House of Lords
Oaths and Affirmations
Health-related Benefits Assessments
(1 day, 5 hours ago)
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Baroness Maclean of Redditch
To ask His Majesty’s Government what assessment they have made of the value of mandating that (1) all, or (2) more, health-related benefits assessments be conducted in person.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, face-to-face assessments are an important part of our multichannel approach. For some individuals, they are the best way for us to understand the impacts of their health condition or disability, and they can help boost public confidence in the health assessment system. This Government are committed to increasing the number of face-to-face assessments while acknowledging that remote assessments also have a role.
Baroness Maclean of Redditch (Con)
I thank the Minister for her Answer. She will know that the number of young people on health-related benefits has risen by more than 50% over the last five years and that four out of five of them are claiming for mental health or neurodiversity conditions. Yet these assessments, I understand, are largely carried out over the phone, when surely people would need to be seen face to face to assess what is wrong with them. Why is the Government’s ambition, as set out in the Timms review, to raise the assessments to 30% so low? Why not make it 100%?
Baroness Sherlock (Lab)
My Lords, I agree with the noble Baroness about the challenge that we face with the number of young people not in employment, education or training. That is why the Government commissioned the Milburn review, and why we welcome that report, and that is why we have action clearly going on in this space. The Government are committed to increasing the number of assessments. There is a range of reasons why it is taking time. The noble Baroness may not be aware that, for example, before Covid, assessments were pretty much all done face to face. They collapsed in Covid and the numbers have barely come back up since. In 2023, about a year before the general election, the previous Government signed long-term contracts, making sure that most assessors could work from home. I understand why that would be attractive—because they can be anywhere in the country—and so it is a bit of a challenge trying to get face-to-face assessments in the right parts of the country. We are working with contractors and driving up face-to-face assessments. We will do the right thing and we are attacking this problem.
Lord Palmer of Childs Hill (LD)
My Lords, can the department cope with more face-to-face assessments? How long will it take to put that into effect? Has the department come up with any other suggestions of how assessments can be made, particularly for people suffering from health issues which may make face-to-face assessments quite difficult?
Baroness Sherlock (Lab)
The noble Lord raises an important point and I am grateful to him. There have traditionally been different ways of doing assessments: some are face to face, some are on the telephone and some are video assessments. The starting point is that the health professional must look at and assess all the written evidence—from the GP and the hospital, and evidence provided by the claimant—and then make a decision. There are some cases where, clearly, face to face is right, for reasons of identity verification, wanting to get details they cannot easily get online, where there is a physical examination and so on. There are other cases where people may have a particular reasonable adjustment that they need—it may be difficult for them to get to a centre—and for them a face-to-face assessment is not appropriate. We want to maintain all those things but drive up the proportion of face-to-face assessments to get the right results for individuals and for the taxpayer.
Lord Watts (Lab)
My Lords, I want to be clear that this is a policy that was introduced by the last Government, who had no policies whatever to address the problem. It has been left to this Government to come forward with policies that will address the problem. Is that correct?
Baroness Sherlock (Lab)
That is so often correct, I have to say to my noble friend. In this case, we are in a situation where we are doing all we can to drive up face-to-face assessments. The most important question is that we get everyone into work who possibly can work. The biggest crisis of our time is in relation to young people. That is where the Secretary of State has put his focus; he has prioritised addressing the million young people we have not in employment, education or training. That is why we are investing in the youth guarantee, in support for employers, in subsidies for wages and in making sure we go out there to find the challenges and get people into work. This Government are doing something about that problem.
Baroness Finlay of Llandaff (CB)
How many long-term claimants with severe long-term disabilities, who will never have a life devoid of dependence on disability benefits, has it been agreed will not be recalled to assessment—assessments which proved to be futile and quite damaging to their whole persona as they feel they are not being believed? These are often people who have got severe brain damage or ongoing congenital abnormalities and genetic difficulties.
Baroness Sherlock (Lab)
I am grateful to the noble Baroness for raising such an important point and for her work and expertise in this area. Our job is to make sure that we assess the right people at the right time. There is always a danger when debating this that we forget the significant number of people who are absolutely dependent on sickness and disability benefits; frankly, most of them would give anything to not be dependent on those benefits and to not have had the condition, injury or accident that transformed their lives for ever.
Our job is to make sure that those who need our support get it. We have been looking at the way we review things, so that we are reviewing the right people to make sure they get the right level of award. If it gives the noble Baroness some reassurance, there will be cases where the health assessor can clearly make a judgment based on the medical evidence alone. In those cases, they will not necessarily need to see somebody face to face or call them to an assessment. Where there is any doubt, however, we need to make sure that people get the right support if they are entitled to it and give confidence to the public that we are doing those assessments in the right way.
Lord Hayward (Con)
My Lords, I was interested by the answer the Minister gave to my noble friend in relation to the signed contracts for work being undertaken virtually. Could she clarify whether there is an expiration date, or a time limit in some form or another, for these contracts in order that you can bring people back to a face-to-face arrangement quickly?
Baroness Sherlock (Lab)
These were long-term contracts and were signed only in late 2023 and took effect shortly after, but we are not simply taking that as meaning that we cannot do anything. We are in close negotiations with all the contractors to look at how we can drive up the proportion of face-to-face assessments. It will take time because, having started with so many being home-based, we have to make sure we can get the numbers back up in time. There are limited numbers and assessors have to be either a registered doctor, a nurse, an occupational therapist or a physiotherapist; they have to be trained in disability assessment medicine; and they have to engage in continuous professional development. We need to make sure they are properly qualified to make those assessments, but we are working to get the numbers up as fast as we can.
Baroness Nargund (Lab)
My Lords, I thank the Minister for reassuring us that face-to-face appointments will be increased with trained professionals. I welcome the DWP initiative to reform the fit note system. There are millions of women who are absent from work due to women’s health problems and nearly 60,000 women are leaving work every year due to menopausal symptoms. What conversations has my noble friend the Minister had to ensure workplace adjustments will be made to get these women back to work or into new employment?
Baroness Sherlock (Lab)
My noble friend raises a very important point—and one that I suspect at least maybe half of the House could empathise with in some way. I reassure my noble friend that the Government take menopause support seriously. We have been doing work specifically on this, having appointed a menopause champion, and are looking at women who are experiencing severe menopausal and perimenopausal symptoms and how that impacts their work.
This ties in with our reform of fit notes—we are piloting new ways to make the fit note system work better—and, crucially, the work we are doing with employers. We know that employers want to support their staff to keep them in work. We do not want women falling out of work unnecessarily when they hit the menopause for either lack of preparation or support on their part or from their doctors, or because employers do not understand and cannot make appropriate adjustments. I am really grateful to my noble friend for raising this.
Baroness Stedman-Scott (Con)
My Lords, between July 2024 and July 2025, 1.1 million assessments were carried out remotely. Three-quarters of those were conducted by telephone and just 3% were conducted by video link. Notwithstanding the answers the Minister has given us already, how can a DWP assessor properly judge whether someone has significant difficulty with daily living or mobility as a result of their condition when the assessment is conducted by telephone and the assessor can hear but cannot see the person concerned?
Baroness Sherlock (Lab)
I will not dwell on the point that the challenge we are facing is the challenge the previous Government faced, and we did not invent telephone assessments.
The noble Baroness raises an important point. The truth is that it depends on the case. The job of the health professional is to begin by looking at all the written evidence. As I said previously, sometimes that will mean that a case can be absolutely ruled in, or indeed ruled out, but there may be circumstances in which more information is needed. Video assessments can be effective in that, so can face-to-face assessments, but it depends on the nature of the question. There are questions that can be addressed in a telephone assessment. The same core assessment process is used across the piece to gather evidence and ask the right questions, so the health professional can justify their decision. At any point, if they need a different kind of assessment, then it is their job to request it. We want to make sure we have more face-to-face appointments available, but we want to make sure we get people into the most appropriate assessment, so we can get through assessments as fast as possible, get people who need help the right help, and get people who should not be getting help into work.
Affordable Housing: Young People
(1 day, 5 hours ago)
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Baroness Thornhill
To ask His Majesty’s Government what steps they are taking to increase the amount of affordable housing for young people.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, the Government have committed to delivering the biggest boost to social and affordable housing in a generation, and young people will benefit from this. The £39 billion social and affordable homes programme aims to deliver around 300,000 new social and affordable homes, including at least 60% for social rent. For young people renting, the Renters’ Rights Act has capped rent in advance and ended unfair bidding wars and no-fault evictions. I am also working with the sector to simplify the buying and selling process and make that more accessible.
Baroness Thornhill (LD)
I thank the Minister for her positive response, but—and it is a big but—how does the £39 billion pot actually help if, on the one hand, as charities tell us, her departmental bidding processes and rules exclude, in effect, the smaller youth charities from actually applying for grants and building vital transitional and move-on accommodation for young people, but, on the other hand, the Government’s own planning guidance lacks the strength and clarity to allow planners to give permission for what is becoming known as the stepping-stone accommodation model, to enable the building of such accommodation? Please could the Minister look into both these obstacles, currently mentioned by the charities, to ensure that these smaller providers can actually deliver the affordable homes that young people need and can afford?
Baroness Taylor of Stevenage (Lab)
I recognise the noble Baroness’s concerns, and I welcomed the opportunity to speak to her on this matter during the passage of the Planning and Infrastructure Act; I subsequently went to visit one of the schemes she had mentioned to me. The nationally described space standard sets minimum standards for internal floor space of new dwellings and is suitable for application across all tenures, but that standard is not mandatory, and it is at the discretion of local planning authorities to adopt it locally by reference to the standard in their local plan policies. As part of our consultation on updates to the National Planning Policy Framework, we have sought views on whether changes are needed to make sure that affordable fixed-term accommodation, such as stepping-stone accommodation, is better supported, with particular reference to space standards. We are in the process of analysing the responses to that and we will be confirming our response in due course.
The Lord Speaker (Lord Forsyth of Drumlean)
My Lords, the noble Lord, Lord Campbell-Savours, is taking part remotely; I invite the noble Lord to speak.
Lord Campbell-Savours (Lab) [V]
My Lords, with land plots for housing often exceeding the cost of home construction, does that factor alone not act as a real disincentive to the development of housing for sale at realistic, affordable prices? Why do we not establish a study into the relationship between land pricing and housing development costs? The study could consider proposals for building on land acquired at agricultural prices and sold under new forms of housing registration and land title arrangements, but which, at the same time, with other measures, could protect investment in existing freehold.
Baroness Taylor of Stevenage (Lab)
I thank my noble friend. We continually look at issues around the viability of building and are working very closely, with both the development sector and our local authorities, to make sure that land pricing and other issues around viability are taken into account. The £39 billion we have put into social and affordable housing will make sure that we can give some support to those who are trying desperately to get some social housing built in the country; we continue to work with them on that. The bold planning reforms we have introduced will also assist with that process.
Lord Young of Cookham (Con)
My Lords, young people are paying more in rent than they are on a mortgage, and so they would not need to join the queue for affordable housing if they had some help with a deposit. I put again to the Minister the question I posed to her in April, when she conceded that there was more work to be done. What progress has she been able to make in discussions with the developers, the financial institutions and the Treasury to bring forward a successor to the Help to Buy scheme, on which the then Government made a profit of £1.4 billion last time?
Baroness Taylor of Stevenage (Lab)
A detailed analysis has been done of the Help to Buy scheme, and we will learn lessons from it. We will not reintroduce it as it was, but I agree with the noble Lord that, for many young people renting property, their rent is higher than a mortgage payment would be. Since I gave him my previous answer, I have been working with the sector. A wide variety of mortgage products are available in the UK, including a range of products available at a high loan-to-value ratio, such as 95% and even 100%. I met the Building Societies Association last week, and it is very keen to offer more innovative products that can help first-time buyers, including some that take account of a track record of paying rent, as they deal with a mortgage application. These are innovative systems. We know that many first-time buyers are not aware of the mortgage products that may help them, so we are working on a communications campaign. The Building Societies Association is doing its own, and the Government will also do something to make people aware of the steps they can take to get on to the housing ladder.
Lord Best (CB)
My Lords, does the Minister agree that there is now a brilliant new way of helping young people get the accommodation they need: intergenerational housing? Pioneered by the Phoenix Community Housing association in Lewisham, in schemes involving apartments for older people, a proportion are allocated to young people, who, in return for an affordable rent, provide social amenities, services and help with IT for the older people in the same scheme. Will she encourage Homes England to do more of these fantastic schemes that help both young and old together?
Baroness Taylor of Stevenage (Lab)
I agree with the noble Lord that such intergenerational schemes work exceptionally well, and I thank him for sharing the information on the initiative in Lewisham. The Government have committed to delivering this biggest boost to social and affordable housing, to make sure that everyone, including younger people, have access to safe, decent and affordable homes. To achieve that ambition, we will rely on both housing associations and councils across the country delivering the kind of ambition and innovation that the noble Lord discussed. I look forward to hearing about more schemes such as Phoenix Community Housing; it is great to have generations working together on their housing.
The Lord Bishop of Manchester
My Lords, young people under 35 who require support for their housing get only the shared accommodation rate of benefits, yet they are often disproportionately the people who have mental health concerns or other issues. Does the Minister agree that this needs looking into to ensure that the most vulnerable young people are not the ones who are pushed to the bottom of the housing situation?
Baroness Taylor of Stevenage (Lab)
The allocation of funding for the DWP is a bit out of my housing remit, but I know that my noble friend who just answered the first Oral Question will have that in the forefront of her mind. As we deal with the situation around vulnerable young people, adequate housing is an absolutely fundamental building block of making sure that we set young people off on the right road from the very start. We will be working with colleagues in the DWP to make sure that we tackle the issues that prove to be barriers to young people entering housing.
Lord Jamieson (Con)
My Lords, where proceeds of right to buy are used to build a new social home, the council housing waiting list reduces and a family has the opportunity to have their own affordable social home. Does the Minister agree that the Government should support and encourage strategies that provide more homes and reduce council housing waiting lists?
Baroness Taylor of Stevenage (Lab)
It was right-to-buy policies over the last 14 years which diminished the stock of social housing. So, while I agree with the noble Lord, I do not think that the right solution was brought forward. The Social Housing Bill that is currently before the House will change the right-to-buy scheme so that we enable more of the funding for right to buy to go back into the properties. We have now allocated 100%, so that local authorities can have 100% of the funding, and we will reform the whole right-to-buy scheme to deliver a fairer, better-value and more sustainable scheme. We want a scheme that will help long-standing tenants to buy their own homes, but we also need to protect much-need social housing stock and ensure that more homes are built than lost. That is what we are doing with the Bill. We will make sure that when a local authority builds a new house, it is exempted from right to buy for 35 years, so that councils have the confidence to invest for the future.
Baroness Jones of Moulsecoomb (GP)
My Lords, speaking of innovation, Green Party-led Bristol City Council has had some success in creating housing for younger people by using ownership co-operatives and co-housing schemes. Is that something that the Government are looking into and perhaps encouraging in Labour-led councils?
Baroness Taylor of Stevenage (Lab)
There are a number of successful co-operative housing schemes across the country. The commonhold and leasehold Bill, which we will bring forward later this year, will have steps in it to ensure that we make it easier for these kinds of innovative housing approaches to take place.
Royal Mail
(1 day, 5 hours ago)
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Lord Sikka
To ask His Majesty’s Government in which years since its privatisation Royal Mail has fully met its first class and second class letter delivery targets; and what assessment they have made of its performance in this period.
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
My Lords, Ofcom sets and monitors the Royal Mail’s quality of service targets and publishes annual performance data. Following its privatisation in 2013, Royal Mail fully met its first-class and second-class delivery targets in 2013-14, 2014-15, 2016-17 and 2019-20. Royal Mail met its second-class target, but not its first-class target, in 2015-16, 2017-18 and 2018-19. Royal Mail failed to meet both targets in all years from 2021-22 to 2025-26. The Government’s assessment is that performance has been unacceptable and must improve, and we will continue to engage with Ofcom and Royal Mail accordingly.
Lord Sikka (Lab)
My Lords, Royal Mail is another disastrous privatisation. Since privatisation, the price of a first-class letter has increased by 200% and second-class by 89%. As the Minister just said, Royal Mail has not met its delivery targets for years, and Ofcom continues to lower the targets; second-class mail is now to be delivered only every other day and not at all on Saturdays. Ofcom has clearly failed. It seems that the Government have two options: either to restructure Ofcom or to bring Royal Mail into common ownership. Which option will the Government exercise?
Lord Stockwood (Lab)
In preparation for this Question, I spoke to both the CEO of Royal Mail and directors of Ofcom. For context, it is worth stating that letter volumes have halved in the last 10 years, while the number of addresses has increased significantly. While I agree with my noble friend that performance has not been where it needs to be, there is a quality of service plan that has been negotiated between Ofcom and Royal Mail, and indeed, this year, Royal Mail is above the targets that it set for itself to meet those aggressive performance targets by March of next year. Some £500 million of additional investment has been committed, and there was an agreement with the CWU to ensure that the employment practices are sustainable for the commitments to improvements and services. So, while I agree with my noble friend that the current performance is not where it could be, the CEO of Royal Mail made commitments early last week that he is confident that it will meet the targets by April of next year.
Lord Pack (LD)
My Lords, one of the significant problems faced by Royal Mail staff in trying to reach those targets is the very large number of physical attacks by dogs on postal staff—over 2,000 incidents every year. This problem is, unfortunately, made worse by the very poor design of many letterboxes, which means that you cannot safely deliver a letter without putting your fingers at risk from an angry dog’s teeth. What work are the Government doing with the relevant interested parties to ensure that the standard of letterboxes is improved and that postal staff can do their work in safety in future?
Lord Stockwood (Lab)
I will have to refer this back to the Ofcom regulators. I had not prepared for a question on letterboxes, unfortunately, but I will write to the noble Lord giving him an update.
Lord Redwood (Con)
Is not the financial performance of Royal Mail so much better than that of the nationalised Post Office, with Royal Mail requiring no subsidy from taxpayers and the Post Office sending colossal bills for big losses and for damaging treatment of staff who require compensation?
Lord Stockwood (Lab)
These are early stages in the privatisation of Royal Mail. The new owner, EP Group, shows an encouraging commitment to improving the services and conditions of work for all employees, but it is too early to say. The Question was about performance of second-class and first-class mail, and that we can commit to. The investors are committed to an improvement programme to get us to where we need to be.
Baroness Prosser (Lab)
My Lords, I declare an interest as a former member of the board of Royal Mail. I understand people’s frustration and anger, but this is a global problem. Every developed country is suffering from a reduction in the number of pieces of mail being delivered and sent through the post while still requiring the infrastructure to deal with that smaller number and that smaller income. Do the Government have any plans to bring together Royal Mail and its foreign equivalents in other developed countries to see what answers can be found to this global problem?
Lord Stockwood (Lab)
Currently, we are focused on improving the performance of Royal Mail in the UK through Ofcom and through direct conversations with Royal Mail. My colleague, Minister McDougall, meets with his counterparts in Royal Mail and Ofcom on a regular basis. However, I take my noble friend’s question seriously. It is important that we encourage the provider to speak to its foreign counterparts to ensure that there is a solution that is met. We are currently engaging with the EU on a number of issues, but this is something that we should get to in short order as well.
Lord Kirkhope of Harrogate (Con)
My Lords, while there are delays in post being received, a considerable number of people are concerned at the amount of post that appears to be mislaid or lost or never even arrives at its destination. Has the Minister got any statistics on that which he can give us any information about?
Lord Stockwood (Lab)
There is regular analysis of overall delivery rates, including for mail that is waylaid. There are some innovative solutions within the universal service offering. For example, one of the questions that came up was about NHS letters, which are critical and must be delivered on time. There has been a technological solution involving barcodes that can ensure that those letters get prioritised when there is high demand and pressure on the service. I believe that the investor and Royal Mail are looking at innovative solutions to ensure that they meet their targets across the whole system.
Lord Woodley (Lab)
My Lords, I know from personal experience that urgent letters, particularly those associated with hospital appointments, are not getting through in time. Have the Government made any assessment of the devastating effect that this is having on healthcare in our country?
Lord Stockwood (Lab)
As I said in my previous answer, this was highlighted as an issue to the new investor. The Royal Mail has introduced a barcode system to optimise the delivery of NHS letters at times of local and national disruption, but it is beholden on all NHS bodies and providers to use this system. I ask all Members of the House to encourage their local NHS, where they interact with senior leadership, to take up this service. It is a technological solution that can prioritise those urgent and critical letters from the NHS, and this should provide certainty that the delivery will get there and not be in jeopardy.
Lord Hunt of Wirral (Con)
I will start by congratulating the Minister on the hard work he has carried out in preparing for this Question, and in particular the discussions he has been having with Royal Mail. However, does he not accept that, by increasing national insurance contributions, which I reckon adds around £120 million to the costs of one of Britain’s largest and most labour-intensive employers, the Government have made it significantly harder for Royal Mail to restore service standards, maintain the universal service obligation and invest in those improvements that customers and businesses expect?
Lord Stockwood (Lab)
I appreciate the comment on my hard work—it is now noted. I cannot agree with the noble Lord on that particular point. It is unfair to think about an individual tax application on the investment in this specific case. There is £500 million of committed capital from the new investor, EP Group, and that is a non-trivial undertaking that has been committed on an £8 billion business. At the moment, we are proud, as a Labour Government, that we are shoring up the fiscal rules and the economic prospects of this country, so that we can invest in the public services that we rightly believe we need to.
Earl Russell (LD)
My Lords, I want to ask the Minister about future access to Post Office counter services now contained in TGJones stores. What steps are the Government taking to ensure that those counters are not closed, particularly in deprived urban areas and rural areas, and are the Government considering requiring minimum coverage standards?
Lord Stockwood (Lab)
It is really important not to conflate Royal Mail delivery and the Post Office, but Ofcom is committed to the universal post offering and the targets, so I will have to write to the noble Lord on this particular question, because this was the extent of what I researched for this particular Answer.
Baroness McIntosh of Pickering (Con)
Does the noble Lord share my concern that perhaps the postal service and the Royal Mail are focusing too much on parcel delivery and not enough on a universal letters service that plays to elderly populations in rural areas? If we go fully digitalised and if we lose the postal service, it would be a very retrograde step for that group of people.
Lord Stockwood (Lab)
The noble Baroness raises a really important point about making sure the universal service offering is not to the detriment of people who are remote or not digital. Its CEO has confirmed that Royal Mail is focused on improving all aspects of its service across postage and parcels. The Government will be putting pressure on Ofcom to ensure that Royal Mail improves all its services without detriment to any particular user group.
School Admissions: Selective Inclusion
(1 day, 5 hours ago)
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Lord Watson of Invergowrie
To ask His Majesty’s Government what assessment they have made of the report by the Sutton Trust Selective Inclusion, published on 24 March, which found that the top 500 secondary schools admit a lower proportion of pupils eligible for both free school meals and special educational needs support than live in their catchment area.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, as set out in our White Paper, Every Child Achieving and Thriving, all children should have access to high-performing schools. However, more could be done to reduce barriers in the system, particularly for children from disadvantaged backgrounds and children with SEND. We will ensure that all mainstream settings are welcoming to children with SEND by investing £1.6 billion over three years to support early years settings, schools and colleges to become inclusive by design. We will also develop new resources to support and encourage schools to use existing provisions within the code, such as the ability to prioritise children eligible for the pupil premium, to adopt more inclusive admission arrangements.
Lord Watson of Invergowrie (Lab)
I thank my noble friend for that response. She mentioned the existing requirements on school admissions, but as the Sutton Trust report revealed, 36% fewer pupils with SEND from disadvantaged backgrounds are accepted in the higher-performing schools. The current rules are simply not doing the job that they are intended to do. That is often a double disadvantage for these children, because the Sutton Trust figures show that it is often children with SEND eligible for free school meals, rather than SEND pupils as a whole. As we await a consultation on a new School Admissions Code, does my noble friend agree that the rules need to be strengthened if the Government are to be able to achieve their aim of more SEND pupils being educated in mainstream schools?
Baroness Smith of Malvern (Lab)
I think we need to make sure that all schools achieve the levels of inclusive education necessary to support children with special educational needs and disabilities. That is the reason for the investment we are putting in place, the emphasis we are placing on inclusion—for example, through our RISE teams across the country—and the new emphasis that Ofsted will have, when inspecting schools, on the inclusive nature of what is being offered within them.
Lord Young of Acton (Con)
My Lords, I declare an interest as a member of the Knowledge Schools Trust. In light of this Sutton Trust report, does the Minister share my misgivings about the Government’s decision to impose VAT on independent school fees? The 30,000 pupils who have now left the independent sector will be beating a path to the doors of these 500 high-performing comprehensives, which will mean even fewer places for children from disadvantaged backgrounds.
Baroness Smith of Malvern (Lab)
No, not least because, if we are to put the investment into our state schools that the 94% of children who use them need, we need to ensure that that is properly funded. On concerns about independent school closures, which I understand, I am sure noble Lords will be reassured that in 2025 more private schools opened than closed. There are 41 more independent schools in 2026 compared with 2025 and, in fact, the overall fall in private school pupil numbers reflects demographic change across the whole school system.
