Dame Harriett Baldwin
MP for West Worcestershire · Conservative · United Kingdom
“I welcome the Chancellor to his new role. I paid close attention yesterday to the long speech he made to reset the narrative and drive growth Britain. In paying tribute to his predecessor, will he recognise that she left the highest tax burden on record? Instead of postponing the words he could utter to my hon.”
“I welcome the new Prime Minister to the Dispatch Box. I note that in his statement he referred to the biggest issues facing the country as being “the economy and the cost of living crisis”. Will he accept that one of the things that has damaged our economy and caused prices to be higher is the tax-and-spend Budget in November 2024?”
“Could the Leader of the House make a commitment that the new Chancellor of the Exchequer will come to the House on the first day we are back from recess?”
“With a stroke of his Whitehall pen, the Secretary of State has just abolished Malvern Hills district council, Worcester city council, wonderful Wychavon district council and Worcestershire county council. He said in his statement that this is about making “real improvements to people’s lives and…communities”.”
“In recent weeks in West Worcestershire, I have met local police and the police and crime commissioner; the police and crime commissioner is being abolished, and the police are being reorganised. I have met the local health commissioners; they are being reorganised, and Healthwatch is being abolished.”
“Will the Leader of the House confirm that, given that the other place is sitting next week, there is nothing to stop him tabling a business statement to enable this House to sit next week? Given the enormity of the events happening in the Government next week, does he not think that would be a good idea?”
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“Since that order’s approval, the Government have been actively monitoring the progress of the mortgage industry towards implementation, to ensure a smooth transition in which customers do not see any disruption. During the course of that routine monitoring it came to light that, owing to the complexity of layering a new wave of legislation on top of existing legislation, in some areas the order did not achieve what was intended. The Government therefore decided to act quickly and make a small number of amendments to the scope of regulation, to ensure that the regulatory framework continued to operate as intended. The order makes a number of changes to ensure that the existing legislation delivers on previously agreed policy.”
“Section 204A sets out which of the Financial Conduct Authority and Prudential Regulation Authority is responsible for enforcing certain requirements in that Act. The order makes changes to section 204A to ensure that the PRA can enforce new requirements where it is the lead regulator for the senior managers and certification regime. If the order were not made, the FCA would have to enforce obligations that should be, in effect, owed to the PRA. I will move on to the Regulated Activities Order. In March, Parliament approved the Mortgage Credit Directive Order 2015, which ensures that the UK implements the EU mortgage credit directive on time and with a limited impact on the UK mortgage market. That order was due to come into effect in March 2016 to prevent gold-plating.”
“I turn now to the Misconduct and Appropriate Regulator Order, which makes some necessary technical changes to legislation before the senior managers and certification regime comes into operation in the banking sector next March. The first of those simply ensures that the revised provisions relating to enforcement action by the Financial Conduct Authority will cover cases where an approved person has been knowingly concerned in a breach of regulatory requirements imposed by the Alternative Investment Fund Managers Regulations 2013, which implement the EU alternative investment fund managers directive in the UK. The second group of technical amendments make some consequential changes to section 204A of the Financial Services and Markets Act 2000.”
“The offence concerns decisions that cause a bank to fail and, as a branch is not a separate legal entity from its parent, it can fail only if the parent fails. The failure of a branch, and any action arising from that, can be taken only by the authorities in the parent’s home state. Secondly, I assure the Committee that the UK regulators have the powers to ensure that the regime can be applied flexibly and appropriately to different types of branch. They can also differentiate, where appropriate, between “passporting” branches from other European economic area states, “non-passporting” branches from countries outside the EEA, subsidiaries and UK-owned banks.”
“First, the 2013 Act also includes a new criminal offence relating to decisions that cause a bank to fail, which is sometimes called the reckless mismanagement offence. That offence was also recommended by the parliamentary commission and was included in the Act along with the senior managers and certification regime provisions. It can be committed only by persons who are senior managers in banks, building societies and systemic investment banks. The offence, however, is not part of that regime and I want to make it clear that the order does not extend the new offence to UK branches of foreign banks. There is no power in the 2013 Act to do that and it would also not be appropriate to do so.”
