Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
UK-EU Relationship in Financial Services (European Affairs Committee Report)
(12 months ago)
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The Earl of Kinnoull
That the Grand Committee takes note of the Report from the European Affairs Committee The UK– EU relationship in financial services (1st Report, HL Paper 21).
The Earl of Kinnoull (CB)
My Lords, on 23 June last year the European Affairs Committee published our report, The UK-EU Relationship in Financial Services. The Government responded in August and we are debating this important subject nine months later. I regret this structural time lag for committee reports, but warmly thank the Senior Deputy Speaker and the Chief Whip for their efforts in trying to address this and in getting our debate today.
Before I begin in earnest, I thank our staff Nick Boorer, Dominic Walsh, Tim Mitchell, Kutumya Kibedi, Sid Gurung and Louise Shewey, as well as the committee’s specialist adviser on this report, Professor Sarah Hall. We are lucky in this House with our committee staff in particular and on the EAC especially. I know that the whole committee felt that they were hugely hard-working and skilful in everything they did to help to settle this report and in the evidence process that underpins it.
We took evidence between February and March last year on the state of the UK-EU relationship in financial services, covering four main areas in the sector: first, the impact to date of the UK’s exit from the single market; secondly, the impact of the absence of a framework for UK-EU regulatory co-operation; thirdly, equivalence; and, fourthly, regulatory form and divergence, and agreements with third countries. I am going to focus on a few themes that the committee felt were especially salient, starting with the impact of Brexit on the UK financial services sector, as we then found it.
The sector employs 2.3 million people and makes up 10% of total UK tax receipts. It comprised 19.1% of all UK services exports. The EU is a very significant trading partner in this sector, making up 37% of total UK financial services exports in 2019. I note that, in the latest ONS “Pink Book”, those numbers are broadly similar. We are all reminded that the sector, although it is traditionally associated closely with the City of London, is well established across the UK. In fact, two-thirds of those employed in the sector are outside London. Our witnesses were generally optimistic about the sector’s future, with many fewer job moves to the EU than anticipated—the EY Brexit tracker, which has now ceased, recorded just 7,000—but we warned against complacency, as it is not clear whether the full impact has yet played out.
The Government’s response provided further details on the steps they were taking on the future of financial services, with reference to the Financial Services and Markets Bill and the State of the Sector 2022 report, both of which were published in July last year, a month after our report. The interesting State of the Sector report provided scant detail about how the Government intend to support financial services outside London, however.
In addition, neither the Government’s response nor the inaugural State of the Sector report engaged with the committee’s recommendation that the report include
“for at least the next five years a section dealing expressly with the UK-EU relationship in financial services”.
My first questions are to ask the Minister to provide further details on how the Government intend to support financial services outside London, when this year’s State of the Sector report will be published and whether it will contain the information that we requested, specific to the UK-EU relationship on financial services.
Moving on to regulatory co-operation, our report also examined the fate of the UK-EU memorandum of understanding, or MoU, for regulatory co-operation on financial services. The UK and the EU concluded technical negotiations on that MoU almost two years ago, yet it has still not been signed or entered into force. We noted
“the widespread view that the MoU has become a casualty of”
wider difficulties in the UK-EU relationship and concluded that, although the non-finalisation was not causing major problems, it
“would still have value as a mechanism for strategic dialogue”.
That is, I am afraid, committee code for conferring a mutual benefit on both the UK and the EU. Following the surfacing of the Windsor Framework, a European Commission spokesman indicated that the Commission was ready to start work on the so-called finalisation of the MoU on financial services. Two and a half months on, what discussions have the Government had recently with the EU on that MoU?
I turn to equivalence. As highlighted in our report, the UK
“has issued positive determinations for EU … states in 28 of the 32 areas identified for the equivalence process”,
whereas
“the UK holds just one, time-limited equivalence decision from the EU”,
on central counterparties. This contrasts with the multiple equivalencies that other jurisdictions, including the US and China, enjoy from the EU. Witnesses to our inquiry suggested that the decision by the EU to withhold equivalence from the UK
“is political rather than technical”.
However, although we expressed regret at the state of affairs, we concluded that this a unilateral decision for the EU and that
“it would be misguided to base the UK’s future strategy for the sector on something that is not in the Government’s gift and that currently seems unlikely to be forthcoming”.
We also concluded that
“the low number of equivalence decisions is not seen within the sector as a matter of fundamental concern”.
The Government’s response indicated some agreement with this analysis, although it provided little detail in respect of the committee’s request to
“set out the extent to which it believes there to be a competitive disadvantage as a result of the imbalance in equivalence decisions”
from the EU for the UK compared with other countries. Have there been any further discussions between the Government and the EU on equivalence in the past six months, in particular in the period since 27 February and the surfacing of the Windsor Framework agreement?
I come to regulatory reform and divergence. I noted at the start of my remarks the size and importance of the sector. In essence, during our inquiry, the Government and the Bank of England were finishing a thorough and sensible analysis of the regulatory environments; it was sensible because the UK had moved from a one- size-fits-28 environment to a one-size-fits-one environment. The analysis involved a substantial number of reviews and consultations; its key elements are set out in table 1 on pages 42 and 43 of our report. The analysis was to lead to legislative change. The largest part of that—the Financial Services and Markets Bill—is before us in this House now. The final stage will be the implementation of the whole new environment.
Although the Government’s response provided, as requested, some further details on their plans for regulatory reform, it was clearer on regulatory changes that were already planned or under way—particularly those included in the Financial Services and Markets Bill—than it was on the future direction and regulatory plans for UK financial services. Our report noted that, under the Government’s plans, greater powers will be moved downwards towards the regulators, in particular the Financial Conduct Authority and the Prudential Regulation Authority. Although we are supportive of this, we emphasised absolutely the need to establish “appropriate mechanisms” for parliamentary scrutiny and accountability of regulators and recommended that the Government facilitate this. Their response was non-committal in this regard; indeed, this has been much debated during the passage of the Bill and will, I suspect, be voted on when we come to Report stage.
Another controversial proposal was the new secondary competitiveness objective, which will be included in the financial services regulators’ remit. The Government are now taking this forward; it is another thing that has been much debated during the passage of the Bill and one that the committee was keen should include regulators being “responsive, consistent, and proportionate”. Indeed, this was covered in one of the amendments to the Bill that I put down.
Divergence will also be driven by changes in the EU, as well as in the UK. In the context of possible changes to EU legislation, the committee raised concerns about the Government’s apparent unwillingness, as we saw it, to actively seek to influence the EU in the UK’s interest and request clarification. The Government’s response described a
“proactive strategy of engagement with the EU institutions and Member States”.
Naturally, that will continue to interest the committee.
Can the Minister provide further details on the specific steps that the Government intend to take to support greater parliamentary scrutiny of the regulators, in recognition of their increased powers? Does she feel that regulators should be responsive, consistent and proportionate?
In closing, I come to the opportunities. Our report also examined areas of opportunity for the financial sector, particularly in novel areas where there is little regulation in place, such as fintech and green finance. We welcomed the Government’s approach to regulatory innovation and the Government have since announced that they plan to publish an updated green finance strategy this year. The committee also welcomed the Government’s pursuit of a mutual recognition agreement with Switzerland. Since then, the Swiss Government have said that the two parties expect this to be concluded by the summer of 2023. Finally, the committee welcomed the Government’s general approach of openness to the outside world and non-reciprocity in our financial services sector. Can we expect publication of the UK’s updated green finance strategy shortly and, if so, when? Do the Government still expect the mutual recognition agreement with Switzerland to be concluded by this summer?
I lived with this report for several months and it was an exceptionally interesting time; we met many very able people in our financial services sector. I very much look forward to the debate that we are about to have. I beg to move.
Viscount Trenchard (Con)
My Lords, I congratulate the noble Earl, Lord Kinnoull, on his expert introduction of this debate and on securing the time for it today. It was my privilege to serve under his chairmanship as a member of the committee that produced the report. However, it is a pity that we are debating it only now, 11 months after publication. Instead of debating this report, we should be debating our recently published report on the wider future UK-EU relationship, which your Lordships may have seen has been published.
Nevertheless, financial services are an important sector of our economy—one in which the UK’s global position is very strong. I will not repeat the statistics that the noble Earl has already provided but, for the EU, the financial services sector is only partially a Union competence, with member states retaining considerable freedom of action, particularly in the retail sector.
As we reported, there has not been much concern in the City about the lack of equivalence decisions by the EU. However, we noted that the agreement within the TCA that we would enter into a memorandum of understanding on regulatory co-operation has still not been realised. It was believed that the EU deliberately blocked progress on this. Indeed, there was a broad consensus among the witnesses who gave evidence to our inquiry that the approach adopted by the EU towards equivalence decisions has been political rather than technical, as the noble Earl mentioned. Our report urged the Government to step up political and diplomatic financial services engagement with the EU and we noted that both the EU and the UK have mechanisms for regulatory co-operation with the USA that they do not yet have with each other.
The adoption of the Windsor Framework was supposed to end the standoff with regard to signing the MoU, the content of which was agreed two years ago, and permit the parties to agree a date for signature. The Financial Times, no less, reported in March that the European Commission was then ready to sign it. Can my noble friend the Minister tell the House whether a signing date has now been agreed? If not, when does she expect that one will be agreed?
The Government’s response to our report highlighted the Financial Services and Markets Bill, awaiting Report stage in your Lordships’ House, and suggested that the Bill would
“deliver on the Government’s ambitious vision for the financial services sector to promote and enhance the UK’s position as a global leader”.
However, as several noble Lords and I argued throughout the Committee stage, it is somewhat under- whelming in its effect. Seven years on from the Brexit vote, we still have substantially all the cumbersome EU financial services legislation on the statute book. The future regulatory framework review was welcomed by the Government, who confirmed their view that the detailed regulatory requirements should be in the regulators’ rules and not in legislation. Parliament is not equipped to monitor and update large numbers of highly technical provisions in a flexible, market-responsive manner. As an example of this, the Treasury observed that the markets in financial instruments regulation sets percentage caps on how much trading volume can happen outside recognised trading venues.
As the City Corporation observed in its briefing provided by the Remembrancer’s Office, since the end of the transition period the Treasury has used its powers to onshore EU equivalence regimes in many areas. Nevertheless, the Government should continue to use these powers to find third-country services and persons equivalent, using a more outcomes-based approach, rather than the EU rules-based approach. The ongoing negotiations with Switzerland are also a good example of how we should pursue bilateral mutual recognition. I think that the corporation is right in its argument that the Government should seek, wherever possible, to embed the G20 endorsed deference model into its domestic regime and bilateral agreements, emphasising consumer choice and competition.
The Bill makes some much-needed changes, such as the Solvency II changes, to financial regulation straight- away, but it is disappointing that it is limited in scope. I have suggested that the Government should use the Bill at least to abolish the cumbersome and unnecessary alternative investment fund managers directive and all its derived legislation within two months of the passage of the Bill. When I worked in Brussels for EFAMA, my French and German colleagues thought that the EU should leave that market to London and not try to regulate it. It was one major piece of European legislation introduced in 2014 for political reasons, which was universally opposed by all British stakeholders, including industry, the regulators and the Government. We do not need to ask the regulators to consult on what might replace it. That would cost money and take time that we do not have. Does my noble friend not recognise that she needs to act fast and with more determination to achieve the Government’s aim to secure the City’s position as the leading global financial services market?
I am glad to note that the City also supports the views of many noble Lords that we need a Joint Committee of both Houses to provide oversight of what the regulators are doing with their new powers. Where I differ from the corporation’s view is that I think that this would be far more effective than enhancing the role of the Treasury Select Committee’s sub-committee, which has been set up for this purpose. To have one Joint Committee doing this work would avoid the duplication of time and effort that the regulators would have to spend if they were required to work with two different committees doing much the same thing. In any case, the oversight and supervision procedures contained in the Bill are unsatisfactory, especially from the point of view of your Lordships’ House.
I also ask my noble friend to look again at the sensible proposal by my noble friend Lord Bridges to establish an independent office for financial regulation, which would ensure that a new Joint Committee would be well equipped and informed to carry out its role efficiently. This would I believe be better than what the current Bill provides for. It requires the regulators to consult their own cost-benefit panels—it gives them a statutory duty to consult their own panels. If the panels are a part of each regulator, it is rather strange to legislate that they must consult a part of themselves. Again, a single, truly independent body, as proposed by my noble friend Lord Bridges, would surely work better than the two duplicated panels doing the same work. Indeed, the Bill is much longer than it would have been if we still had a single regulator, as provided for by FSMA 2000. That is because there are many sections which are repeated so as to place identical, or near identical, obligations on the FCA and PRA separately. It might have made sense, given that we are once again free to determine our own regulatory regime, to merge the two regulators back into a single FSA.
I worry that the new competitiveness objectives given to the regulators will not provide the needed growth and innovation because they are only secondary, and will not, in effect, be very different from matters to which they should “have regard” in forming that policy —but I hope that I shall be proved wrong.
I know that the senior leadership of the FCA is aware of the perception that much of the industry holds about it. I trust that its new chairman, Mr Ashley Alder, will be successful in beginning to change this perception. His experience as chief executive of the Hong Kong SFC and chairman of IOSCO will stand him in good stead.
The UK Listings Review, chaired by my noble friend Lord Hill of Oareford, identified several steps that the Government should take in order to arrest and reverse the recent decline of the competitive position of the London Stock Exchange. Our report endorsed the recommendation that the Treasury should make an annual “state of the City” report to Parliament. It is encouraging that the Chancellor, together with the City Corporation, has followed up on that. I look forward to other noble Lords’ contributions and the Minister’s reply.
Lord Liddle (Lab)
My Lords, I agree with the noble Viscount, Lord Trenchard on this. It has been a privilege to be a member of the European Affairs Committee and to work with him on many of the issues that we have addressed. Although we disagree on some things, I have always found his views to be of value and have learned something from them. That is important in any parliamentary system.