Lord Addington (LD)
My Lords, will the Minister enlighten us on exactly how the Government will make sure that there is an aggressive approach under this new SEN system to identify and support students and that this is reflected widely in things such as Ofsted reports? What is measured gets done, and at the moment it is quite clear that many schools are not taking that aggressive approach to make sure the right help gets to the pupils who need it.
Baroness Smith of Malvern (Lab)
I am not sure I would characterise it as an aggressive approach, but it is certainly a key element of the Government’s SEND reform that we ensure children get the right support, whether in their early years setting, their school or their college. That is why we are investing in new training for all staff, better buildings and equipment, and will make sure that every setting has access to expert professional support when it is needed. An inclusive education system for all children and young people requires a strong universal offer, built on high-quality adaptive teaching and early effective support. We will equip and empower mainstream settings to become inclusive by design and to remove commonly occurring barriers to learning. We will invest £4 billion more over the next three years to ensure that happens.
Baroness Cash (Con)
My Lords, the OECD PISA survey looks at whether the school that children attended makes a difference to their attainment. Contrary to some of the assumptions underlying the Sutton Trust report, it makes less difference which school you attend here in the UK than in many other countries; we are below average, and that is a good thing. Does the Minister therefore acknowledge that forcing every school to fit one profile risks further constraining parent choice, with very little benefit to the children?
Baroness Smith of Malvern (Lab)
I welcome the noble Baroness to her new role, and I am looking forward to working with her. The answer to ensuring that parents have the choice they want and deserve is to enable all schools to be the type of good schools that any of us who have or have had children would want our children to go to. That means ensuring that we have more teachers in our schools, which we are focused on; ensuring that all schools follow a revised national curriculum; and investing properly in them. These are all things that this Government have focused on, and we will continue to do so to ensure that every parent has the choice of a good school for their child.
Lord Isaac (Lab)
My Lords, it is excellent to hear the Minister identify that there will be more resources to reduce the barriers for children with SEND. But in the Sutton Trust report there were specific recommendations to increase the number of teaching assistants and to promote a fair access review. Will she give us some reassurance that that is part of what the Government are considering?
Baroness Smith of Malvern (Lab)
As well as the investment we are putting in, particularly for children with special educational needs and disabilities, we will consult on changes to the School Admissions Code to support fairness for all families, particularly the most disadvantaged. That will include improvements to how fair access protocols are managed by local authorities, requiring schools to give parents more information about decisions on in-year admission and, where they operate, making the operation of banding arrangements clear. Certainly, the first two of those will be very important for supporting parents in thinking about children with special educational needs and disabilities, and enabling them to get into the good schools that they would choose for them.
Baroness Barran (Con)
My Lords, I too welcome my noble friend to her place on the Front Bench. Does the Minister agree that we should congratulate and celebrate the 500 schools in this country that have added most value to the pupils attending them, rather than trying to pick holes in their performance?
Baroness Smith of Malvern (Lab)
I am not quite sure what the noble Baroness is referring to. I am always more than happy to celebrate the work of teachers and others in schools across this country that achieve enormously important progress for children every day. What is more, as a Government we have a responsibility to ensure that is available in as widespread a way as possible.
Lord Foulkes of Cumnock (Lab Co-op)
Will my noble friend spread the news to all pupils in England that they are lucky they do not live in Scotland, where there is a declining education system under the failing SNP Government?
Baroness Smith of Malvern (Lab)
I always try my best to spread the news about the excellent work that teachers in England are doing and, of course, the excellent work that this Government are doing to support them.
Baroness McIntosh of Hudnall (Lab)
My Lords, does my noble friend or her department have any information about the number of teachers currently working in our schools who have themselves at some time in the past needed special educational provision? To what extent are those teachers able to contribute to the way in which we provide for young people with special educational needs now?
Baroness Smith of Malvern (Lab)
That is a very interesting question. Although I have to admit that I do not have that information at my fingertips, I have no doubt that having had some of those experiences yourself would probably support you, as a teacher, to recognise the needs of the children you were teaching. But we cannot depend on that, which is why the Government have invested £200 million to ensure that all teachers, from early years through to post-16, have the opportunity for the necessary professional development to enable them to recognise and support children with special educational needs and disabilities.
UK Defence Capability
(1 day, 5 hours ago)
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Lord West of Spithead
To ask His Majesty’s Government what assessment they have made of the concerns raised by the Chief of Defence Staff in comments to the BBC regarding (1) the threat posed by Russia to the United Kingdom, and (2) the United Kingdom’s defence capability.
The Minister of State, Ministry of Defence (Lord Coaker) (Lab)
My Lords, Russia remains a significant and persistent threat to the UK and to Euro-Atlantic security through its war in Ukraine, hostile cyber activity, disinformation and sabotage against the UK and many other NATO allies. The Government have increased transparency around these threats, as seen through the recent exposure of covert Russian operators near UK waters. The MoD rigorously assesses the risks to the UK and to Euro-Atlantic security and takes action with our allies accordingly.
Lord West of Spithead (Lab)
My Lords, our Armed Forces and our defence industries are, I believe, teetering on the brink of disaster due to lack of investment over certainly the past 15 years but actually even longer and lack of decisions recently about spending the money that apparently is being released for defence. There is no doubt that they are in a very parlous state.
As an aside, I must say to the Minister how proud I was to see him honouring a relative, who I think had exactly his name, who was lost in the fighting in Normandy. One has to say that things such as fighting in Normandy happen when you do not have sufficient defence forces and deterrence has failed. That is the position we have got ourselves into.
In 1982, Margaret Thatcher released £2.5 billion at 1982 prices when the Argentinians invaded the Falklands. Where she found that money I do not know because economically things were not good. What are we doing to identify where the money can be found quickly to cover what needs to be spent now? I know he is very loyal, but there is no doubt that he is scarred by the shambles of the defence investment plan. What are we doing about finding that money and getting going? Otherwise, we have a real problem.
Lord Coaker (Lab)
It would be wrong of me not to say that I appreciate my noble friend’s remarks on Normandy. A number of us were there on Saturday; the relative of the noble Lord, Lord Evans, was the day after. My uncle, who I am named after, was killed on D-Day, soon after landing on Sword Beach. I really appreciate my noble friend’s comments.
On the current situation, he will know that the defence investment plan is due to be published and the Prime Minister has made clear that it will be before the Ankara summit on 7 July. We are in discussions about the money. He will have seen that well reported. I cannot tell him exactly what the outcome of all of that will be, but there will be additional investment. My noble friend is right to point out the need for us to increase our capability, and we are doing that. In terms of countering the Russian threat as it stands at the moment, we are not standing still, we are taking action with RAF Typhoons and are with working with our NATO allies in the North Atlantic and the High North. With his naval experience, he will know that the carrier HMS “Prince of Wales”, following a bit of maintenance in Norway, is now out ready for Operation Firecrest and that a number of operations such as Nordic Warden and Arctic Sentry are taking place to protect our interests, take action to counter the Russian threat and protect things such as underwater cables. Of course, there is a need for more investment, more readiness and more capability, but we are taking action with the resources we have now to defend our country as well and as much as we can.
Baroness Goldie (Con)
My Lords, wounds imposed by one’s friends are always more painful to bear than those imposed by one’s adversaries, so I shall try not to compound the Minister’s agony. The Chief of the Defence Staff has laid bare profound concerns about our capability. The noble Lord, Lord West, has encapsulated the problem succinctly, and I shall not repeat that, but at the heart of the chaos we find ourselves in is a fundamental difference of opinion between defence experts who get it and, arguably, a political leadership who do not. Can the Minister clarify precisely how and when this impasse will be resolved? We do not need talk about the defence investment plan; we need it now. We need to see the detail. It may or may not resolve the problem, but dither, delay and inertia are now completely unacceptable.
Lord Coaker (Lab)
I welcome challenge on these issues from His Majesty’s Opposition, my noble friend Lord West and my noble friends because it is important the Government are challenged on all these issues. They relate to the defence and security of our country and the defence and security of our continent and beyond so it is quite right to hold the Government and the Ministers who speak for the Government to account on this. The noble Baroness quite rightly asked me about the defence investment plan. I cannot do any more than say to her that the Prime Minister has said that the defence investment plan will be published before 7 July, which is the Ankara summit, the next NATO summit. That is all I can say to her. We hope to be able to publish it well before that, but all I can say to her is that work is ongoing. It will lay out the investments for the future as well as the type of capability that we need. All I was saying to my noble friend Lord West and I say to others is that we have already increased the amount of defence spending and are already increasing available capabilities and taking action where a threat is made against us to defend our country, our people and the alliances to which we belong.
Lord Lee of Trafford (LD)
My Lords, we still may sing “Rule Brittania”, but the reality is that our navy at present is, frankly, a national embarrassment. Obviously, we are glad that the “Prince of Wales” is now back in action, but will the Minister comment on newspaper reports that all our non-ballistic submarines are in dock and not available for current operations?
Lord Coaker (Lab)
It has been well reported. I have said from this Dispatch Box, and the First Sea Lord has said it as well, that the availability of submarines is not where the Government would want it to be. That is why we are investing, for example, £4.5 billion in the dockyards in Plymouth. The dockyards in Plymouth need investment, the dockyards in Scotland need investment, and we are looking at that. We are also looking at original ways of seeing whether we can provide docking facilities to increase the availability of submarines by looking at various provisions that do not require building or rebuilding a whole new dock. The noble Lord is quite right to point out that we need to do better on the availability of submarines. Of course we do. We will not comment on exactly how, and the noble Lord would not expect me to, but of course availability needs to improve and we are looking at how we can do that.
Lord Stirrup (CB)
My Lords, the focus has been on the defence investment plan, which is, of course, crucial, but does the Minister agree that capability is not just about capital investment? Resources expenditure, which is treated differently, is crucial. It pays for the fuel and spares that our people need to conduct training that is fundamental to their operational capability and it pays their salaries and for the standard of their accommodation. Does he agree that any plan that the Ministry of Defence brings forward that does not fund resource adequately will just continue the hollowing out of our Armed Forces that has taken place over the past two decades?
Lord Coaker (Lab)
I thank the noble and gallant Lord for the question. In any investment plan going forward, obviously the emphasis tends to be on capital as the noble and gallant Lord says—how many planes will we have, what we will do with munitions, and those sorts of things. However, he is quite right to point out the resource element of the budget—the day-to-day expenditure that pays for wages, training and all those things—is equally important, otherwise we run into trouble, particularly mid-year if there is a need to rebalance and look how to resource the particulars. The noble and gallant Lord often points out that if we do not get the resource allocation right, it impacts on the morale of the very people who serve our country. He is quite right to point that out. Discussions about the correct split between CDEL and RDEL is also going on.
Lord Harper (Con)
My Lords, the Minister drew attention to recent reports in the media about funding the defence investment plan. Given that we are only a few weeks away from its publication, assuming it does hit the pre-NATO summit deadline, does he think that what can only be described as a Cabinet whip-round to pay for the defence investment plan sends the right message to the adversaries that the Chief of the Defence Staff highlighted?
Lord Coaker (Lab)
The Government are looking at how they can increase defence spending, which we all want to see, and how we increase the defence budget. There is a variety of ways of doing that. He will know from experience that Governments often set budgets and then reorder priorities within them as circumstances change. That is a perfectly legitimate, perfectly reasonable thing for any Government to do. I say to the noble Lord that if the Government were not looking at how they are raising the money, if they were not looking at how to reorder priorities to find the money the noble Lord expects—as I do—he would not have asked that question. He would have reversed it and asked why the Government are not reordering priorities to meet the demands of the country and to fund the defence plan properly. Let me answer him: we are doing that and we will do it.
Lord Hunt of Kings Heath (Lab)
My Lords, on this issue of reprioritisation, given the fiscal restraints we are operating in, it is pretty clear that some resources will have to be found from other expenditures in government. Does he think the Government are doing enough to get across to the public why this is so important at the moment?
Lord Coaker (Lab)
The answer to that is that we need to do more on the national conversation. We are looking at how we do that. I have been made responsible for the national conversation. Should we have done more already? We probably should have done, but we will now. We need to persuade people and talk to them about the threats we face and what we need to do to tackle them. We have to bring people along with us. I think that one of the things that the Government need to do—working with others because it is a national effort—is to say to people: “These are the threats that we face, and these are the things we need to do”. It does require some reordering of priorities to do that. At the end of the day, the defence of the realm is really important, but that case needs to be made to the people of this country. We should not just assume that they will accept it.
Lord Wallace of Saltaire (LD)
My Lords, the SDR made it clear that the Russian threat is now not simply a threat from abroad in eastern Europe and the North Sea but is also a homeland threat. It suggested a number of measures for mobilising our domestic population and improving homeland defence and public awareness of it. Is that an MoD responsibility or one that other departments will deal with, and what priority does it have?
Lord Coaker (Lab)
The overall lead for homeland defence is with the Cabinet Office but, clearly, the Ministry of Defence has a role with respect to readiness and—in answer to my noble friend’s question—in talking to the public about how we fund this and prioritise spending within all that. Homeland defence across all aspects of our country is a Cabinet Office responsibility but, clearly, the MoD has an important role within it.
Baroness Boycott (CB)
My Lords, given that the threats are often cyber threats, which have not been mentioned so far, what investment is going into that? Is it in the Minister’s department or someone else’s, and how joined up is the thinking on all that?
Lord Coaker (Lab)
There is a Cabinet committee that looks at cyber defence and the MoD has just reorganised its cyber command to deal with the very threat that the noble Baroness mentions. The really important point is that warfare is changing. In the past, the military was always thought of as being tanks, airplanes and troops—all those sorts of things—whereas the warfare that we face now is cyber, disinformation and threats to underwater cables. You have to address all of that when asking what capability you need. Cyber is certainly one of them, and there has been some reorganisation within the MoD and across government to deal with that threat as well.
Lord Sterling of Plaistow (Con)
My Lords, we have talked about resources. We have talked about money and everything. When it really comes down to it, I say to the Minister—who I know has, over many years, had deep feelings for the defence of this country, without question—that it comes back to people. Given that we are in danger now, not necessarily in five or 10 years’ time, does he think that we have the right sort of people to be trained to be prepared to live, work, defend and, if necessary, die for this country?
Lord Coaker (Lab)
Yes, I really do. If people feel that their country, their livelihood, their families and way of life are threatened, and they understand that, I think people will. I am sure there will be a small minority who will not, including some conscientious objectors and others who may not have that view, but I take the view that the context is everything. If people feel threatened, I believe passionately that the British people, as they always have done, will defend their democracy, their homes and their family.
Baroness Antrobus (Lab)
My Lords, following on from my noble friend’s point about the national conversation, only last week I was briefed on research showing that senior military leaders and the heads of the security services have a particularly significant impact with the public when they talk in the media about the threats that we face. Does my noble friend agree that it would be beneficial for the national conversation that he is now responsible for, and which we need to have, if we could hear more from the Chief of the Defence Staff and the other service chiefs?
Lord Coaker (Lab)
I have always been of the view that in many situations—my noble friend has served, so she will know this—a military uniform gives a legitimacy to things that are said. That is quite right because, over many centuries, people have felt that those in military uniform have earned the right to be heard, and they believe that those people speak with integrity. In direct answer to my noble friend’s question, using all military personnel—not just senior personnel but military personnel of every rank, in their local communities and areas, including the reserves, and even cadets talking to other young people—in terms of a national conversation would be an immensely powerful thing to do. I shall make sure that we do that.
Rights of Boat Dwellers [HL]
Creative Education Access Bill [HL]
Constitution Committee
The Senior Deputy Speaker
South East Water: Disruption of Supply
(1 day, 5 hours ago)
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The Earl of Effingham (Con)
My Lords, climate experts are predicting that a super El Niño this autumn could lead to 2027 being the hottest year on record. We know this today, so what exactly are the Government doing now to prepare the country in advance and avoid the disruption to water supplies as seen last spring? There can be no excuses next year that the Government did not know it was coming.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
The Government established the Water Delivery Taskforce last spring to ensure that we have sufficient water supplies and wastewater capacity to support the Government’s ambitions and the country as a whole. Having sufficient water supply is absolutely critical for the country, and is something that we are taking very seriously. I am sure the noble Earl will be interested in looking at how the proposals in the water Bill, which is coming later this year, will also help to support the long-term security of our water industry.
Baroness Grender (LD)
At what critical point of failure are the Government willing to act in the interests of customers in the South East Water area, who have been failed time and again? Will the Government now urgently consider a different model from the previous Government—one which rejects shareholder profit being placed above investment in more resilient systems—and change to something like a mutually owned public-benefit model, or will we continue to see care homes struggling and businesses closing because they are failed by a service that is so fundamental? When exactly will we get a water Bill to fix this?
Baroness Hayman of Ullock (Lab)
I do not think there is anybody in this House who would disagree that the water industry needs a serious shake-up. That is one reason why we brought in, as a priority, the Water (Special Measures) Bill when we came into power in the previous Session, and it is why a priority for this Session is the water Bill that will come later this year. Clearly, proper support for customers is critical. We cannot have a situation where customers cannot rely on their water service. We will be bringing in reforms in that Bill that should lead to greater control in order that we do not continually end up in the situation that we have ended up in recently.
Lord Deben (Con)
My Lords, working as the chairman of a small water company means that one does know a bit about it. I just want to ask the Minister: when are we going to stop pouring fresh water into the sea during the winter in the east of England and then being so short of water in the east of England that the Essex & Suffolk Water company has announced that it cannot provide water for any new business or extension of an old business until 2036? The Government’s water Statement does not cover this fundamental nonsense. We should be collecting the water and having it so that people can get on with their jobs.
Baroness Hayman of Ullock (Lab)
The noble Lord makes good points. One problem that we clearly have is that there are parts of the country that have plenty of water and parts that have very little water. Unfortunately, the parts that have very little water tend to be the ones with the highest populations. We have to look at how we are going to manage that long term, because clearly what we are doing at the moment simply is not working and is not the right approach. Again, that is why we want to reform the water industry and shake it up properly. It is critical that the points the noble Lord makes are taken into consideration, because we have to get this right.
Lord Cromwell (CB)
The Minister knows that she has my full support in shaking up the water industry, as we have discussed on quite a number of occasions. While it is all very well for us to tell her to hurry up and supply more water, can she tell the House how long it takes to build a reservoir?
Baroness Hayman of Ullock (Lab)
That is a very good question. Obviously, we have not built a new reservoir for more than 30 years. That is one reason why we have reduced domestic capacity, as the noble Lord knows. We need to just get on with this as best we can. We are trying to get a co-ordinated system-wide approach to it. Havant Thicket is the first new reservoir, so we are using that as a live learning opportunity for the Government, regulators and the water companies, because we all need to work together if we are going to do this. A reservoir senior sponsorship group was established by the Water Delivery Taskforce, designed to both identify and resolve any barriers that we have in delivering a new reservoir. There has been talk of reservoirs for years, so we need to work out why it is not happening so that we can crack on and make it happen.
Lord Bassam of Brighton (Lab)
The South East Water company is something of a joke. If I lived in Tunbridge Wells, I would be “Angry of Tunbridge Wells”. The failures in supply in parts of Kent over the last two or three years have been quite profound. What measures can we take to make sure that the company improves its performance? Is there a case for it being taken into some form of control by the state?
Baroness Hayman of Ullock (Lab)
I am sure the noble Lord is aware that the chair and CEO of South East Water have resigned following calls from Defra Ministers. My colleague Minister Hardy met the company twice at the end of last month and wanted to understand better what it was doing about compensation plans, but also a proper action plan for this summer. South East Water has also been held to account through the Water Delivery Taskforce to scrutinise its infrastructure delivery. Obviously, we are also aware that Ofwat has fined it, but there is no point fining water companies if it does not fundamentally change their behaviour, so we need to go further.
Ofwat is looking at what to do about that. A licence investigation from Ofwat is going on because of South East Water’s repeated supply failures, and the Drinking Water Inspectorate is investigating the company. Ofwat has also opened enforcement action because South East Water is no longer complying with its investment-grade rating, as Moody’s obviously downgraded it. A lot is happening here but, fundamentally, we need to totally reform the water system so that this does not keep happening in the future.
Baroness Bennett of Manor Castle (GP)
My Lords, 84% of proposed UK data centres are in areas already in water stress or projected to be so by 2040, and water bills for households are expected to rise because of the construction of data centres. Does the Minister agree that we should not be building data centres where there is not enough water and that households should not be paying for this construction by tech companies?
Baroness Hayman of Ullock (Lab)
It is quite a challenge, is it not? How do we get that balance right? It is really challenging: we know in this country that we need more infrastructure, but how do we balance the needs of infrastructure with the water requirements that go along with that? The noble Baroness talked about data companies, but you could say the same for housing and other industries that use a lot of water, because we all do. We are looking at data companies in particular because we need to ensure that we have sufficient water supply without impacting on other areas.
Lord Berkeley (Lab)
My Lords, will my noble friend resist the temptation to build more desalination plants in areas of this country that are pretty wet already? In Cornwall, South West Water is trying to build a desal plant when it could perfectly well look at more reservoirs, rather than wasting power—which is in short supply around there—on pumping water up the hill.
Baroness Hayman of Ullock (Lab)
I do not know the detail of the proposals in Cornwall but, as I said, we need to get the balance right. It is really important. As I said in answer to the question from the noble Lord, Lord Deben, we have a problem with populations often being in the driest part of the country, so we need to get a proper overview of this.
Baroness McIntosh of Pickering (Con)
My Lords, a lot of the regulation relating to water still comes from the European Union. Will the Government look at that in isolation or as part of the water Bill when it is before the House this autumn?
Baroness Hayman of Ullock (Lab)
We need to look at it in the round. As the noble Baroness is aware, we are having a lot of discussions with the European Union at the moment, and it is important to learn from other countries and from what works in different places. Some countries are better at saving water than we are in this country, for example. I do not know the detail of where we will end up—negotiations are still ongoing—but we certainly need to take into account the way the European Union approaches water and the legislation that is likely to be with us.
Lebanon: Israel Defense Forces Operations
Lord Callanan (Con)
Over the weekend since the original Statement, Iran has launched ballistic missiles at Israel. Israel has since responded with retaliatory strikes against Iran. Of course, we all want to see peace in the Middle East, and the Prime Minister is right to call for a return to a ceasefire, but can the Minister please reassure the House that His Majesty’s Government will always recognise Israel’s right to self-defence? Secondly, over the course of the passage of the Crime and Policing Act 2026 last Session, your Lordships’ House voted three times to proscribe the IRGC. The EU has proscribed the IRGC, as has Australia. Can the Minister tell us why this country has not?
The Minister of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)
My Lords, of course I can assure noble Lords that Israel has the right to defend itself. We have said so consistently. We are extremely disturbed—noble Lords will have noticed this in the language we have used in recent days—about the actions taken in Lebanon. We completely understand the need to deal with Hezbollah, and we think that that is best done through the Government of Lebanon. It is really difficult to understand how the actions in recent days would bring about an end to Hezbollah. The noble Lord’s Government were in place for 14 years and had the opportunity to legislate to deal with the issue of the IRGC. This Government have committed to doing so, and we will as soon as we can.
Lord Purvis of Tweed (LD)
My Lords, I remind the House of my frequent visits to Lebanon over the last number of years, delivering a project supporting women to stand for municipal and parliamentary elections in the very areas where they have been under threat from Hezbollah over many years, so I have no sympathy with Hezbollah whatever. But one of the consequences of these yellow lines, if they are enforced, is the risk that Hezbollah will become active in areas of Lebanon other than where they are at the moment. My question to the Minister specifically concerns the areas being depopulated. The UK has over the last number of years has spent more than £117 million supporting the Lebanese armed forces’ capacity in the very areas the IDF now considers to be yellow zones. What is the current UK support for the Lebanese armed forces, and will we have any ongoing relationship in these areas?
Baroness Chapman of Darlington (Lab)
First, I commend the noble Lord’s work with women and girls in Lebanon. It is vital that we continue this work, and two weeks ago I was able to meet the Lebanese Minister for social affairs, who is an outstanding woman leader in Lebanon. Our support for the Lebanese army continues, and it is the right way to support Lebanon in defeating Hezbollah, a proscribed organisation. We support the aim of getting rid of Hezbollah, but it has to be done by strengthening the state and the Government of Lebanon.
Lord Pannick (CB)
My Lords, does the Minister have any sympathy for the people of northern Israel, who have been under constant bombardment from Hezbollah? Given that Hezbollah has made it absolutely clear that it has no interest in a peace settlement, is not the reality that unless Israel deals with Hezbollah, nobody will?
Baroness Chapman of Darlington (Lab)
I want to be absolutely clear about this: I have complete sympathy with the people who have been displaced and harmed and who are living in the fear the noble Lord talks about—of course I do, as does everybody else in this Government. It is important and essential that we rid Lebanon of Hezbollah. How we do that is not by razing whole villages to the ground and by killing 3,500 civilians and over 100 health workers. I do not see how the aims Israel says it has—aims that we all share, of ridding the world of Hezbollah—are met through that action.
