Another important assurance has been given in respect of so-called special measures. We proposed the establishment of an intermediate tool between enforcement

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at one end of the spectrum and day-to-day supervision at the other, which regulators could use to keep an eye on banks and help to improve standards. The Americans have something of the kind, which is known as a memorandum of understanding. The Government said that the statutory underpinning that we proposed would not be necessary, but the regulators have now announced that they will produce a full and detailed guidance note after consultation, which will set out how the new tool will be created and administered.

Emily Thornberry: I am listening with great interest to the hon. Gentleman. As he may know, the United States operates a regime called the deferred prosecution agreement, under which an institution accepts that it has committed an offence and agrees to pay a large fine on the understanding that it will not be prosecuted. Part of the deal is that the institution must allow auditors in, and must change its behaviour. Is there a similarity between the DPA structure and the structure the hon. Gentleman is describing?

Mr Tyrie: In some cases, the “deal”, as the hon. Lady called it, is accompanied by a memorandum of understanding, in order to achieve exactly the result that we intend by means of special measures. However, the primary purpose of special measures is to provide a tool that need not lead to escalation and full enforcement. That is a step back from the example given by the hon. Lady.

We were also assured that there would be a review of the system of enforcement decision making, which is currently very unsatisfactory. We had proposed that the regulatory decisions committee should be separated further from the enforcement division of the Financial Conduct Authority and given statutory autonomy in relation to its decisions. The Government did not accept that proposal, but they did accept the need for the issue to be re-examined and the need for a fresh and independent pair of eyes to look at each enforcement action before it proceeds, and a review is now to be carried out.

The important issue of remuneration was raised, later in her remarks, by the hon. Member for Kilmarnock and Loudoun. The PRA has committed itself to aligning the maturity of the rewards for bankers with the maturity of the risks that they have incurred. That is crucial. It is the collecting and taking of bonuses in return for the creation and selling of a new financial instrument or tool when, although the full risks will not mature for many years, the individuals concerned have had the money in advance that has created so many misaligned incentives and so much poor behaviour. Those individuals need to know, even several years later, that there may be a clawback, or, better still in most cases, that their bonuses are deferred. They need to know that the product had better be robust enough to survive the test of time before they start selling it.

Let me now mention a few measures that the commission did not succeed in inserting in the Bill. I shall not describe any of them in detail—although I note that when I have tried to deal briefly with the measures that I have described so far, Members have intervened to ask me about a number of them.

Both the Select Committee and the commission concluded that the governance of the Bank of England was still in a mess, and would have to be sorted out. The Bank of England still has no board worthy of the name,

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and the cross-cutting lines of responsibility and accountability between various new institutions are, to put it mildly, very confused. One of the most senior people in the Bank told me recently that he thought the situation was like the Schleswig-Holstein question: the former Governor probably understood it, and one other guy had forgotten it—and the third was this person himself, whose name I had better not reveal on the Floor of the House.

We also failed to achieve change with our proposal to abolish United Kingdom Financial Investments Ltd. UKFI has been exposed as a fig leaf: it seems to be of very little practical use. The Labour Government’s intention in introducing it was good, but when the Government want to intervene directly in the activities of institutions they simply do so, and UKFI does not seem to be performing the “buffer” function that was intended for it.

We argued that the regulator should have a duty to compensate whistleblowers who had been disadvantaged by their firms. There are still risks, at least perceived risks, for whistleblowers, which will tend to deter them. It is a remarkable feature of the current crisis that there has been so little whistleblowing, and I am not yet convinced that we have managed to sort the matter out.

Cathy Jamieson: Will the hon. Gentleman give way?

Mr Tyrie: I will give way again, but I do want to get on to the amendments.

Cathy Jamieson: I thank the hon. Gentleman for his generosity. The question of whistleblowers was raised in a Labour amendment in Committee. Does the hon. Gentleman think that the Government must return to it in the future?

Mr Tyrie: I think that, in the first instance, it is the job of regulators to advise us—we shall see whether they do—and that it is the job of Parliament to keep an eye on the position. The Treasury Committee will need to be vigilant.

We failed to secure the abolition of the strategic objective of the FCA, although we see no logical reason why it should remain. It seems to serve as a licence to allow the FCA to do whatever it wants, and to override its own operational objectives. We also failed to secure a statutory duty for the Governor to raise the issue of excessive lobbying by banks. It is regrettable that there is to be no statutory duty to require the production of a second set of accounts designed to identify systemic risks in the balance sheets of banks, and we will ask regulators to return to that issue.

Nevertheless, if everything is taken into account, it is clear that the commissioners in the House of Lords won the argument, and secured the lion’s share of the measures proposed by the commission. Although the group has been depleted by the loss of Baroness Kramer to the Government, the remaining four have worked assiduously and very persuasively to improve the Bill, and, on behalf of the commissioners in the House of Commons, I thank them heartily. Let me also record my appreciation of the constructive way in which Treasury Ministers have engaged with me, and with other commissioners, on these subjects in recent weeks. They have been extremely helpful, as have their officials, and that has enabled us

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to make rapid progress. What is more, and equally important, the Government have made clear their support for a number of measures—some of which I have mentioned—that it will be the duty of regulators to implement. As I have said, the work of the regulators, and the supervision of it, will be at least as important as the statute itself

That brings me to the statute itself, and to the amendments that are before us. The first major change that is proposed is the introduction of a senior managers regime. One of the commission’s central objectives was to make a reality of individual responsibility, particularly at senior levels. I lost count of the number of witnesses from failed institutions who were not prepared to take personal responsibility for what was going on in their firms. In principle this should have been the task of the approved persons regime, but it was a disaster. It failed both at ensuring that competent people were appointed and at checking up on their subsequent performance.

The commission concluded that the APR was a complex and confused mess that did not perform any of its supposed roles adequately. It had become little more than a bureaucratic, box-ticking exercise. Its unsuitability has been illustrated by the fact that it seemed to pass the recently departed chairman of the Co-op bank as fit and proper to run a bank. Another indication of its irrelevance was the fact that most of those responsible for steering our major banks on to the rocks over the past five years were not even reassessed for their suitability after those banks had failed. The APR gave us the worst of all worlds: the appearance of regulatory oversight and the reality of none.

2 pm

An essential task, therefore, has to be the abolition of the APR. To replace it, we recommended a much more judgment-based and proactive supervisory approach for the most senior people in banks, a much smaller group than under the APR regime. Specific responsibilities should be allocated to named individuals at the very top of firms. Secondly, for the much wider group of all those whose behaviour could seriously harm a bank, its reputation or its customers, we proposed a licensing system that in the legislation is now called certification. I shall return to that.

On the senior persons regime, both the Government and the regulators accepted our proposals for the most part, but for reasons beyond everybody they have not accepted the name. Instead they have replaced the phrase “senior persons” with “senior managers”. I think that is guaranteed to confuse because some at the top of banks who clearly should qualify for supervision of this type will not be managing anybody. A non-executive chairman of a large bank does not have a management responsibility. For much of his time at Barclays, Bob Diamond did not have a direct management responsibility. This scheme should, therefore, have been called the senior persons regime. I have not heard any reason why it cannot be called that. That is a relatively minor nomenclature quibble, however, and we are otherwise delighted that the Government have accepted our proposals.

On certification or licensing, the picture has been somewhat different. Although the Government response to the commission initially promised to implement our

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recommendations on licensing, there was no sign of it in the Bill until Third Reading in the Lords. I am glad to say that that has now been put right.

The purpose of licensing, or certification, is to ensure that banks themselves have identified those employees—whether traders, senior salespersons, financial managers or whatever— who can do serious harm to the bank or to markets. One of the shocking discoveries of this crisis—including the LIBOR scandal—has been that in many cases the banks did not know who these people were. They certainly should. For them not to do so should constitute a regulatory breach. It should also be a breach to add staff to the certification regime who do not satisfy the harm test—to add staff who cannot do serious harm to an institution. That would defeat the purpose of certification.

It should be the responsibility of banks, using methods that best fit their organisation, to maintain a certification system, and it should be the responsibility of regulators—using periodic checks—to ensure that they do. Just to be clear, it should certainly not be the job of the regulators to try to identify all these staff themselves. That would guarantee the return of the very bureaucratic box-ticking that we want to leave behind with the abolition of the APR. Those in such jobs should know that their bank may withdraw their certificate, and therefore possibly their ability to earn a living performing that function, and inform the regulator, who may in turn inform other regulators in other jurisdictions, should there be misconduct. It can be a great opportunity for many young staff to sit in front of a computer screen and trade LIBOR and earn a considerable amount of money, but that opportunity should also carry with it responsibility. In many cases that sense of responsibility was found to be wholly lacking.

Ian Swales: As I expected, the hon. Gentleman is making an incredibly thoughtful and powerful speech. We have used the expression “culture change” a few times in the debate today and he talked a few minutes ago about failures causing serious harm to an organisation. Does he believe the banks now pay due regard to reputational harm as well as purely financial harm?

Mr Tyrie: I think the banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot. But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in.

Emily Thornberry: Will the hon. Gentleman give way?

Mr Tyrie: I will this one last time, but I get a sense that Members might want me to draw to a close in a minute.

Emily Thornberry: The hon. Gentleman mentions LIBOR. In respect in particular of fraud, does he agree that if an individual working within an institution is behaving dishonestly for the benefit of that institution, the institution itself should be liable? If the law were to be changed to allow that, there really would be institutional change.

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Mr Tyrie: The fact that an individual is found responsible should not in any way exculpate the institution from its own responsibilities. On the other hand, a key recommendation of the Banking Commission was to restore individual responsibility. To return to a situation where it is primarily the institution that carries the can for what had been a series of individual pieces of bad behaviour would be a profound mistake. There is a lot behind the exchange we have just had that I am not going to go into now, but which we thought about quite deeply on the commission. I shall now move on as there are a few more remarks I want to make about this group of amendments.

Everyone now seems to be agreed that the APR adds little or nothing, yet over the past few weeks we have discovered that the discredited APR will survive in legislation. In doing that, the regulators are perpetuating a myth that the APR affords any real protection. It will continue to apply to several groups. First, about 20,000 people in the financial services industry outside banking will still be covered, mainly in fund management and insurance.

This is unfinished business. The Banking Commission had the remit to look only at banking. It would be absurd to retain a system for one part of financial services that has so clearly failed in another. The Government and Parliament both need to encourage the regulator to look at this and do what is necessary to extend the coverage of the new regime and to remove the APR from other parts of financial services. To rely on the APR is asking for trouble.

It is also regrettable that the APR will remain in a few isolated pockets within the banking industry. This is because the APR will continue to apply to firms’ LIBOR submitters and to persons with anti-money laundering responsibilities in banks. This amounts, I gather, to only a few dozen people, but I think it would be far better if we removed what amounts to “triple running”. We will have three layers: the senior persons regime, now called the senior managers regime, licensing, now called certification, and the APR in the case of these people. The extra APR layer confers no extra protection, but adds bureaucracy and creates a business cost. There will be plenty of scope for legal wrangling in the event of a regulatory failure, given the great scope for confusion, and for an equal measure of recrimination by regulators who will say they were asked to do too much by Parliament. Banks will have a point when they complain about that. For all those reasons, I hope that the Government will come back to this issue and remove the APR from banking entirely in due course.

The Banking Commission’s proposals do not guarantee better standards. Much will depend on the judgment of regulators and the common sense of the banks, but identifying responsibility for key roles offers a much better prospect of higher standards than does retaining the APR. The commissioners are delighted that our proposals on this are now going to be put on the statute book.

Mr Speaker: The hon. Gentleman’s speech is characterised, as always, by a combination of scholarship and erudition. May I just inquire whether we are now nearer to the end of his speech than to the beginning?

Mr Tyrie: I can give you a firm assurance, Mr Speaker, that I am coming very close to the end of my remarks.

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Indeed, I am no closer than I would have been before that intervention, unless I had been told to sit down, because I really am almost at the end.

I just want to say a word about the Opposition amendment before I sit down. It draws on a number of the Banking Commission’s proposals and, by seeking to put it on the face of the Bill, the Opposition have contributed something by forcing the Government to think again about their rejection of our proposals on licensing. The amendment was therefore probably worth while. However, the Government have now thought again and are implementing our proposals.

There are two aspects of Lords amendment 41 that would make me cautious about supporting it. The first is it would require regulators to pre-approve all people covered by licensing—or what is now going to be called certification. I fear that would risk recreating many of the problems we had with the APR—the box-ticking bureaucratic culture that we are trying to get rid of.

My other concern with the amendment is that it appears to mix up licensing with the professionalisation of the banking industry. It would be imprudent to link professionalisation to licensing too closely. Licensing needs to happen now. Professionalisation is not a substitute for it. Even if banking is something that could acquire the characteristics of a profession—which many people are not yet convinced of—it would, as the commission reported, take a generation to build that sense of a professional standard.