It has also been a very great privilege to work on this committee under the chairmanship of the noble Earl, Lord Kinnoull. I have the greatest regard for him. This is now one of the swansongs of his period as chair of the committee, but he has been a very good chair indeed. I have known the last four chairs of the European committee of this House very well. I met Lord Grenfell when I worked in government; Lord Roper was a very close personal friend; and I came to have enormous affection for the noble Lord, Lord Boswell. The noble Earl, Lord Kinnoull, however, has I think been the best of the lot. His ability to bring together the disparate views on that committee and to arrive at rational and sensible conclusions is something to be praised. Although the House gains from him becoming the Convenor of the Cross Benches, the cause of a sensible debate about Britain’s relationship with the European Union has suffered something of a loss.
As with all the outputs of this committee, this is a good report. It is a pity that we are debating it nine months after it was concluded, because a lot is changing in this world all the time. We have seen growing concern about the position of the City of London, with the feeling that it is losing out to New York and that Asian financial centres are rising up. The City is a huge national asset. I am not anti the City of London—I am a strong supporter of it and believe that it is one of the things that Britain is really good at. We have to try to build on its strengths.
It is a concern that people are worried about the problems facing the City, but we have also learned in the last year that there are grave risks in financial regulation. In the autumn, we had the confidence crisis in the bond markets, which was stimulated by the Truss Administration and required a huge rescue mission by the Bank of England to stabilise our pension funds. That is a matter a great concern to ordinary people, and we should be conscious of those risks.
Furthermore, we have also seen an outbreak of financial instability, with bank failures in the United States. We do not know what impact this might have on Europe in the future—who knows? As a social democrat, I have become a great believer in the workings of the market economy. Capitalism is the most dynamic way of getting economic growth, but I believe in the warnings of Keynes about the tendency to instability in capitalism and for there to be episodes of great banking collapse, which cause huge problems for ordinary people. With very little growth in our living standards, as we have seen since 2008—and we have not really recovered from that—it is very important that, as far as possible, we do not risk any further episode of financial crisis and uncertainty.
The paradox about the recent position of the concerns about the City of London is that it has all happened since Brexit but very few people think it has anything to do with Brexit. At least, that is what they claim. I have a certain question about that. The fact is that no one wants to challenge the reality of Brexit, because we know it is there. It is no good complaining about it—we have to do something about it. We have to make the existing arrangements work.
Although the evidence in our report is that Brexit has not caused the anticipated damage in terms of job losses in London, as far as we know, the unanswered question is: is business shifting elsewhere without us even realising it? When new business opportunities are created, are they created in the United Kingdom? This is a difficult thing to judge, because it is not as though there is a single continental financial centre which is taking over from London. There are signs of things going to Dublin, Paris or the Netherlands. To what extent Brexit is contributing to the relative decline of the City is, for me at any rate, an unanswered question.
A lot of people, such as my colleague on the committee, the noble Viscount, Lord Trenchard, think that Brexit provides huge opportunities for the financial sector. There have been calls for a new big bang and a decisive break with what is characterised as stifling European regulation. I have to say that I do not buy into this argument at all. My views are that, while it is sensible for Britain to steer its own course on financial regulation now that we are out of the EU—to be prepared to diverge, particularly as we are the leading financial sector player in Europe—I am not persuaded that the opportunities for divergence are massive or that they would bring great economic opportunities, without also creating great risks.
The reason for that is simple. Although Brexiteers think that these financial rules were imposed on us, they were not. We negotiated most of these rules at the Council of Ministers and it was the British position that was dominant in framing them. It would be surprising if there were to be lots of benefits from breaking with those rules, because they were framed with the interests of the City of London in mind. I know that from personal experience in government.
This Government have talked big about the opportunities of Brexit in financial reform and all that. What is actually proposed is reasonably modest; I read Jeremy Hunt’s speech on the Edinburgh reforms and it did not seem to be that great a shift. I am glad that the Government have abandoned the proposals that were canvassed at one stage for them to be able to override the judgment of regulators—although I do support the need for there to be parliamentary scrutiny of the actions of regulators.
One of the worries I have is this business about changing regulators’ objectives to include competitiveness. At a time when financial markets are extremely fragile, that could be a mistake. Our objective should be a strong City, perhaps with more of a focus on domestic growth—including how to get pension funds investing more in infrastructure and have more of a market for growing British companies, enabling them to access equity—so we do need reforms there, but we must put first and foremost the need to avoid financial crises such as another banking crisis. The national interest would best be served by a close relationship of dialogue and co-operation with the European Union. That is why I reiterate the calls made by the noble Earl, Lord Kinnoull, about the need to get on with signing the memorandum of understanding, which will lead to a structured relationship of co-operation with our European friends.
Lord Bilimoria (CB)
My Lords, it is seven years since we voted as a country to leave the European Union. I often ask, in the speeches I give to international audiences, what the world thinks of this decision. Last month, I spoke to a group of 100 business leaders from around the world, and 99% of them thought that it was a big mistake for the UK to leave the European Union. Yesterday, I spoke at a conference here in London of international businesspeople. I asked the question again, and well over 80% of them said that it was a big mistake for the UK to have left the European Union. This, whether we like it or not, is what the world thinks of our decision.
That said, the UK-EU Relationship in Financial Services report concludes that overall, the outlook for financial services after Brexit seems relatively positive, in contrast to some other sectors of the economy. However, the report says that the UK
“is at an early stage of the adjustment to life outside the EU and there is no room for complacency, particularly as the impact of Brexit on the sector has not yet fully played out. We therefore urge the Government not to disregard the importance of a cooperative and constructive UK-EU relationship in financial services”.
That is why it is absolutely key that the Northern Ireland situation is sorted out, that the Windsor Framework is accepted and implemented, and that the Northern Ireland Parliament resumes as soon as possible. We will then be able to address the TCA, because the basic EU deal is basic. It could be far more comprehensive, particularly in financial services, where we could strengthen our co-operation and agreement.
I thank the noble Earl, Lord Kinnoull, and the European Affairs Committee, for the UK-EU Relationship in Financial Services report, although as the noble Lord, Lord Liddle, mentioned, it is already a year out of date. The noble Earl mentioned some statistics in his excellent opening speech. I will go even further and highlight some of these statistics, which show the strength of the sector in this country: 2.3 million jobs, £100 billion in tax contributions, a financial services trade surplus of £63 billion in 2020, and £11 trillion of assets under management in 2020. The UK is the second-largest asset management centre globally, it is the world’s largest centre for international debt issuance and it has the highest financial services trade surplus.
Some 117 companies chose to list on the London Stock Exchange in 2021, with £37.5 billion of PE and VC funding, yet sadly Arm, a company that is Cambridge born and raised, has chosen to list in the United States. That is not a good sign, because the United States remains the leading market for IPOs, whether we like it or not. The UK is the world’s largest centre for OTC derivatives trading. The UK’s insurance sector is relatively more important than those of other major European economies. The UK remains the world’s preferred regulatory regime for financial services. The UK is the leading hub for fintech investment in Europe. The UK is one of the most international fintech markets. Green tech investment in the UK is growing. These are fantastic statistics that we are all very proud of.
However, to strengthen the UK in this area, we must address the lack of skills and availability in the workforce in the City. We must be able to expand the immigration routes. The debate at the moment is whether immigration is too high. I pointed out in another debate recently that one reason why immigration is high is that we have an increased number of international students, which is really good—but they are included in the net immigration figures when they should be excluded. If you exclude the international students, you see that you need to get the workforce that the economy needs, sector by sector, including in the financial services sector. I have said time and again that we need to revamp and reconstitute the Migration Advisory Committee so that, in the same way that the Low Pay Commission sets the minimum wage every year, and the independent Monetary Policy Committee sets the interest rates on a regular basis, the Migration Advisory Committee should be able to say, sector by sector, including for financial services, so many thousand people for a one- year, two-year or three-year visa should be allowed in.
Dublin has been the winner when companies and firms have chosen to relocate. That is no surprise when corporation tax there is 12.5%. I will come on to that later.
The City of London has said that the committee’s report recognised that:
“The City of London and the financial services … sector based in the Square Mile … is a national, European and global asset, which helps fuel business development, infrastructure, jobs and growth across the UK, Europe and the world.”
We have the largest financial services cluster in the world, but here is the point: two-thirds of the sector is based outside London, so maintaining and further developing global trade investment and retaining the City of London’s position as a global financial services hub are also key to the future of the industry.
At the end of the transition period, the UK had onshored EU equivalence regimes in many areas. The Government and regulators should adapt the EU approach and determine third countries’ and firms’ equivalence using an outcomes-based approach, ensuring that the openness of the UK is not restricted by this equivalence overlay. Does the Minister agree with this?
The UK regulatory regime for financial services is one of the most robust. Our high standards are an asset and should be maintained. We should continue to be a global leader in regulation, promoting open global markets and high standards. We need to be an attractive location for financial services talent and— I addressed this earlier—we need to allow the best talent to come here. We saw the huge difference that the big bang made, when we opened up to competition and new technology. The Treasury is now implementing a programme of building a smarter financial services framework for the UK, which repeals retained EU law and transfers 43 core financial services powers to the regulators’ rulebook. This is a good opportunity for the UK.
What about the FCA and the PRA? They need to facilitate growth and international competitiveness. When implemented by the regulators, this can help ensure that the UK remains an attractive and competitive location for financial services. The international regulatory strategy practitioner-led group of senior leaders from around the UK, which is sponsored by the City of London Corporation and TheCityUK, has advised that there are several ways in which oversight can be conducted, one of which is to establish a new financial services Joint Committee. Another is to enhance the role of the House of Commons Treasury Select Committee and the House of Lords Economic Affairs Committee. Does the Minister agree with those points? Another was to establish a technical sub-committee of the Treasury Select Committee, focused solely on financial service regulation, but that committee is already doing good work.
Many people talk about equivalence. The UK has onshored EU equivalence regimes in many areas, but the EU equivalence-based framework is suboptimal compared to the previous UK national regime, which had a mix of approaches. We are now free to redesign this approach to oversee services and improve the EU model. The UK should not adopt a reciprocal or “fortress UK” approach. Looking ahead, the City of London Corporation encourages the EU and the UK to continue to make equivalence assessments pragmatically, with the interest of end-users foremost in mind, and to maintain existing equivalence in CCPs and on data.
The TCA excludes financial services, on the basis that we will have an MoU. I hope that, once we have sorted out the Windsor Framework, we get to a stage where we can have this MoU and strengthen our relationship.
The European Securities and Markets Authority, which previously traded in the UK, has largely shifted to EU venues in Amsterdam. This is worrying. The share of UK-based liquidity dropped from 25% pre-Brexit to 3%.
Another bit of good news is that there were forecasts of 70,000 jobs going to the EU as a result of Brexit, but only 7,400 jobs have been lost. We need to remain attractive. It does not help that we have the highest tax burden in 70 years or to put up corporation tax from 19% to 25%. The loss of passporting rights affects EU firms as well.
I conclude with this. Julia Hoggett, the chief executive of the London Stock Exchange, says that the UK needs to be “young, scrappy and hungry” to compete as a global financial centre, especially now that it can no longer rely on its position as the
“dominant centre for financial markets in the EU”.
The head of financial services at EY, Omar Ali—I qualified as a chartered accountant at EY—says that
“I have no doubt that both the UK and EU will continue to be world leading markets, driving innovation, progress and growth”.
Lord Hannan of Kingsclere (Con)
My Lords, I hope noble Lords will forgive this intrusion into their counsels; I am not a full member of the European Affairs Committee, although I have read this excellent report cover to cover. I am a member only of one its sub-committees—a lowly member of the Sub-Committee on the Protocol on Ireland/Northern Ireland—so I feel rather like a fourth-former who has wandered into the prefects’ lounge. I will try to squeak out my message as briefly as possible. I have just three points to make.
The first is a warm endorsement of what the noble Lord, Lord Bilimoria, just said about visas, and specifically work-related visas—the ability for people to come and do business. It is a completely separate issue from inward migration, and I would very much like Ministers to consider a Commonwealth business visa. By all means, make it difficult to qualify, have a high threshold for the turnover of a company and so on, but once you have qualified and get it, you should be allowed to travel to all participating Commonwealth states that have opted into the scheme.
My second point follows on from what my noble friend Lord Trenchard said about the alternative investment fund managers directive. I was a Member of the European Parliament when the AIFMD was produced, and it was one of those occasions when the UK was strongly against. The noble Lord, Lord Liddle, pointed out that we often supported these regulations; not on this occasion. There was almost unanimous opposition to it, not only across the industry but across the City more widely. It was seen as a needless burden. Why has it not been repealed?
Here we come across an interesting dynamic in the nature of regulation, which is that once companies have assimilated the compliance costs, they lose all interest in repeal. In fact, it is worse than that: they see no reason why a competitor company should come and outcompete them by not having to jump through all the hoops that they did. The field of the AIFMD is good example: the people most strongly against the regulation when it was proposed have now become its advocates and defenders, because they see it as a way of raising barriers to entry.
Those of us in this House, or in government in any sense, should not be thinking only of the established producers; we need to think about the start-ups, the companies that do not exist yet and the consumers. We need to think about the overall competitiveness of the City, rather than the convenience of some established players. I pick AIFMD simply because my noble friend Lord Trenchard mentioned it but this pertains in a number of areas, not least in the field of financial services. We are having a lengthy debate in another part of our building about the retained EU law legislation, but we will have a real problem repealing anything—never mind the source—if we begin from the point of view that if the industry is in favour of a regulation, that is the beginning and end of the argument. We need to raise our eyes to more distant horizons.
My third and main point is about chapter 2 of the committee’s excellent report. I add my congratulations to those of the noble Lord, Lord Liddle, to the chairman, the noble Earl, Lord Kinnoull, who has done an extraordinarily good job as far as I can see, albeit from the outside. On equivalence, the EU has every right to behave as a sovereign entity and choose to prioritise politics over economics. In other words—to put this at its most brutal—if it chooses to make itself slightly poorer in order to teach us a lesson, and to inconvenience its own companies and deny them unfettered access to the world’s deepest and cheapest money markets to make a point, that is absolutely its right. It is not for us to cavil or quarrel, but it is vital that we do not fall into the trap of thinking the same way. The prosperity of the City of London survived the decline of sterling as an international currency in the early 20th century because it remained open, we had a light-touch attitude to regulation and we did not discriminate on grounds of nationality against companies from other countries and, indeed, continents.
