MPs are only recently back from the party conferences and the House of Commons and the House of Lords will rise for the Christmas Recess on 17 and 22 December respectively. Between now and then there will only be around 30 business days – and much to do.
Core business will include the Autumn Statement which will be made by the Chancellor on 25 November. Following the landmark vote on working tax credits in the House of Lords on Monday 26 October, which some commentators say crossed the constitutional line which precludes the House of Lords ‘interfering’ in a money bill, the statement will most probably include transitional arrangements for the introduction of the proposed welfare cuts.
As normal the BSA has made representations to the Treasury on areas we would like to see covered in the Autumn Statement. These include our long-running concerns over the disruptive effect that the annual targets set for National Savings & Investments have on the retail savings market. In recent years NS&I’s intermittent forays into the savings market have resulted in significant balances being withdrawn from the financial services sector, often over a very short time scale. The over 65 Pensioner Bond alone attracted £13 billion, much of it from the retail market. Such levels can have an effect on the amount of money that is available to lend on residential mortgages.
It is unusual for any business just to have a 12-month planning/target horizon. There is a good case for the Treasury to set a rolling three to five year target for NS&I which would provide others in the market with information that would facilitate better balance sheet planning and in turn aid more consistent lending to new homeowners and families looking for job mobility or to move up the housing ladder.
We’ve also want the new bank surcharge to be kept under close review. This new tax has a disproportionate impact on building societies as they rely on retained profit to build both regulatory and ‘working’ capital to support mortgage lending activities. The Government itself has a stated commitment to the growth of home ownership in the UK – a figure which has been dropping in percentage terms in recent years. According to statistics from the Department for Communities and Local Government, down from 69% in 2001 to just the most recent figure of 63%.
Another key area we are looking for action on concerns market diversity. In this case not diversity of product, though this is important, but the need for the financial services market to have a diversity of providers. We see this relating both to ownership model and the size of firms. Achieving a diverse market in financial services is something that the Government has said it is committed to – we are keen to get that additional level of detail.
Looking at the Government’s legislative agenda (28 Bills announced in the Queen’s Speech in May), we are focusing attention on the Bank of England Bill as the best approach to achieve a legislative requirement on the regulators in relation to diversity of providers. In the second reading of this Bill in the Lords also on 26 October, Lord Naseby, a Conservative peer, said:
Lord Naseby proposes to move an amendment to the Bank of England Bill. There is a long way still to go on this Bill, but this is a productive start.
The other Bill that is particularly important to building societies is the Housing & Planning Bill. This was described by Housing Minister, Brandon Lewis MP as a “national crusade to transform generation rent into generation buy”.
So far there has been no debate on this Bill as the First Reading which happened in the Commons on 13 October is a formality. The second reading will be on 2 November at which time there will be an opportunity for debate. Thereafter it will go into the Committee stage.
We are particularly interested in the proposals for starter homes and the ambition that the Government has to substantially increase the volume of self-build properties to 20,000 a year by 2020, there is a clear risk of contradiction between this aim and any move to increase capital requirements for self-build by regulators, or to constrain building societies involvement in this part of the housing market.
“The Bill gives us an important opportunity to solidify the Government’s commitment to promoting real diversity in the financial services sector within legislation. A properly functioning, healthy and genuinely consumer-focused financial sector requires a broad range of different types and sizes of financial institutions operating in it to drive competition and financial resilience. This range of institutions should include customer-owned financial mutuals such as building societies, credit unions and mutual insurers and friendly societies.
“Why is it so important that this be put into legislation? There are two reasons. First, diversity increases the effectiveness of competition. After all, competition creates a better consumer environment in financial services through choice and so forth. Secondly, it makes the whole system a degree more resilient. We saw that in the recent financial crisis. Of course, out of it flows competition, which is helpful. One gets a superior service—and the evidence is there—from the mutuals. There are fewer complaints, and the evidence is there for that as well. Interestingly, one gets more competitive interest rates. What I found most persuasive is that, between 2012 and the end of June 2015, building societies provided no less than £52 billion of net new lending for mortgages. The rest of the mortgage market provided £7 billion. That is £52 billion from the mutuals and £7 billion from the plcs. That in itself is a demonstration of the importance of the mutual movement.”