. Lady for her comments. I will pass them on to the Financial Secretary to the Treasury, who will look into the matter. I am worried to hear what she says about SMEs; she is absolutely right that they are the heart and soul of our economy—we should be looking into that. I will ensure that he writes to her, but if she needs a further meeting, I am sure he will meet her.
Ms Stella Creasy (Walthamstow) (Lab/Co-op)
Members from across the House have long called for financial regulation of “buy now, pay later” companies. Because of the delay in regulating those companies, a third of people seeking debt advice do so because of them. The Woolard report in 2021 identified the urgency of the FCA regulating the industry as soon as possible. I welcome the Government’s commitment to regulating them, but I am bemused, as many are, as to why it will take until 2026 for the regulations to take effect and for our constituents to be protected. Everybody knows that regulation needs to happen, and what the regulations are, and the FCA has been waiting since 2021 to do it—so why are we giving these legal loan sharks two Christmases-worth of presents, and allowing them to exploit our vulnerable constituents in this cost of living crisis?
Tulip Siddiq
I thank my hon. Friend for her question. She has done an enormous amount of work in this area, and I applaud her for that. She was instrumental in the Government taking our initial steps to regulate the “buy now, pay later” sector. There is a need for “buy now, pay later” during a cost of living crisis, and people will access those companies’ products, but I have brought this under FCA control so far, and have regulated to ensure that it is safer, and that people do not store up a huge amount of debt that they cannot pay back. The consultation is open until 29 November, and I ask her to urge others to feed into it to ensure that we get this policy right; that was not done by the previous Government. I will bring forward legislation as quickly as possible, but I thought it was important to hear what people and the industry had to say, because we want to regulate properly. She is being patient, and I ask her to be a bit more patient; our intention is to make the sector as well regulated as possible under the FCA.
John Glen (Salisbury) (Con)
I warmly welcome much of what was announced last week—the work on listings, mutuals and the remit refresh—but I say to the hon. Lady and the Minister for pensions that there is considerable reticence in the pensions industry when it comes to many of the drivers of change highlighted last week. We need a complete cultural shift and change in appetite from those who lead the pensions industry. I urge her to keep under review the fiscal incentives, and the transparency and accountability rules, so that we can see the performance gap that results from not making some of these changes. I look sympathetically on the aspirations that she has set out today, and I wish her well as she moves forward with these critical changes, which should have a lot of support from across the House.
Tulip Siddiq
I know that the right hon. Member did a huge amount of work in the financial services sector while he was in office. The civil servants still talk about how amazing he was—much to my dismay sometimes! We agree that there needs to be a change in appetite in this place. Transparency is top of the list, as the Minister for Pensions just whispered in my ear. We thank the right hon. Member for his constructive approach on the review, and urge him to tell the people he knows in the sector to respond to and feed in to the consultation.
Ms Polly Billington (East Thanet) (Lab)
The Minister will know that investment in our energy system is vital to our mission of being a clean energy superpower, creating jobs and cheaper, cleaner and more secure home-grown energy to power our economy. What is she doing to ensure that financial service regulators support the Government’s mission while upholding high industry standards?
Tulip Siddiq
I know that my hon. Friend takes a keen interest in this area—she been talking about it for the 25 years that I have known her. We agree that it is important. The FCA and the PRA are required to have regard to the UK’s net zero emissions target, as set out in the Climate Change Act 2008. The Mansion House speech set out the Government’s next steps to deliver a world-leading sustainable finance framework. That will be a huge part of our financial services strategy, as part of the industrial strategy, next spring. I urge her to consult and feed in on that.
Lisa Smart (Hazel Grove) (LD)
I speak as a former trustee of a local authority pension fund. Much of the correspondence that I received from pension fund members was not about the returns that they received, but about the investments they were in but could not choose to come out of because it was a defined benefits scheme. I appreciate that the review is ongoing, but can the Minister confirm that any review will consider retaining the autonomy of local authorities in deciding not to invest—whether in companies, countries or sectors—for environmental, social and governance reasons?
Tulip Siddiq
The consultation is ongoing, but I repeat that each administering authority will retain control over impactful decisions by setting out investment objectives and strategic asset allocation, and they will have control over their pooled assets. The Minister for Pensions will be happy to meet the hon. Lady should she wish to discuss that further. As the hon. Lady said herself, the consultation is ongoing, so she may wish to wait until after it is complete.
Florence Eshalomi (Vauxhall and Camberwell Green) (Lab/Co-op)
I declare an interest as a proud Labour and Co-operative MP. It was great to see the Chancellor outline the ambition to grow the co-op and mutual sector and to see regulators come forward in that work. Is there a timeframe for that process? As the Minister said, to ensure the growth of the UK economy, we need rich and diverse growth in the mutual and co-operative sector as well.
Tulip Siddiq
As my hon. Friend said, she stood on a ticket as a Labour and Co-operative Member of Parliament, and she has done a lot of work in that area. Last week, the Chancellor set out multiple new measures to unlock the full potential of the mutual sector, as we outlined in our manifesto. That included publishing a call for evidence and reforming the credit union common bond, and asking the PRA and the FCA to report on the current mutual landscape by the end of 2025.
Dame Harriett Baldwin (West Worcestershire) (Con)
I declare an interest as a trustee of the parliamentary pension scheme. There is a lot to welcome in the Chancellor’s Mansion House speech, a lot of which was taken from the Mansion House and Edinburgh reforms of the previous Chancellor. I particularly welcome the increase in access to financial advice that the Minister has said she is taking forward. Can the Minister confirm the end of the senior managers regime in the City, which I believe was in the Chancellor’s speech, and if that is the case, how does she plan to take it forward and will it require primary legislation?
