I would like to update Parliament on the loan to Ireland.
In December 2010, the UK agreed to provide a bilateral loan of £3.2 billion as part of a €67.5 billion international assistance package for Ireland. The loan was disbursed in eight tranches. The final tranche was drawn down on 26 September 2013. Ireland has made interest payments on the loan every six months since the first disbursement.
On 7 December, in line with the agreed repayment schedule, HM Treasury received a total payment of £407,852,313.75 from Ireland. This comprises the repayment of £403,370,000 in principal and £4,482,313.75 in accrued interest.
In October, as required under the Loans to Ireland Act 2010, HM Treasury provided the latest statutory report to Parliament covering the period from 1 April to 30 September 2020. The report set out details of future payments up to the final repayment on 26 March 2021. The Government continue to expect the loan to be repaid in full and on time. The next statutory report will cover the period from 1 October 2020 to 31 March 2021. HM Treasury will report fully on all repayments received during this period in the report.
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Contingencies Fund Advance: National Savings and Investments
HM Treasury and the Chief Secretary to the Treasury have agreed additional resource DEL funding of £40,500,000 for National Savings and Investments to respond to covid-19 issues, build greater operational resilience and prepare for a major retendering event.
Parliamentary approval for additional resources of £40,500,000 will be sought in a supplementary estimate for National Savings and Investments. Pending that approval, urgent expenditure estimated at £40,500,000 will be met by repayable cash advances from the Contingencies Fund.
Covid-19 is the biggest threat this country has faced in decades and, throughout the first and now second waves of the virus, the Government have sought to protect people’s jobs and livelihoods while also supporting businesses and public services across the UK, with over £280 billion of support spent so far. The vaccine deployment is a milestone in the recovery from the pandemic and the eventual return to normal life. While vaccination of the most vulnerable people has begun, it will take some time for the vaccine to be rolled out to the wider population. During this time, the Government remain committed to supporting people and businesses and providing them with the certainty they need.
In my previous statement to the House on 5 November 2020, I said we would review the scheme in January 2021. However, to provide certainty to businesses so that they can plan for the remainder of the winter and the new year, we have undertaken this review earlier. As the CJRS is already UK-wide, these changes will continue to apply to all devolved Administrations.
Following my last update in November, I can announce today that the coronavirus job retention scheme (CJRS) will be extended by another month, until the end of April 2021, with employees continuing to receive 80% of their current salary for hours not worked. Employers will be required to pay wages, national insurance contributions (NICS) and pensions for hours worked; and NICS and pensions only for hours not worked. The eligibility criteria for the scheme will remain unchanged, as I have previously set out.
The Government-guaranteed covid-19 business loan schemes—the coronavirus business interruption loan scheme (CBILS), the coronavirus large business interruption loan scheme (CLBILS) and the bounce back loan scheme (BBLS) have been open since the spring. As of 13 December, over 1.5 million businesses have been supported with facilities worth more than £68 billion.
On 24 November, in a written ministerial statement (WMS) (HCWS595), I committed to working with the Financial Conduct Authority (FCA) to lay before Parliament and publish online before the December recess Dame Elizabeth Gloster’s report into the FCA’s regulation and supervision of London Capital and Finance plc (LCF) and the FCA’s response.
This WMS provides an update on the investigation, the FCA’s response and the Government’s response. Pursuant to Section 82 of the Financial Services Act 2012, the report into the independent investigation, the FCA’s response and a statement of reasons for withholding any material have been laid in the House today.
LCF was an FCA-authorised firm that primarily offered an unregulated investment product—commonly known as mini-bonds—to retail consumers. It entered administration in January 2019, impacting 11,625 people who invested around £237 million.
The Serious Fraud Office and FCA enforcement have launched an investigation into individuals associated with LCF. The Financial Reporting Council has also launched investigations into the audits of LCF.
I know that this has been a very difficult time for LCF bondholders. For some, this will have formed part of an investment portfolio, but for others, it will have represented a significant portion of their savings.
In May 2019, I directed the FCA to launch an independent investigation into the events relating to the FCA’s regulation and supervision of LCF. To lead the investigation, I approved the appointment of Dame Elizabeth Gloster, who has had a distinguished career as a barrister and as a judge, in the High Court and the Court of Appeal.
