John Glen
MP for Salisbury · Conservative · United Kingdom
“I welcome the Chief Secretary to her new position, but what words of comfort could she give the residents of Salisbury in Wiltshire, a unitary authority? We are not part of a combined authority and we do not have a metro mayor.”
“Sam Moody is my constituent. He is the chief executive of Rockhopper. During my time in this House, he has been absolutely scrupulous in following the laws of this country and respecting the Falkland Islanders.”
“I listened carefully to what the Minister said about the process, and I respect that. But most people who take a pretty level-headed, pragmatic view of the need for a transition over time still cannot get their heads around the short-term reality: when we have so much turmoil in the middle east, why would we extend the time that we are no…”
“It is 55 days till the Budget. Given the market’s reaction to the Prime Minister’s statement on Tuesday, and given that our gilt rates are higher than those of our peers in the G7, could we have a debate on the implications of higher taxes for growth?”
“Before the hon. Lady makes her statement on Thursday, will she, when reflecting on the arrangement in Wiltshire that would embrace Wessex—although we have been told that that is not the Government’s view—address the prevailing concern that the people of rural Wiltshire will be considerably worse off without having the opportunity to embra…”
“I recognise that the Minister wants to come to what the Government are going to do, but does he not accept that the decisions already made in the last two years—with respect to the price of employment and the national living wage, the cost of employment with regard to legislation, and business rates—have depressed the appetite of many sma…”
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“The responsibility of Government is to assess critically the impact of any tax reform, and to ensure that it is structured and implemented in the best possible way.”
“Thank you, Mr Walker. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Wycombe (Mr Baker) on bringing this debate to the Chamber. I acknowledge the 12 speeches from colleagues from across the House, who raised some very important issues on behalf of their constituents. Only last Friday, some of my constituents too came to raise the matter with me. In the course of my response, I hope to address the significant issues discussed: time to pay; retrospection; whether HMRC is going after the promoters; what my hon. Friend said about the disclosure of tax avoidance schemes; the numbers involved; and the difference between retroactive and retrospective. I will also give some detail on the sums of money that we anticipate will be raised through the measure.”
“I will outline the steps that the Government have taken to help those individuals who may be affected. The Government believe that it is not fair to ordinary taxpayers, who pay their tax on time and in full, to allow people who have used tax avoidance schemes to get away with it. Disguised remuneration tax avoidance schemes are contrived arrangements that use loans, often paid through offshore trusts, to avoid paying income tax and national insurance contributions. The schemes may have involved provision of a loan with no intention whatever to repay it. I spoke to the Financial Secretary this morning, while preparing for the debate, and he said, “Earnings are earnings, and a loan is a loan,” and that is what the issue boils down to.”
“In the course of my speech, I will address that point. I am happy for the hon. Gentleman to come back to me later if he feels that I have not done so. To be clear, I am the Economic Secretary; the Financial Secretary wanted to be here but he is in the main Chamber for the Finance Bill, so I am here in his place. I acknowledge the early-day motion tabled by Members. It has attracted 103 signatures, and I also acknowledge the concern throughout the House on this matter. The concerns expressed are for people who have used a disguised remuneration scheme, who expect to have outstanding loans in April 2019, and who will be subject to the charge. I recognise that the Government need to be clear about why we legislated for this charge, which received Royal Assent following a full debate during the Finance Bill process in 2016-17.”
“I am happy to concede that for the 50,000 indivi-duals affected, there are obviously responsibilities for those who promoted this. It is absolutely the case that HMRC is pursuing those individuals. They often promoted the scheme to large numbers of individuals. Five cases are before the courts—that seems a small number, but each one covers a large number of individuals—and there has been a judgment in one, with the other four cases still moving through the courts. It is not right to say that HMRC is not engaged with those who promoted the scheme.”
“Others did, I appreciate that—that is fair. I take on board the sentiment of the Chamber with respect to ensuring that HMRC is engaged with those who promoted the scheme, as well as the other individuals.”