Tulip Siddiq
The Government will consult on replacing the certification regime, and will seek the views of industry and all interested stakeholders in doing so. We are working closely with the PRA and the FCA on that. If the hon. Lady meant certification of the senior managers regime, we are keeping that under review at the moment, but it was not mentioned in the way that she thinks it was.
Gregor Poynton (Livingston) (Lab)
Before the election, Labour set out plans to grow the mutual sector in our “Financing Growth” report, which was welcomed across the sector. In fact, my local credit union, the Caledonian Credit Union, welcomed the report—I declare an interest, because I am now a member of that credit union after I visited. I welcome the setting up of the mutuals and co-operative business council. Will the Minister explain how that will drive growth in the sector?
Tulip Siddiq
As my hon. Friend knows, the Mansion House speech set out multiple new measures to unlock the full potential of the mutual sector. As he says, we welcome the establishment of an industry mutuals and co-operative business council, alongside our delivery of legislation to support the building societies sector last month. We want to ensure, through those measures, that the sector can grow, and to support inclusive growth across the UK. In the few months that I have held this position, the main complaint in the mutual and co-operative sector seems to be that it is difficult to operate within the current regulatory framework, as it is not set up to support mutuals and co-ops in the way it supports other businesses, so I am looking at that. I am very happy to continue that conversation, but this is about considering the regulatory framework to ensure that it is for fit for purpose in doubling the mutual sector, which was a commitment in our manifesto.
Rupert Lowe (Great Yarmouth) (Reform)
In her Mansion House speech, the Chancellor announced that we would change the emphasis of regulation from risk to growth. The FCA and PRA have effectively regulated the London market into terminal decline, embedding Stonewall philosophy and diversity, equity and inclusion into financial regulation, starting with the Financial Services and Markets Act 2000. That was followed by the markets in financial instruments directives I and II, which imported EU regulation into the London market, prioritising a European bank lending model over our equity capital market tradition. Given that regulators cannot regulate for growth, the only solution is to disband the FCA and PRA, and return to the light-touch regulation under the Bank of England that secured London’s position as a vibrant capital market until 2000. Could the Minister explain with clarity the Government’s strategy of regulating for growth, which appears to me to be an oxymoron?
Tulip Siddiq
Our regulators do a very good job, and we are lucky to have them, but we will hold them to account. When the Chancellor talked about risk taking, she was saying that the post-financial crisis regulatory changes created a system that sought to eliminate risk, but which has gone too far and led to unintended consequences. For example, the certification regime has helped to improve standards and accountability, but some elements have become overly costly and administratively burdensome. That is what we are looking at. Getting rid of the regulators is not the way to grow the economy. Holding them to account, and considering how we increase risk taking in our system, is the way in which this Government will approach things.
Katrina Murray (Cumbernauld and Kirkintilloch) (Lab)
As a long-term member of the NHS Scotland credit union, I know the importance of having community and workplace-based savings and lending provision, which is much more accessible for people on low incomes than buy now, pay later. However, it has become much more challenging for the sector to operate beyond the common bond. What is the Minister doing to ensure that credit unions are able not only to compete with the wider financial sector, but to thrive in those circumstances?
Tulip Siddiq
I absolutely share my hon. Friend’s enthusiasm for credit unions—I have visited those in my constituency several times and know what good work they do. We have made clear our strong support for the mutual sector. We recognise the value that credit unions bring to their members in local communities, including in her constituency. The Chancellor launched a call for evidence on reforming the credit union common bond during the Mansion House speech last week. We want to understand whether reform is needed in that space to help credit unions to grow substantially. Once we have completed the call for evidence, we will consider how much of that reform we can take forward as a Labour Government.
Mike Wood (Kingswinford and South Staffordshire) (Con)
The Pensions Minister will be all too aware of the ongoing problems facing members of the west midlands pension fund, one of the country’s largest public sector pension funds. Why does the Economic Secretary think that the Chancellor’s eight mega-funds will provide a better service than the west midlands pension fund in investing those people’s pensions?
Tulip Siddiq
We will build on the success of the pools that already exist. If the hon. Gentleman is not satisfied with my answer, the Minister for Pensions is happy to meet with him.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
Much like my hon. Friend the Member for Vauxhall and Camberwell Green (Florence Eshalomi), I am a proud member of the Co-operative party, so to have so much co-operative and mutual content in the Mansion House speech, the new co-operative and mutual business council in particular, was music to my ears. Will the Minister say a little more about how she anticipates that Ministers will interact with the new business council? Will her Treasury colleagues consider new financial instruments to help co-operatives and mutuals meet the growth that they know is available to them?
Tulip Siddiq
I know that my hon. Friend is an active member of the co-operative and mutuals movement. The Government have already taken the first step, with two statutory instruments laid on 14 October. We are committed to progressing the remaining changes to the Building Societies Act 1986 following Royal Assent of the Building Societies Act 1986 (Amendment) Act 2024. I will look at further SIs to try to further the work here, but I want to support the industry-led council, and I welcome the opportunity to work with it and discuss and test policy proposals with representatives and experts from across the sector. I know that view is shared across the Treasury, including by the Chancellor, who asked about it this morning in our ministerial meeting.
Dr Andrew Murrison (South West Wiltshire) (Con)
Investing in small pension funds is boring, because it is risk-averse, safe for beneficiaries and principally concentrated in this country. While investment in UK start-ups and tech through venture capital and other vehicles is to be warmly welcomed, if it happens, there is nevertheless a very real risk that funds will simply be invested overseas, and the Canada experience suggests that that may very well be the case. What assessment has the Treasury made of the extent to which the small pension funds that the Minister envisaged being amalgamated will simply have their capital and investments lodged overseas in the tech and start-up companies of other countries and deprive our own of the same?