For those reasons, although I strongly sympathise with the intent of the Opposition amendment, it is not a Banking Commission proposal and I shall not be supporting it. The House could do better by implementing the commission’s proposals, which are now embodied in Government amendments.

Several hon. Members rose

Mr Speaker: Order. I should explain to the House that I have exercised some latitude so that the hon. Member for Chichester (Mr Tyrie) could offer a bit of background on the parliamentary investigation. I did that because I thought that it would be genuinely helpful to the House and because there would be no other opportunity for those observations to be made. That said, I would not want it to be thought that that will be the normal rubric on these occasions. The normal rule of thumb, which must continue to apply, is that Members should attend to and focus their remarks exclusively on the amendments and should not engage in what might be called a wider dilation. I hope that that is helpful to the House.

Yasmin Qureshi (Bolton South East) (Lab): I will bear in mind your observations, Mr Speaker, but I hope you will indulge me if I occasionally say something a bit different. I will of course spend most of my time on the amendment.

I want to set the matter in context. I volunteered to serve on the Bill Committee. I am told that it is traditional for Members to have to be nudged into serving on Committees for Finance Bills, unless of course they are Ministers or shadow Ministers. I wanted to serve on the Committee perhaps because I am a bit geeky or because I am interested in esoteric things; perhaps it is because of my legal background that I am interested in these matters.

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I also had a more serious reason for volunteering. We need to bear in mind that this country’s economy relies heavily on the financial services industry, and that a massive banking and financial crisis occurred in 2008, not only in the UK but in similar economies around the world. We know that the crisis started as a result of the collapse of Lehman Brothers and of the sub-prime mortgage market in the United States, which led to the collapse of many banks around the world. Economies like ours—in the USA, Japan, France and Germany, for example—suffered as well.

2.15 pm

It is important to consider these matters in that context, because they inevitably get caught up in the political debate. This Government have often stated that the financial crisis was caused by the Labour party. Indeed, the Minister said earlier that one of the reasons for the crisis was that the Labour Government had not put in place enough rules and regulations. I think it might be helpful if I remind him what his current boss and the Prime Minister have said about those rules and regulations in the past. I refer him to Hansard of 27 November 2006, when the right hon. Member for Tatton (Mr Osborne) said of the then Chancellor:

“In an age of greater choice, he offers more overbearing control; in an age of greater freedom, he gives us more interference…in an age of flexibility”.—[Official Report, 27 November 2006; Vol. 453, c. 835.]

The right hon. Gentleman also said in 2006:

“I fear that much of this regulation has been burdensome, complex and makes cross-border market penetration more difficult.”

The right hon. Member for Witney (Mr Cameron) said in 2008:

“As a free-marketeer by conviction, it will not surprise you to hear me say that a significant part of Labour’s economic failure has been the excessive bureaucratic interventionism of the past decade…too much regulation…to little understanding of what our businesses need”.

The Minister and other members of his Government often say that it was a lack of regulation by the Labour Government that caused the mess, but they need to realise that the Labour Government were trying to regulate at that time and that the then Opposition, who should have been supporting them, were carping from the sides and saying, “No, don’t do this.” A little trip down memory lane might be helpful for everyone concerned.

I chose to serve on the Committee, and I have chosen to contribute to the debate today because the financial collapse, the LIBOR scandal and other events have shown that the financial sector—an important part of our economy—has not got things right over the years. I will not go into the details of every aspect of the Bill, but my party has been pressing for various changes. The amendment that we won in the House of Lords covers the regulation of people employed in the financial services sector, and I would argue that there is a need for licensing. I am proud of the fact that those on my Front Bench are insisting that the amendment should be accepted and I ask the Government to reconsider their view.

I am a barrister, and I am subject to regulation. I have to have a licence to practise law, as do solicitors. Members of other professions also require a licence to practise,

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including doctors, dentists and chartered accountants. They are all regulated by independent bodies that oversee cases of misdemeanour or negligence. Why should bankers not be subject to the same rules and regulations? After all, stockbrokers and people who work in commodities and bonds are experts in their field; they are not just pulled in off the street and told to start commodity trading, banking or whatever. They have had professional training and learned their trade.

The Financial Conduct Authority covers every aspect of the financial services sector, so what is wrong with asking for a licensing system? What is wrong with asking these people to take a professional exam? What is wrong with requesting that they should be regulated properly? If they commit an error—negligence, criminality and so on—why should they not be dealt with appropriately? Why should they not have a licence to practise? We have to re-emphasise how big a part of the United Kingdom’s trading is done by the financial sector. Given that, it is surprising that there has been no regulation of the people carrying out that trading. The Government are missing a big trick if they fail to regulate, because this is important. I do not see why people in this sector should be given a exemption. In all other professional walks of life, people are regulated. We could regulate properly and have it supervised by an independent body.

It is not enough just for a company to say, “You are fit to work.” That is just not right. We must have an outside, independent body—somebody removed from the institution—to say whether someone is a fit and proper person, and if they do something wrong they should be struck off. What is wrong with that? As a lawyer, I can be struck off if I make a mistake. Doctors, too, can be struck off, so why cannot bankers? Policemen can be struck off, and other people may be told to leave their job or are struck off and prevented from practising their profession, so why not bankers? Labour’s proposal is perfectly sensible and logical; it would be the right amendment to make.

The hon. Member for Chichester (Mr Tyrie), Chairman of the Treasury Committee, said that this Bill started off 35 pages long and now runs to some 180 pages, after some 192 amendments. That shows that the Government were not thinking things through properly when they were putting the Bill together. One expects some amendments as a Bill passes through both Houses and one expects the number of pages to increase, but the fact that the Bill has increased in size by more than 100 pages shows that it was not thought out properly and things have been happening as we have gone along. Again, that demonstrates that although the Government have done some things, they have failed to address one really important aspect of the whole thing: the regulation of the behaviour of the people involved.

It was individuals, not machines, making the decisions that caused the whole world to collapse, and the ordinary person in the street in my constituency is suffering as a result of the mess caused by a small group of people. We cannot let that happen again, so it is important that the people making these decisions—the people playing with our money—and the organisations they work for are held accountable and need to explain themselves. Proper training, and a proper certification system and licensing system, are a must for our economy.

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Ian Swales: I will keep my remarks relatively brief. Neither of the two major parties has too much to crow about in this area, because the regulatory system is a product of both their Governments over time. However, at least this is one area where the Leader of the Opposition and the shadow Chancellor have said sorry for something they have left behind.

I am pleased with the work done by the Banking Commission, and I pay tribute to my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) and my colleague Baroness Kramer for the work they have done on it. I am delighted that the Government have, perhaps kicking and screaming, at last agreed to adopt the vast majority of the proposals. I am particularly delighted that the Bill puts in place powerful measures on ring-fencing, as the Liberal Democrats have been arguing for that for years. Not only was it in our 2010 manifesto, but it was on the front page, so I am pleased to see it happening.

The background to this is clear: taxpayers should not be held to ransom by these giant organisations, particularly for high-risk activities—casino banking, as it is sometimes called. We must also remember that a lot of these institutions are highly international, so the UK taxpayer is having to stand behind organisations that have a lot of activities overseas—that, too, does not seem right. So it is good that all these measures are being introduced.

We have seen banks that used to be on the side of customers, both individuals and businesses, increasingly behave very much on the side only of themselves. We have seen scandals involving payment protection insurance, LIBOR, foreign exchange and interest rate swaps, which is the one I particularly wish to highlight. I made a speech on that a few weeks ago in this House. I said that the banks appeared to be moving at a tortoise-like pace when we were not having debates and suddenly acted like hares for a few days when we did have them. I can report that they have become tortoises again since that debate a few weeks ago. Constituents of mine who were expecting repayments in very quick time are still waiting, so I hope the Minister will keep the pressure on, although that is not strictly relevant to today’s debate. We have also seen the Co-op bank scandal and predatory activity by banks in the corporate restructuring area—that is the current scandal and I am sure we have a lot more to hear about it.

The Government have been acting on matters such as transaction levies, and making sure that fines for institutions leave the industry and do not just go around in a magic circle. The current round of fines is being used to help pay for the military covenant, which has to be a great idea. The Secretary of State for Business, Innovation and Skills, my right hon. Friend the Member for Twickenham (Vince Cable) is trying, although it is sometimes a lonely furrow, to do something about high pay: shareholders are being given binding votes on their company’s pay policy; companies are being forced to publish single figures for executive deals; and companies are being encouraged to inject more diversity by hiring non-executives from a broader pool of academics, public servants and lawyers. So, to a limited extent, the Government are trying to do something about that.

I particularly wish to discuss Lords amendment 41, which deals with professional standards. A joke doing the rounds when the banking crash happened named

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the four chairs of the big banks and asked which of them and Terry Wogan had a banking qualification. Of course, the answer is Terry Wogan and none of the others. That illustrates that for too long we have had under-qualified people in important positions. The hon. Member for Bolton South East (Yasmin Qureshi), who is not in her place, was talking about the legal, medical, pharmaceutical and accountancy professions, which have professional standards of the type she would like to see. However, it is important to note that those standards are not set and regulated in this place; they are set by the professions themselves, which have a huge vested interest in ensuring their own high reputation. Those professions also carry out much more specific and autonomous work in terms of knowing whether an individual has transgressed or not. It is much more difficult in large organisations with long decisions chains to say who is actually responsible for each individual activity. However, I urge the banking profession to think a lot more about how it can enhance its reputation, which, let us face it, is pretty much at rock bottom at the moment. It should think, “How can we have professional standards which are enforced? How can we ensure that people are kept up to date with continuing professional development and that people will be struck off?” However, that is increasingly a role for professional bodies such as the Chartered Banker Institute to be thinking about; it is not something for legislation in this place.

I welcome the work of the Banking Commission and the Government’s response to it. I welcome the extra powers that regulators are going to have as a result of this legislation, but the onus is on them to use those powers. I would like the Minister to say, at some point during today’s debate, how we are going to scrutinise the regulators to make sure that they use their new powers to their full extent.

Emily Thornberry: It has been said that one of the great innovations of this Bill is the introduction of the offence of reckless banking. It is not beyond our imagination to think that in 2015 the measure will be promoted on many a doorstep by people who perhaps do not fully understand what it is that is being introduced. It is one of those proposed offences that promises a great deal, but delivers very little indeed. There is nothing like it in existence in English law, and I will go on to explain why that is in a moment.

2.30 pm

In the House of Lords, Lord Newby said that

“we had to put in the Bill a form of words that would create a credible offence that could be successfully prosecuted. The two requirements that an individual’s conduct had to fall far below what could reasonably be expected of them and that they were aware of the risk they were taking”.—[Official Report, House of Lords, 15 October 2013; Vol. 748, c. 427.]

There are many people, myself included, who believe that this is not a credible offence and that it will not be successfully prosecuted. When passing law in this place, especially potential criminal charges, we should be confident that the offence created has a reasonable chance of being prosecuted. If people are doing wrong in the City of London, we should be passing criminal offences that people are afraid of and that they believe they might be charged with. Passing legislation for the sake of gesture is a slippery slope, and we should be careful about it.

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Mr Tyrie: The question the hon. Lady should ask herself is that if she were a banker, would she be prepared to take the risk?

Emily Thornberry: There are other things that can be done, and I shall briefly touch on some of them. May I begin with the difficulties that exist in relation to this offence? Under the Bill, it would be an offence for a senior manager recklessly to take a decision. I appreciate that some of the additional 175 pages that have been added to the 35-page Bill have been to backfill exactly what a senior manager is and how they will be defined. That is clearly an improvement, and it is unfortunate that it was even suggested that the Bill would be sufficient in its original form. One must remember that even if a definition of senior manager is now one with which we can all be happy, there have been banks that have been brought down by people other than senior managers. Nick Leeson from Barings bank comes to mind, as does the £2 billion that was lost to UBS by Kweku Adoboli.

Mark Garnier: I am fascinated that the hon. Lady chooses to use Nick Leeson as an example, because he went to jail, in Singapore, for four years.

Emily Thornberry: The point is that he was not a senior manager and he brought down a bank. This measure will not solve the problem of banks being brought down. An offence of reckless banking that will apply only to senior managers is not by itself sufficient, which is why I want to go on to say what I think should be done instead.

Mr Tyrie: I think the hon. Lady is misunderstanding the intentions of each bit of legislative change. The primary purpose of this measure is to change bankers’ behaviour. It is not primarily to protect banks from being brought down. That task lies with ring-fencing and a range of other proposals, particularly with all the structures being constructed around bail-in and resolution. It does not lie with the criminal offence.

