‘(1) The Chief Executive of the Financial Services Compensation Scheme shall, within six months of Royal Assent of this Act, publish a review of the protections necessary for customers who make payments to any bodies corporate on the understanding that such payments are deposits in a saving scheme.

(2) The review in subsection (1) shall include consideration of any consequential reform to creditor preference arrangements so that any payments made in advance as part of a contract for the receipt of goods or services (such as gift vouchers, certificates or other forms of pre-payment) in expectation that those sums would be redeemable in a future exchange for such goods or services might be considered as preferential debts in the event of insolvency.’.—(Cathy Jamieson.)

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following:

New clause 16—Review into extending the Financial Services Compensation Scheme to cover Small and Medium enterprises—

‘(1) The Treasury shall arrange for a review of the impact of extending the Financial Services Compensation Scheme to cover deposits of private non-financial corporations with an annual revenue of less than £20 million.

(2) The review must consider in particular—

(a) the impact on the Financial Services Compensation Scheme in the event of a bank’s insolvency,

(b) the impact on the British economy of extending the scheme,

(c) the impact of protecting different percentages of private non-financial corporations’ deposits.

(3) The review must be completed during the period of six months beginning with the date on which this Act comes into force.

(4) The review must result in a report to the Treasury.

(5) The Treasury shall lay a copy of the report before Parliament.

(6) If the review recommends further reviews the Treasury may arrange for the further reviews.’.

New clause 21—Financial services compensation scheme extension—

‘(1) Section 213 of FSMA 2000 (The compensation scheme) is amended as follows.

(2) In subsection (1A)—

(a) omit the “and” following paragraph (a),

(b) after paragraph (b) insert—

“and

(c) that where a relevant person operates under more than one brand, the compensation scheme applies to each brand as if each was a separate authorised person.”.

(3) In subsection 3—

(a) omit the “and” following paragraph (a),

(b) after that paragraph insert—

“(aa) to extend the limit of any compensation payable to persons making a claim in appropriate circumstances where the loss exceeds the limit that would otherwise apply as a result of a temporary high deposit, and”.’.

It is a pleasure to be back here in Committee after Easter. I look forward to further consideration of the Bill today, and I am sure that we will make good progress.

The group of new clauses deals with some issues on which we feel we need further action to ensure that customers and consumers are protected. New clause 2 deals with protections for customers who buy vouchers. New clause 16 seeks a review into whether the Financial Services Compensation Scheme should do more to prop up small and medium-sized enterprises. New clause 21 deals with extending deposit insurance to cover accounts, the balances of which temporarily exceed £85,000. There are also issues regarding different banks having different brands in the banking family and ensuring that consumers receive more protection.

I will start with new clause 2. We know that the collapse of the Farepak scheme caused huge problems for many individuals and families. Many consumers believed that they were in a savings scheme and never questioned whether the funds that they put in were at risk. The money proved to be at risk and that caused real difficulty for people.

The reforms announced last year to enable the FSCS to protect Christmas clubs and other funds in some circumstances are helpful, particularly in cases where the financial institution holding the money fails, but the Christmas club provider continues to operate. All customer cash will now be kept in Financial Services Authority-authorised bank accounts. The reforms have taken place following talks with the Christmas Prepayment Association, the trade body that looks after that particular issue, and mean that up to £85,000 of an individual’s money will be protected by the FSCS if the bank or building society fails.

However, the reforms in themselves would not have saved the cash in Farepak, and they will not save cash held in another Christmas club should it fail in future. The new clause would require the head of the FSCS to publish a review of the current protections, to look at them right across the board, and potentially to consider reforms that would assist people who pay into customer savings schemes. We want the review to consider whether such payments should be regarded as preferential debts if a firm became insolvent.

I know that there are different views on that issue. Particularly, there have been concerns about whether, by making customers who pay into those schemes  preferential creditors, a firm might not be able to make redundancy payments or deal with staff. I understand the concerns about that, but the new clause does not specify what ought to happen; it seeks a review and some work on such issues. It states that there ought to be a review to look at the matter in more detail.