By the way, I would extend this argument about non-retaliation to almost all the fields where we see some asymmetry between EU and UK policy. For example, as I am sure most of us have noticed by now, EU citizens are free to use our e-gates when they enter the United Kingdom but the EU has chosen not to return the favour, so we have to queue up and get our passports stamped. That is fine; that is the EU’s right. If it wants to make things more difficult for every other non-EU national—Indians, Americans and so on—that is, in the end, its own loss and will be at its own expense. It would be crazy for us not to remain open and welcoming, including to our friends from Europe.
I make the same point about goods traffic. The sub-committee of which I am a member has spent a lot of time looking at the EU’s claim that it has to have these checks in Ireland. It is striking that there has never been an equivalent argument from the UK. At no stage have the British Government said, “We need checks in Northern Ireland in order the preserve the integrity of our market”. By the way, we have not even imposed such checks on EU goods coming in through other routes—quite rightly, because we should trust EU regulators. We have been importing stuff from our European allies and neighbours for decades; it would be crazy for us to have a panoply of expensive regulation purely with the effect of slowing things down and making things harder for our importers of, especially, component parts. Take the great argument used by an economist in this country 100 years ago: if others choose to put rocks in their harbours, we should not retaliate by putting rocks in ours.
The asymmetry on equivalence discussed in this report is based on a widespread fallacy; let us call it the mercantilist fallacy. An awful lot of people—including, I have to say, a lot of my former colleagues in the European Parliament—believe that the strength of an economy depends on exports and that there is some virility in having a big trade surplus. This argument was debunked by Adam Smith two and a half centuries ago. There is no point in amassing a big surplus for no reason; the real drive to economic growth comes from cheaper imports that both free up people’s time and resources to do other things and drive domestic growth.
However, it is always difficult to make that argument as an elected politician because it is counterintuitive and people tend to think that the success of another is at their own expense. In fact, the great 18th-century philosopher David Hume put it beautifully, if noble Lords will allow me to quote him, when he said:
“Nothing is more usual, among states which have made some advances in commerce, than to look on the progress of their neighbours with a suspicious eye, to consider all trading states as their rivals, and to suppose that it is impossible for any of them to flourish, but at their expence. In opposition to this narrow and malignant opinion, I will venture to assert, that the encrease of riches and commerce in any one nation, instead of hurting, commonly promotes the riches and commerce of all its neighbours”.
That is why we should want the EU to flourish and should never make the mistake of raising barriers, whether in financial services or in other forms of trade. We have an obligation to the EU as our long-standing friend and ally, of course, but even if we were to look at this issue in a narrow, selfish way and be without a drop of altruism it would be crazy for us to impoverish our neighbours. We want our neighbours to be as rich as possible because that makes them better customers, which then spills over into our own prosperity. If they cannot see that, we can only lead by example and hope that they eventually understand what is to their own advantage. However, as I say, the EU is a sovereign union.
Our country was raised to the highest opulence simply by the expediency of dropping its barriers, from the 1830s and 1840s onwards, and inviting the traffic and commerce of the world without obstacles. It led to an improvement in living standards, especially for the poorest people, which every foreign visitor to Victorian Britain was struck by. Now, we again live in a world that is turning towards protectionism—in the United States, in the European Union, in China and almost everywhere else. Once again, I think that it falls to this country to be the apostle of unrestricted commerce and to tell the story of free trade as the great liberator and the most effective means there is for conflict resolution, social justice and poverty alleviation.
Lord Davies of Brixton (Lab)
My Lords, it is a pleasure to take part in this debate. I very much welcome this report, which is important and timely—well, a bit out of time, one might say. It deals with the aftermath of Brexit and, of course, an important part of our economy. I will resist the temptation to go down the Brexit rabbit hole, but I will return to the issue at the end.
Before making my main contribution, I will express my credentials for taking part in this debate. I have worked in the financial services industry for the whole of my working life.
I question the premise on which this debate is taking place, and on which I think the report is based. I may be wrong, and I will be happy to be corrected, but the implied premise is that the bigger the financial services industry, the better. I question that. It strikes me that, in a phrase that is familiar to me, it is akin to making ourselves rich by taking in each other’s washing.
What does the financial services industry contribute to the real economy—the production of goods and services that go towards serving individual and societal wants? My view is that the financial services industry contributes far less than is typically assumed, particularly by the financial services industry itself, and that it is in a sense a millstone around our economy’s neck. It strikes me that it is akin to the resource curse, which is typically talked about in terms of mineral and fuel abundance in less-developed countries and which tends to generate negative developmental outcomes, including poor economic performance, collapsing growth, higher levels of corruption and greater political violence. Well, leaving the political violence and maybe the corruption aside, it is a fact that we are experiencing poor economic performance and have done for a decade and, in my view, one of the contributing factors to that is the overreliance on financial services that contribute nothing to human welfare.
Clearly, we need financial services. We need to facilitate payments between people and organisations. We need to match borrowers and investors. We need to facilitate saving, not least for retirement and the passing of wealth between generations. But is what we have at the moment in the industry commensurate with those needs?
In expressing these views, I take inspiration—although he is not in any way to blame—from Sir John Kay, the eminent economist, and Andy Haldane, who, when he was the economic adviser to the Bank of England, said that
“the past few decades have seen a sea-change in the functioning, and hence perception, of the financial sector. Latterly, that sea-change has at times risked flooding the entire economic and social waterfront. In a nutshell, finance has moved away from serving the economy and towards serving itself—and indeed remunerating itself”.
Any debate about the relationship between the UK and the European economy in financial services should have these views in mind. We should not be promoting a financial services industry that fails to deliver services to individuals.
To quote some figures from Sir John Kay, he points out:
“Lending to firms and individuals engaged in the production of goods and services—which most people would imagine was the principal business of a bank—amounts to about 3 per cent of that total … The value of daily foreign exchange transactions is almost a hundred times the value of daily international trade in goods and services … Trade in securities has grown rapidly, but the explosion in the volume of financial activity is largely attributable to the development of markets in derivatives”,
and derivatives based on derivatives, and no doubt derivatives based on derivatives that are based on derivatives.
They contribute nothing to the proper functioning of a financial economy, as I described earlier. The profitability of this sector is vastly overstated. The value of its activities is poorly reported in the economic statistics, and it is very difficult to say what the productivity of these services is and what, if anything, they actually contribute to the betterment of lives and the efficiency of businesses. The true value of the financial sector to the community is the value of the services that it provides, not the returns recouped by those who work within it.
There is no doubt that a modern economy requires finance: a country can prosper only if it has a well-functioning financial system. But that does not imply that the bigger your financial system, the better it will be and the more prosperous the country will be. In fact, there is a point at which it becomes counterproductive, and we are well past that point. All the industry does is pass around bits of paper, leading to a net benefit for no one.
This is not an attack on the individuals involved in the industry: they have bought the rhetoric and are doing a good job in terms of the way the industry has developed. But, if you step back and question what the industry is doing for us, I believe that it is well beyond the profitable sector. We need to have that in mind when we discuss these issues. The question should be, “Do we need this work being done?” I look forward to returning to the discussions on the Financial Services and Markets Bill, where we will be able to explore these issues in more detail.
There is a specific problem here: I return to Brexit. Discussing the financial services industry totally in terms of Brexit, which we tend to do, is getting it wrong. We should be looking at the financial services themselves and what value they give, and then ask the second question: how does that fit with our relationship with the European Union?
Earl Effingham (Con)
My Lords, I thank the noble Earl, Lord Kinnoull, for raising this debate. I also highlight my interest, as noted in the register, as an employee of Birchstone Markets.
The UK holds a unique global position in financial services due to its time zone. Sitting in London, it is possible to capture the end of the Asian trading day, all of the European trading day and most of the American trading day. Notwithstanding an early start and a late finish to one’s work, no other financial centre in the world has the ability to provide that with relative ease. This puts the UK in pole position to help clients and win business on the global stage. It is an enviable position, which we need to do everything we can to maintain.
It is, of course, fair to say that far fewer jobs have moved to Europe from the UK than was envisaged in a worst-case scenario for the sector. However, it is important to note that the job transfer may not be over yet and to remind ourselves that, simply because the numbers are much lower than the worst-case estimates suggested, that is no reason to think that everything is fine and that we do not need to be vigilant. We should still be trying to maximize every opportunity available to us to ensure that the UK financial services sector remains competitive and attracts world-class talent and business, as it always has.
Indeed, when you look at the types of roles that have moved, it can be the sales and trading roles, or the client-facing banking roles, which are regarded as important within the sector and are one of the many types of roles that we would ideally like to keep here in the UK as part of our talent pool.
In a post-Brexit world, where banks and financial services firms were required in some cases to materially bolster their European operations from what may have previously been a small operation to a European hub, the ongoing movement of staff from the UK to Europe is likely to be required. The ECB has made it clear that it expects the highest levels of governance and risk management in third-country subsidiaries and that operations cannot and should not work on insufficient staffing levels. A little over a year ago, the ECB announced that 21% of the firms assessed by it in this category warranted targeted supervisory action. The ECB will continue to monitor the way that banks operate post Brexit and will require a strong local presence. This will continue to impact operating models and maintain the pressure to have key staff based locally, not in the UK.
It will also come as no surprise to your Lordships that many support jobs in banking and finance have already been transferred out of the UK and into Europe. This had already happened prior to 2016 as a result of companies being able to employ qualified professionals in Hungary, Poland and other European countries at a more competitive cost than in the UK. However, we could now well find ourselves in a situation where support jobs that may have also been destined for the UK find themselves being allocated to the centres in Europe. This will have a detrimental effect on our world-class financial services support businesses, which are located all around the country, be it Bournemouth, Birmingham or Glasgow, to name but a few places.
ESG is an area where there is a great opportunity for the UK to lead the way. Given the nascent rise of the sector and industry, the regulatory framework is constantly evolving and the UK can play a key role in shaping its future. We have all read with great interest the work being done to agree a mutual recognition arrangement for financial services with Switzerland. This could be the first of many and I hope that the Government can use it as a benchmark for agreements with other European states.
I believe the UK financial services sector is one we should all be proud of. I look forward to working with noble Lords on this important area.
Lord Desai (Non-Afl)
My Lords, I used to belong to a committee which dealt with these financial matters before we Brexited. It was always obvious that, if we did Brexit, we would have some loss of business to Frankfurt and other centres in Europe; after all, that was the whole scene. We somehow convinced ourselves that by breaking free of Europe, the entire rest of the world was suddenly going to congratulate us and come to do business with us, and all sorts of things. The surprising thing is that we are still not finished with the Brexit business.
Seven years later, we are still debating the protocol and all sorts of other legislative things are going on—about cutting European legislation from us, and so on. So it does not look like we are free of Brexit yet, but we have suffered all the disadvantages of it. We are neither free of the EU nor friendly with it, so we are paying a big cost. This is not relevant to our debate, but on the television today two big car factories have been complaining about the fact that they are losing out from Brexit and they are going to have to stop operating in the UK.
One of the surprising things is the slowness with which the party in power has dealt with its great dream. It dreamed about Brexit and said, “Get Brexit done”. Okay, you got Brexit done—but you have not got Brexit done because it is still a problem in the economy. This very nice report valiantly tries to deal with all the problems which are going on. But ultimately, the fact remains that we have not explained to ourselves that the City is losing out. It may still be very big and very profitable, but it is no longer as big as it used to be and it is losing out as much to the US as to the smaller centres in the EU.
The problem we really have to face is how quickly and how soon we can get over this barrier. Having decided to Brexit, let us Brexit, but let us have speedy and neat arrangements whereby we can organise our own affairs. The impression that I get from this report is that, somehow, there is a failure on the part of the Government—I am sorry to say this—to get their act together and decide what it was that they wanted to do, what they expected and how they decided that it was not going to happen because what they expected was far too optimistic and they had not actually calculated the problems of the real world.
One very useful thing that this report says is that there are more financial centres in this country that just the City of London. We must be absolutely careful that these centres thrive. We must do things so that they thrive and do not suffer any disadvantages as against London.
I do not want to go on for very long because people have said what it is worth saying. However, I feel that, at some stage, we ought to know—perhaps from the Minister—how soon we can expect to wrap up all the adjustments and restrictions and get on to a real, normal, post-Brexit UK economy. We are still swimming around in the muddy waters and, until we get out of those muddy waters, we will not know whether we have gained or lost. So far, I think that we are losing but, if we are to gain from Brexit, we had better get Brexit done—and quickly.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in this debate. I start by declaring my financial services interests as set out in the register. I congratulate the noble Earl, Lord Kinnoull, all the members of the committee and, indeed, all the staff of the House who worked on producing such an interesting and thought-provoking report. It is a pity that it has been some nine months since the report was published; it certainly deserved debate before this point. However, taking opportunities where they lie, this gives us an opportunity to act as an excellent curtain-raiser to the Report stage of the Financial Services and Markets Bill, coming up on our return on 6 June.
I will focus on four key areas: fintech, talent, the regulators and crypto assets. We have rightly heard from other noble Lords about the UK-wide nature of our financial services. Similarly, this goes for our excellent fintech businesses right across the United Kingdom. Does my noble friend the Minister agree with me that it is a matter of pride that, although last year was a difficult year for fintech, where global funding fell 30%, in the UK it was only 8%? It is no reason at all for complacency but there are a number of factors about which we should feel great pride and focus: we have the blessing and great good fortune of geography, time zone, language and—perhaps the greatest good fortune of all—English law to underpin all our financial services, not least our thriving fintech services.
Does the Minister also agree that, taking ourselves back to the Financial Services Act 2021, it is excellent that we have recently seen the establishment of the Centre for Finance, Innovation and Technology? It is likely to play a positive role in future; it was raised by the Economic Secretary to the Treasury during Fintech Week and is clearly an important part of the journey going forward.
Does the Minister agree that, if we will this, we can make success happen? There can be no greater example of this than the FinTech Sandbox, made in the UK. What measure of success shall we take? It has been replicated in well over 50 jurisdictions around the world. Does she also agree that we should have high hopes for the FMI sandbox, which will come about once the current FSMB becomes an Act later this summer?