Tulip Siddiq
We are looking at a diverse portfolio of assets, and the pension funds mentioned by the right hon. Gentleman have already pooled and are investing in the UK.
Tom Hayes (Bournemouth East) (Lab)
Bournemouth is a wonderful place to represent for lots of reasons; one very good reason is the presence of a large finance sector. We have JP Morgan and Nationwide building society, which I was pleased to visit recently and hear from about its aspirations. Over the last 14 years, that sector on the south coast has been starved, so what steps will the Minister and this Government will take to support coastal finance hubs? Moreover, I recognise that her diary will be quite booked up, but can I invite her to come to Bournemouth and meet with representatives of those firms? If she does, I am happy to buy her an ice cream.
Tulip Siddiq
My hon. Friend will know that I can never resist an ice cream, so I probably will visit after all. Places such as JP Morgan, which employs 4,000 people in the financial services industry, are vital to us. One of the things that the Chancellor’s speech built on was the significant steps that the Government are already taking to enhance the competitiveness of our financial services sector. We want to look at the biggest changes to the UK’s listings regime in more than three decades and—my hon. Friend will be familiar with this—deliver the final stages of the post-crisis capital reforms to banks. With our financial services growth and competitiveness strategy, which I hope my hon. Friend will write to us on, we want to give the industry certainty and the confidence to invest. That is the main thing that the financial services sector wants right now, and people in Bournemouth will probably agree with that. I look forward to that ice cream.
Jim Shannon (Strangford) (DUP)
I thank the Minister for her statement. We must welcome the news that London edges closer to New York as a financial hub. However, the Minister is aware that growth happens only if we attract investment. I believe that the decision to pool pension funds into larger investment vehicles is a bold one, yet the Chancellor must ensure that guarantees are in place, so that the mega-pool of pensions does not go down the drain, and that guardrails are in place to safeguard the nation’s pension pots.
Tulip Siddiq
I reassure the hon. Gentleman that boosting return for savers is at the very heart of this agenda, which is why we are pursuing this pensions review. We want these reforms to increase security and boost people’s pension pots, and we want to unlock about £80 billion of productive investment. The Government’s reforms are already in the pension schemes Bill, and they could boost a typical defined contribution saver’s lifetime pension pot by £11,000. I do not want the hon. Gentleman to worry, because we have our eye on how to protect pensioners and savers.
Steve Yemm (Mansfield) (Lab)
In my constituency of Mansfield, our member-owned mutual organisation, Mansfield building society, provides essential banking services. It is a significant local employer and invests in projects to support my community. What is the Minister doing to unlock the full potential of the sector and organisations such as Mansfield building society?
Tulip Siddiq
I have already mentioned our first step with the two SIs laid on 14 October, which try to modernise the Building Societies Act, and I am happy to send my hon. Friend further information on that.
The main thing we will do is carefully consider the findings of the Law Commission reviews to understand whether reform of the legislation is needed to ensure that businesses are better supported and grow more in the future. The response to the calls for evidence will be carefully considered by myself and others, and any potential reform will require formal consultation. I want to make sure that my hon. Friend knows that at the top of our agenda is trying to unlock the full potential of this important sector after 14 years of that not having happened.
David Pinto-Duschinsky (Hendon) (Lab)
I thank my hon. Friend the Minister for sharing her statement and welcome the support that it has gathered from across the House. However, I noted that the right hon. Member for South West Wiltshire (Dr Murrison) mentioned concern about pensions. Members will, of course, remember that it was the Conservatives who caused chaos in the markets with their mini-Budget, putting all our pensions at risk. What will the Government do to ensure financial stability and make sure that there can be no repeat of the chaos that they caused?
Tulip Siddiq
My hon. Friend knows this area well, having worked in the Treasury in a former life. We will absolutely make sure that we avoid the mistakes of a certain Liz Truss and work very closely with the TPR and the FCA to deliver all our reforms and ensure that we do not make any decisions that shake the stability of the economy, because we want to have a stable financial services sector and a stable economy to encourage investment and ultimately deliver on our growth mission.
Amanda Martin (Portsmouth North) (Lab)
Portsmouth people welcome the national wealth fund, the industrial strategy and the Chancellor’s Mansion House speech, as well as the stability that it offers our country and its much-needed economic growth. Does the Minister agree, though, that consumer protection is a vital issue that we must ensure does not get lost in our growth strategy? Will she say what the Government are doing on this agenda to ensure that?
Tulip Siddiq
Consumer protection is at the heart of anything that we do in financial services. As well as being a Minister, I am a constituency MP; every time I have one of my surgeries, I hear about people who have been either a victim of fraud or taken out a buy now, pay later product without realising the consequences.
We want to give enhanced consumer protections to people through the Financial Ombudsman Service, but we are very aware that it needs to be reformed, which is why the Chancellor mentioned it over and over in her speech. We plan to introduce legislation on that as soon as possible, because we want to deliver better protection for millions of consumers after years of uncertainty. I am also making progress on financial inclusion at the moment, and I can send my hon. Friend more information on that if she wants. We are setting up a financial inclusion committee, which is meeting next week, and I am happy to let my hon. Friend know what we are doing in that to protect consumers.
Draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024.
It is a pleasure to serve under your chairmanship, Sir Roger.
Allow me briefly to take the Committee through the background and purpose of the draft order. The European Bank for Reconstruction and Development is a multilateral development bank headquartered in London. It provides high-quality project financing to support economic and private sector development in 40 different countries. The UK is the bank’s joint second-largest shareholder and hosts the EBRD’s headquarters in Canary Wharf, London.