Baroness Blackstone (Lab)
My Lords, I too condemn Hezbollah’s actions in northern Israel, but I am very grateful to my noble friend the Minister for what she has said about how this problem should be dealt with. Some 20% of the population of Lebanon has been displaced—well over a million people—and thousands have been injured and hundreds killed. This kind of aggressive action by the IDF and the Israeli Government cannot be the best way of securing a long-term solution to the problems Lebanon, its Government and many of its civilians are facing. Will the Minister therefore also say a bit more about what policies the Government are now following to try to get disengagement on both sides—Iran as well as Israel—so that a long-term solution can be found to the terrible problems the Lebanese are suffering?
Baroness Chapman of Darlington (Lab)
The first thing we need, as has been agreed previously but needs to be restated, is cessation of the violence we currently see. Where we have a role in that, we play it, as do others, including the United States. As far as our policies go, we are continuing to provide additional humanitarian support to the now one million-plus displaced people, and we have just had to allocate an additional £30 million to this effort because of the ongoing conflict. But I repeat that the right way to deal with Hezbollah—the only way, in the end, that is going to be a sustainable solution to this—is to strengthen the Government of Lebanon and the armed forces there to enable them to do this in a way that lasts.
Lord Howell of Guildford (Con)
My Lords, is it not an idea to offer some rather candid advice to our Israeli friends about the inner nature of Lebanon and the vast distinction between the Hezbollah structure—which is like a poisonous spider, poisoning every aspect of Lebanese affairs, including its politics—and the good people of Lebanon, who are friendly, have fought difficult wars in the past, have many different religions and are very supportive of our values and of this nation? Israel has some techniques which it has used for undermining the Hezbollah position very effectively, but its approach, which is to drop more bombs on everybody, including southern Beirut, is not the way forward. Dare we say that, in polite terms, because some of us know Lebanon very well, and Israel is doing it wrong?
Baroness Chapman of Darlington (Lab)
I think that we are making many of the points that the noble Lord outlines, directly and publicly, and noble Lords will have seen the moves we have made at the Security Council recently as well. In essence, I completely agree with the noble Lord, and the people of Lebanon themselves are the ones who have really borne the brunt of having to suffer living alongside Hezbollah for so long.
Lord Hannay of Chiswick (CB)
Can the Minister tell us what, if any, explanation the Government have had of the killing of a general officer of the Lebanese armed forces, another officer and a soldier by the Israel Defense Forces? Presumably, that does not come in the category of strengthening the Lebanese armed forces.
Baroness Chapman of Darlington (Lab)
It is difficult to see how that and the suffering of civilians and the deaths of civilians could ever be described in that way.
Baroness Hussein-Ece (LD)
My Lords, can the Minister outline the Government’s position on what appears to be the occupation of southern Lebanon, which seems to be a systematic plan to impose long-term military control and a new geographic reality? Is this not a clear breach of international law, and how on earth will it make anyone in the region safe, including Israel, if this kind of behaviour continues? What message is being sent out to other countries: that somehow, international law applies to only some people and some countries, and not others?
Baroness Chapman of Darlington (Lab)
International law applies to everyone, and territorial integrity matters everywhere. We are about to discuss a UQ on Ukraine, and I think the same applies. Things such as the raising of the flag at Beaufort Castle do not help; they raise tensions and weaken the Government of Lebanon. It is that Government we need to be strengthened in order to deal with this situation.
Lord Leigh of Hurley (Con)
The noble Baroness says that the only answer is to finance the Lebanese Government and the Lebanese army. This has been tried for years and has not been successful. The only successful way of dealing with, in effect, Iran in Lebanon through Hezbollah, is through military action. At what point do the British Government stop spending British taxpayers’ money helping the Lebanese Government, and, instead, allow the IDF to finish the job?
Baroness Chapman of Darlington (Lab)
With respect, I fundamentally disagree with the noble Lord. I wonder what he means by “finish the job”, given what we are seeing and the numbers of civilians who have been killed. Over three and a half thousand civilians, including children, have been killed indiscriminately. I could, perhaps, understand a targeted action. There would be questions about that too, but what we are seeing now is wrong.
Russian Attacks on Civilian Infrastructure
Lord Callanan (Con)
My Lords, Britain has stood resolutely against Russia’s illegal invasion of Ukraine, and we continue to support the Government in their opposition to Putin’s war. Britain has a role to play in weakening the Russian war machine through effective sanctions, working in close concert with our US and European partners. Can the Minister please explain why the Government have appeared to weaken their oil sanctions on Russia?
We welcome the Statement the Prime Minister made in March. The British Armed Forces are now able to board sanctioned vessels that are passing through our waters, and the Defence Secretary said something similar. To date, how many sanctioned vessels have been seized?
The Minister of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)
I think even the noble Lord knows when he says “appeared to weaken” that the story that was reported was not exactly accurate. We have new sanctions that we are introducing, although they will not be introduced perhaps as quickly as some noble Lords would like, and we can discuss them when they come before the House. But the idea that we have weakened existing sanctions is simply not correct.
Lord Purvis of Tweed (LD)
My Lords, we have seen in the conflicts in the Middle East we have just been discussing in the House, in Sudan and now in Ukraine, that there has been a systematic targeting of civilian infrastructure, which is a clear breach of Article 8 of the Rome statute and Article 52 of the Geneva convention. There seems to be impunity for combatants targeting essential civilian infrastructure. Will the Government make it very clear that both those perpetuating the targeting of civilian infrastructure and any country that is supporting, facilitating or providing any munitions that assist in the targeting of civilian infrastructure will be sanctioned by the United Kingdom, there will investigations into their breaches of international humanitarian law, and we will prosecute them through any means we have as a member of international judicial resolve?
Baroness Chapman of Darlington (Lab)
I do share, as I think the noble Lord knows, his deep concerns around the changing nature of warfare and what seems to be happening in many places, as he said, with the deliberate targeting of civilians and infrastructure. We do not comment about future sanctions, as he knows, but we will take robust action. We have been leaders in calling for accountability and for enabling some of the mechanisms by which that is achieved to be put into place around the world, and we will continue to do that. It is important that the UK maintains its reputation for standing up for the rule of law, and we will be champions for this whenever we need to be and using whatever mechanisms we need.
Lord Hannay of Chiswick (CB)
My Lords, will the Minister comment on the attack yesterday on the Chernobyl civil nuclear power facilities by Russian drones? Is it the Government’s intention, with other like-minded countries—such as France, Germany and, I hope, even the United States—to raise this matter to the governing board of the International Atomic Energy Agency and bring to its attention that this is completely contrary to all the rules of war?
Baroness Chapman of Darlington (Lab)
The noble Lord is absolutely right, and we will of course be raising this in every forum we can. I commend the work that our friends and partners in France have led on the safety of Chernobyl; it is disturbing to see these most recent events.
Lord Watts (Lab)
My Lords, does the Minister agree with me that what has gone on in Palestine weakens the international ability to criticise Russia, and that those people who do not make that case actually make it more likely that we will see more civilian attacks, as we have seen in recent weeks?
Baroness Chapman of Darlington (Lab)
I am not sure about that. It is possible and important, and it is our responsibility to call out what Russia is doing in Ukraine: abducting children, targeting infrastructure and carrying out relentless drone attacks on cities. This must be condemned, whatever someone’s views may be on Israel, Palestine and Lebanon. We have discussed this and it is very clear what the Government’s position is on that; it is consistent with the position we take on international humanitarian law in Ukraine and everywhere else. I do not think there is anything that could excuse what is happening in Ukraine and the behaviour of the Russians towards the people of Ukraine. The UK Government will continue to be steadfast in that view.
Lord Bellingham (Con)
My Lords, the recent Russian drone attack on the flats in Galați in Romania represents a major escalation indeed and is incredibly worrying. Is the UK going to lead a specific initiative in the UN Security Council on this, and what other action can the UK take alongside our partners?
Baroness Chapman of Darlington (Lab)
That is a good suggestion; I will take that back. We need to use all the mechanisms we have. Our work multilaterally is important, not only at the UN but through the coalition of the willing and the conversations here in London in recent days. I will take back the noble Lord’s suggestion, because we should be using every avenue we have.
Baroness Morgan of Cotes (Non-Afl)
My Lords, during the recent Recess, thanks to the Armed Forces Parliamentary Scheme, I, along with parliamentary colleagues from both Houses, was privileged to visit RAF personnel operating and supporting the enhanced air policing mission led by NATO. I was also going to mention the subsequent attack in Galați, Romania, which was very much pre-empted by the Romanian Ministers we saw. They were very keen to thank the United Kingdom for the support it has given, but I echo the calls: is there more that we can do? This is about Russia testing NATO up and down borders and across the Black Sea. It is very important that we, the United Kingdom, stand with others in pushing back as hard as we can against these Russian incursions.
Baroness Chapman of Darlington (Lab)
I could not agree more with the noble Baroness; the incursions we have seen into Romania are exactly as she describes. I pay tribute to her and all others involved in the Armed Forces Parliamentary Scheme. I took part, with the Royal Navy, and it is immensely helpful—it is one of the best things you can do as a parliamentarian who wishes to understand better how our foreign policy and defence work together.
Lord Howell of Guildford (Con)
My Lords, given the completely new structure and formation of the modern battlefield and the way war is being conducted, which is changing very quickly indeed, does the Minister or her colleague, the noble Lord, Lord Coaker, who was answering questions earlier—excellently—on defence and warfare, think that we have the right departmental structure of our own Government to meet the totally changed condition of war and its holistic nature, where every aspect of public policy needs attending to, and is our present ministerial committee system really good enough to meet this completely new challenge? I do not think so.
Baroness Chapman of Darlington (Lab)
I hesitate to be too definitive in response to this, because it is a really interesting question about how government works. Sometimes it works very well, but the noble Lord points to changing demands upon government that we do need to give more thought to in how we interact. Where it works well, it is brilliant. It is seen when we go into crisis, such as in response to the hurricane in Jamaica. At the moment, I am working very closely with colleagues in the Department of Health on Ebola. It can work very well. Whether those moments of working so effectively can become the daily norm is something the Cabinet Secretary will be bending her mind to as we speak.
The Earl of Clancarty (CB)
My Lords, further to what the noble Lord, Lord Purvis, said about infrastructure, Russia is a signatory to the 1954 convention on the protection of culture in time of war, and its recent attacks have been absolutely appalling and need to be called out very strongly.
Baroness Chapman of Darlington (Lab)
Clearly, Russia pays no regard to the commitments it has made previously on the protection of culture in times of war, or on anything else. The noble Earl is right that we should be condemning its actions on this, just as we do in so many other areas.
Children’s Social Care: Enduring Relationships Strategy
(1 day, 5 hours ago)
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Baroness Cash (Con)
My Lords, I thank the Minister for bringing this Statement to the House and for her kind words to me earlier. I look forward to working constructively with her in the coming months, in the interests of all children and young people.
We on the Conservative Benches welcome this Statement. Indeed, it was the previous Conservative Government who commissioned the review by Josh MacAlister on which this Government’s social care strategy is based. Children who enter care have often experienced circumstances too horrible for us to imagine. As they enter adulthood, as the report reminds us, they report much higher levels of loneliness and isolation, often lacking a single loving or supportive relationship. It is now well established by the evidence that higher numbers of adverse childhood experiences correlate with poorer life and health outcomes, so we will support, where possible, reforms to improve the care system.
I have some questions today. I particularly welcome the Minister’s focus on kinship care, but I wish to raise some points about the target of 10,000 new foster places—a laudable and necessary target. Surely some proportion of this is more easily achieved through the family. Currently, the proportion of fostering households through kinship care is just 20%, but finding foster carers among a child’s kin could be the surest and most efficient way of getting children into a placement in which they already feel a sense of safety and belonging. The biggest barrier is qualifying as foster carers, even though there are significant advantages to a child which might justify a less than perfect score. This would of course have to be done without compromising safeguarding, but it must merit further exploration. Will the Minister commit to revisiting this in this Session?
We recommend the expansion of regional care co-operatives, particularly to encompass children currently on, or at risk of, a deprivation of liberty order. However, I am concerned about the funding of these RCCs. The two RCC pathfinders in Greater Manchester and the south-east received £3.46 million in programme funding and £5 million in capital funding between them. The Government’s paper cites over £10 million to support the expansion of the six new RCCs. Unless I have misunderstood, that is a large discrepancy in per-RCC terms. Can the Minister tell the House whether she believes that this funding will be enough for all the new co-operatives or whether she expects more to be announced in the future?
We welcome the Minister’s resolution to secure the best possible outcome for care leavers, who too often, as I have said, have not a single enduring relationship in their lives. But there are some unanswered questions about how the new enduring relationship metric will be applied, and I would be very grateful for more information from the Minister. Will support for those who score lower be increased? What form will that support take? Will it allow for early intervention before those identified vulnerable individuals have left care? More information on all this would be very welcome. I look forward to hearing the Minister’s response.
Lord Mohammed of Tinsley (LD)
My Lords, I also welcome the Statement. It is important that we in this House send a strong message to young people in care that we are on their side. I know that on many occasions my noble friend Lord Purvis, who has just left his place here, has referred to those young people as having the richest parents—the corporate parents of the state—but often the state, particularly at the local level, has not been there to support them, so we welcome this enduring relationships strategy for children in social care. We have long believed that every child, no matter where they are and what their circumstances are, deserves the best start in life. That is what we want for our children. We the state, at both a national level and a local level, are the corporate parents, and if that is good enough for our own children, it should be good enough for the children under our responsibility.
We have long advocated for children in care because they have often been the ones who are overlooked, particularly those who reach adulthood but clearly still have issues. This overlaps with the debate that I am sure we will have following the Milburn review on NEETs, because those who have been in care are often overrepresented as NEETs. I am sure I will come back to that topic at a later date.
For too long, we have talked about the fact that some young people live in broken relationships. I pay tribute to my noble friend Lady Tyler, who wanted to be here but could not, because she has long campaigned for children. Often, one sibling is in care and the other is not. Maintaining that relationship is something for which she has campaigned for many years. I thank the Minister for her efforts to support the efforts of my noble friend, so that we were able to get that into the Children’s Wellbeing and Schools Act in the last Session of Parliament. That was an important change in the law and guaranteed that children in care are supported to stay in contact with their brothers and sisters. We want to make that upbringing closely mirrored to the ones that we all had and that, for example, my children are having.
Kinship care has a vital role in society. So often, that support is something that holds families together, and we have long called for the Government to support it financially. While they are there to support foster carers, we feel that kinship carers should also be better financially supported. Although we support the Government’s intentions, we must remind them that kinship carers still lack financial support. We tried to fix that during the passage of the Children’s Wellbeing and Schools Act, but on that occasion we did not succeed.
I have a couple of questions for the Minister. The Government mention a new financial allowance pilot for kinship carers. Will the Minister explain why the Government did not support the kinship care amendment to the Bill in the last Session? Similarly, the Government state that their goal is to shift children’s social care towards stronger families and stable homes, and that is welcome. But when a relative or close family friend willing to take on a child is located, they often face immense financial barriers. When will the Government guarantee financial support for kinship carers on a par with that for foster carers?
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
I thank the noble Lords opposite for their welcome of the Government’s proposals around enduring relationships. The noble Baroness, Lady Cash, is right that the independent review of children’s social care was commissioned by the last Government and led by my honourable friend Josh MacAlister, the Minister for Children and Families. In that, he called for a relentless focus on enabling care-experienced children to build lifelong relationships, creating a tribe around them as they grow up. That is the basis of the enduring relationships strategy that we have published. It is framed around our central ambition to allow every child in care to maintain the loving, supportive and trusting relationships that they need to thrive. It builds on our recent work to legislate for social care reform, to reset how the system operates and to give our partners clarity on delivery.
In November 2024, the Government published Keeping Children Safe, Helping Families Thrive, which laid the foundations for reform. We followed through with the Children’s Wellbeing and Schools Act 2026, which many of us spent many happy long hours discussing as it wended its way through this House—I am sure we will have a suitably chunky Bill for the noble Baroness to enjoy in this Session. This has enabled the most significant overhaul of children’s social care in a generation, and these changes are supported by over £3 billion in funding across programmes, capital investment and implementation. Most recently, on 21 May, we published our implementation plan to support local partners to deliver these reforms. This work has laid the foundations.
Now, as noble Lords have recognised, we must move to the full implementation phase to bring about a real and tangible difference to children’s outcomes. A key focus of our reforms, as identified by Josh MacAlister in his review, is to help care-experienced children build long-lasting and loving relationships. Every young person needs relationships like these to form a strong sense of identity and to reach adulthood with confidence. The evidence is clear, as the noble Baroness identified, that just one stable, trusted and loving relationship can transform a child’s life. It can improve their resilience, health, education and long-term outcomes. Yet too often, the system does the opposite of facilitating the permanency that allows these relationships to grow.
In our strategy, we are setting out a new focus for children’s social care. We know that many social workers, carers and professionals work extremely hard to support young people to build and sustain trusted relationships, but often this depends on individual commitment rather than reliable structures. Therefore, to deliver this, our reforms will be aligned to four key outcomes. First, children’s social work must prioritise relationships, not just as an add-on but as the core purpose of practice—the lens through which every professional judgment is made. This is at the heart of the families first partnership programme, where mandatory family group decision-making will bring children’s families and wider networks into their care decisions at an earlier stage.
The noble Baroness, Lady Cash, and the noble Lord, Lord Mohammed, quite rightly raised the issue of kinship care. We are strengthening kinship care. Every local authority will be required to publish a local kinship offer, giving families the clarity and support they need. We have committed £126 million to pilot seven kinship zones, including family network support packages, which will tackle the barriers that can prevent families stepping in to support their kin. That work and investment will give us the basis on which to develop, as noble Lords have said, this important provision for young people. We have also strengthened local authorities’ duties to promote sibling contact for children in care, and the noble Lord is right about that. The noble Baroness, Lady Tyler, made a strong case for this during the passage of the Children’s Wellbeing and Schools Bill. At every point in proceedings, we must ask not only whether a child is safe but who matters to this child and how we can enable and nourish those relationships.
Secondly, we must create stable homes for children in care that support long-term relationships. That is why we are investing £88 million and working in partnership with fostering hubs and the sector to reform fostering and recruit 10,000 new foster carers. That will, in response to the noble Baroness’s question, involve reviewing standards, ensuring national consistency so that the rules in place support a child’s safety rather than limit the ability of foster carers to come into the system. Far fewer children should be in residential care and only when it is the best place to meet their current needs. Creating a route back to family life should be the focus of children’s care. Too often, the right residential care is not available, leading to child placement according to what is available rather than what is needed. That is why, to improve the planning and commissioning of residential care places, we are rolling out regional care co-operatives. We will have more to say about where those co-operatives will be and what support will be available for them in the near future.
Thirdly, we must support children’s transition to adulthood through supporting their long-term relationships. We are strengthening support for care-experienced young people so that they can move to independent living, supported by strong, trusted relationships. Through Staying Put and Staying Close, we are ensuring continuity of care and connection. Through strengthened corporate parenting, we are ensuring that public services step forward to support young people who have left care. Many children currently in care have already lost their most important relationships. That is why we are launching a national sprint to roll out family finding services in every local authority.
Finally, as noble Lords have said, we must embed the primacy of children’s long-term relationships through accountability and inspection. Care must be judged not on placement numbers or types but on children’s experience of them. We will have more to say soon about the measures that we will use for recognising success here. We are already working with local authorities and with Foundations, the What Works Centre for children’s social care, to determine how we will measure success here. We will announce more about that soon. Long-term relationships must be the standard by which the system judges success, so we will introduce an enduring relationships measure to gauge improvement and provide accountability. That also means that we will work with Ofsted to build enduring relationships into inspection criteria.
I welcome the support of noble Lords for these measures today. I look forward to working with noble Lords across the House as we make this fundamental difference to ensuring that all care-experienced children have not just the care and the safety that they need but the ability to keep, or rebuild, the enduring relationships that will be so important for their success in future life.
Lord Carlile of Berriew (CB)
My Lords, most children who appear before the criminal courts display evidence of serious educational needs and an alarming number of those children show signs of florid psychiatric illness. In the sunshine of very welcome reform, can the Minister assure us that we will not lose sight of the great clouds presented by those issues?
Baroness Smith of Malvern (Lab)
The noble Lord knows from his experience about the range of traumas that young people, even those who have not been in care, may well be reflecting. As he says, severe mental health needs may be one of them. That is why we are introducing mental health support into schools at an earlier stage. It is why, through the Department of Health, there is investment in 8,000 new mental health professionals and the development of a mental health strategy to ensure that children and young people in particular are getting support with mental health challenges at an earlier and more effective stage.
Baroness Armstrong of Hill Top (Lab)
My Lords, I welcome the Statement from the Government. It is uplifting to see the shift from being just the corporate parent to it being our responsibility—all our responsibilities—to ensure that for those children who enter the care system, for reasons we may not like and they may not like, we understand that the important thing for them is enduring relationships. I want to ask my noble friend about one aspect of the Statement in particular: long-lasting relationships. I have done work with Family Rights Group for many years now. It did the initial work on this, which has been followed up by Foundations, the What Works Centre, asking how you establish for young people in the last couple of years before they leave care a lifelong relationship.
All your children will have aunts, uncles, cousins and friends they can go to, even when they have fallen out with their mum and dad. These children have no one. I know from talking with them that, when they re-establish a relationship with a long-distance schoolteacher they had a good relationship with, or with somebody from their nursery or another area of their life, or they find a long-distance relative they did not know about, it makes an enormous difference. I know we are going to make sure that Ofsted is covering these things. Can my noble friend assure me that the slimmed-down Ofsted will have the resources to make sure these changes have the real effect that they are meant to?
Baroness Smith of Malvern (Lab)
On the last point that my noble friend made, it is precisely because of the importance of accountability that we will work with Ofsted to ensure that the measurement of enduring relationships and the development of enduring relationships are at the heart of the inspection process.
My noble friend also makes a very important point that, particularly for those young people who are in care but have already lost their most important relationships, it is not enough to simply say that is there nothing we can do to help them rebuild those. That is the reason for the announcement in the Statement about what is described as the
“national sprint to roll out family finding services”.
Those services do exactly what my noble friend has said: they sit down with young people, talk to them about who is now or was an important link and support in their lives, and then help them to remake those links to those people, who will support them while they are young but, as my noble friend says, will also be the people alongside them as they go into adulthood.
The Lord Bishop of Manchester
My Lords, from these Benches, I also warmly welcome what is in the strategy. Enabling children in care to sustain or make long-lasting relationships is absolutely crucial. When it comes to the lifelong relationship ceremonies, we on these Benches are certainly very interested in looking at what can be done to effect that. My question has come out of the work I did on my Private Member’s Bill for care leavers in the last Session. So many care leavers need to move from one local authority area to another, perhaps to maintain those relationships or to rebuild a relationship with a sibling, yet what traditionally happens is that the authority they have left washes its hands of them and the authority they land in considers it has no responsibility because they were never in care in that authority. What will the Government do to ensure that, where young people move from one authority area to another after they have just left care, they do not fall through the net any longer?
Baroness Smith of Malvern (Lab)
The right reverend Prelate makes a very important point. It is, of course, the objective of the Staying Close programme to enable young people, once they have left care, particularly if they were in residential care, to be able to continue to receive support. I will certainly go back and talk to my honourable friend the Minister for Children and Families about this point. I think that that is partly covered in the requirement for all authorities to have a support package for those who have left care, but the point about how we maintain the relationships that are at the heart of this strategy is a really important one that I will take up with him.
Lord Bates (Con)
My Lords, in welcoming the Statement, I also welcome my noble friend Lady Cash to the Front Bench. She brings great knowledge and understanding and, most importantly in this role, compassion, and we look forward to her further contributions. It is a tragedy in modern Britain that care leavers can emerge from care with no one they feel is there for them and no one they feel they can trust. For many of us, the source of those enduring relationships outside the family would be found in faith communities and sports clubs. Specifically, uniformed youth groups such as the Scouts, Guides and cadets built great relationships and instilled young people with essential self-discipline, self-worth and mutual respect. Does she agree that these are precisely the qualities that could benefit not only care leavers but all young people? If so, will she undertake to engage specifically with the uniformed youth groups to see how they can support this welcome initiative?
Baroness Smith of Malvern (Lab)
The noble Lord makes a really important point—notwithstanding the fact that my relationship with the Guides lasted about three weeks so could hardly be described as enduring. However, for many people, faith groups and youth groups of the sort that he has identified could well be the types of environments that could provide that support, that external help and some of those long-lasting links. I will certainly take that point back to my honourable friend as well.
Lord Addington (LD)
My Lords, it is quite clear that the Government are taking an important step forward here to support those from the care system and that everybody has recognised the lack of parental support going on into the early years of adulthood, which is incredibly important. Could the Government go a little further in how they are trying to bring these bits together? We have heard about the voluntary sector, schools and possibly even kinship care, but what will be the point at which we identify the hub that will connect these bits?
Baroness Smith of Malvern (Lab)
First of all, there is the structure being put in place through the implementation plans that the Government are producing, through the national framework, which has been relatively recently reviewed, and through the structures being proposed as part of the strategy. The best way to think about this is that what brings all these things together is the child or young person. If we change practice so that, at every point in thinking about decisions that are being made about children who have come into the care system, we ask ourselves, “What is the best way to enable relationships for this young person to be enduring or developed?”, that is the way in which we bring together the range of policy and investment that the Government are putting into this.