Moving on, talent has rightly been raised—first of all, homegrown talent. Does my noble friend the Minister agree that, for all our young people, developing an understanding of real financial literacy is the greatest way to build a workforce across the piece, particularly—for the purposes of this debate—in our financial services sector? We need far more across our education system, right from the outset, and we need to build upon that with financial inclusion woven through every beat point that we consider. I very much agree with my noble friend Lord Bilimoria’s comments: international talent urgently needs to be addressed. Does the Minister agree that we have to grip this visa question?
Similarly, moving on to one element of the regulators’ work, visas aside, it cannot take nine months for a senior manager from overseas to gain authorisation. What do we need to do to ensure greater efficiency in that part of our regulators’ work? As has already been mentioned, does my noble friend the Minister agree that Report would be the ideal moment for her to accept amendments that would enable Parliament to have the right scrutiny and regulators to have the right level of accountability so that we truly have regulators and a regulatory framework that benefit the entire economy and the entire country? Consumer protection should not be seen at one end with competitiveness at the other; they are not mutually exclusive. If they are rightly structured and considered, with the right accountability mechanisms, both should thrive in our regulatory framework.
Does the Minister see that my noble friend Lord Bridges’ amendment on an office for financial regulatory accountability offers much to address this issue and benefit our regulators? In the discussions a number of years ago, nobody on either side of the debate said that this was about repatriating powers to our regulators. Parliament must have the right level of scrutiny and the right role in this, rightly structured and stood up.
Finally, would the Minister care to comment on the recent Treasury Select Committee report on crypto assets, on how one should consider unregulated crypto assets and on the committee’s assertion on gambling? It is clear that the crypto market moves at pace and that, putting it mildly, not all within it is necessarily where one would choose to put one’s cash, but we need to take the right approach.
I wonder whether the Minister has had time to consider the House of Representatives’ financial services inquiry last month. It called the chairman of the SEC before it to consider the whole question of the regulatory approach to crypto assets. There is much for the UK to consider within that.
Similar to consumer protection and competitiveness considerations, we should not need either to consider completely shutting down crypto assets or to believe that they are the latest, greatest thing. We should be able to approach them with rational optimism, with the right regulatory framework in place. I am sure that my noble friend agrees that what the Bill currently proposes on the digital assets space is positive. We should commend the work of the Law Commission on digital assets and decentralised autonomous organisations.
Finally, can my noble friend the Minister comment on what consideration has been given to the regulatory approach of the Monetary Authority of Singapore, and the Hong Kong and Swiss regulators? What are the key learnings and how have they influenced the Government’s approach to our regulators, as set out in the FSMB as currently drafted?
And finally finally, I echo the comments of many noble Lords in very much supporting the approach that we are trying to have with Switzerland. Can my noble friend comment on what stage that is at and give her full-throated support? It offers an excellent example of what can be done and, when it comes to fruition, both nations and far beyond will completely and certainly benefit.
Baroness Kramer (LD)
My Lords, I join in congratulating the noble Earl and the committee on this report. It is rather eerie that, so many months after it was written, it still seems to be exceptionally relevant, which is a compliment to all who were engaged in this process.
The UK is a leader in financial services, and I certainly take the view that preserving that leadership is critical to our economy. I would say to the noble Lord, Lord Davies, that it would be brilliant if we built up some other economies to the leadership position that I would like to see, but frankly, if we look at the real world as it is today, it is financial services and life sciences, and not a whole lot more; perhaps some of the creative industries, but they are under huge pressure as well. So, for the benefit of our people, we absolutely have to make financial services successful.
However, I am concerned that the impact of Brexit is being played down. The industry hesitates to speak openly to the Government about many of the issues that it sees. I congratulate the noble Earl, Lord Effingham, for raising some of those issues today, because frequently it holds back in silence. I see the Government constantly determined just to look on the bright side. Unless we face reality, we cannot take the steps that are necessary. I join with the noble Lord, Lord Desai, in that view.
The noble Lord, Lord Bilimoria, was right that we are seeing a slow bleed of our leading position. New York now heads the league tables, not London. We are coming into year 3 of that being true. Financial services sectors from Singapore to Barbados have benefited. Many of them are former colonies of the UK, and they march into a European company with the message, “We too have been snubbed by the British. Let’s do business together”. I am told that it is proving a very successful pitch. London still stands significantly ahead of any EU financial centre, looked at on an individual basis. But the question is not, “Is London dominant compared with Frankfurt or Paris?” but “Is London dominant compared with Frankfurt plus Paris, plus Berlin, plus Amsterdam, plus Dublin, plus Luxembourg, et cetera?”
The EU is not developing a single centre to rival London—the noble Lord, Lord Liddle, made this point. Paris is rising fast and has that potential, but the EU is creating a network of centres—perhaps unintentionally, but that is how it is developing—to rival London. That would have been unworkable in the past, but with digital technology it is very possible. I would like the Government today to give us the comparison between London and that EU network, and, if they cannot, they are not doing proper due diligence.
EU-generated business has for many years been about a third of financial services activity in the UK. Obviously, some of it has simply gone, post Brexit, without equivalence agreements in place. ESMA-regulated stocks are now traded in Amsterdam, Paris and Dublin but not in London. Picking up the point made by the noble Earl, Lord Effingham, we see many UK-based firms developing EU hubs. I was stunned to be in a conversation about Lloyd’s and hear it described to me as “Lloyd’s of Brussels”. The reality is that firms are having to take advantage of this and seize it—but it is not to London’s advantage.
I may say that it is not just the big players. I will pick up on the point made by the noble Lord, Lord Holmes, on the significance of fintech. In a February survey, Anglia Ruskin University found that 40% of the fintechs it surveyed had now opened offices outside the UK, mainly in the EU—and that was within the past two years. So we have a definite and clear move that is taking place. It is not so much personnel because, frankly, since we do not have free movement of people, those who carry a British passport are pretty much stuck here; it is new hires, and the EU is very much insisting on new hires as its general strategy.
So we really need some focus on this issue, and I will pick up with great concern and anxiety a subject that was picked up by the noble Earl, Lord Kinnoull: central counterparties. There is an article in today’s FT that I recommend, although I have to say that I felt almost physically ill when I read it. Noble Lords will be well aware that the euro swaps market accounts for something in the range of $100 trillion a year—it is always expressed in dollars. Pre Brexit, 70% of that market played through in the UK. As of this last report, which comes from OSTTRA, a post-trade services company based in the UK, the US market share is 51%, the EU share is 35% and the UK has just 14% of the market.
Why does it matter? Because, as the article carries on to say, it means that most market operators now have to have three versions of themselves: a US, a UK and an EU version. They have to run liquidity pools on each of those and have to go to lots of places, hunting for liquidity. That cannot be a good thing, and of course it comes at huge cost. So, if they decide to begin to refine, we are placed in the position of a potential loser. It is absolutely crucial that we manage to keep our position in the central counterparty arena, which brings me to a question that others have raised: the negotiation of the MoU to set up regulatory dialogue between the UK and the EU. I do not understand why it has not been signed; we must get an update and it really needs to be treated by the Government as a matter of urgency.
The noble Lord, Lord Hannan, said, “Well, you know, if the EU doesn’t want to give us equivalence, so be it, that’s their problem”. He will know that the EU is not stupid. If you delay providing equivalence in an area where you have yet to build up your capability, you buy time for that capability to develop. Then it is easy to grant equivalence: you now have a functional rival. I see no reason why that is not the strategy that the EU is pursuing. Frankly, if the situation were reversed, we would be doing the same. So I have really serious concerns in this area.
I will switch now to the other area of discussion, which is the new framework that has been looked at in the report and is the subject of the Financial Services and Markets Bill and various other steps that the Government have taken. I very much join Sir Paul Tucker, who prays in aid practically every previous Governor of the Bank of England who says that the competitiveness objective for the PRA and the FCA is genuinely not desirable and who advises the City to think twice about pushing for this, saying that it really does not know what is best for itself in this situation. I am very concerned about this challenge to financial stability and to the primary objectives of both the FCA and the PCA. The City has a terrible history of disregarding the real issues that are embedded in risk and pushing every opportunity it has to the extreme.
When I look that the other measures the Government are taking, I see that they feed into much of the same. For example, one noble Lord—it might have been the noble Lord, Lord Hannan, or the noble Viscount, Lord Trenchard—mentioned Solvency UK replacing Solvency II. The key element of that is that it will now encourage pension funds, and certainly defined benefit pension funds, to invest much more heavily in high-risk, illiquid assets that are seen as beneficial to the UK economy: scale-ups and infrastructure. I am constantly told, “Yes, look, the Canadian pension funds do it”. But take a look at the credit analysts writing about the Canadian pension funds; the funds are in effect backstopped by the Canadian Government. So my question to the Government today, as they continue on their path, is: are they going to fully backstop defined benefit contribution pension funds? At present, the pension protection scheme that is in place is not 100% for all participants in the funds. So will that happen?
Of course, there is talk now about trying to bring in defined contribution schemes. How on earth are the Government going to provide protection for those as they get higher-risk portfolios, or are we basically going to tell pensioners that they will now face much more risk about receiving the pensions that they believe they have signed up to?
The Minister will know that I am also concerned about the Edinburgh reforms because embedded in them is a rollback of many of the safeguards that were put in place after the 2008 crash. In particular, they undermine the ring-fencing of retail banks and weaken the responsibility for wrongdoing and mismanagement in the senior managers regime. I am really troubled when the Government’s answer is, “Look, it’s not a problem because we have in place resolution regimes that protect the taxpayer if any of these institutions collapse”. In the recent case of Credit Suisse, Swiss regulators abandoned the resolution plan because they realised that it would lead to an economic crisis in Switzerland. In the US, regulators refused to impose a resolution on Silicon Valley Bank because it would destroy a key sector of their economy. It is beginning to look like resolution will only ever be applied in very limited circumstances because of the collateral damage to the economy.
I do not want to repeat all the important discussions that we are having on the Financial Services and Markets Bill, but I must highlight the issues of accountability for and scrutiny of the regulators in this regime, which other noble Lords have spoken about. In our discussions in committee, the Government have heard alarm expressed by Members on every Bench. Among many others, the noble Lords, Lord Forsyth of Drumlean, Lord Bridges and Lord Tyrie and my noble friend Lord Sharkey have put down—or will put down—amendments on Report to ensure scrutiny and accountability. I hope that today the Government will tell us that they will accept those key amendments.
Lord Livermore (Lab)
My Lords, I congratulate the noble Earl, Lord Kinnoull, on his opening speech. I thank him and the European Affairs Committee for their report into the UK-EU relationship in financial services. Although published nearly a year ago, it is a testament to the quality of the report that it is, as the noble Baroness, Lady Kramer, said, still just as relevant today as it was then.
I have recently returned to your Lordships’ House from a leave of absence, during which time I was working in the European banking practice at McKinsey & Company, so it feels particularly appropriate that this should be the first debate I take part in in my new role. It is a pleasure to speak alongside so many noble Lords who have such expertise in this subject. This has been a very interesting debate, which I have greatly enjoyed listening to and from which I have learned much.
The committee’s report rightly begins by highlighting the importance of the financial services sector to the whole of the UK economy. It notes that, as many noble Lords have said, the sector is a major employer,
“employing 2.3 million people and making up 10% of total UK tax receipts”.
Indeed, in the year since the report was published, employment in financial services has increased substantially to almost 2.5 million, with two-thirds of those jobs based outside London. The strength and stability of our financial services sector continues to be of profound importance to our economy, with the sector contributing more than £170 billion a year to GDP—8.3% of all economic output.
The report goes on to note:
“The UK’s financial services sector is not only significant to the domestic economy; it is also vital for the functioning of the wider global economy”.
As the noble Earl, Lord Effingham, noted, the committee highlights the City’s location:
“Driven by its location, bridging time zones between the major financial services centres in East Asia and the Americas, and lying in close proximity to the EU, the world’s largest trading bloc, the sector plays a pivotal role in the world’s financial markets. Its participants ‘benefit from an ecosystem recognised for its openness, global connections and a culture of collaboration’”.
In my view, we should be immensely proud of this picture that the committee paints—proud that our capital city is one of only two global financial capitals and is at the very heart of the international monetary system. I quote from the opening chapter once more. It says that
“London has developed ‘the largest financial services cluster in the world’, having ‘the deepest and broadest capital market in Europe, if not one of the two premier capital markets in the world’, and an insurance market ‘bigger than all of its competitors combined’”.
This is an enviable position. As my noble friend Lord Liddle said, it is vital that we support the sector across the UK to retain its competitiveness on the world stage, so that the UK can continue to be one of the world’s premier global financial centres.
The noble Lord, Lord Bilimoria, mentioned many of the statistics; I will pick just a few. The report highlights that the financial services sector is a major contributor to the UK’s international trade, comprising 19.1% of all UK services exports, and that the European Union is a vital part of this trade, making up some 37% of the total—the second-largest market for UK financial services exports after the US.
However, the value of this trade has been steadily falling. Since 2018, it has fallen by 19%, with little corresponding progress in securing trade deals for our financial services around the world. As focused on by the noble Lord, Lord Desai, in his speech, the committee’s report examines the impact on the financial services sector of the UK’s exit from the European Union. It details that some firms have had to make operational and structural adjustments to continue to conduct business between the UK and EU. In evidence given to the committee, the think tank New Financial stated that
“nearly 500 firms based in the UK have responded to Brexit in some form by relocating part of their business, staff, legal entities, or capital to the EU”.
Evidence to the committee identified that 7,000 financial services jobs have left the UK to move to the EU, with witnesses expressing concern about the opportunity cost of Brexit to the UK’s financial services sector: that new jobs may in future be created in the EU that might once have been created here. The committee therefore
“warns against complacency in this regard, as it is not yet clear whether the impact of Brexit on employment has fully played out”.
The EU will always remain an important market for many UK financial services firms, and we must prioritise strengthening the UK-EU business relationship in the interests of the City and our country. Looking ahead, it was extremely welcome to read in the report that so many witnesses were optimistic about the future outlook for the financial services sector. The report notes that London has retained its position as the world’s second-largest financial centre and the most important in Europe. It also states that
“there was a strong sense … that the sector has retained its resilience”.