The UK engages with the EBRD on several UK foreign, development and economic policy priorities across its countries of operation, including assistance for Ukraine, supporting the transition to a green, low-carbon economy, and promoting equality of opportunity for women, young people and other underserved communities. The EBRD has been a long-standing partner to Ukraine. Over the past 30 years, it has been the largest institutional investor in Ukraine, with more than €20 billion invested in almost 600 projects. The bank provides technical assistance, lending, guarantees and grants to support policy reform and financial assistance in key sectors including energy, infrastructure and agribusiness. The UK welcomes the EBRD’s distinctive contribution to supporting Ukraine’s resilience and recovery in the face of Russia’s illegal invasion. The EBRD’s support since 2022 has amounted to over €4.5 billion for essential priorities, including supporting Ukraine’s critical national infrastructure against deliberate and repeated attacks by Russian forces.
The UK and other shareholders have agreed that the EBRD should continue its operations to support Ukraine, and that this support should be long-term and predictable. Given the exceptional circumstances in Ukraine and the EBRD’s commitment to sound banking principles, continued financial support was not possible without additional shareholder support. Last year, shareholders concluded that a paid-in capital increase is the most effective, efficient and broad-based means of enabling the EBRD to continue to finance Ukraine. Accordingly, in December 2023, the UK and other shareholders agreed to increase the EBRD’s paid-in capital by €4 billion.
The draft order is being made to enable the Government to participate in the capital increase in proportion to its current shareholding, with a contribution of €343.6 million paid in five equal annual instalments between 30 April next year and 30 April 2029. As determined by the OECD’s Development Assistance Committee, 71% of that contribution will be classified as official development assistance. The capital increase enables the EBRD to continue to support Ukraine’s resilience and recovery during wartime and in reconstruction through the provision of high-quality project financing, while securing the EBRD’s financial standing and its ability to maintain support to its other countries of operation.
With the additional capital, the EBRD plans to provide a sustained level of annual investment to Ukraine of about €1.5 billion during wartime, increasing to €3 billion annually once reconstruction begins. Over the course of a decade, that will result in tens of billions of euros of financing for Ukraine as the EBRD leverages the paid-in capital on the financial markets. I hope the Committee will agree that this complements the UK’s military and fiscal support for Ukraine and enables the EBRD to continue providing financing in support of the sustainable development goals across its countries of operation.
This is a topic that all parts of the House have been united on in support of Ukraine. I therefore recommend the draft order to the Committee.
Tulip Siddiq
It is always a pleasure to see the hon. Member for Grantham and Bourne in his place. I thank him for his support for the measure, and he is right to ask those questions.
The other shareholders of the bank have confirmed their intention to participate in the capital increases. That includes other members of the G7. I am happy to write to the hon. Member with specifics if that would be helpful.
The capital increase will ensure that the EBRD can increase lending to support Ukraine’s resilience, while maintaining activity in all its countries of operation; it is not dependent on other factors. In 2023, the EBRD’s total investment in Ukraine was €2.1 billion, compared with a total investment of €13.1 billion across all countries of operation.
The hon. Member also asked about climate change. The EBRD’s aim is for more than 50% of its total investment in 2025 to be towards green projects, reducing net annual greenhouse gas emissions by at least 25 million tonnes. Since 2006, the EBRD has invested €49 billion in more than 2,600 green projects, which are expected to reduce carbon emissions by 124 million tonnes yearly. I thank the hon. Member for his constructive comments and his questions.
The draft order will enable the UK to participate in a capital increase for the EBRD, which will improve the bank’s financial capacity to increase lending to support Ukraine’s resilience while maintaining activity in all countries of operation. I am happy to write to the hon. Member on the point about the G7 countries. I hope the Committee will join me in supporting the draft order.
Question put and agreed to.
Draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024
Draft Consumer Composite Investments (Designated Activities) Regulations 2024
Draft Securitisation (Amendment) (No. 2) Regulations 2024
Draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024.
The Chair
With this it will be convenient to consider the draft Consumer Composite Investments (Designated Activities) Regulations 2024, the draft Securitisation (Amendment) (No. 2) Regulations 2024 and the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024.
Tulip Siddiq
It is a pleasure to serve under your chairmanship, Mr Efford. The regulations that we are introducing today will ensure effective, proportionate regulation for the financial sector by laying the groundwork for wholesale reform of consumer disclosure for financial services, and for effective prudential arrangements.
Let me turn first to the draft Consumer Composite Investments (Designated Activities) Regulations 2024. The packaged retail and insurance-based investment products regulation, or PRIIPs regulation, was designed to standardise disclosure across a wide range of financial instruments and across the EU in an attempt to improve transparency and enable comparison between products for retail investors. However, as many Members will be aware, the regime was overly prescriptive and burdensome with the one-size-fits-all template of the key information document, or KID, resulting in the presentation of misleading information to consumers on potential risks and returns. The previous Government took urgent action to address the most pressing issues with the KID in the Financial Services Act 2021, and the draft statutory instrument will deliver on this Government’s commitment to wholesale reform of these EU-inherited rules, with a new regime tailored to UK markets and firms.
The SI provides the Financial Conduct Authority with tailored rule-making and enforcement powers to deliver this long-called-for reform and to ensure its effective implementation. The new regime for CCIs will have tailored and flexible rules that address the key issues with PRIIPs and will support investors to better understand what they are paying for. The FCA’s consultation later this year will provide an opportunity for a full range of stakeholders to provide feedback on the new regime to ensure that it works as intended.
I return to the draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024. I have heard concerns from industry about PRIIPs. The current disclosure requirements have had unintended consequences on the investment trust sector specifically. Listed investment trusts are a British invention dating back 150 years, and they are unique to our country. Representing over 30% of the FTSE 250, and predominantly investing in illiquid assets—including infrastructure projects and renewables—they play an active role in supporting the Government’s growth agenda.