“I am very happy to engage with HMRC to get a letter setting out the action taken. I suspect that there might be some constraints on revealing details of individual live cases, but where data are available, I will make them available to hon. Members.”
“HMRC’s objective will be to secure the money owed, as per the rules of the tax system. HMRC has enormous power to levy charges of up to £1 million on those individuals who are not complying. The schemes may have involved provision of a loan with no intention to repay it. The recipients of such payments enjoyed them no differently from the way any of us use our normal income. As such, in the eyes of HMRC, the payments have always been taxable. I have acknowledged the comments of colleagues who said that the charge on disguised remuneration loans will apply to loans that were made as far back as 1999. It is fair to say that the schemes were never permitted. They were defective, going back to then.”
“I thank my right hon. Friend for his point. Every scheme will be taken individually. They were not one single scheme that was developed. It is for HMRC to open cases on the disguised schemes, which it has done—going back many years on some of them—and it will take action as appropriate. A concern has been raised in the debate about not determining an outcome, and my hon. Friend the Member for Wycombe raised the concern about the implication that, when a tax avoidance scheme has been disclosed, that is somehow a verification or an endorsement of it. That is a misleading perception that has been left, and something for which HMRC should be accountable.”
“The Government that my right hon. Friend was part of and, I believe, a Minister in at the time the legislation was passed. [ Interruption. ] Let me make some progress. Although the measure subjects the loans to a tax charge, that 2019 charge applies only to current loan balances and does not arise until April 2019. Recipients of loans can still repay outstanding balances in full or settle with HMRC. The legislation is not retrospective because it sets out Parliament’s intention: payments subject to the loan charge should always have been, and will be, subject to tax. The announcement in the 2016 spring Budget by the former Member for Tatton provided scheme users with a three-year period in which to repay disguised remuneration loans or agree a settlement with HMRC to avoid the charge.”
“I thank my hon. Friend for that point. There have been 24,000 contacts with HMRC. The number of telephone calls has increased from 2,000 to 4,000 a week and extra resources have been made available by HMRC, but I am happy to take up any individual cases that my hon. Friend may wish to bring to me. In the view of the Government and of HMRC, the payments were always taxable as income, and the new legislation reiterates and formalises that stance.”
“The responsibility to settle tax affairs is on an individual basis. If an employer forced an individual into a tax arrangement of this sort, the employer would be in a liable position.”
“Let me make some more progress or, despite the time I have, I will not get to the end of my speech and I want to address the points raised. Anyone who has been involved in legal action will be well aware that it can be protracted and expensive for all concerned. Agreeing a settlement with HMRC allows taxpayers to move on, and out of avoidance for good. In most cases, any users of schemes will be better off approaching HMRC and agreeing a settlement rather than waiting for the charge next April, and HMRC is encouraging anyone worried about being able to pay to get in touch as soon as possible.”
“I certainly will. I took the precaution of speaking to the Financial Secretary again this morning, and I would like to clarify that, with the time-to-pay arrangements, the five-year period will automatically be put in place for those with incomes of less than £50,000. For those with larger incomes, there is an opportunity for dialogue with HMRC. With respect to individuals who have not had that settlement made known, I will be happy, as we all will as constituency MPs, to take those cases up with HMRC. HMRC is helping thousands of scheme users to get out of avoidance for good.”
“Just one moment. It will consider all personal circumstances to agree a manageable and sustainable payment plan wherever possible, and it has recently announced simplified payment terms for individuals looking to settle their tax affairs before 2019. I want to address another issue of the debate. Those who oppose the legislation have made claims that the loan charge will bankrupt public sector workers, including teachers, nurses and social workers. It is my understanding that 1,500, or 3%, of individuals will be involved in the health and education sectors but that most of the scheme users worked in professional services. The average salary of the scheme users was £66,000, which is considerably higher than the average annual wage.”