The need for the new clause arises from the difficulties caused by several high-profile collapses in the aftermath of Farepak. We saw the situation with HMV, where gift cards and vouchers worth millions of pounds were initially declared worthless when the chain collapsed earlier this year. That caused a real problem, because it appeared that HMV had continued to sell gift tokens and cards after warning investors last December that it had a problem. The issue was raised by Richard Lloyd, the executive director of Which?, who described the situation as “outrageous”, and said:

“We want the rules on gift vouchers and insolvency to be reviewed to ensure consumers are adequately protected in cases like this.”

There was a lot of public pressure at the time, as a result of which the company ultimately decided to honour the vouchers.

I have already mentioned Farepak and I do not want to go into all the details, but it is worth recalling that its collapse left more than 100,000 people with total losses of some £57 million. In an inquiry into the Farepak case, a High Court judge criticised HBOS, which is now part of Lloyds, for taking a “hardball” attitude in dealing with the company. Of course, Lloyds ultimately contributed £8 million to the Farepak compensation fund, but I know from my constituents—many hon. Members will know this—that the compensation paid to people who were affected, many of whom were on low incomes, went nowhere near the losses that they suffered.

Sadly, several major high street names, including Comet, Jessops, HMV, Blockbuster and Habitat, have had problems or collapsed during the past two years. Which? looked into the situation, and I recall reading a post on its website by someone who had received Habitat vouchers as a wedding gift and was unable to redeem them. Such problems affect a wide range of customers: not only those who have paid into savings schemes, but those who have received gift vouchers, and both buyers and recipients of vouchers are left out of pocket. Those firms got into difficulties for different reasons, but the fact that the firms failed underlines the uncertainty faced by customers, who expect to be able to redeem the value of gift cards or savings schemes.

Many people involved in savings schemes were trying to do the right thing. They were trying to save in advance for Christmas or for other events rather than taking on debt and paying it off afterwards. We must take care to ensure that customers in similar situations can recover their money if businesses go bust and cannot honour their commitments. Such customers should not be left at the end of the queue if a firm goes under. Many individuals and families who were affected by Farepak and similar schemes felt that everyone was ahead of them in the queue to get some sort of justice, which is why we have tabled the new clause. We have chosen our language carefully to address the concerns that have been expressed. We are not being prescriptive  or specifying exactly what should happen, but we are saying that the Government should consider treating people in such circumstances as preferred creditors. The new clause gives the Government the opportunity to take the matter away and look at it in more detail.

New clause 16 would require the Treasury to publish a review considering whether to extend depositor protection across all small and medium-sized enterprises. Under the current rules, the Financial Services Compensation Scheme generally protects the deposits and investment accounts of very small firms, although there is a cap on eligibility. A smaller company must meet two of the criteria set out in the Companies Act 2006, namely that the turnover must be

“not more than £6.5 million”,

the balance sheet total must be

“not more than £3.26 million” and the total number of employees must be not more than 50. Anybody who has experience or awareness of the SME sector will know that those criteria are quite restrictive, and they render many SMEs ineligible.

We are trying to emphasise the need to protect the people who have been trying to do the right thing. The owner of a medium-sized business could lose the proceeds of a life’s work in the event of a collapse of an institution that held their assets. People who have worked for years in the small business sector are the backbone of many local communities and, indeed, our economy. It is of concern to us that if SMEs lose confidence in the ability of the bank to hold their money, that not only has a knock-on effect on their circumstances, but could cause further instability.

When the Prime Minister launched the Conservative small business plan in 2008, before he was Prime Minister, he made the point that he wanted to ensure that the Government would be completely on the side of small businesses, and not kick them when they were down. In the Conservative manifesto, before the 2010 general election, he stated:

“small businesses are especially important to the UK’s economic recovery and to tackling unemployment.”

I do not often find myself agreeing with the Prime Minister. It is perhaps a dangerous precedent, even at this point, to say that I agree with him, but it is absolutely the case that—

Not everyone in the Cabinet agrees with him.

My hon. Friend says that not everyone in the Cabinet agrees with him, but I would say that small businesses are especially important to the UK’s economic recovery, as the Prime Minister has said, and therefore we ought to do whatever we can to try to support small businesses and ensure that they are given the protection that they need. We have tabled the new clause because we want an improved deposit protection system that will help them. I look forward to hearing what the Minister has to say about that.