“A power was therefore included in the Financial Services (Banking Reform) Act 2013 to enable the Treasury to bring branches of foreign banks into the senior managers and certification regime, after appropriate consultation. The consultation document was published last November and the Government announced in March that they would make the necessary order. Subject to parliamentary approval, from 7 March 2016 all parts of the senior managers and certification regime will apply to all foreign banks that operate in the UK through branches, the same date on which the senior managers and certification regime comes into force for UK banks. It might be helpful to clarify two further points for the Committee at this stage.”
“That includes those global financial institutions that operate here through a UK subsidiary company, because such a company is incorporated here so counts as a UK institution in its own right. Not included are global banks that operate here through a UK branch, because a branch is not a separate legal entity from its parent and so is not incorporated in the UK. Nevertheless, a branch can have senior managers and staff who might be subject to annual certification or required to comply with the rules of conduct. The fact that a branch is not separate from its parent was bound to raise a number of issues that could not be considered fully at the time.”
“Those recommendations formed the basis for what is now the senior managers and certification regime and include a tougher regulatory approval regime for a small number of the most senior individuals in a bank; an annual certification by banks that other key individuals are “fit and proper”; and rules of conduct covering a wider range of bank employees, not just those subject to regulatory pre-approval. The Relevant Authorised Persons Order will extend the scope of the senior managers and certification regime to include UK branches of foreign banks. It was initially decided to confine the senior managers and certification regime only to UK institutions—that is, businesses incorporated in the UK.”
“Among other things, it provided the legislative framework for implementing the recommendations of the Parliamentary Commission on Banking Standards. That included making provision for introducing the senior managers and certification regime for the banking sector—banks, building societies, credit unions and certain systemically important investment firms. As right hon. and hon. Members may be aware, the Government have now included in the Bank of England and Financial Services Bill provision to extend the regime to all other types of financial services firm, but the two orders I am describing are part of the original programme to apply the new regime to banking. When the Parliamentary Commission on Banking Standards reported in June 2013, it made a number of recommendations for reforming how individuals who work in banks are regulated.”
“It is customary to say what a pleasure it is to serve under your chairmanship, Mr Nuttall, but in this case I genuinely mean it because of our previous close association when I was your Whip. For the sake of brevity, I shall refer to the orders as the Relevant Authorised Persons Order, the Misconduct and Appropriate Regulator Order and the Regulated Activities (Amendment) Order. The Relevant Authorised Persons Order and the Misconduct and Appropriate Regulator Order are related, so I am glad that the Committee has agreed to consider them together. It might be helpful for me to start by outlining the background to the legislation. In December 2013, Parliament passed the Financial Services (Banking Reform) Act 2013.”
“In conclusion, the draft orders make some necessary, albeit uncontroversial, changes to the overall financial services regime. They strike the right balance between ensuring that consumers are protected and that firms are well regulated. The Committee has scrutinised the measures in detail and I ask it to support the orders. Question put and agreed to. draft financial services and markets act 2000 (relevant authorised persons) order 2015 Resolved, That the Committee has considered the draft Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015. —(Harriett Baldwin.) draft financial services and markets act 2000 (misconduct and appropriate regulator) order 2015 Resolved, That the Committee has considered the draft Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015.”
“We did not intend the draft orders to change the status quo, so those types of bridging loans will remain unregulated. However, as with all such legislation, we will continue to keep things under review. The hon. Gentleman asked about the consistency of the regime and in particular the criminal offence. He will appreciate that in extending the regime across the whole financial services industry, we are replacing the approved persons regime, which was so discredited and noted to be in need of change by the Banking Commission. In the interests of fairness, we believe that it is important to deliver that consistency across the industry. The regime provides for the right balance of consistent regulation for a wide range of different firms. Given the foreign branch regime, it is appropriate to treat them as we are proposing.”