“I obviously cannot respond on an individual’s situation, but what I will say is that disguised remuneration schemes are complex and contrived and, as my hon. Friend the Member for Wycombe said, fail the “too good to be true” test. Although the Financial Secretary and I have tremendous sympathy for those facing large tax bills, it is unfair to let people get away with not paying the tax they owe. There is support for people who have used the schemes and now find themselves in difficult situations, which require those affected to approach HMRC and bring the matter to a close. I will now allow my hon. Friend the Member for Wycombe to make some concluding remarks.”
“I hope that colleagues will join me in supporting the draft order, which I commend to the Committee.”
“The Government are confident that the FCA will be well placed and that it has the relevant resources to regulate the sector effectively. Bringing regulation under the remit of the FCA brings its expertise in conduct regulation. In addition, it will be able to leverage its strong existing relationships with other financial services organisations, such as the Financial Ombudsman Service, which will handle complaints about CMCs, and the Information Commissioner’s Office, which enforces the restrictions on cold calling by CMCs. The Government believe that the new regime defined in the order will bring proportionate and professional regulation to the CMC sector. The Government hold firm to the belief that a well-regulated claims management sector can provide an important service to consumers by assisting them to claim the redress they are due.”
“That exemption applies only to the claims management activity that a legal professional carries out in their ordinary work as a solicitor. The order includes vital provisions to ensure that the transition of regulation is a smooth and orderly process. A temporary permissions regime will be in place after the transfer on 1 April 2019. That will allow firms that have notified the FCA of their desire to transfer to the new regulatory regime to continue to benefit from authorisation until their full permission application has been determined. That should allow CMCs time to adjust to the new regulatory regime. We are confident that the provisions of the 2018 Act, implemented by the order, will allow the FCA to introduce a regulatory regime that enhances both consumer protection and professionalism in the sector.”
“The draft order sets out who is exempt from regulation by the FCA for the claims management activity they carry out. The issue of the exemption of solicitors came up during the passage of the Financial Guidance and Claims Act 2018, when some concern was expressed that unscrupulous CMCs would attempt to circumvent regulation by employing solicitors, who are exempt from regulation by the Claims Management Regulator, to carry out their claims management activity. I can reassure the Committee that solicitors are already strictly regulated by the Solicitors Regulation Authority for their work, which is often very similar to claims management work. The purpose of the exemption in respect of their claims management activity is to ensure that solicitors are not unduly burdened by dual regulation.”
“That replaces the current regime, with a single permission covering all regulated conduct across any combination of activities and sectors. We have kept the sectors that were regulated by the Claims Management Regulator—personal injury; financial products and services; employment issues; industrial and criminal injuries; and housing disrepair. We have focused on those sectors with the greatest potential for detriment associated with unregulated CMCs or a high number of spurious claims. The majority of claims management activity is in the financial services sector, which accounted for 74% of CMC turnover in 2017-18. We of course recognise that some sectors that CMCs operate in are not named in the draft order. We will monitor developments closely and consider how the Government can best meet that challenge.”
“The draft order implements that framework by transferring the existing Compensation Act 2006 regulatory regime to the FCA and the Financial Ombudsman Service, with some changes, including extending claims management regulation across Great Britain for the first time. Consumers in England, Wales and now Scotland will have the same protections with regard to CMCs. The draft order creates seven different permissions for claims management activity. That will make it possible for the FCA to take into account the different types of work and activities across each sector. Each CMC will require separate permissions, depending on the specific activities it wishes to undertake and sectors it wishes to operate in. Depending on which sectors they operate in, some CMCs may require just one permission while others may require several.”
“Between 2015 and 2017, 443 warnings were issued to CMCs and 135 licences were cancelled by the regulator. As a result, consumers are distrustful of CMCs—76% reported to the legal ombudsman that they are not confident that CMCs tell their customers the truth. The majority of stakeholders feel that the current regulator lacks sufficient powers and resources to supervise the market properly. That is why the Government are committed to strengthening claims management regulation. The draft order delivers on that objective by making provisions for the transfer of claims management regulation to the Financial Conduct Authority. The provisions in the Financial Guidance and Claims Act 2018 lay the framework for strengthening the regulation of CMCs under the FCA.”