There are serious issues within the clauses that will need unpicking. I will briefly set them out. New clause 21 covers savings brands. Under the current rules, if someone has more than one deposit account, which may include a current account, a savings account, a cash ISA or a  savings bond with the same authorised bank or building society, a total of £85,000 is protected under the Financial Services Compensation Scheme. If several brands share a deposit-taking licence, a consumer gets a total of only £85,000 of FSCS protection, even if they have savings with more than one of them.

Many customers taking out such products might not stop to consider which particular banks are all part of the same family. Indeed, I am grateful for the work done by Which?, because it has highlighted the dangers. It produced a very interesting graphic that showed the different brands that were linked to one another. There is a little quiz as well, so if people have not had the opportunity to test their knowledge of which brand belongs where, they can do that if they look on the Which? website. I think it is still there.

The new clause would extend the Financial Services Compensation Scheme limit to £85,000 for each brand, rather than for each bank. In the aftermath of the financial crisis, there are fewer banking groups and they are made up of a greater number of brands. Without going to that graphic on the Which? website, people will perhaps not be aware that the Bank of Scotland holds the banking licence for AA Financial Services, Aviva, Bank of Scotland, Birmingham Midshires, Halifax, Intelligent Finance, and Saga. Those pieces of information have been provided to us by Which?.

Consumers would be advised to spread their money across different financial services groups, but not all consumers will have thought it through or have had time to research who ultimately holds all the different banking licences for their account providers. Essentially, the new clause would provide more protection for consumers who hold several accounts across a banking group. We believe that that would boost consumer confidence and could help, in difficult circumstances, to prevent another run on a bank. Incidentally, research by Which? suggests that just 12% of people know how much of their money would be protected if their bank went under, so perhaps there is an educational issue and we should try to get more information out to consumers.

The new clause also deals with temporary high deposits. That is related to protecting SME accounts, but not exclusively so. The second part of the new clause seeks to address the risk posed to people who temporarily deposit a large amount of money in an account for transitional reasons. In our discussions in Committee, we have heard of scenarios in which that might happen, for example, on the day of house sale and purchase, or the sale of a private company. At that particular point, there may be an unusually high amount of deposit in an account.

The concern is that the high value of the account on one particular day could give a distorted impression of someone’s wealth. Because they would immediately be using that money to make a major purchase, such as a house, the money is not deposited there for the long term, and it would be extremely unfair if a lifetime of saving and investment in a house or business—we are talking about people who are trying to do the right thing: look after their finances and do as much as they possibly can to look after themselves and their families—was  wiped out and a high balance lost because it happened to be held temporarily in an account on the day of a bank collapse.

We do not look for banks to collapse—far from it. We want to ensure that the financial sector is stable, which is why we tabled several other amendments, but this new clause would give some comfort to consumers. The change could work in the form of an agreement between the bank customer and bank manager; the customer could normally give notice of a large sum of money due to enter their account, particularly in circumstances such as a house purchase. Indeed, Paul Tucker, the Bank of England’s deputy governor who deals with financial stability, said:

“Of course, retail deposits—up to £85,000 in this country—will continue to be insured.”

This is his crucial point:

“And we probably also need measures—possibly segregated accounts—that can protect the temporary high balances that arise when, for example, a person sells a house or receives a legacy.”

He said that in February 2012.

I realise that there are several issues with this measure, some of which will require further work and a look at the technicalities of how it can be taken forward. However, we are trying to stress the important principle of protecting consumers. We want to ensure that those people who are trying to do the right thing by saving and managing their finances appropriately, or businesses that are trying to contribute to the country’s economy and growth, or people who, for whatever reason, have a high amount of money in their accounts on a temporary basis—for only a day or a couple of days—get the maximum protection.

I hope that the Minister will give us some assurance that he is prepared to hear what we say on the principles of this measure. He may have issues about how the new clauses are drafted and he may wish to consider them further, but I look forward to hearing what he has to say.

It is very nice to be back in Committee. It has been an eventful Easter recess, not least for my hon. Friend the Member for Carlisle, who got married. I am sure that the Committee will want to congratulate him on that.