Baroness Bennett of Manor Castle (GP)
My Lords, I am sure that we will not hear any objection from your Lordships’ House to the strategy’s aim of putting enduring relationships at the heart of the children’s care system, but there is no mention in the Statement or strategy of the substantial barriers to that. They do not talk about the impact of for-profit companies, particularly those owned by hedge funds and other financial companies, on the provision of extremely expensive, often poor-quality care provided by lowly paid, frequently changing staff. We discussed this in the Children’s Wellbeing and Schools Bill and heard very little defence from any corner about this kind of provision. What are the Government’s plans to end this exploitation of some of our most vulnerable children? Have the Government set targets to reduce the provision of care by these deeply disturbing companies?
Baroness Smith of Malvern (Lab)
The reason why we discussed that in the proceedings on the Children’s Wellbeing and Schools Bill was precisely because we were taking action in that legislation to tackle this problem. We are empowering local authorities to secure the best placements for looked-after children at a price that is fair to the taxpayer. We know that local authorities cannot do this alone, so we are also taking action at national level to reshape the market through our package of measures, including those set out in the Act. We are rebalancing the market and improving competition, regulation and the commissioning of placements through the regional care co-operatives I have already talked about, and we will shine a light on the level of profit being made and bring greater visibility to the prices that local authorities are paying. In that legislation, we also took provision to introduce a profit cap if necessary.
Lord Wills (Lab)
My Lords, like all the other speakers, I very much welcome what the Government have done in this area and the emphasis they have placed on the importance of enduring relationships. I am very pleased to see that they have in many ways taken up the cause that my noble friend Lady Armstrong has championed for many years. How will the Government integrate these enduring relationships, whether with grandparents, aunts and uncles, former teachers or sports coaches, into the care process right from the outset, so that it is not an add-on but something that is fundamentally integral to the process?
Baroness Smith of Malvern (Lab)
That is a very important point. One of the important things we legislated for in the Children’s Wellbeing and Schools Act is the requirement for the use of family group decision-making in precisely that way, when thinking about children coming into the care system, by engaging their families and those who might have the capacity to support them at that point. That is a really important statement at the very beginning of the process about the need to think about kinship care and the support that families can provide.
Lord Bellingham (Con)
My Lords, I had the pleasure of working with the Minister in Committee on the Bill on the regional care co-operatives, and I am very grateful to her for agreeing to many of the things the Opposition were keen to have in the Bill. The successful expansion of the RCCs will depend to a large extent on good will and co-operation with local authorities in its implementation. Can she say something about how this will be achieved in the context of local government reform, which will mean many existing local authorities will be turned into unitaries and there will be a lot of changes across a number of counties and other areas?
Baroness Smith of Malvern (Lab)
The noble Lord is right that this is a period of local government reorganisation. It is also a time when local government finances are under considerable pressure, not least from having to find placements in an unplanned way, which is likely to lead to unexpected and very high costs. The very fact that local authorities can group together to use the planning and spending power of a regional care co-operative is beneficial to them at a point at which local government reorganisation is going on. Even more importantly, it is beneficial for the children who are more likely to have a placement that works for them, rather than simply one scrambled together on a Friday afternoon.
Lord Bailey of Paddington (Con)
My Lords, can the Minister give us some indication of what is being done to address the culture to make sure that these enduring relationships last? Is anything being done differently in the way the professionals involved are being trained? Is anything being done about the information given to the families in the first place? I was a youth worker for more than 35 years, and the most powerful relationships were where the family knew their rights and were pursuing them and could meet the professionals halfway. Are the Government doing any work to change the way in which the professionals now do their duties because of the new priorities of the Government?
Baroness Smith of Malvern (Lab)
The noble Lord makes an important point. To come back to the point I made earlier, we have changed things in the law such as the requirement for family group decision-making at an earlier stage. In this strategy we spell out clearly the need to change practice to focus on relationships at all stages of a child’s experience of coming into and being in care. I agree with the noble Lord that there needs to be a change in culture, and we are providing support for kinship care pilots and other initiatives such as the recruitment of 10,000 more foster carers. The central message here, as I suggested earlier, is that at every stage in a child’s journey social workers will be asking themselves: what do we need to do at this point to enable this young person to maintain or re-find the enduring relationships that will set them up for and support them for the rest of their lives?
Baroness Bennett of Manor Castle (GP)
My Lords, since there is time, my question relates to the ongoing monitoring of progress underneath this strategy, particularly whether the Government will be setting up a regular programme of listening to children in the care system and those emerging from it to see how fast progress is being made, what is being done better and what could still be strengthened. Will they be really listening to the children regularly as this strategy goes forward?
Baroness Smith of Malvern (Lab)
The noble Baroness makes an important point, and we talked about this at various points during the passage of the Bill. I assure her that in all the action that we take, particularly in children’s social care, we will want to centre children’s voices in the action being taken at a local level and listen to them in the development of policy.
Financial Services and Markets Bill [HL]
(1 day, 5 hours ago)
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Lord Stockwood
That the Bill be now read a second time.
Northern Ireland and Scottish legislative consent sought.
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
My Lords, the financial services sector is one of the UK’s greatest economic success stories: we are the world’s largest net exporter of financial services, and it makes up around 20% of UK exports. The sector made 8% of UK GVA in 2025, totalling £224 billion. It plays a vital role in our economy, underpinning services that households and businesses rely on every day. It provides high-quality jobs throughout the country. It was in recognition of this that the Chancellor announced a significant set of reforms in her speech to the sector in Leeds.
I am very happy to take this Bill because I worked in the sector in the past. I was the CEO of an insurance technology firm offering protections to small businesses, and I have been on several boards of businesses in the financial services sector. While I no longer hold these roles, perhaps this is the right moment to declare my interests as set out in the ministerial register, in particular, a number of my investments in funds that are managed by FCA-regulated firms. In my role as Investment Minister, I see and hear first-hand just how far our financial services sector reaches and the extent to which our institutions, regulation and rule of law are respected overseas.
The Financial Services and Markets Bill will modernise how the sector is regulated, enable it to grow and lend more to businesses and make consumer protections fit for the digital age. It will achieve these objectives while maintaining high standards of regulation and oversight, ensuring that consumers and businesses continue to engage with the sector with confidence and that it will meet their needs. I am pleased that the Bill has been welcomed by a range of stakeholders operating across and alongside the sector. There is general recognition, as there was in an All-Peers meeting that I hosted last week, that it is a question of the balance we are trying to achieve.
As noble Lords would expect, this is a large, technical Bill, so I will briefly set out its purposes and why the Government have adopted the measures they have, and why we believe they strike that balance of promoting innovation and growth while managing and mitigating risk and, of course, protecting consumers.
Turning first to consumer protections and redress arrangements, Clause 1 and Schedule 1 repeal large parts of the remaining provisions of the Consumer Credit Act 1974 so that many of them can be recast into the rulebook of the Financial Conduct Authority, known as the FCA, continuing the changes introduced as part of the Financial Services Act 2012. The Consumer Credit Act was designed for the pre-digital age where everything was done on paper forms. It predates the smartphone by more than 30 years. Research shows that parts of the Consumer Credit Act can be harmful to potentially vulnerable customers, as lenders are often required to send complex communications that result in individuals feeling disempowered, confused and reluctant to seek help. This shows how bad regulation can harm consumers. The FCA is already responsible for making rules that protect consumers and has already made rules to replace some parts of the Consumer Credit Act. It has the expertise needed to perform this role and the powers needed appropriately to police compliance within the rules. Repealing more provisions of the Consumer Credit Act will ensure that it can make rules fit for the digital age.
Moving on, Clauses 4 to 12 reform the operation of the Financial Ombudsman Service, known as the FOS, to improve the consistency and predictability of its decision-making. At the moment, in a small but significant minority of cases, the FOS is acting as a quasi-regulator, by which I mean that rather than simply resolving individual complaints between consumers and firms as intended, its decisions have the effect of setting minimum standards for firms. This can lead to uncertain and inconsistent expectations and outcomes for consumers and firms, which undermines confidence. The Bill is reforming the “fair and reasonable” test as well, which guides FOS decision-making, introducing a mechanism to ensure greater coherence between the FOS and the FCA, and makes a number of other reforms to allow the FOS to successfully fulfil its original role as a quick and informal dispute resolution service.
Clauses 23 to 28 improve protections for consumers who purchase financial products through an “appointed representative”, for example, when purchasing insurance from a retailer acting on behalf of an authorised firm. The Bill will require the FCA to check that an authorised firm is up to the job of ensuring that its appointed representatives operate with high standards of conduct. When something goes wrong, the Bill will ensure that consumers of appointed representatives will be able to bring a complaint to the FOS, which is not always the case at the moment.
Now let me turn to the regulatory framework. I thank all Members of the House of Lords Financial Services Regulation Committee for their Growing Pains report that I read over the weekend. There is a strong alignment between the committee’s conclusions in the report and the Government’s perspective and actions. The Bill will consolidate the regulatory framework to deliver stronger co-ordination and clearer responsibilities.
Clause 13 and Schedule 2 will abolish the Payment Systems Regulator, known as the PSR, and consolidate its functions within the FCA. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented. The Bill will reduce the number of regulators that firms need to engage with.
The Bill also makes a number of reforms to support effective operation of the two largest financial services regulators, the Prudential Regulation Authority—PRA—and the FCA. The actions of the FCA and the PRA are absolutely critical to ensure that the UK has the right regulatory environment, as a key part of the Government’s financial services growth and competitiveness strategy. Clause 21 speeds up the regulators’ decision-making by reducing the statutory deadlines for determining a number of key applications, including authorising new firms. Clauses 29 and 30 create a new provisional licence regime, which will support innovative new firms by allowing them to begin operations on a temporary and limited basis while they apply for full authorisation.
The Bill also makes a number of changes to the internal operations of the regulators, to ensure that they are focused on their activities in the right places, and to support effective oversight and scrutiny of their work. The Government have looked at the wide variety of requirements currently applying to firms—some overlapping, some obscure and some simply of low value. Clause 16 requires the regulators to develop and publish long-term strategies. Clause 17 requires them to consider their existing eight regulatory principles when preparing or revising their long-term strategies, while removing the requirement to consider them every time they exercise one of their functions. Clause 18 removes a number of requirements on the regulators that are duplicative or impose a burden on them that is disproportionate to any transparency benefits that they bring.
Collectively, these changes are designed to ensure that government and Parliament can give clear direction to the regulators at a strategic level and support scrutiny of their broader approach in a way that is meaningful and impactful, rather than focusing on the minutiae or clogging up the regulators with process that adds no value. The Bill also supports the international competitiveness of our world-leading financial services sector, including through Clause 37, which enables the Treasury to create overseas recognition regimes to make business across borders easier without compromising consumer or financial protections.
I turn to the section relating to administrative burdens on firms. I have said the Bill ensures that the administrative burden that regulation puts on firms is proportionate, without compromising on core consumer, prudential and market protections. At the core of this objective are reforms to the senior managers and certification regime in Clauses 31 to 36. This regime holds senior leaders in financial services firms personally accountable for their actions. It is a vital regime that was introduced after the failures of the financial crisis, following the report of the 2012 Parliamentary Commission on Banking Standards. Many Members of the House were on that commission, including the noble Baroness, Lady Kramer, who I look forward to hearing from today. This regime has vastly improved the standards of governance and conduct across the financial services sector, and we have the noble Baroness and others to thank for that.
However, the way that the regime operates in 2026 results in significant regulatory burdens, costs and operational inflexibility. Following careful consideration, the Bill will reduce those burdens while retaining the core guardrails that the regime introduced. The Bill gives the FCA and PRA flexibility in how senior manager appointments are overseen and removes the certification regime which applies to roles below senior manager level. In its place, regulators will be able to make appropriate rules in their rulebooks.
Last week, I met many noble Lords, including the noble Lord, Lord Sharkey, the noble Baroness, Lady Bowles of Berkhamsted, and my noble friends Lord Davies of Brixton and Lord Pitt-Watson. They asked me for assurances that the Bill does not weaken the core protections of this regime. I am happy to give those reassurances. Firms will remain responsible for ensuring that those they appoint are fit and proper, and individuals will remain individually accountable for their decisions. This is not about deregulation but about ensuring that the rules operate in a more proportionate and targeted way.
I will now speak to the opportunities for credit unions. The Bill will enable credit unions to serve more people and communities, something I know will be strongly welcomed by many in this House. The Government are committed to supporting the growth of the mutual and co-operative sector, recognising the important role that credit unions play in promoting financial inclusion and providing affordable credit.
Clause 2 expands the common bond requirements for credit unions. It enables credit unions to reflect modern arrangements in our living conditions, allowing them to admit relatives of existing members who live outside the same household and members of the same household who are not relatives. It enables credit unions to permit retirees to remain as fully qualifying members, and to join after retirement. It also enables credit unions to admit students as eligible members under the locality bond, even where they do not live or work in the same place as they study. This delivers on a long-standing ask of the credit union movement, which the Chancellor is proud to be able to deliver, and is part of the Government’s ambition to double the size of the co-operative sector.
On lending and investment, Clauses 39 and 40 update the statutory framework underpinning the ring-fencing regime. This regime requires major banks to separate their UK retail services from riskier investment banking activities. I pay tribute to the Parliamentary Commission on Banking Standards, whose work was instrumental in establishing this regime. I want to be clear: ring-fencing has played a central role in strengthening the resilience of the UK retail banking sector since the financial crisis, but it is also true that the wider prudential and resolution regime has developed significantly since then. In particular, the UK now has extensive resolution powers to protect depositors and taxpayers in the event of future failure. The UK is therefore now in a much stronger position to respond to banking failure than during the global financial crisis.
The 2022 independent Skeoch review concluded that ring-fencing should be retained but identified areas of rigidity and recommended better alignment with the resolution framework. At Mansion House last year, the Chancellor announced a further review of the ring-fencing regime, and last month the Government set out a package of reforms designed to support growth while maintaining financial stability. The Bill makes changes to deliver the outcomes. It clarifies that the regulator need not duplicate rules where protections are delivered elsewhere, and it updates the statutory purposes to reflect how banks could fail today. Overall, these changes create a more coherent and adaptable regime that supports a more efficient environment for banks to lend and invest in the UK economy, while upholding financial stability and protecting depositors.
The Bill will also enable the Treasury to update existing legislation to help small and medium-sized enterprises, known as SMEs, to access lending through a wider range of lenders. Legislation already requires certain banks designated by HM Treasury to share credit information about their SME customers—subject to consent—with designated credit reference agencies to encourage greater lending. Since that regime was introduced, the probability of SMEs establishing new borrowing relationships has increased by over 25%.
However, almost 70% of new lending to SMEs now comes from outside those core designated banks, including from newer challenger banks and fintechs. Clauses 41 to 43 allow the Treasury to expand the scheme to a wider variety of lenders. For the first time, the Government are also extending the scheme to support the provision of credit to the charity sector.
Clause 44 advances the Government’s ambition to make the UK the location of choice for specialist and complex insurance by enabling the PRA to set more appropriate funding requirements for specialist insurance undertakings, known as transformer vehicles. Clause 45 advances the Government’s ambition to establish a new, globally competitive captive insurance framework.
I turn to anti-money laundering. I have spoken about the importance of maintaining the UK’s pre-eminent global position as a global financial centre. However, being a financial hub means that we now face heightened vulnerability to illicit finance. Money laundering firms harm legitimate businesses by distorting competition, increasing costs and enabling organised crime. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is not consistent. So, in October 2025, the Government announced their intention to reform the supervision framework, with the FCA becoming the supervisor of compliance with anti-money laundering and counterterrorism financing rules for professional service firms. The detailed implementation will be through secondary legislation.
Clause 14 will allow the FCA to take responsibility for supervising anti-money laundering and counterterrorism financing among these professions. This will mean more consistent and effective supervision and improved collaboration with law enforcement. Financial crime increasingly takes place via crypto assets, which are increasingly held outside the UK. Several pieces of legislation enable the Government to seize illicit crypto assets with a connection to the UK. However, these powers have not been working effectively. The Bill enables the Government to ensure that they work as intended and can be modified as criminal practices evolve.
Finally, Clause 3 gives the Government the power to act on access to banking services. The way people access banking services in the UK has changed significantly over recent years. More and more of us are banking online and banks are closing branches in response. The Government are committed to ensuring that those customers who need it retain sufficient access to essential banking services in person. Banking hubs play a critical role in this ambition, and we remain committed to supporting the financial services industry’s rollout of 350 banking hubs by the end of this Parliament.
Last month the Government launched an independent review into access to banking services led by Richard Lloyd, former Which? director and former board member of the FCA. This review is to better understand the impact of the current trajectory, including the scale of any detriment to consumers, particularly vulnerable groups. The Bill contains a power to take action on access to banking services, including implementing the outcomes of the review should the evidence demonstrate that this is necessary.
I have been able to touch only briefly on what is clearly a wide-ranging Bill; I look forward to discussing it all in more detail. This Bill will help the financial services sector to grow and lend more to businesses, and importantly, it will make consumer protections fit for the digital age. When I began my speech, I said that the Bill is a matter of balance. I hope noble Lords will agree that it achieves its modernising objectives while maintaining the UK’s high standards of regulation and oversight. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, it is a pleasure to follow the Minister as we begin our deliberations on the Financial Services and Markets Bill. Like him, we believe that the financial services sector is one of Britain’s great success stories. It accounts for around 12% of GDP, supports 2.5 million jobs and contributes roughly £110 billion in tax each year. It is not simply a sector to be regulated; it is a national asset to be championed. We need the sector to grow because that will benefit us all.
Turning to the economy overall, we have unfortunately had a lengthy period of low growth following the financial crisis of 2007-08, and there is no sign of imminent recovery. Expectations are now for low UK growth in 2026. This continuing trend must be reversed. The Government’s rhetoric on the importance of growth must now be matched by serious action. Too often, warm words have been followed by policies that pull in the opposite direction. The Bill comes after a tidal wave of anti-growth measures, of which the Employment Rights Act is only the latest example.
It is our view that a major factor in our low rate of growth is overregulation, and that this is especially true of the financial services sector. Our Financial Services Regulation Committee agrees, and it is good to see the chair, my noble friend Lady Noakes, here today. Its excellent report, Growing pains: clarity and culture change required, which the Minister has already referenced, warned that
“the regulatory pendulum has swung too far towards elimination of all risk”.
That matters because an economy that seeks to eliminate all risk will, in the end, eliminate growth as well.
The consequences are already being felt. International firms are looking elsewhere. Businesses already operating here face costs that make the UK less attractive and less competitive. The CEO of Marsh McLennan told the committee that, from a regulatory perspective, the UK is at least six times more expensive than our next most expensive country. That is an extraordinary warning, and one the Government should take seriously. The question is whether this Bill measures up to what is required to meet the concerns of the committee and the wider needs of growth. I fear that, once implemented, the Bill will not lead to the step change required. As we take it through the House, a major perspective from which we will be judging it is its likely effect on growth.
However, in several respects the Bill is moving in the right direction. There is a broad consensus that reform is needed. The Treasury itself has acknowledged that the United Kingdom has been left with an overly complex system, and the National Audit Office has pointed to delays between problems being identified and regulatory action being taken. Industry has been saying the same thing. UK Finance has made it clear that the Consumer Credit Act 2006 is outdated and no longer reflects the protections needed in a modern digital market, and TheCityUK has called for a more coherent, streamlined post-Brexit framework.
We therefore welcome in principle the proposed changes to credit unions and the proposed transfer of the Payment Systems Regulator into the FCA. The changes outlined to the Financial Ombudsman Service are also positive, and we expect that this will bring some further clarity to its role and the regulatory landscape more widely. We also welcome measures designed to reduce approval timelines and to reform the senior managers and certification regimes.
Accordingly, the greatest problem with this Bill is not what is in it but what is missing from it. For example, it contains nothing on financial education—so key to improving our savings and investment culture and performance. More importantly, while this legislation removes significant amounts of old regulations, it hands extensive powers to the Treasury and to the regulators to design what comes next. Yet Parliament is being asked to approve that transfer of power without seeing in sufficient detail the regulatory framework that will replace what is being repealed. The incredibly broad powers in Clause 3, on in-person banking, are a good example. The repeal of a large volume of consumer credit architecture, with the expectation that much of what is removed from statute will later be recast into FCA rules, transfers responsibility for policy-making from Parliament to the FCA—that is another example, We believe that this is unwise.
Moreover, the obscure provisions in Clause 14 on anti-money laundering appear to give the FCA and PRA new powers to extend regulations and impose burdens on a number of professions not currently so regulated.
We are told by some that this is a deregulatory Bill, which is welcome, but deregulation ought not to mean removing rules from primary legislation and recreating them elsewhere, beyond proper parliamentary scrutiny. The test is not just whether the statute book looks thinner but whether the burden facing firms is actually reduced.
I am sure the Minister will point to the regulators’ growth and competitiveness objective, but the Financial Services Regulation Committee was clear that this objective has not yet translated sufficiently into policy or practice. Recent history does not give us confidence that a culture of risk aversion, delay and excessive caution will correct itself without stronger statutory direction, clearer accountability and more effective parliamentary oversight.
There is also a wider question about whether the regulatory framework being created will be fit for the future—the Minister touched on this. Financial services are changing at extraordinary speed, led by remodelling overseas, especially in the US. Digital assets are becoming more sophisticated and more integrated into mainstream finance. We are now discussing sovereign bonds on blockchains, digital settlement systems, tokenised assets and new payment technologies capable of transforming everyday transactions.
Yet industry is warning that the Government still lack a clear strategy for digital assets. As a result, firms face uncertainty, innovation is delayed and businesses connected to digital asset activity risk being debanked. I fear that other countries are moving faster in this area. The United Kingdom should be leading in this space; we have the legal system, the financial expertise, the history, the capital markets and the international reputation to do so.
We also need to have regard to the competitive interest of our UK firms. One very senior banker has warned me that the last-minute proposals on ring-fencing would be welcomed by his overseas competitors, since it would reduce his competitiveness. There is also concern from our huge insurance industry, where the UK is a true world leader, with 69% of income coming from overseas. It fears that downgrading the proportionality duty and confining its application to long-term strategies rather than regulatory decisions will make the UK a less attractive place to do business.
Before I close, I will ask some questions of the Minister. First, are present Ministers determined that the regulations made under this Bill will prove less onerous in practice than the architecture they replace? Secondly, what assessment have the Government made of the FCA’s operational readiness to take on the additional responsibilities conferred by the Bill? Thirdly, is the Minister confident that the measures in the Bill will materially reduce delays in authorisations and approvals, particularly for smaller firms, challengers and new entrants? The ability to stop the clock without an independent arbitrator undermines the targets. Fourthly, is the Minister confident that, following the adoption of the Bill, regulator behaviour will become more growth-focused?
There is a missed opportunity at the heart of the Bill. It contains measures that we welcome, as I have said. It moves in the right direction. It recognises, at least in part, that the current system is too complex, too slow and too burdensome. For that reason, we will approach the Bill constructively, and I look forward to working with the Minister on many of the details, not least given his background in the sector that we are discussing. I hope and believe that there are medium-scale issues on which we can reach agreement in this House, but there are two broad problems, as I see it.
The first is that this is a Bill that begins the process of reform but does not, on its own, meet the scale of the challenge. The test for the Bill is not simply whether it makes technical changes to the financial services framework, but whether it helps make the United Kingdom once again the most dynamic, competitive, innovative and attractive financial centre in the world. The second is that we are being asked to take a lot on trust, because of the remarkable degree of delegation in the Bill. We are required to trust that the regulators will deliver in a timely and effective way, that the Treasury will deliver the necessary framework and that Treasury Ministers will oversee the step change that we need. Looking to the past and to the volatility of current politics, can we really put so much trust in the proposals before us?
Lord Sharkey (LD)
My Lords, I welcome this Bill and the growth in competitive objectives that inform it. I thank the many organisations that have provided us with briefings, especially the APPG on Investment Fraud and Fairer Financial Services. Its 70-page analysis deals with each part of the Bill in depth and reaches an important overall conclusion, which is that the case for protecting consumers within any reform of financial services is not merely a moral case, although the moral case is strong, it is an economic case, grounded in a clear-eyed analysis of how trust works, how it is destroyed and what happens to markets when it is lost. The report also notes that the Bill should not simply make complaint handling faster or more predictable for institutions; it should ensure that ordinary people can get the real issue investigated, decided, escalated where necessary and put right. It is not at all clear that the Bill does this or does this sufficiently.
A look at Part 2 illustrates the problem. It contains a number of significant reforms: Clause 5, for example, which concerns the appointment of the chair of the FOS scheme operator. Under this clause, the chair is appointed directly by the Treasury. This is a major structural shift that was not included in the original consultation. The clause also states that the terms of appointment must secure the chair’s independence from both HMT and the FCA. The ombudsman scheme occupies a unique position within our regulatory architecture. It must command the confidence of consumers while maintaining credibility with the industry. Independence is therefore essential: it is not merely a matter of statutory wording; it is also a matter of perception. Where appointments are made directly by the Government, questions inevitably arise about whether sufficient distance exists between Ministers and those exercising important quasi-judicial functions.