However, I was particularly interested to note the observations made by the noble Lord, Lord Hill, in his evidence, urging us to look further afield and that international competition to the City’s pre-eminence will come not from within the EU but from the rest of the world.
Given how much has happened since this report and the Government’s response to it were published—we are now near the end of the passage of the Financial Services and Markets Bill, and the Government have announced the Edinburgh reforms—I would be grateful to the Minister if she could set out the action the Government are taking both to boost financial services exports and to support the competitiveness and international position of the sector more generally.
The main substance of the committee’s report examines four main areas: equivalence, regulatory co-operation, regulatory reform and divergence, and future opportunities for the sector. In chapter 2, the committee focuses on equivalence, noting the absence of EU equivalence decisions. It heard evidence that although some of the missing equivalence decisions would be mutually beneficial for the UK-EU trading relationship, the sector does not seem to view either their absence or the competitive imbalance compared with other third countries as a matter of fundamental concern. Given that equivalence decisions are unilateral in nature, I agree with the committee’s conclusion that relying on a process governed by others is not a suitable strategy for the long-term health of the financial services sector.
In chapter 3, the committee regrets that although the UK and EU committed to it alongside the trade and co-operation agreement, a memorandum of understanding on regulatory co-operation has still not been signed. I share the committee’s concern in this regard. As my noble friend Lord Liddle noted, the collapse of Silicon Valley Bank and Credit Suisse highlights the importance of regulators working closely with their international counterparts, both in the EU and beyond, in order to respond to market events and maintain as much confidence in the system as possible.
We should listen to the concerns of our world-class financial and professional services firms, negotiate for mutual recognition of professional qualifications for our services sector, and finalise a memorandum of understanding on regulatory co-operation. The Government’s response to the committee’s report stated that they are ready to sign the MoU, yet it has still not been signed almost a year later. As the noble Viscount, Lord Trenchard, and other noble Lords asked, I would be grateful if the Minister could update the Grand Committee on progress on this. The report goes on to consider the issues of regulatory reform and divergence. The committee’s recommendations in this area pre-date the Financial Services and Markets Bill, but their observation that the Government should weigh up the benefits of divergence against the costs of implementing new rules is notable.
Clearly, regulatory divergence has the potential to produce opportunities for the sector, such as reform of Solvency II to unlock capital for investment in the green transition. But we should continue to take an intelligent approach to regulation, not diverging for its own sake, and, where it makes sense to remain aligned with the EU on banking regulation, we should continue to do so.
The final chapter of the report focuses on future opportunities for the sector. I endorse the committee’s view that fintech and green finance provide significant opportunities for the UK economy, and it is vital that we benefit from the gains in productivity that these areas can bring. As the noble Lord, Lord Holmes of Richmond, said, the UK today remains a top destination for fintech investment, attracting £10 billion of investment in 2022. This is second only to the US and more than all of the next 10 European countries combined. The strength and resilience of our financial services sector, our reputation for high regulatory standards and legal services, our world-leading universities and our access to a highly skilled workforce all come together to make Britain the destination in Europe to invest in fintech. Our goal now should be to make Britain the best place to start and grow a fintech company, not just in Europe but in the world.
As it is so relevant to so many areas that the committee focuses on, I end by endorsing some of the closing words of the committee’s report:
“We … urge the Government not to disregard the importance of a cooperative and constructive UK-EU relationship in financial services.
Once again, I thank the noble Earl, Lord Kinnoull, and the European Affairs Committee for their report. It is an excellent document, which still has much to contribute to this ongoing debate.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, I thank the noble Earl, Lord Kinnoull, for securing this important debate on the report from the European Affairs Committee, which he so expertly chairs. I am grateful to all noble Lords for their contributions. Once again, I welcome the noble Lord, Lord Livermore, to his place on the Labour Front Bench.
I welcome the committee’s report on the UK-EU relationship in financial services, particularly its encouraging assessment of the UK financial services sector and the sector’s performance following Brexit. I also welcome the committee’s praise for the Government’s financial services agenda and reforms, including the future regulatory framework review.
Earlier this year, the Prime Minister welcomed President von der Leyen to Windsor to announce the Windsor Framework, achieving a decisive breakthrough. As the Prime Minister said, the UK and the EU may have differed in the past, but the two are allies, trading partners and friends. The Windsor Framework agreement restores the free flow of trade from Great Britain to Northern Ireland, protects Northern Ireland’s place in the Union, and safeguards sovereignty for the people of Northern Ireland. The Government also welcomed agreement at the Partnership Council on 24 March that we will shortly be able to move forward and sign the memorandum of understanding on regulatory co-operation in financial services and operationalise the forum.
I recognise that many noble Lords, including the noble Earl, Lord Kinnoull, my noble friend Lord Trenchard, the noble Lords, Lord Livermore and Lord Liddell, and the noble Baroness, Lady Kramer, asked for further detail on when that MoU would be signed. The Commission has today adopted the MoU and transferred it to the council for political endorsement, and we welcome this positive news. As we have previously said, the Treasury stands ready to sign the MoU, and we look forward to operationalising the forum as soon as possible this year.
I cannot comment any further on the EU process, but welcome movement has been seen today. This reflects the fact that the UK and EU’s financial markets are deeply interconnected, and building a constructive relationship is of mutual benefit. In the meantime, we continue to closely engage with EU authorities bilaterally and through multilateral fora. Indeed, the Chancellor and the Economic Secretary to the Treasury will meet Commissioner McGuinness next week.
The noble Earl, Lord Kinnoull, asked how the Government intend to support the financial services sector outside London, and the noble Lord, Lord Livermore, asked what we are doing to boost the competitiveness of the sector. The noble Earl is right that financial services are vital to the whole UK economy; they are important in not just London and the south-east or Edinburgh and Scotland. The Government’s vision for financial services will drive growth across the country. It is one for a sector that is open, sustainable, technologically advanced and globally competitive, and which acts in the interests of communities across the UK.
The Government are committed to delivering the Edinburgh reforms, which will take forward this ambition for the UK and ensure that the sector benefits from dynamic and proportionate regulation, that consumers benefit from high-quality services with appropriate protection and that the sector embraces the latest technology. This sector-wide plan will have benefits across the UK, both from direct jobs in financial services and through the role the sector has to allocate capital to grow our businesses, develop new technology and tackle climate change.
The noble Baroness, Lady Kramer, asked where the UK is relevant to other EU financial services centres, which picks up on this point about competitiveness. I do not have the figures that she asked for, but I can tell her that the UK is consistently ranked first or second among the world’s leading financial centres.
The noble Lord, Lord Livermore, asked about exports, and I have figures closer to those that the noble Baroness asked for on that subject. The UK is the world’s largest net financial exporter, slightly larger than the US and significantly ahead of the EU as a whole. The UK’s financial exports totalled $87.2 billion in 2021; the top five countries in the EU totalled $53.7 billion in the same year.
The noble Lord, Lord Livermore, asked what more we can do to promote financial services exports, and this is a focus for the UK. We are about to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership—CPTPP—which adds to the trade agreements with Australia, Japan and New Zealand, as well as the digital economy agreements with Ukraine and Singapore. The UK is looking to add to this list by making progress on negotiations to update our existing FTAs with Canada and Mexico, plus agreeing new FTAs with India and the Gulf Cooperation Council.
Several noble Lords, including the noble Earl, Lord Kinnoull, and my noble friend Lord Holmes, asked about the Swiss negotiations. A huge amount of progress has been made in that area. Given the ambition and novelty of the agreement, there are some complex and highly technical issues to work through. It is important that we get those right, given that this agreement is intended to serve as a new blueprint for financial services trade. We continue to work at pace, and we still aim to conclude those negotiations by the end of the summer.
The noble Earl, Lord Kinnoull, also asked about the publication of the Government’s updated green finance strategy. It was published on 31 March alongside a raft of documents setting out our vision for energy security and to tackle climate change more generally. It set out a vision for how the UK can continue to be a leader in green finance. A recent report reaffirmed our position as the number one global centre for green finance, but we cannot be complacent.
The noble Earl also asked about the State of the Sector report published last year. I confirm we are committed to publishing a second report this year, part of which will cover the opportunities the UK has to strengthen its position as a global financial services hub. That will reflect the Government’s ongoing commitment to this being an open market. I hope that also reassures my noble friend Lord Hannan about our approach to maintaining openness in this sector.
The noble Lord, Lord Liddle, was a little sceptical about the value of divergence, having left the EU. I will agree with him on one point: there is no value in pursuing divergence for divergence’s sake. But, if I may highlight just one example that other noble Lords have touched on, Solvency II reforms in the UK could unlock over £100 billion from UK insurers for productive investment, while maintaining high standards of policyholder protection. I believe that there are significant opportunities for us in charting our own way, having left the EU.
I believe that the noble Lord, Lord Liddle, also expressed some scepticism about the regulator’s new objective on long-term growth and competitiveness. I know that I heard that from the noble Baroness, Lady Kramer. I reassure them both that there is a clear hierarchy in the regulator’s objectives, which puts financial stability ahead of the new growth and competitiveness objective. I also say to my noble friend Lord Trenchard that we have included that new objective for the regulators because we believe that there are opportunities for smarter regulation to both maintain higher standards and drive growth, and that the inclusion of this objective will help to deliver that. I must disagree with my noble friend, however, about returning to the previous structure of financial services regulation. The changes that we made with the establishment of the PRA and FCA were not imposed by Brussels; it was a structure that the UK assessed as best preventing future crises. We continue to believe that it is appropriate in today’s world.
My noble friend Lord Holmes focused specifically on fintech. I was going to quote some statistics on the success of the UK’s fintech sector but the noble Lord, Lord Livermore, did that for me. However, I share my noble friend’s expectations about the promise of the FMI sandbox that is provided for in the Financial Services and Markets Bill. My noble friend also raised crypto assets; the Government have set out their approach towards crypto regulation in our recent consultation, and we will reflect carefully on the responses to that. Our approach is driven by embracing the opportunities of the technology that it represents while also protecting consumers against the risk. My noble friend talked of rational optimism and having the right regulatory framework; I believe that is a good way to describe the Government’s approach.
The noble Lord, Lord Bilimoria, and my noble friends Lord Hannan and Lord Holmes all raised talent and skills as a key component for our financial services sector. We recognise that maintaining a deep talent pool is integral to the UK’s continued success as a financial centre. The Government are committed to ensuring that the UK attracts and retains top talent. Since 2021, we have announced a set of targeted high-skilled visa reforms. These have included the global talent route, global business mobility, high potential individual, scale-up worker and reformed innovator visas. None the less, we continue to listen to the views of the sector. The Financial Services Skills Commission is a key industry body, working to take forward collective action to address the needs of the sector, whether it be in identifying and addressing emerging skills gaps, widening access to talent across the sector or promoting diversity and inclusion across it.
Many noble Lords also touched upon the debates that we have been having on the Financial Services and Markets Bill. I do not wish to repeat all of those debates today, as we will debate the Bill further when we reach Report. I should correct something I said earlier, when I misspoke: the green finance strategy was published on 30 March, not 31 March. I would not want to mislead those who might be googling the wrong date.
To return to the Bill, I once again reiterate the Government’s view that effective parliamentary scrutiny is valuable for consumers, firms and regulators, and that the new powers we are giving to regulators through the Bill should be matched by strengthened scrutiny and accountability of the regulators. There are provisions in the Bill to strengthen that scrutiny and accountability, and we are reflecting carefully on our discussions in Committee about how we can further build on those ahead of Report.
The noble Lord, Lord Desai, asked when we will finally get Brexit done. When it comes to financial services, we have onshored the previous EU regulations, but he is right that moving a set of laws from the EU to the UK statute book brings no benefit in and of itself. The Financial Services and Markets Bill, which is currently before this House—I look forward to it completing its passage—is the basis on which we will take forward a significant programme of reforms that we can implement once it is in place. The benefits of those reforms will not be felt overnight, and their scale means that we will need to phase their implementation over several years. However, that Bill and the reforms it will allow us to deliver are the basis on which we will build our vision for the future of financial services in the UK: a sector that is open, sustainable, technologically advanced and globally competitive.
The Earl of Kinnoull (CB)
My Lords, for once I find myself hoping that the noble Lord, Lord Callanan, will be on his feet for a very long time, but I will not. I thank everyone who has taken part in a most thought-provoking debate all round; what a lot of expertise has been shown. I also thank and praise the Minister, who managed to answer all eight of my questions in one way or another, which was a remarkable achievement. I thank her for that.
I welcome the noble Lord, Lord Livermore. I think we will very much enjoy his expertise in this House over the next period. His speech was jolly good. I thank him for his kind words about our report.
I must finally thank my committee, which was really helpful on what was a very difficult report. Many of the committee were not terrifically experienced in financial services but took to it all round. I will privately thank the noble Lord, Lord Liddle, afterwards for his very kind words.
A lot of very good points were made. I will not repeat them all, of course, but I will highlight three things that came out of the debate. The first was the theme of complacency. Although in the period into which the committee was inquiring it found, slightly to its surprise, that only 7,000 jobs had moved—unfortunately, EY has now stopped doing that particular survey, so it is not possible to see with any certainty what has happened—we need to watch very carefully. If things are seen that are wrong, the Government will have to be very nimble to deal with whatever problems come up. I note that that was mentioned by almost everyone: the noble Lords, Lord Liddle, Lord Bilimoria and Lord Desai, the noble Viscount, Lord Trenchard, and the noble Earl, Lord Effingham, were all keen on this topic.
The second thing was a really good point about divergence risk, made by the noble Lord, Lord Liddle. We are engaged in this three-stage process, as I said: analysis, legislation and implementation. We are almost at the end of the legislation bit of that. The divergence risk remains really important to watch, and that balance between a bit of change to help our differently shaped financial services industry and whatever risk that comes with will be very important to watch as well. That was a very sharp point and I associate myself with those words.