What a honeymoon!

Indeed, I hope that this does not qualify as his honeymoon, and that he enjoyed a more companionable honeymoon with his wife.

It is a pleasure to respond to the new clauses tabled by the hon. Member for Kilmarnock and Loudoun. They concern an important part of the confidence that we all want to see in the financial services sector, which is underlined by the Financial Services Compensation Scheme. The events in Cyprus in recent weeks show the great importance of confidence. When confidence in savers’ protection is knocked, the consequential worry and the leakage of confidence in the whole system are great.

Let me deal with new clause 2 first. I have a great deal of sympathy with the motivation behind it. The hon. Lady is well known in this House as a powerful advocate of the interests of the victims of Farepak. Many of  those victims are her constituents, but she has gone beyond that. As she said, the new clause is also relevant to consumers holding gift vouchers, especially in funds that have gone into receivership, and other schemes into which people paid money in advance.

Several measures, which I will talk about later, can be adopted. However, there is a particular difficulty with the new clause. It refers to the Financial Services Compensation Scheme, which is within the scope of the Bill. The difficulty is that pre-payment schemes and gift voucher schemes are not legally financial services, and are not regulated by the Financial Conduct Authority. They are, in effect, advance payments for goods and services. They are different from deposits, and are part of the framework of company law and the transactions associated with that. That fact is relevant for a number of reasons, most particularly because the FSCS can by law deal only with financial services that are regulated by the FCA and the Prudential Regulation Authority. Indeed, it would be against the law for it to deal with payments on account.

The relevant piece of law is section 213 of FSMA, which gives the FSCS jurisdiction over “relevant persons”, who are defined later in the section as “authorised persons” under the FSMA framework, or “appointed representatives”. That is the difficulty with the new clause, but I am sure that the hon. Lady anticipated that the drafting is less important than the point she seeks to get across. Given that it is in everyone’s interest to provide greater protection for people who, reasonably and in good faith, think that they are doing the right thing—as the hon. Lady said—by putting money aside for future expenditure that they expect to incur, it seems to us that they should enjoy a degree of confidence in those arrangements.

The new clause would cause the FSCS to instigate a review. I can tell her that the Government have instigated such a review through the Department for Business, Innovation and Skills Business, which is responsible for the non-financial services that savings schemes fall into. Discussions are taking place, as part of the review, with industry and consumer groups on establishing a code of practice, mutual industry support schemes and other initiatives. I am sure that my ministerial colleagues in BIS will be happy to report to the hon. Lady on the progress of that review, and there will be occasions elsewhere in the House for her to probe it further. I want to reassure her and make sure that she is aware that we are alive to this important matter. If the Bill is not quite the right vehicle for it, there are others that we will consider.

Let me move on to new clause 16. The rules governing deposit protection at the EU level are set out in the deposit guarantee scheme directive. That is why this country’s £85,000 limit for the Financial Services Compensation Scheme is the approximate equivalent of the €100,000 limit that applies in the directive. The definition of small and medium-sized enterprises that the hon. Lady referred to, which provides that SMEs should be treated as ordinary, personal depositors, mirrors the EU definition, just as the £85,000 domestic limit reflects the €100,000 limit, so there is consistency, which is required under the directive.

However, all the points that the hon. Lady makes are quite right and well made. Given her admiration for the Prime Minister’s determination to help small businesses,  which is a delight to hear, I am sure that she will be pleased to learn that we expect to be able to go further than is currently possible in the FSCS. The EU directive is being renegotiated, and there is a proposal, supported by the UK, to extend to all non-financial businesses, regardless of their size, the protections of the deposit insurance scheme, up to the limit of £85,000. The process is well in train, and we are enthusiastically supportive of it, so I hope that the hon. Lady will draw comfort from that and find yet another reason to join in the praise of the Prime Minister’s sagacity and far-sightedness.

Turning to new clause 21, as I have just said, all member states’ deposit guarantee schemes must comply with the provisions set out at EU level in the deposit guarantee schemes directive. That sets out a maximum harmonised provision, which, as my hon. Friend the Member for North East Somerset will know through his experience of the European Scrutiny Committee, is a particular feature of European legislation. It means that we cannot go beyond that level—the £85,000 equivalent is the maximum that can be provided in the UK.