Emily Thornberry: With respect, I am even more confused than before. What is the point of bringing in an offence that will change the behaviour of bankers, but will not, by itself, defend the banks? As I understand it, if the behaviour that we seek to stop is reckless banking, the reason that it should be criminalised is in order to stop banks failing and the financial system crashing.

There are other difficulties with this offence, which include recklessly to take a decision or to fail to prevent the taking of a decision that results in the failure of a bank. That sets a high threshold and, as has already been pointed out, it is not clear who, of those who may have behaved in a reckless way in our banks and who may have brought down the banking system before, would have been prosecuted. The Minister has not been able to assist us as to who might have been prosecuted under the offence. [Interruption.] It is unfortunate that the Minister is distracted at the moment, but the point I am making is important, and I hope that he will be in a position to address it.

It is difficult to prove that aspect of the offence, and prosecuting it would be a risky undertaking for the prosecuting authorities who will be expected to invest

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public money in prosecuting such matters. There is no point in putting something in legislation that can be discussed on doorsteps but will never be used to prosecute. We have seen the Serious Fraud Office struggle with high-profile, high-risk prosecutions. Too often such prosecutions end in shambles because of the behaviour of the Government, which have cut the SFO’s funding from £53 million in 2008 to £30 million by the end of this Parliament. Differences can be made to the behaviour not only of banks but of businesses generally. May I just add that of course I support Labour’s position on a stringent licensing regime for bankers, the imposition of a fiduciary duty of care on financial-sector staff for clients and customers and its call for a dedicated financial crime unit. In a moment, I will move on to what will work better, but before I do that, I give way.

Guy Opperman (Hexham) (Con): Let me take the hon. Lady back to her last point on prosecutions. I speak as a former prosecutor of serious fraud work, although not for the SFO. Either there is the 51% test of prima facie evidence at the start of the case, or there is not. How the case then ends up, once the matter has been examined by a jury, is a matter for a jury and occasionally a judge. She is being a little harsh on the SFO, which is doing a fantastic job under very difficult circumstances.

Emily Thornberry: I am more than happy to put it on the record that I am a critical friend of the Serious Fraud Office. Sometimes the emphasis is more on the word critical, especially after what we have seen in the newspapers today, with the crash of yet another serious fraud case because the SFO asked an agent, which clearly had a conflict of duty, to do its investigation. That is yet another mistake that the SFO has made. If we want the SFO to turn a corner, we need to do more than show good will. This Bill provided us with an opportunity to change things. It is unfortunate that more attention was not paid to changing corporate liability.

I listened carefully to what the hon. Member for Chichester (Mr Tyrie) said in his contribution, and I undertake to send him, as a Christmas present, Labour’s policy paper in relation to fraud. If we can change corporate liability to ensure that if an individual within an organisation behaves in a way that is dishonest and to the advantage of the larger organisation, we can prosecute the organisation, unless it can show, in the same way that it can under the Bribery Act 2010, that it has in place controls over its staff, it would have an impact on our banking system. If I may say so respectfully, introducing such legislation will have a greater impact than the measures proposed in this Bill. If we were to introduce a different form of corporate liability, we could increase the fines hugely, and that money could be ploughed back into the Serious Fraud Office. Then we would have an organisation of which people in the City of London would be afraid. They would be prepared in most circumstances to come to an agreement with the SFO to have a deferred prosecution agreement.

DPAs will not ever exist under the status quo. The DPA legislation has been passed but, as I understand it, no one has come forward to say that their company has been doing wrong, that they want to admit that, that they will pay a fine, that they will change their ways, that they want auditors to come and see how they are

11 Dec 2013 : Column 275

behaving and that they will point out the individuals who have been behaving in a criminal way. I respectfully submit that that is how to change the culture. That is how we ought to be working and I look forward to discussing it with the hon. Member for Chichester once he has read the Christmas present I intend to send him. If elected in 2015, Labour intends to introduce its own economic crime Act, and I hope that we will take the issues further and develop them. Obviously, I would be interested to hear the hon. Gentleman’s reactions.

Mark Garnier: I intend to talk principally about Lords amendment 41, but before I do so let me echo the comments made by the Chairman of the Parliamentary Commission on Banking Standards, my hon. Friend the Member for Chichester (Mr Tyrie), at the beginning of the debate. He said that he was grateful to the Government for moving such a long way along the road towards the commission’s recommendations. That is a tribute to the organisation that he chaired extraordinarily well for about 18 months and that came up with such sound proposals. It was a great honour for me to be part of that process. It also says a huge amount for the Government that they have taken great heed of what the commission said and have moved a great deal further towards implementing the proposals.

On Lords amendment 41, I suspect that there is not too much of a difference of opinion in the House about what we are trying to achieve through the Bill—that is, a change in the culture of banks. I take slight issue with the hon. Member for Islington South and Finsbury (Emily Thornberry), because it is not just about preventing banks from collapsing. It is about getting better standards and better service for consumers. Many constituents will complain about their treatment by banks and that has nothing to do with criminal matters; it is simply about the culture and how certain people address other people in their everyday lives. We want to drive that out and to ensure that the banking culture is one of which we can be proud and which consumers can trust enormously.

Mr Love: Is the hon. Gentleman not disappointed that, since 2007, when there has been such a focus on the problems and difficulties of banking, no greater progress has been made in creating the type of culture we all want to see?

Mark Garnier: I do not necessarily agree. I speak not only as a Member of Parliament, a member of the Parliamentary Commission on Banking Standards and a member of the Treasury Committee but as a former investment banker and investment manager. My hon. Friend the Financial Secretary is also a former banker, so to a certain extent we have a private interest in ensuring that banking standards are greater than they have been. There has, however, been an enormous amount of progress. We have a new regulatory regime, there have been a number of changes in the banks and we have seen a complete change of culture at the top of many of the banks. Things are moving in the right direction but it will take a long time and this Bill is part of that process.

Although we are all trying to achieve the same thing, the important question is how we will achieve it and who, ultimately, we should ask to ensure that the licensing

11 Dec 2013 : Column 276

regime is upheld and looked after. The Parliamentary Commission on Banking Standards was perfectly clear that we felt that the approved person regime was complete and utter nonsense. One of the Bank of England’s greatest thinkers, Andy Haldane, highlighted why that was the case: if regulation is devolved to a regulator, all that happens is that the individuals at the head of the banks think that they have nothing to worry about. It becomes the regulator’s problem to worry about such things, and not that of those individuals.

When we met a number of the banks—particularly UBS, the Union Bank of Switzerland, the senior directors of which appeared in front of us just after it had been fingered for its share in the LIBOR scandal—we discovered that there was an incentive to be ignorant of what was going on within them. The senior managers of UBS who were running the bank when the LIBOR scandal happened within their organisation knew nothing about it until they read about it in the Financial Times three or four weeks before our hearing. That gave rise to the accusation that there was an accountability firewall between the management of the banks and the individuals working on the front line—that is, those at the coal face on the dealing room floors and servicing our consumers.

We were trying to work out how on earth we could reach a system in which those at the top of the bank took accountability for the work and standards of the individuals in the lower part of the bank. That is crucial in leading me to support the Government in rejecting amendment 41: it does not deal with that accountability but rather gets around the problem. That is why it fails to hit the nail on the head.

2.45 pm

The people running the banks must at some point wake up at 3 o’clock in the morning in a muck sweat worrying that some decision or lack of decision that afternoon or that year will result in a serious problem in the organisation. If they think that the regulator will take responsibility, they will not take that personal interest. That is crucial.

Over the three years for which I have been a member of the Treasury Committee, and particularly over the past year for which I have been a member of the Parliamentary Commission on Banking Standards, I have had the opportunity to meet a great number of senior bankers. Most have come on to the scene since the crisis and, in some cases, since I have been elected, and I am convinced of the sincerity of their desire to do the right thing in those organisations. They genuinely want change. They see reputational risk as a commodity that affects them and want to do something about it.

To that end, the banks have got together and employed the wisdom of Sir Richard Lambert, who is looking into setting up a professional standards body for the banks. The banks will run it, pay for it, finance it, ensure that it works and put it in place. We have some good thinkers working on that and it is symptomatic of the fact that the banks want to change their culture.

An organisation such as HSBC has 270,000 people working for it, so no matter how sincere the integrity of the individual at the top, we must work out a mechanism to drive integrity throughout the system. Personal accountability for the senior management of the banks is crucial in that. I keep coming back to this point: if

11 Dec 2013 : Column 277

Douglas Flint is waking up at 3 o’clock in the morning worrying that somebody in Kidderminster is getting something wrong, that is a good thing.

Stewart Hosie (Dundee East) (SNP): The personal responsibility argument is extremely strong and powerful, but does not the hon. Gentleman see some merit in the fact that Lords amendment 41 talks about a code of conduct? Is not the code of conduct described in the amendment a mechanism that could be used to drive the change in culture throughout the organisation that he describes?

Mark Garnier: I agree entirely. A number of professional bodies in the banking industry have a code of conduct. I, for example, am a fellow of the Chartered Institute for Securities and Investment, which has a code of conduct. Many people working in investment banks will be fellows of the CISI. Indeed, Sir Richard Lambert’s proposals, about which we shall hear more in the new year, will include a code of conduct. It is also worth bearing in mind that the banks are producing their own code of conduct that is being fed back to the regulator, which will consider what they are saying.

Let me wind up, because I think the Minister would like to speak at some point. I would be the last person to stand in his way, because I know that he will have some intelligent things to say. Suffice it to say that I think amendment 41 will prevent the behavioural changes we desire, and that is why I will reject it.

Sajid Javid: I thank the shadow Minister, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), for her comments and all other—

Madam Deputy Speaker (Mrs Eleanor Laing): Order. With the leave of the House, Minister.

Sajid Javid: Thank you, Madam Deputy Speaker. With the leave of the House, I thank the shadow Minister for her comments and all other Members who contributed to the debate. In particular, I thank my hon. Friend the Member for Chichester (Mr Tyrie) for the work that he has done in this area, especially in chairing the Parliamentary Commission on Banking Standards. I have listened to all hon. Members with great interest over the past couple of hours, but in particular to my hon. Friend. I thank him for all his efforts and also for his supportive comments, which I take as broad support for the Government’s amendments.

In the time available, I shall deal quickly with some of the key issues that came up. The shadow Minister raised the issue of timing and her understanding that there was not enough time to scrutinise the Bill and the amendments. She will know that the Bill started with the recommendations of the Independent Commission on Banking, which were scrutinised extensively in the House and in the other place, including the recommendations of the PCBS. The Government produced their response as quickly as they reasonably could to the PCBS, which was in July, in advance of the Commons Report stage so that it could inform debate as soon as possible.

The shadow Minister also asked why the Government resisted Opposition suggestions on improving professional standards. Again, she will know that because the PCBS

11 Dec 2013 : Column 278

had been set up and had been asked specifically to look into this area, the right thing to do was to listen to the commission and take its views into account when drafting amendments, before anything was settled upon. She asked about minimum standards and competence. She is right to do so, as we all recognise the importance of those. It is worth pointing out that, because of Government amendments that were introduced, banks will be required to check all new applicants to ensure that they are fit and proper, and not just at the point that they start with the bank; annual checks will have to take place and regulators will have important powers to specify any qualifications that they believe are required for the job.

A number of hon. Members raised the issue of a code of conduct. The regulators, both the Financial Conduct Authority and the Prudential Regulation Authority, will have broad powers, including the ability to set up a code of conduct for banks in general or for a particular bank, as they see fit. These are the kind of powers that regulators can use in future. My hon. Friend the Member for Redcar (Ian Swales) asked how we could scrutinise regulators. He is not in his place, but he will know that an annual report produced by the regulators about how they discharge their functions will be provided to Parliament, where it can be given proper scrutiny.

There was a discussion about remuneration. Hon. Members will know that the PCBS made recommendations on remuneration which the Government have accepted, particularly on longer deferrals and clawbacks, including a full clawback if a bank ends up receiving state aid. I understand that the PRA will make further recommendations on that next year.

I have time only to touch on Lords amendment 41 which, as I said, the Government oppose. It is worth taking into account the comments of my hon. Friends the Members for Chichester and for Wyre Forest (Mark Garnier) that, although the amendment is well intended, it will lead us back to a box-ticking culture and confuse regulation and professional standards. Both are necessary, but it would be wrong to conflate these—

2.53 pm

Two hours having elapsed since the commencement of proceedings on consideration of Lords amendments, the debate was interrupted (Programme Order, this day).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83F), That this House disagrees with Lords amendment 41.

The House divided:

Ayes 299, Noes 222.