I have labelled the final of the three themes I was going to highlight “workforce”, but it includes visas and the regulatory clearance point. I have heard stories similar to the nine-month thing. Everything that can be done to improve access to talent and to get the processes smooth for visas in financial services would be enormously good in assisting our prize industry and would not cost the Government anything. I hope this will be a theme. The noble Lords, Lord Hannan, Lord Bilimoria and Lord Holmes, majored on that. I thank them very much.
I look forward very much to our discussions about the secondary competitiveness objective. We asked almost all our witnesses about that over the three months and a worrying number of different ideas as to what it actually meant came back. I cannot say that I particularly understand it. There have been lots of amendments to try to give it a bit of shape. We will discuss that again. I was very encouraged by the good words that the Minister just said on the scrutiny of the House.
All that said, I beg to move.
Licensing Act 2003 (Liaison Committee Report)
(12 months ago)
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Baroness McIntosh of Pickering
That the Grand Committee takes note of the Report from the Liaison Committee The Licensing Act 2003: post-legislative scrutiny Follow-up report (2nd Report, HL Paper 39).
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful for the opportunity to debate this report and I thank all who will be contributing this afternoon, especially my noble friend the Minister. I look forward to noble Lords’ contributions to the debate.
It was an honour to chair the original inquiry and serve with such distinguished colleagues on the committee. This was a timely opportunity to review the Licensing Act 2003, which transformed the legal regime governing the sale of alcohol, replacing licensing provisions across 10 statutes and unifying them in one Act. The Act liberalised alcohol licensing and transferred authority for licensing from the judicial system to local authorities, establishing licensing committees to make decisions on enforcing the provisions of the Act.
I declare my interests in the register as the non-executive chair of the National Proof of Age Standards Scheme—PASSCO CIC—and as a non-practising member of the Faculty of Advocates.
Baroness McIntosh of Pickering (Con)
I thank all those who made this inquiry possible, especially the members of the Liaison Committee, who kindly agreed to a follow-up report on our original inquiry. I also thank our original clerk, Michael Collon; our specialist adviser, Sarah Clover; and all the committee staff on our follow-up inquiry, including Christopher Clarke, Heather Fuller, Philippa Tudor and Hannah Murdoch. I express our gratitude to the witnesses for their extremely helpful evidence.
The report focuses on specific areas: the co-ordination of licensing and planning systems; the agent of change principle; training; access to licensed premises for disabled people; the night-time economy; the pricing and taxation of alcohol; the sale of alcohol airside at airports; application systems; and the national database for personal licence holders. The work of the committee straddled two principal departments: the Home Office and what is now the Department for Levelling Up, Housing and Communities. We are grateful to the Ministers of those departments for engaging with us.
Although it was not focusing on the impact of Covid-19 on licensed premises, the committee was mindful from the evidence that it heard of the effects of Covid on the hospitality sector and the night-time economy.
The Government responded to our follow-up report in November 2022. I must express a degree of disappointment that they were unable to support many of our conclusions and recommendations, particularly with regard to co-ordinating licensing and planning systems and the agent of change principle, but also on disabled access. The committee recommended that the existing law be amended to require that an application for a premises licence should be accompanied by a disabled access and facilities statement. I ask my noble friend the Minister for a progress report on both this aspect and the review to Part M of the building regulations, as well as on the timescale for finalising and implementing any changes. In particular, will the provisions be extended to the accessibility of existing premises? Also, following the welcome appointment of the disability and access ambassador, has there been any significant change to access?
I also press my noble friend to confirm whether a national working group relating to the night-time economy has been established, as the Government promised, to look at reducing alcohol-related offending. If so, who sits on it, and where can information on it be found?
On training, the Government undertook to discuss with training providers whether additional signposting could be included in the Section 182 guidance and to continue to support efforts to ensure that all those involved in licensing work are trained accordingly. Can my noble friend update us on progress, and, equally, on the rollout for training for police licensing officers?
Regarding the sale of alcohol airside, the Government rejected the committee’s request to review its decision not to proceed with licensing airside within three years. Given the potential toxic mix of excessive alcohol consumption and air rage, will my noble friend revisit this decision?
It is highly recommended that the Government do a formal review of the impact of minimum unit pricing across Scotland and Wales.
UKHospitality has made some powerful comments regarding the late-night levy regulations being repealed and supports the committee recommendations that the Government should consult with industry and interested parties on the efficacy of the levy, suggesting that these powers be removed unless meaningful benefits are identified.
When do the Government expect to publish their response to the recent consultation under the Policing and Crime Act 2017?
The Institute of Licensing has called for the agent of change principle to be adopted into the Section 182 guidance to ensure that licensing guidance reflects the National Planning Policy Framework. In the debate on the levelling-up Bill on Monday 24 April, the Minister, my noble friend Lady Scott, said in response to an amendment tabled by the noble Baroness, Lady Henig, the noble Lord, Lord Foster, who is present today, and me, that
“the Government agree that co-ordination between the planning and licensing regimes is crucial to protect those businesses in practice. This is why in December 2022 the Home Office published a revised version of its guidance, made under Section 182 of the Licensing Act 2003, cross-referencing the relevant section of the National Planning Policy Framework for the first time”.
The passage that I quote now is the most significant. Crucially, she went on to say:
“we will make sure that our policy results in better protections for these businesses and delivers on the agent of change principle in practice … the Government’s policies embed the agent of change principle and … we will continue to make sure it is reflected in planning and licensing decisions in future”.—[Official Report, 24/4/23; col. 995.]
I raise this as the sense and meaning of that passage is not entirely clear from either the levelling-up Bill or my noble friend Lady Scott’s comments. Any clarification would be appreciated. Do my noble friend’s comments indicate that the Government might bring forward an amendment to the levelling-up Bill in this regard? That would be most welcome.
There are three other issues relating to the agent of change principle. The first is inadequacy of policy. The agent of change principle is found only in policy, in the National Planning Policy Framework and, since December 2022, in the Secretary of State’s Section 182 licensing guidance, both in identical terms:
“Planning policies and decisions should ensure that new development can be integrated effectively with existing businesses and community facilities (such as places of worship, pubs, music venues and sports clubs)”,
et cetera.
The policy is inadequate because it is ambiguous. Currently, the language makes it clear that the policy is necessarily vague in order to be flexible in various circumstances. Terms such as “effectively”, “unreasonable” and “suitable” present challenges for all parties and decision-makers as they attempt to define what the precise meaning should be in any given case. Developers are likely to be in a superior position to argue their case than the existing businesses, who may not have a seat at the negotiating table at all.
In the amendment that we tabled in Committee, we attempted to ensure that statutory provisions will be defined so as to reduce this ambiguity. The proposed amendment sets out concrete expectations, such as the mandatory preparation of noise reports where existing businesses are identified.
The second reason for addressing this inadequacy of policy relates to planning balance. As in any policy area, a balance must be reached between competing interests. Planning and licensing policies compete with each other in a balancing exercise—literally called the “planning balance” in the NPPF. The decision-maker must place weight on the competing policies on a case- by-case basis.
Finally, this should be mandatory. Existing businesses may not even be aware that a planning application that potentially affects them has been made to the local planning authority. Local planning authorities are very dependent on consultees drawing relevant matters to their attention. Decision-makers may be unaware of any “unreasonable restrictions” that might be placed on existing businesses as a result of the decision that they are about to make. Therefore, in my view, this amendment is key to the future agent of change being properly understood and applied.
In conclusion, I return to one of our key recommendations: co-ordination between licensing and planning systems. May I press my noble friend the Minister to clarify what changes have been implemented to improve the co-ordination of these systems?
I am delighted to recommend this report to the Committee and beg to move.
Lord Foster of Bath (LD)
My Lords, I suspect that very few of us would doubt the merit of the decision that was made to introduce special Select Committees and ensure that some carry out post-legislative scrutiny. It is equally welcome that, from time to time, the Liaison Committee conducts a follow-up inquiry. I had the opportunity to serve on both the 2017 special committee that reviewed the 2003 Licensing Act and the Liaison Committee in its follow-up work, which reported last year. Both were extremely ably chaired by the noble Baroness, Lady McIntosh of Pickering.
As we have already heard, the committee concluded that a radical, comprehensive overhaul of the Act was needed, with the work of licensing committees being taken over by planning committees and appeals going to the Planning Inspectorate rather than to magistrates. The committee made a large number of recommendations, which included: better training of councillors engaged in licensing activities; increased safeguards in relation to the extra powers given to the police; the use of taxation and pricing measures to control excessive consumption; a reconsideration of measures such as early morning restriction orders and late night levies; and bringing the sale of alcohol airside within the ambit of licensing legislation. I want to concentrate my remarks on just two of the other recommendations that we made: greater co-ordination between the planning and licensing functions of local authorities; and measures to embed the agent of change principle into planning legislation, guidance and practice more effectively.
In terms of co-ordination between planning and licensing, the Select Committee recommended:
“Sections 6–10 of the Licensing Act 2003 should be amended to transfer the functions of local authority licensing committees and sub-committees to the planning committees”,
and we suggested that there should be trials of this in pilot areas. When the new regime was being designed at the turn of the century, local authority planning committees were in full control of nearly all aspects of land use other than licensing. The committee concluded that it was—and, frankly, remains—a mystery why, when control of land use for the sale of alcohol was being considered, it was thought necessary to set up committees with different constitutions and powers. The result is absurdities like applications for new pubs receiving planning permission but not alcohol licences, or vice versa, sometimes on the grounds that the noise anticipated would be excessive in a residential area for planning purposes but not for licensing purposes.
The committee’s proposal would have resolved those absurdities. Responding to the Select Committee’s report, the Government acknowledged that there was a problem, saying that they
“recognise that coordination between systems is inconsistent and could be improved in many areas”.
However, as we have sadly heard, the Government have ruled out even trials of our proposals. I will suggest to the Minister two other reasons why the Government should reconsider.
The first is quite simple. As the noble Baroness has already said, planning policies compete with each other but also with licensing policies. Decision-makers must weigh up competing policies—both planning and licensing—on a case-by-case basis. Surely the Minister agrees that managing that balance is best done by a single decision-making body.
The second argument relates to current problems within planning decision-making. The planning process is frequently blamed for a shortfall in the provision of new housing. It is taking longer and longer to approve even planning permission for home extensions. Last year, for example, more than 100,000 such applications took more than eight weeks to reach a decision. It would be easy to blame local planning authorities but LGA research shows that, faced with reductions in funding, 305 of the 343 planning departments are operating at a deficit. As a result, they have significant staff shortages. A quarter of planning authorities do not even have a head of planning reporting directly to a council chief executive. England’s chief planning officer, Joanna Averley, acknowledged this recently, saying that there are
“not enough planners coming into local government”.
She added that the Government do not have the funds to pay for more.
It is plain that a major amendment to the planning process will have to come sooner rather than later. The amalgamation of planning and licensing through economies of scale would go some way towards helping the problems I have described. Does the Minister accept that this would be the time to include reform of the licensing process so that the task is given to planning committees, as the Select Committee first recommended six years ago?
Another example illustrating the potential confusion between planning and licensing is in respect of the agent of change principle; I hope that my comments here will complement those of the noble Baroness. Put simply, the agent of change principle ensures that a new development must shoulder responsibility for compliance when situated near, for example, an existing music venue. Similarly, if a music venue opens in an existing residential area, the new venue would be responsible for complying with residential requirements such as enhanced sound-proofing.
Members of the Select Committee were pleased that the Government agreed with our recommendation that the agent of change principle should be reflected in both the National Planning Policy Framework and Section 182 guidance. This has now happened. However, the Liaison Committee heard that the principle is inadequate as it stands and does not sufficiently explain the duties of all parties involved. It needs to go further to protect licensed premises and local residents in our changing high streets. Indeed, coupled with the lack of consistency between the planning and licensing systems, the current arrangements are still not guaranteeing the protection of live venues.
In a recent debate on the levelling up Bill, I cited two examples—the Night & Day Café in Manchester and the Jago in Dalston—both of which have both been served with noise abatement notices as a result of complaints from residents of newly developed properties in their vicinities. Fortunately, the Jago prevailed at appeal and the noise abatement notice was withdrawn by the council. For Night & Day, however, the appeal has still not been resolved after lengthy delays.
Under the present arrangements, the agent of change principle is not covered by legislation; it is only in policy, with language that has proved vague. How do decision-makers interpret words such as “effectively”, “unreasonable” or “suitable”? How do they balance the agent of change principle against, for example, the urgent need for more housing? How do existing businesses know well enough in advance about new developments that may have an impact on them?
To resolve such issues, the Liaison Committee recommended that:
“The Government should review the ‘Agent of Change’ principle, strengthen it, and consider incorporating it into current planning reforms in the Levelling-up and Regeneration Bill”.
The Government did not disagree; and they also pointed to the then upcoming Levelling-up and Regeneration Bill as a vehicle to address these concerns.
As we have heard, in Committee, the noble Baroness, Lady McIntosh of Pickering, moved an amendment, which I strongly supported, which would have incorporated the agent of change principle into law for licensing and other purposes. The amendment would have helped the Government achieve what they agreed was needed: greater clarity about what was expected of councils and businesses. However, the Minister responding, the noble Baroness, Lady Scott of Bybrook, claimed that the amendment was not needed and gave the reasons we have already heard. She said that
“we will make sure that our policy results in better protections for these businesses and delivers on the agent of change principle in practice”.—[Official Report, 24/4/23; col. 995.]
But there are currently no such relevant changes proposed in the Bill. So I repeat the question asked by the noble Baroness: can the Minister explain exactly how the Government intend to achieve both the recommendations of the Liaison Committee and, more importantly, their own promise?
I began by welcoming special Select Committee and Liaison Committee follow-up reports. Frankly, it would be even more welcome if the Government paid greater attention to their work and proposals.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in this debate. In doing so, I declare my technology interests. I congratulate my noble friend Lady McIntosh of Pickering, all members of the committee and, indeed, all the staff of the House who worked to produce this and the original report.
Does my noble friend the Minister agree that, ultimately, if planning decisions were predicated on the concept of inclusive by design and if licensing decisions had an access statement attached to them, that could transform this whole process, not just for disabled people but for all people?