I have just said that the directive is being renegotiated. It is indeed contemplated in the text that is currently being negotiated that some aspects will be relaxed in future. The hon. Member for Kilmarnock and Loudoun quite rightly made two points about consumers who have deposits in different brands, albeit under the same banking licence. It should not be necessary for them to have to root through the small print to discover whether one particular brand of retail deposit taker is related to another. That should not be the responsibility of consumers. It is contemplated that in future the limit will be by brand. Indeed, on the point made by Paul Tucker about temporary large balances, again, it is contemplated that cover will be given.

It is helpful to hear the Minister’s points. Will he give us an indication of the time scale on which it is likely that these matters will be dealt with?

As ever with European debates and issues, it is difficult to give an exact timetable, but there seems to be fairly strong consensus around the provisions. Having been at the ECOFIN meeting in Dublin this weekend, I know that the Irish presidency is particularly keen to conclude many of these outstanding dossiers, especially where there is broad agreement. Although I cannot give the hon. Lady an exact time, there is certainly some momentum.

Given that the Bill has some way to go in this House and the other place before it receives Royal Assent, and that some of its provisions come in later than that, even if it were possible for the Bill to go beyond that level, which it is not, for the reasons I have said, I do not believe that that would offer any timing advantages over what is being pursued in Europe. However, as soon as we have authorisation under the deposit guarantee schemes directive, we will implement the provisions relating to the Prudential Regulation Authority, and we will certainly look to use any flexibility there. I hope I have been able to reassure the hon. Lady on those points, and that she will withdraw her new clause.

It is a pleasure to serve under your chairmanship, Dr McCrea. I support this group of new clauses; in fact, I had  prepared a long speech on the subject—I exaggerate—but in light of what the Minister has said, I will keep my comments brief. I welcome his comments and the intention that has been stated.

With regard to new clause 2, I want to emphasise the issue of vouchers; it is great that there is so much consensus on that issue, but it is important to emphasise that the consumers affected are ordinary people for whom £100, £200 or £300 is a lot of money. It would be great to see those people being protected, so I urge the Minister to make sure that, in whichever way possible, they become preferred creditors and are compensated; they should be at the front of the queue, not the back, when it comes to compensation.

On small and medium-sized enterprises, I would emphasise that, as everybody on the Committee knows, small businesses are the backbone of our economy. They employ about 14 million people, and it would be great if the European directive that is being renegotiated was changed so that many more firms could be protected. At the end of the day, although that would cost some extra money, it would save very many jobs and keep the economy going, and it would therefore be a good measure to have in place.

On new clause 21, it is important to remember that a lot of ordinary people do not realise the differences between brands. They may amass £10,000 in their current account and £15,000 in their individual savings account and so on, but at the end of the day, they will find that they will be compensated only for sums up to £85,000. We are talking about hard-earned money they have saved over many years. A lot of people do not quite appreciate the differences between brands and would find that they were not properly compensated. It is important that the provisions try to deal with the needs of ordinary consumers and small businesses with limited incomes. I urge that strong negotiations are carried out as soon as possible, so that the £85,000 is per brand, as opposed to the total amount that people can be compensated for.

I am grateful for the hon. Lady’s points, which reinforce arguments that have been made very well this morning. In our deliberations, we ought to have small depositors particularly in mind; they have—often with some difficulty—scrimped together savings for the future, and do not have a buffer to fall back on if savings are lost. It is important that the arrangements we put in place pay particular heed to their needs. In terms of the pre-payment schemes, we will do that through the corporate legislation and the arrangements that can be entered into with companies. I strongly agree with her description of small businesses as the backbone of the economy; again, that is a phrase that my right hon. Friend the Prime Minister could use, and probably has done. We certainly have that issue in mind. On brands, small depositors ought to feel that arrangements that are put in place merit their confidence; there should be no messing around with those arrangements. The situation in Cyprus teaches us the very clear lesson that the spirit of commitments proposed and entered into should be honoured, as well as the letter.