Division No. 157]


2.53 pm


Adams, Nigel

Afriyie, Adam

Aldous, Peter

Amess, Mr David

Andrew, Stuart

Arbuthnot, rh Mr James

Bacon, Mr Richard

Baker, Steve

Baldry, Sir Tony

Baldwin, Harriett

Barclay, Stephen

Baron, Mr John

Bebb, Guto

Beith, rh Sir Alan

Bellingham, Mr Henry

Beresford, Sir Paul

Berry, Jake

Bingham, Andrew

Binley, Mr Brian

Blackman, Bob

Blackwood, Nicola

Blunt, Mr Crispin

Boles, Nick

Bradley, Karen

Brady, Mr Graham

Brake, rh Tom

Bray, Angie

Brazier, Mr Julian

Bridgen, Andrew

Brine, Steve

Brokenshire, James

Brooke, Annette

Browne, Mr Jeremy

Bruce, Fiona

Bruce, rh Sir Malcolm

Buckland, Mr Robert

Burley, Mr Aidan

Burns, Conor

Burns, rh Mr Simon

Burrowes, Mr David

Burstow, rh Paul

Burt, rh Alistair

Burt, Lorely

Byles, Dan

Cairns, Alun

Campbell, Mr Gregory

Campbell, rh Sir Menzies

Carmichael, rh Mr Alistair

Carmichael, Neil

Carswell, Mr Douglas

Cash, Mr William

Chishti, Rehman

Clarke, rh Mr Kenneth

Clifton-Brown, Geoffrey

Coffey, Dr Thérèse

Collins, Damian

Colvile, Oliver

Crabb, Stephen

Crouch, Tracey

Davey, rh Mr Edward

Davies, David T. C.


Davies, Glyn

Davies, Philip

Davis, rh Mr David

de Bois, Nick

Dinenage, Caroline

Dodds, rh Mr Nigel

Dorries, Nadine

Doyle-Price, Jackie

Drax, Richard

Duddridge, James

Duncan, rh Mr Alan

Duncan Smith, rh Mr Iain

Ellis, Michael

Ellison, Jane

Ellwood, Mr Tobias

Elphicke, Charlie

Eustice, George

Evans, Graham

Evans, Jonathan

Evans, Mr Nigel

Evennett, Mr David

Fabricant, Michael

Fallon, rh Michael

Featherstone, Lynne

Field, Mark

Foster, rh Mr Don

Fox, rh Dr Liam

Freeman, George

Freer, Mike

Fullbrook, Lorraine

Fuller, Richard

Gale, Sir Roger

Garnier, Sir Edward

Garnier, Mark

Gauke, Mr David

George, Andrew

Gibb, Mr Nick

Gilbert, Stephen

Glen, John

Goldsmith, Zac

Goodwill, Mr Robert

Graham, Richard

Grant, Mrs Helen

Gray, Mr James

Grayling, rh Chris

Green, rh Damian

Greening, rh Justine

Grieve, rh Mr Dominic

Griffiths, Andrew

Gummer, Ben

Gyimah, Mr Sam

Halfon, Robert

Hames, Duncan

Hammond, rh Mr Philip

Hammond, Stephen

Hands, Greg

Harper, Mr Mark

Harris, Rebecca

Hart, Simon

Harvey, Sir Nick

Haselhurst, rh Sir Alan

Hayes, rh Mr John

Heald, Oliver

Heath, Mr David

Heaton-Harris, Chris

Hemming, John

Henderson, Gordon

Hendry, Charles

Hinds, Damian

Hoban, Mr Mark

Hollingbery, George

Hollobone, Mr Philip

Holloway, Mr Adam

Horwood, Martin

Howarth, Sir Gerald

Howell, John

Hughes, rh Simon

Huppert, Dr Julian

Hurd, Mr Nick

Jackson, Mr Stewart

James, Margot

Javid, Sajid

Jenkin, Mr Bernard

Johnson, Gareth

Jones, Andrew

Jones, rh Mr David

Jones, Mr Marcus

Kawczynski, Daniel

Kelly, Chris

Kirby, Simon

Knight, rh Sir Greg

Kwarteng, Kwasi

Lancaster, Mark

Lansley, rh Mr Andrew

Latham, Pauline

Laws, rh Mr David

Leadsom, Andrea

Lee, Dr Phillip

Leech, Mr John

Lefroy, Jeremy

Leigh, Sir Edward

Leslie, Charlotte

Letwin, rh Mr Oliver

Lewis, Dr Julian

Liddell-Grainger, Mr Ian

Lopresti, Jack

Lord, Jonathan

Loughton, Tim

Lumley, Karen

Macleod, Mary

Main, Mrs Anne

Maude, rh Mr Francis

Maynard, Paul

McCartney, Jason

McCartney, Karl

McIntosh, Miss Anne

McLoughlin, rh Mr Patrick

McPartland, Stephen

McVey, Esther

Menzies, Mark

Mercer, Patrick

Metcalfe, Stephen

Mills, Nigel

Milton, Anne

Mitchell, rh Mr Andrew

Moore, rh Michael

Morgan, Nicky

Morris, Anne Marie

Morris, David

Morris, James

Mosley, Stephen

Mowat, David

Mulholland, Greg

Mundell, rh David

Munt, Tessa

Murray, Sheryll

Neill, Robert

Newmark, Mr Brooks

Newton, Sarah

Nokes, Caroline

Nuttall, Mr David

O'Brien, rh Mr Stephen

Offord, Dr Matthew

Ollerenshaw, Eric

Opperman, Guy

Ottaway, rh Richard

Paice, rh Sir James

Paisley, Ian

Parish, Neil

Patel, Priti

Paterson, rh Mr Owen

Pawsey, Mark

Penning, Mike

Penrose, John

Percy, Andrew

Phillips, Stephen

Pincher, Christopher

Prisk, Mr Mark

Pugh, John

Raab, Mr Dominic

Randall, rh Sir John

Redwood, rh Mr John

Rees-Mogg, Jacob

Reevell, Simon

Reid, Mr Alan

Robertson, Mr Laurence

Rogerson, Dan

Rosindell, Andrew

Rudd, Amber

Ruffley, Mr David

Russell, Sir Bob

Rutley, David

Sanders, Mr Adrian

Sandys, Laura

Scott, Mr Lee

Selous, Andrew

Shannon, Jim

Shapps, rh Grant

Sharma, Alok

Shelbrooke, Alec

Shepherd, Sir Richard

Skidmore, Chris

Smith, Chloe

Smith, Henry

Smith, Julian

Smith, Sir Robert

Soames, rh Nicholas

Spelman, rh Mrs Caroline

Spencer, Mr Mark

Stephenson, Andrew

Stevenson, John

Stewart, Bob

Stewart, Iain

Stewart, Rory

Streeter, Mr Gary

Stride, Mel

Stuart, Mr Graham

Stunell, rh Sir Andrew

Sturdy, Julian

Swales, Ian

Swayne, rh Mr Desmond

Swinson, Jo

Syms, Mr Robert

Tapsell, rh Sir Peter

Teather, Sarah

Thurso, John

Timpson, Mr Edward

Tomlinson, Justin

Tredinnick, David

Truss, Elizabeth

Turner, Mr Andrew

Tyrie, Mr Andrew

Uppal, Paul

Vaizey, Mr Edward

Vara, Mr Shailesh

Vickers, Martin

Walker, Mr Charles

Walker, Mr Robin

Ward, Mr David

Watkinson, Dame Angela

Weatherley, Mike

Webb, Steve

Wharton, James

Wheeler, Heather

White, Chris

Whittaker, Craig

Whittingdale, Mr John

Wiggin, Bill

Williams, Mr Mark

Williams, Stephen

Williamson, Gavin

Wilson, Mr Rob

Wilson, Sammy

Wollaston, Dr Sarah

Wright, Simon

Yeo, Mr Tim

Young, rh Sir George

Zahawi, Nadhim

Tellers for the Ayes:

Gavin Barwell


Jenny Willott


Abbott, Ms Diane

Abrahams, Debbie

Ainsworth, rh Mr Bob

Alexander, Heidi

Ali, Rushanara

Allen, Mr Graham

Anderson, Mr David

Ashworth, Jonathan

Bailey, Mr Adrian

Bain, Mr William

Balls, rh Ed

Barron, rh Mr Kevin

Beckett, rh Margaret

Benn, rh Hilary

Benton, Mr Joe

Berger, Luciana

Betts, Mr Clive

Blackman-Woods, Roberta

Blomfield, Paul

Blunkett, rh Mr David

Bradshaw, rh Mr Ben

Brennan, Kevin

Brown, Lyn

Brown, rh Mr Nicholas

Brown, Mr Russell

Bryant, Chris

Buck, Ms Karen

Burnham, rh Andy

Campbell, Mr Alan

Campbell, Mr Ronnie

Caton, Martin

Champion, Sarah

Clark, Katy

Clarke, rh Mr Tom

Coffey, Ann

Connarty, Michael

Cooper, rh Yvette

Crausby, Mr David

Creasy, Stella

Cruddas, Jon

Cryer, John

Cunningham, Alex

Cunningham, Mr Jim

Cunningham, Sir Tony

Dakin, Nic

Danczuk, Simon

Darling, rh Mr Alistair

David, Wayne

Davidson, Mr Ian

Davies, Geraint

De Piero, Gloria

Denham, rh Mr John

Dobbin, Jim

Docherty, Thomas

Donohoe, Mr Brian H.

Doughty, Stephen

Doyle, Gemma

Dromey, Jack

Dugher, Michael

Durkan, Mark

Eagle, Ms Angela

Eagle, Maria

Edwards, Jonathan

Efford, Clive

Elliott, Julie

Ellman, Mrs Louise

Engel, Natascha

Esterson, Bill

Evans, Chris

Field, rh Mr Frank

Fitzpatrick, Jim

Flello, Robert

Flint, rh Caroline

Flynn, Paul

Fovargue, Yvonne

Francis, Dr Hywel

Gapes, Mike

Gardiner, Barry

Gilmore, Sheila

Glass, Pat

Glindon, Mrs Mary

Goggins, rh Paul

Goodman, Helen

Greatrex, Tom

Green, Kate

Greenwood, Lilian

Griffith, Nia

Gwynne, Andrew

Hain, rh Mr Peter

Hamilton, Mr David

Hamilton, Fabian

Hanson, rh Mr David

Harris, Mr Tom

Havard, Mr Dai

Healey, rh John

Hepburn, Mr Stephen

Heyes, David

Hillier, Meg

Hilling, Julie

Hodge, rh Margaret

Hodgson, Mrs Sharon

Hoey, Kate

Hopkins, Kelvin

Hosie, Stewart

Hunt, Tristram

Irranca-Davies, Huw

Jamieson, Cathy

Jarvis, Dan

Johnson, rh Alan

Johnson, Diana

Jones, Helen

Jones, Susan Elan

Jowell, rh Dame Tessa

Kaufman, rh Sir Gerald

Keeley, Barbara

Kendall, Liz

Khan, rh Sadiq

Lammy, rh Mr David

Lavery, Ian

Lazarowicz, Mark

Leslie, Chris

Lewell-Buck, Mrs Emma

Lewis, Mr Ivan

Llwyd, rh Mr Elfyn

Love, Mr Andrew

Lucas, Caroline

Lucas, Ian

Mactaggart, Fiona

Mahmood, Shabana

Malhotra, Seema

Mann, John

Marsden, Mr Gordon

McCabe, Steve

McCann, Mr Michael

McCarthy, Kerry

McClymont, Gregg

McDonagh, Siobhain

McDonald, Andy

McDonnell, John

McFadden, rh Mr Pat

McGovern, Alison

McGovern, Jim

McGuire, rh Mrs Anne

McKechin, Ann

McKenzie, Mr Iain

McKinnell, Catherine

Meacher, rh Mr Michael

Meale, Sir Alan

Mearns, Ian

Miliband, rh Edward

Miller, Andrew

Morden, Jessica

Morrice, Graeme


Morris, Grahame M.