Money Laundering and Terrorist Financing: National Risk Assessment
The UK’s status as a global financial centre, our openness to trade and investment, and the ease of doing business here are all vital for our prosperity. These remarkable strengths also make us vulnerable to the risk of illicit financial flows from money laundering and terrorist financing. The Government are committed to tackling these risks which undermine our economy and society and enable those who wish us harm to fund their activities.
Today, the Treasury and the Home Office are jointly publishing the UK’s third national risk assessment of money laundering and terrorist financing (NRA). This assessment updates the findings of the second NRA to take account of new information and developments that have emerged since its publication in 2017. The report has also been laid in Parliament.
The key findings of the 2020 NRA are as follows:
The traditional high-risk areas of money laundering remain, including financial services, money service businesses (MSBs), and cash. However, new methods continue to emerge within these, as criminals adapt to increased restrictions and exploit vulnerabilities in different sectors and emerging technology.
The cryptoasset ecosystem has developed and expanded considerably in the last three years, leading to increased risk of money laundering.
The ability to conceal the beneficial owners make the art market attractive for money laundering, and art market participants have been assessed as posing a high-risk of money laundering.
Professional services remain attractive to criminals as a means to support laundering the proceeds of crime, through the creation and operation of corporate structures, the investment and transfer funds to disguise their origin, and through lending layers of legitimacy to their operations.
On 9 July 2020, the Government agreed to introduce an income tax exemption and national insurance contributions (NICs) disregard to ensure that coronavirus antigen testing provided to employees outside the Government’s national testing scheme will not attract tax and NICs liabilities.
The Government are now introducing a second income tax exemption and NICs disregard, to ensure that employees who purchase their own coronavirus antigen test and are reimbursed by their employer will not attract tax and NICs liabilities.
The Government recognise the importance of covid-19 testing. Currently, regular tests are available through the Government testing programme to a wide range of employees, including NHS workers. If an individual is tested through the Government testing programme, no tax or NICs liability will arise.
Under normal rules, the cash reimbursement of a test by an employer to an employee would constitute earnings, and the amount reimbursed would be subject to income tax and class 1 NICs as a result. However, the Government introduced NICs regulations—the Social Security Contributions (Disregarded Payments) (Coronavirus) (No. 2) Regulations 2020 (SI 2020/1523) on 14 December and will introduce a tax exemption in the next Finance Bill to ensure that no tax and NICs liabilities arise.
These exemptions will ensure that income tax and NICs will not be due on employer-reimbursed antigen tests carried out during the current tax year 2020-21.
Easement for employer-provided cycles exemption
The tax exemption for the employer provision of cycles and cyclist’s safety equipment was introduced to support employers in promoting healthier journeys to work and to encourage green commuting. Many employers offer this in the form of cycle-to-work schemes.
Budget 2021: Office for Budget Responsibility Forecast
Today I can inform the House that I have asked the Office for Budget Responsibility (OBR) to prepare an economic and fiscal forecast for a Budget on 3 March 2021.
I have today laid before Parliament an update to the special resolution regime code of practice. This update accounts for the transposition of the Bank Recovery and Resolution Directive (BRRD) II; changes made to the special resolution regime as a result of onshoring, including removing references to the concept of state aid; and increasing alignment with the Bank of England and HM Treasury crisis management memorandum of understanding.
The special resolution regime code of practice provides industry and the wider public with important guidance on how UK authorities would use the tools provided by the special resolution regime to protect UK financial stability by resolving failing financial institutions in an orderly way.
This version of the code of practice reflects the transposition of BRRDII through provisions in the Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (SI 2020/1350). These provisions will come into effect on 28 December and update the UK’s resolution regime. The approach to transposition has been tailored to suit the UK’s resolution regime, and the code of practice provides further guidance on what this means for firms.
The UK authorities have taken all the action they can to mitigate risks of disruption to cross-border financial services at the end of the transition period. As part of this preparation, the Treasury has amended the code of practice where EU legislation, including the concept of state aid, was referenced previously.
As set out in the Banking Act 2009, the code of practice has been updated in consultation with the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and the financial services compensation scheme.