I will talk about digital ID and inclusion, and make some points on timing. Does the Minister agree that, once licences are issued, given the significant proportion of the difficulties that sometimes emerge, particularly where alcohol licences are involved, an effective system of digital ID would be such a positive force for good in this space? It would not be centralised but controlled by the individual, deciding what credentials to give, at what point and for what purpose. That would make such a difference to so many of the problems with that particular type of licensed venue.
I turn to inclusion, and inclusion by design. There is a recommendation in this report, which is also taken from the special inquiry report from the noble Baroness, Lady Deech, which suggests, rightly, attaching an access statement to any licence. This seems to make complete sense. Does the Minister agree?
Although it has taken some time to get this debate, it offers the opportunity to have a bit of a curtain-raiser for some of the issues yet to come in the Levelling-up and Regeneration Bill. The noble Lord, Lord Foster, and my noble friend Lady McIntosh rightly raised a number of issues. Does the Minister agree that there are issues at the heart of the Bill that could be resolved by having an inclusive by design amendment accepted when it comes to planning, which would run through the entirety of the Bill? Many changes were made by the Business and Planning Act 2020 when we were in the midst of the Covid emergency. Many of those measures brought in in those emergency times are now set to be made permanent by virtue of the Levelling-up and Regeneration Bill.
I will mention one example to make my point. Under the Bill, the consultation time for pavement licences for cafés or other venues is currently proposed to be cut from 28 days to 14 days. Does my noble friend the Minister really believe that there is a need to take a fortnight out of that consultation process? Potentially, this would be a prima facie breach of the public sector equality duty, as it is likely that it would adversely impact disabled people, who often need increased time to have the consultation in different formats and to be made aware of the consultation. Can it be right to put in the Bill measures which were introduced for a specific purpose at a specific time and seek to make them permanent?
In conclusion, as has already been said, there is a clear need to tidy up the real issue between planning and licensing. If we could enable the system to be inclusive by design, with venues’ access requirements clearly being reviewed at the time of the licence application, it would benefit the venues. There would be a financial benefit, and it would benefit patrons. It would benefit not just disabled people or older people but all people. Communities, our cities and our country made better—would not my noble friend the Minister want to get right behind that?
Lord Smith of Hindhead (Con)
My Lords, I am pleased to be able to make a contribution to this take-note debate and regret that I was unable to participate in the earlier debate on this subject. I declare my interests as CEO of the Association of Conservative Clubs, which comprises some 750 affiliated private members’ social clubs throughout the UK, and as chairman of Best Bar None, a national accreditation scheme that works with the Home Office, the alcohol industry, the police and local authorities, with the aim of encouraging a safer, more responsible alcohol-related leisure environment by helping to reduce crime, disorder and underage sales. I had the honour to serve on the Licensing Act Select Committee under the chairmanship of my noble friend Lady McIntosh of Pickering, and as a member of the Liaison Committee at the time when that committee requested a follow-up on the Select Committee’s report in January 2019.
I believe the agent of change principle and the recommendations being made have merit. The industry certainly benefited from planning working with licensing during the pandemic—for example, with pavement seating, as my noble friend Lord Holmes has just mentioned. Whether this topic is, however, currently paramount on the hospitality industry’s wish list is perhaps doubtful, with so many other more pressing concerns. I will therefore concentrate my comments on some of the other matters within the report.
I am happy to support the need for better and more consistent training of local government officers and councillors to ensure that those sitting on the licensing subcommittees are adequately trained in the subject of licensing. The industry spends millions of pounds training its staff each year, and organisations such as the British Institute of Innkeeping, Pubwatch and the Institute of Licensing devote much of their time and resources to this field. Best Bar None has grown from 40 schemes pre Covid to 59 active schemes today, including airport schemes. In addition, it now has over 2,000 individual premises in the process of receiving accreditation through its central scheme. Best Bar None has invested in new technology to take the accreditation process online, enabling schemes to more easily monitor how their premises are doing, as well as providing tailored reports for each venue.
My reason for mentioning this is to highlight the differences between those who are tasked with operating under the Licensing Act and those tasked with enforcing it. If a person wants to run a pub or bar, they must be trained and qualified to hold a personal licence. The same does not apply to the person granting the premises licence to the property. To me, that seems counterintuitive and is a matter which could be very easily resolved without having to create something from scratch.
The irony is that sales of alcohol in the off-trade—supermarkets—overtook the sale of alcohol from the on-trade—pubs and clubs—some four years ago. The price of drinks in bars is too high for most people to get drunk and pre-loading with cheaper drinks bought for consumption from the off-trade, where training and supervision are almost non-existent, is where many of the problems occur. The late-night levy effectively remains a form of additional taxation on some businesses which operate during the evenings and night time. The fact that, since its creation in 2011, only a handful of the 350 local authorities in England and Wales have introduced a late-night levy, while others have issued consultations on it but not subsequently introduced it, continues to make me wonder why the levy has been kept—particularly as councils are obliged to spend their 30% of the late-night levy share on matters tackling alcohol-related services connected to the management of the night-time economy, whereas the police have no obligation to spend their 70% on any such measures, but can spend it on anything of their choosing. I am pleased therefore that this topic is being looked at again in detail.
The introduction of minimum-unit pricing in Scotland and Wales has proved to have no discernible beneficial effect on problem drinking, as many of us suspected, but has had the effect of making alcohol more expensive to those on low incomes. I hope this experiment will dissuade any plans for a similar scheme ever to be introduced elsewhere.
Of course, overconsumption of alcohol is unhealthy, but our modern-day temperance movement needs to start acknowledging that most people have common sense and just enjoy a modest drink. In moderation, alcohol plays an important and beneficial role in the nation’s life. A society that socialises together is a stronger society. For many people, drinking provides, and has always provided, social cohesion.
We know that per capita alcohol consumption has fallen. Alcohol-related crime is down, while the number of young people consuming alcohol is down significantly and has been falling since 2004. The UK today drinks less alcohol than 16 other European nations, according to the World Health Organization. I simply ask my noble friend the Minister to always bear in mind that licensing legislation should remain concerned solely with licensing management and never become an attempt at social engineering.
Baroness Walmsley (LD)
My Lords, as with many policy areas, there are complex issues to consider when devising public policy on alcohol licensing. In devising licensing regulations, the Government must take into account the balance between the well-being of people who wish to drink alcohol in moderation in a public place and those who live nearby licensed premises, against the danger that high levels of alcohol consumption can lead to criminal activity, road accidents and domestic violence, and, indeed, costs to the health service and the police. Add to this the needs of businesses that serve alcohol as part of their legitimate business model and you have a complex picture.
It is the complexity of the decisions that need to be made at a local level that led the Select Committee to urge the Government to take action to ensure greater co-ordination between the planning and licensing functions of local authorities. This evening, this Committee has heard a passionate explanation from my noble friend Lord Foster of the reasons the committee came to that conclusion. They also recommended better training for councillors engaged in making these complex decisions so that they can adequately take all these factors into account and make decisions that are right for their local area, along with a mechanism to ensure the required co-ordination.
It is disappointing that, in the Government’s response, they appear to believe that nothing further needs to be done in this respect. Instead, we got a litany of the actions the Government are taking to provide treatment for those who abuse alcohol, with serious consequences for themselves and those around them. This is shutting the door after the horse has bolted. However, I am hearing from colleagues serving on local councils that the availability of such services has been much reduced in the last few years. The funding comes from the public health grant, which has been halved. You cannot make a loaf without flour, and the Government are expecting local authorities to do too much with too little.
Is the Minister aware that 70% of local authority funding has to be dedicated to mandatory services such as children in care, elderly people who are reliant on public funding for their care, and residential care for people with physical and learning difficulties? This means that non-mandatory services, such as drug and alcohol services and others, have had to be cut. In light of all this, what progress have the Government made on the sincere recommendation of the committee for better training of councillors and co-ordination between planning and licensing?
Although licensed premises play an important role in what is called the night-time economy and keeping town centres alive, and indeed provide a lot of jobs, particularly for young people, it is the public services that bear the costs when things go wrong. One area where things have gone wrong recently is in the behaviour of people who have been drinking to excess before boarding an aircraft. There have been a number of cases where airline staff have had to delay a flight or detain or remove a passenger to avoid not just annoyance but actual danger to other passengers. It might avoid the need for this if the sale of alcohol airside was brought within the ambit of the licensing regulations. Will the Government please reconsider their intention not to act on this?
Most licensees are responsible people and carry out their business in the interests of customers and their community, but there are some who do not. The committee recommended that any future national database of licence holders should include records of refused, suspended or revoked licences to avoid such people getting licences elsewhere unless they change their ways. Will the Government ensure this happens?
About a third of the victims of domestic violence claim that the perpetrator was under the influence of alcohol when the attack occurred. This suggests that licensees have a great responsibility to stop serving someone who has clearly had enough. I understand how difficult that is, not only to make the judgment itself but to take action and ban the person, who will undoubtedly object loudly. Is the ability of the licensee to take such difficult decisions taken into account when considering renewal of his or her licence? Is there any co-ordination between the local police, who may have to deal with offenders, and the local licensing authority? The police will know which premises are the culprits, since they will often have to deal with the consequences. Are they sufficiently well trained for this duty? On the matter of alcohol-related offending, the government response promised “a National Working Group” to reduce such offending, share good practice, trail innovative solutions and ensure that “existing licensing powers” are applied in full. Can the Minister say who sits on the working group, to whom it answers and when it will report?
As we know, there has been a large increase in the amount of alcohol bought from supermarkets—we just heard that from the noble Lord, Lord Smith—especially during the pandemic. This brings us to recommendations about the use of taxation to control excess consumption. Following years of resistance, the Government have taken welcome action on high-alcohol white cider, because of its use by alcohol abusers. However, there is more to do. I welcome the Government’s commitment to review the new alcohol duties after three years but ask the Minister what further action they plan to take—for example, by reviewing the effect of minimum unit pricing in Scotland and Wales. In doing so, will they always bear in mind the needs of those licensed businesses which serve alcohol to moderate drinkers with or without a meal? They are legitimate businesses and their profits are already under a great deal of pressure.
The temporary pavement licensing scheme is to be made permanent through the levelling-up Bill. That is all very well—we all like a drink in the open air when the weather is fine—but what do local authorities get out of this extension of the premises of commercial businesses into the pavement area which they own and have a duty to clean? Will the bars pay a fee or increased business rates for the privilege of extending premises from which they make money? Local authorities are desperate for cash; might it not be a good idea to help them out a bit here?
I support what the noble Lord, Lord Holmes of Richmond, said about the danger of obstructions on the pavement to people with disabilities, particularly visually impaired people. I recently had to speak to the manager of my local Co-op, in the interests of local visually impaired people, about no less than four large free-standing advertisements on the pavement outside the shop.
I turn to access. Recently, a former colleague put a photograph on her Facebook page of her disabled husband in his wheelchair outside a new local restaurant. Unfortunately, there was no way he could get inside. She went in to ask the manager what arrangements they had made for disabled customers, and they had not made any. I got the impression that he was not too polite either. I am sure that this is not typical of managers of licensed premises and I realise that some premises might be difficult to make accessible, but they will lose customers if they do not adapt. It is quite wrong that they do not make every effort. I would like to see an access and facilities statement as a requirement in licence applications and renewals. Can the Minister say what progress has been made on the review of Part M of the building regulations regarding access if, as they say, the Licensing Act is “not the appropriate vehicle”?
Finally, the committee recommended that the late-night levy should be reviewed in consultation with the trade and the local community. It says that it is a blanket measure that may not be appropriate everywhere. When will the Government respond to this recommendation? As I understand it, they have not done so yet.
Licensed premises contribute a good deal to local economies, provide jobs and allow us all to go out, relax and enjoy ourselves—all of us, not just those with working legs. I am a great believer in a bit of joy, so I hope the Minister in responding to this debate will have inclusive joy for everyone in mind.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I congratulate the noble Baroness, Lady McIntosh, on her report. Many of my questions will echo those she set out in opening this short debate. I do not really have any interests to declare, other than that I served on the licensing committee of a local authority many years ago and that I sit, and have in the past heard licensing appeals, as a magistrate, although that is a very rare occurrence. Nevertheless, I recognise the expertise demonstrated in this short debate.
Clearly, the inquiry did not focus on the impact of Covid-19 on licensing, but it is fair to say that its impact on our hospitality sector and licensed premises has been profound. The adaptions that were made to ensure people could enjoy licensed entertainment safely during the pandemic have acted as a reminder of the importance of this sector to our everyday lives. It is also important that we get things right in minimising alcohol-related harms while supporting a vibrant night-time economy.
It is clear from this report and the government response that we still have some way to go. Ensuring that our licensing and planning systems work well together despite what the Government describe as differing objectives seems to be something that should be worked on further; this should include effective local authority training on licensing that improves outcomes. Training for police officers on licensing and issues impacting the night-time economy has also been welcomed by the Government, who must play their role in ensuring that this training package is introduced as soon as possible and regularly reviewed to ensure that it complies with regulations.
The Government stated in their response to the report that they were establishing a national working group to bring together policing and licensing partners with a focus on police-led interventions to reduce alcohol-related offending. What progress has been made on setting up this working group?
The report also highlights clear shortcomings in equality of access to licensed premises. The Government have noted the legal routes available when premises do not comply with equalities law. It also points out that the EHRC has a role in monitoring how the Act is being complied with in particular sectors and can take action where it is considered necessary. Does the Minister feel that cultural change needs to be encouraged—by this, I mean greater acceptance and encouragement of people with disabilities attending licensed premises? If so, how will the Government work to support bringing about such change to ensure that, rather than taking action against premises that do not comply, we are encouraging premises to comply because it would be in their own interests?
The report mentions the late-night levy and issues with its current application. The Government recently consulted on the late-night levy with the consultation period ending around six weeks ago. Do they yet have a timetable for their response?
Finally, the Government did not provide a full response to the committee’s recommendations on a national database of personal licence holders. Has there been any progress on this since the Government’s response was published in November? The report covers a large number of issues within licensing and our night-time economy, not all of which I have covered.