Mudie, Mr George

Munn, Meg

Murphy, rh Paul

Murray, Ian

Nandy, Lisa

Nash, Pamela

O'Donnell, Fiona

Onwurah, Chi

Osborne, Sandra

Owen, Albert

Pearce, Teresa

Perkins, Toby

Phillipson, Bridget

Pound, Stephen

Qureshi, Yasmin

Raynsford, rh Mr Nick

Reed, Mr Steve

Reeves, Rachel

Reynolds, Jonathan

Riordan, Mrs Linda

Ritchie, Ms Margaret

Robertson, Angus

Robertson, John

Rotheram, Steve

Roy, Mr Frank

Roy, Lindsay

Ruane, Chris

Ruddock, rh Dame Joan

Sarwar, Anas

Sawford, Andy

Seabeck, Alison

Sharma, Mr Virendra

Sheerman, Mr Barry

Sheridan, Jim

Shuker, Gavin

Skinner, Mr Dennis

Slaughter, Mr Andy

Smith, rh Mr Andrew

Smith, Angela

Smith, Nick

Smith, Owen

Spellar, rh Mr John

Stringer, Graham

Sutcliffe, Mr Gerry

Tami, Mark

Thomas, Mr Gareth

Thornberry, Emily

Timms, rh Stephen

Trickett, Jon

Turner, Karl

Twigg, Derek

Twigg, Stephen

Umunna, Mr Chuka

Vaz, Valerie

Walley, Joan

Watts, Mr Dave

Weir, Mr Mike

Whitehead, Dr Alan

Williamson, Chris

Wilson, Phil

Winnick, Mr David

Winterton, rh Ms Rosie

Wood, Mike

Woodcock, John

Woodward, rh Mr Shaun

Wright, David

Wright, Mr Iain

Tellers for the Noes:

Graham Jones


Tom Blenkinsop

Question accordingly agreed to.

11 Dec 2013 : Column 279

11 Dec 2013 : Column 280

11 Dec 2013 : Column 281

11 Dec 2013 : Column 282

Lords amendment 41 disagreed to.

After Clause 12

regulation of payment systems

Sajid Javid: I beg to move, That this House agrees with Lords amendment 63.

Madam Deputy Speaker (Mrs Eleanor Laing): With this it will be convenient to discuss the following:

Lords amendments 64 to 154.

Lords amendment 155, and amendments (a) and (b) thereto.

Lords amendments 156, 161 to 163, 169 to 172, 175 to 180 and 182 to 184.

Sajid Javid: The second group of amendments introduce substantial changes that will ensure that consumers get a fair deal. They will drive up competition and improve outcomes for consumers. Amendments 63 to 134 introduce a new competition-focused, utility-style regulator as a separate legal entity established under the FCA.

The Government have concerns about the payment systems market, with particular problems in three main areas: competition, innovation and responsiveness to consumer needs. Under the current arrangements, there

11 Dec 2013 : Column 283

is nothing holding big banks, payment scheme companies and infrastructure providers to account for consumers. The regulator will therefore have strong powers and objectives: to ensure that the operation of payment systems promotes fair and open competition in banking; to promote innovation in payment systems, for the benefit of consumers; and to support the interests of end users.

The regulator will have bespoke objectives and powers to address problems particular to the market for payment systems, allowing for the benefits of close co-ordination with the FCA. Once a payment system is brought into scope, the regulator will have powers over the system’s operators, infrastructure providers and providers of payment services using the system.

The payment system regulator will be equipped with a broad range of regulatory powers, enabling it to address the significant issues causing problems in the market for payment systems. To open up access and encourage greater competition, the regulator will be able to intervene and require changes to any anti-competitive fees or terms and conditions of an agreement for access to regulated systems. It will have powers to require the provision of access to payment systems. The regulator will also have competition powers exercisable concurrently with the Competition and Markets Authority.

My hon. Friend the Member for South Northamptonshire (Andrea Leadsom), who is in her place, will be pleased to know that the regulator will examine the case for full account number portability within 12 months of its establishment—although, with the successful seven-day switching service, which was launched by banks in September, hon. Members should know that they do not have to wait until then if they want to switch their account quickly.

Ian Swales: With regard to account number portability, is the Minister concerned that in the period between now and spring 2015, when the regulator will come into force, work might slow down, rather than speed up, because of the unpredictability of the regulator?

Sajid Javid: I have listened to my hon. Friend carefully, and others have made that point previously, but I do not share those concerns. I think that the regulator will move on that swiftly. The changes that have so far been made to payments, such as the switching service, are already making a real difference.

Ultimately, if the payments system regulator determines that the current ownership structures need to be broken up to achieve adequate competition, it will have the power to require disposals of interests in operators of the regulated systems. It will also have the power to enforce Competition Act 1998 prohibitions against anti-competitive agreements and abuse of dominance and to make market investigation references to the Competition and Markets Authority.

The amendments create a competition-focused regulator in this key market.

David Mowat (Warrington South) (Con): I very much welcome the role that the payments regulator will have. For the avoidance of doubt, though, can the Minister confirm that part of its scope will be credit interchange fees and that it will have a role in potentially regulating their level over time?

11 Dec 2013 : Column 284

Sajid Javid: Yes, I can confirm that. Although it remains for the regulator, once set up, to deem the regulated systems, we envisage that that will be part of its scope. My hon. Friend will know that the issue is being considered right now through a proposed European Union initiative. We would expect the regulator to take that into account as well.

Cathy Jamieson: What analysis have the Government undertaken of the impact of designating card payment systems for regulation? If the system will not come in until spring 2015, is there not a genuine danger of blight in terms of planning the way forward?

Sajid Javid: Before we made the final decision to create the regulator, a full consultation was carried out. We received input into that consultation from many stakeholders, and that formed part of the analysis of how the regulator could carry out its function, as well as the importance of having such a regulator. We expect not only that the regulator will be fully up and running in around 2015, but that once the Bill receives Royal Assent the FCA will begin the process of setting it up early next year. The FCA has resources that can be called on, and it has already started working on exactly how the regulator would operate, so I think that it will be able to start at least some of its work sooner than 2015.

Amendments 135 to 152 establish a special administration regime to be known as the financial market infrastructure, or FMI, administration. Inter-bank payment and settlement systems are integral to the efficient operation of the financial system, processing transactions worth hundreds of billions of pounds a day. Currently, if such a system becomes insolvent, it will typically enter the normal administration procedure and the administrator will be under a duty to look after the interests of the company’s creditors without regard to the implications for the wider UK economy. In those circumstances, the continued operation of crucial payment and settlement services could be threatened, which could have a significant adverse impact on the market and the wider economy. The amendments will ensure the continuity of crucial service provision of recognised inter-bank payment systems and security settlement systems in a time of crisis by imposing a duty on an FMI administrator to maintain the company’s crucial services during administration.

The key features of FMI administration are: the FMI administrator is placed under a duty to maintain the company’s crucial services during the period of FMI administration; the Bank of England is given the ability to apply to the court to place a relevant company into FMI administration and has conferred on it a power of direction over the FMI administrator; powers are granted allowing for the property, rights and liabilities of the relevant company to be transferred; and restrictions are established on early termination of contracts for the supply of certain goods and services to a company that has entered FMI administration.

3.15 pm

I now turn to payday lending—a subject about which many Members in all parts of the House rightly feel very strongly. The Government are deeply concerned about consumer detriment in the payday market and committed to taking action to protect borrowers from

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the harm that these lenders can cause. I know that this concern and commitment to act is shared and supported by Members in all parts of the House. This Government have already taken decisive action to overhaul regulation on the payday lending sector, with the Financial Conduct Authority taking on its broad new powers in relation to consumer credit from April next year.

However, the Government will do more. We want to put an end to the unfair costs of borrowing from payday lenders and to prevent the spiralling costs faced by those struggling to repay.

Yasmin Qureshi: We welcome the change, but it will not start until January 2015. Our amendment (a) says that it should start from October 2014, because people spend the most, and often build up the most debt, in the period up until Christmas. Therefore, what is the harm in bringing the date forward by three months?

Sajid Javid: If the hon. Lady will allow me, I will answer her questions when I consider the amendment she mentions.

There is a growing evidence base, including lessons from other countries, that a cap on costs is the right way forward for consumers. That is why the Government tabled an amendment in the other place to require the FCA to impose a cap on the cost of high-cost credit and short-term loans—not just an interest rate cap but a cap on all fees and charges, including default charges and roll-overs.

Bob Stewart (Beckenham) (Con): Does my hon. Friend have any idea what level of cap there might be on such charges?

Sajid Javid: My hon. Friend asks a reasonable question that I am sure many Members would be concerned about. The cap should be set by the FCA at a level designed to protect consumers. I hope that when I go on to talk about the process, that will give him a bit more definition regarding his concerns.

Mr Graham Stuart (Beverley and Holderness) (Con): I do not really understand what the Minister says about a cap protecting consumers. Before we had these payday lenders who get so much opprobrium, the alternative was very often door-to-door loan sharks who would break your legs if you did not pay them back. The great feature of the payday lenders is that they do not do that. What assurance can he give that any caps we impose will not force people back into the hands of unscrupulous and illegal lenders instead of the payday lenders, who at least work within the law?

Sajid Javid: My hon. Friend raises a good point. A number of charity groups involved in the debt advisory sector share those concerns. However, most of them agree, especially in the light of emerging evidence from other countries such as Australia and from certain parts of the United States, that it is possible, if researched properly, to set a cap at a level that can protect consumers but at the same time prevent extortionate costs. That will be the job of the FCA when it looks at the matter, and I know that it will take it very seriously.

Mr Pat McFadden (Wolverhampton South East) (Lab): Following on from the previous question, surely the Minister agrees that we can do better than offer people

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a choice between having their legs broken and interest rates of several thousand per cent. Government Ministers accepted that logic in their recent announcement about an interest rate cap. Surely it is possible to bring in a system that gives some measure of protection to the consumer without driving them into the arms of illegal loan sharks.

Sajid Javid: I agree with the right hon. Gentleman that it is certainly possible to have a better system than the current one. There will be a number of changes, including the moves towards a cap and the change of regulator from the Office of Fair Trading to the FCA, which set out in October some of its planned measures with regard to continuous payment authorities, roll-overs, advertising and affordability. Those are all part of a package that will help to protect consumers in the sector.

Sir Edward Leigh (Gainsborough) (Con): I am sorry to say this to the Minister, but he has not replied to the point made by my hon. Friend the Member for Beverley and Holderness (Mr Stuart). Of course, the Government can do what they like—they can set a cap—but the Minister must respond to the point that the Government cannot legislate against sin. The fact is that people are desperately hard up. If we legislate or put a cap on one thing, the evil moves to another, almost worse practice. The Minister must make some effort, in the real world, to answer my hon. Friend’s point.

Sajid Javid: If my hon. Friend will allow me, I will, as I move on, provide more information on that particular point.

Mr Love: I thank the Minister for giving way so liberally on this issue. He mentioned the FCA’s role not just in setting the cap, but in other critical arrangements, such as roll-over, continuous payment authorities and proper administration of the high-cost credit sector. Does he think that that goes far enough? If we are going to get this sector right, many organisations think that the consumer needs more protection.

Sajid Javid: The measures that the FCA has already suggested, and on which it is currently consulting, go a long way to protect consumers in this sector. Of course, the FCA has broad powers in this area and there is nothing to prevent it from considering future measures as it learns more about aspects of the market. For example, the hon. Gentleman may know that the Competition Commission is currently looking into this sector. It is due to report back with its preliminary findings next May and a final report around November. It will look at the sector for about 18 months in total. I am sure that the FCA will take that into account and see what further measures it could take, if necessary, with the broad set of powers it already has. I hope that is of some reassurance to the hon. Gentleman.

Designing the cap on the cost of credit is a job not for the Government but for the independent and expert regulator. Nor is it right that the detail of a cap should be enshrined in primary legislation, given that the industry it is intended to bind is so fast-moving and innovative.

Lords amendment 155 makes clear the FCA’s overarching objective in this endeavour: it must make rules to impose a cap to protect consumers from excessive charges imposed

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by high-cost, short-term lenders. This language echoes the FCA’s consumer protection objective. The FCA must make rules to advance one or more of its operational objectives, namely consumer protection, market integrity and competition. That applies to the rules to implement the cap, just as it does to all FCA rule-making. The FCA’s competition duty also applies. It must consider how the rules affect the ability of the market to serve consumers’ interests.

As we have heard, introducing a cap is not without risks or potential adverse consequences, including reducing access to credit for some individuals who find themselves in financial difficulty. The FCA will not be able to eliminate those risks, but it will seek to manage them. It will be important that the FCA strikes the right balance in designing and setting the cap.

Stephen Doughty: Given that the Government have moved belatedly on this issue—I hope it will make a big difference, notwithstanding the risks mentioned—will the Minister pay tribute to organisations such as Sharkstoppers and Movement for Change and the many community activists around the country who have highlighted the dangers posed by the payday loan industry, which is getting people into thousands of pounds’ worth of debt? The Government have listened to those voices, so will the Minister pay tribute to them?

Sajid Javid: I assure the hon. Gentleman that we as a Government have spoken to many stakeholders, including hon. Members, on this issue. Many people have done a good job and deserve credit for looking at the evidence in more detail.

Yasmin Qureshi rose

Sajid Javid: I will take this as a final intervention, because I need to plough on in the interests of time.

Yasmin Qureshi: I thank the Minister for giving way; it will not take long. Following the point made by my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty), will the Minister also congratulate my hon. Friend the Member for Walthamstow (Stella Creasy), who has played a great part in raising and campaigning on the issue?