To support UK businesses through continuing economic disruption, the Government have decided to extend the closing date to new applications for CBILS, CLBILS and BBLS. The schemes, currently due to close on 31 January 2021, will now be open to applications until the end of March. Together, the schemes provide vital support across all sectors of the UK economy for businesses who have been impacted by coronavirus. The loans can be used to support businesses with any liquidity needs, whether covering costs, additional expenditure or investment. We are extending the schemes now, ahead of Christmas and further into the new year, to provide businesses with continued access to the support they need through any continued disruption in early 2021. The British Business Bank will provide accredited lenders with further guidance in due course.
The Government will provide a further update on covid-19 economic support at Budget, which will be held on 3 March 2021.
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On 23 November 2020, Dame Elizabeth delivered her report to the FCA. It concludes that the FCA did not effectively supervise and regulate LCF during the relevant period. She makes nine recommendations for the FCA, focusing on how they should improve their internal authorisation and supervision processes. The Government welcome the FCA’s apology to LCF bondholders and their commitment to implement all of Dame Elizabeth’s recommendations.
Dame Elizabeth also makes four recommendations for HM Treasury regarding the regulatory regime, which we accept in full.
First, Dame Elizabeth rightly recognises the challenges the FCA faces in regulating almost 60,000 firms and recommends that the Treasury should consider the optimal scope of the FCA’s remit. The Government agree that they need to consider whether this scope is manageable, but it would be premature to do so before the ongoing FCA transformation programme has been delivered. I have discussed this reform programme with the Chair and Chief Executive and I am convinced it is the best means to address the recommendations. I have today exchanged letters with Mr Rathi agreeing that he will provide regular updates on the progress of these vital reforms.
Secondly, with regard to the regulation of mini-bonds, in May 2019 I announced that the Treasury would review the regulation of non-transferable debt securities. The FCA have also banned the promotion of high-risk “speculative illiquid securities”—including some of the riskiest “mini-bonds”—to ordinary retail consumers. Building on this work, and in light of Dame Elizabeth’s report, the Treasury will launch a consultation in the new year on the regulation of non-transferable debt securities.
Thirdly, Dame Elizabeth raises concerns about a potential gap in responsibilities between Her Majesty’s Revenue and Customs (HMRC) and the FCA in relation to the innovative finance ISA (IF ISA) products.
The FCA is making improvements to its oversight of financial promotions and, with HMRC, the Treasury is urgently looking at the sufficiency of checks on IF ISA managers and at the penalties regime. To improve communication and intelligence sharing, the FCA and HMRC are working to update their memorandum of understanding, and will set up an ISA intelligence working group. Reflecting the findings in Dame Elizabeth’s report, the Treasury will also look at how understanding of the ISA wrapper could be increased so that consumers recognise that, as with any investment, there can be risks as well as possible rewards.
Finally, Dame Elizabeth notes the challenges that increased financial activity online poses for regulation. The FCA already has powers to take a variety of enforcement action against firms that carry out fraudulent activity. Nevertheless, the Treasury will continue to keep the legislative framework under review. As part of this, the Treasury is working with the FCA to consider whether paid-for advertising on online platforms should be brought into the scope of the financial promotions regime. The Treasury is also working with the Department for Digital, Culture, Media and Sport to ensure that fraudulent online advertising is addressed as a priority harm through its online advertising programme.
It is important to acknowledge again that LCF’s failure had a significant impact on the bondholders who have lost their hard-earned savings. There are several ongoing, interlinked processes addressing the reasons for the failure of LCF and seeking to recover bondholders’ investments. The three main channels through which bondholders can seek compensation are:
First, LCF’s administrators are pursuing legal action to recover money. This process is ongoing, but is not expected to recover bondholders’ investments in full, with the current estimate being that recoveries will be as low as 25% of a bondholder’s investment.
Secondly, the financial services compensation scheme (FSCS) has carried out extensive investigations to determine whether LCF bondholders were eligible for FSCS compensation, and it has since compensated 159 bondholders who transferred out of stocks and shares ISAs to LCF bonds. The FSCS is also continuing to issue decisions to LCF bondholders who may have received misleading advice and it will provide an update in the new year. These activities—arranging transfers and advising on investments—are regulated activities and therefore eligible for compensation. In total, as of the start of December, the FSCS has paid out just over £50.9 million in compensation to 2,584 LCF bondholders. There is also an ongoing legal process, with a hearing scheduled for 19 January, which may further affect eligibility for FSCS coverage.