Clause 6 also contains significant reform proposals. It addresses time limits for complaints under the compulsory jurisdiction. It introduces a long-stop period of 10 years from the relevant act or omission, while preserving the possibility of alternative limits set through rules and allowing exceptions in specified circumstances. This is a process which, though critical, allows no meaningful parliamentary scrutiny. It is of course true that there is a strong case for providing greater certainty. Financial firms should not face indefinite exposure to complaints relating to events that occurred decades earlier. It is also true that financial misconduct can sometimes take years to emerge. Consumers may not discover that they have suffered detriment until long after the original transaction occurred. The challenge is one of balance. Parliamentary involvement will be helpful.
Still in Part 2, Clause 7 introduces one of the most consequential innovations in the Bill: the referral of matters from the FOS to the FCA. The ombudsman may also seek the FCA’s opinion of FCA rules where ambiguity exists. This proposed reform reflects the concern that individual complaints can sometimes raise wider questions affecting thousands of consumers and firms. The proposed reform also reflects long-standing industry criticism that the ombudsman has occasionally interpreted regulatory requirements differently from the regulator. In reality, however, it is hard to see this as a well-founded or convincing criticism of the current set-up.
The FOS resolves over 200,000 cases each year, upholding about 30%. We are told that the FOS is acting inconsistently and that it has strayed into becoming a quasi-regulator. If that were true—if this were really a systemic problem—the Government should be able to produce a substantial body of evidence. If it were true, there should be hundreds or even thousands of FOS decisions demonstrating this pattern. If such a list exists, HMT and the FCA have not published it—it is certainly not in the impact assessment. If such a list does not exist, the case for much of the reforms to the FOS rests on assertion rather than evidence. I invite the Minister to point us towards the specific FOS cases that justify the proposed sweeping reforms.
As things stand, the Government appear to be jumping to conclusions that will reduce access to the FOS, reducing access to free and impartial redress; introduce extra bureaucracy and costs; and, ultimately, damage confidence and trust in the financial services industry. We must guard against any risk that the ombudsman becomes subordinate to the regulator or loses the independence that has been central to its legitimacy. There is a strong case for removing Clause 7.
Clause 8 reforms the test used when determining complaints under the compulsory jurisdiction. This may well be the most controversial provision in Part 2. Historically, the ombudsman has determined complaints according to what is fair and reasonable in the circumstances. Critics have argued that this has sometimes allowed decisions to diverge from the regulatory rule book, creating uncertainty for firms that believed that they had complied with the FCA requirements.
We should ask ourselves whether strict alignment with regulatory rules could weaken consumer protection in cases where the rules themselves are incomplete, outdated or silent on emerging risks. The strength of the ombudsman system has been its ability to look beyond technical compliance and to consider fairness in a broader sense. If that flexibility is narrowed too far, some consumers may find that conduct that was plainly unfair nevertheless escapes effective remedy.
There are already voices, such as the Centre for Responsible Credit, calling for the removal of Clause 8. StepChange has said:
“The ‘fair and reasonable’ test was carefully designed by Parliament”,
requiring FOS to consider
“all the circumstances of the case”.
In contrast,
“FCA rules are often high level and permissive”.
StepChange believes that:
“The scope and flexibility of the test is essential for FOS to decide cases in a manner that is … fair”.
Shifting this to be based on compliance with FCA rules risks creating a tick-box exercise and weakening consumer protection. Martin Lewis has warned that:
“Restricting … access to free and fair redress is not a recipe for economic growth. Once consumers are warned about the erosion of their rights, it’s possible it will lead to disengagement from … financial services … and diminishing trust”.
On this issue, as on others in the Bill, Parliament must ensure that in pursuing regulatory certainty, we do not sacrifice fairness; that in pursuing efficiency, we do not diminish accountability; and that in strengthening regulatory co-ordination, we do not weaken the independence of the ombudsman. The UK’s financial services sector thrives not merely because it is competitive but because it is trusted. To be trusted, consumers must have confidence that when things go wrong, there is an independent, accessible and effective route to redress.
The Bill may not expressly repeal consumer protections or statutory rights; the concern is more subtle. Rights created by Parliament may be diminished in practice if access to redress depends on FCA rule compliance, FCA intent, FCA interpretation or Treasury-made conditions rather than independent interpretation of the underlying legal issue.
I close by quoting Which?:
“The proposed reforms to the FOS and the FCA appear to come at the expense of consumer protections. Any benefits arising from weaker consumer safeguards are likely to be temporary while longer term costs could be significant, particularly for vulnerable who rely most on access to redress and effective regulatory protections”.
I agree with that.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, before we move on to the Back Benches, I remind noble Lords that the advisory time limit is eight minutes. If we all stick within that, we can get everybody in, it is fair to everybody else and we will be able to finish at a reasonable time.
Lord Burns (CB)
My Lords, this Bill is another example, I am afraid, of my past catching up with me. It is 27 years ago that I was asked to chair a Joint Select Committee of both Houses to scrutinise the draft Financial Services and Markets Bill that was introduced back then. The committee met for three months and published two reports. I believe the noble Lord, Lord Eatwell, is the only other member of the committee still in this House. That became the Financial Services and Markets Act 2000, and all the subsequent changes that have taken place, including in 2012, have been amendments to that Act. I also note my interests in this legislation as outlined in the register. I own shares in Banco Santander and Flagstone Group. Furthermore, I was chairman of Abbey National and then Santander UK from early 2002 until 2015.
It is worth recalling some of the factors that lay behind the need for the Bill back in 2000. The first, of course, was the decision by Chancellor Gordon Brown to remove banking supervision and regulation from the Bank of England and to transfer those responsibilities to the proposed Financial Services Authority. Secondly, this provided the opportunity to consolidate various financial regulatory bodies that had previously operated independently, including—and this is just the beginning of the list—the Building Societies Commission, the Securities and Investments Board, several self-regulating bodies and various ombudsman schemes. In fact, it is really quite astonishing to think back at how complicated and complex the arrangement was before the 2000 Act. Thirdly, there had been—as there always seem to be—problems with a number of financial institutions during the time I was Permanent Secretary, including the closure of BCCI, the collapse of Barings and some difficulties with smaller banks; before that, there had been the collapse of Barlow Clowes. So there were quite a lot of lessons to be learned, and the Bill aimed to put those into a comprehensive framework.
The committee agreed with the Government, and one of the significant issues that came up was that the appropriate approach to this legislation was that it should be principles based rather than rules based. Even then, the financial services industry was growing rapidly. The building societies were in the process of becoming banks, the banks were getting involved in the mortgage market, and a principles-based approach was seen as the most practical way to ensure that the regulatory process remained fresh and relevant as these changes progressed.
As explained in the Explanatory Notes, this approach involves a three-stage process, and it can make it look very complicated. Some of the issues we have already heard from the noble Baroness, Lady Neville-Rolfe, are the product of the way in which this was designed. It remains the case that Parliament sets the overall regulatory framework in primary legislation, including the regulator’s objectives. The second step is that the Treasury then sets the regulatory perimeter through secondary legislation, including specifying which activities are regulated and in what circumstances. The third step is that the PRA and the FCA operate as independent statutory bodies responsible for setting and enforcing the detailed rules for firms engaged in regulated activities.
Some of these issues about when and what should come to Parliament, what should be in delegated responsibilities and how far the regulators are allowed to set the rules are always going to overlap each other, and people will worry about them at various stages. But it is important to recognise, through the discussion and debates that will take place, that from the beginning this three-stage process has been in mind.
I believe the principles-based legislation has been effective for this fast-moving industry. However, achieving the right regulatory balance, as we have heard this afternoon already, is very challenging at any time. Sometimes, regulation becomes overly burdensome and the economy suffers. At other times, insufficient regulation can lead to consumer harm, detriment or the failure of firms. Lots of factors influence this balance, including external development, product innovation, the expectation of customers and the level of effective competition. Therefore, it is important to periodically review these various components of the principles-based approach, to assess their effectiveness and to determine whether any rebalancing is necessary.
I regard many of the changes proposed here as very sensible rebalancing of the factors involved. In the past, of course, rebalancing has happened on several occasions. Following the financial crisis, it became clear that banks’ capital requirements had been insufficient during the run-up to the crisis. It was demonstrated clearly in a subsequent FSA report into RBS. Banks had held too little capital against the complex products that they were dealing with, and many banks were overly reliant on the interbank market for funds, with lending overconcentrated in the real estate market. Subsequently, the FSA and the FCA rightly raised capital and liquidity requirements. The question is: did they change them by the right amount? Was it sufficient or was it excessive? At the time, of course, it was understandable—we had been through this very painful process—but the later evidence suggested to me that the response had been excessive. It contributed to a sharp reduction in bank lending to the private sector, particularly to SMEs. This in turn has had some substantial knock-on effects. Given the subsequent evidence, my view is that some rebalancing of the capital requirements is appropriate. The ring-fence banks should also be looked at to adjust the size of the ring fence around which they operate.
It is also important to recognise that the rapid growth of new products also led to underregulation of some products at times, leading to consumer detriment. Product details were not always clearly communicated to customers, as we would expect today, but this has to be seen against the huge success of the introduction of internet banking. It is also important to ensure that senior people working in the financial industry are fit and proper, but again the question is of balancing bureaucracy against—the question has been raised—a less onerous approach.
This is a dynamic system; getting the level of regulation right has to evolve over time, but it is never going to be a straightforward task. I regard this Bill as an important part of trying to move forward that rebalancing.
The Lord Bishop of Manchester
My Lords, I declare my interests as set out in the register. As with all my colleagues on these Benches—not that there seem to be many of them here today—my stipend, pension contributions, housing and working costs are provided by the Church Commissioners for England. As an issuer of bonds, something we started when I was chairing, it is a regulated body.
I welcome the intention behind the Bill to modernise our financial services and to support economic growth. However, our aim must be to enable economic opportunity for all communities. Amid what is still a cost of living crisis, we must measure economic success not only by the growth of the economy itself but by how it promotes the dignity of those most in need and protects individuals at times when the system fails. It is a large Bill, so I will focus on just a few main aspects: access to credit, credit unions, consumer protection, and access to wider banking services. These are probably the issues that are most appropriate for one who is a bishop, not a banker.
Access to fair and affordable credit is not simply a financial issue but a matter of dignity, equal opportunity and participation in community life. Deepening poverty across the UK is making it more difficult for people to break free from debt. Almost everybody needs to borrow money at some point in their life, yet too often it is those with the least who end up paying the most. They face a poverty premium; they have fewer options. Christians Against Poverty, a wonderful charity, has found that its clients are now borrowing money simply to pay for food, clothing, rent and utility bills. For many, credit has ceased to be a tool for flexibility; it has become a necessity for meeting basic needs, and that drives them deeper into debt.
Debt fosters feelings of shame, fear and hopelessness, which often prevent families from then reaching out for support. Christians Against Poverty states that 46% of clients it surveyed had gone as far as considering ending their own life because of debt-related pressures. We cannot overlook the emotional toll of financial insecurity on real lives. The inaccessibility of credit for underserved communities creates a significant gap in financial policy, where these effects could be alleviated. As such, I strongly welcome measures in the Bill aimed at addressing the problem. These efforts must be sustained and targeted, and we must ensure that those facing the greatest barriers are not left behind.
I was first involved in setting up a credit union almost 40 years ago. It astonished me just how small the sector was in England. It has grown a bit since then: 2.16 million people in Great Britain are now members of a credit union, and we have a credit union for Church of England and other clergy. But Britain still compares poorly with other similar economies in what is, across many nations, a network of trusted, community-based saving and borrowing solutions, particularly for those communities least well served by conventional banking. Hence, I strongly welcome the measures in the Bill to promote the expansion of credit unions, including, critically, the broadening of common bonds to increase the number of people able to access this kind of credit.
This measure is particularly important for serving those in more deprived areas, where they may not previously have had access to banks or similar opportunities. While expanding credit unions will go a long way towards improving access for many customers, it remains the case that certain communities, such as migrants or individuals with less financial literacy, remain excluded from the credit opportunities offered by the mainstream banks. What might the Government consider doing further to improve transparency and accountability among mainstream lenders in how they serve marginalised groups alongside an expanded credit union sector?
I turn to financial protections. Increasing credit availability is an important step forward, but it must be met with adequate protections to prevent mis-selling or overborrowing and to ensure proper redress when things go wrong. While I understand that the proposed changes to the Financial Ombudsman Service are designed to streamline the process, I am concerned that stricter criteria there may make the whole process more inaccessible and less robust. Some proposals, such as stricter time limits on making complaints, may present barriers to certain consumers making claims in the first place, particularly when they discover the issue only after many years.
I also echo concerns expressed by the noble Lord, Lord Sharkey, on the proposed reforms to the Consumer Credit Act. While modernisation is clearly needed, the shift away from detailed legal protections towards regulator-led rules may, as others have said, reduce parliamentary scrutiny and weaken established routes to redress. It may also reduce certainty for consumers, making it less clear when they are entitled to redress and how they can secure it. Again, that is likely to have the greatest impact on those who are less financially literate and who may struggle to navigate complex financial systems alone.
Furthermore, existing protections, such as those offered by the consumer duty, do not provide protection to communities which are excluded from credit access in the first place. Without real efforts from mainstream providers to incorporate underserved groups in credit opportunities, those most in need of support will continue to fall through the cracks. Therefore, it is essential that protections evolve alongside access, ensuring that increased participation in financial services does not come at the expense of security. I will follow with interest the debate about how much ought to be in the Bill and how much can safely be left for later regulation. I welcome the Government’s proposed scheme to improve financial literacy in schools by 2028, but that is no replacement for adequate routes to redress, democratic accountability, and fair and equal access to credit for everyone who needs it.
Finally, while I suspect that, nowadays, many of us in your Lordships’ House access all our banking services electronically—I cannot remember when I last went into a bank or even rang one up—there are those in our communities who need access to in-person banking services beyond mere cash. Financial exclusion fosters real-world isolation. Many of the communities that the Church supports, such as elderly and disabled populations, face greater barriers to financial independence in an increasingly digital age. I am not sure that we are doing quite as much as we should in the Bill to ensure that in-person services, beyond cash, are available in both urban and rural settings.
The Bill presents an important opportunity, not only to modernise our financial system but to ensure that it serves the common good. We must reflect not only on how the Bill will enable growth but on how it might promote justice, equality of opportunity, and dignity for the communities that are the most in need. I look forward to engaging with its progress through your Lordships’ House.
Baroness Hodge of Barking (Lab)
My Lords, I thank the Minister for his excellent introduction to what is a complex and technical Bill. I will focus, as the Prime Minister’s Anti-Corruption Champion, on a part that may not be at the top of everyone’s agenda—it was not in the Minister’s top half. For those of us engaged in efforts to tackle the challenge of dirty money, it comprises an important and welcome proposal set out in Clause 14.
Tragically, over recent decades, Britain has become the destination of choice for too many wanting to hide or launder their dirty money. The National Crime Agency estimates that £100 billion is laundered into the UK annually. Academics estimate that, if you add this to the money lost through fraud, the cost of economic crime to the UK rises to £350 billion. That is more than five times what we spend on schools in England, or nearly six times the amount Britain currently spends on defence. It is huge and a loss that harms our economy, undermines trust in the integrity of the financial services sector, threatens our security and damages our public services.
However, the guilty criminals responsible for these crimes do not invent the schemes used to hide or launder their ill-gotten gains. They depend on the advice of professional enablers—accountants, lawyers, banks and company service providers—who devise the schemes and then enable, facilitate or collude with the economic crime. Most professionals work in both a lawful and an ethical manner but, sadly, there are some bad apples in the professions, who must be rooted out and punished. At present, the professionals are not adequately supervised and identified, and, too often, they are left free to pursue their highly profitable but immoral and, in some cases, unlawful practices.
Introducing a robust, efficient and effective supervisory scheme for vigilantly vetting the professionals should have a dramatic impact on the incidence of economic crime. Punish and get rid of the bad apples, and wrongdoers will lose their access to advice and support on how to hide or launder money. At present, 22 separate organisations supervise accountants and lawyers. Many of these bodies also act as advocates for their members and do not have effective systems in place separating their regulatory and advocacy functions.
There are a further three government bodies that supervise other relevant professionals. OPBAS, the body tasked with supervising the supervisors, recognises that the current system is inadequate. In its March 2026 report, it states that the supervisory bodies
“continue to perform poorly in their enforcement approach”,
and that some are not
“undertaking consistent, proportionate and sufficiently dissuasive disciplinary measures in circumstances where it would be warranted and justifiable”.
Statistics confirm this judgment. The Chartered Institute of Taxation found that 31% of firms it visited were not compliant with anti-money laundering regulation, yet only four were disciplined: three were fined and one was suspended. The Council for Licensed Conveyancers imposed no fines at all, despite finding that 62% of firms that it supervised were non-compliant. The Solicitors Regulation Authority cancelled the membership of just one professional body in 2023-24, and the fine imposed on Mishcon de Reya in 2022 for multiple breaches of the AML regulations was £232,500; it would have been £5.4 million had it been calculated by the rules used by the FCA. So, I strongly support the Government’s proposal to merge the supervisory bodies into one body that will operate within the FCA. This will create a simpler and more consistent framework that will be better placed to work with law enforcement agencies and will have access to data, allowing a joined-up approach across the professional disciplines.
However, I seek some assurances from the Minister to strengthen the effectiveness of the proposed change. To ensure that the FCA properly prioritises this work, will the Government ring-fence the funding the FCA will receive in fees from legal, accountancy and company service provider firms and ensure that those resources are used to fund its supervisory and enforcement duties on money laundering? Will the FCA maintain a register of supervised entities, as it does for financial institutions, so that companies providing unlawful services that are not registered can be identified? Will the Government ensure that data collected as part of the supervisory process can be shared with law enforcement agencies and that those agencies share their information with the supervisory arm of the FCA? Will the Government ensure that the FCA can access legally privileged documents from law firms, where that is required for regulatory purposes? Will the Government ensure that the FCA uses the enforcement powers in relation to professional services firms that it currently employs in relation to financial services firms? The threat of robust enforcement is always an effective deterrent to bad behaviour.
Finally, I am concerned that this excellent proposal will take time to implement, and I am worried about how effective supervision will be maintained during this period of transition. Will the Minister say what he proposes to do to ensure that the supervision of professionals is as robust as possible? I suggest that he gives OPBAS the power of public censure, so that it can name and shame those companies that deliberately fail to abide by the AML regulations, and the power to levy fines against supervisory bodies that fail to fulfil their obligations to remove supervisory responsibilities from those who fail to fulfil their duties. Will he consider creating a duty to ensure that the existing bodies co-operate with the FCA during the transition?
I welcome the proposal. I look forward to working with the Government to strengthen its effectiveness and to protect the supervision of professionals during the transition to the new scheme.
Lord Eatwell (Lab)
My Lords, I begin by drawing attention to my interests listed in the register. The financial crisis of 2007 to 2009 left lasting scars on the UK financial system. The costs of that crisis have reverberated in the form of embedded risk aversion, particularly among financial services regulators.
Yet, risk aversion has its uses. Since the 2009 crisis, the financial services industry has been battered by further successive crises: Brexit, Covid and the wars in Ukraine and the Middle East. It is to the credit of the Bank of England and the financial services regulators that the industry has displayed a remarkable level of financial stability throughout these storms.
Yet there remains a persistent dissatisfaction with the performance of the regulators. The costs of compliance are excessive. A PwC study puts the sector’s annual compliance bill at nearly £35 billion—roughly 13% of total operating costs. Regulators are said to take excessive time over crucial decisions, such as authorisations. There is no consistent cost-benefit analysis of regulatory measures, despite the fact that the 2023 FSMA required the FCA and the PRA to establish cost-benefit panels. Regulatory decisions often create uncertainty, stifling innovation and discouraging investment.
The fact that the Bill addresses some of these concerns is certainly to be welcomed. The simplification of the senior managers regime and other administrative requirements should reduce costs. The new provisional licences should speed up effective authorisation. The changes to the relationship between the FOS and the FCA will perhaps reduce regulatory uncertainty, although it may have other effects, as the noble Lord, Lord Sharkey, suggested. Moreover, the increased flexibility provided to the FCA and the PRA in several sections of the Bill must be used with care, lest flexibility generates uncertainty.
While I welcome these measures, I am concerned by the changes to ring-fencing. The claim in the Explanatory Notes that,
“updating the statutory framework underpinning the ring-fencing regime as part of a wider programme of ring-fencing reforms”,
sets alarm bells ringing. Updating may well be the origin of increased systemic risk. The protection of activities within the ring-fence must be a primary objective. Weakening the ring-fence in the name of financial innovation would be unacceptable.
Moreover, the claim that:
“These reforms will unlock more finance for the UK economy”,
sets alarm bells ringing even louder. When he sums up, could the Minister enlighten us about the content of the,
“wider programme of ring-fencing reforms”?
What exactly do the Government have in mind?
The Explanatory Notes claim that Bill,
“modernises how the financial services sector is regulated, supporting it to grow and to lend more to businesses”,
but overall, the Bill gives the impression of tidying up, rather than embedding greater financial commitment to investment and growth. Of course, the emphasis on investment and growth is surely correct. It is necessary for the economic well-being of the people of this country. In this vital respect, for many years the financial services industry has failed, and it is continuing to fail.
Since 2000, the share of financial services in GDP has grown by 50% from 6% to 9% of GDP. Over the same period, the share of investment in GDP has not grown at all and, indeed, has tended to decline and has been persistently lower than in other major industrial countries.
We have to reflect on the fact that the prosperity of the UK’s financial services sector is not solely a success of private enterprise; it is a success of a particular institutional framework in which public authorities and the market are deeply intertwined. The prosperity of the City of London depends upon the global prestige of English law and the public institutions that enforce it. Similarly, financial services depend on the public provision of a stable monetary framework and a respected code of financial regulation, ranging from the role of the Bank of England as lender of last resort and guardian of systemic stability to consumer protection and the prevention of financial crime.
Public provision defines the environment within which financial services prosper. In return, financial services should work in a way that serves society by funding the investment in innovation, productive capacity, research and skills that the country needs. That is the settlement between the public realm and financial services.
That settlement is not working. A new settlement is required but what might that look like? It should begin with a framework of financial institutions that are committed to the needed investment. I do not mean greater flows of funds into stocks, shares and bonds in secondary markets. Britain needs financial institutions that fund real investment, new research, new products and services, new infrastructure, new homes, new international competitive industries. The Government have made an attempt at this by creating the National Wealth Fund. However, that fund will invest only if a firm that seeks funds from it has already acquired private sector funding. In other words, an institution that exists because private markets have failed defers to those failing markets to guide its own investment decisions. That is just not good enough. The new settlement must not rely solely on government, regulators or even politicians. The financial services industry itself must play its part, building on current initiatives such as the Capital Markets Industry Taskforce, convened by the London Stock Exchange.
The Bill before us is not part of this new settlement to which I refer. It is worth while and sensible, but the task of building a financial services industry that truly serves our society needs to go a lot further.
Baroness Noakes (Con)
My Lords, I declare my interests in that I hold shares in a number of listed financial services companies. It is a pleasure to follow the noble Lord, Lord Eatwell, who is one of the select group of noble Lords who regularly take part in the scrutiny of financial services legislation. I welcome the Minister to our club.
There is much in this Bill which is good. I welcome clauses dealing with the SMCR regime, how the FOS works and the transformer and insurance vehicles. In addition, the changes to ring-fencing are positive, but they do not go far enough to roll back this burdensome regime which cost billions to implement and run and is so flawed that not a single other country has adopted it.
There are, however, several areas of the Bill which I shall be looking to improve in Committee. I will focus my remarks today on just one area: Clause 17. Currently, the PRA and the FCA must have regard to the regulatory principles in Section 3B of FSMA in everything that they do. Clause 17 downgrades this, so that the principles are rendered impotent. If Clause 17 becomes law, the regulators will merely have to talk about the principles in the new five-year strategies that are required by Clause 16.
The regulatory principles were certainly due an overhaul. However, neutering them is a shockingly bad decision by the Government. It is not surprising that many in the financial services sector have criticised it. I will frame my remarks around the regulatory principle of proportionality, though what I say also applies to other elements of the principles. Proportionality requires burdens imposed to be proportionate to the benefits that are expected to result. This manifestly should be uppermost in the mind of the FCA and the PRA when they are designing new regulatory burdens or updating existing ones. The lack of proportionality in how the regulators currently operate is one of the key criticisms made by financial services firms. I do not doubt that the proportionality principle is relevant when the regulators develop their long-term strategies. Strategies, however, tend to be high-level abstractions; they are not blueprints for how regulation works in practice. It is the detail of the rules and guidance, rather than strategic statements, that determines how regulation impacts the financial services sector.
The effect of Clause 17 is that the regulators no longer must consider how the detailed rules and guidance work in practice for the various firms that they regulate from a proportionality perspective. The regulators will be entitled to ignore representations about proportionality made during consultations. This downgrading not only directly affects how firms can engage with the regulators when rules or guidance are developed but impacts the accountability of the regulators, which is already problematic.