“They were previously included in the consumer credit regime, due to historical reasons relating to the introduction of mortgage regulation at the time, but the Government believe that legislating to combine all the mortgage regulations under one regime is more appropriate. We have been working closely and in consultation with the industry in the process of finalising the regulations, which will reduce costs for such firms, because they will be able to observe one regime. That particular change has been supported widely by the industry and ensures that consumers will continue to be protected. The hon. Gentleman asked about the regulations’ exclusion of bridging loans, which, as he knows, are short term in nature. Equitable bridging loans have always been unregulated.”
“It is good to hear from the hon. Member for Leeds East, whom I welcome to his post. I am sure that this will be only the first of many exciting box office events in which he and I will participate. Much of the proposed legislation is technical, but he is right to emphasise the principles that we are applying to regulation of the financial sector. At the heart of our aspirations is a strong, healthy and well-regulated sector, which works for all the individuals whom we represent in this place. The aim of our regulatory regime is to ensure that we have a proportionate and appropriate balance to reflect the legal characteristics with which we are dealing. The hon. Gentleman asked a range of specific technical questions, the first about the inclusion of pre-2004 mortgages and the decision on their regulation.”
“This is crucial in ensuring that taxpayers get a fair deal from the banking sector, which they stood behind during the crisis. I therefore commend clause 18 to the Committee.”
“It will also ensure that the Exchequer is protected from the large-scale compensation seen in recent years, but in a way that is administrable and recognises that banks, like other industries, will inevitably make compensation payments as part of their ordinary course of business. Overall, this is a fair and workable set of rules, which is forecast by the independent Office for Budget Responsibility to increase banks’ corporation tax payments by £1 billion over the next five years. We have already taken action to reduce the sensitivity of corporation tax receipts to losses incurred by banks during the crisis. The changes made by clause 18 now do the same in respect of banks’ past misconduct and the exceptional levels of compensation it has given rise to.”
“The clause therefore makes a change to address that. The clause makes banks’ compensation payments in relation to misconduct and mis-selling non-deductible for tax purposes from 8 July 2015. That will apply to compensation material enough to have been disclosed in banks’ accounts, albeit with an exclusion for compensation relating to administrative errors, system failures and the actions of unconnected third parties. The changes will also capture administrative expenses associated with that compensation, but will achieve that indirectly by requiring banks to apply a 10% uplift in calculating their non-deductible compensation expenditure. That will help to ensure that the changes are proportionate.”
“The scale of banks’ compensation payments in recent years has been unprecedented. More than £25 billion has already been paid out or provided for in relation to the mis-selling of payment protection insurance, with a further £1.8 billion paid or provided for in relation to the mis-selling of interest rate products. Crucially, the exceptional levels of banking sector compensation are persisting. New PPI provisions exceeded £2 billion in the first half of 2015 alone, with cumulative provisions now well in excess of initial market expectations and continuing to grow. In that context, the Government believe that the existing tax rules have become unsustainable. It is not acceptable that post-crisis corporation tax receipts continue to be depressed by conduct failures that in some instances took place more than 10 years ago.”
“Fines are generally treated as non-deductible expenses in calculating companies’ profits liable to corporation tax. That means that the fines imposed on banks as a result of their conduct have had no direct impact on UK tax receipts; in fact, they have actually benefited the Exchequer due to a change in rules enacted by the Government. That is not the case, however, for banks’ customer compensation payments. Such payments are generally treated as deductible expenses for corporation tax purposes, reflecting the fact that they are non-punitive and often the straightforward reimbursement of income on which businesses have already been taxed. As a result, compensation payments made by banks in relation to the mis-selling of financial products have, until this point, impacted directly on corporation tax receipts.”