Lastly, the FCA will consider claims for compensation from LCF bondholders through their complaints scheme, which is available to bondholders who believe they have suffered financial loss as a result of actions or inactions of the FCA.
The Government recognise that LCF’s failure and the loss of investment has had a significant and distressing impact on LCF’s bondholders. With any investment there is a risk that, sometimes, investors will lose money. The purpose of regulation is to ensure that investors have the right information to understand their risk. Within this system, even the best regulators, doing everything right, will not be able to, and should not be expected to, ensure a zero-failure regime.
And the Government cannot, and should not be expected to, step in to compensate for every failure and every loss.
But it is clear in the case of LCF that there are multiple, complex reasons why people lost money. And the Government recognise that there is likely to be some variation in how much of their investment bondholders are able to recover through these processes.
The Government therefore announce that, taking into consideration the specific and complex set of circumstances surrounding the collapse of LCF, the Treasury will set up a compensation scheme for LCF bondholders. The scheme will assess whether there is a justification for further one-off compensation payments in certain circumstances for some LCF bondholders.
I will provide a further update in the new year with more detail on the Government’s approach.
I would like to reiterate my sympathy for LCF bondholders and my commitment to act on Dame Elizabeth’s recommendations, to ensure that our regulatory system maintains the trust of the consumers it is there to protect.
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The UK’s terrorist financing threat continues to involve low levels of funds being raised by UK individuals for the purpose of lifestyle spending and low sophistication attacks.
Since 2017, the UK’s anti-money laundering and counter-terrorist financing regime has undergone review by the financial action taskforce. The UK achieved one of the best ratings of any country assessed so far in this round of evaluations, outperforming other states who are at the forefront of tackling money laundering and terrorism financing. However, no country can afford to be complacent, and there remain vulnerabilities that we must work to address.
Since the 2017 NRA, the Government have continued to take action to combat money laundering and terrorist financing. We have built on the success of the economic crime public-private partnership through the inception of the economic crime strategic board and the publication of the economic crime plan in 2019. We have also created the National Economic Crime Centre, and the Office for Professional Body Anti-Money Laundering Supervision, both of which have helped to further strengthen and co-ordinate our response to money laundering. The Government are also bringing forward plans to further strengthen corporate transparency through reforms to Companies House and the register of companies.
The UK will look to remain a leader in the global fight against money laundering and terrorist financing, and we will continue to revise and reform our response to economic crime as new risks and methodologies emerge. The publication of the third NRA today is an important step in this fight, as it provides a critical component of continued partnership and prioritisation between Government, law enforcement, supervisors and the private sector.
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One of the conditions of the exemption is that the cycling equipment provided should be used mainly for qualifying journeys (to or from work or in the course of work).
The Government’s covid-19 restrictions have required many employees to work from home where possible. Therefore, many existing users of the scheme are not travelling to work and may be unable to meet the condition for qualifying journeys. Under the current application of the rules, these individuals would become liable to an income tax benefit in kind charge.
However, the Government will introduce a time-limited easement to disapply the condition which states that cycles must be used mainly for qualifying journeys. The easement will apply to existing users and will allow those individuals to continue to benefit from the tax exemption without needing to meet the qualifying journeys condition.
The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020. The easement will be in place until 5 April 2022, after which the normal rules of the exemption will apply.
Therefore, employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020 will be permitted to an easement, and will not have to meet the qualifying journeys condition until 5 April 2022. Employees who join a scheme from 21 December 2020 will need to meet all the normal conditions of the exemption.
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The Treasury has also consulted the banking liaison panel, a group of industry stakeholders who represent the interests of banks, and who have expertise in law relating to the UK’s financial system and to insolvency law and practice.
This updated version of the code of practice will provide firms with the certainty and clarity they need by setting out how the UK’s resolution regime will operate following changes in legislation and as a result of the ending of the transition period.
The report has been published on gov.uk: https://www. gov.uk/government/publications/banking-act-2009-special-resolution-regime-code-of-practice-revised-march-2017.