Sajid Javid: I will. The hon. Member for Walthamstow, my hon. Friend the Member for Worcester (Mr Walker) and many other Members have shown great concern in this area and have made a welcome contribution to the debate.

Nigel Mills (Amber Valley) (Con): Will the Minister give way?

Sajid Javid: I will give way for the last time.

Nigel Mills: I am grateful to the Minister for giving way one very last time. I am not sure that I agree with him that it is not for Parliament to decide roughly where the cap should sit, because if we set it too high it will be meaningless and if we set it too low we will drive too many people out of the loan market. What will the Minister do if the FCA pitches the cap in a different place from where the Government think it ought to be? Would he want to come back to Parliament to take another look at the situation?

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Sajid Javid: I thank my hon. Friend for his intervention. I think that the FCA, acting independently and looking at the evidence, is the right organisation to set the cap. I do not think that politicians setting the cap would be as productive; actually, it could be counter-productive.

I now turn to the cost-benefit analysis that the FCA will have to conduct, which I think will help reassure Members that it will approach the task in the proper way. The amendment specifically requires that the FCA must consult the Treasury before it publishes and consults on any draft rules. To reflect the importance of keeping the rules current and effective, the FCA must report, each year in its annual report, on any rules it makes under its capping powers.

Finally, it is worth spending a moment on the issue of defining payday lending in primary legislation. Putting a narrow definition in primary legislation could lead to unintended consequences. Lenders may just try to circumvent the definition. The amendment therefore allows the FCA to specify precisely which types of high-cost, short-term loans are captured when it makes its rules to effect the cap.

Amendment (a) to Lords amendment 155, which was tabled by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), relates to data sharing. I am grateful to her for raising that important issue and the Government fully agree that urgent action is necessary to tackle it. The whole system needs to improve to support responsible lending. Lenders must make proper assessments of an individual’s ability to repay before they lend, based on accurate, timely and comprehensive information on their outstanding loans.

The FCA plans to put strict requirements on firms to undertake affordability assessments to ensure that a borrower can afford to make sustainable repayments. The FCA is not stopping there. It has warned the industry that it must improve the way in which data sharing works, including how quickly lending data are made available. The chief executive of the FCA, Martin Wheatley, has made a commitment to me today in writing that if the industry fails to improve, the regulator

“will not hesitate to act”.

The Government wholeheartedly endorse the message to the industry that the FCA will act if it does not respond quickly enough. This matter is a priority for the FCA. It is committed to improving the way in which data are shared and lending decisions made.

I therefore believe that amendment (a), although well intended, is not necessary. I hope that on the basis of those reassurances, the hon. Member for Kilmarnock and Loudoun will not feel the need to press it.

The hon. Lady also tabled amendment (b) to Lords amendment 155, which relates to the timetable. The Government want the cap to be in place as soon as possible. That is why we are taking this opportunity to introduce legislation that requires the FCA to impose a cap on costs. The FCA will then be able to get on with implementation without delay. Let us be clear that the Lords amendment provides a statutory backstop date for implementation. The cap must be in place by 2 January 2015. If the FCA can deliver it sooner, it will. However, it must not rush and risk getting the wrong result for consumers.

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3.30 pm

I will share with the House what Martin Wheatley told me today. I understand that he has published the letter on the FCA website. He wrote that

“it is very important that we are clear with you on the practical implications of any further shortening in the timetable, the principal one being that we believe it is impossible to have as strong a cap based on a shorter deadline. This cannot be the intended outcome from a consumer protection standpoint”.

I believe that the hon. Member for Kilmarnock and Loudoun has received a copy of that letter. I received it only just before I stood up to speak at the Dispatch Box.

I hope that Members from all parts of the House agree that a compromised outcome for consumers would not be the right result. The FCA’s current timetable for implementing the cap is ambitious, but deliverable. Crucially, it enables the FCA to draw on the findings of the Competition Commission’s current investigation of the market, which I referred to earlier. It is vital that the FCA can benefit from the Competition Commission’s insight into the market when designing the cap.

The FCA is already getting on with gathering the evidence and detailed analysis that it needs. It will consult in the spring on its draft proposals, at around the same time as the Competition Commission is due to publish its provisional findings. Consultation will take place over the summer and the FCA plans to make the rules in the autumn of next year. Again, that is likely to be at about the same time as the Competition Commission issues its final report. The cap will come into effect, at the latest, by the beginning of January 2015.

Stephen Doughty: Notwithstanding the points that the Minister is making, many consumers and campaigners on this issue will be concerned about what he has said about the time scale. The Government have dragged their heels on this issue for a number of years and could have taken action well before the date that has been set. I would like to see a cap before this Christmas. I agree with other hon. Members that it is crucial that the cap is in place before next Christmas. One of the campaigners from Swansea whom I met, a woman called Serai, got into more than £1,000-worth of debt with one of these lenders after taking out a very small loan to help pay for her kids’ Christmas presents. This is a crucial point, so I hope that the Minister will give a little more hope to the many campaigners who would like to see the cap introduced before next Christmas.

Sajid Javid: I will say a little more about the timetable in a moment, but it is a bit unfair of the hon. Gentleman to say that the Government have had years to introduce the cap, when the Government whom he supported had 13 years to introduce a cap and did nothing.

A number of steps must be taken before the cap can be implemented. All of those steps are important and if they are rushed, it will put consumer protection at risk for the sake of speed. There must first be evidence gathering and analysis. That is critical in getting the cap right. The FCA will draw on the evidence that the Competition Commission has collected. It might also have to get information from lenders and others in the market to get on with its work as quickly as possible. Yesterday, the Government laid secondary legislation before Parliament that will allow the FCA to seek

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information from the industry. That will support the design of the cap and the cost-benefit analysis that the FCA must issue.

The second and most vital part of the process is the consultation with interested parties on the proposals and their impact, as set out in the cost-benefit analysis. The final component that is necessary for the successful implementation of the cap is that lenders must be given a short period in which to update their systems and processes to meet the new requirements and become responsible, compliant lenders. Difficult though that is, we are not prepared to compromise on the process because that could lead to poor outcomes for consumers.

John Woodcock (Barrow and Furness) (Lab/Co-op) rose—

Sajid Javid: I need to plough on; I am sorry.

I thank the hon. Member for Kilmarnock and Loudoun for giving me the opportunity to set out the FCA’s plans for implementation. I hope that has provided reassurance that the FCA is committed to taking action as soon as possible, and that she will feel able to withdraw her amendment.

In summary, the Government believe that a cap on the cost of payday loans is necessary better to protect consumers from excessive spiralling costs, working alongside regulatory interventions that the FCA is already proposing to clamp down on the causes of consumer harm in the payday lending market.

Amendments 162 and 163 will provide significant benefit to consumers and financial services businesses that have been affected by poor practice in the claims management industry. Claims management companies have a legitimate role in helping consumers claim compensation, but a minority have acted irresponsibly. Despite the threat of suspension or cancellation of authorisation, some CMCs act speculatively and submit illegitimate claims that clog up the system and ultimately impose costs and delays on consumers. The amendments will give the claims management regulator power to impose financial penalties on CMCs that are guilty of misconduct.

The Government’s amendments provide a new form of redress—including financial compensation for consumers affected by a poor service from CMCs—by introducing a mechanism for the cost of handling complaints to be recouped from the industry. Together, the amendments will help ensure that the claims management industry acts more responsibly, and where it does not the regulator and Office for Legal Complaints can take action.

The Government agree with Lords amendments 153 and 154 that provide the PRA with a secondary competition objective and the FCA with competition powers that are exercisable concurrently with the Competition and Markets Authority. The Government are committed to improving competition in our banking sector to drive up consumer outcomes. A secondary competition objective for the PRA was recommended by the PCBS, and the Government accepted it. That objective will ensure that the PRA remains above all the watchdog for financial stability, but we will require it to play a more proactive role on competition.

Nigel Mills: If the Minister had had the pleasure of sitting on the Bill Committee, he would know that I tabled an amendment to suggest we cap the market

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share that banks could have in certain markets. What will he do if, perhaps by 2020, we have not seen a great increase in competition and still have too few banks with too high a market share? Does he think further action by Parliament would be needed?

Sajid Javid: My hon. Friend will know that the Government have introduced many initiatives to increase competition in the banking sector. Just today we heard that Tesco Bank will enter the current account market next year, creating hundreds of jobs in Scotland. That is welcome news, and other innovations such as current account switching also help to engender more competition. I do not think any of us know what the situation might look like in the future, but I am sure a future Government will take that into account in 2020, and beyond, and see whether any further measures are required.

Mr Tyrie: The Treasury Committee and the Banking Commission are extremely grateful that the lion’s share of the proposals on competition have been implemented. We think that will be a step forward, and the Treasury Committee has been pretty active in that field for more than three years. As I alluded to earlier, one recommendation has not been acted on by the Government, and I would be grateful if the Minister explained why. Perhaps it can be best summarised in this way: what additional benefit is conferred by the FCA’s strategic objective that is not provided for through the operational objectives of the FCA?

Sajid Javid: My hon. Friend will know that the FCA currently has an objective to promote competition, and I know that he supports that. The Government have accepted the recommendation from the commission to give this secondary objective to the PRA, so those two objectives for the key regulators—the FCA and the PRA—will make a difference. If my hon. Friend has some further suggestions for the future, I will certainly take a closer look at them.

The FCA’s consumer panel, which represents the interests of consumers, is well placed to communicate its views to the PRA, and in the other place the Opposition have called for a role for the FCA’s consumer panel. Following constructive debates in the other place, I am pleased that the Government have been able to include amendment 156, which delivers the Government’s commitment to ensure that the FCA’s consumer panel can provide its views to the PRA effectively. This was warmly welcomed on both sides in the other place and by the chair of the consumer panel.

The amendments will simplify day-to-day operations for building societies, other banks and all the other entities that I have mentioned. They will enable banks and other institutions to compete on a more level playing field and improve things as suggested in the Bill and by the commission and others. I commend them to the House.

Cathy Jamieson: I will develop my arguments in a moment, but I give notice that at the appropriate stage we will seek to divide the House on both of the amendments that we have tabled in this group.

I shall start with the payments system regulator, because I was somewhat surprised by the number of representations on the Bill from the industry, even at

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this late stage, including on the payments system regulator. The Minister has responded to interventions on that point, but I hope that, when he has the opportunity to respond later, he will address some of the questions raised by the industry, such as the concerns expressed by VocaLink. Although it has said that it is broadly supportive of the regulator and welcomes the change in the Government’s position, it is none the less very keen to ensure that there is no planning blight—a gap between the point at which the legislation becomes law and the time at which the system would be fully operational.

We have also had representations from other sectors of the industry, including Visa and MasterCard, on the need for a level playing field and ensuring appropriate and clear definitions of which payment systems come under the regulator, taking into account the broad range of players that facilitate payments for consumers and businesses. Further representations have been made about the need to look in detail at the whole system and the challenges of establishing the PSR, creating the right skill set and ensuring that it operates correctly. The work load of the regulator will also need to be taken into account as part of its remit.

The Minister said that he believed that the FCA had the resources to ensure that the system will be set up on time and will make progress as planned. I contrast that to the approach on payday lending, and I shall move on now to considering that issue.

At the outset, I must say that we welcome the Government’s U-turn on the issue of capping the costs of the controversial payday loans. [Interruption.] I hear the hon. Member for Braintree (Mr Newmark) saying that that was not a U-turn. I gently remind him that the Government have repeatedly refused demands to deal with legal loan sharks. They now appear to have been dragged, kicking and screaming to their current position as a result of pressure from Labour and countless other campaigners, including many of my hon. Friends in the Chamber today who will no doubt wish to speak.

Mr Brooks Newmark (Braintree) (Con) rose—

Cathy Jamieson: Let us remember that, during the passage of the first Financial Services Bill, Labour tabled amendments to give powers to the FCA to cap the cost of credit. Perhaps the hon. Gentleman will explain why the Government opposed them.

3.45 pm

Mr Newmark: I am sure we all agree that the abuse of payday lending is a scourge, and has been a scourge for many years, on our constituents’ lives. The hon. Lady seems to have a form of selective amnesia. Perhaps she can explain to the House why, during 13 years in power, Labour did absolutely nothing to deal with this pernicious form of payday lending.

Cathy Jamieson: I had hoped that the hon. Gentleman would explain why the Government opposed Labour’s amendments. I will come on to talk about the explosion of the payday sector, particularly in the past couple of years on this Government’s watch. [Interruption.] It is no good the hon. Gentleman shaking his head and saying, “Oh come on.” We have the opportunity now to tighten up legislation. That is what I wish to do.