The regulators like to say that they are accountable both to the Treasury and Parliament. I have not yet found an example of how the Treasury has held the regulators to account. Focusing on strategic plans will not be enough. The regulators are masters of the art of wordsmithing documents to make them attack-proof. Parliamentary Select Committees try to grapple with holding the regulators to account, but it is an uphill battle—and this Bill makes that battle harder. The root of the problem is the FSMA model. As the noble Lord, Lord Burns, explained, under this model Parliament decides the principles of regulation and the regulators are left to get on with the detail of regulation. That worked well while we were in the EU. The quasi-democratic processes of the EU Parliament—in which the noble Baroness, Lady Bowles of Berkhamsted, played such a central role—meant that there was significant oversight of new directives and regulations.
Post Brexit, the previous Government decided to continue with the FSMA model when the huge body of retained EU law was repealed and replaced, so massive areas are now wholly delegated to the regulators. That is what the Financial Services and Markets Act 2023 enabled. It exposed a large accountability deficit. In partial mitigation, the 2023 Act ensured that the regulators’ consultations had to be sent to the Select Committees of each House of Parliament. That Act also paved the way for the creation of the Financial Services Regulation Committee in your Lordships’ House, which I currently chair.
Clause 17 not only excuses the regulators from having regard to the regulatory principles but repeals the need for the regulators to explain to the parliamentary committees how the regulatory principles apply to their draft regulations. This is a naked attempt to neutralise the work of the Select Committees of Parliament in holding the regulators to account. The FSMA model is a bureaucrats’ and politicians’ dream come true. The Treasury can always point to the regulators if something goes wrong—and the regulators are largely unaccountable. We must use this Bill to make the accountability of the regulators stronger and not, as it currently is, weaker. There will be much to discuss in Committee.
Baroness Bi (Lab)
My Lords, it is a pleasure to take part in this debate and to follow the remarks of the noble Baroness, Lady Noakes. I declare my interest as chair of Norton Rose Fulbright, a law firm.
I thank my noble friend the Minister for his comprehensive introduction to this Bill. The Bill contains an important balance of protections for consumers, from widening the scope of the common bond for credit unions to ensuring access to in-person banking services, while responding to the needs of the financial services industry. As your Lordships know, the financial services sector is important to the nation, domestically and globally. It provides well-paid jobs across the country and supports our international standing, since the UK is the largest net exporter of financial services. It is therefore important that we have a regulatory regime that is agile and proportionate. Many of us believe that the current burden of regulation is too high, with delays in costs affecting growth and competitiveness.
The Bill implements measures that the financial services industry has been calling for. I particularly welcome the changes to the senior managers and certification regime, as these will reduce administrative burdens on business and allow it to operate more efficiently. I am very glad to see the repeal of the conduct rules as proposed in Clause 35, as they are heavy-handed and do not reflect the approach adopted by many of our competitive markets.
The changes to the senior managers regime will, I hope, address the absurd situation I have seen of senior people who are running their firms in EU capitals moving to London and having to wait for many months before they are able to perform the same role in London pending FCA approval. Similarly, the temporary permission regime under Part 4A of FSMA is a welcome and pragmatic regulatory innovation that allows start-up and early-stage businesses to conduct regulated activities while they meet the threshold conditions.
It has been nearly two decades since the global financial crisis, and it is right that the Bill is updating the statutory framework underpinning ring-fencing to reflect the reality that banks are much better capitalised now compared with 2008 and we also have the resolution framework. Today, there are greater concerns about the systemic risk created by the growth of private credit and the valuations underlying it than concerns about retail banks. An indication of how much the broader financial marketplace has changed since 2008 and where consumers may be exposed is suggested by the FCA’s research in 2024, which found that 7 million UK adults, 12% of the population, owned crypto assets compared with just 9.3 million—17%—who owned a stocks and shares ISA. We cannot keep looking back when the world before us is so radically different.
There is much else in the Bill that is to be applauded, including the Financial Ombudsman Service reforms and the abolition of the Payment Systems Regulator with the transfer of its functions to the FCA. That has been welcomed by the PSR itself as,
“a pragmatic next step in simplifying and clarifying payments regulations”,
and is a rare example of reducing the number of regulators rather than merely increasing them.
However, I would like to indicate three areas where I suggest enhanced scrutiny as the Bill is considered in more detail. First, I really hesitate to disagree with my noble friend Lady Hodge of Barking, who highlights the scourge of economic crime, but I am not at all persuaded that Clause 14 will have the desired effect that she is looking for by giving the FCA supervisory responsibilities for anti-money laundering and counterterrorist financing for professional services. I can see why the Treasury thinks it would be tidier for the FCA to be the single supervisor in the place of 22 professional supervisory bodies, but if I apply this to law firms, which are currently supervised by the Solicitors Regulation Authority, which is a regulator and not an advocacy body, the outcome will be that we will simply have another regulator to answer to, in addition to the 15 we currently have, and one that has no experience of supervising professional services firms, let alone law firms.
I can assure your Lordships that solicitors are not currently an underregulated profession, and it is not a lack of regulation that contributes to financial crime. I suggest that where crimes are being committed, the law is enforced, and where schemes exist that are not currently illegal, they are made so. The fact that the FCA has no experience of professional services firms and will need to develop its expertise is reflected in Clause 48, which provides for additional funding for the FCA, exceeding £2.7 million a year for more than two years to,
“cover costs incurred as a result of the preparatory work for the expansion of the FCA’s AML/CTF supervisory responsibilities”.
May I suggest that we use this money to support legal aid instead, which is sorely needed?
Professional services firms are part of the ecosystem which makes the City so successful, and the likely lack of clarity, which may persist for some time as the FCA takes responsibility for a sector it is unfamiliar with, is likely to add to increased compliance costs and delay, which the Bill is seeking to diminish. I know the Law Society is extremely concerned about this proposal and has raised important issues about how legal professional privilege, client confidentiality and duties to the court will be protected, which will need to be addressed if Clause 14 is to apply to law firms.
Secondly, I am concerned about the extent to which Henry VIII powers are relied on in the Bill generally and suggest that we look carefully at the extent to which this is necessary in each case. One of the biggest concerns of business will be uncertainty while we wait for clarity about what new provisions will be introduced. There are, of course, broader concerns about parliamentary oversight with which I have sympathy. I understand that regulation needs to be agile in a fast-changing world and see the necessity, for example, in Clauses 46 and 47, of introducing a broad power allowing the seizure and forfeiture regime to evolve as technology and language develop to prevent criminals using crypto assets for illicit purposes, but I query whether this approach is needed in every case in which it has been proposed.
Finally, I believe there will also be concerns about whether the FCA has the capacity to take on all these additional roles and responsibilities at a time when it is under pressure to respond to the second competitiveness objective. I note that the FCA is receiving extra funding for taking on AML/CTF responsibilities for professional services firms, but I have not seen additional funding for the many other duties that the Bill will transfer to it.
As we have seen from a number of reports, not least from the Growing pains: Clarity and Culture Change Required report produced by the Financial Services Regulation Committee that has already been referred to, and the No Time to Lose: Reasserting UK Leadership in Financial and Related Professional Services report produced by PwC, there is a strong sense in our professional and services sector that it is currently overregulated and subject to compliance costs and delays that negatively impact its competitiveness. This Bill makes a start in addressing those concerns, so I welcome it, and I look forward to engaging constructively in the debate as it progresses through your Lordships’ House.
Baroness Hayman (CB)
My Lords, unlike many noble Lords who will contribute to today’s debate, I have no direct experience of working in the financial services sector, although I suspect I might even apply for associate membership of the club of Members of your Lordships’ House who take part in this legislation that was mentioned by the noble Baroness, Lady Noakes. Like pretty well everyone in the country, I have had experience, not always happy experience, of being a customer of the financial services industry, sometimes because of my status as a politically exposed person, which seems to bleed into my daughters-in-law and all sorts of people, and sometimes simply wrestling with the challenges of communication and relationships with banks, insurers and others.
However, I have experience as a regulator, not in this area but in relation to health. Initially—this was decades ago—in the approval of clinical trials and then in the setting up of the Human Tissue Authority, which I chaired. I also sat on the Human Fertilisation and Embryology Authority and was for six years a member of the General Medical Council. Those experiences have made me a firm believer that clear, effective and proportionate regulation can not only protect patients and consumers but protect those who deliver those services and who are committed to their growth and their success.
The Bill gives us the opportunity to take stock of whether the current frameworks are protecting consumers and properly supporting the smooth functioning of our financial services industry, ensuring that it will remain attractive and able to continue growing and contributing positively well into the future. So, it will be a matter of finding the correct balance, as it so often is on so many issues in your Lordships’ House.
The area that I want to explore today is the sector’s ability to prepare for and respond to the systemic impacts of climate change and nature loss. We took a similar approach in the previous Financial Services and Markets Act 2023, which introduced important regulatory principles that aligned governance of the UK financial services sector with the UK’s climate and environmental goals. The challenges those provisions sought to address do not follow national borders, and the threats they pose are no longer distant or hypothetical concerns but are impacting actors within the financial system now.
The Climate Change Committee and the Bank of England both warn that these types of risks can have tipping points, which could have serious implications for the UK’s financial stability, our ability to avoid or manage sudden shocks to the market, and long-term economic resilience. Some aspects of the financial ecosystem are particularly vulnerable. For instance, we are already seeing the effects on the insurance markets of drought, flooding, coastal erosion from sea level rises and extreme weather. We have seen the problems that arise from that for mortgage lending, affordability for homeowners, and infrastructure and supply chains in the UK and globally. According to the Swiss Re Institute, the global “protection gap” between insured and uninsured losses from natural catastrophes rose to an estimated $424 billion in 2025, up $29 billion from 2024, with wildfires and flooding accounting for more than 50% of the increase.
However, there is anxiety that, within the Bill’s objectives to drive growth and increase competition and innovation for financial services, the proposed new system does not account for the risks faced right now, and that the solutions to adapt to them, which are then not put in place, have the potential to undermine the Government’s goals.
One area where progress is urgently needed is on the Government’s stated intention to deliver their manifesto pledge to mandate UK-related financial institutions, including banks, pension funds, insurers and FTSE 100 companies, in order to develop and implement transition plans in line with the Paris Agreement. There was a consultation last summer, but we have not seen any plans and can ill afford further delay. The Taskforce on Nature-related Financial Disclosures—a global voluntary framework designed to help businesses and financial institutions assess, report and act on their nature dependencies and impacts—also remains only voluntary, in contrast to the requirements for some funds under the Task Force on Climate-related Financial Disclosures, so it would be helpful to understand what steps the Government are taking to expand coverage and adoption of the TNFD.
Then, of course, there is the concern raised by the noble Baroness, Lady Noakes: that it appears that the FCA and PRA will no longer be required to have regard to some of their regulatory principles, including climate and environment obligations, in their day-to-day functioning and will instead be asked to set out how they are adhering to them in strategy documents. There is a concern that this could water down a useful and necessary steer, at a point where we need to be asking regulators to do all they can to safeguard financial services’ preparedness to deal with and adapt to climate change. I look forward to debating Clause 17 in some detail.
Finally, I and many others were encouraged by the Government’s previous commitment to bring forward statutory guidance that will offer pension schemes clarity on how they consider investments for savers in relation to systemic risks such as climate change. I would be grateful if the Minister reassured me that schemes will not have to wait too long to see the detail on when and how these plans will be brought forward. I close by stressing that the Bill is about making sure that the financial sector can capitalise on all the economic and investment opportunities at hand. That includes adapting to the impacts of climate change, which are already being felt.
Lord Pitt-Watson (Lab)
My Lords, my professional background before I joined the House was as a finance practitioner. I still work pro bono with consumer organisations, including some who have a view on the Bill. Most relevant to what I will say is that I am a fellow at Cambridge, where I teach a course focused on how we create a purposeful finance industry that, like all good market institutions, prospers when it serves the outside world.
To help build such a purposeful industry should be the goal of this legislation. It is a profoundly important goal, partly because, as the noble Baroness, Lady Neville-Rolfe, said, this is the jewel in the UK’s economic crown. But it is more than that: we need a successful finance industry if we are going to solve the critical problems of the country and the world: growth, prosperity, looking after people in old age and, as the noble Baroness, Lady Hayman, was saying, addressing the growing climate challenge.
There is no successful finance industry without effective regulation. However, as the House of Lords Financial Services Regulation Committee noted, we do not have a blueprint for what the best regulation looks like, and we have made big mistakes in the past. The global financial crisis took place despite the then existing regulation; some might even argue that, in some ways, it happened because of the nature of that regulation.
I wonder whether the whole House might agree on a starting point: that we are trying to get a finance industry that will fulfil its purpose well in serving the outside world. That means keeping our money safe, helping us transact, allowing us to share risk, and, critically, allowing us to take our money from point A, where it is, to point B, where it is needed and can create growth and prosperity. But for that to happen, we need an industry that is trustworthy and trusted to carry out these purposes. Otherwise, people will not save or borrow.
That all seems pretty straightforward, but there is a problem which we should recognise. People do not express trust in the finance industry. According to FCA surveys, in 2024 only 36% of people felt that
“most financial firms are honest and transparent in the way they treat them”;
27% felt the opposite. Some years ago, the Bank of England asked British people to find one word to describe the finance industry. Do noble Lords know which word they chose? It was “corrupt”. The finance industry accounts for about 9% of GDP—the figure from the Minister was 8%, and 12% from the opposition Benches—and it is responsible for 42% of corporate fines that have been issued. The Local Government Ombudsman gets 22,000 complaints a year; the Financial Ombudsman gets 216,000. I could go on and on. This issue needs to be resolved.
Malfeasance is not the most concerning issue; it is productivity. On the best academic evidence we have, there is little evidence that the cost of getting money from point A to point B has fallen by very much, even over 100 years. No other major industry has such a poor productivity record over such a period. At the same time, 1.3 million British people do not have a bank account. According to the FT a couple of weeks ago, British bank lending to SMEs is the lowest percentage of GDP it has been this century. There are big gaps in our finance system.
These problems occur despite, or maybe even because of, the great amount of regulation we have. Robin Ellison was a pensions partner in one of the big law firms and has now retired. He reckoned that, in 1990, we had 3,000 pages of pensions regulation; a couple of years back, it had risen to 165,000.
We must be sure that we are not encouraging a world where finance practitioners spend their time thinking about how to get around the regulation. It is euphemistically called regulatory arbitrage, and it creates a game of whack-a-mole: there is a rule, and someone finds their way around it; we whack that, and they find their way around it again—and we end up with a burdensome and expanding rule book. As the noble Lord, Lord Eatwell, said, we need a new settlement.
But in that settlement, regulation is just one piece of the ecosystem. There are also institutions, markets, incentives, ethics, professionalism and technologies, all of which are changing rapidly day to day. Getting the regulation right means that it needs to fit into this much larger system. I would have that as a background—a background on which I hope we might agree—and I think that has implications.
I applaud many parts of the Bill—for example, the encouragement of credit unions and thinking about how we can get credit to the people who need it fairly—but one concern, which it might be helpful to clarify, is that as we change the rules by which the Financial Ombudsman Service adjudicates, we need, as the noble Lord, Lord Burns said, to keep them principles based. Why is that? Because these are dynamic markets and we are trying to minimise regulatory arbitrage. Maybe it could be made clear from the outset that, when reference is made to the Financial Ombudsman Service adjudicating only on breaches of the FCA rules, those rules include the principles of business and the code of conduct.
There are many other comments that one might make, but I think they are best addressed in Committee. For now, my key point is that in any effective market economy, success should be contingent on serving customers well. There is a deficit of trust in the financial services industry. Regulation should align consumer, producer and society. My broader point for this House is that, in debating the Bill, it might be helpful to express a consensus, shared with industry and with consumer groups, that we want a finance industry that is there effectively to fulfil its proper purposes to the world. I look forward to our coming discussions.
Baroness Bowles of Berkhamsted (LD)
My Lords, I declare my interests as a director of Valloop Impact Captive.
The Bill is a chunky addition to the impenetrable forest of financial services legislation, relocating key issues into the even larger forest of regulator rules. Who is it for? It cannot be only for business; it must also be for people, and that is how I will interrogate it. How are people affected when primary legislation is repealed and their rights are transferred to regulators? How will they feel when their MP says, “It’s out of the hands of Parliament, in fact it is often out of the hands of the Treasury and out of the hands of the courts”. That is what Clauses 1 and 17 do.
Fair for people means anchored in law, not left to discretion, not left to drift and not left to five-year strategies. Which? warns that the Bill removes vital protections without clarity on how or whether they will be replaced. Uncertainty for people is also uncertainty for business. While I understand well the pressures on firms and regulators to achieve more certainty over long-tail risks, that cannot justify Parliament removing statutory rights before we know what will replace them.
I share the aim for growth, investment and competitiveness, but growth cannot be built on taking advantage of people. Stripping primary legislation of fundamental protections—both rights and remedies—replacing them with yet-to-be-seen secondary legislation and removing Parliament from its past and future influence is not the route to stable, responsible growth. Three areas illustrate this: consumer credit; access to banking; and the removal of the “have regard” principles.
On consumer credit, the unfair relationship provisions, Section 75, unenforceability rules and protections for vulnerable borrowers are core statutory rights and remedies, not conveniences. The FCA’s conflicting provisions on motor finance, where it originally said there was no need to disclose commission arrangements unless asked, shows that the legislative line set by Parliament was not followed. The FCA did not get that right—will it get it right in future? Before the Consumer Credit Act is hollowed out, will the Government define in the Bill a core of statutory protections—the rights and the associated remedies that make those rights effective—that will remain in primary legislation?
Clause 3, on access to banking, raises a fundamental question about the balance between consultation, ministerial discretion and parliamentary scrutiny. The Government want to consult on access to banking services and then implement the outcome through regulations that amend primary legislation, including with FCA rules as they change over time. Parliament’s role becomes a take-it-or-leave-it vote on an unamendable instrument. Clause 3 could be more tightly framed—for example, linking it expressly to matters already consulted on or by avoiding automatic changes to the law when FCA rules are updated. Access to banking is vital. Members of the other place will not want to tell their constituents, “We have no influence”.
The consistent pattern is that this Government want to do without Parliament in future and eradicate its past. The next eradication of Parliament’s voice is the removal of the “have regard” principles that anchor regulators to law, proportionality and Parliament’s intent. In practice, regulators trivialised them. Then, in their consultation response, they said that these duties were burdensome. The Government did their bidding, removing them from operational decision-making and, fundamentally, the basis on which courts can test that delivery.
Administrative inconvenience is not a constitutional principle. If the issue is frequent or laboured reasoning, that can be solved without removing the duties. British Steel pensions showed why the “have regard” principles must stay. The FCA had full perimeter responsibility, yet the principles—vulnerability, transparency and proportionality—were treated as a box-ticking exercise. Parliament had to drag the issue into the open before the regulator acted. The answer is not to remove the principles on which we were able to drag but to insist that they are applied properly.
Dame Elizabeth Gloster’s report into LCF found the same pattern. The FCA failed to apply the statutory principles that Parliament had set, treated them as peripheral and did not understand the framework in which they were meant to operate. Its response was mechanistic “have regard” tables, which was defensive paperwork, not culture change. If anything, that shows why these duties must remain in law, be effective and not be removed at the regulator’s request.
Before anybody says that the consumer duty does it all, it does not. It does not replace statutory duties or bind the regulator in any way that Parliament can, and it certainly does not give courts the tools they need to test regulatory decisions. It is an FCA rule, changeable by the FCA, not a fair substitute for a statutory duty.
Proportionality, transparency and respect for the size and nature of firms must apply to regulators’ rule-making and operational decisions, not be pushed to high-level strategy with no legal bite. The same is very much true for addressing climate change.
This is not just the view of consumer groups. TheCityUK warns that Clauses 16 to 18 weaken Parliament’s ability to hold regulators to account. The London Market Group is equally clear that downgrading proportionality is a step backwards. When consumer groups, industry and parliamentarians all say the same thing, the Government should listen. I do not know how the Treasury has been suckered into suggesting that this is merely administrative, but I am not buying it. These are protections for people—the fiduciary bargain.
To conclude, this Bill has ambition but it removes safeguards, hands too much to regulators, disfranchises Parliament and leaves people without rights and without the remedies that make those rights enforceable and effective, grounded in law. That same uncertainty hurts responsible business, and I will submit amendments on which I hope we can work together.
Lord Davies of Brixton (Lab)
There is a thought experiment, a century old, that I think should be made compulsory for every financial regulator, every market reformer and, frankly, every politician who has uttered the word “modernisation”. It comes from GK Chesterton, writing in 1929. He is writing about why he was a Catholic, but he makes a critical point that applies more generally. Imagine you come across a fence in the road and cannot immediately see why it is there. The modern, progressive, efficient temptation is to conclude that because you cannot see the purpose, there is no purpose, and to tear it down. Chesterton’s counterpoint is simple and devastating: do not touch it until you understand why it was put there, because someone at some point thought hard enough about this road to put a fence on it. Only when you know why are you entitled to remove it. This is Chesterton’s fence and I hope people will understand its relevance to this Bill.
The timeline of financial markets is littered with wreckage where it was decided that a fence was no longer required. We have experienced a cycle of financial disaster, followed by stronger regulation, followed by the growth of complacency, followed by demands to remove restrictions on markets, followed by injudicious deregulation, followed by yet another disaster. We are seeing this playing out in real time with, appropriately enough, ring-fencing. After 2008, the Vickers commission recommended that retail banking be ring-fenced from investment banking, rebuilding in modified form something close to the fence that had existed back before big bang in 1986. But within a decade, within living memory, pressure has built to weaken the rule. The fence looks costly and complicated. The arguments are familiar: the fence is inefficient and other jurisdictions do not have it, affecting our competitive position and putting London at a disadvantage.
These are precisely the arguments that preceded the events of 2008. The fence was built because we had just watched what happens without it. Now we have this Bill, and I am pleased to see that the Government are not unaware of the need to maintain consumer protection. The Explanatory Notes state the need to make changes
“without compromising on core consumer, prudential and market protections”.
They also state the aim of
“ensuring that consumers continue to have access to effective redress”.
I thank my noble friend the Minister for his clear statement in introducing this Bill, in reply to questions asked by me and other Members, that consumer rights will be protected. Nevertheless, while I trust my noble friend, our aim during the passage of the Bill will be to verify that these aims are achieved.
We must all be concerned, therefore, that not everything in this Bill has been welcomed by organisations representing consumers, not least the Consumers’ Association itself. Given its record of defending consumer rights, it is worth highlighting some of its concerns.
First, there are the changes to the Financial Ombudsman Service that will restrict consumers’ access to timely redress. To my mind, the proposals too closely mirror what the industry has proposed without providing the adequate supporting evidence to move in that direction. The Treasury’s own assessment of the FOS is that it functions well in the majority of cases. This is a poor basis for such a fundamental reform. Secondly, the Consumers’ Association has concerns that the Bill removes enforcement sanctions under the Consumer Credit Act 1974 without introducing equivalent replacements and shifts other protections from statute into Financial Conduct Authority rules, which have not yet received any consultation. A third problem is the new 10-year time limit on FOS complaints. It is totally unsuited to financial products, a large proportion of which are long term, typical of mortgages, life insurance and pensions. The concerns of the Consumers’ Association are far from trivial and will have to be addressed in Committee. I look forward to the debates.
The Government have been clear that the legislation is driven by an economic argument to foster growth in our world-leading financial sector, but there is also a compelling case, made clearly by my noble friend Lord Pitt-Watson, that effective consumer protection has an economic rationale as well. It is a sector that requires consumer confidence and trust. Financial services are unlike other markets: products are complex, time horizons are long, and the information gap between the provider and the consumer is substantial. In those circumstances, consumer protection is not an impediment to a well-functioning market but a key to that market functioning properly. Remove the fence without checking why it is there, and the likely result is not greater efficiency but the familiar cycle of mis-selling, scandal and declining consumer engagement with the very products that are supposed to serve their financial interests. A reform agenda framed around growth should therefore be cautious about weakening conditions that make sustainable growth in financial services possible.
Lord Kamall (Con)
My Lords, I thank the Minister for his recent letter and the meeting he convened last week, but also for clearly laying out the ambitions for this financial services Bill. For many years, I sat on the Committee on Economic and Monetary Affairs of the European Parliament and worked closely with the noble Baroness, Lady Bowles. I also see the noble Baroness, Lady Gill. We worked on money market funds together. On that committee, we scrutinised a slew of regulation following the 2007 to 2008 financial crisis.
In each case, I asked four questions. First, do we need this legislation, given how much regulation we already have? What problem are we trying to solve? Are we just regulating to be seen to be doing something? Secondly, if a bank or other financial institution failed tomorrow, how do we make sure it would not be bailed out with taxpayers’ money? Thirdly, who takes responsibility for failure? We debated the merits of director liability and whether this would encourage directors to take more interest in what is on their banks’ balance sheets. Fourthly, how do we make sure, when it comes to complex financial instruments on balance sheets, that while banks might be willing to book the income up front, they make sufficient provision for potential losses, just as we saw with financial instruments such as CDOs and CDSs in the run-up to the financial crisis?
