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House of Commons Hansard
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General Committees
12 February 2019

Delegated Legislation Committee

Draft Judical Pensions and Fee-Paid Judges' Pension Schemes (Amendment) Regulations 2019

The Committee consisted of the following Members:

Chair: Sir Graham Brady

† Cowan, Ronnie (Inverclyde) (SNP)

† Eagle, Maria (Garston and Halewood) (Lab)

† Efford, Clive (Eltham) (Lab)

† Foxcroft, Vicky (Lewisham, Deptford) (Lab)

† Frazer, Lucy (Parliamentary Under-Secretary of State for Justice)

† Garnier, Mark (Wyre Forest) (Con)

† Graham, Richard (Gloucester) (Con)

† Hair, Kirstene (Angus) (Con)

† Harrison, Trudy (Copeland) (Con)

† Hart, Simon (Carmarthen West and South Pembrokeshire) (Con)

† Milling, Amanda (Cannock Chase) (Con)

† Morris, James (Halesowen and Rowley Regis) (Con)

† Powell, Lucy (Manchester Central) (Lab/Co-op)

† Qureshi, Yasmin (Bolton South East) (Lab)

Reeves, Ellie (Lewisham West and Penge) (Lab)

† Snell, Gareth (Stoke-on-Trent Central) (Lab/Co-op)

† Warburton, David (Somerton and Frome) (Con)

Medha Bhasin, Committee Clerk

† attended the Committee

Tenth Delegated Legislation Committee

Tuesday 12 February 2019

[Sir Graham Brady in the Chair]

Draft Judicial Pensions and Fee-Paid Judges’ Pension Schemes (Amendment) Regulations 2019

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I beg to move,

That the Committee has considered the draft Judicial Pensions and Fee-Paid Judges’ Pension Schemes (Amendment) Regulations 2019.

It is a pleasure to serve under your chairmanship, Sir Graham.

The draft regulations relate to the contribution rates for members of two judicial pension schemes. Their purpose is to make provision to extend the current member contribution rates and earnings thresholds in two different pension schemes to the next financial year. The schemes are: the judicial pension scheme 2015, which was established under the Judicial Pensions Regulations 2015, following wider public service pension reforms; and the fee-paid judicial pension scheme, which was established under the Judicial Pensions (Fee-Paid Judges) Regulations 2017, following the Supreme Court decision in the 2013 O’Brien case, and related court decisions.

The reason for extending the rates is that the existing provision for member contribution rates will expire on 31 March 2019. The draft regulations are therefore needed to make an amendment to specify the member contribution rates to apply for the next year, from 1 April 2019 to 31 March 2020. The regulations will enable us to ensure the continued operation of the schemes by deducting the appropriate member contributions for that year. As we propose to continue the same rates, the amendment regulations simply maintain the existing provisions for one further year. This interim measure is required pending the completion of a broader process that relates to the valuation of the judicial pension schemes. That process has been ongoing for a period, and the outcome of the valuations is to be determined.

It might be helpful to set out some background and to explain the ongoing valuations. Following the reform of public service pension schemes in 2015, as reflected in the legislative framework, Departments are required to undertake valuations of their respective public service pension schemes every four years. That obviously includes the Ministry of Justice in respect of judicial pension schemes. The valuations of public service pension schemes do two things: first, they measure the cost of providing pension benefits to members of the schemes; and secondly, they inform the future contribution rates paid into the schemes by both the employer and the members of the scheme. Work has been under way on the first such valuations of public service pension schemes. The Government, however, have paused part of the valuations process because they are seeking permission to appeal a decision of the Court of Appeal in the McCloud case, which concerns pensions.

Let me explain that court decision in more detail. In December 2018, the Court of Appeal ruled that the transitional protection offered to some individuals as part of the 2015 public service pension reforms, including that in the judicial pension schemes, amounted to unlawful discrimination. The issue related to the protection is that, as part of the 2015 reforms, most public servants and judges moved to new career-average pension schemes. However, members within 10 years of their normal retirement age were protected and remained in existing final salary schemes, together with members who were between 10 years and 13 years and six months from their normal retirement age, who were given tapered protection to remain in the existing scheme for a period of time, before they moved to the new scheme introduced by the reforms.

As I said, the Ministry of Justice has applied to the Supreme Court for permission to appeal, and a decision is awaited. As the legal process is ongoing and there is some uncertainty about the impact of the ruling on wider pension reforms, it was considered prudent to pause that element of the valuation, which has the potential to affect future member benefits and/or contribution rates.

