I thank their lordships for their work in considering the Bill. In particular, I thank Lord Tunnicliffe and Lord Eatwell, who led for the Opposition in the relevant debates.
Let me start tonight with some of the areas where we agree with what the House of Lords has done with the Bill. Lords amendments 16 to 19 make the UK’s net
zero targets part of the remit of the financial services regulators. We moved similar amendments in this House, both in Committee and on Report, and both times the Minister led MPs on the Government Benches to vote them down. Indeed, when the House last discussed the Bill, on 13 January, the Minister said
“I do not believe that regulators should be required to have regard to broader questions that are not so closely related to prudential standards.”—[Official Report, 13 January 2021; Vol. 687, c. 398.]
So what was it that led to this Damascene conversion? What happened between 13 January and now to make the Minister do a U-turn and support amendments that he and his party voted down repeatedly in the Commons?
There are many reasons to oppose legislative propositions in this House, but “not invented here” has to be one of the weakest. We have argued throughout the passage of the Bill that financial services, including the work of the regulators, are a vital part of the drive towards net zero. There was no good reason for the Government to oppose the idea during the earlier debates on the Bill. Every sector of the economy will have to adapt to the change and it will be for Government Members to explain to their constituents why they voted the amendments down.
We also welcome Lords amendment 6 on the regulation of “buy now, pay later” firms—a cause championed with characteristic energy and determination by my hon. Friend the Member for Walthamstow (Stella Creasy). Again, we called for such regulation in the Bill’s previous Commons stages and the Government voted against it on Report. As financial services innovate, so must the regulatory boundaries. The regulation was recommended by the Woolard report, which was published in February, and we welcome its inclusion in the Bill. The new clause that has been inserted will be just the first stage of the process; the FCA will have to decide exactly how it will be done. Given the enormous growth in the use of such platforms over the past year or two, it is important that the regulator gets on with it as soon as possible.
Lords amendment 9 deals with cashback without purchase. There has been a significant decline in the use of cash during the pandemic, with a big move to contactless payments and payments online. We understand that this has many benefits for consumers—indeed, the pandemic has been called the great acceleration in respect of the many ways it has influenced our behaviour. Despite that acceleration, there will still be a proportion of the population who need cash, both for payments and for budgeting purposes. The Government promised to legislate on this issue at the Budget last year. Since then, it has felt like this is an ownerless problem, with the banks, LINK, the ATM providers, the regulator and the Treasury all somewhere on the pitch but no one really gripping the situation.
Cashback without purchase might be part of the answer, but that alone does not fulfil the Government’s commitment to ensure a nationwide system of free-to-use access to cash. We cannot allow innovation in payments to mean that the lowest-income households in the country have to pay to access their own money. When will the Government get a grip of the situation and bring forward a proper plan for access to cash, even in a world where the total number of transactions paid for in cash declines?
Let me turn to what are perhaps the more contentious issues before us. For many years, consumer groups have campaigned for a duty of care for financial services
providers, because of the enormous imbalance of information between the sellers of such products and the purchasers. If we add to that imbalance a financial incentive to sell, we have the seeds of many of the mis-selling scandals that we have seen, with all the distress they have caused to individuals, plus, of course, the lengthy and extremely expensive processes of redress that the industry has had to establish. Would it not have been better to avoid the push selling of inappropriate products in the first place? That is the idea behind a duty of care. Its aim is to change the question in the seller’s mind from, “Is it legal?” to, “Is it right?” The amendment made in the Lords would empower the FCA to introduce such a duty.
The Minister says that he is not convinced. Instead, his amendment in lieu proposes a consultation on the matter by the FCA. Of course there will be scepticism about that, because there have been consultations before and nothing has happened. However, we accept that this commitment, with the timetable set out, is a step forward. In any case, there would have to be a consultation before any such duty could be brought forward. We therefore encourage all the consumer groups, and anyone concerned, to take part in the consultation set out by the Minister.