As others have said, it is nearly 20 years since the last crisis, but we should remember that, after each crisis, there is a temptation to regulate for the previous one. Then, after a while, there are calls to loosen rules, to increase liquidity or access to credit, which in turn raises concerns about whether this could contribute to the next crisis. With this Bill, I welcome the ambition to reduce complexity and inflexibility, to simplify what has become a complicated consumer credit regime, and to streamline regulations and reduce the number of overlapping regulators. Like my noble friend Lady Noakes, however, I remain concerned about regulator accountability. Although I generally support less regulation, I recognise that when things go wrong, quite often the public expect politicians to do something—just do something. We should remember why measures such as ring-fencing were introduced or, some would argue, reintroduced.
The Explanatory Notes to the Bill say that the benefits of ring-fencing vary across areas and can
“give rise to unintended consequences in practice”.
There is also some concern about the impact on the bank resolution regime. Can the Minister explain what those unintended consequences were and the impact of the reforms on the bank resolution regime?
On the overseas recognition regime, I welcome the Government’s intention to take a different approach to the EU. During my time in the European Parliament, much of the equivalence was driven more by protectionism than resilience, often limiting choice for investors and consumers. On accountability, I welcome reform to the senior managers and certification regime to approve accountability of appointed representatives, but I will also be looking to understand how proportionate or burdensome this requirement would be.
I now come to the area of financial services where I maintain a strong interest: that is, how do we increase access for those who many describe as financially excluded? Both the UK and then the EU brought in legislation to force banks to offer basic bank accounts. That may sound reasonable but, in reality, this was forcing banks to offer accounts to customers who they did not particularly want to serve—I wonder what that means in terms of customer service. An unintended consequence is that this squeezes out potential competition from non-banks, such as credit unions, which would welcome the ability to serve these customers and grow. I welcome the Government’s intention to increase the number of mutuals and co-operatives, and to wider the common bond requirement, but I wonder whether they could go further. Being slightly radical, I ask the Minister: have the Government looked at the feasibility of abolishing the common bond altogether? If so, what concerns were raised? Also, as we see more banking in hubs in response to high street bank branch closures, could we perhaps create a win-win situation where credit unions or CDFIs, which I will discuss later, run those banking hubs? Not only can they serve their customers, but they can earn additional revenue facilitating payments into, or withdrawals from, accounts held with banks.
I am disappointed not to see an explicit reference to microfinance, which in the UK we call community development financial institutions, or CDFIs—non-profit, community-based organisations that offer financial support and credit to individuals and financially excluded entrepreneurs who otherwise might turn to payday lenders. One of the most amazing CDFIs—one that I try to help where I can—is Purple Shoots. It was founded by Karen Davies who, when she worked in financial services in London, realised that entrepreneurs from poorer backgrounds were often being turned down not because of a poor business case, but because of their credit status. She therefore set up Purple Shoots to offer mentoring and loans between £500 and £3000. When it turns down a loan but thinks the idea has merit, it provides wraparound care to get the entrepreneur’s business case into a position where it merits a loan.
The impact has been amazing. When I hosted a parliamentary event for Purple Shoots, we heard from Trevor Palmer who turned up in a complicated electric wheelchair. Partly because of this, he had been written off by mainstream finance. Thanks to advice and a loan from Purple Shoots, he was able to start his enterprise, take himself off benefits and later employ others and take them off benefits. Organisations such as Purple Shoots are driven by both a belief in the spirit of enterprise and a real social purpose.
As Sam Rex-Edwards and Kay Polley from the Finance Innovation Lab said to me, talent, ambition and entrepreneurial potential are spread across the country; access to finance is not. While many larger organisations can access lottery funding, which in turn means they can offer much larger loans, Purple Shoots cannot access these funds to offer much smaller loans, often with a higher social impact. When it applied for lottery funding, it was told to raise their interest rates and, in effect, to lend to fewer entrepreneurs. While anyone who is unable to pay back on time is, quite rightly, counted as a default, and understandably so for mainstream banks, Purple Shoots instead prefers to give them a little more time to repay. For these reasons, it does not tick the right boxes for lottery funding. Although I understand that lottery funding is dealt with by another government department, DCMS, I ask the Minister: given that the Bill does not specifically mention CDFIs, what is the thinking in both departments on how to create the space for CDFIs such as Purple Shoots to grow, for others to enter the market, and to increase access to credit and advice for entrepreneurs from all communities, not only those who have easy access to credit?
Time is limited, so I end by saying that this Bill deserves support where it reduces needless regulations but does not reduce the accountability of regulators, where it strengthens financial resilience but does not reduce proportionality, and where it widens financial inclusion but does not reduce consumer rights.
Baroness MacLeod of Camusdarach (Lab)
My Lords, it is truly humbling to hear from so many noble Lords today with such expertise. As many have said, there is much to commend in this legislation. Any measure that strengthens the financial services in this country is welcome. As was laid out in the Leeds reforms last year, every encouragement should be given to banks or individuals who want to invest in the United Kingdom.
The ambitions of the Scottish financial services industry, a hugely important employer in Scotland—in fact, the biggest—chimes with the Government’s ambitions. It is incredibly important and it hopes that the new legislation will shake up the planning system and reduce red tape for investors. In this legislation, among other measures, emphasis is put on the Government’s support for lending and investment. We hope that the reforms will unlock more finance for UK businesses, and that improved competition in small and medium-sized enterprise lending will help small businesses to access finance.
I will not talk about regulation; I will leave it to the experts among noble Lords. Investment in SMEs, particularly in Scotland, is what I want to talk about today. Basically, it is not happening as it should and I am not exactly sure where this Bill will make the difference that is needed. This is a cri de coeur to the Minister. There are entrepreneurial, far-sighted men and women wanting to start a business, to contribute to their communities, to employ people in the communities, all the time contributing to the UK economy, but there are many obstacles in their way, not least accessing the financial support they often need to confidently take the first steps to create a business. Many areas of Scotland are struggling. Not only are they stranded where Scotland’s ferry system does not function but there is not enough housing and there are too few jobs. There will be even fewer jobs unless SMEs are able to access investment. Throughout Scotland, businesses are struggling to get investment. One of the reasons given is that it is too remote. Perhaps it is time that people in London or Edinburgh think of themselves as remote, rather than those who live beyond a metropolis.
We know that bank lending to British businesses has fallen to its lowest level for many years. Perhaps the banks and other lenders did not read the memo from Leeds but, until they change their behaviour, there will be little chance of stronger economic growth. It may be timely to remind the banks that they owe us: hardly one of them would be standing if it were not for the Labour Government’s Herculean support during the financial crisis of 2008. When bank lending fails, SMEs are disproportionately affected, and banks have pivoted away from SME lending because it can be riskier and less profitable. Banks do not want to invest in start-ups; they only want to help when business is established and any risk has been minimised. Surely it is not unreasonable to suggest that banks could take more responsibility to invest in the country’s most enterprising and entrepreneurial sector. Banks tell you that there is no lack of lending capacity but little demand. It seems that many SMEs are less like likely to apply for credit for fear of rejection, so it becomes a self-reinforcing loop. One senior figure at a UK bank, quoted in the Financial Times recently, said there was no lack of lending capacity:
“All the banks are issuing bold lending targets, but if there is no demand as no one wants to borrow there isn’t a lot we can do”.
I would suggest to that senior banker that they find out what more they can do to get money out the door.
Levels of investment in Scotland are typically lower than in the best-performing countries in the OECD. In areas such as research and development, investment has been chronically low in comparison with the OECD and below the UK average, yet Scottish universities’ contribution to R&D is among the best in the OECD countries.
SMEs form the backbone of the Scottish economy. There are 350,000 of these important companies, employing over 1.3 million people. They are hugely important in farming, retail and hospitality, and increasingly in life sciences and space technology. There is great innovation in AI, digital assets and tokenisation in Scotland, but these modern-day pioneers need investment. According to the business sector, they are underserved and, if they are ever to scale up and contribute meaningfully to our economy and the funding of public services, that needs to change.
Too often, start-ups have had to leave Scotland to seek investment since investment banks, venture capital and private equity no longer have offices in Scotland. The investment community is very heavily centred in London. That is a pity, and a blow to the Scottish economy, as it is to other parts of the UK outside the south-east of England. It is important that Scottish firms connect with London-based investors and that those investors visit Scotland to properly understand its vast potential—and there are huge opportunities, if only they knew about them. Nobody wants to undermine London’s economy, but it is a waste of potential if investment horizons in the UK remain so limited.
There is confusion about the responsibilities of the UK and Scottish Governments. There is a suspicion that too many UK civil servants think that Scotland’s machinery is completely separate from the UK’s, and that needs to be cleared up. The City of London joined forces with No. 11 to set up a single investment portal for the UK, which allows all potential investors to see what opportunities there are. Unfortunately, there has been little take-up in Scotland and it may be that politics are getting in the way, while business north of the border thinks Scottish civil servants may be too many sceptical about anything that comes from London. So I appeal to both Governments to work more closely together to take advantage of any facility that might help.
In conclusion, I have four specific asks for the UK Government, which I hope they can consider, in this legislation. Please set out a clear vision and structure for accessing funds to grow businesses. Please fly the flag for the whole of the UK when talking to overseas investors. Please encourage banks to be more courageous and take risks. Lastly, please tell investors to think beyond London and go to other places from time to time, as they will find opportunities. If the Government can embrace these asks, I am sure that this Bill will feel ever more relevant.
Lord Carlile of Berriew (CB)
My Lords, it is a privilege to speak in a debate with those who have such deep understanding of financial services and markets, including a Minister with transformational business experience, which we all respect. My own experience as a lawyer has been limited in this area largely to providing unwelcome and pessimistic advice in relation to large frauds, some of which have enriched the egregious fraudster to an extent that he—and it is usually a he—has gone on to lead a very successful financial life. This is not good for the reputation of the financial services industry.
In that context I remind your Lordships of something that my profession, the legal profession, does rather successfully and in an increasing amount as part of the informal part of financial regulation. That is the increase in private prosecutions which are used to bring fraudsters to justice. I remind your Lordships who are interested in this rather narrow subject of the successful prosecution in 2018 in what is called the Allseas case, in which the Director of Public Prosecutions at the time had twice refused to prosecute, but that private prosecution was successful.
To turn to the generality of this interesting Bill, I say that financial markets are living instruments, in the most literal meaning of that phrase. When we legislate, there is an imperative to provide flexibility to meet need, rather than waiting for reactive new legislation when something has to be done because it has gone wrong. This is a very important legislative opportunity, in which we have a duty to enact the new law with due anticipation of potential unpredictability—a difficult but important task.
Intrinsic to the Bill is the relationship between Parliament, regulators and the citizen. Over recent decades, we have witnessed a significant shift in the way that financial services are regulated. Increasingly, Parliament has established broad frameworks while regulators are entrusted with responsibility for detailed implementation. There are understandable reasons for this, and in this area, although I am rather against having regulations rather than a main Act provision, I think there is room for quite a lot of regulation so that that living instrument can survive, for technological innovation proceeds at extraordinary speed. Parliament can enable; the regulators are there to provide expertise and experience, which use the statutory foundation to enable proportionate reaction to whatever future challenges may arise.
I turn to three specifics. First, Clause 7 in Part 2 reforms the Financial Ombudsman Service. I support those changes in the round, but I urge the Government to give thought to enhancing them so that entities themselves have the ability to request a referral to the Financial Conduct Authority for advice on rule interpretation, rather than leaving it to the Financial Ombudsman Service on a case-by-case basis. Important principles can arise and it should not take so long to resolve them.
Secondly, I urge that additional attention be paid to authorised push payment fraud. This is a major and egregious fraud for consumers, costing about £450 million in losses annually, mostly to unsophisticated people. I hope that the Bill can be amended to strengthen safeguards to prevent that kind of fraud at source, specifically by requiring online marketplaces to apply know your customer checks to sellers and to have on-platform, traceable payment methods to defeat the cruelty of fraudsters.
Thirdly, there is the important issue of collective actions. Collective actions are funded by litigation funders, who are now part of financial services and recognised as such. I have played some part in collective actions and still do. Sometimes they may involve a dozen claimants; sometimes they involve 10,000 claimants. These are collective actions that give the opportunity for ordinary people to recover damages for frauds committed upon them—some by the financial sector, I am afraid—that they would not otherwise be able to recover from.
Litigation funding has been very damaged, inadvertently, by a Supreme Court case called the PACCAR case. Legislation was introduced in the previous Parliament, with the agreement of all three main parties, to push it through quickly, but the election came and that was not done. I and other noble Lords are happy to discuss with the Minister the PACCAR situation in the hope that it could be dealt with in this Bill, in which I believe it is in scope.
I return to more general matters. Parliament should never lose sight of the distinction between creating rights and administering those rights. The House must therefore carefully examine any provisions that may have the effect of transferring important questions of consumer protection from primary statute into a wood which we cannot see through for the trees. I illustrate this concern through the issue of consumer redress. One of the recurring themes in modern financial services regulation has been the recognition that consumers require effective mechanisms through which to enforce their rights. I have been waiting years to say this, but a right without an effective remedy qualifies as what the eminent jurist Hohfeld strikingly described as a no-right. The Bill should avoid no-rights.
Baroness Morgan of Cotes (Non-Afl)
My Lords, it is a great pleasure to follow such a thoughtful speech from the noble Lord, Lord Carlile, who picked up on a couple of points that I was going to mention. First, I draw the House’s attention to my interests as a non-executive director at Santander UK, a non-executive director at the Financial Services Compensation Scheme, which oversees consumer redress, and as chair of the Advertising Standards Authority, which is a regulator. Because of those interests, I do not normally talk about financial services in this House, but because this is a more general debate at the start of the legislation, I want to assist, I hope, with a couple of factual points and pick up two areas of policy on which the Bill is currently silent—the noble Lord, Lord Carlile, has just picked up one of them. I do not intend to take part in further stages but, depending on the Minister’s answer to the final policy issue I will raise, I may return.
I will start with ring-fencing reform. We have already heard from a number of noble Lords about why reforms were introduced. To keep this on a factual basis, and to give examples of the unintended consequences mentioned by the noble Lord, Lord Kamall, I have two examples of why ring-fencing can be unhelpful to consumers and economic growth. The first example is a travel company offering package trips that wants to mitigate its exposure to increased fuel and foreign exchange costs. It wants to take options on forward fuel or FX costs, but those cannot be offered within the ring-fenced bank that it banks with. Those options can be obtained from another financial institution, but that obviously means extra costs and takes longer, and consumers will ultimately pay those costs.
The second example is a UK energy company looking for investment. The ring-fence rules, as currently drafted, mean that lending to the holding company is not permitted, so lending must go to a subsidiary on a strict reading of the rules. Is that really what was intended? Are we serious about bringing down the cost of doing business in the energy sector, a sector that has very real resonance for households, as well as a link to national energy security?
Moving on to reform of the Financial Ombudsman Service, we have heard in the speeches from two noble Lords the significant strength of feeling on these proposed reforms among consumer groups. I will just say two things here. First, predictability of law and regulation is an important principle of doing business in the United Kingdom and is something that businesses want to see. Secondly, in the speeches I have heard so far about reform of the Financial Ombudsman Service, I have not heard anything about the actions taken or the way that certain claims management companies’ business models are based on bringing cases to the ombudsman. The Financial Ombudsman Service performs an incredibly important role, and financial institutions should be held accountable when they get it wrong for customers, but we should not lose sight of claims management companies making money from customers who do not need to use their services when they are looking for financial redress.
I now turn to one area—the noble Lord, Lord Carlile, mentioned it—about which the ombudsman has received, and rightly upheld, many complaints: fraud. In November 2022, I had the privilege of overseeing the publication of a House of Lords inquiry report entitled Fighting Fraud: Breaking the Chain, in which we said:
“80% of reported frauds are cyber-enabled”.
According to the Crime Survey for England and Wales, in the year ending June 2025, there were an estimated 4.1 million fraud incidents, a 14% increase compared with the figures for 2024. Out of those 4.1 million incidents, around 3 million involved a loss, and in 2.2 million cases, victims said they were fully reimbursed.
The reason I mention fraud is because the Bill does not contain anything about it affecting the financial services sector. I hope that the Treasury is not leaving it to the Home Office to lead on this. Fraud is not a victimless crime. As we have already heard, the role of online platforms and marketplaces is very important, and romance fraud is hugely costly to victims, both financially and personally. We heard earlier about the changes to the senior managers and certification regime. While I understand them in the context of this Bill, frankly, I would extend the senior managers and certification regime to the bosses of the tech companies to make them accountable for what is happening on their platforms. Since 2022, the world has moved on, and there is now the issue of deepfakes in relation to fraud. Today, I heard about ChatGPT recommending fake websites, which are costing their victims huge amounts of money. I am sorry that the Bill is silent on such an important issue for financial services.
I move on to the final policy area that I hope the Minister might say something about: economic abuse. This is a devastating form of domestic abuse used by abusive partners or ex-partners to control a victim survivor’s money and economic resources. It includes the routine misuse of financial products and services, such as a bank account, a mortgage or credit. Some 4.2 million UK women experienced economic abuse in the past year alone, leaving them carrying debts coerced in their name and trapped with abusers in joint financial products long after separation, while their credit scores are tarnished by the abuse, leading to immediate and long-term financial exclusion. A staggering 750,000 UK women experience economic abuse through the joint mortgage they share with an abusive partner or ex-partner. Perpetrators will routinely use these ties to coerce and control survivors long after separation, leaving their victim survivors facing arrears, repossession, credit destruction and even homelessness.
Financial services firms’ contractual obligations to both parties, through the concept of joint and several liability, limit the steps those institutions can take to prevent these harms through joint mortgages. It is clear that urgent legislative reform is necessary to address this. I welcome the Government’s financial inclusion and violence against women and girls strategies. Both make significant commitments to tackle economic abuse and ensure consistent responses from financial services to support victim survivors.
How will the Government ensure that the Bill’s implementation effectively supports good outcomes for economic abuse victim survivors as vulnerable customers? Will the Minister’s department use this Bill to remove the legislative barriers that still prevent financial services institutions safeguarding victim survivors against the harms caused through joint mortgage abuse? I fully agree with the comment that the Minister made at the beginning of this debate that this whole Bill is a question of balance. I look forward to hearing in the forthcoming debates how that balance is resolved.
Baroness Gill (Lab)
My Lords, as many have already highlighted, the financial services sector remains an absolute engine of the British economy. It contributes roughly £290 billion, or roughly 11% of the total UK economic output, with productivity at 2.6 times the national average. To maintain this competitive edge, our regulatory framework must prioritise nimble execution while reinforcing structural accountability. The Financial Services and Markets Bill is therefore a necessary modernisation of our economic architecture.
Like my noble friend Lady Hodge, I welcome this legislation directly addressing critical pressure points in economic crime and market efficiency. First, it combats financial crime. The expansion of FCA oversight across the legal and accountancy sectors tackles a severe risk channel. Financial institutions currently spend an estimated £38.3 billion annually on financial crime compliance. Unifying oversight directly addresses the structural fragmentation noted by His Majesty’s Treasury, where 25 separate supervisors have historically led to inconsistent enforcement across sectors.
Secondly, the Bill protects the infrastructure. Statutory protection for cash access secures vital banking functions for millions of people who depend on cash and face-to-face banking. Thirdly, it streamlines regulations. Merging the Payment Systems Regulator into the FCA eliminates costly institutional overlap and accelerates decision-making.
I particularly welcome that the Bill is empowering credit unions by reforming the historic “common bond” members’ requirement. This Bill allows credit unions to sustainably scale up and expand their services. Under the old 1979 limits, these rules became a restrictive postcode lottery. For example, a credit union was banned from growing if the population in its geographic area exceeded 3 million—that is most of London. Relatives who did not live under the exact same roof were also barred from joining. By reforming this historic constraint, the Bill drags these rules into the 21st century by raising the membership cap from 3 million to 10 million, by allowing credit unions to expand, merge and scale up, by adding students to the local criteria so younger people can access affordable community borrowing, and by updating family rules so relatives can join, even if they live in different households. As the Government state, the Bill provides a major boost to affordable community finance and directly supports the national goal to double the size of the mutual and co-operative sector.
We have already heard that the Bill also modernises the Financial Ombudsman Service, and I believe that disputes will be resolved faster with much greater operational certainty.
Again, as we have heard from various Members of your Lordships’ House, the proposals will unlock billions of potential lending to small businesses across the country through raising the primary deposit threshold from £25 billion to £35 billion, which would free retail-focused banking groups from overly restrictive ring-fencing rules.
The majority of financial organisations have welcomed this Bill, but there are some concerns. I have been contacted, like others, by UK Finance and TheCityUK, and Parliament’s own Treasury Committee has highlighted that Clauses 16, 17 and 18 are of concern as the balance of power shifts away from necessary democratic checks. It is good to see my friend the noble Lord, Lord Kamall, in his place because he and I, as he alluded to, served on the European Parliament’s Economic and Monetary Affairs Committee together. During the major post-crisis reforms, particularly when we were building the single rulebook, ECON faced these exact structural pressures. We learned the hard way that, when you delegate sweeping powers to independent regulators, you need to hardwire accountability into their operations. We had to fight to ensure that principles like proportionality were not pushed into vague, multi-year strategies but were applied to everyday policy-making. It is that specific, practical experience of balancing regulatory independence with democratic scrutiny that has informed my analysis today.
Referring to some of the clauses, I note that Clause 16 introduces a statutory requirement for the FCA and PRA to introduce long-term strategies at least once every five years. I accept that a long-term road map is incredibly useful for business planning, but markets move fast. A five-year plan can easily become outdated if there is not a required check-in point to adjust the strategy to new economic realities. Can my noble friend the Minister clarify how the Government will guarantee that the regulators formally consult with consumer, business and commercial panels during the development phase? Would a review at the three-year mark overcome this and prevent these road maps from stagnating if no new remit letters are issued?
Clause 17 removes the operational requirement for regulators to consider core statutory principles such as proportionality, transparency and risk-based regulation in their day-to-day functions, moving them exclusively into the five-year strategic loop. However, in March 2025 the Regulation Action Plan explicitly committed to introducing a streamlined, consolidated list of “have regards” via secondary legislation. Can the Minister confirm that the Government will use secondary legislation to establish a rationalised, daily checklist for regulators, ensuring that day-to-day policy-making remains structurally bounded by proportionality?
Finally, Clause 18 removes the obligation for regulators to consult on guidance and minor rule changes, while lifting the requirement to explain routine standard setting of their core objectives. In the financial sector, regulatory guidance serves as de facto rules. Firms alter compliance frameworks and deploy significant capital based on it. Without a statutory duty to consult on guidance, what mechanisms will protect market participants from unvetted, sudden shifts in regulatory expectations?
Lord Howard of Rising (Con)
My Lords, I declare an interest as a holder of listed shares and a director of a listed investment trust.
There is much to be commended in this proposed legislation. Any reduction in regulation and the consequential benefit on the wealth of the nation is to be applauded. I am, however, concerned about the proposed power which will enable new regulations to be introduced without scrutiny. Although introduced with the best intentions, regulations can do more harm than good—partly recognised by having the Bill in front of us today. It is not always possible to foresee the full consequences of regulation. Generally speaking, the more markets are left to themselves, the better off we all are.
An example of regulations having a negative effect is the Basel II agreement. This ruled that personal mortgages were safer than other types of lending and therefore banks would need a lower capital requirement for lending for house purchases. I will not waste your Lordships’ time with the full story—caravans in trailer parks being classed as houses and so on—but this was ultimately a major contributor to the 2008 financial crisis, brought about by a change in regulations. Because of the crisis, regulation in Great Britain was made for pension funds to invest a higher proportion of their funds into safer gilt-edged securities. The gilts gave a lower return than other types of investment. To compensate, pension funds used their gilt-edged securities as collateral to buy more gilt-edged securities to give an overall larger return—little risk as both instruments were Government-backed. Unfortunately, it slipped their minds that interest rates can go up as well as down and rising interest rates would result in losses. Interest rates did go up. Even the Bank of England’s own pension fund was caught out, as interest rates rose and its pension fund faced large losses.
With one regulation on top of another, it is not always possible to see the knock-on effect of regulations. I urge your Lordships, when taking this Bill forward, to have clearly in mind the inability of anyone to fully know what benefits or what collateral damage may result from new regulations. While flexibility may be desirable, it is very important not to delegate too much power without the ability for rule-making bodies to be questioned independently and firmly. It will not do everything, but it may put a brake on rules which impede or hamper the development and success of our financial services industry and reduce risk.
Baroness Hyde of Bemerton (Lab)
My Lords, I thank my noble friend the Minister for bringing this Bill and for its many important clauses. We have had some excellent contributions, but I particularly thank the right reverend Prelate the Bishop of Manchester for his powerful intervention on the nature of debt and its particularly devastating consequences, and the noble Baroness, Lady Morgan of Cotes, for raising the important issue of financial abuse and how this Bill may legislate to be firmly on the side of victims/survivors.
I wanted to contribute to this debate not because I am an expert in financial services, as many eminent speakers across your Lordships’ House today are, but because I care about fairness and the accessibility of financial services to all in our society, so that everyone in the country is able to access ethical and affordable finance. I welcome the measures in this Bill and particularly the clauses on credit unions and measures to protect face-to-face banking. As a member of the sister party to the Labour Party, the Co-operative Party, I declare an interest, and I was delighted to see the Labour manifesto commitment in 2024 to double the size of the UK’s co-operative and mutuals sector. This Bill puts legislative meat on the manifesto bones of how we might do that.