Investment trusts are a unique and well established type of closed-ended investment vehicle, and the Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these close-ended funds. The industry has told us again and again that the methodology is negatively impacting its ability to fundraise, and competitiveness. Therefore, this instrument will immediately exempt listed investment trusts from the current PRIIPs regulation and other relevant assimilated law as we finalise the replacement CCI regime, delivering on a key industry ask.
We have worked quickly to deliver these changes and firms are able to take advantage of this provision immediately, before the legislation takes effect, due to the FCA’s regulatory forbearance. This approach is intended as an interim measure, and investment trusts will be included within the scope of the new CCI regime, once it is in place. The FCA, recognising that the pace of legislative reform can be slow, has already implemented regulatory forbearance so that firms can take advantage of the provision immediately, before the instrument takes effect. In the long term, investment trusts will follow bespoke and tailored rules befitting the industry, and I encourage all sides to come together to find a sensible solution under the CCI regime.
Let me now turn to the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024, which make two amendments. The first is a technical change supporting the implementation of Basel 3.1, the final round of bank capital reforms following the global financial crisis. Bank capital rules are contained in the capital requirements regulation, part of assimilated law on financial services. This SI will enable revocations of these regulations, allowing the Prudential Regulation Authority to replace those rules in its rulebook, while ensuring that the PRA’s rule making remains subject to appropriate accountability and scrutiny.
The second amendment will expand the definition of a “recognised exchange”, from referring only to domestic investment exchanges to include those from overseas. This will enable stocks and shares from qualifying overseas exchanges to receive preferential prudential treatment when used as collateral to secure financial services, and will broaden our definition, making the UK comparable with international counterparts and ensuring that we are competitive.
Finally, the draft Securitisation (Amendment) (No. 2) Regulations 2024 extend a temporary arrangement allowing UK banks to treat EU securitisation products as though they originate from the UK, providing that they meet the standards of the “simple, transparent and standardised” framework. This means that banks and insurance firms holding such products may be able to benefit from preferential capital treatment. The current arrangement is due to expire at the end of December 2024, which would mean that no additional EU STS securitisations would be able to enter the temporary arrangement after that date. As that could impact the range of investment options for UK market participants, the Government are legislating to extend this arrangement to June 2026.
The EU securitisation regulation was recently incorporated into the European economic area agreement, and the EEA-European Free Trade Association states have indicated their intention to align themselves with the EU securitisation regulations over the course of 2025. The extension granted by this instrument will allow time for the EEA-EFTA states to implement these changes and for UK authorities to make a more informed decision about the non-time limited designation of EU STS securitisation products by June 2026.
These SIs will empower regulators to ensure that our financial services industry is subject to a rulebook that is fit for purpose, more proportionate, and tailored to UK markets. I know that the hon. Member for Grantham and Bourne is familiar with the regulations, as I have debated with him several times in Committee. I hope that he and the Committee will join me in supporting the regulations, which I commend to them.
Tulip Siddiq
I thank the shadow Minister—or perhaps temporary shadow Minister—for his support and associate myself with his comments about the financial services sector. It is a success story of our country. During the passage of the legislation that is now the Financial Services and Markets Act, he and I talked often about the importance of the financial services sector to the overall economy, but I will not associate myself with his comments on the Budget or rise to anything he says in that regard!
These SIs represents an important step in our approach to regulation for financial services, which we want to be proportionate, effective and tailored to the UK. We want to get the best out of our financial services sector. I encourage all interested parties to engage with the FCA as it consults on the proposed CCI regime later this year, because it is important to hear from the industry and ensure that we make regulation according to what it will thrive on.
I thank the Committee for listening to me speak for quite a long time. If Members have any questions, I would be happy to answer them. I thank the shadow Minister, and I thank the Whips for organising us today.
Question put and agreed to.
DRAFT CONSUMER COMPOSITE INVESTMENTS (DESIGNATED ACTIVITIES) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Consumer Composite Investments (Designated Activities) Regulations 2024.—(Tulip Siddiq.)
DRAFT SECURITISATION (AMENDMENT) (NO. 2) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Securitisation (Amendment) (No. 2) Regulations 2024.—(Tulip Siddiq.)
DRAFT PRUDENTIAL REGULATION OF CREDIT INSTITUTIONS (MEANING OF CRR RULES AND RECOGNISED EXCHANGE) (AMENDMENT) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024.—(Tulip Siddiq.)
Silicon Valley Bank UK: Bank of England’s Transfer Power
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
In March 2023, the Bank of England used its transfer power under the special resolution regime—provided for by the Banking Act 2009, as amended—to resolve Silicon Valley Bank UK by transferring ownership of the firm to HSBC UK.
Section 79A of the Banking Act 2009 requires the Bank to provide a report to the Chancellor of the Exchequer, my right hon. Friend the Member for Leeds West and Pudsey (Rachel Reeves), where it has used the power to make share transfer instruments or property transfer instruments to sell a firm in whole or in part to a commercial purchaser.
The Bank has provided this report to the Chancellor. The Government and the Bank of England are committed to transparency concerning the application of their resolution powers, so copies of the report have been deposited in the Libraries of both Houses, and the report is also available on the Bank’s website www.bankofengland.co.uk.
I thank the Bank of England’s staff for the dedication they demonstrated when they took swift and decisive action to protect financial stability and secure a good outcome for Silicon Valley Bank UK’s customers.
[HCWS197]
Draft Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024.
As always, Mrs Harris, it is a pleasure to serve under your chairmanship. I will take the Committee briefly through the background and the purpose of the draft regulations, which relate to the abolition of the pensions lifetime allowance.