“What a pleasure it is to serve under your chairmanship this morning, Sir Roger, after our short break. I welcome the hon. Members for Wolverhampton South West and for Leeds East to the Opposition Front Bench. I hope that they remain there for a long time. I also pay tribute to the work of the hon. Members for Worsley and Eccles South (Barbara Keeley) and for Wirral South (Alison McGovern), who worked so hard in that role before the break. The changes made by the clause mean that banks will no longer be entitled to tax relief for compensation payments made in relation to their misconduct and mis-selling. That will protect the Exchequer from banks’ past management failures and ensure that the sector makes an appropriate contribution to restoring the public finances. Let me start by providing some background to the tax rules in this area.”
“It is obviously early days in terms of the full scale of potential actions regarding Volkswagen, in particular Volkswagen in the UK and where the company pays corporation tax. However, I can assure the hon. Gentleman that the Government reserve the right to act decisively through legislation such as Finance Bills when they need to take steps to protect the public finances.”
“Let me answer the hon. Gentleman’s question by agreeing that clause 18, given the way it is worded, applies only to banks. Clearly, it was introduced in response to the fact that the scale of bank compensation, to which I referred in my opening remarks, has been so significant. More than £25 billion has already been paid out, which has had a material and meaningful impact on the corporation tax receipts of Her Majesty’s Treasury. We have always been clear that we want banks to make a fair contribution to their historic costs and their potential impact on future risks to the economy. The hon. Gentleman asked about compensation relating to the Volkswagen emissions scandal, which, as he is right to highlight, is a complete scandal. There is currently no intention to extend this measure.”
“My hon. Friend speaks with great insight and authority from his position on the Select Committee on the Treasury. I can explain to him that these measures are designed to tackle the material costs of compensation that are reflected, or provisioned for, in a bank’s accounts. In addition to that, a further 10% for the general costs of administration is attached. Were the costs that my hon. Friend refers to significant enough to require provision in the company’s accounts, they would be captured by this measure. Question put and agreed to. Clause 18 accordingly ordered to stand part of the Bill. Clause 19 Banks established under Savings Bank (Scotland) Act 1819: loss allowance Question proposed, That the clause stand part of the Bill.”
“Clause 20 aligns the definition used within tax legislation with those changes, and so ensures that investment banks supervised by the FCA remain within the definition, in line with the stated policy objective. The amended legislation will continue to apply to the same population and will continue to operate in the same manner. Clause 19 represents a narrowly targeted change to the loss restriction legislation to ensure that it applies consistently across similar institutions. It is consistent with existing policy and immaterial in terms of sector-wide tax receipts. Clause 20 is a technical change to the bank tax legislation to ensure that it remains appropriately targeted and appropriately aligned with regulation.”
“That includes the bank levy, a tax on banks’ balance sheet equity and liabilities. The measures also include a restriction on the amount of profit that banks can offset by carried-forward corporation tax losses. These policies, which will have raised over £30 billion in total by 2020-21, rely on there being a suitable definition of a bank within tax legislation. That definition needs to be able to take account of the differences between retail banks, investment banks and building societies. The current definition, which is based on regulatory concepts and supervision responsibilities, has been successful at targeting tax measures in accordance with the Government’s policy objective. However, as part of the modernisation of financial regulation, there have been recent changes to the regulatory terms used.”
“It has been brought to the Government’s attention that this provision does not accommodate banks incorporated under the Savings Bank (Scotland) Act 1819, which share many of the same characteristics as building societies and thus have the potential to be affected in the same way. The changes made by clause 19 therefore address that by ensuring that, from its inception, the legislation applies fairly and consistently across the sector. The changes will have a negligible impact on tax receipts. The independent OBR still forecasts that the loss restriction will increase banks’ tax payments by around £4 billion across the next five years, helping to ensure a fair deal for the taxpayer. I will now turn briefly to clause 20. The Government have taken a number of steps to ensure that banks make a fair contribution to the public finances.”