“I beg to move, That the Committee has considered the draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018. May I first say what a pleasure it is to serve under your chairmanship, Mr Bailey? Claims management companies offer advice and other services to consumers making claims for compensation. The Government have been consistently clear that a well-functioning CMC market provides vital support for consumers, who may otherwise be unwilling or unable to bring a claim for compensation themselves, and that CMCs benefit the public interest by acting as a check and balance on business conduct. Robust regulation is important, as CMCs handle millions of pounds’-worth of consumer claims. However, there is significant evidence of misconduct in the CMC sector.”
“I thank the Committee for the serious questions and the range of issues raised. I will do my best to respond to all the questions. I will start with the hon. Member for Oxford East, who asked about progress on the cold calling plan. The Chancellor announced it in the Budget and laid a statutory instrument two days later banning cold calling in relation to pensions. It will be debated later in the year and hopefully will be in force early in the new year. I texted her counterparts on the Labour Front Bench to make them aware of that.”
“The FCA will be able to consider whether the CMC is in breach of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and will sanction appropriately. It is really about the concentration of the FCA’s skills and experience in this domain.”
“I will move on to that in a moment. I also want to touch on the point about the ICO as an enforcer, and why not the FCA. There are two debates here. The hon. Member for Garston and Halewood asked about the FCA’s suitability. One issue that has come up—my hon. Friend the Member for South Norfolk mentioned it as well—is the ICO’s experience and powers to enforce the restrictions on CMC cold calling. The ICO can levy fines of up to £500,000 for breaches of the Privacy and Electronic Communications (EC Directive) Regulations 2003. It has the international reach to enable enforcement action when companies are operating abroad, and perhaps calling my hon. Friend. The ICO and the FCA work together to establish whether the claims management company has FCA authorisation to carry out marketing activity.”
“The Government believe that claims management companies fuel speculative claims for redress, that consumers struggle to understand the services that they offer, that there is a lack of transparency around how they operate, and that they offer poor value for money.”
“The FCA is making a one-off levy from April 2019, and it will continue to collect fees from industry. Having recently closed a fees consultation, it will release a policy statement later this year about the funding mechanism for that transition period.”
“I will move on sequentially through the points made. On the question about why the Government are not banning all cold calls, which I think is behind all this, we are determined to tackle CMC cold calling and pensions cold calling, but a balance needs to be struck between ensuring that consumers are adequately protected and providing the right conditions for the legitimate direct marketing industry to operate. I recognise that there is a debate about the extent of the coverage and which sectors should be covered, but we took a view about what should be included at this time so that we could make progress and lay the order. We are actively prepared to consider further sectors that should come under the order. The hon. Member for Oxford East raised the issue of the interim regime’s funding.”
“Under this statutory instrument, any advertising of claims management services must have prior authorisation by the FCA. Breaching the regulations and failure to have FCA authorisation will be an offence. There has been greater clarity about telephone numbers having to be published, but the ICO is the place where my hon. Friend could take the calls that he is facing.”
“During the passage of the Bill that became the Financial Guidance and Claims Act, the Scottish Government confirmed that it would be proportionate and relevant to bring Scottish CMCs within regulation. This Government have had further, ongoing discussions with the Scottish Government and the Law Society of Scotland throughout the drafting of this legislation, and we are very happy that they are, obviously, included in it. My hon. Friend the Member for South Norfolk asked about the current status of someone making a cold call. The 2018 Act prohibits anyone from making an unsolicited marketing call in respect of claims management activity. As I have said, that is enforced by the ICO, which has the power to levy large fines and has international reach.”