The lifetime allowance was introduced to limit tax-favoured pension savings in registered pension schemes: it was the maximum amount of tax-relievable pension savings from which an individual could benefit over the course of their lifetime. At spring Budget 2023, the then Government announced that they would abolish the lifetime allowance. The Finance (No. 2) Act 2023 removed the lifetime allowance charge; this was done to incentivise those considering retirement to remain in employment, and to encourage those who had already left the workplace to return.
The Finance Act 2024 removed the other elements of the lifetime allowance from the pensions tax regime, from 6 April 2024. This was an enormous task: the entire pensions tax regime was structured around the existence of a lifetime allowance. Many other aspects of the regime, such as allowable pension and lump sum benefits, were calculated by reference to the lifetime allowance. It took over 100 pages of primary legislation to remove the lifetime allowance and replace it with other rules to make the pensions tax regime operate correctly in its absence. That included the introduction of new allowances. Additional secondary legislation was then needed to provide further administrative and technical detail.
Since the Finance Act 2024 and the regulations that followed it, His Majesty’s Revenue and Customs has continued to work with industry representatives to ensure that the legislation operates correctly. In doing so, HMRC has identified some errors that need to be corrected.
The draft regulations will amend schedule 29 to the Finance Act 2004 to facilitate the correct calculation of crystallised pension rights for the purposes of the trivial commutation lump sum. They will amend schedule 36 to the 2004 Act so that the calculation of the pension credit factor is dependent on the standard lifetime allowance at the time the rights were acquired. They will correct the calculation of the additional lump sum amount in respect of scheme-specific lump sums and will modify the availability of a member’s overseas transfer allowance where a member has a pre-commencement pension in payment. They will also amend subordinate legislation to ensure that a lump sum paid in reliance on an erroneous transitional tax-free amount certificate remains an authorised payment, with any excess subject to marginal rate taxation.
The draft regulations are necessary to ensure that pension tax legislation can operate as intended. Without them, pension scheme administrators face uncertainty, and some taxpayers could receive an unintentionally more advantageous outcome than they would have if the lifetime allowance had remained in place. I hope you are with me, Mrs Harris!
These changes will put certain members in a less advantageous position. To mitigate the impact, HMRC has engaged with the pensions industry to suggest that affected payments be delayed until the regulations are in place. Most pension providers have followed that advice.
The majority of pension scheme members have been able to access the correct benefits since the lifetime allowance abolition legislation was completed earlier this year. A very small number of individuals, mainly those with large pension pots, have been inconvenienced; in some cases they have been unable to access their benefits because of some technical flaws in the legislation. The draft regulations will correct the tax position for those individuals and will allow the pensions tax regime to operate as intended. I commend them to the Committee.
Tulip Siddiq
I thank the Opposition spokesperson for supporting the draft regulations. The Government announced in August, through an HMRC pension schemes newsletter, that we would make the legislative changes needed to complete the abolition of the lifetime allowance. That is what we are doing in the draft regulations, which will come into force on 18 November and will have retrospective effect from 6 April 2024. We have no plans to reintroduce the lifetime allowance, but we keep all taxes under review as part of our process.
The draft regulations will conclude the work to abolish the lifetime allowance, addressing issues raised by the industry and providing certainty to pension schemes, administrators and pension savers. I hope that the Committee will join me in supporting them. I know that they are highly technical, so I thank the Committee for putting up with me talking for a long time.
Question put and agreed to.
Oral Answers to Questions
Tulip Siddiq Excerpts(1 year, 6 months ago)
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Sonia Kumar (Dudley) (Lab)
The Economic Secretary to the Treasury (Tulip Siddiq)
Increasing economic productivity is a key mission in the Labour Government’s growth agenda. After 14 years of weak productivity, depressed living standards and unfunded spending commitments, we are adamant about bringing our country into an upward trajectory, using the national wealth fund and the significant planning reforms that we are bringing together to ensure a decade of national renewal for our country.
Kevin Bonavia
Across the UK, the hospitality sector generates £93 billion per year. In my constituency, there are many examples of local entrepreneurs, including on the old town’s High Street and in our neighbourhood centres, who provide an excellent service for residents and visitors alike. What can my hon. Friend do to help our hospitality services grow in Stevenage and across the UK?
Tulip Siddiq
I am fully aware of the assets of my hon. Friend’s constituency, including the neighbourhood centres that he mentions, and the surrounding villages, which host amazing music festivals. I recognise the contribution of the hospitality sector in Stevenage to the UK economy, and I know he is a great champion of the borough business club. I am confident that our Government’s growth mission will ensure that hospitality businesses in Stevenage continue to grow. The Government look forward to working with organisations such as UKHospitality to facilitate that.
Sonia Kumar
“Invest 2035: the UK’s modern industrial strategy” identifies advanced manufacturing as a growth-driving sector. Manufacturing in Dudley accounts for 40.4% of jobs; that is double the national average. What steps are the Government taking to support and revitalise the manufacturing sector in Dudley, given its historical significance to the local economy, and its potential contribution to the UK’s overall industrial strategy?
Tulip Siddiq
As my hon. Friend rightly says, we identified advanced manufacturing as a growth-driving sector in the recently published industrial strategy Green Paper. I know how important manufacturing centres such as the Very Light Rail National Innovation Centre are to Dudley and the UK economy. We are committed to supporting advanced manufacturing through the industrial strategy, which, alongside sector plans, will be developed in partnership with businesses and stakeholders ahead of publication in spring 2025. I hope that she will contribute to that. Jobs will be at the heart of our industrial strategy, backed by employment rights that are fit for a modern economy.