Let me turn back to the draft regulations and the steps we took to bring them forward. With a view to reaching an agreement on the proposal, we consulted, in accordance with the relevant requirements, by way of a four-week consultation from 24 October to 21 November last year. We consulted representative judicial organisations with a view to reaching agreement, and received 23 responses, the majority of which agreed with the proposal. Two respondents did not agree, and also raised some points relating to wider pension issues outside the scope of the consultation, which was on the proposal to extend the current rates as an interim measure for one year. For example, they disagreed with the stepped approach for contribution rates and expressed preference for a flat rate to apply, and for a non-contributory scheme. We engaged further, with the aim of reaching agreement, but unfortunately were unable to secure the agreement of the two respondents.

In addition to the consultation, we have laid a report before Parliament that sets out the rationale for the amendment regulations. Furthermore, as the judicial pension schemes to which the draft regulations relate are UK-wide, we have kept the devolved Administrations informed of progress and will continue to engage closely with them on further developments.

Under this interim measure, the cost of accruing pension scheme benefits will remain the same for members of both schemes for the scheme year April 2019 to March 2020. If it is agreed that changes to member contribution rates, or any other changes, are required in future as a result of the valuation process, those changes will be backdated to 1 April 2019 where appropriate.

I conclude by reinforcing the point that the existing arrangements for member contribution rates for both the 2015 and 2017 judicial pension schemes will expire on 31 March, so the draft regulations are a necessary interim measure to continue the effective operation of those pension schemes until a longer-term solution is put in place. I hope hon. Members will agree that the regulations are an important and necessary interim measure to continue the arrangements for member contribution rates and for the effective operation of the judicial pension scheme.

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It is a pleasure to serve under your chairmanship, Sir Graham.

The Opposition will not seek a Division on this statutory instrument—we understand that it is purely a one-year extension of an existing scheme—but I wish to draw the Minister’s attention to the fact that we are quite unhappy with the way that judicial pensions have been dealt with for a number of years. The Government have tried to deal with the issue for at least four to five years. One case went to an employment tribunal, where the Government were held to have acted illegally by changing the dates and years of pension requirements. That case, which is going to the Supreme Court, deals with the concern that some judges were being paid more and would retire with a higher pension than those who had done a similar job. Basically, younger, newer judges were being discriminated against. One of the reasons the employment tribunal held that the provision was discriminatory was that younger judges were often women and members of the black and minority ethnic community. In essence, that was the main reason why the Government were found to have acted wrongly.

The Ministry of Justice and the Government are aware that there is currently an acute shortage of High Court “red” judges. One reason why is that a number of senior lawyers and practitioners are not putting themselves forward for High Court appointment. A substantial number of positions have been vacant for years and it does not seem that they will be filled in the next few years. One of the main reasons for that has been the big change in judicial pensions. In any country, for people to have confidence in the law and in law enforcement processes, we do not need just good laws; we need able and good people who can implement those laws properly. To ensure confidence, we need the best people to be our judges, tribunal panel members, tribunal chairs, district judges, county court judges and circuit judges, but they have to be remunerated properly for that to happen.

Although the Government have been carrying out consultations, the Ministry of Justice needs to sit down with the judges and have a proper discussion, so that we do not have these interim ad hoc yearly renewals. The Senior Salaries Review Body has made a number of recommendations that the Minister has not mentioned. All the Ministry is doing by extending the current provision is kicking that SSRB report even further down the road. It is important that the Ministry have that discussion with the judges and, as it does not appear to have done so, considers the SSRB’s recommendations. The SSRB has come up with some excellent recommendations, and if the Government applied their mind to them, they could probably resolve the issue a lot more quickly and smoothly.

In essence, the Ministry’s handling of the issue has not been great and there is discontent among the judiciary. A solution has been put forward. The issue of judicial pensions needs to be addressed but, as I said, we will not seek a Division on these regulations.

Question put and agreed to.

Committee rose.

Draft Small Charitable Donations Act (Amendment) Order 2019

The Committee consisted of the following Members:

Chair: Mrs Madeleine Moon

† Allan, Lucy (Telford) (Con)

† Crabb, Stephen (Preseli Pembrokeshire) (Con)

† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)

† Elliott, Julie (Sunderland Central) (Lab)

† Foster, Kevin (Torbay) (Con)

† Grady, Patrick (Glasgow North) (SNP)

† Jenrick, Robert (Exchequer Secretary to the Treasury)

† Lefroy, Jeremy (Stafford) (Con)

Leslie, Mr Chris (Nottingham East) (Lab/Co-op)

† Letwin, Sir Oliver (West Dorset) (Con)

† Lewis, Clive (Norwich South) (Lab)

† Mann, John (Bassetlaw) (Lab)

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

† Ross, Douglas (Moray) (Con)

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

† Walker, Thelma (Colne Valley) (Lab)

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

Jack Dent, Committee Clerk

† attended the Committee

Eighth Delegated Legislation Committee

Tuesday 12 February 2019

[Mrs Madeleine Moon in the Chair]

Draft Small Charitable Donations Act (Amendment) Order 2019

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I beg to move,

That the Committee has considered the draft Small Charitable Donations Act (Amendment) Order 2019.