“Legislation was included in the Finance Act 2015 to restrict the amount of profit that banks and building societies can offset with historical losses to 50% from 1 April 2015. This is designed to reduce the sensitivity of corporation tax receipts to losses incurred by banks during the financial crisis and subsequent misconduct and mis-selling scandals. The loss-restriction legislation includes a special provision for building societies, meaning that the restriction applies only to profits they make in excess of £25 million. That reflected a concern that the smallest building societies could otherwise be disproportionately impacted by the restriction, due to the fact that they are non-profit maximisers and reliant on retained earnings to build regulatory capital.”
“The changes made by clauses 19 and 20 ensure that special provisions for building societies in the loss-relief restriction legislation extend to savings banks, which share many of the same characteristics. This is a very narrowly targeted change to the legislation to ensure that it applies fairly across the sector and delivers on its stated policy objectives. Clause 20 makes a change to the definition of a bank for the purposes of bank-specific tax legislation, helping to ensure that it is aligned with regulation and delivers the intended policy outcome. Let me start by explaining the background to clause 19. When a company makes a loss for corporation tax purposes, it is entitled to carry forward that loss and offset it against taxable profit arising in future periods.”
“The hon. Gentleman is absolutely right that, where possible, we always try to ensure that this type of legislation has no retrospective effect. He is also right that that is an important principle that we apply in dealing with such Bills. However, I can reassure him that, as he will see from the impact assessment, there will be no change to the effect of the legislation in terms of its financial impact. The legislation will continue to apply to the same population as before and will continue to operate in the same manner. He is right to raise a general principle that we would seek to observe with regard to the Bill, but in this example, because the institutions in question are already being treated in this manner for tax purposes and for regulatory purposes, it is simply a case of the legislation catching up with the real world.”
“The wording in the legislation is being changed to reflect the way in which the system has been operating, and so the change will have no material or measurable impact. Given the regulatory changes that came into effect with the Finance Act 2012, the legislation was ambiguous, so I would describe the change as a clarification of the wording to provide certainty in the legislation to match what has been happening in the real world.”
“The Government are now going further, and hon. Members will recall that the Chancellor announced in the summer Budget that that saving would be increased to £3,000 from next April. That means that a business will be able to employ four people full time on the national living wage and pay no national insurance at all. From April 2015, the vast majority of employers employing under-21-year-olds were lifted out of employers national insurance as well. The exemption will be extended to cover apprentices under 25, helping young people to stand on their own two feet and fulfil their aspirations.”
“I beg to move, That the Bill be now read a Second time. This Bill implements our manifesto commitment not to increase national insurance contributions for employers and employees. It will be interesting to discover whether it will be opposed by Her Majesty’s Opposition now that their new leader favours a 7% increase in national insurance for higher earners. Hon. Members will be aware of the Government’s strong record of significantly reducing the burden of national insurance. At Budget 2011, my right hon. Friend the Chancellor announced a £21 a week above-inflation increase to the employers national insurance threshold. In 2014 we introduced the employment allowance to support businesses and charities across the UK by saving them up to £2,000 every year, and that has already benefited well over 1 million employers.”
“My remarks will be so short that hon. Members will need to intervene quickly with their points of clarification on this five-clause Bill. The hon. Lady will be aware that in the summer Budget the Chancellor announced that we are asking the Office of Tax Simplification to look at class 2 and class 4 contributions. We are expecting that consultation, which opened on 21 July, to inform the Budget next year. She asks a sensible question and I welcome her curiosity.”
“We are very pleased that we are backing those who want to take a chance, start their own business and become self-employed. In fact, we have taken measures in previous Budgets to simplify the process so that self-employed people can consider making those contributions alongside their self-assessment.”
“I am delighted to hear the first bid from the Opposition not to freeze national insurance for employers and employees. As the hon. Gentleman will know, national insurance contributes a substantial sum to the Exchequer and we have committed as a Government to continue to increase the amount of money that goes into the NHS.”