“The FCA and SRA have therefore committed to reviewing their memorandum of understanding where it sets out how they will work together, to ensure that the regulation is effective and avoids precisely the matter that my hon. Friend raised. In relation to FCA scrutiny, there is a statutory duty on the FCA to report to the Treasury, and that will cover CMC activity. The FCA will do that regularly—on an annual basis. Additionally, there are informal, three-weekly conversations between me and the FCA, and obviously I will be subject to scrutiny in the House. That mechanism is a real one: I am obviously pushing the FCA to get this right and it is keen to get it right. The hon. Member for Airdrie and Shotts asked about the conversation with the Scottish Government.”
“The intention has been to have a tougher regulatory regime for CMCs without burdening solicitors with unnecessary regulation, because we believe that they are robustly regulated. Whether the two are aligned is a legitimate issue that needs ongoing review. We are concerned about the risks. The order is designed to close the potential loophole through a provision that removes the exemption for legal professionals if their claims management activity is not part of their ordinary legal practice. That is what has been happening: they have not been subject to FCA oversight because, in effect, they have been doing something that they could say was under their regulator but that the FCA has nothing to do with.”
“The FCA has made provision for the funding of the activity, and it will make a policy statement later this year about how it will work after April. I was asked about the impact of new FCA regulation on the fees, so I will give more detail. To cover the costs of the transfer, the firms will be required to pay a one-off levy spread over two to three years, which will be collected by the FCA. Clarification will be given later about the regime following that. On the point about solicitors’ exemption, which goes to the point about regulatory arbitrage raised by my hon. Friend the Member for South Norfolk, there are strict controls in professional regulation under the SRA.”
“Somebody should not be called unless they have given explicit permission to be called, so it is an illegal act if that permission has not been given. My hon. Friend the Member for South Norfolk asked whether this regulation covers banks. No, they will be covered by their FCA authorisation and supervision, so they are covered but not under these provisions.”
“In relation to the next steps on this regulation, if the Committee approves the order today, the regulation will transfer to the FCA on 1 April 2019. The FCA regularly updates its rulebook. It is a robust regulator, which I have frequent dialogue with, and is subject to scrutiny.”
“It would be a criminal offence, but I will be happy to clarify the situation exactly in a letter to my hon. Friend subsequently. I think that I have covered the point about the SRA and regulatory arbitrage. A point was raised about other sectors—this point came through a lot in the passage of the main legislation —by the hon. Member for Garston and Halewood. The Government are actively examining the extent of the coverage. According to my initial statistics, in 2017-18 financial products and services claims made up 79% of CMC turnover and personal injury made up all the remaining turnover. A point that has often come up is about coalminers. If they do not already come under personal injury, we will be able continually to observe, and possibly extend, coverage, based on whether a discrete additional category is needed.”
“I entirely agree. That is the purpose of the draft order, which will enable claims management regulation to be transferred to the FCA and the Financial Ombudsman Service. Given the breadth of their existing regulatory oversight, that will satisfy the concerns of those who want a more robust regulatory regime in place. Consumers will benefit from a well-regulated and professional claims management industry. The industry can provide important services to some consumers, but there needs to be confidence in how difficulties are handled.”
“Resolved, That the Committee has considered the draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018.”
“My view is that there are clear categories that the Government have been challenged on with respect to inclusion. There was a judgment to be made about what was to be included in the order at this point in time, but I would seek to make regular reports to review progress—far more frequently than every five years, which is the formal requirement. It would certainly be within the FCA’s remit to introduce changes far more regularly; if the hon. Gentleman reflects on the FCA’s work on high-cost credit, he will agree that its interventions have led to more rapid changes. My expectation is that the regulator will respond to market changes and consider the appropriateness of extending to additional categories. I hope that the Committee has found this evening’s sitting informative and will support the order. Question put and agreed to.”
“I beg to move, That the Committee has considered the draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018.”