That brings me to the final issue of mortgage prisoners. We have been living through a period of historically low interest rates. Few people would have predicted that, 13 years after the financial crash, interest rates would be at their lowest levels in modern times. For Governments, including our own, that has enabled the financing of large deficits. For mortgage holders—or the vast majority of them, at least—it has given them access to long-term fixed rates at a low level, enabling them to pay down debt and to finance their home ownership. Indeed, one of the policy aims of low interest rates is to help people pay down debt.
However, one group has been excluded from the ability to fix their mortgages at low rates: those mortgage prisoners stuck on high standard variable rates with little or no ability to switch to competitive mortgage rates available elsewhere in the market. That is not how it started for most of those borrowers. They borrowed from regulated high street lenders such as Northern Rock, which were considered robust institutions at the time they took out their mortgages. Since then, however, some of those lenders have gone bust and the mortgages sold on to inactive lenders. People have become stuck, often at the cost of paying thousands of pounds more per year than would be the case on a more competitive rate. An estimated quarter of a million borrowers are in that position.
The Minister quoted some figures about how much extra people were paying and how that 250,000 was broken down. Some of those figures are disputed by the all-party parliamentary group on mortgage prisoners. Let us take the 0.4% that he cited. He said that people were paying, on average, only 0.4% above average SVRs elsewhere. That is disputed by the APPG. It estimates that mortgage prisoners have in fact been paying an average of 1.33% above the average SVR available, according to the Bank of England. Also, remember that in the mortgage market in general, only a small minority of borrowers are on SVRs; most are on a two or five-year fixed rate. That is how the UK mortgage market works for most people.
The Minister said that half of those borrowers could switch now if they wanted to. However, when the affordability changes were brought in, the FCA assumed that it would be only a fraction of that number. Whoever is right, the question must be posed: why have so few of them switched if they had the ability to do so? It cannot be because they like being stuck on a rate of 4% or more. Nor is it the case that all of those borrowers are somehow at the top end of loan-to-value ratios. Three quarters of mortgage prisoners have loan-to-value ratios of less than 75%, and that figure was calculated before the increase in house prices over the past year or so.
The Government claim that 70,000 mortgage prisoners are in arrears and could not switch even if they were allowed to. Let us look at what happens when borrowers with active lenders have been allowed to switch. The APPG estimates that someone with a mortgage of £165,000 will have paid an extra £24,000 over the past decade, compared with the Bank of England average SVR.
In individual cases with active lenders, where borrowers have been able to switch the effects have been huge. The APPG cites the case of a borrower with the TSB who saw her rate reduced from 4.69% to 1.99% and her payment go down from £928 to £397 a month—a saving of about £500 per month. This is transformative for the family finances of those involved. The release of pressure and freedom conferred by such a change in their monthly finances makes a massive difference to people’s lives, and those who have benefited from being able to switch in that way talk of a great weight being lifted from their shoulders—and no wonder.
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What the amendment aims to do is to take the benefits of the low interest rate environment that the Government and most mortgage borrowers have been able to use and extend those benefits to borrowers who have been paying over the odds for the past 13 years. It would apply only to those who are up to date with their payments or have missed no more than one monthly payment in the past year.
The Minister cited the LSE report. Financial journalist Martin Lewis, who backed that report, has spent the last two days encouraging this House to support the Lords amendment. The LSE report cited a number of other things that the Government have not done, such as Government equity loans, removing together loans—a particularly difficult product—partial loan write-offs and mortgage rescue schemes. The Government have not acted on any of those. The Minister takes issue with the drafting of the amendment, but here is the difference: unlike the issue of duty of care, the Government have not tabled an amendment in lieu; they have not produced an alternative legislative proposal. If it was just a matter of drafting, with the same intention, that avenue was open to the Government this evening, but the Treasury chose not to take it. That means that we will support the Lords amendment and vote against the Government proposal to strike it down.
Whatever the outcome of all this, surely it is time for the Government to do more to ensure that those who are stuck on high SVRs through no fault of their own can have access to more of the mortgage products available on the market, which could make such a difference to their finances and to their lives.