Basel 3.1

Thursday 3rd April 2025 Lords Chamber

Question

11:29

Asked by

[Baroness Kramer]

To ask His Majesty’s Government what assessment they have made of the impact of delaying the implementation of Basel 3.1 on measures by the Prudential Regulation Authority and the Treasury to address base erosion and profit shifting.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Prudential Regulation Authority, in consultation with HM Treasury, decided to delay the implementation of the Basel 3.1 reforms in the UK until 1 January 2027, taking into account competitiveness and growth considerations, given the current uncertainty around the timing of their implementation in the US. The delay to Basel 3.1 has no bearing on the base erosion and profit shifting policy agenda, where the Government are committed to ensuring that multinationals pay their fair share of tax in the UK.

[Baroness Kramer (LD)]

My Lords, seven mega US tech companies avoid some £2 billion a year in UK corporation tax by using base erosion and profit shifting. The 2% digital services tax clawed back £800 million of that this year, and it is due to be replaced under Basel 3.1, as agreed by the OECD, G7 and G20, with the undertaxed profits rule, put into UK law in the Finance Act last week. It would claw back significantly more. Can the Government tell us if they are prepared to abandon the DST and mothball the UPR at the behest of the Americans? How can UK companies compete when their US rivals are permitted in the UK to avoid at least two-thirds of the tax that UK companies have to pay?

[Lord Livermore (Lab)]

My Lords, as the Chancellor has said clearly, we will continue to make sure that businesses pay their fair share of tax, including businesses in the digital sector. The UK’s digital services tax is a fair and proportionate approach to taxing business activities undertaken in the UK, and it remains the UK’s intention to repeal it once a multinational solution is in place. We will continue to work with the US to understand its concerns and consider how these can be addressed in a way that meets both countries’ objectives. I will not give a running commentary now on those discussions.

[Baroness Neville-Rolfe (Con)]

My Lords, the removal of the SME support factor when Basel 3.1 is implemented will lead to higher capital charges for loans to our vital small and medium-sized companies. Can the Minister update the House on the Government’s assessment of the implications for small business, especially for those ready to take entrepreneurial risk, which is needed for the growing economy that he mentioned?

[Lord Livermore (Lab)]

We very much support small businesses, and we will do all that we can to support them in this economy. We will come forward soon with a small businesses strategy that will set out this Government’s approach. I do not think that the delay to Basel 3.1 is directly relevant to that issue. It is about ensuring that we have a level playing field and that we maintain the competitiveness and growth objectives that we have set out.

[Lord Purvis of Tweed (LD)]

My Lords, further to my noble friend’s question, this will apply to businesses that are making more than €20 billion in profits, operating within the United Kingdom and not paying their fair share of tax here. Why are the Government asking another country—under the Trump Administration—to have a veto over how we tax businesses that are operating in the UK for our benefit?

[Lord Livermore (Lab)]

Quite simply, we are not.

[Baroness Wheatcroft (CB)]

Could the Minister reassure the House that simply not wanting to pay any more tax would not be a reason for renegotiating?

[Lord Livermore (Lab)]

I am happy to give the House that assurance.

[Lord Blunkett (Lab)]

I ask my noble friend the Minister a googly question, as Donald Trump would say: as difficult as these matters are, is there not a good rule of thumb for the Government to decide whose side they are on?

[Lord Livermore (Lab)]

Yes, and this Government are absolutely clear: we are on the side of working people.

[Baroness Kramer (LD)]

My Lords, I will come back to the Minister, who has been trying hard to answer these questions without telling us too much. He will be aware that there have been different comments within his own Administration about whether the digital service tax is indeed in the mix in the trade negotiations that are apparently taking place with the States. We understand that there is great hope from the UK Government that there will be a positive outcome of those negotiations within the next two weeks. Is he telling us that the DST and the mothballing of the UPR are not on the table as part of that discussion?

[Lord Livermore (Lab)]

As I have said already, we will continue to make sure that businesses pay their fair share of tax, including businesses in the digital sector. We want the best deal for the UK, so I am not going to undermine negotiations by commenting on the talks or on what is or is not up for negotiation. The Prime Minister has been clear that we will only agree to a deal that is in our national interest.

[Baroness Neville-Rolfe (Con)]

My Lords, as there is a little bit of time, I also wish the House and the Minister a happy Easter and come back to him on the question of small businesses and Basel 3.1. There is a concern that when that comes in it could affect lending to the smaller businesses. I hope the Minister will have a look at that. I note that it has been delayed, but when it comes in, we want to make sure that our small businesses, and indeed our smaller banks, are not discriminated against.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her comments. I wish her and the whole House a happy Easter as well.

I continue not to agree with her on Basel 3.1’s impact. Basel 3.1 is an update to the Basel III regulatory framework, aimed at further strengthening bank capital requirements and risk management by refining the calculation of risk-weighted assets and enhancing transparency. I am not sure it is about what she is saying it is.

[Lord Lilley (Con)]

In the pre-Easter spirit, I offer the Minister a point where he is likely to agree with me for once. He could have reminded the Liberal Democrats that, had we followed their advice of rejoining the customs union, we would face twice the level of Trump tariffs we currently face and have no prospect of negotiating a free trade deal with the United States. I am glad that he is exploiting the Brexit benefits.

[Lord Livermore (Lab)]

If the noble Lord makes that claim, then we are going to have to see his working, because I am not sure he is including the permanent 4% reduction in GDP from his Brexit deal.