Although most people drink alcohol in a sensible, responsible way, it is clear that there are persistent problems with the way some people behave because they drink too much. We hope that by implementing these small changes this harm can be minimised. I conclude by endorsing the sentiments laid out by the noble Lord, Lord Smith of Hindhead, about managing alcohol because the vast majority of people enjoy a drink and going out with friends and it is very much a cornerstone of the way many people live their lives. Nevertheless, this is an opportunity which I hope the Government will fully embrace when implementing these changes.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I start by congratulating my noble friend Lady McIntosh of Pickering on securing this important debate. I am very well aware of her long-standing interest in this topic. I also thank all noble Lords who have participated for their contributions. I echo the noble Lord, Lord Ponsonby, in agreeing with my noble friend Lord Smith that the vast majority of people enjoy responsible drinking, and I reassure the noble Baroness, Lady Walmsley, that I often drink with great joy and will do very soon, I hope.
The Government recognise that the majority of people drink responsibly and enjoy alcohol as part of socialising, as has been noted, but we also recognise the significant contribution that the alcohol industry makes to the economy and the job market, as all noble Lords mentioned.
Despite some encouraging trends, we know that the harms associated with alcohol remain too high. Appropriate regulation is therefore essential. We believe that the Licensing Act sets out a clear and effective national framework for regulating licensable activities, while allowing considerable local autonomy. It strikes the right balance between providing safeguards to prevent nuisance, crime and disorder, while recognising the important contribution that licensed premises make to thriving night-time economies. Having said all that, we keep the Act under review to ensure that the regime remains fit for purpose and meets emerging challenges. We work closely with licensing practitioners and the alcohol industry to achieve this.
As your Lordships are aware, in 2017 a House of Lords Select Committee carried out post-legislative scrutiny of the Act. Last year the House of Lords Liaison Committee carried out further scrutiny, so I offer my thanks to everyone involved in that work. The Government have carefully considered the recommendations that the Liaison Committee made in its detailed and thoughtful report last year, and I will update your Lordships on work that the Government have been doing in connection with the reports.
Since the publication of the original report in 2017, the Government have worked to reinforce expectations that licensing and planning should work effectively together. The then Minister for Crime and Policing wrote to licensing authorities to reinforce this expectation. We held workshops and published a revision of the Section 182 guidance, making mention of the relationship between licensing and planning systems. I will come back to both of those things.
In response to the Select Committee’s original recommendation to extend all provisions of the Licensing Act 2003 to airside premises, the Government held a call for evidence, because we of course agree that disruptive incidents caused by excessive alcohol consumption at airports or on aeroplanes are unacceptable. However, as noted in the Government’s response to the call for evidence published in December 2021, the information and evidence submitted did not make a compelling case for extending the provisions. We therefore do not intend to revisit that decision. We were impressed with the information provided following the call for evidence on the voluntary measures already under way by airside premises and airport authorities.
The Liaison Committee expressed concern that removing the GOV.UK licence application system without a replacement system being in place would cause significant difficulties. The Government agree. Your Lordships will be pleased to know that the Cabinet Office has extended the provision of the licensing service for two years, until the end of March 2025. The Government Digital Service will continue to support the online licensing service during this period and is working closely with government departments with an interest in this service. It is exploring options for a long-term solution that meets the needs of licensing authorities and users. At the same time, it is exploring options for a register of licence holders.
I will get into some of the specific points that have been raised, with perhaps a little more detail on one or two of the things that I have already mentioned. With regard to co-ordination between licensing and planning, the Levelling-up and Regeneration Bill will, as has been noted, modernise our planning system and put local people in charge of it, so that it delivers more of what communities want. The Government acknowledge that co-ordination between planning and licensing is important. Planning authorities are involved in licensing applications in their role as a responsible authority under the Licensing Act, but the systems are separate and have different objectives and approaches. The powers are there to enable planning and licensing to work together to support the needs and aspirations of local communities. We do not intend to introduce an additional mechanism.
My noble friend Lady McIntosh made very considered and useful points, particularly regarding agents of change, but these relate to planning rather than the Licensing Act, which is the regime under discussion today. Our response, to both the original report and the subsequent follow-up, has set out our commitment to working with partners to support efforts to improve how these systems work together on the ground. We continue to do that, building on our previous workshops and the clear expectations set out by previous Ministers in this regard. I will obviously share the detailed points my noble friend has made with the relevant department. As she will be aware, the Levelling-up and Regeneration Bill, as I have said, will modernise our planning system and put local people in charge, so I will certainly take back the points that have been made on that.
I think the word “ambiguity” was used with regard to words such as “effective” and “unreasonable”. As signalled by the December 2022 consultation on reforms to national planning policy, the Government will undertake a full consultation on a revised National Planning Policy Framework and proposals for national development management policies once the Levelling-up and Regeneration Bill has completed its passage through Parliament. The Government agree, as I have said, that co-ordination between the planning and licensing regimes is crucial to protect these businesses in practice. That is why, in December 2022, the Home Office published a revised version of the guidance under Section 182—which I have already referred to—of the Licensing Act 2003, cross-referencing the relevant section of the National Planning Policy Framework for the first time. Combined with our wider changes in the Levelling-up and Regeneration Bill, we will make sure that our policy results in better protections for affected businesses and delivers on the agent of change principle in practice.
As regards planning balance, we recognise that raising awareness of this principle, how it can be applied and how it should work in practice are vital in ensuring that the two systems work together at a local level. We will therefore continue to work together with key partners and experts in this area and will continue to hold detailed discussions with them in a workshop setting in June. These discussions will inform what more we can do to further strengthen the licensing guidance, as well as asking practitioners directly what they would find helpful from us.
To go back to the words “effective”, “suitable”, and “unreasonable” being potentially ambiguous, these terms appear frequently in legislation and accompanying guidance. Obviously, circumstances will be different in every case; no law could precisely prescribe what should or must happen in every case. It is for Parliament to legislate to set out the principles, which are applied very much on a case-by-case basis.
My noble friend Lord Smith and others referred to the late-night levy. I am very pleased to say that the Government have delivered their commitment to consult on the level of late-night levy to be applied to late-night refreshment premises. The majority of respondents to the consultation were in favour of local authorities having the option to offer a 30% reduction to late night refreshment providers that qualify for small business rate relief. This reduction is already available in relation to premises that supply alcohol for consumption on the premises.
Now that the consultation is complete, we plan to commence the wider changes made via the Policing and Crime Act 2017 intended to make the levy more flexible for local areas, fairer to business and more transparent. We will continue to collect data on the number of areas introducing a levy via the alcohol and late-night refreshment statistical bulletin.
The night-time economy is obviously incredibly important to the nation and to a number of businesses, but we also continue to take action to improve the safety of women at night, tackle drink-spiking in licensed premises and work with partners to reduce incidents of violence in the night-time economy. To support that work further, we are working with policing and licensing partners to reduce alcohol-related offending in the night-time economy, focusing on sharing good practice, exploring innovative approaches and maximising the use of existing licensing powers.
This leads neatly on to the subject of training, as mentioned by the noble Lord, Lord Ponsonby, and my noble friends Lady McIntosh and Lord Smith. Obviously, we recognise the importance of training for those involved in licensing work at every level. We continue to work closely with the Institute of Licensing and the Local Government Association to ensure that training resources are used widely and consistently, and to explore whether any additional signposting could be included in the Section 182 guidance. I am pleased to say that we will be holding a joint workshop on this issue in June, as I have already mentioned.
The police contribute to licensing decisions and can object to licence applications. In addition, the National Police Chiefs’ Council—the NPCC—remains committed to delivering a training package to all police licensing officers to improve standards and deliver a consistent approach. The NPCC lead for alcohol licensing and harm reduction, Deputy Chief Constable Scott Green of West Midlands Police, is overseeing this programme of work, working with Home Office officials, policing partners and representatives of the hospitality industry to ensure that the training meets the standards of all interested parties.
Noble Lords—among others, my noble friend Lord Holmes, the noble Baroness, Lady Walmsley, the noble Lord, Lord Ponsonby—have brought up the subject of access to licensed premises for disabled people. The Licensing Act regulates the sale of alcohol and should not be used to control other aspects of licensed premises as this is outside the scope of the licensing regime. The Equality Act 2010 already provides robust protections for disabled people who may encounter difficulties in accessing licensed premises.
Pubs, bars and restaurants are under a duty to make reasonable adjustments to enable disabled customers to use their premises and facilities. It is not, however, consistent with how the Equality Act is intended to work for it to set specific accessibility standards for particular industries, nor would such arrangements be workable for obvious reasons. However, we have committed to reviewing Part M of the Building Regulations. As part of our review, we have commissioned research to support it; we will publish this in due course.
I say to the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Walmsley, that I would hope that all premises would strive to be as inclusive as possible. I would certainly take that into account when making personal decisions on where to visit, as I am sure the vast majority of responsible drinkers would.
The noble Lord, Lord Holmes, asked about the consultation period for licensing applications. This is being discussed as part of the levelling up Bill. There is obviously a balance to be struck between ensuring the appropriate time for consultation and helping the licensed sector. Of course, the licensed sector has suffered greatly during the pandemic, as has been noted. It is still in somewhat straitened circumstances.
Regarding minimum unit pricing, after the publication of the 2012 strategy, the then Government carried out a consultation on minimum unit pricing. The evidence was not conclusive. However, Members will be aware that MUP was the subject of a lengthy court case before subsequently being introduced in Scotland and, later, in Wales. The Government are keen to see the full findings from the formal evaluation by the Scottish Government, which we are expecting in June. We will consider those findings and report back in due course. I believe that that is the five year anniversary of the minimum unit pricing experiment in Scotland.
As the noble Baroness, Lady Walmsley, pointed out, we need to be very careful with things of this sort. It seems to me, from a common-sense point of view, that this sort of process could very easily end up being a tax on the poor, which I am sure we would all rather avoid.
On wider issues, the Government are working on tackling alcohol-related harms. Preventing these requires a sustained commitment from government, local authorities, the police, health partners and businesses. There is no easy answer to tackling alcohol-related harms: all parts of the system have to work together, including early identification and intervention, treatment access and criminal justice powers. We have an ambitious programme of work in train across departments to tackle these harms.
My noble friend Lord Holmes asked about digital ID. There are currently no plans to introduce digital age verification for alcohol sales, but we are exploring what is permissible within the Licensing Act and whether the legislation should be amended. We also plan to consult on this over the next few months.
Alcohol is a recognised driver of crime, as has been noted by all noble Lords, and can adversely impact individuals, communities and services. We have seen some encouraging trends over the last few years. For example, members of the public perceiving people being drunk or rowdy as a problem in their local area nearly halved between 2009-10 and 2019-20.
Despite a reduction in alcohol-related violence over the last decade, around four in 10 violent incidents are alcohol related. This is also the case in around a third of domestic violence incidents. When thinking about their latest incident of serious sexual assault experienced, 39% of victims believed the perpetrator to be under the influence of alcohol. This increased to 49% when the incident occurred between strangers.
Work is of course under way across government to tackle alcohol-related crime. As I have said, we have focussed on equipping the police and local authorities with the right powers to take effective action. We continue to take action to improve the safety of women at night, tackle drink spiking in licensed premises and work with partners to reduce these incidents in the night-time economy.
The noble Lord, Lord Ponsonby, asked about the new group on alcohol-related crime and homicide, which brings together the police and other key players. It has been established and has already held its first meeting. Beyond that, I am afraid that I do not have very much information. As and when I find more, I will make sure to share it with him.
I think that I have answered all the questions. Again, I thank my noble friend for securing this debate and all noble Lords who have contributed. We all agree that there is more to do, but I hope that I have provided reassurance that progress is being made to address the recommendations in the report and that some of the work has already concluded. The Government recognise the importance of these issues. I look forward to continued engagement and discussion on them.
Baroness McIntosh of Pickering (Con)
I am grateful to everyone for their contributions, particularly my noble friend for his full response. It seems as though we have had a lot of consultations and workshops, but my noble friend will have picked up, in the mood of the Grand Committee, that we are calling for action.
I am grateful to the noble Lord, Lord Foster, for emphasising the importance of the Select Committees and the follow-up reports of the Liaison Committee, because, particularly in this instance, they were timely reviews of the Licensing Act.
My noble friend Lord Holmes of Richmond spoke very powerfully on disabled access, as did others. I think every contributor mentioned it. It is unfortunate that we have not yet achieved this; an application for a premises license is still not accompanied by a disabled access and facilities statement. It is the mood of the Committee that that should take place.
Also, the Minister referred to the review under Part M of the building regulations, but he did not actually say whether it will be extended to the accessibility of existing premises. I would be grateful, if there is an opportunity, for him to confirm that in a letter following this. My noble friend Lord Holmes of Richmond also pointed out that reducing the deadline to two weeks for the licensing of premises is weakening the ability of vulnerable and disabled people to respond.
The noble Baroness, Lady Walmsley, asked what is in it for local authorities too. I think I remember reading somewhere that there might be an additional fee, but I am not at liberty to say that, so perhaps my noble friend the Minister could reply on that point—although I realise that it is a different department to his own.
All speakers mentioned the training, so we will obviously follow that very closely. The Minister referred to the working group which is being set up. As all speakers, I think, said they were interested in that, a signpost as to where it is would be very helpful indeed.
I am very mindful that young people’s contribution to this economy is huge. I say that having started off my working life as a waitress and my student life as a part-time barmaid—with disastrous results; I do not think I was destined to be full time. As the noble Lord, Lord Ponsonby, said, we are all very mindful of the fact that, during Covid, there was huge disruption there.
My noble friend Lord Smith mentioned the role of working clubs, and I am delighted to be an honorary president of Pickering Conservative club. Others, such as the Royal British Legion club, play a fantastic role in this regard, particularly in rural communities. I hope that we have strengthened the will of both the Home Office and the Department for Levelling Up, Housing and Communities in this regard.
There was a real appetite in this debate for the agent of change principle to be enshrined on a statutory basis. We had some expert advice from the Institute of Licensing from two very powerful witnesses, so, if we achieve nothing else, we should achieve a statutory basis for that. I hope that there is still time for my noble friend Lady Scott to bring such an amendment forward. I am grateful for having the opportunity to rehearse these arguments again, and I commend the Motion.