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Stephen Doughty: I apologise for omitting to mention my membership of the national committee of Movement for Change, which has been campaigning on this issue, Madam Deputy Speaker.

Does my hon. Friend share my surprise at the continual chuntering from the Government Benches? As she rightly says, there has been an explosion in the past few years on this Government’s watch, and they have been dragged, kicking and screaming to this point. I have seen an explosion of these stores on high streets across Cardiff, and an explosion in cases of people who have got into trouble with payday lenders.

Cathy Jamieson: My hon. Friend makes valuable points, which I will come on to address.

The Government opposed the proposals initially, but eventually gave in and passed their own amendments in the other place. The FCA has so far failed to use its powers to introduce a cap. There were concerns that unless pressure was applied it would not necessarily have been able to speed up new powers, and we could have seen a further delay in real-time monitoring across the high-cost loan sector. That is why, some months ago, the Leader of the Opposition promised to introduce a cap. He also suggested an extension to a levy on payday lenders’ profits, which would be used to double the level of Government funding for alternative low-cost providers, such as credit unions, for those struggling with the cost of living crisis.

Sheila Gilmore (Edinburgh East) (Lab): I am sure my hon. Friend agrees that, had there been an agreement earlier, some of the people still waiting for protection that will not appear until early 2015 would be protected by now. I share the view of my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) that the sector’s visible expansion in recent years is remarkable. In many years of living in my city, I have never before seen such proliferation of this kind of lending, let alone the advertising on television.

Cathy Jamieson: My hon. Friend makes a valid point. Members in all parties will have seen the sector’s expansion on their high streets. I do not normally refer to the Daily Mail, but it published an article on the increase in payday loan advertising, which is a concern. I am cautious about the process of normalisation, particularly children and young people seeing these businesses on our high streets and in advertising.

We must remember the extent of the problem of payday lenders charging interest rates of up to 4,000%, for example, on temporary loans taken out by desperate families who often have nowhere else to turn. Someone commented earlier that so-called legal loan sharks did not break the legs of those who borrowed from them like illegal loan sharks perhaps would, but we have to understand that the many desperate families who turn to these services to borrow, sometimes for the basic necessities of life, often end up broken in different ways.

Up to 5 million families plan to borrow money from payday lenders in the next six months; as we have heard, between 2009 and 2012 the market more than doubled to about £2.2 billion; more than one third of those who take out a payday loan do so to pay household bills, such as gas and electricity; 1.5 million households spend more than 30% of their income on unsecured credit

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repayments; and personal debt is expected to rise to 175% of household income by 2015—that is the concern about what is happening to families in the real world.

Jonathan Edwards (Carmarthen East and Dinefwr) (PC): I am sure the shadow Minister watched the recent item on “Newsnight” on this issue with great interest. One of the major issues now is that those who take out these payday loans damage their credit rating and then cannot access mortgages down the line. Is that not an issue we must challenge, if we do not want to store up major troubles?

Cathy Jamieson: That is an important issue that ought to give us more food for thought. In certain circumstances, families might need to borrow on a short-term basis and be perfectly able to pay it back on time without it causing them long-term damage, but they would want to know, before taking out such a loan, that it could damage their credit rating.

I want to return to those who perhaps suffer most from the payday lending sector. Despite changing their tune and bowing to pressure from the Opposition and campaigners at the sharp end, the Government have not gone far enough to protect hard-working families from falling into unmanageable debt. That is why, even at this late stage, we have tabled our amendments. On the first, which relates to data sharing, I am sure the Minister will be aware of the concerns set out by StepChange Debt Charity about how the FCA’s proposed responsible lending rules fail to make payday lenders use real-time credit data in their loan decision making. It says that evidence from its clients suggests that payday lenders often use out-of-date credit data and therefore fail to pick up on whether borrowers have existing payday loans. Understandably, it then makes the point that lenders cannot be sure they are lending responsibly.

As we have heard repeatedly, multiple payday loans from different lenders are a major cause of debt problems. Two thirds of StepChange clients reporting financial difficulties with payday loans have been granted overlapping payday loans from different lenders. It also argues that the regulator’s responsible lending rules transpose Office of Fair Trading guidance into binding rules but continue to allow payday lenders to make loans without using that up-to-date information about borrowers’ existing financial commitments. That is obviously causing particularly severe problems for those who get into difficulty with multiple payday loans.

We should listen to what StepChange tells us about the growing problem of people being lent one unaffordable loan after another as they struggle to pay off the loans falling due. It tells us that more than 30,000 people contacted it for help with payday loans in the first six months of 2013—almost double the figure for the previous year. The average amount owed on payday loans by its clients has risen to more than £1,600, creating severe financial difficulties for those clients. In some circumstances, even a whole month’s income would not cover the repayments. It also tells us that a typical client with payday loans now has three payday loan debts and that one in five have five or more with different lenders.

Therefore, it is clear that different payday lenders granting overlapping loans is a major cause of payday debt dependency and that current procedures are not working. It is thus sensible for the FCA to require payday lenders to make use of up-to-date credit information

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on a borrower’s short-term commitments when they decide whether to issue or extend a loan. Payday lenders have long claimed to be working towards a system of sharing credit data in real time. They have been talking about it for more than two years, but there has been no solution.

John Woodcock: My hon. Friend is making a very good speech. We have heard the Minister say at the Dispatch Box that the Government are now committed to tackling this issue, whether belatedly or not. This is such a good opportunity to show that we can all be as one in the House and to take action where there is still clearly a problem, as she is so amply setting out.

Cathy Jamieson: I thank my hon. Friend for his kind words about my comments. I am simply putting forward the views brought to us by the people at the sharp end who have experienced the worst problems from payday lending. I pay tribute to those people again for doing so. I agree that it would be wonderful if we could secure some further consensus on these problems and send a clear message to the industry, particularly on advertising. The advertising spend of the top five payday lending brands apparently stands at about £36 million a year. That seems to suggest that they are investing heavily in attracting new borrowers at the same time as being not quite as willing to invest in responsible lending.

Stephen Doughty: My hon. Friend has made an important point about the amount of money such companies are investing in advertising. Many Members will have noted how much investment those companies are putting into advertising in football. Fans are targeted, which I think is particularly heinous, and a number of organisations have campaigned against that. Does she agree that football clubs should resist that type of advertising, which will put their supporters into great debt?

Cathy Jamieson: My hon. Friend tempts me to talk about football, which is one of my favourite topics. I will resist that temptation, except to say that I share his concerns about that.

Returning to our amendments and what the industry could do, I understand that there are differences of opinion about how best to tackle the problem. As we have seen, however, technology is available. The Veritech software is, I understand, used in 14 states in the US. Arguably, lenders would have the resources to bring that in if they wanted to. If lenders will not do something voluntarily, surely it will make sense to require them to do that, because in the meantime consumers are falling into debt. The Government should therefore act as soon as they possibly can.

Interestingly, we have heard that this issue is not just about the impact on consumers. The 118 118 company has told us that it believes the introduction of data sharing would enhance levels of competition, arguing:

“It is probable that if real time data was available, and lenders could be more confident in their lending decisions, many more of them would be attracted to this market segment. We would hope and expect that the FCA would be very cognisant of this point in view of its explicit competition objective”.

That is an interesting view. Where lending is being done, we want to know that it is being done by reputable companies, backed up by the proper technology and proper principles.

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Stella Creasy (Walthamstow) (Lab/Co-op): My hon. Friend is making a fantastic case to show why real-time credit checking is so important in this industry. Does she agree that, in any other industry where money was being lent, the lenders would want to know about any other obligations that the people being lent to had. Is it not curious that this industry seems not to want to know what others are lending to their customers, and does this not reflect their irresponsible approach to their consumers?

Cathy Jamieson: My hon. Friend, who has campaigned for many years on this particular issue, makes a very good point again. It seems to me to make perfect sense for anyone who is lending money to want as much information as possible to ensure that the correct decision can be taken. Our amendment would mean that the FCA would have a duty to introduce a system for sharing credit data so that payday lenders could not continue to evade their responsible lending obligations.

Mr Newmark: Following the intervention by the hon. Member for Walthamstow (Stella Creasy), I have to say that, unfortunately, many normal credit card companies also do not carry out due diligence, and let individuals’ debts pile up.

The hon. Member for Cardiff South and Penarth (Stephen Doughty) made a very good point, which was relevant to my beloved Newcastle football club. Unfortunately, Wonga is one of its major sponsors. Does the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) agree that there should be far greater restrictions on advertising, particularly advertising by payday lenders in parts of the country where many individuals are vulnerable to them?

4 pm

Cathy Jamieson: I thank the hon. Gentleman, whose comments were slightly more supportive than I expected them to be. He made a good point about his beloved football club. I am sure that he agrees with what I said earlier about the amount that is spent on advertising, and the worrying way in which it is normalised by being associated with football clubs and similar organisations. That particularly affects children and young people, as well as perhaps those on lower incomes.

The Minister referred to the challenges that would be faced if amendment (b) were passed and the date of implementation were brought forward. I am well aware that Martin Wheatley of the FCA set out those challenges even before writing the letter from which the Minister quoted earlier. He said that the Minister was

“aware of the challenges that we face in bringing a price cap into force by January 2015.”

The Minister said in response:

“The Government is…committed to ensuring that you can access the information you need to design the cap. The Government will bring forward secondary legislation to allow you to collect information to support your new duty as soon as possible.”

I heard him say that those regulations have now been laid. However, this strikes us as a matter of political will. If he wants the price cap to be introduced, and if he is willing to make the necessary resources available, it seems reasonable for us to press the case for the introduction of the cap by October 2014 rather than January 2015, especially as that would help us to prevent even more families from falling into the clutches of the high-cost credit market this Christmas.

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Will the Minister tell us what will be done to speed up the process of the secondary legislation to which he referred? He described January 2015 as a “backstop”, but it was not clear to me whether he genuinely believed that the cap could be introduced earlier, and I think it reasonable for us to press for that to happen.

The Minister will be aware that organisations such as Which?, while welcoming the introduction of a cap on the cost of credit, suggest that it should apply to all credit products. Members have already raised the issue of authorised and unauthorised overdrafts, which, according to research findings, are often just as expensive as payday loans. It has been reported that borrowing £100 for 31 days costs £30 with a Halifax authorised overdraft and £20 with some Santander accounts, and that borrowing the same amount for the same period from a payday loan company costs between £20 and £37. Some of the banks may not feel particularly comfortable about that comparison. An unauthorised overdraft is even more expensive. I am told that in the case of the Halifax reward account and the Santander everyday account, a £100 unauthorised overdraft can cost £100 in charges. I wonder whether the Minister has taken that into account during his discussions with the FCA.

Ian Swales: Is the hon. Lady aware that some of those charges apply even if the overdraft lasts for only a day, let alone a month?

Cathy Jamieson: The specific examples that I cited had been reported to me, but I understand that in many instances high charges are applied even if people slip into an unauthorised overdraft for a very short period.

Let me ask the Minister another question. In a letter to the Minister, Martin Wheatley said:

“In designing the cap we will, as far as possible, seek to minimise potential avoidance measures. It is possible for firms located in other EEA Member States to provide a payday lending service through the internet to UK consumers within the Electronic Commerce Directive. This is not something that the FCA can mitigate.”

What assessment has the Minister made of the extent of that problem, and what can be done to reduce that? As we take things forward, it will be important that we do not simply move people from one payday lending system on to something else that could be equally difficult.

I want to say a few words about the relationship between the banks and the payday lending sector, and to focus on the question of the banks lending to the payday lenders. During the consideration of the Bill in the other place, Lord Mitchell raised this issue, and his understanding was that Barclays lent Wonga over £250 million. When he investigated that further, he discovered that the sum was apparently much higher. He raised concerns about the mission and the guiding principles of the bank and asked whether lending money to the payday lenders so they can then lend it at higher rates to people who need loans is the right thing for the banks to be doing. That raises the question of what the banks’ responsibilities are to those on lower incomes, and also the issue of the banks’ relationships with the credit unions, for example.

I feel that we must press the amendments we have tabled to a Division. I hear what the Minister has said and I have heard the comments and concerns raised by

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the FCA about the timetable, but I think it is reasonable to press for this to be done as quickly as possible. The Minister has said that January 2015 is the backstop date—the latest point when it could happen. I think it is reasonable for us to bring that forward and to press the amendments on data sharing to a Division.

Mr Tyrie: On payday loans, I only want to make two very quick points. First, we need to be very careful that EU regulation does not drive a coach and horses through anything we might try to do domestically. I also want to reinforce the point that it is extremely important not to displace what we may disapprove of in the formal sector into the informal sector of very nasty loan shark practices. This will require a great deal of supervision and care.