Good morning, Mrs Moon. The Government recognise the important role that charities play in our society and are committed to encouraging greater charitable giving. We therefore continue to provide support to charities and their donors through a broad and generous package of tax reliefs, which in 2017-18 was worth more than £5 billion. The draft order presents an opportunity to enhance the Government’s support further by increasing the individual donation limit on the gift aid small donation scheme from £20 to £30 with effect from 6 April.

Gift aid was introduced by Sir John Major as Chancellor nearly 30 years ago. When eligible taxpayers give a sum of money to charity, it allows the charity to reclaim from Her Majesty’s Revenue and Customs the basic rate of tax on the gift. For a charity to claim that tax relief, an eligible donor must sign a gift aid declaration form that confirms his or her consent to the charity’s reclaiming the income tax paid on the donation. Gift aid is now a well established and significant revenue stream for charities: in the 2017-18 tax year, more than £1.26 billion in gift aid relief was paid to charities throughout the United Kingdom.

It is not always practical or feasible for a gift aid declaration to accompany charitable donations such as those received by small charities via collection tins on the high street or by churches via the collection plate. That is why, after listening to those groups, in 2013 the Government introduced the gift aid small donations scheme, which is designed to help charities to receive a gift aid-style top-up payment—a 25% top-up from the Government—on small cash and contactless card donations without a gift aid declaration being signed and submitted. The scheme is not a substitute for the original gift aid scheme; where a donor makes a larger donation or can reasonably be expected to complete a declaration form, gift aid should still be claimed in the usual way.

Take-up of the gift aid small donations scheme has increased year on year, although it would be helpful if more charities knew about it, understood it and used it. In 2017-18, 24,000 charities claimed a total of £34 million through the scheme. In our 2018 autumn Budget, the Government announced our intention to increase the individual donation limit on what a charity can claim through the small donations scheme from £20 to £30, extending support for charities. Some 80% of the organisations that currently participate in the scheme claim well below the £8,000 overall limit that we have set in the past, so we estimate that 20,000 organisations will benefit from greater top-up donations as a result of the draft order. The draft order’s change to the donation limit will benefit the good causes to which the donations have been pledged. I commend it to the Committee.

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Good morning, Mrs Moon. As the Minister outlined, the Small Charitable Donations Act 2012, which came into force on 6 April 2013, introduced a new scheme to enable charities and community amateur sports clubs to claim a gift aid-style top-up payment on small cash donations of up to £20 in circumstances in which it is not practical or feasible to obtain a gift aid declaration. The draft order will increase to £30 the maximum individual small charitable donation on which such payments can be claimed. My understanding is that eligible charities and CASCs can claim top-up payments up to £8,000 for small donations each year.

As hon. Members are probably aware, the gift aid small donations scheme was established in 2012 with cross-party support. The Small Charitable Donations and Childcare Payments Act 2017 then made several changes to gift aid small donations to simplify and increase access to the scheme, particularly for smaller and newer charities, including allowing small donations covered by the scheme to be made by contactless payment from April 2017. Although the Opposition welcomed that streamlining to create legislative clarity and coherence, we have continued to emphasise the need for robust Government monitoring of the gift aid small donations scheme, especially in relation to its use for fraud or tax evasion. Will the Government publish any information that they have on the matter?

Unfortunately, there have been cases of charities being used as vehicles for tax avoidance and fraud. It is incumbent on us to make it as hard as possible to abuse charitable status. During the passage of the 2017 Act, the Opposition tabled a new clause that would have required a review of the prevention of fraud and abuse in the small donations scheme. Such a review would need to address the number of penalties imposed under the 2012 Act and the circumstances giving rise to the imposition of such penalties. It should also include HMRC’s assessment of the extent to which charities have been established or have operated for the primary purpose of securing benefits from the small donations scheme, and of the evidence available on the role of the gift aid matching rule in preventing fraud and abuse. Will the Minister update us on whether the Government will consider such a review?

Has there been any evidence of the gift aid small donations scheme being used for fraud or tax evasion? Will the Government publish any information that they have on it? Will the Minister also update us on the Treasury’s monitoring of any potential loopholes? The explanatory memorandum to the draft order notes that

“20 per cent of organisations currently participating in the GASDS are already claiming at, or close to, the overall limit of £8,000 per charity (or community building).”

I note that charities can claim up to £8,000 per building; do the Government have data on how many organisations are claiming for more than one building? How much of the gift aid small donations scheme benefit has accrued to large organisations claiming for more than one building? Are there any plans to increase or decrease the £8,000 limit after the donation size has been increased?

The Government’s policy paper states:

“Following stakeholder feedback the government has decided to increase the individual donations limit for GASDS to £30. A consultation is not needed to make this small change.”

However, an increase of 50% from £20 to £30 is very significant. What is the evidence base for that figure? What estimate have the Government made of the effect on how and by whom donations are made? The policy paper further states:

“This measure will be monitored through information provided in correspondence and regular feedback from the charity sector.”

The draft order is exempt from the requirement to provide a review provision in accordance with section 28(3)(c) of the Small Business, Enterprise and Employment Act 2015, as it relates to

“the giving of grants…by…a public authority”.

None the less, as the Opposition have noted a number of times, it would be advantageous to have a more comprehensive and transparent process in place.

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The spokesperson for the official Opposition, the hon. Member for Norwich South, raised some interesting points, but I did not pick up whether he supports the draft order. It is important that his questions be answered and considered, but the draft order will make a relatively minor change that I think will broadly be welcomed by the charitable sector. In my experience in the sector before coming to Parliament, I have seen the difference that gift aid can make to the operation of charities, especially small and community-based organisations and churches, which the Minister mentioned. The opportunity to reclaim from the likes of street collections, where it is not physically possible to collect gift aid information, is valuable.

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We will probably abstain, but may I pick up the point the hon. Gentleman is making? It is easy to assume that all charities are charitable in their nature how they operate, but clearly there are some with the potential not to do what they say on the tin. According to the Lloyds Bank Foundation,

“the proliferation of larger public service contracts meant that new types of charity had emerged, which had little interest in meeting local community need, but were instead ‘driven by market share’ and ‘prepared to slash costs to win contracts, with little regard to service quality.’”

We also know that there can be fraud and that charities can be used as a front for it. Our position is simply that there needs to be transparency.

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That is very helpful. I do not necessarily disagree with any of it, but I would be concerned about standing in the way of a relatively minor uplift that would be beneficial, taking into account inflation and the increasing frequency and popularity of contactless donations. I totally agree with the points on transparency and on the need for that kind of scrutiny to continue. On that basis, I will not oppose this measure.

I want to respond to one other point that the Minister made. He said that not all small charities—legitimate local charities—necessarily take all this up. Perhaps there is a job for some us as constituency Members to encourage smaller community organisations that do not realise that this opportunity is available to them.

On at least one note of consensus, I notice that paragraph 8.1 of the explanatory memorandum states:

“This instrument does not relate to withdrawal from the European Union.”

I am sure that we all look forward to the day when we see that more frequently in explanatory notes.

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I will not be abstaining on the instrument; I will be supporting it on behalf of the charities in my constituency, where there are a lot of small charities. This is a minor but eminently sensible proposal by the Government, which will be welcomed by the many small charities in my constituency.

Former coalfield communities do not have large charities and large organisations; they have small charities and small organisations. It might interest the Minister to know that the one large charity supported in my constituency is Help for Heroes. Bassetlaw is not the wealthiest part of the country, but it is the highest per capita contributor to that charity in the entire country. That also goes for small charities—for example, the local mosque, which is the first in Bassetlaw. It was formed by a charity and I supported its establishment. There were some difficulties with extreme elements in the local community. Raising the £200,000 needed to establish the mosque requires a lot of small charitable donations.

The extra 25% that can be gleaned—I appreciate that it is only up to £8,000 annually for small charities—can make a significant difference to churches and to those who have set up small charities, which is particularly common in my area. An example is when a child has died in tragic circumstances and the family has set up a charity. That is a common tradition in mining communities, and it is a fine one. These charities are tiny and make a small but important impact. The fact that they can go that bit further—not least through the use of contactless donations, which has spread rapidly to areas such as mine—is to be welcomed. I fully endorse the Government bringing this measure forward. This is common sense, and I hope that Labour Members will support it rather than abstain.

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I thank those colleagues who have spoken. I am grateful to the Scottish National party spokesman, the hon. Member for Glasgow North, and to my constituency neighbour, the hon. Member for Bassetlaw, for indicating either their support or their intention not to oppose this measure. Gift aid has enjoyed cross-party support ever since it was created 30 years ago. I hope that will continue, not only because it is an important measure in its own right, but because it is important to give certainty to charities that enjoy it across the length and breadth of the country.

As the hon. Member for Bassetlaw set out, a multitude of smaller charities have already welcomed the measure. In fact, we were responding to the voices of charities, many of which wrote to me. I attended the excitingly named charity tax conference a year ago, and this was one of their No. 1 asks to the Government. We have been pleased to oblige by laying the instrument. It will make a small difference to those charities and to all those individuals who put money on a collection plate in their local church or give to a small charity on the high street. I cannot see any reason why one would not wholeheartedly support that.

We take fraud seriously, as the Committee would expect. There has not been any material evidence of fraud, although there have been a small number of cases. In May 2016, three individuals were jailed for a total of 22 years for defrauding HMRC of £5 million in fictitious gift aid claims. That built upon a previous case from the month before, in which three other individuals were jailed for a total of 11 years for submitting fraudulent gift aid claims totalling £340,000. Thankfully, the unscrupulous individuals who seek to exploit charitable status for criminal purposes are rare, and there is no evidence of systematic abuse.

We designed the scheme in quite a complex manner— too complex, according to some charities—to make it difficult to conduct fraudulent activity. HMRC works closely with the charity regulator, the Charity Commission, with which I have been in regular contact over the last year on a number of matters, to ensure that charities are properly regulated and that any abuse of charities is dealt with robustly. When a charity is suspected of fraud, HMRC will share the information as soon as possible with the Charity Commission, which will consider further action, including removal from the charities register. Although we take that situation seriously, I do not want to overemphasise it because abuse of the scheme is not widespread. It is an important scheme that we should take forward into the years ahead.

The hon. Member for Norwich South asked about increasing the £8,000 limit. We increased the limit substantially, from £5,000 to £8,000, as recently as 2016, so we think it logical to keep it at that level for the foreseeable future. The hon. Member for Glasgow North raised a legitimate concern about public awareness of the scheme. That is something that all right hon. and hon. Members could take away from the Committee and encourage smaller charities, local parish churches and other good causes that they visit and encounter to take advantage of the scheme.

We did some research with the Charity Commission at the beginning of last year. As a result of that research, we wrote to all the charities in the country that take advantage of gift aid but have not yet, the best of our knowledge, used the gift aid small donations scheme—around 47,000 charities—to publicise the scheme and explain its relative simplicity, and to encourage them to take part in it. I hope that the Committee will wholeheartedly support this good news for our charitable sector.

Question put and agreed to.

Committee rose.

Draft Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

The Committee consisted of the following Members:

Chair: Sir Edward Leigh

† Antoniazzi, Tonia (Gower) (Lab)

† Burns, Conor (Bournemouth West) (Con)

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

† Gaffney, Hugh (Coatbridge, Chryston and Bellshill) (Lab)

† Glen, John (Economic Secretary to the Treasury)

† Henderson, Gordon (Sittingbourne and Sheppey) (Con)

† Jack, Mr Alister (Dumfries and Galloway) (Con)

† Jenkyns, Andrea (Morley and Outwood) (Con)

† Knight, Julian (Solihull) (Con)

† Mann, Scott (North Cornwall) (Con)

† Phillipson, Bridget (Houghton and Sunderland South) (Lab)

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

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

† Smith, Royston (Southampton, Itchen) (Con)

† Thewliss, Alison (Glasgow Central) (SNP)

† Walker, Thelma (Colne Valley) (Lab)

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

Peter Stam, Committee Clerk

† attended the Committee

Ninth Delegated Legislation Committee

Tuesday 12 February 2019

[Sir Edward Leigh in the Chair]

Draft Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

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I beg to move,

That the Committee has considered the draft Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019.

May I say what a pleasure it is to serve under your chairmanship, Sir Edward? As the Committee will be aware, the Treasury has been undertaking a programme of legislation under the European Union (Withdrawal) Act 2018 to ensure that if the UK leaves the EU without a deal or an implementation period there will continue to be a functioning legislative and regulatory regime for financial services in the UK. This statutory instrument is an important part of that programme. It will address deficiencies related to the EU’s equivalence framework for financial services once the UK is no longer an EU member state, and will make provision for elements of the UK’s stand-alone equivalence framework in a scenario where the UK leaves the EU without an agreement.

Many members of the Committee will be familiar with the EU’s framework for equivalence. The EU’s internal market for financial services works by harmonising prudential regulation and supervisory standards. Common rules aim to provide adequate consumer protection and financial stability, so that financial services can safely be sold across borders within the EU. For the same reasons, the EU also harmonises to some extent the rules permitting financial services firms outside the EU to sell to consumers in the EU. EU legislation allows the European Commission to determine that a country outside the EU, often termed a third country, has a regulatory and supervisory regime in a particular area of financial services that is equivalent to the corresponding EU regime.

Equivalence provisions exist in several areas of EU financial services legislation. The ability to grant equivalence is a key component of financial services regulation and supports cross-border activity. Equivalence decisions can reduce or eliminate overlaps in regulatory and supervisory requirements, thus decreasing the regulatory burdens on firms. Some equivalence decisions can also provide improved prudential treatment or facilitate the exchange of services and products. This can lead to increased competition, which has benefits for firms and consumers, while protecting consumers and financial stability in the EU from risks associated with buying financial services from outside the EU.

Before making an equivalence decision, the Commission will undertake an assessment of the third country’s regulatory and supervisory regime. The Commission may also ask the European supervisory authorities—ESAs—for technical advice to support its assessment. As an EU member state, any equivalence decisions made by the Commission currently have effect in the UK. After exit, the Commission’s current decisions will be retained EU law and will continue to permit third country firms to be treated as they are now.

In a no-deal scenario, the UK will be outside the European economic area and no longer part of the EU’s equivalence framework for financial services. The UK will become a third country to the EU. We need to amend retained EU law to reflect that new relationship. The Government place significant importance on the need to have a functioning stand-alone equivalence regime, which will support our future relationships with the EU and other financial centres with which we want to build stronger partnerships.

Members of the Committee will be aware that other Treasury Sis that have completed their passage in Parliament have already transferred equivalence responsibilities from the Commission to the Treasury and functions from the ESAs to the UK financial regulators in a no-deal scenario. While maintaining the same substantive criteria that the EU currently uses to judge equivalence, this SI will help to complete the UK’s framework and ensure that the UK has a stand-alone regime.

The instrument does three main things to support the development for a stand-alone UK equivalence framework in the event of a no-deal exit. First, it corrects deficiencies in existing equivalence decisions made by the Commission, which will be transferred to the UK’s statue book as retained EU law on exit day. An example of this deficiency fix is replacing references to “the Union” with references to “the United Kingdom”, to reflect the UK’s new position outside the EU. Fixing those decisions is important to minimise disruption for some firms with business in equivalent countries and for some overseas firms that currently rely on them. This will help to avoid disruption to the UK’s relationship with non-EU countries.

Secondly, the instrument replaces the functions given to the ESAs with functions for the UK financial services regulators. When undertaking new equivalence assessments, the Treasury may obtain technical advice from the UK financial services regulators—the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England. The SI also creates an obligation on the Treasury and the UK regulators to enter into a memorandum of understanding that sets out in more detail the operational processes to support equivalence assessments.

Thirdly, the SI creates a temporary power for Ministers to make equivalence and exemption decisions for EU and EEA member states by direction for some specified equivalence regimes listed in the SI. That is separate from and in addition to the permanent arrangements for making equivalence decisions after exit, which require a negative resolution instrument in Parliament. The temporary power is needed to prepare for the particular circumstances we would face if the UK left the EU without a deal. As an EU member state the UK has not previously needed powers to determine whether the EU is equivalent, but in a no-deal scenario it will be important for the Treasury to have powers to make such decisions in time for exit day, to respond quickly and effectively to any risks to the financial system and to avoid disruption for firms and markets.

Let us be clear: in such a situation, the UK would need to be nimble and able to act quickly to find the EU equivalent to the UK and support market functioning. Having an effective and time-limited power puts us in the optimum position to work with the European Commission to find each other’s regimes equivalent, which would be the most sensible outcome to protect cross-border economic activity and avoid disruption, although, failing that, equivalence decisions by the UK of the EU should not be assumed.

To illustrate why the powers are required, I point out to the Committee that the Commission has published several draft legal acts granting exemptions to UK bodies in a no-deal scenario. That shows our shared view that some equivalence decisions are important to have in place for day one of exit. The power is intended to be used to mitigate risks around exit and would expire 12 months after exit day; thereafter, any future equivalence decisions for the EU and EEA member states would need to be made by regulations subject to the negative procedure, as they would for all other foreign countries. To ensure transparent use of the temporary power, the SI obliges Ministers to lay any direction before Parliament and to publish it.

The Treasury, as is customary with all these SIs, has worked closely with the Bank of England, the PRA and the FCA in the drafting of this instrument. It has also engaged the financial services industry on this SI and will continue to do so. The regulators and key industry stakeholders have expressed support for the provisions in the instrument as necessary to mitigate disruption and provide legal certainty about the UK’s equivalence system.

The Government believe that the proposed legislation is necessary to ensure that the UK has a clearly defined and operable equivalence framework in a no-deal scenario. The powers it contains are necessary to ensure that the Treasury and UK regulators are able to respond if the UK leaves the EU without a deal or an implementation period. I hope colleagues will join me in supporting the regulations, which I commend to the Committee.

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It is a pleasure to serve under your chairmanship, Sir Edward. Once again, the Minister and I are here to discuss a statutory instrument that makes provision for a regulatory framework after Brexit in the event that we crash out without a deal. I will spare the Minister the full list of our concerns; I think we are somewhere around 15 through the list, but these events are almost daily now, so he is aware of our concerns. It is enough to say that the Opposition would like to put on record our worries that the process of transposing this legislation has not been as accessible or as transparent as it should be.

Last night in the main Chamber we debated the Financial Services (Implementation of Legislation) Bill—the “in-flight” financial services Bill—which the Opposition voted against. One of the reasons for opposing that Bill is that the combination of work happening in Delegated Legislation Committees, along with the “in-flight” Bill, is creating a patchwork of new rules. We believe that is inherently vulnerable to clashes, gaps and inconsistencies.

That is also our view of today’s instrument. Clearly, the objectives are the right ones, but the Minister and I have already voted on a great number of items of regulation where in some instances the Government have transferred powers to the Financial Conduct Authority, the Prudential Regulation Authority, the Treasury or the Bank of England, so it is not entirely clear why we now need this separate instrument, to pass distinct powers to grant equivalence arrangements separate to the decisions that we have already taken in each of those specific instruments. Once again, while there is a sunset clause in this legislation, it is worrying that the Treasury is trying to give itself powers to keep in its back pocket to deploy should it decide that they need to be exercised.

Will the Minister clarify why we need stand-alone powers of this kind and which regulations he feels they would be used in reference to? What is the relationship between this general set of regulations on equivalence and the specific statutory instruments that we have already debated and which already relate to the transfer of powers? Why has the Treasury been given powers to make labour-intensive evaluations of regulatory standards in other countries, as opposed to that going to the Financial Conduct Authority, the Bank of England or the Prudential Regulation Authority? Is the Treasury properly resourced for this work? If not, will it receive extra resources for what it is being asked to do? Will there be a publicly available central register of all equivalence decisions, so that domestic and external market participants can have ready access to up-to-date information, along with the accompanying rationale for the decisions that have been made?

I note that these powers can be used before exit day, with a view to taking effect on 29 March. The Minister directly referred to this near the end of his speech. That is an uncomfortable proposition and distinct from some of the legislation we have already passed. With just 33 working days to go until we leave the European Union, can the Minister indicate in what context they would be used during this period and why that would be felt to be necessary? I believe the words that he used were that the Government need to be “nimble” in that scenario, but as parliamentarians we need more reassurance about that and about the general scope and intention of this legislation. I hope the Minister can provide that for us.

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It is a pleasure to see you in the Chair, Sir Edward, and to join everyone here today.

I share a lot of the Opposition’s concerns. They have been well expressed in previous Committees and yesterday on the floor of the House. We are concerned about the Government giving themselves more powers under this SI. This is a pattern in all these SIs and the Bill yesterday. The Government are giving themselves more powers and taking that power away from us as MPs. This is by no means taking back control, but giving themselves all the control and giving the Treasury very specific powers as well.

I have a couple of questions. The Minister said that equivalence cannot be assumed, but I would argue that the SI should have assumed that the UK would automatically grant equivalence to EU regulations in the absence of any kind of practical reasons standing against that. Failing to provide that automatic reassurance is another example of the UK Government’s sowing mistrust in our European partners. The EU can revoke equivalence at any time, so it would be an act of good faith for the Government to say that for their part they would not do so, and that might be of some assistance.

Further to that, there is an additional burden on the Treasury, the Prudential Regulation Authority and the Financial Conduct Authority. Can the Minister tell me how many staff are working on equivalence assessments within those institutions? Knowing how many people are working on it would give a good idea of the Government’s intention to use these powers. If there is nobody working on it, or one person in a cupboard at the back of the hall somewhere, perhaps one could say that they are not going to be looking at it, or they are not going to be using these powers, but if there is a squad of 50 working on it, that is quite different, not least because of the additional expense that that would impose.

It seems a little like the instrument, because it is not specific and is a bit broader, is intended to paper over the gaps that other statutory instruments might have left. Is its purpose to cover things in a more general sense?

We are running out of time, getting closer and closer to Brexit. The rhetoric around no deal is ramping up, which is certainly not helping to reassure businesses in Glasgow Central, Scotland or anywhere else. We have to face the reality that the UK Government are not ready to leave. Article 50 must be extended. We are running out of road here, and the risk is that we will end up with no legislation to cover things that need to be covered in the event of no deal, which seems increasingly likely.

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I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their observations. I will first attend to the general points about readiness and the intention of the Government, which is clearly to secure a deal.

I assure hon. Members, as I have on previous occasions, that there is no secret agenda in the Treasury to grab power. The SI is about contingency arrangements for the unwelcome outcome of no deal. We take this responsibility very seriously. An impact assessment was published on 7 February stating that there will be no new operational requirements for firms owing to the draft instrument.

I will now seek to address the specific points raised by Opposition Front-Bench Members. The hon. Member for Stalybridge and Hyde asked, in essence, why we need these extraordinary powers to grant EU and EEA equivalence on exit day. It is important to stress that this temporary power is intended only to mitigate cliff-edge risks and to support UK market activity and the continuity of cross-border business. The power is time limited; it will expire 12 months after exit day, which was determined following engagement with the industry and regulators. Thereafter, any further equivalence decisions regarding the EU and EEA will need to be made by regulations via the negative procedure.

The hon. Gentleman asked about the resources in the Treasury. The Treasury has been preparing to take on these additional functions and is well equipped, given its existing responsibility for financial services policy. We have worked closely with the FCA and the PRA during the development of the draft instrument, and we are confident that we are well placed to make future equivalence decisions.

The hon. Gentleman asked about the appropriateness of the Treasury making equivalence decisions, rather than the regulators. Under the EU’s equivalence framework, the European Commission is responsible for making jurisdiction-level equivalence decisions. The European supervisory authorities are responsible for providing technical assessments to the Commission when requested and for making firm-level recognition decisions on third country firms. Our approach will ensure that there is a functioning equivalence framework in the UK after exit that mirrors the current split in responsibilities between the Commission and the ESAs, with the Commission’s function transferring to the Treasury and the ESAs’ functions transferring to the relevant regulatory authorities. That is consistent with what we have done in the other SIs.

The hon. Gentleman asked whether a central register of equivalence decisions will be created. All decisions will be laid in Parliament and published on gov.uk, so they will be publicly available. There are no plans at this point to have a central register, but the process is intended to be completely transparent.

The hon. Member for Glasgow Central asked whether Parliament would be consulted on a decision to revoke equivalence. In the future, equivalence decisions will be made and revoked by regulations subject to the negative procedure. This is a well-established procedure that allows Parliament to scrutinise proposed secondary legislation and to object if it has concerns, including about any decision to revoke an equivalence decision.

The hon. Lady asked about good will towards the EU and what will be the best decision. Clearly, we share a common heritage; the United Kingdom as a whole, including the excellent financial services located in Glasgow and Edinburgh, has contributed richly to the development of the EU regulations. We will obviously start from a common starting point. However, decisions around equivalence will be matters for both sides to come to terms with, and we will seek to do the best thing for the UK financial services industry in whatever prevailing conditions exist. We cannot anticipate that degree of co-operation, so we cannot make decisions proactively, as we might wish to do had we a deal and an implementation period, which would allow us to work such things out—as we intend.

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I understand what the Minister is saying, but surely it is in our interest—ours and the EU’s—if we want to continue to interact as we do now, to do things in a similar way.

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Absolutely it is, but what we cannot do until we have a deal is to determine what no deal would look like. It is therefore appropriate for me, as the Minister responsible for the UK financial services industry, to seek to reserve those powers, as the Commission is doing now—largely.

The hon. Lady caught me out, as she has often done before, when she asked about the number of people working on equivalence at the regulators. All I can say is that the Treasury is confident that the regulators have in place the resources to meet that function and they have devoted significant time to preparing for changes. I do not have a specific figure, but I am confident in their overall provisioning for that programme of work. I draw attention to schedule 1, which sets out the files in question.

The statutory instrument is needed to ensure that the UK has a clearly defined equivalence framework once outside the EU and is able to support the continuity of cross-border business in any scenario, and that the legislation functions appropriately if the UK leaves the EU without a deal or an implementation period. That is not our intention, but I am confident that, given the engagement we have had with the regulators and the industry, the SI is required. I hope that the Committee has found our sitting informative and will now support the draft regulations.

Question put and agreed to.

Committee rose.