James Wild (North West Norfolk) (Con)
Investing in transport infrastructure will boost productivity, so is the Chancellor listening to Members from across the east of England and across the House, and will she back the Ely junction rail upgrade, which delivers benefits of £5 for every £1 invested?
Tulip Siddiq
As the hon. Member will know, the Chancellor listens carefully to everything that is said in the Chamber, and I am sure that she has noted what he has said.
Jim Allister (North Antrim) (TUV)
We in Northern Ireland were told that, as a result of having dual access to the EU market and the United Kingdom market, we would see an increase in inward investment and economic productivity. Recently, Invest NI has had to admit that there has been no uptick in investment, because access to the EU market is counteracted by barriers from the GB market—that is clear. Do the Government now recognise that that was a mis-sold proposition?
Tulip Siddiq
I think we were mis-sold a lot of things by the previous Government, if that is what the hon. Member is talking about. I remind him that we had the investment summit recently, where we secured £63 billion of private investment, creating more than 38,000 jobs. That is more than double what the previous Government secured in 2023.
Mr Will Forster (Woking) (LD)
Katrina Murray (Cumbernauld and Kirkintilloch) (Lab)
“Buy now, pay later” is attractive to young people who are trying to survive on zero-hours contracts with irregular hours. What assurances can the Chancellor give me that the coming regulations will protect this group from problematic debt?
The Economic Secretary to the Treasury (Tulip Siddiq)
The proposed regulations will drive high standards of conduct among “buy now, pay later” firms, ensuring that consumers receive clear information and have access to strong protections. Our proposals will also allow the Financial Conduct Authority to require “buy now, pay later” firms to carry out affordability checks, ensuring that firms lend only to borrowers who can afford to repay.
Sir Ashley Fox (Bridgwater) (Con)
During the last election campaign, Labour candidates across Somerset said that a Labour Government would cut energy bills by £300. Will the Chancellor set out the timescale for fulfilling that promise?
Buy-Now, Pay-Later Products
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
Buy-now, pay-later (BNPL) products have seen increasing use among many UK consumers, helping some to manage unexpected costs. In the six months to January 2023, the Financial Conduct Authority’s (FCA) financial lives survey reported that 14 million consumers used BNPL products.
When provided in a responsible manner, BNPL can provide a useful and affordable source of credit. However, as identified by the 2021 Woolard review, it also has risks. For example, BNPL firms are not required to comply with the provisions of the Consumer Credit Act 1974, and BNPL firms solely offering these types of agreements do not need to adhere to the FCA rules that apply to other consumer credit products. The Government are therefore concerned that consumers using BNPL do not have access to key protections.
On 17 October, the Government published a consultation setting out their plans to fix this by bringing the sector into regulation. The consultation will be open for six weeks until 29 November.
The Government’s approach has been informed by five key principles:
Consumers must have access to simple, clear, understandable and accessible information;
consumers should have protection when things go wrong;
consumers should only be lent to if it is affordable;
regulation should be proportionate so that consumers have continued access and choice; and
regulation must be introduced urgently to ensure consumers are protected and the sector has certainty. Once implemented, the Government’s proposals will deliver on these principles.
Under the proposals, BNPL firms will need to be authorised by the Financial Conduct Authority and will be subject to ongoing supervision. The FCA will be able to set appropriate rules on assessing affordability and creditworthiness, reducing the risk that borrowing is unaffordable. They will also be to set rules on how firms should resolve complaints, including allowing consumers to take complaints to the independent Financial Ombudsman Service.
Consumers will have access to key legal rights, such as section 75, which will make it quicker and easier for consumers to get refunds.
The Government are also proposing to disapply certain information requirements in the Consumer Credit Act 1974 that, if applied to BNPL, could lead to poor consumer outcomes. Instead, the FCA will be able to utilise their powers to apply more appropriate disclosure requirements in its rulebook. This will ensure that consumers can actively engage with the information that firms provide, allowing them to make informed decisions before entering into a BNPL agreement, throughout the duration of the agreement, and especially when they encounter financial difficulty.
Given the need to act urgently—and because HM Treasury has already undertaken previous consultations on this topic—this consultation will be shortened to six weeks. After reviewing feedback, the Government will bring forward legislation as soon as possible. The new regime will come into force 12 months after the legislation is made, once the FCA has finalised its detailed rules. The consultation is available on
https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation-on-draft-legislation-october-2024.
[HCWS145]
Financial Services: Bank of England MREL
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
The Government’s response to their consultation concerning enhancements to the special resolution regime noted that the Bank of England would consider whether any changes to its indicative minimum requirements for own funds and eligible liabilities (MREL) thresholds would be appropriate [1]. The Bank of England has today published a consultation, “Amendments to the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)”. The consultation sets out the Bank’s intention to ensure that the MREL regime remains proportionate and evolves over time, reflecting the enhancements delivered in the Bank Resolution (Recapitalisation) Bill as well as other wider developments, and taking into account feedback from industry.
The Government welcome the publication of these proposals for consultation and recognise the importance of ensuring that the MREL regime maintains financial stability while being calibrated in a way that supports competition and competitiveness within the UK’s financial services sector. In this context, the Government note the interaction between some of the proposals set out by the Bank on its approach to setting MREL and the Bank Resolution (Recapitalisation) Bill, and welcome the Bank’s proposal to take the new mechanism for recapitalisation into account when setting MREL for firms with a preferred transfer resolution strategy. This will contribute towards ensuring that the MREL regime is proportionate, while remaining consistent with the Government’s intention that the mechanism is primarily focused on the resolution of smaller banks.