“In summary, the Government believe that the draft regulations are necessary to ensure that the regulatory regime that applies to payment institutions, electronic money institutions and account information service providers works effectively if the UK leaves the EU without a deal or an implementation period, and to maximise the prospects of the UK maintaining participation in SEPA to the benefit of UK consumers, businesses and the wider UK economy. I hope that colleagues from all parts of the House will join me in supporting the regulations. I commend them to the Committee.”
“Should the UK not maintain participation in SEPA in a no-deal scenario, UK payment service providers would be unable to comply with some of the requirements in UK law that presuppose the existence of euro-denominated transactions within SEPA. To cater for that scenario, the draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations will give HM Treasury limited powers to revoke certain requirements to prevent detrimental effects on UK payment service providers.”
“Finally, let me turn to the interaction between the UK’s future participation in SEPA and the provisions made in both sets of draft regulations. The UK payments industry is required to make an application to maintain participation in SEPA as a non-EEA country in a no-deal scenario; I understand that UK Finance, which represents UK payment service providers, has made such an application on behalf of the industry. Applications from non-EEA countries are determined by the European Payments Council by reference to its published criteria for non-EEA country participation. Through the draft regulations, the Government intend to retain relevant EU law in a way that maximises the prospects of the UK maintaining participation in SEPA.”
“The qualifying area is broadly aligned to the geographical scope of SEPA, but it does not include SEPA’s existing non-EEA country participants; EU law does not include those countries, so it is not possible to include them in UK law under the European Union (Withdrawal) Act. Secondly, the draft regulations will transfer to the appropriate UK body functions currently carried out by EU authorities. Under the regulation on credit transfer and direct debits in euro, the European Commission may adopt delegated acts to take account of technical progress and market developments. In line with the Government’s cross-cutting approach on the transfer of functions, the draft regulations will ensure that those functions are transferred to the appropriate UK body, Her Majesty’s Treasury.”
“Under the payment services directive implemented by the Payment Services Regulations, responsibility for drafting regulatory technical standards currently sits with the European Banking Authority. In line with the Government’s cross-cutting approach to the transfer of functions, the draft regulations will ensure that those functions are transferred to the appropriate UK body, the Financial Conduct Authority. The draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations will make the following principal amendments to the retained EU regulation on credit transfer and direct debits in euro. First, they will introduce the concept of a qualifying area, comprising the UK and the EEA, within which they will apply to UK payment service providers’ euro-denominated transactions.”
“Thirdly, the draft regulations will remove the provisions that currently require supervisory co-operation with EU authorities. In a no-deal scenario, it would not be appropriate for UK supervisors to be unilaterally obliged to share information or co-operate with EU authorities, so the provisions that require co-operation and information sharing with the EU have been removed. However, that will not preclude UK authorities from sharing information with EU authorities if appropriate, which the existing domestic framework for co-operation and information sharing with countries outside the UK allows for on a discretionary basis. Fourthly, the draft regulations will transfer to the appropriate UK bodies functions currently carried out by EU authorities.”
“To provide consumer protection in the event of an institution becoming insolvent, the Payment Services Regulations require payment institutions and electronic money institutions to safeguard consumer funds to ensure that they are paid out in priority to other creditors. The most common method of safeguarding funds is for the firm to hold them in a segregated account with a credit institution. A considerable number of UK firms hold safeguarding accounts in the rest of the EU. They will still be able to do so once the draft regulations come into force, but they will also have the option of using safeguarding accounts based anywhere else in the world, subject to adequate guarantees of consumer protection. This is in line with existing practice for protecting client assets and investments.”
“Should the UK leave the EU without a deal, there would be no agreed legal framework under which the passporting system implemented for EEA payment firms under the Payment Services Regulations could continue to function, so firms from the EEA would not legally be able to operate in the UK. The draft regulations will therefore create a temporary permissions regime for such firms that is similar to, but separate from, the regime set out in the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, which applies to firms regulated under the Financial Services and Markets Act 2000 and has already been debated in the House. Secondly, the draft regulations will make changes to ensure the continued effective safeguarding of consumer funds.”