“Of course, the impact of freezing national insurance for employers and employees is that throughout the life of this Parliament they can have the confidence that their national insurance rates will not change—a confidence they would not have if the hon. Gentleman had any say in it.”
“I thank the hon. Lady for her sensible suggestion. I know that those who put together the impact assessment online will have taken her wise words to heart and will make a change. Clearly, when one brings in legislation to freeze national insurance rates, the impact is that there is no change in national insurance and therefore no impact to report.”
“I thank my hon. Friend for making that excellent point. The Government want to back small businesses, entrepreneurs and those who want the certainty over the next five years that if they employ four people on the new national living wage, they will not have to pay any national insurance because of the employment allowance.”
“When one starts out in business, it is often the case that one earns a small amount, but it is those fantastic people who start businesses, often at their kitchen table, whom the Government are trying to back with the measures in the Bill, which will give them a certainty that they would not have if Labour were in charge.”
“I certainly agree that the Government are keen to take steps to back an economy that continues to grow and to create jobs so that everyone can have the dignity of taking home a pay cheque or starting their own business. We have taken other steps in the Finance Bill to raise the amount that people can make before having to pay income tax, and that is what this Government stand for.”
“That is an extraordinary line of attack. The Government have nearly doubled the personal allowance—the amount that people can make before they pay income tax—from the £6,475 that the hon. Gentleman thought was appropriate at the end of the 2010 Parliament. That is what this Government stand for.”
“That gives me a welcome opportunity to state that every Labour Government in history has left office with more people out of work than when they came into office. This is the party of working people and we created many jobs during the last Parliament, which no one expected, and we continue to back businesses and their growth through this Bill.”
“My hon. Friend’s point is well made, because in North Dorset and around the country it is the small and micro businesses that are the engines of job creation. That is why the employment allowance is so important—it will mean that a small business taking on its first employee will not have to pay employers national insurance at all under this Government. Indeed, if every small business took on just one extra employee, we would have full employment. That is why the Government back small businesses.”
“My hon. Friend is right. The Bill’s measures strongly back business and other employers, many of whom will benefit from the employment allowance too. The Bill legislates our commitment to provide certainty on national insurance rates for the duration of the Parliament. Hon. Members will be aware that our other commitments in the manifesto to lock taxes were that we would not increase the main rates of income tax and value added tax, as well as not increasing national insurance. The Finance Bill will deliver those commitments and this Bill delivers the commitment on national insurance.”
“My hon. Friend is correct. In the summer Budget, the Chancellor announced a consultation on behalf of the Office of Tax Simplification. It is currently undertaking its work. I expect my right hon. Friend to take its recommendations into account in due course. Turning to the detail of this five-clause Bill, it provides that the rate of class 1 national insurance contributions paid by employees and employers must not exceed existing rates.”
“The Bill provides certainty for employers and for employees that the national insurance rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament, and that the upper earnings limit will not exceed the higher rate threshold. The Bill demonstrates the Government’s commitment to provide certainty on tax rates for the duration of this Parliament. I commend it to the House.”
“That is not a cheeky question; that is a very sensible question. It is indeed the case that we will still be able to reduce levels of national insurance. This is only a ceiling, as is noted in the Bill’s title. It has been the convention that the level of the upper earnings limit for national insurance is aligned with the level of the higher rate threshold for income tax. The Bill formally limits increases to the upper earnings limit, so that its annual equivalent amount cannot exceed the level of the higher rate threshold for income tax. Both the restriction on national insurance rate rises and changes to the upper earnings limit come into force on Royal Assent and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.”
“Will the hon. Lady confirm that in her party’s manifesto, on which she just stood, there was a similar commitment not to increase national insurance rates, yet the new leader of her party has stated publicly that he would like to increase them by 7% for higher earners?”
“Madam Deputy Speaker, may I seek your guidance about whether we ought to be discussing something that Parliament settled last week or the Second Reading of this Bill?”
“As the insurance market is competitive, customers affected by the change can shop around to find a policy that best fits their needs.”