The Government are clear that the primary intent of the Bill remains to provide a new mechanism to help address the failure of smaller banks when resolution by means of a transfer to a private sector purchaser or a Bank of England-owned bridge bank is in the public interest. The Government and the Bank are also in agreement that the Bank should not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and corresponding MREL requirements for larger banks, or to rely on the mechanism when resolving such larger banks unless in exceptional circumstances. The Bank’s consultation also confirms this position.
The Government intend to update the special resolution regime code of practice to make this point clear and have published draft updates on gov.uk.[2] These and any subsequent updates will be subject to consultation with the banking liaison panel, to ensure appropriate engagement with industry.
The Government note that one of the Bank of England’s MREL proposals will require changes to secondary legislation. The Government will therefore engage with industry on the necessary changes. Subject to feedback on the Bank’s consultation and the Government’s engagement with industry, the Government will look to make the changes necessary to facilitate these proposals.
[1] https://assets.publishing.service.gov.uk/media/66992907ce1fd0da7b59285b/Bank_Resolution__Recapitalisation__Bill_-_Consultation_Response.pdf
[2] https://www.gov.uk/government/publications/banking-act-2009-special-resolution-regime-code-of-practice-revised-march-2017
[HCWS135]
Draft Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024.
It is a pleasure to serve under your chairmanship, Mr Dowd. The UK’s financial services sector is central to driving growth in the wider UK economy. The Government have committed to reinvigorating the UK’s capital markets, driving innovation and investment in the economy, and enabling the growth and scale-up of innovative green technologies. To that end, we are taking action to address barriers to both the supply of and demand for UK productive investments.
This statutory instrument forms part of a package of reforms to the assimilated EU law that governs the rules that maintain the safety and soundness of UK insurance firms, known as Solvency II. The reforms address demand-side barriers by reducing insurers’ regulatory capital requirements, releasing billions into firms’ balance sheets and incentivising insurers to invest in the UK. These legislative reforms were announced in November 2022 and came into force on 31 December 2023 and 30 June 2024. This statutory instrument makes necessary provision to maintain the reforms and the wider regulatory regime on the revocation of the relevant assimilated EU law on 31 December 2024.
In summary, this statutory instrument preserves a significant cut in the regulatory capital buffer known as the risk margin, maintains the regulatory requirements on insurance groups and undertakings in Gibraltar, and makes further amendments required as a result of changes to the Financial Services and Markets Act 2000 and other legislation.
I will now turn to the detail of what the regulations do. They restate provisions on the calculation of the capital buffer known as the risk margin that would otherwise be repealed at the end of this year. They also affirm the Prudential Regulation Authority’s power to make rules permitting insurers to adopt proportionate approaches to determine the risk margin. The regulations provide that UK supervisory arrangements for Gibraltarian firms will continue unchanged until the broader Gibraltar authorisation regime, legislated for in the Financial Services Act 2021, comes into force.
The regulations empower the PRA to publish results for individual firms within scope of the PRA’s life insurance stress tests, which are generally the largest firms in the life sector. That is in addition to the sector-level results that the PRA has been publishing since 2019. This safeguard provides additional transparency to the market around the resilience of life insurers. It mirrors the approach taken for the results of stress tests for banks.
Finally, the regulations make a number of technical amendments to existing legislation, including the Financial Services and Markets Act 2000, to support implementation of the Government’s package of Solvency II reforms. For example, the regulations amend the definition of both insurance and reinsurance, undertaking to remove references to assimilated EU law. They also remove the definitions of third-country insurance undertaking and third-country reinsurance undertaking, which are not relevant now that the UK is not part of the EU.
Other parts of the regulations make changes that are consequential to the proper functioning of the reformed regime, including for the necessary retention of the risk margin and Gibraltar regulations that I have already noted.
The regulations may sound quite technical, but they are an essential component to complete reforms to the prudential regulatory regime for insurers by the end of this year. The hon. Member for Havant, who sat on the Government side when we went through the entire Financial Services and Markets Act, will be well briefed on what we are doing. I hope the Committee will join me in supporting the regulations and I commend them to the House.
Tulip Siddiq
I associate myself with the comments of the hon. Member for Havant on the ambition and resilience of our financial services sector. I agree that we should be very proud of it.
In response to the point made by the hon. Member for St Albans, I will keep an eye on and will review the risk she mentions. She will be pleased to know that this Government are resetting the relationship with the EU, by not ramping up divisive rhetoric with our closest trading partners. We are making sure we have a productive relationship with them. I will keep an eye on the risk she mentions.
I thank both hon. Members for sharing our ambition in Solvency II. I know that the reforms are technical in nature, but they are an important step in our shared hope, across the Chamber, to reform the UK’s insurance sector. We all want to generate growth and investment in our country and I hope the Committee will support me in supporting these reforms. We want to have a smooth transition to the reformed Solvency II regime by the end of this year.
Question put and agreed to.
Bank Ringfencing Reforms
Tulip Siddiq Excerpts(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
The statutory independent review of ringfencing and proprietary trading led by Sir Keith Skeoch, which reported in March 2022, made recommendations to improve the operation of the ringfencing regime.
The Government will implement a package of reforms as soon as parliamentary time allows. The reforms will improve competition and competitiveness in the UK banking sector and support economic growth, while maintaining financial stability.
The reforms will include:
the introduction of a secondary threshold to exempt retail-focused banking groups from the regime—where investment banking activity accounts for less than 10% of Tier 1 capital;
new flexibilities to allow ringfenced banks to operate globally, subject to Prudential Regulation Authority rules;
measures to encourage more investment by ringfenced banks in UK small and medium-sized enterprises;
measures to reduce the compliance burdens associated with the regime; and
an increase in the primary deposit threshold for ring-fenced banks from £25 billion to £35 billion.
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