The hon. Member for Kilmarnock and Loudoun asked about the publicity surrounding the protections that are available to try to make consumers aware of the  £85,000 protection limit. The FSCS has a marketing campaign planned throughout the year, with branding in each bank branch, and on publications that banks issue, to reinforce this. In the light of what has been said in Committee about the importance of that, I am sure that FSCS staff, who I am certain will read this debate, will pay particular attention to the need to communicate that information.

I thank the Minister and my hon. Friend the Member for Bolton South East for their contributions. People who read the Official Report will be interested to see exactly what is being supported here, and the arguments that we are trying to advance. The Minister said that he was in sympathy with the intent of new clause 2. In my opening contribution I recognised the technical issues around the clause, which is why, notwithstanding my instinctive desire to push things like this to a vote, I will not do so this morning. However, people out there in the real world, who are perhaps not au fait with the fine detail of the workings of the FSCS or why it is not the right body to do this, just want something to happen to ensure that the protection is there in future and that we avoid a repeat of past scenarios.

I am grateful to the Minister for highlighting that work is under way on this, that discussions are taking place with the industry, that there is talk about establishing a code of practice, and that we can receive further reports on progress in relation to that. If more detail were to emerge as the Bill progressed, that would be extremely helpful. People will not necessarily be thinking in advance of the technicalities—about whether something is a pre-purchase, advance payment or savings scheme. More information is needed in relation to that. They simply need to have confidence that whomever they trust with their money will be held to account if something goes wrong, and that they will not lose out when they put their money into schemes. I hear what the Minister says on that issue. Tempted though I am to show the strength of feeling that there is on the subject, I will not press the new clause to a Division.

I was interested to hear the Minister’s comments on new clause 16. He talked about the work done at EU level; it was fascinating to hear his enthusiastic support for that institution taking forward some of the protections that are needed.

I do not think that indicates enthusiastic support for that institution. Many people would prefer that we made the decisions in this House; then we might be able to make them today, rather than waiting for our European friends.

I am glad I gave way to the hon. Gentleman. I could see him, earlier, itching to find a point to come in on. He makes a point, which is why I raised the issue of the time scale in which we can expect something to happen. It is important that the work that is under way does not disappear into the long grass. I am sure the Minister would not wish that to happen, either. I do not know whether he was enthusiastically supporting the institution or the work.

May I clarify the point? What I said, perhaps with undue modesty, is that our proposal in the EU discussions is that the provisions be taken forward. It looks like the EU is seeing the light and following the UK’s suggestion. I am praising our contribution, rather than that of the institution.

I thank the Minister for that clarity. I am sure that in future discussions and negotiations on the issue in that institution, the Minister will be keen to take the support of the Committee forward. We do not need to press the new clause to a vote for that. The view is that this action ought to be taken. I hope the Minister will do all he can to ensure that the matter is taken forward on a time scale that gives the maximum protections to those who need and deserve them.

On new clause 21, the Minister talked of the work going on at EU level. I was pleased to hear him say that individual consumers should not have to root through the small print to work out which banks are linked to which brand, and that it should be ensured that the bodies organise that level of detail. I also take on board what the Minister said about a marketing campaign for the FSCS about its responsibilities. It is important to stress that those protections need to be put in place quickly. I hope this will not disappear into the long grass. I am sure the Minister would not wish that, and will do all he can to ensure that the correct protections are put in place.

We will have further opportunities during the passage of the Bill to get updates on progress. If we do not feel that progress is quick enough, we can press the Minister on that point at various stages.

The point that my hon. Friend just made is particularly important in the context of supermarkets advertising and selling their services as banks in their own name. However, they are fronting for other banks. That is why these points need to be clarified, so that people know where they stand in relation to the deposits they are paying, and what the direction is.

My hon. Friend makes a valuable point. As he said, more supermarkets and other organisations are offering ranges of financial products. People may not go through the fine print to discover which bank is linked to which supermarket or combination of organisations. It is important that the issue does not drift, and that there is continued pressure to ensure that consumers are given the protection they need. I hope the Minister will continue to press on that. With those assurances from the Minister, and assurances that there will be the opportunity to raise the issues later, if necessary, I beg to ask to leave to withdraw the motion.

Clause, by leave, withdrawn.