Stella Creasy: Will the hon. Gentleman give way?

Mr Tyrie: If the hon. Lady will forgive me, I will not, because I promised the Chair that I will speak for only three minutes. The hon. Lady will have an opportunity to make her own speech in a moment, and she has been a doughty campaigner on this subject for some time.

I want to speak briefly about part 5 of the Bill, which is the part that creates the payments regulator. This implements a recommendation the Treasury Committee made two years ago. It is worth explaining the origins of our recommendations.

The Payments Council—which is dominated by the banks and other firms involved in the payments system—decided in 2011 to abolish the cheque, without providing any explanation of how it would provide an adequate replacement. That was a profound mistake, and the Committee decided to investigate. The justification for that decision looked pretty threadbare and the abolition also carried a considerable consumer detriment both for charities and for a lot of people who use cheques. I did 20 radio and TV interviews on this subject after the report was published. I asked each of the interviewers whether they had a chequebook; 19 of them said they did and they very much wanted to keep it. I think that brings home the value of cheques. This does not affect only the elderly; quite a large group of people want to keep some kind of paper-based transaction system for the time being.

Under pressure the Payments Council did a U-turn and cheques have been retained. The Treasury Committee also looked at how such a crass decision could have been taken in the first place. We concluded that the explanation lay with the structure of the Payments Council itself. Frankly, it has been little more than a poodle of the industry, and it certainly could not reasonably claim to act on behalf of consumers. A reasonable case can be made, however, that it is a monopoly controller of a crucial banking service. We recommended that that responsibility for the payments system be brought within the ambit of regulation, and we gave an outline of how that should be achieved. Amendments 63 to 134 would implement that central recommendation of our report. It is now up to Parliament to ensure that the FCA is much more responsive to the needs of consumers and competition, on this and a good number of other issues, than was its predecessor. I warmly welcome this part of the Bill.

Yvonne Fovargue (Makerfield) (Lab): I regard payday lending as a new industry. We have heard talk about how Labour did nothing for 13 years, but in the 23 years

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I worked in a citizens advice bureau—I left in 2010—I did not see people with payday loans. I think we saw our first person with a payday loan in 2010. It was always the home credit industry that people came to us about. The payday loan industry—and, in particular, the way in which it targets its market—is a new thing.

I wish to speak to amendment 155, which relates to the importance of a high-cost payday lender reporting in real time to a third party. The industry is really keen to embrace new technology when it suits it to do so. It has phone apps, and it advertises on television and online. New technology is meat and drink to it. However, it is less keen to operate a real-time database. It has had two years in which to do so voluntarily, and it still cannot come to an agreement on it.

Part of the reason for that could be that the industry is not keen on guidance. A lot of our payday lenders have American ownership. When I was at a conference recently, I was harassed by some of those American owners asking me what the rules were. I started to explain the guidance, but they were not interested. They just wanted to know about the rules. If something is not written down, they do not want to do it. They do not want to be the first, or just one of a few, to do something. For that reason, this provision needs to be mandated.

The present reporting system, involving a period of 30 to 60 days, is completely inadequate for a short-term, high-cost loan. A constituent who came to see me recently had taken out 14 payday loans in a week. Yes, that was irresponsible borrowing. I could see that he had been desperate, but it was also irresponsible. The system allowed him to do it. Had the lenders had a real-time database when they agreed to those loans, we could have got them for irresponsible lending. Their excuse, however, was that they did not know how many loans he had already taken out. The lack of a database gives them an excuse to lend irresponsibly, without penalties.

We also need to consider the responsible customers who pay back their loans on time and for whom taking out a payday loan is a perfectly rational decision. Perhaps their fridge is broken and needs to be replaced urgently, and they are expecting some money at the end of the month. Taking out such a loan in those circumstances could be more sensible than going to a company such as BrightHouse. Those responsible customers get no credit for paying back on time, however, because there is no database and because it is not mandatory to report their repayment record. In fact, on occasions, they are penalised for taking out a payday loan. We need a system that will help people to build up a record of creditworthiness, to allow them to get into the mainstream credit market.

As we have heard from my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), the present system can deter new entrants to the market. Companies tell me that they would like to get into the market, and that there is a gap for providers of loans between £500 and £1,500 taken over six months to a year at an interest rate of around 30%. However, the business risk is too great, because there would be no way of knowing whether their customers already had payday loans and when they had taken them out. Entering such a market would add to their business risk, and they also worry that raising their rates would involve a degree of reputational risk.

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The Government should look again at this matter and consider mandating the introduction of a real-time database and reporting to a third party. That is important if we are to protect customers and lenders. It is also important if we are to help people to move into a credit stream with lower interest rates, and to help new entrants to move into the market, which we all agree is vital.

4.15 pm

Andrea Leadsom (South Northamptonshire) (Con): I rise to congratulate the Minister on the excellent introduction of an independent payments regulator. I am amazed that this absolute game changer has not received more press attention, because our banking system still, on today of all days, faces the threat of being undermined in the eyes of consumers by its appalling behaviour. Today, Lloyds bank has been fined £28 million for its appalling treatment of retail customers—that is the biggest fine for retail misconduct ever. I stress that the reason for that, as the investigations by the Treasury Committee and the Parliamentary Commission on Banking Standards showed, is a profound lack of competition in the UK banking sector. Even worse, we even have the last great remaining closed shop, because the Payments Council regulates the banks, yet the banks own the Payments Council, and the banks both clear through and own the payments infrastructure. So there is no incentive to innovate and no self-regulation, and there is a deliberate suppression of competition. What the Minister has done by introducing an independent payments regulator is open that can of worms. The regulator will be a real game changer for the competitive outlook in the UK in future, and I wish to explain why that is.

The proposal is for the payments regulator to look at access to the payments system. As we know, the big clearing banks access the payments system directly, but challenger banks such as Virgin Money, Metro Bank and Aldermore have to go through an agency clearer. If its systems break down, those banks cannot serve their customers. Not only that, but because these banks have to go through the clearer to access the payments system, they get charged up to 10 times or 20 times as much as the clearers have to pay for one payments transaction. It is an absolute closed shop and it is appalling.

The payments regulator’s first job will be to examine access to the payments infrastructure and to say to the big banks, “You have to give direct access to every player.” The big banks argue, “You can’t do that because we all mutually underwrite one another’s payments.” As with any other clearing system, however, it is perfectly possible to leave a deposit up front and then to be called for more margin should you be running out of money, so the reason given for not allowing other banks direct access to the payments system is a completely spurious one. That will be item No. 1, and dealing with it will, in itself, create a completely different playing field for all those who want to come into the banking sector.

Ian Swales: The hon. Lady is making a powerful point. Does she agree that a parallel situation would be having the big six electricity companies owning the grid and not allowing any other supplier on to it?

Andrea Leadsom: Yes, my hon. Friend is absolutely right. There are huge parallels between the banking closed shop and the energy closed shop. That is something

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I have been picking up, and I was recently in the media with him addressing this very subject.

Giving direct access to the payments infrastructure to all banks will reduce the barriers to entry, so I want further to congratulate the Minister on accepting the Treasury Committee’s recommendation that the PRA should have a specific competition objective. That is key, because the barriers to entry do not just relate to access to the payments system; there are regulatory barriers to entry. In other words, “If you are small, you cannot become a bank. Until you become a bank, you cannot become big. Therefore, you cannot ever become a bank.” We have created an environment where there are massive barriers to entry, so the payments system changes will really start to unravel that closed shop.

Importantly, I wish to put in one plea for full bank account portability. I know that the Minister has absolutely agreed that one of the first jobs of the new payments regulator will be to undertake a full cost-benefit analysis of account number portability. That would mean that if I want to switch banks in future, instead of waiting for even seven days, having to change all my direct debits, standing orders and bank account details, and having to be issued with new credit cards and cheque books and so on, I would simply be able to have my bank account details re-pointed at a new bank and so everything would remain the same. It would be instantaneous account switching.

When we move our mobile phone account number now, we can take our phone number with us. In a world where we had full number portability, we would also be able to take our bank account details with us. That would be a radical game changer for competition. New entrants could come in and attract new business on the promise that if a consumer does not like them they can always move somewhere else tomorrow. Banks would lie awake at night wondering how to retain their customers through excellent customer services rather than what next they can fleece them with, which happens all too often now.

Competition is not the only issue. There are two other items I wish to mention. The first is about resolution. We have put in all this effort to try to ensure that, in future, a bank cannot fail. We have increased capital requirements and changed the regulatory structure, which is all to the good. None the less, we know that in future, as sure as eggs are eggs, a bank will fail. What bank number portability will do is to give an instant means of resolution to avoid ever seeing again queues of people down a street trying to get their money out of a bank that they are concerned about.

If we in the UK become the first country to introduce full bank account number portability, we will be leading the world. By creating a shared infrastructure for payments, we will create a massive business opportunity for UK plc. I congratulate my hon. Friend, the Minister, but urge him to go even further and to support, when the time comes, the prospect of full account number portability.

Paul Blomfield (Sheffield Central) (Lab): Like my hon. Friend the Member for Makerfield (Yvonne Fovargue), I rise to speak on amendment 155. The Minister has acknowledged that data collection is at the heart of effective regulation. Like many Members on both sides

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of the House, I welcome the Government’s conversion to capping the total cost of credit, but we need to recognise that it is not a silver bullet.

When I was fortunate enough to have the opportunity, through the private Member’s Bill ballot system, to prepare the High Cost Credit Bill back in July, I brought together Members from both sides of the House—I am pleased to see that one of them, the hon. Member for East Hampshire (Damian Hinds), is in his place—and all the major consumer voice and debt advice organisations, such as Which?, Citizens Advice, StepChange and the Centre for Responsible Credit, to try to develop a holistic approach to the regulation of payday lenders, with appropriate interventions at every stage of the relationship that lenders have with their borrowers from advertising right through to debt collection. At many points in that relationship, the issue of real-time data collection is absolutely vital to tackle multiple lending. We know that multiple lending is the source of many of the problems that people face. Unable to repay one loan, they are forced to resort to taking out additional loans, moving from a single unaffordable debt to multiple loans, creating completely unmanageable debt.

As my hon. Friend the Member for Makerfield has pointed out, the current reporting framework for credit reference agencies of 30 to 60 days simply cannot protect people from the problems that result from multiple lending. Only real-time data collection can effectively do that.

Secondly, we have the impact on the market. As part of the debate on payday lending, many people have argued that we cannot solve the problems by regulation alone and that we need a wider range of more affordable products. That is absolutely right, and real-time data are key to that too, because they will enable lenders to assess risk.

At a recent hearing of the Business, Innovation and Skills Committee, one of the lenders selected by the Consumer Finance Association as a representative of the industry said:

“We do not know in real-time what loans the customer has with other lenders.”

He said that they would

“love to know that information.”

It is impossible for lenders properly to evaluate risk, set interest at manageable levels and develop new products. As other Members have said, the opportunity that real-time data would provide for new entrants to the market is also crucial.

Above all, real-time data are essential to ensuring affordability, which is at the heart of the measures needed to protect people. The industry works in a distorted market. We know that: success is measured by the time it takes to get money into somebody’s bank account, not by the ability to repay. It sounds perverse that many lenders are not primarily concerned about ability to repay. As the OFT has highlighted, up to 50% of payday lending revenue comes from 28% of loans—those that are unaffordable—so providing real-time data is at the core of shifting the business model for payday lending from speed of lending to affordability and is the key to protecting people from spiralling and unaffordable debt.

I mentioned the recent Select Committee inquiry, which will report soon. My hunch is that it will say something along the lines of the report we published

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two years ago—that real-time data collection is critical to transforming the payday lending industry. We have heard from a number of Members that debt advice agencies are clear that we need real-time data collection and sections of the industry also want it. As the shadow Minister, my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), has pointed out, the industry has been slow to respond. It has been considering the issue for two years and has failed to find a solution that all participants will buy into. As the industry has failed to produce an initiative, it is our responsibility to step in and secure real-time data collection.

I would cite in support of that assertion the response of the Financial Services Consumer Panel to the Financial Conduct Authority’s consultation on its proposals on payday lending. As Members will know, the Financial Services Consumer Panel is the statutory body that monitors how far the FCA fulfils its statutory objectives for consumers. It is a critical voice in this debate. The panel has said that

“better creditworthiness assessments must be underpinned by real-time data sharing capabilities.”

On affordability, it has stated:

“In order for this information to be available we believe the establishment of real-time data sharing is vital.”

It has also stated:

“In addition to limiting rollovers, the Panel also feels that real-time data sharing is essential in ensuring people do not end up with excessive numbers of loans at the same time.”

It goes on:

“The speed at which loans are granted is often cited as the reason for”

unaffordability and rollovers, and: