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General Committees

Debated on Monday 17 December 2018

Delegated Legislation Committee

Draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018

The Committee consisted of the following Members:

Chair: Mr Virendra Sharma

† Abrahams, Debbie (Oldham East and Saddleworth) (Lab)

† Djanogly, Mr Jonathan (Huntingdon) (Con)

† Ellman, Dame Louise (Liverpool, Riverside) (Lab/Co-op)

† Glen, John (Economic Secretary to the Treasury)

† Gyimah, Mr Sam (East Surrey) (Con)

† Knight, Sir Greg (East Yorkshire) (Con)

† Lammy, Mr David (Tottenham) (Lab)

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

† Merriman, Huw (Bexhill and Battle) (Con)

† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)

† Smith, Jeff (Manchester, Withington) (Lab)

† Thewliss, Alison (Glasgow Central) (SNP)

† Turley, Anna (Redcar) (Lab/Co-op)

† Walker, Thelma (Colne Valley) (Lab)

† Whately, Helen (Faversham and Mid Kent) (Con)

† Whittaker, Craig (Lord Commissioner of Her Majesty's Treasury)

† Whittingdale, Mr John (Maldon) (Con)

Jeanne Delebarre, Committee Clerk

† attended the Committee

First Delegated Legislation Committee

Monday 17 December 2018

[Mr Virendra Sharma in the Chair]

Draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018

I beg to move,

That the Committee has considered the draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.

May I say what a pleasure it is to serve under your chairmanship, Mr Sharma? The Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying before Parliament statutory instruments under the European Union (Withdrawal) Act 2018 to deliver that, and several of them have already been debated in this place, and in the House of Lords. The SI being debated today is part of that programme. It was debated in the House of Lords on 28 November.

The regulations address legal deficiencies in the EU markets in financial instruments regulation and its accompanying directive; in the UK legislation implementing the directive; in other related domestic financial services legislation; and in EU delegated regulations. I will refer to those collectively as MiFID II. The instrument is extremely important for the financial services sector, as without it, essential components of financial services legislation would become inoperable, should the UK leave the EU without a deal. The approach taken in the legislation aligns with that of other SIs being laid before Parliament under the European Union (Withdrawal) Act 2018: it provides continuity by maintaining existing legislation at the point of exit, but amending deficiencies where necessary and introducing transitional provisions to ensure that it works effectively in a no-deal context.

MiFID II is a significant set of EU legislation that regulates the buying, selling and organised trading of shares, bonds and more complex financial instruments. It governs the practices of investment firms, exchanges and portfolio managers among others, and came into effect across the EU on 3 January 2018. One feature of MiFID II is that it requires buyers and sellers on financial markets to disclose data, such as price and volume information for their trades, to bring transparency to the process of price formation in financial markets.

Exemptions from those requirements are available in several cases, and formulae are used to calculate whether a trade may fall under an exemption. They are generally specified by reference to a proportion of pan-EU trading data. However, in a no-deal scenario, the UK may no longer have access to the pan-EU data that the European Securities and Markets Authority uses to calculate the appropriate thresholds. Calculating those thresholds at a UK-only level may create different thresholds in the UK and the EU. That may create opportunities for regulatory arbitrage and market disruption.

The instrument therefore grants the Financial Conduct Authority new flexibilities and a set of temporary powers, which will last for a period of up to a maximum of four years from exit day, to address certain operational difficulties that the FCA may face after exit. The powers will allow the FCA some controlled flexibility over how the MiFID II transparency regime is operated. The FCA’s temporary powers are required because the FCA will not be immediately ready on exit day to operate the transparency regime independently. One challenge facing the FCA is that it does not at present collect all the data that it will require to operate the transparency system on exit day. The FCA will need time to build appropriate IT systems to collect the data required to operate the transparency regime.

The FCA will also need to consider market movements in the immediate aftermath of the UK’s exit from the EU before it can estimate an equilibrium on which to base certain adjustments to the UK’s transparency regime. Accordingly, the FCA’s powers will include the ability to freeze certain pre-exit-day transparency calibrations, so that they have continued binding effect on exit day and for a period thereafter, until such time as the FCA can collect and produce its own data.

The FCA will also have temporary powers to suspend certain transparency provisions during the transitional period. For instance, it will have the power to stop the dark trading of shares, to ensure that such dark trading does not unduly harm price formation in UK markets. To be clear, the intention in granting the temporary powers is to enable the FCA to operate the transparency regime in the UK from exit day and beyond.

I am sorry, but I have not read the regulations, so the Minister may be able to help me. Do they also provide the FCA with the additional skills and resources it will need to undertake that rigorous and important role?

The hon. Lady is absolutely right to draw attention to the significant resources that will be required. The FCA has been in conversation with my officials in the Treasury, and we are reassured that it is in a position to do the work, and that it can do so under the provisions of the levy that it has.

Will the Minister confirm, for the avoidance of all doubt, that all the powers in the regulations are temporary and time-limited, and that the powers do not give rise to the right to increase taxation?

I can absolutely give my right hon. Friend that assurance. I will go on to set out some of the additional safeguards.

If the powers are temporary, it would be helpful to know what kind of regime we would have in the long term in the event of a no deal, and whether that would still make us competitive in this area.

This SI onshores the existing MiFID II regime under the terms of the European Union (Withdrawal) Act 2018. Circumstances that the Government do not wish for—no deal—would clearly necessitate additional legislation in the next Session. I am working with officials to develop that legislation, so that we would maintain the most competitive regime possible in a no-deal situation, but that falls without the scope of this statutory instrument.

Let me make sure that I fully understand. The no-deal context that we are talking about is the emergency of no deal, rather than a long-term settlement for a situation in which the UK does not have a deal with the EU.

In a no-deal situation, there will be a variety of scenarios with respect to the nature of our relationship with the EU; the calibration of our long-term competitive regime for financial services would depend on the calibration of that relationship, and legislation would be brought forward in the light of that.

I will make progress. To be clear, the intention in granting these temporary powers is to enable the FCA to operate the transparency regime in the UK from exit day and beyond, and to maintain existing outcomes, as far as that is reasonably possible. The 2018 Act does not empower the Government to make non-deficiency-related policy changes to EU legislation. If the Treasury is satisfied that the FCA is ready to undertake its transparency functions, the four-year transitional period may be ended earlier by the Treasury by the issue of a direction that must be laid before both Houses and published.

Some longer-term flexibility will also be given to the FCA to reflect the fact that it may not have access to pan-EU trading data after exit, and therefore may need to use reliable trading data from other countries when calculating certain transparency thresholds.

Given the extensive nature of the measure, could the Minister outline what further resources he has made available to the FCA to deal with this? Is there some sort of impact assessment of the FCA’s capability?

We have been working closely with the FCA for several months since the SI was published on 5 October. The FCA has discretion to increase its levy if it needs additional resources. That is not something it has communicated to us up to this point, but we have an active, ongoing weekly dialogue. That is a matter for it to bring forward in due course if necessary.

The report of the Secondary Legislation Scrutiny Committee, Sub-Committee B, which was published on 1 November, focused primarily on the transparency regime. It mentioned the adequacy of resourcing for the FCA to carry out its new responsibilities—an issue that has already been raised. The Treasury has been working closely with the FCA to deliver the programme of legislation. It is clearly important that the regulators be adequately resourced to deal with the impact of the UK’s withdrawal from the EU. I reiterate that I have full confidence that the FCA has the expertise required to run an effective transparency regime in the UK, irrespective of the outcome of the negotiations with the EU.

The FCA will also publish a statement of policy about how the temporary powers will be used before exit day. That statement of policy and any subsequent changes to it will come into effect only if the Treasury does not raise an objection to it on specified grounds. The Treasury may object to an FCA statement if it would potentially prejudice an international agreement that the UK hoped to reach, or if the Treasury believes that it may lead to a breach in international obligations. In a no-deal scenario, it is important that the Treasury is able to manage negotiations with international partners effectively. This objection mechanism is a sensible way of ensuring that.

