Diversity

Bank of England and Financial Services Bill [Lords] – in a Public Bill Committee at 12:15 pm on 11 February 2016.

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Question proposed, That the clause stand part of the Bill.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

The clause shows how valuable it can be for Ministers to have their Bill start in the House of Lords, given that we often find that we benefit from their insights as the Bill proceeds through the other place, particularly on subjects on which their lordships have so much wisdom.

The clause amends the general regulatory principles that apply to both the Financial Conduct Authority and the Prudential Regulation Authority. That is a direct way of ensuring that the regulators fully consider the differences between types of business, including—importantly—mutual institutions, across the breadth of work that they undertake, when it is appropriate to do so. The clause makes it clear that both regulators must take into account the differences between the varying forms of business organisation adopted by firms, including —importantly—mutual societies, where appropriate whenever they are discharging their general functions.

I hope that introducing the clause, which puts consideration of mutuality and other types of business organisation into the regulators’ guiding principles, provides reassurance that the Government strongly support a diverse financial services sector and the part that mutuals play in achieving that. We are building on previous action that the Government have taken to support the sector, including: carving out the building societies from the Independent Commission on Banking ring-fencing regulations; increasing the maximum interest rates that credit unions may charge on loans from 2% to 3% a month; spending £38 million in the credit union sector through the Department for Work and Pensions credit union expansion project; and ensuring that universal credit and pensions payments may be paid into a credit union account.

Moreover, Government support for the Mutuals’ Deferred Shares Act 2015, which received Royal Assent in March 2015, underlined our commitment to fostering growth and competition in the sector by seeking to address mutual insurers’ inability to access external capital without the need to demutualise.

Clause 19 provides a further step to ensure that regulators fully consider the particular issues that relate to mutual institutions and other forms of business across all their work. It highlights the role of mutual financial institutions in the UK’s evolving financial services marketplace and ensures that, where appropriate, the specific challenges that the mutuals sector faces are taken into consideration when the regulators are discharging their general objectives.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

We on the Labour Benches—I do not know about colleagues in the Scottish National party—welcome clause 19. I say that as someone who first joined a credit union more than 40 years ago. Diversity is important in the financial sector, as in many sectors. The parallel that some of us may remember from our schooldays is crop rotation, for which we need ecological diversity. If we go for monoculture with crops, it is seriously bad news if a pest comes, because our one and only crop is gone.

There is a parallel with financial institutions. By and large, the mutuals sector, including building societies, fared better than mainstream, privately owned banks in the crisis. Where there were problems, in particular, was with some former building societies that had demutualised. I say that as someone who voted against demutualisation for at least three building societies. Two of those were the Staffordshire and the Cheltenham & Gloucester. We lost both of those, but we won with the Nationwide building society—it is still a mutual, and I still have an account there. It is a very big mutual—a very big financial institution. At the other end of the spectrum are institutions such as the Wolverhampton credit union—I am not sure what it is called now, because it keeps changing its name—of which I have been a member for many years. Compared with the Nationwide building society, it is a very small institution, but that is part of diversity.

I am pleased that this Government and their predecessor, the coalition Government, have embraced diversity. The Minister mentioned some of the things that have been done: the £38 million for credit unions and the £2 million. I salute the work that the coalition Government did, and that I hope this Government will continue to do, in relation to the mutuals sector. For example, the previous Government supported disclosure of lending data by the main high street banks to understand patterns of lending across the UK. There has been the lowering of barriers to entry to the financial services market to help to increase competition—challenger banks and so on. I do not think that the Minister mentioned the good work on schools-based financial literacy programmes, which were brought in. That is not directly about mutuals, but it has to do with that concept of a broader view to financial services than simply the high street banks.

A few more things need to be done, and if you will indulge me briefly, Mr Brady, I will mention one or two of them. I am indebted to the Community Investment Coalition for some of these suggestions. A review of existing affordable financial tools would assist, as would supporting and encouraging FinTech innovation, which the Government are starting to do—it is likely to be a growing sector—but it needs to be done in a way that will also benefit people on lower incomes. Also needed is a clear direction to economic regulators—something we discussed in our debate on the previous clause—to ensure that the financial services market provides easily understandable and appropriate products. There is a constant battle there, because products keep mutating and so on. Broadening and strengthening the existing voluntary framework for disclosure of lending data would take further what the Government have already done.

It would be useful to have stressed by the Government—practising some of their recommendations to the FCA, not directions—the value and importance of community finance. They need to ensure some competition and diversity in the financial services sector, which should benefit all communities if it works properly. A review of community finance provision across the UK would be very helpful to identify where there are strong and sustainable community finance providers, but also where there are gaps in provision. Again, that would be carrying on the work of the previous Government, which this Government, in their nine months, have carried on with clause 19 on diversity.

The final suggestion is about trying, inasmuch as Government can, and they have a role to play—the Minister mentioned the £38 million for the credit union sector given by the previous Government—to scale up the community finance sector. For example, there could be assistance with investment in IT infrastructure—not the FinTech stuff, just IT infrastructure for the community finance sector. Computers are still quite expensive, let alone programming and so on. If the Government could assist with that, with their push towards diversity, as exemplified in the clause, that would be very helpful.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury 12:30, 11 February 2016

I will respond briefly because we are now in an area where harmony is breaking out. I welcome the hon. Gentleman’s comments on diversity in the financial sector and the points he made about community finance. That is something we feel strongly about. He mentioned some of the aspects such as the challenger bank agenda. He did not mention the new bank unit that has just been set up between the FCA and the PRA, shortly to be the PRC.

The hon. Gentleman did mention the importance of affordable financial tools. We have set up the financial advice market review, which is designed to make advice more affordable and accessible. He also mentioned FinTech, and we are enthusiastic about ensuring that the UK remains the best place in the world to locate a FinTech business. We are seeing a dramatic growth in that sector at the moment. He will also be aware of the importance of the peer-to-peer sector in providing community finance across the country, and what we are doing to encourage that.

There is a range of different things and he highlighted some of them. Interestingly, he mentioned a review. I am not convinced by that idea, based on the fact that in the 13 years of Labour government there were 20 reviews into competition in banking, but only one new bank was set up. In the previous Parliament, eight firms got banking licences, and we have set ourselves the ambitious goal of 15 new firms to get banking licences during the course of this Parliament. That is something we are very focused on and I appreciated the hon. Gentleman’s comments on that.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20