Parliament will, of course, be able to scrutinise and question Treasury Ministers and the FCA further on their approach to the temporary powers—for example, through the Select Committee system—as Parliament does now. The SLSC report also noted that it would have been helpful if the FCA’s policy statement on the use of these powers had been made available to the House before this debate. That has not been possible, given the time the FCA needs to consider the drafting of such a statement. However, the FCA has provided assurance that a statement of policy will be ready at least four weeks before exit if the UK leaves the EU without a deal.

I turn to the other issues in this instrument. Currently, certain regulatory functions under MiFID II are carried out by EU authorities—principally, the European Commission and the European Securities and Markets Authority. The Commission and ESMA will, naturally, have no mandate to carry out these functions once the UK leaves the EU. Therefore, this instrument transfers the functions of the Commission to the Treasury and ESMA’s functions to the FCA and the Bank of England. It also transfers responsibility for making binding technical standards that specify the detailed regulations that firms must abide by from ESMA to the FCA, the Bank of England or the Prudential Regulation Authority. That is consistent with the approach set out in the Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018, which were debated in this House on 10 October 2018.

This instrument also deletes provisions in retained EU law that would become redundant when the UK leaves the EU, such as requirements regarding automatic recognition of an action by an EU body, and other references to EU bodies and EU member states. In line with the Government’s overall approach, this instrument removes obligations on UK authorities to co-operate and share information with European economic area authorities, although this does not preclude UK authorities from co-operating and sharing information with EEA authorities on a discretionary basis.

Another important set of revisions concerns the treatment of third-country regimes. Under MiFID II, certain elements of a third country’s regulatory and supervisory regime may be deemed by the European Commission to be equivalent to the requirements of MiFID. For example, under MiFID II, trading in certain instruments must take place on recognised markets. If a third country is deemed equivalent for that purpose, MiFID II allows trading to take place on those third-country markets. To ensure that the MiFID II equivalence regimes can continue to operate effectively in the UK after exit, the Treasury will take on the European Commission’s function of making equivalence decisions for third country regimes. Existing Commission equivalence decisions are also incorporated into UK law so they will continue to apply to those third countries.

I extend my earlier question to the capability in the Treasury. Are there sufficient skills and resources in the Treasury to undertake its new and additional roles?

Absolutely. I can confirm that those skills exist. New equivalence decisions issued by the Treasury will be laid before Parliament and will be scrutinisable.

To provide as much certainty to business as possible, the Government have introduced a temporary permissions regime, as set out in the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, which were made on 6 November. That will enable relevant EEA firms operating in the UK through a passport to continue their activities in the UK for a limited period after exit day, and will allow them to apply for UK authorisation, or transfer business to a UK entity, as necessary.

This instrument makes special provisions for EEA firms that intend to operate in the UK under the temporary permissions regime by ensuring that they will not be deemed in breach of the UK’s MiFID II rules if they can demonstrate that they comply with corresponding provisions in the EU’s MiFID II rules. This is necessary because, in the absence of such provisions, legal conflicts could arise that may impede the activities of firms operating under the temporary permissions regime in the UK in certain areas, and that may require them to comply with duplicative regulations.

This provision will apply only to certain provisions of MiFID II during the temporary permissions regime, and only where the EEA MiFID II requirement has equivalent effect to the UK MiFID II requirement. This instrument will also put in place transitional arrangements for data reporting service providers, which are entities that report details of transactions to regulators and publish information under the transparency regime.

Finally, under the transaction reporting regime in MiFID II, investment firms are required to submit a report to their national regulatory authorities following the execution of a trade. Those transaction reports are used by regulators to detect and prevent market abuse. UK branches of EEA firms do not send reports to the FCA, but rather send them to their home regulator, which can then share them between EU regulators. As we will no longer be part of that system, the draft regulations will require UK branches of EEA firms to report to the FCA, in the same way that UK branches of non-EEA firms are required to do. In addition, this instrument provides that firms must continue to report on trades in financial instruments admitted to trading, or traded, on trading venues in the UK and in the EU. That will maintain the existing scope for the monitoring of markets by the FCA and will minimise disruption and adjustment costs for firms.

The Treasury has been working closely with the FCA, the Bank of England and industry bodies—representing large and small firms—in the drafting of these regulations. The Treasury published the instrument in draft, along with an explanatory policy note, on 5 October 2018 to maximise transparency to Parliament, industry and the public, ahead of laying it before Parliament. Regulators and industry bodies have generally been supportive of the provisions in this SI.

To conclude, the Government believe that it is necessary to ensure that MiFID II continues to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will join me in supporting the draft regulations. I commend them to the Committee.

Good afternoon, Mr Sharma. As ever, it is a pleasure to see you in the Chair.

Once again, the Minister and I are in Committee to discuss Treasury-related statutory instruments that make provision for the financial regulatory framework after Brexit in the event that we crash out without a deal. On each of those occasions, my Labour Front-Bench colleagues and I have spelled out our objections to the use of secondary legislation in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation passing through Committee.

The frustration that we will spend time and resources creating a framework that might never be used is a point that has already been made several times in Committee. All of us hope that the draft regulations will never have to be used; no deal would be so seriously detrimental to the UK that it is hard to believe that it is anything more than a threat from the Government to try to force their deal through. However, we must recognise that the instruments passing through the Committee might well not disappear on 29 March 2019. Given the chaotic events of the past few weeks, we simply cannot treat lightly the possibility of no deal.

What we are doing today could therefore end up in real and substantive changes to the statute book, so the measures need proper, in-depth scrutiny. If the Government end up without a deal, we have to bear in the mind the stress that the financial markets would be under. We believe that the draft regulations must be considered through that lens, because they would certainly have to be robust.

Members of the Committee might be aware that this draft statutory instrument was originally scheduled for discussion on 28 November, but that was postponed. That is because the Opposition requested that a full debate take place on the Floor of the House regarding this transposition. As has been mentioned previously in these Committees, we must agree to about 70 Treasury-related SIs to ensure that markets do not grind to a halt in the event of no deal. The secondary legislation process contains, as a democratic backstop—if I dare use the word—the option for a debate on the Floor of the House. In the case of this instrument, we believe that to be essential. I will explain why.

I very much appreciate the efforts that the Minister personally and the civil service have made to brief us on the process, and the information that they have provided to us. Earlier today, in the Treasury, we had a most helpful meeting with the civil service staff working on this, as well with representatives of the Financial Conduct Authority. I understand that they are working extremely hard to draft this legislation in a tight timeframe, and I appreciate them taking the time to engage with us, but my conversation in the Treasury reinforced the enormous magnitude of the issues with which we are dealing in this Committee. We simply must have this debate on the Floor of the House, where Members may contribute and the issues can be discussed in the depth they deserve.

The draft SI is different in size and scope from those that have preceded it. The markets in financial instruments directive, or MiFID, as it is more commonly known, is a sprawling piece of legislation that affects our financial markets, from investment banks to retail investors. Now in its second iteration, named MiFID II, the directive has transformed pre and post-trade efficiency in the UK. It has progressed us towards more transparent markets, enshrined critical investor protection, and taken a tough line on inducements.

For anyone not so familiar with the recent changes, there was significant debate about what constitutes an inducement from a financial adviser to encourage an investor to buy a product or service. That resulted in sweeping changes to historical market practices, such as the bundling of free investor research by sell-side operators into execution relationships. We cannot allow any room for the UK to dial back on those measures, or any other measure that helps to improves the transparency and fairness of financial markets in the UK.

The volume of potential legislative changes from transposing MiFID has necessitated the production of a Keeling schedule, which Her Majesty’s Treasury has stated it will not draw up for any other SI. If the Government are going to the expense and trouble of producing such a schedule, it should form part of a proper process of democratic review that goes beyond the Committee Room. The shadow Leader of the House, my hon. Friend the Member for Walsall South (Valerie Vaz), made that point during business questions last Thursday.

I wonder whether anyone in the room has come across a Keeling schedule before. We have some exceptionally distinguished Members here, but I would not be surprised if the answer were in single figures, because they are not used very often. A Keeling schedule is effectively a track changes on original legislation. It is necessitated by the significant scope of the alterations to the legislation. The last one needed was for the general data protection regulation. I think we can all attest to the sprawling reach of that item, given the effect on our inboxes. Just 18 Keeling schedules have been deposited in the Library since 2002. The Treasury has told us that it will not draw up such a schedule for any other SI, so how can the Government argue that an item demands a Keeling schedule but does not require a debate on the Floor of the House?

The Treasury’s impact assessment of the SI lists the familiarisation cost of it at £9.6 million. That far exceeds the next closest figure, which is for the capital requirements regulations, at £1.7 million. By comparison, the average equivalent cost for the remaining eight SIs for which the Treasury has conducted assessments is significantly lower at just £266,000. The Minister has reassured us on multiple occasions that policy decisions are not being made in the fabric of these instruments, but we must examine closely the implication of what we would be enabling.

The EU approach to drafting regulations, known as the Lamfalussy process, is being imported into UK law. The Treasury will enact the European Commission’s powers, and the FCA will take on the responsibilities of the European Securities and Markets Authority. That has wide-ranging implications for supervision. For example, it has been decided that the European Commission’s function of assessing equivalence would be transferred to the Treasury rather than the FCA, yet historically, equivalence decisions have been made by both parties in different circumstances. That should be properly examined and debated, rather than arbitrarily assigned.

In a letter to my colleague the noble Lord Tunnicliffe after the instrument was debated in the other place last month, Lord Bates explained that the intention is to continue the MiFID pre and post-trade transparency regime in the UK. To achieve that, the FCA will have the power to suspend the obligations for pre and post-trade transparency for a specified non-equity financial instrument or a class of non-equity financial instruments during a transitional period of up to four years beginning from exit day. That sounds to the Opposition like a very slippery slope.

Although the intention is that the balance of powers will be examined in future, we cannot be expected effectively to sign a blank cheque on the UK’s regulatory regime for four years. We understand, as the Minister explained, that the reason behind it is that the FCA will not be ready to operate the required framework of specified thresholds for transparency on day one. However, my hon. Friend the Member for Oxford East (Anneliese Dodds) raised that issue very early on in the process. It is frustrating that we are receiving clarity on it only now.

Equally, it is challenging for the Opposition to assess the transfer of powers to the FCA without an accompanying policy statement. We are told that the policy statement will be made available before exit day, but it is difficult for us comprehensively to assess the implications of the SI without that information. That is before we have even touched on the FCA’s resources to cope with the new regime, a point raised by my hon. Friend the Member for Oldham East and Saddleworth and my right hon. Friend the Member for Tottenham.

There are other issues bound up in the SI that we believe need further debate. Paragraph 7.15 of the explanatory memorandum states that EU trading venues will be denied

“the right to request access to a UK central counterparty (CCP)”

under the temporary permissions regime

“unless an equivalence decision is made by HM Treasury”

for that market segment. A lot of assumptions are bound up in that. It means that the European Commission’s function of assessing equivalence will be transferred to the Treasury, rather than the FCA. Is the Treasury set up to do that? Historically, the FCA has made decisions about equivalent jurisdictions.

Just two weeks ago, in this same Committee Room, the Minister and my hon. Friend the Member for West Ham (Lyn Brown) debated the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, through which the Bank of England was given powers on equivalence decisions. What governs the decision-making process for restoring those powers to different institutions? A small addendum is included on the future of UCITS—undertakings for the collective investment of transferable securities—funds, which is a significant product segment across the EU with inflows of tens of billions of dollars every month. I know from stakeholders that it suffers particular issues related to temporary permissions regime applications.

For more than a decade, MiFID has acted as the cornerstone of how financial markets operate in the UK. Today, we are proposing hauling that entire operation back into the purview of our own regulators and the Treasury if we end up leaving the EU without a deal. More than any other instrument in this process, this one cannot be subject to a top-level discussion by a small group of Members in Committee. The Government helpfully cleared an easy 90 minutes of time to debate this instrument last week when they pulled the debate on the Brexit agreement. That was our window to discuss things further.

There was ample time for this debate to take place on the Floor of the House this week, too; that would have allowed Members to contribute to the analysis. Any reasonable Government in any other reasonable circumstances would have agreed to that request, but this Government cannot afford to allow any EU-related business on to the Floor of the House of Commons, because they are not sure of their majority, but Governments who do not have a majority in the House of Commons are not Governments at all.

As stated at the outset, a no-deal scenario would be so disastrous for the UK that it is difficult to see it as much more than a negotiating tool, by means of which the Government will try to force Parliament’s hand. We do not want markets to be unprepared, but there must be proper scrutiny on what we decide, with objections recorded and recognised.

The Opposition believe that this instrument must be debated properly on the Floor of the House. That is why we intend to divide the Committee. I urge fellow Members who support real scrutiny and the sovereignty of Parliament to join us in voting against it.

It is a pleasure to serve on the Committee with you in the Chair, Mr Sharma. I begin by agreeing with the hon. Member for Stalybridge and Hyde (Jonathan Reynolds); I will support him in that vote. There is ample time for this to be debated on the Floor of the House, if that is wished for. This afternoon we are debating pornography regulations there. If we can debate those there, I do not know why we cannot do the same for something almost as important—MiFID II and this statutory instrument.

There are so many issues that this statutory instrument encompasses that deserve great and serious attention from Members across the House. All Members should be allowed to participate in the debate, not just the small, dedicated crew here. Issues such as the significant data gap are of huge concern. It worries me greatly that between the FCA not having this information and having it, there is ample opportunity for our systems to be exploited. What assurance can the Minister give that that cannot happen? The response to the financial crash showed that gaps in oversight between regulators, the Bank of England and the UK Government can have disastrous consequences. We must hear some assurance that there will be ongoing discussions with all involved to ensure there is no gap for those who wish to exploit one. That would be incredibly serious.

As always, I stress that Scotland’s financial sector, which includes firms and workers in my constituency, has been clear that the interests of this sector are best served by us staying in the EU single market and the customs union. Ten years on from the crash, our financial services sector needs urgent reform—not new problems originating from the decision to go for a hard Brexit. Instead of planning how to minimise the damage, we should use our time to plan a successful future within in the EU, where we can use our skills to make things better, rather than starting from scratch with skills we do not yet have. That seems a huge waste of time and resources.

The hon. Member for Oldham East and Saddleworth picked up on the point that I usually make in Committee about the skills and resources of the FCA and all the other institutions. This draft SI sees a wheen more powers and responsibilities heading towards those institutions—and huge costs. I very much thank the Minister for the opportunity to meet the FCA, which the Labour Front-Bench spokesperson mentioned. I was not able to be there this morning, but I will certainly take up that invitation in the new year, because it is important to get its perspective.

The impact assessment is clear:

“The direct cost to the FCA of developing and adapting IT systems in order to carry out its new and revised responsibilities under the transaction reporting and transparency regimes is estimated at £3.5m to £4m”.

It also talks about the operational challenges for the FCA of the transparency regime. A whole load of other areas are mentioned in the impact assessment, which hon. Members would do well to have a look at. That is significant; it is a huge amount of money that we do not need to be spending on doing this. It is money that would be better spent in other ways.

I am also concerned about the costs to business. As I mentioned, huge costs are outlined in the Government’s impact assessment. Familiarisation costs are a staggering £9.6 million in total; that will affect 3,300 UK firms and 1,650 EEA firms. That is significant. Furthermore, there are the monetised non-familiarisation costs to business. The cost of changes to reporting requirements is £8,750,000; changes to IT systems are £1,750,000 as a one-off cost; and transition costs are £16,750,000. That is huge. On the back page, there are recurring costs to business, year in, year out. Changes to reporting requirements will mean an £8,750,000 recurring cost to firms, and changes to IT systems will mean a cost of £1,750,000. Those are huge costs to business. I would be interested to know how much was anticipated before we got into Brexit. How much was known beforehand? I bet that not an awful lot was known or anticipated.

The hon. Member for Stalybridge and Hyde mentioned the four-year transitional period without a review clause. I, too, am concerned. How do we ensure any degree of scrutiny or transparency? Where is the House of Commons in that process? Basically, we are saying, “Yes, you guys go off for four years. Do what you like, and come back to us if you need to do it any sooner or any longer.” We are losing sight of scrutiny. It sticks in my craw that some people said that we were taking back control from unelected bureaucrats, but here we are handing it over to the nameless, faceless suits in the FCA. Again, that is certainly not what was argued in the campaign.

Lastly, the hon. Gentleman mentioned the Keeling schedule. Every day is a school day in this Committee, but it is very interesting that that has been used in such a limited sense. It is significant that the schedule goes through such a huge document line by line, tracking the changes. For that reason, for reasons of scrutiny, and to ensure clarity about all issues, I support the Labour Front-Bench spokesperson in favouring an open debate on the Floor of the House. I will vote with him this afternoon.

It is a pleasure to serve under your chairmanship, Mr Sharma. I will keep my comments brief. I want to put on the record my dismay and despair at where we are. Without having had a meaningful vote on the Floor of the House, we now have to discuss so much legislation—

I will indeed. I am making a broader point about why we are here in Committee in the first place, and that is important. This is one of the most undemocratic Governments we have had in my lifetime. To back up the points made by my hon. Friend the Member for Stalybridge and Hyde and the hon. Member for Glasgow Central, the expectation that we will go through an SI with this much detail in half an hour to an hour is completely intolerable. I reiterate that this is so undemocratic. I know that the Minister, who served on the Work and Pensions Committee, is an honourable man. However, the Government really need to look at themselves in the mirror.

I listened carefully to the Opposition’s remarks, and I will try hard to give a thorough response. Before I get into the detail, it is important to set out clearly that this programme of 70 SIs is about ensuring that if there is an outcome that the Government do not want—no deal—we have a comprehensive regime in place; that is something that we are determined to deliver across financial services.

I listened carefully to what the hon. Member for Stalybridge and Hyde and others said about where the debate should take place. I acknowledge that this is complex legislation, but the terms of the European Union (Withdrawal) Act and the Joint Committee on Statutory Instruments say that it is within our powers to conduct the process in this way, in this place. I recognise that that is disputed, but all I can do is draw attention to the Joint Committee’s judgment.

I will need to write to the hon. Gentleman on the issue of inducement, but the point of the European Union (Withdrawal) Act is to maintain the standards that applied while we were in the EU. I reiterate that business decisions are not in my gift as Economic Secretary, but all SIs are approved on the Floor of the House.

A point was made about Keeling schedules. The Treasury will not produce Keeling schedules for anything else. This is undeniably complex legislation. We will produce Keeling schedules in a number of instances. They are internal documents that have not been sufficiently validated for publication, but Parliament decided when it passed the European Union (Withdrawal) Act that powers could be used in that way to prepare us for exit.

On the transitional period being four years, it took approximately four years to develop the detail of the current transparency system and to put in place the systems needed to operate it. The calibration of the current regime is based on EU data. If, in the circumstances following the UK’s exit from the EU, it is not possible or desirable to use such data, the regime will need to be recalibrated to ensure that it achieves its intended effects. That will involve changes to the binding technical standards, the FCA developing the necessary IT infrastructure to operate the regime, and industry having adequate time to implement changes, hence the length of time.

The experience of implementing the current regime taught us that it is necessary to take the time to get things right, rather than rushing complicated policy and operational challenges through. However, the Treasury can end the transitional period at an earlier date if it considers those processes to have been completed, and that the FCA has the ability to run the MiFID II transparency regime before the end of the four-year period.

A point was made about the transitional regime reducing the transparency of trading within the UK, given the FCA’s powers to suspend certain transparency obligations, such as those applying to non-equities. The FCA has the power to suspend specified transparency obligations in respect of certain instruments during the transitional period. For instance, the FCA may suspend pre and post-trading transparency obligations in respect of bonds and structured finance products during the transitional period. It can use those powers only where that would advance the FCA’s integrity objective—and there are other constraints on its use of the powers. It is not intended or envisaged that the FCA would use those powers to effect a general or long-term suspension of transparency requirements in the UK; it would use them to match a suspension of those requirements in the EU. Without those powers, a suspension in the EU could create regulatory arbitrage between the UK and the EU—something that we wish to avoid.

I acknowledge the points made by the hon. Member for Glasgow Central about the costs of regulatory and IT processes and the number of institutions affected—3,300 in the UK and 1,650 in the EEA. Of course, the assessment sets out the one-off costs and the ongoing costs. I accept that it would be preferable not do have to do this, but I point out that those sums would be divided over a quite large number of institutions.

As to the appropriateness of delegation, essentially the decision is made on the appropriate functional expertise. The FCA and the Treasury worked very closely leading up to the publication on 5 October. Firms are supportive, and they seek the continuity and orderly market functioning that are imperative for the City and the economy. I accept overall that the process is not perfect, but we have undertaken it in good faith, to establish a functioning regime in a no-deal situation.

I hope that that answers the questions that have been raised. The Government believe that the regulations are necessary, and I hope that the Committee will support them.

Question put.


That the Committee has considered the draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.

Committee rose.

Draft Gaming Machine (Miscellaneous Amendments and Revocation) Regulations 2018

The Committee consisted of the following Members:

Chair: Joan Ryan

† Allen, Heidi (South Cambridgeshire) (Con)

† Allin-Khan, Dr Rosena (Tooting) (Lab)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

† Bruce, Fiona (Congleton) (Con)

† Davies, Mims (Parliamentary Under-Secretary of State for Digital, Culture, Media and Sport)

† Dhesi, Mr Tanmanjeet Singh (Slough) (Lab)

† Elmore, Chris (Ogmore) (Lab)

† Johnson, Gareth (Dartford) (Con)

† Kerr, Stephen (Stirling) (Con)

† Linden, David (Glasgow East) (SNP)

† McGinn, Conor (St Helens North) (Lab)

† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)

† Pawsey, Mark (Rugby) (Con)

† Scully, Paul (Sutton and Cheam) (Con)

† Selous, Andrew (South West Bedfordshire) (Con)

† Smeeth, Ruth (Stoke-on-Trent North) (Lab)

† Timms, Stephen (East Ham) (Lab)

Ian Bradshaw, Committee Clerk

† attended the Committee

Tenth Delegated Legislation Committee

Monday 17 December 2018

[Joan Ryan in the Chair]

Draft Gaming Machine (Miscellaneous Amendments and Revocation) Regulations 2018

I beg to move,

That the Committee has considered the draft Gaming Machine (Miscellaneous Amendments and Revocation) Regulations 2018.

It is a pleasure to serve under your chairship, Ms Ryan. The regulations were laid before the House on 15 November, and I am very pleased to have the opportunity to debate them. The Gambling Act 2005 established a new system for the regulation of gambling in Great Britain. Section 235(1) defines a gaming machine as

“a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).”

The Categories of Gaming Machine Regulations 2007 define four categories of gaming machines, known as categories A, B, C and D. For the purposes of the 2005 Act, category B machines are divided into sub-categories.

Following consultation and the consideration of all relevant evidence, the Government announced in May our decision to reduce the maximum stake on sub-category B2 gaming machines, informally known as fixed odds betting terminals, to £2. The decision was met with enthusiasm from many quarters. Local authorities, charities, faith groups, interest groups and academics all submitted opinions in favour of a £2 limit. Parliament—including many hon. Members present today—was no exception in expressing its emphatic support for the Government’s intentions.

I want to add my personal thanks to the all-party parliamentary group on fixed odds betting terminals, led by the hon. Member for Swansea East (Carolyn Harris), and to my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) and the hon. Member for Inverclyde (Ronnie Cowan), for their consistent support on this policy. I worked closely on it with the previous Minister, my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch). I thank her for all her work, and I am delighted to be in a position to bring forward this progressive legalisation.

These regulations give effect to the May decision by amending the Categories of Gaming Machine Regulations 2007 to reduce the maximum stake permitted for B2 gaming machines from £100 to £2 from 1 April 2019. They also make consequential changes to other secondary legislation. They amend the Gaming Machine (Circumstances of Use) Regulations 2007 and revoke the Gaming Machine (Circumstances of Use) (Amendment) Regulations 2015 to remove requirements that no longer apply as a result of the stake reduction. The latter regulations imposed a new requirement that players who wanted to access stakes in excess of £50 on sub-category B2 gaming machines had to load cash via staff interaction or use counter-based play. The amended and revoked provisions relate to gaming machines in which it was possible to stake more than £50. They are no longer relevant to sub-category B2 gaming machines.

Millions of people enjoy gambling responsibly, and the Government are committed to supporting a healthy industry. We do not want to stop people having fun, but we need to find the right balance between freedoms and protections. We are taking decisive action to ensure we have a responsible industry that continues to contribute to economic growth, while ensuring that the most vulnerable in our society are protected from gambling-related harms. The Secretary of State and I, and the industry, want to identify behaviour that could put people at risk of harm, and we want to be able to intervene early. Socially responsibly business is the only kind of business that we want to see in this sector.

Under the Gambling Act 2005, B2 gaming machines have a maximum stake of £100, which is by far the highest for any gaming machine in Great Britain. The maximum prize that can be won as a result of a single use is £500. The next highest limit on the high street is for B3 machines, where the maximum stake is £2 and the maximum prize is £500. Almost 14% of players of B2 machines are problem gamblers, which is currently the highest rate in terms of gambling activity in England. In addition, the highest proportion of those who contact GamCare, the main treatment provider, identified the machines in betting shops as their main form of gambling. Gaming machines in betting shops also account for one of the highest proportions of people in treatment for gambling addiction.

In October 2017, the Government published the consultation on proposals for changes to gaming machines and social responsibility measures, which invited views on proposals to reduce the maximum stake for B2 machines. The consultation received more than 7,000 responses and closed in January. The Government published their response on 17 May. After giving due consideration to all the information and evidence received, the Government decided that it would be appropriate to reduce the maximum stake for B2 gaming machines to £2. We concluded that the volume of high-level session losses was the best proxy for harm, and the evidence was that the harm from B2 gaming machines would be significantly reduced with a reduced maximum stake of £2. That was supported by the Gambling Commission’s advice that action on B2s should involve a stake limit between £2 and £30 if it is to have a significant effect on the potential for players to lose large amounts of money in a short space of time, with any further decrease a matter of judgment for the Government.

In comparison with other gaming machines on the high street, B2 machines are an outlier because of the speed with which it is possible to lose large amounts of money. B2s generate a greater proportion and volume of large-scale losses—for example, losses of more than £500 in a session—and the losses are larger and the sessions are longer for those who bet at the maximum stake of £100 than for those who play at a lower level.

Even cutting the maximum stake to £10 would have left problem gamblers and those who are most vulnerable exposed to losses that could cause them and their families significant harm. In particular, the Government noted that more than 170,000 sessions on B2 roulette ended with losses between £1,000 and £5,000. Such sessions persist at average stakes of between £5 and £10. By contrast, none involved average stakes of £2 or below. In addition, the Government considered that the reduction to £2 was more likely to target the greatest proportion of problem gamblers and therefore protect the most vulnerable players.

In coming to our conclusions, the Government considered the impact on those who live in more deprived areas and on their communities. Some of the most vulnerable to harm are likely to be people who can, sadly, least afford to lose large sums of money. Having considered those and other factors, the Government concluded that we would reduce the maximum B2 stake to £2.

The regulations amend the definition of a sub-category B2 gaming machine in the gaming machine regulations, so as to reduce the maximum stake permitted in respect of such a machine from £100 to £2. In consequence of that amendment, these regulations also amend the definition of a sub-category B3 gaming machine, so that B2 and B3 gaming machines can continue to be distinguished from one another by reference to the different places in which B2 and B3 machines are allowed to be made available. This approach draws on the power in section 236(4)(e) of the 2005 Act to permit the categorisation of gaming machines by reference to the premises in which they are used. Regulation 6 of the gaming machine regulations provides that sub-category B3 gaming machines may be available for use in casinos, betting premises, bingo premises and adult gaming centres, while sub-category B2 gaming machines may be available for use only in casinos and betting premises.

Having conducted a process of engagement with the industry, the Government announced in November that we would implement the stake reduction on 1 April 2019 —a date that is specified in the draft regulations and that the Government consider allows the industry sufficient time to make relevant changes. The industry has known about the Government’s intention to reduce stakes to £2 since May this year. The date announced last month provides further clarity to allow it to continue preparations.

We have said all along that protecting vulnerable consumers is our primary concern. As a responsible Government, it is also right that we take into account the needs of those employed in the gambling industry and that we provide time for an orderly transition. The date on which the draft regulations will come into force generated much opinion and debate, and it was right that those with strong views and evidence on the issue, including many Members, had the opportunity to share them. Most importantly, this significant change will help to stop extreme losses by those who can least afford them and to protect the most vulnerable in our society. Members will know that the Government’s draft Finance Bill was also amended so that the increase in remote gaming duty, paid by online operators, comes into effect in April 2019, at the same time as the reduction in stakes, in order to cover the negative impact on the public finances and to protect vital public services.

My appointment follows an extremely progressive year of policy developments. The intention of the Government’s wide-ranging gambling review is to continue to strike the right balance between socially responsible growth and protecting the vulnerable, including our children, from gambling-related harm. Let me be clear: the review and the legislation do not mark the end of Government action. We recognise that harm is not about only one product. We will act where there is evidence of harm, and we will always keep issues under review, as is our responsibility. We must ensure that people can have an open conversation about what responsible gambling looks like, in order to identify harmful behaviours both online and offline. Millions of people rightly enjoy gambling responsibly, and the Government are committed to supporting an industry that generates employment and investment.

However, while the Government want to see a healthy gambling industry, we also need to see one that is socially responsible and protects the most vulnerable in our communities. The industry is rightly coming to the table, which the Secretary of State and I strongly welcome. We will also continue to work with colleagues from other Departments, such as the Department for Education, to ensure that we co-ordinate our approach to young people, and the Department of Health and Social Care, to improve links between gambling treatment and other services. I am proud that the Government are taking forward this decisive measure. I commend the draft regulations to the Committee.

It is a pleasure to serve under your chairship, Ms Ryan. I thank the Minister for her opening remarks.

This is an important day for those of us who want to see meaningful gambling reform in this country. FOBTs have long been the scourge of the high street, but today, due to the work of tireless campaigners, both inside and outside the House, we are poised to reduce the maximum FOBT stake to £2. The reduction will have a real impact on the prevention of problem gambling, so I welcome that decision.

I pay tribute to the people who got us here, particularly my hon. Friends the Members for West Bromwich East (Tom Watson) and for Swansea East and the charities GambleAware and Gambling with Lives, but it is a shame that it has taken so long. I trust that the strength of feeling shown in the House and the resignation of a Minister of State whom I greatly respected, the hon. Member for Chatham and Aylesford, will act as a sufficient deterrent to future Secretaries of State who may wish to put industry profits before people’s lives.

We fully support the draft regulations, but does my hon. Friend agree that it should not have taken the resignation of a good Minister to get us into this position? The Government should have listened to vigorous campaigning by so many colleagues and charities, rather than having to be forced into this scenario.

My hon. Friend makes an excellent point: it should not have taken this long for us to reach this point, nor should it have required such extreme measures as the resignation of a fantastic Minister who will be sadly missed. Nevertheless, the draft regulations are a landmark in gambling reform, and the Government deserve some credit for eventually taking action to protect people from gambling harms. I hope that this is just the beginning.

The Opposition will not hamper the progress of the draft regulations, since they are designed to reduce problem gambling, but we have some areas of concern, which I hope the Minister will address. There is still a great deal that we can do to reduce the number of problem gamblers in the UK and prevent future generations from falling into the same traps. The whistle-to-whistle ban announced this month on gambling adverts in live sport is an encouraging sign that the gambling industry is open to reform, but we must ensure that it is meaningful, that live sport online is properly regulated, and that other media such as radio are not forgotten.

Labour recently published its review of problem gambling and its treatment, which proposes a handful of reforms that the Government could implement to make a very real difference. The levy on gambling operators to fund research, education and treatment should be raised from 0.1% to 1% and should be compulsory. New clinical guidelines should be developed so that problem gamblers can receive the best possible care and treatment, and the NHS’s funding should be increased so that it can provide that care and treatment across the country. Betting on credit cards should be banned, and it should be possible to block certain debit card transactions so that gamblers can be in control of their spending. Problem gambling rips families’ home lives apart. The Barclays mobile banking app is the first high street bank app to feature debit card transaction blocking, but I hope that other banks follow suit.

Those are straightforward steps that the Government could take very quickly, and I sincerely hope they do, but we also need to widen the conversation around gambling reform to ensure that we think about the industry as a whole. We know that the two main centres of gambling activity are high street betting shops and online gambling sites. By reducing FOBT stakes, we have addressed a major problem in high street betting shops, but more needs to be done. We need a conversation about whether we are prepared to accept the clustering of betting shops in areas of high deprivation, where the people who are most vulnerable are also the most targeted by gambling companies.

Preventing problem gambling in shops is crucial, but so is tackling online gambling. The most obvious issue is online gambling advertising, which is effectively not age-restricted and can be found on almost any website. However, there is also the issue of gambling within online games, whether that is betting on skins in Fortnite or betting on horse-racing in Grand Theft Auto. We need to explore the impact that these parts of games have on the minds of the young people who predominantly play them.

This is a day to remember for UK gambling reform, but more importantly it is an opportunity to recognise what is still to be done. We owe it to the people we represent not to stop here.

It is a pleasure to see you in the Chair, Ms Ryan, and to serve under your chairmanship. I want to say at the outset how much I welcome the regulations. Although I am tempted to do so, I will not ram it down throats that this is a Government climbdown, because this is an important day. So often in this place, particularly given the volatile nature of this Parliament, I walk home at night wondering why I am here and what my contribution is. The fact that I can be here tonight to support the regulations fills me with a lot of pride.

I will briefly touch on the Finance Bill, to which my hon. Friend the Member for Inverclyde secured an amendment regarding a review of fixed-odds betting terminals. I very much hope that that amendment will not be removed on Report. The statistics about the amount of money that people lose are deeply saddening—£192 per spin. Self-regulation has not worked. From the moment I was elected to this House in 2017, I was struck by the incredibly aggressive way in which the Association of British Bookmakers pursued me and other Members of Parliament. It tries all sorts of ways to get in touch with us. I condemn on the record its tactics, and the way that it tries to intimidate Members of Parliament. I will not even begin to go into some of the tactics that were deployed in my constituency.

It was interesting that the Minister and the shadow Minister have rightly touched on areas of high deprivation being targeted. I do not know if any Committee member has a more deprived constituency than Glasgow East. I reflect on a statistic that came out of a Channel 4 documentary a number of years ago. It suggested that for every 100,000 people in a deprived area there are 12 betting shops, and that for every 100,000 people in a more affluent area there are five betting shops. I remember—I was a parliamentary researcher at the time —running those numbers and seeing that in my constituency, which has 70,000 people, there were in excess of 45 betting shops. In the constituency of the hon. Member for West Aberdeenshire and Kincardine there are probably fewer than five. If that does not send a message to the House about the tactics of bookmakers in targeting deprived areas, I do not know what will.

I want to look at other areas of gambling reform. We need to have a serious conversation about the role of the national lottery, because I am not convinced that the funding is necessarily pouring back into the areas where the tickets and scratch cards are bought. However, that is a different story. The liberalisation of the Gambling Act 2005 went too far, and we definitely see that in communities such as my own. However, like other Members, I pay tribute to the hon. Member for Swansea East, the right hon. Member for Chingford and Woodford Green, and my hon. Friend the Member for Inverclyde. They all pursued this cause diligently when other Members of Parliament were distracted by other issues, and they have beavered away at it.

Finally, I pay tribute to the hon. Member for Chatham and Aylesford. In my time in this House I do not think I have come across a more genuine or nicer person. It fills me with great sadness that it took her falling on her sword for the Government to decide that they had to take action. Although I am deeply sad that she had to resign from Government, I will go home tonight very proud that we are finally taking action for some of the most vulnerable people in our constituencies.

I am very pleased to be serving under your chairmanship this evening, Ms Ryan, I think for the first time. Rarely will a statutory instrument have elicited the joy that this one will. It represents success at last for a long, hard-fought campaign. We should have succeeded years ago, and would have done were it not for the fact that the Treasury were profiting from the shameful racket to which the statutory instrument will finally put an end.

It is right, as others have said, that we give credit where it is due. My hon. Friend the Member for Swansea East has led the campaign as chair of the all-party parliamentary group with a unique blend of passion and warmth, and we are greatly in her debt. My hon. Friend the Member for West Bromwich East, as my hon. Friend the Member for Tooting pointed out, has played an exemplary and crucial part as well.

Like others, I pay tribute to the Minister’s predecessor, the hon. Member for Chatham and Aylesford, who was absolutely right to resign last month when the Government tried, shamefully, to delay this change, and to the right hon. Member for Chingford and Woodford Green—with whom I disagree about virtually everything—who has played a positive role in this campaign.

I also pay tribute to local authorities outside of the House. My local authority, Newham, has provided valuable support to the all-party parliamentary group on fixed odds betting terminals—the one local authority to do so. I pay tribute to the current Mayor of Newham, Rokhsana Fiaz, and to her long-serving predecessor, Sir Robin Wales. I also pay tribute to Christian Action Research and Education, which has been a consistent supporter, with Newham Council, of the APPG.

Unfortunately, the role of some others has been lamentable. Some in the House have lobbied for the continuation of this shameful racket, which has destroyed the wellbeing of so many families. The Chancellor of the Exchequer should be ashamed of himself for apparently caving in to the lobbying. The Secretary of State for Digital, Culture, Media and Sport also behaved lamentably in failing to support his Minister, who was forced to resign,.

Ministers missed the chance to act on the growing menace of FOBTs five years ago, in the 2013 triennial review. Five years ago next month, we had a debate in the Chamber, which made the scale of the menace crystal clear. I reported in my speech—my constituency has a lot in common with that of the—that at that time in East Ham, on High Street North we had 14 betting shops open from 7.30 am to 10 pm, each with just one member of staff.

I quoted a former Paddy Power manager, who told me of families and businesses ruined while he was managing a shop, and of students who gambled away their student loans. He estimated that on a typical day in any Paddy Power shop with four fixed odds betting terminals, as they all have, one could meet half a dozen people whose lives had been destroyed by their addiction to these vile machines. A big use of the terminals has been to launder the proceeds of drug crime, giving criminals an apparently legitimate source for their cash. They are in those shops day in and day out.

It is right to say that it is not just a case of lives ruined; in some cases lives are lost, because of the amount of suicides. That needs to go on the record as well.

The hon. Gentleman is absolutely right. A fair number of people, I am afraid, literally have blood on their hands through what has happened.

Often, punters losing huge sums would smash up terminals in the shop in anger, but the one member of staff there was instructed not to call the police, so that the incident would not feature in the crime statistics. Some of the shops act as honey pots for drunken louts intimidating decent shoppers who pass by. We were warned in the course of this campaign that if it succeeded in reducing the maximum stake to £2, the danger was that the number of betting shops could be halved. I must say, if the number of betting shops in East Ham falls by only 50%, I shall be very disappointed. I hope we will see a much larger reduction than that.

These vile machines have been cynically fostered by shameless, irresponsible conglomerates in the poorest communities, as the hon. Member for Glasgow East has rightly pointed out, destroying hard-working families and, on occasions, lives—the hon. Member for South West Bedfordshire is right about that. They are a magnet for crime. They launder the proceeds of crime. They are a tawdry and soulless presence on high streets such as the one I represent, driving decent shops away and repelling family shoppers.

How can it have taken five years from the time of that debate, which made the extent of the damage so clear, to bring about this statutory instrument? So much money has been made by the betting companies that they have been able to employ armies of unscrupulous lobbyists and lawyers, and—let us be honest—sold-out former police officers, to give evidence for them from time to time. Of course, the Treasury has been among the principal beneficiaries of this vile trade.

Having spread blame around the place, I want to recognise that—unwittingly, at the time—I bear some personal responsibility for what has happened. From 1999 to 2001, I was the Treasury Minister responsible for betting duty. I introduced a series of reforms to betting duty designed to recognise the fact that gambling was moving online. Indeed, there was a real worry, which to some extent has been fulfilled but not as far as it might have been, that the online betting companies were also going to move offshore.

With the reform package that we introduced, part of its aim was to make low-margin betting products viable. I did not know then about fixed odds betting terminals, but I remember asking industry representatives—I particularly recall a conversation with somebody from Ladbrokes—whether the industry would use this change and behave responsibly. Looking me in the eye, that individual assured me that it would.

Rarely have I been so badly misled. The industry has been utterly irresponsible in the way that it has behaved with these terminals. The vast sums that it has raked in have completely blinded people to the ruin that it has caused. The Association of British Bookmakers, with which I worked in that period at the Treasury, has behaved shamefully, and industry leaders, who comport themselves as respectable businessmen, should hang their heads in shame for the lives they have destroyed in their pursuit of profit.

The Minister said that only those showing social responsibility would be able to take part in this industry. The industry has shown zero social responsibility; it has not even shown morality, let alone social responsibility. Let nobody try to pretend otherwise, because I am afraid that nobody involved in this vile trade knows anything of social responsibility. They have been completely blinded by the enormous sums they have been able to make.

I am absolutely delighted that we have finally got the chance to vote for this statutory instrument, but let us never forget the lessons that must be learned from this sorry and shameful saga.

It is a pleasure, Ms Ryan, to serve under your chairmanship for the first time.

I rise to speak as the chairman of the all-party parliamentary group on racing and bloodstock industries; I draw attention to my entry in the Register of Members’ Financial Interests in that regard.

I pay tribute to the speeches that we have heard, particularly those from the Front Bench, including that of my hon. Friend the Member for Tooting. Her work on this issue, along with that of my hon. Friend the Member for West Bromwich East, has shone an important light on various aspects of the gambling industry that Parliament needs to look at. However, I am afraid that I want to raise some issues, primarily in relation to racing and the impact that these changes could have on it.

First, I will say very clearly that problem gambling is a curse. It is one of the worst afflictions I have seen, not only as a Member of Parliament in the cases of my own constituents, but personally, with friends and family, from the community I live in now in St Helens to the community that I come from, in Northern Ireland.

We need to focus very strongly on treating the addiction and while I welcome any moves to tackle problem gambling, all I would say about fixed odds betting terminals is that, first, as a punter I do not like them, I have never played them and I cannot see the attraction at all for anyone. However, we need to be careful in this victory lap of virtue— not to be too flippant about it—that we do not see this change as the panacea to all of the ills.

Although I think that a stake reduction was inevitable due to both public pressure and the comparison with other machines in places such as arcades and casinos, I will just note that the Gambling Commission itself said the stake should be reduced to £30, and I wonder whether the Minister would explain why she felt it necessary to reduce the stake further to £2.

Let me say something about gambling, I have a love-hate relationship with the bookies: I love taking money off them, and I hate losing to them. That is the adversarial nature of being a punter and enjoying a bet on the football or the horses on a Saturday, or occasionally—and I hope that Mrs McGinn is not viewing this—taking an hour on a Friday afternoon before or after a surgery to nip into the bookies and watch the racing on the high street.

I have huge respect for my right hon. Friend the Member for East Ham and the work he has done. I fear that, while we have a shared Christian faith, my Irish Catholicism is coming out in my contribution to the debate, as his evangelical Protestantism comes out in his. I would just say to him gently that he needs to be careful when he talks about decency—decent shoppers and decent people. The single mum who does a few hours part time to supplement her income, by working in a bookies in Newton-le-Willows, where I live, is far from indecent. The older men who have been widowed, who go into the bookies of a Tuesday or Wednesday morning, and sit and pick their horses out and drink their cup of coffee—and who are there, during the winter, for the heat—are far from indecent.

I am grateful to my hon. Friend for the generous tone in which he expresses his criticism, but can I ask him about a comment that a constituent of mine put to me—someone who does a lot of gambling on horses? He said to me that he found it impossible in a lot of those shops to get a bet on a horse because the businesses are so completely taken over by these appalling machines. Horse betting is not going on there at all.

I have no reason to disbelieve my right hon. Friend’s constituent. All I would say is that in my constituency, in the bookies I go into, the machines are not played that often. I am not naive about it, and I am certainly not going to pretend that machines are not a problem, but we have heard contributions from London and from Glasgow and I think that the problem could be more prevalent in cities, where there is non-traditional gambling. I have Haydock Park racecourse in my constituency—and St Helens rugby league club. There are Liverpool and Everton, and Manchester City and Manchester United, and traditional modes of gambling. One of my concerns is that I want people to gamble on horse-racing and not what I would see as the competitor products.

Gambling on the high street is just 20% of gambling overall. As others have pointed out, we need to think about other arenas and the move away from the high street. I contend that the high street may be a safer environment for gambling because it means being with other people, including staff, in an open environment, rather than gambling online, alone at home. It is worth noting—and it will become apparent why this is important for racing—that the number of betting shops on the high street has fallen by 150 in the past six months, and there are fewer of them on the high street than at any time since the 1970s. It is interesting to think that at that time there were only the dogs, horses and football to gamble on.

I am a Baptist and do not want to get into the middle of a Catholic-Protestant argument, but in my constituency, where the levels of digital exclusion are still very high, it is still betting shops that are the problem. I have many constituents who have never touched a computer; that is the reality in 2018. However, in Baillieston Main Street there are three betting shops lined up next to each other, and pretty much every week the council gets planning applications for more of them. We need to be slightly more mindful of the issue of digital exclusion.

The hon. Gentleman’s substantive point is a fair one. As to his introductory point, he is, as the hon. Member for Glasgow East, probably best staying out of matters of religious nuance in this regard—certainly when it comes to football.

My final point about the effect of the regulations on the gambling industry and high street bookies is that 53,000 people work in the industry and the Association of British Bookmakers tells me that more than 20,000 stand to lose their jobs. I have no reason to disbelieve that, but more conservative estimates put it at 14,000 or 15,000. Although it is right to say that many of these shops are in the most deprived communities and that people with gambling addictions can be from poorer backgrounds, it is also right to say that many of the people who work in those places are from poorer backgrounds, too. I would like to hear from the Minister what support and retraining can be given to people who lose their jobs, and what figures, if any, her Department has on that.

A lot of people conflate racing and gambling. They are not the same, but they have a unique relationship. Horse-racing is the second highest attended sport in the country, and it is worth £3.5 billion to the British economy. As I mentioned, I chair the all-party group on racing and bloodstock industries, and Haydock Park racecourse is in my constituency. A key element of horse-racing’s success and the wider public’s affection for it is its relationship with betting—having a flutter on the grand national is a national institution. Having a bet on the horses is a national pastime.

It is justifiable to ask those who campaigned for a stake reduction or the eradication of these machines what their attitude is to other forms of gambling. I fear that some of the discourse we have heard is a Trojan horse intended to get rid of gambling altogether. Clearly, that would be hugely detrimental to horse-racing and many other sports, too. The deep connections between racing and betting mean that changes such as this change to stakes may have unintended consequences for British racing—the British Horseracing Authority estimates that it may have a £50 million impact on its annual income.

It is worth saying, for the uninitiated, that racing and gambling have been at loggerheads over issues such as the levy for many years. Racing does not come at this issue as a cheerleader for the gambling industry. It will support the industry when it benefits and develops horse-racing, but it certainly will not turn a blind eye to problem gambling or act as a cheerleader for the industry without caveat. I think I speak on behalf of British racing when I say that it supports the ambitions of the Government and everyone across the House to tackle problem gambling, but there are significant concerns about the impact of these changes. That is not just because today one of the major racecourse owners announced a reduction in prizes for 3,000 races—some of its courses are small ones that may have become unviable—but because the money the sport receives from media rights and from betting shops through the horse-racing levy is used to fund equine welfare advancements, support for participants, including stable staff, and work on integrity in the sport.

The Government provided clear assurances to British racing. The Department’s letter to the British Horseracing Authority stated:

“We understand that the Government’s decision on Fixed Odds Betting Terminals is not at all straightforward for the horseracing industry, and we want to work very closely with you to mitigate any risks.”

It also mentioned the establishment of a forum to bring together betting and racing. I wonder whether the Minister has any comments to make about progress on setting that up.

I was provided directly with an assurance by the Minister’s predecessor, to whom I pay tribute for her work on a range of issues, but particularly for her support for horse-racing. She told me on the day of the announcement that the Government

“continue to support horseracing first and foremost”.

Now we are four months from the changes being enacted, will the Minister provide an update on the discussions she and her colleagues are having with British racing on mitigating the impact of the changes? What are their plans to ensure that the racing industry is not damaged by the changes? I speak unashamedly in strong support of British horse-racing because of the economic contribution it makes, its value in our society and the racecourse in my constituency. I will continue to do so.

Let me end by saying this. It might be an old-fashioned attitude, but I believe that at the end of the week, a working-class man or woman deserves a pint if they want one, should be able to have a bet on the Lotto, the gee-gees or the football, and can, if they want, have a fish supper. All I would say is that we need to be careful that paternalistic conservatism and patrician socialism do not become too deterministic in their view of working-class people or too dictatorial in telling working-class people how to spend their money, sure in the knowledge that protecting people from the worst excesses of pints, gambling or junk food is our duty. It is to let people, provided they pay their taxes, spend the money they earn however they want.

I thank hon. Members for their contributions in this very important debate and for their support. The debate on B2 machines has brought much consensus about the harm that they can do to individuals and communities. As we heard from the hon. Member for St Helens North, that may obscure the fact that many millions of people in this country enjoy gambling safely and responsibly.

Allow me to turn to some of comments; I am aware there is much consensus in the room but I am happy to respond to questions. I want to make absolutely clear to the hon. Gentleman that we as a Government are not anti-gambling. We want horse-racing to prosper. I have been due to meet the all-party parliamentary racing and bloodstock industries group and I hope that meeting comes soon. It is right that we should be socially responsible and act when there is evidence of harm. I understand the concerns about the racing industry. If it becomes apparent in the gambling review that stake limits cause significant market changes, we committed to consider bringing forward the timing of the review of any levy arrangements. We can continue to converse about that.

Hon. Members asked why the Government reduced the £30 limit to £2. As I said in my opening remarks, the Gambling Commission advised that stake limits should be reduced to between £2 and £30, with a further decrease being a matter for the Government. Having considered all the evidence, the Government concluded that £2 was the most likely figure at which the greatest percentage of problem gamblers—the most vulnerable— would be most protected. If the figure remained higher— £5 or £10—the high session losses would continue. We will continue to monitor the impact of that on horse-racing.

On the comments about the Association of British Bookmakers, it shared estimates with us, which we looked at closely, but there is considerable uncertainty about the figures. Some operators have told us that they will not make many redundancies off the back of this move. They have had between nine and 12 months to prepare. I hope that allays the concerns that we are not looking at the industry as a whole.

I thank the hon. Member for Tooting for her kind remarks; she said that this is a meaningful gambling reform. I have met the charities Gambling with Lives and GambleAware in the last month. I note her concerns about the compulsory levy, the issue of radio, and credit card spending. I held a tech and gambling roundtable with the Digital Minister, with all industry experts, including banks, to ensure that as we act to make this a responsible industry, we listen to all the experts. I am very keen to keep that conversation going. The hon. Lady rightly asked why this took so long; the Government are committed to evidence-based decisions. They will continue to make appropriate reviews of all evidence before making decisions. There is a lot in this space and it is right that we consider all the evidence.

On credit cards, the Gambling Commission is looking at many issues outlined in the gambling review. That includes affordability checks, age verification and perhaps the use of debit cards. That was also raised in the tech roundtable and we are looking at it all. We need to have an open conversation about what responsible gambling looks like, in order to identify harm. In this role, I recognise that there is not a clear definition between what is responsible, enjoyable and fun and what is a problem. All that needs to be looked at.

The hon. Lady raised loot boxes. We are aware of concerns that they could encourage gambling-like behaviour. We will continue to look very closely at any evidence. We are committed—I am committed—to ensuring that children’s vulnerability and inexperience are not exploited by aggressive commercial practices. I welcome the fact that the gambling industry is looking at labelling for games and will look at warning opportunities for in-app purchases. The Gambling Commission is looking at reviewing how we can continue to strengthen that age verification and address the deposit issues, and I have made some suggestions. I have been working with the Secretary of State and there will be further announcements.

I welcome the kind remarks from the hon. Member for Glasgow East about my predecessor, and note his comments and concerns about scratchcards. As we look at the fourth licence for the national lottery, which will commence next year, we should look at the issue of sales in deprived areas and also look at the issue of 16 and 17-year-olds. We have seen no evidence on that question, but decisions will be made next year on the start of the fourth licence. While the distribution is done by arm’s length distributors, I have already raised the question with Camelot and distributors, and I am confident that the Government are rightly looking at that particular area.

My hon. Friend the Member for South West Bedfordshire mentioned the lives lost to gambling addiction—a great shame and a terrible tragedy. Last week I met the charity Gambling with Lives and I look forward to continuing to work closely with it on that important issue. I have spoken to the charity about how we can talk about responsible gambling and ensure that we speak to our youngsters about what they may come into contact with. I am also delighted that there is a Minister for Suicide Prevention in the Department of Health and Social Care and I am committed to working with her. I believe that, alongside her Department and the Department for Education, we can all do better in pursuing a socially responsible industry, one that thrives but also works with Government, so that we act when we need to protect.

As I said earlier, the publication of the gambling review did not mark the end of Government action. We will always act where there is evidence of harm and we will keep issues under review. We have a strong industry regulator with a core responsibility to license and regulate gambling, to keep it fair, safe and free from crime. We will also work with colleagues from other Departments to improve the links between gambling treatment and other services. If I were not here today taking this legislation through, I would have been with the Gambling Commission in Birmingham.

We must achieve the right balance. We must be able to work with operators to make early interventions before harm occurs. I want to see rapid and continued progress in that area. We can use tech for good. Achieving the balance between industry growth and socially responsible business must be a joint effort, with central Government, regulators, local councillors, gambling companies, campaign groups, charities and finally individuals all playing their part.

As we have discussed, the B2 gaming machines are an outlier in the world of high street gambling because of the speed with which so much money can be lost. There has been extensive support in the responses to the Government’s consultation for a significant reduction in the B2 stakes; many hon. Members rightly came in to support the Government’s decision in May, and I am delighted with the support we have had today. By reducing the B2 stakes to £2 we can help to reduce gambling-related harm and prevent extreme losses by those who can least afford it. This is an important change and we have a chance to make a real difference in the lives of our vulnerable people and constituents. I commend these regulations to the Committee.

Question put and agreed to.


That the Committee has considered the draft Gaming Machine (Miscellaneous Amendments and Revocation) Regulations 2018.

Committee rose.