A financial system should serve the economy, and the economy should serve society. As last year’s Triodos Bank report noted, finance has too often become
“an end in itself, a self-referential network of balance sheets and algorithms, more focused on extracting value than creating it”.
This Labour Government are committed to growth, but not growth at any cost—not extractive slash-and-burn economics but growth that offers people in every part of the UK the opportunity to flourish.
Before I come to the proposed changes in the Bill, I will outline why these measures to increase the use of credit unions are so crucial. As other noble Lords have said, the UK has an affordable credit problem. Between 16 million and 20 million people, depending on the source you use, are underserved by the credit market. That is up to 20 million people in the UK who typically have a credit history that falls outside mainstream underwriting criteria. This is a large, non-standard population with a growing need for credit. They broadly fall into three groups. The first is those known as “thin file”: people with low or no credit history. The second is the credit impaired: those with a poor credit rating, which often may be linked to disruptive life events that are usually temporary, such as moving house repeatedly, divorce or loss of a job, which might lead to missed repayments. The third group is those who are highly indebted: people who have taken on too much debt and cannot afford to repay it. These households are facing material economic headwinds, and access to affordable credit is crucial to ensure the near-term economic well-being of those people, their families and communities, and to ensure that the near-term economic conditions do not become entrenched, affecting the long-term viability of these households and communities as credible borrowers.
Outside the realm of personal finance, SMEs and social enterprises also face a multi-billion pound finance gap, particularly those based outside London and the south-east. According to figures from the Federation of Small Businesses, over half of small businesses rate the overall availability and affordability of new credit as poor.
Those are some of the reasons why I am passionate about credit unions and their increased use. As has been said before in this debate, they are member-owned co-operatives with deep ties to local communities, and they are accountable to their members rather than to shareholders. They provide access to credit for people who may be excluded from high street banks, and they offer a more relationship-based model of lending—an essential quality of a financial system that works for everyone in society.
To illustrate this, I have picked a few thumbnail testimonials from Salford Credit Union. One example is the unemployed parent who was offered a free college course to train as a hairdresser. They could not afford the £200 needed to provide the equipment to undertake that course. Salford Credit Union stepped in and loaned them £200, and they were able to buy the kit, retrain and then pay that loan back when employed as a hairdresser. Another example is the person with two children made homeless due to domestic abuse. They were rehoused by a housing association—quite right too—but that property had no furniture. So they applied for and received a loan of £700 to buy furniture, which they were able to pay back at the reasonable rate of £15 per week.
Take the man who was living in a hostel and whose only income came from selling the Big Issue. He was desperate to move out of that hostel because of the difficult living conditions and the abuse he suffered. Over a number of months, the credit union helped him slowly save enough for his own deposit to rent a flat in the private rented sector. He would not have been able to do that without the assistance of Salford Credit Union. I could go on and on—credit unions are brilliant—but, crucially, the proposed reforms to the common bond will enable the credit unions to serve that wider membership. This is an overdue reform, and another reminder of how this Labour Government are working hard every day to improve things for all citizens nationwide.
To support even greater sustainable growth and use of credit unions, I ask my noble friend the Minister to consider capital reforms to credit unions—for example, enabling access to new forms of investment through them. There is also currently no overarching mechanism to assess how effectively banks are meeting the credit needs of underserved communities, and there is no mandate for the FCA to drive that change. So, again, I ask my noble friend the Minister whether the Bill could address this by requiring greater transparency and accountability from mainstream lenders, including formalising a referral pathway to credit unions or community development finance institutions where customers have been declined by them.
Credit unions and community development finance institutions are often best placed to support people and businesses excluded from mainstream finance. In 2025 alone, community development finance institutions lent over £389 million to small businesses, start-ups and individuals. That launched 5,741 businesses, created over 7,000 jobs and safeguarded over 6,500 jobs. Some 88% of those business customers had been previously declined by another lender. With CDFIs lending disproportionately to ethnic minority-led businesses, women-led businesses and businesses based in areas of high deprivation—demonstrating their growing contribution to inclusive economic growth and local resilience—I ask my noble friend the Minister to look again at these and how they might be used more.
Credit unions are a growing and increasingly important part of the UK’s community finance infrastructure, providing affordable lending, savings and financial resilience to millions of people. So let us noble Lords make the most of the opportunity presented by this legislation to turbocharge the potential of credit unions. Finance is not an abstract mechanism; it is a social relationship built on trust, shared expectations and collective institutions—a common bond indeed, at a time when the need is ever greater to spread more widely vehicles for all types of common bond, not just the kind found in credit unions, and to use them wherever possible.
Baroness Young of Old Scone (Lab)
My Lords, I declare my environmental interests as listed in the register, and I thank the Minister for his engaging introduction. He obviously knows something about this, and I look forward to discussing amendments with him in Committee.
I want to draw the Minister’s and the House’s attention not to the specific things in the Bill but to the specific things that are not. The Minister very adequately outlined how important the UK is as a financial centre. It is home to the biggest share of international bank lending and borrowing, it is big in insurance, it is big in pensions, and it has developed a reputation for being big in sustainable finance. UK financial services have major further potential to accelerate the transition to a climate-positive and nature-positive economy and to unlock green growth. I will focus on that today. It is disappointing that the Bill does not move that agenda forward, and the Short Title gives a bit of wriggle room to get some good stuff in.
One of the Government’s stated goals is to make the UK the green finance capital of the world, so I do not think I am trying to press for something that has not already been endorsed by the Government. I am simply lending a helping hand to get us on the road and to make sure that the Bill is not a missed opportunity. Let me give two brief examples and one more substantial one of the issues that the Bill could have tackled. First, the 2024 manifesto and the financial services growth strategy said that the Government intended
“mandating UK-regulated financial institutions—including banks … pension funds, and insurers—and FTSE 100 companies to develop and implement … transition plans that align with the 1.5°C goal of the Paris Agreement”.
These plans would state how each of these institutions would reduce emissions, reshape investments and business activities and manage climate-related risks. The Government consulted in 2025 on taking forward these requirements, but since then there has been silence. The Bill could have introduced legislative action on mandation, and I would like to press for that.
The second example is that the Bill could have made progress on mandating nature-related disclosures. The Institute and Faculty of Actuaries warns that too many financial institutions insufficiently account for climate and nature-related risks in their decision-making and risk management. I think that the insurance industry is very rapidly waking up to those impacts. Reporting on climate-related financial disclosures, TCFD, is mandated for the 1,300 largest UK-registered companies, but TNFD, the nature-related financial disclosures, is not, though these are mandated in the rest of the European Union. Sorry—I should not say “the rest of the European Union”, since we are not in the European Union any more, but you know what I mean. If we do not get some movement in the Bill, can the Minister tell us when and how the Government intend to bring forward nature-related financial disclosures in any way other than voluntarily?
The missed opportunity I really want to focus on most today is the action that we need to tackle the financing of international deforestation. I declare an interest as chair of the Forestry Commission. Deforestation and nature loss pose material risks to financial systems, as nature-related risks could reduce UK GDP by 6% over the next decade, according to the Green Finance Institute. The World Economic Forum ranks biodiversity loss as the second-greatest long-term risk globally. In the Environment Act 2021, we committed to bringing into force secondary regulations, under Schedule 17, to prevent businesses using illegally produced forest goods and to require them to exercise due diligence systems and introduce reporting. Ministers, if pressed, continue to state that an approach on this will be set “in due course”—I love that phrase. This is strange, because at COP 26 the UK positively led and brokered a deal to end and reverse deforestation by 2030. It was a real piece of global leadership.
Since then, we have had the Government’s own security assessment that deforestation-driven biodiversity loss and ecosystem collapse are high-level threats to the UK’s national security. If noble Lords have not read the security report Global Biodiversity Loss, Ecosystem Collapse and National Security, do read it. It is short but devastating, and I would have a stiff gin by your side while you read it. It is an official UK Government security assessment, so it is not just us greenies being alarmist.
The Financial Services and Markets Act 2023 requires that the Treasury
“carry out a review to assess the extent to which regulation of the UK financial system is adequate for the purpose of eliminating the financing of the use of prohibited forest risk commodities”—
a commitment to make sure that we deal with the issue of forest products. I ask the Minister whether the review committed to in that Act is happening and, if not, why not and when it will be undertaken, because its results could have been in this Bill by now. I urge the Minister, at the very least, to persuade his colleagues in other government departments to lay the regulation under Schedule 17 to the Environment Act, which would make it illegal to use commodities in the UK that have been produced on illegally deforested land. This would at least be a step in the right direction.
I do not know about you, but if noble Lords read the Government’s security report, which talks about terrorism, state threats, pandemic risk, economic insecurity and everything else including fallen arches, I think they would be pretty scared by it. I certainly am. Let us not miss the opportunity of the Bill to deliver on the Government’s environmental commitments.
Lord Sikka (Lab)
My Lords, this is primarily an enabling Bill and much of the substance will follow later, through the FCA and PRA rule-making and secondary legislation. Parliament will not have a proper opportunity to amend whatever the FCA agrees with the industry lobby. Consumer protection and confidence in the finance industry will be the biggest casualties. There is much to agree with and support in the Bill, but alas, it also omits crucial issues. There is no reform of short-termism in the City of London, even though for nearly 30 years the UK has languished near or at the bottom of the G7 and the OECD’s investment league. The investment gap cannot be addressed without reform of corporate governance, accounting and executive pay, a law on dividends and the empowerment of stakeholders. I hope the Minister will tell us why these issues are not being addressed.
Shadow banking is now bigger than retail banking, but there is no plan to regulate that either, even though shadow banking is likely to be the epicentre of the next financial crash. In this vacuum, the Bill continues with a deregulatory agenda while more of the post-2008 crash reforms are being dismantled. The weakening of the senior managers and certification regime and accountability is one such example. Currently, complaints can be brought to the ombudsman indefinitely, provided they are brought within three years of the date when the complainant became aware of, or should have reasonably become aware of, the event being complained about. The 10-year limit proposed by Clause 6 is a regressive step. How exactly are people supposed to become aware of the trigger events when Governments and regulators seek to bury them? The Bank of Credit and Commerce International was closed in July 1991 and, to date, there has been no investigation, so how does the 10-year period affect the victims of that scandal?
On numerous occasions in this House, I have referred to the plight of the victims of HBOS frauds, which go back to 2002 and 2007. The senior bank managers fleeced SMEs of around £1 billion. The regulators did little, and the SFO, the FSA and the police passed the buck. In 2017, the Thames Valley Police and Crime Commissioner secured six criminal convictions. Still, the FCA, the SFO and the police did not fully investigate. The Government of the day left it to Lloyds Bank, which owns HBOS, which then appointed Dame Linda Dobbs in 2017 to investigate and issue a report in 2018. To date, there has been no report and victims are still awaiting compensation. Without an investigation and a report, victims of bank frauds cannot approach the ombudsman. Taking HBOS frauds as an example, can the Minister explain when this 10-year window might commence under the clause in the Bill? Clause 6, in my view, harms customer rights and allows banks to escape liability, and that is unacceptable.
I am also concerned about restructuring the Financial Ombudsman Service. It was created in 2001 by Gordon Brown to adjudicate on financial services relationships that are inherently unequal. You have lay persons on one side and giant corporations with billions at their disposal on the other.
Clause 8 severely narrows the right to seek redress by requiring the ombudsman to prioritise whether firms technically complied with FCA rules, rather than whether their actions were “fair and reasonable” in the circumstances. The ombudsman here is being asked to find in favour of the firms if they ticked the right boxes, not according to whether they took fair and reasonable action.
Clause 8 also adds the concept of “consumer responsibility” when things go wrong. So, even when a breach of rules has occurred and the firm has acted unfairly, the ombudsman would be required to consider the general principle that
“consumers should take responsibility for their decisions”.
There are many kinds of consumers: individual versus corporate, amateur versus professional, those with or without expert advice, and diversified or non-diversified. I do not know what kind of consumers this clause seeks to address. The entire clause needs to be deleted; it is unacceptable that, in this day and age, consumer protection is being diminished.
I welcome the absorption of the Payment Systems Regulator into the FCA. I also welcome Clause 14 and the transfer of the regulatory powers of 22 trade associations to the FCA. This will eliminate duplication, buck-passing and ineffectiveness. It was a huge mistake by the previous Government to make accountancy, law and other trade associations AML regulators. In its 2018 report, the Office for Professional Body Anti-Money Laundering Supervision, OPBAS, said:
“the accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards. Partly because they don’t believe – or don’t want to believe – that there is any money laundering in their sector. Partly because they believe that their memberships will walk if they come under scrutiny”.
In its follow-up report in 2024, OPBAS said that it
“has not seen any material improvement”
in its professional body supervisors. That is bad. This consolidation is totally justified and I will support it. I hope that Ministers extend this to the regulation of insolvency and auditing as well. I look forward to the Minister’s reply.
Baroness Lawlor (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Sikka; I always learn from his speeches. The Bill is laudable in its aim to promote growth by cutting regulatory barriers, compliance, duplication and fragmentation, and, in doing so, to reduce the burdens and costs for businesses and support innovation. It aims to achieve these objectives by giving the FCA new powers, as we have heard today. I thank the Minister for his lucid explanation of the powers of the Payment Systems Regulator, which regulates credit card transfers, faster credit and BACS transfers, and which is to be abolished. Other new powers include the Financial Ombudsman Service’s regulatory powers for alternative dispute resolution under FSMA 2000, and the anti-money laundering and counterterrorism duties of the existing 22 professional bodies. The FCA will also have, as we have heard, duties transferred from legislation such as the Consumer Credit Act.
But the transfer of so many powers and functions to the FCA will not be a magic solution, nor indeed a solution at all, unless there is reform to how this regulator operates and how greater accountability can be achieved. The Bill will therefore need some amendments if the FCA is to promote growth and cut regulatory barriers effectively, with better arrangements than those it replaces, since there are many queries about how the FCA operates.
In 2025, the Lords Financial Services Regulation Committee, in its very good report—which has already been mentioned—found that the failings of the two main regulators, the PRA and the FCA, include:
“The deeply entrenched culture of risk aversion … getting in the way of doing what these firms do best … competing, innovating and growing”.
One question here is whether, given such doubts, the changes proposed in the Bill to how the FCA itself works, particularly in Clauses 16 to 22, will lead to the regulator working to promote growth and competition, and whether there is, at the same time, sufficient accountability, predictability and transparency, as well as the checks and balances we need.
I comment on this in respect to the principles, which have had a good airing today so far—I hope that noble Lords will forgive me. The noble Lord, Lord Burns, for instance, referred to the background to the 2000 Act and how and why this solution was arrived at. The principles seem sensible enough. Firms are obliged, among other things, to conduct their business with integrity, skill, care and diligence, to take reasonable care with management and control, and to and pay due regard to the interests of its customers and treat them fairly—all of which seem sensible. But how they have been interpreted has often been a matter of subjective judgment. Smaller businesses especially have found aspects of the regulation baffling, lacking transparency, and unpredictable. They therefore play safe and avoid risk, often at the expense of growth. My noble friend Lady Noakes and the noble Baroness, Lady Bowles, referred to one of the proposals, which is to take out having regard to such principles. The noble Baroness, Lady Bowles, added that the problem is that they need to be applied properly.
I will say a few words about the application. The financial services lawyer Barnabas Reynolds has explained that the principles used, as applied by the regulators, can lead to considerable uncertainty, given the “subjective”, often idiosyncratic, judgments of the regulators. They are applied to
“pin blame on firms and senior personnel regardless of whether relevant rules or guidance existed when the event occurred”,
since the principles are not
“used in the manner of normal common law … to inform the interpretation of specific rules.”
As a result,
“the industry is unable to determine in advance whether many specific actions are permitted or not”.
This is a problem of application.
Indeed, the evidence given to the Select Committee bore this out. Take Principle 12, on the consumer duty, the intended outcome of which was for
“consumers to have confidence in retail financial services markets, with healthy competition based on high standards and … good customer outcomes”.
Witnesses explained to the committee that the implementation had generated uncertainty, saying that
“the FCA has provided insufficient clarity around how it expected firms to comply with the Duty, and that it had created duplication and complexity within the framework”.
They said that
“implementing the Consumer Duty has been difficult due to … ‘the ambiguity of the rules’ and the lack of clarity provided by the FCA”.
This is in respect of the application of these rules, about which the noble Baroness, Lady Bowles, has spoken as well.
The Bill’s accountability mechanisms should be strengthened, which could help deal with this problem of application. As we have heard, noble Lords have objected to removing them altogether and have spoken about the danger of nobody knowing what on earth they will be judged by. I will consider how we can insert clear obligations under law which can be judged in the courts—obligations for predictability, fairness, objectivity and transparency under law.
These could be further promoted by obliging regulators by statute to supervise and enforce predictably, in accordance with their rules, ensuring that their decisions are consistent between firms which operate businesses of the same size and scope. They should be obliged to publish examples of predictable rulings for firms and how they were reached. In this way, there would be greater transparency, predictability would be enforced and firms, as a result, would be encouraged not to be risk averse and would be certain in the knowledge that what the rules say they mean can be established and, if not predictably enforced, can be challenged in court under law.
Baroness Northover (LD)
My Lords, my focus here will be on climate change and, in particular, whether the climate risk to the financial system is adequately addressed—or addressed at all—in the new arrangements the Government are putting forward in the Bill. With the potential consequences of that, it is worth standing back on this.
We all know that, at the least, the complacency about the subprime market in the US resulted in the 2007-08 financial crash—something few were paying attention to. That crash had global effects. The City of London, and therefore the UK economy, were particularly badly affected. I recall the panic of ordinary people who feared their savings would be lost and queued to draw them out, with widespread retail bank failures on the cards. Strenuous and expensive efforts were made to prop up the banks to protect customers. The UK Treasury injected almost £140 billion into failing banks at the peak of the 2008 financial crisis. The Government provided a further £1 trillion in financial guarantees and liquidity backstops to stabilise the financial system. We need to remember that, and we especially need to remember the consequences: austerity for years, living standards frozen and people feeling left behind.
Many have argued that this contributed to Brexit as people thought that coming out of the EU would improve their financial position. As was predicted at the time, and has now been borne out, far from improving things, this actually led to major damage in the UK economy. Then came the expenditure on the pandemic, and the cost to the UK economy grew. People’s living standards have not improved for two decades. It is therefore not surprising that we now see moves to the populist right and left for simple and immediate answers. Economic challenges have their social and political effects, as we have seen before. Therefore, this Bill matters.
The Government are right to seek growth in the economy, and the financial sector is rightly identified as a potential source of growth. Clearly, where regulation is serving no purpose and is obstructing that growth or is out of date, it makes sense to reform it. However, we need to be acutely aware of the huge economic, political and social costs that have resulted from lax regulation and regulators not properly focused on real threats. That is what we need to guard against, and the noble Baroness, Lady Noakes, has decimated the proposals to reduce parliamentary engagement and the removal of regulations into various strategies.
Let me come to my focus here. Just as we have a new landscape in crypto, for example, we need to be aware of climate change as a current and future risk to the financial sector, over both the short and the long term. Clause 17 removes whole swathes of protection, to be replaced by as yet undefined strategies. The FCA has been given huge new responsibilities when we know that regulators have a poor track record in monitoring areas already under their responsibility, let alone horizon-scanning for new risks.
The deletions in the Bill take out regard for climate change, the need to focus on sustainable growth and the need to be compliant with the Climate Change Act, as the noble Baroness, Lady Hayman, mentioned. Yet, as the noble Baroness, Lady Young, said, the UK remains well positioned to capitalise on its reputation as a hub for sustainable finance. I would go further, however: we need now to be acutely aware of climate risk; therefore, we should be strengthening, not weakening, the rules here.
I hope that everyone has read, at the very least, the summary of the recent report produced by the Adaptation Committee of the Climate Change Committee, chaired by our colleague, the noble Baroness, Lady Brown of Cambridge. The world is currently on a path to be around 2 degrees above pre-industrial levels by 2050. We will not return to pre-industrial levels. Our aim has to be to stop further escalation in global heating, but also to seek to adapt to what is already our new climate. There will be parts of the world where this is far more acute than in the UK, but the financial sector is global, with implications going back to our own economy, society and politics. It is a global threat even beyond subprime markets.
The priority risks in the UK alone are intensifying heat, a growing flood risk, rising droughts and wildfire risk. The risk to the insurance industry is obvious. The Adaptation Committee report points out that flood-related insurance claims are rising; home insurers have paid out more in claims than they received in premiums for the five years to 2024. They conclude that by 2050, under 2 degrees centigrade of global warming, many homes and businesses may not be able to access insurance at all. This threatens the viability of the property market, the economy and the sustainability of communities. As the report states:
“A large insurance protection gap means many homes and businesses cannot access insurance due to lack of coverage or high premiums. It also puts stress on the financial sector, as banks face higher default rates on mortgages and business loans, and on public finances through disaster support needs”.
The 2039 end date for the Flood Re reinsurance scheme is also creating uncertainty in the property insurance market, which is having an effect on the housing market—as happened with subprime mortgages. As the report states, actions by financial institutions
“are needed to ensure that physical climate risks don’t disrupt the financial system. The actions will support the maintenance of essential financial services across the economy”.
The UK is home to the biggest share of international bank lending and borrowing. It is the largest market for international debt issuance and the world’s largest specialty insurance market, as well as the fourth-largest insurance market overall. One can see parallels with what happened leading up to the 2008 financial crash. The current risk to the housing market and to the insurance industry is clear. Therefore, it is vital that climate risk is included in the Bill, rather than excluded even from regulation. This is one challenge which, unfortunately, we can be absolutely sure will persist for many years to come—way beyond the life of this legislation—and therefore must be enshrined within this Bill.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a great pleasure to follow the noble Baroness, Lady Northover, and to agree with her warning. I add the phrase “carbon bubble” as a further financial risk. I also must cross-reference her contribution to the words in the Minister’s opening speech about increasing the insurance business in London. This seems like a very bad idea indeed in view of the risks we face in the climate emergency and nature crisis. I note that, at this moment, we are facing the risk of an extreme El Niño, with impacts we should well understand.
But here we are again: I join a small but merry band of financial services Bill veterans—this is my third—and I welcome the Minister to our group and look forward to our deliberations. I say “look forward” genuinely, because this is the most positive start to such a debate that I have heard. There was a great deal in the speeches thus far that I agree with, and more determination than I have heard previously in your Lordships’ House to at least start to tackle what economist Ann Pettifor has termed the “global casino” of which the UK financial sector is a significant part. We did not hear those powerful words just from the noble Lord, Lord Sikka—always welcome as they are—and that makes a welcome change.
When I first took part in the debates on what became the Financial Services Act 2021, I was new enough to be shocked at the narrowness of the debate, with a Conservative Government reducing regulation and controls, while the Labour Front Bench just nodded along. Amendment after amendment in Committee and on Report came from those who wanted the Government to go further and faster in deregulating, in letting the financial sector rip, even though it was little more than a decade since we had seen the cost of that in 2007 and 2008.
Today, though, we have heard from the right reverend Prelate the Bishop of Manchester powerful words not just about the financial sector’s failure to meet the needs of many parts of our society but also about the damage the sector does to many of the vulnerable. I have not yet persuaded the House’s champion against child poverty, the noble Baroness, Lady Lister, to take part in one of these debates, but I hope one day she and others will, because finance is far too important—and damaging—to be left to the bankers.
Today, the noble Lord, Lord Sharkey, was speaking up for the interests of consumers of financial products, so often the victims of predatory practices not just by the fringes of the sector but by the highly profitable giant organisations at its heart. I associate myself and the Green Party with those remarks, while declaring my membership of the APPG on Investment Fraud and Fairer Financial Services.
We heard from the noble Baroness, Lady Hodge of Barking, well known for her championing of action against corruption, about the need to tackle the rampant corruption and fraud. However, I do not agree with the noble Baroness’s conclusion that we are talking about a few “rotten apples” rather than structurally embedded corruption, with roots going back centuries.
After all, the City of London, and with Crown dependencies—so disturbingly highlighted last week in an exhibition in Portcullis House that, unsurprisingly, attracted a great deal of negative attention—is, as the then deputy Foreign Secretary Andrew Mitchell said in 2024, a conduit for nearly 40% of the world’s dirty money. As the noble Lord, Lord Evans of Weardale, said in 2022, in a debate on corruption secured by my noble friend Lady Jones,
“we have clearly, as a matter of policy, turned a blind eye to the perpetrators of corruption overseas using London for business or leisure purposes”.—[Official Report, 13/10/22; col. GC 156.]
That of course is being helped by those enablers to which the noble Baroness, Lady Hodge, referred.
Looking back to 2020, if fellow noble Lords had expected me to take part at all in the debate, they probably would have predicted I would make comments resembling those powerfully made today by the noble Baronesses, Lady Hayman and Lady Northover, work on which Peers for the Planet has been so prominent, in pointing out there is no financial sector on a dead planet, and that the economy is a complete subset of the environment.
However, the House was in for a shock in 2020—perhaps not for the last time. When I spoke then about corruption and the City of London’s place at the heart of it, I got more than the odd gasp, and fervent head shaking and opposition. This was when, for the Government, the noble Lord, Lord Agnew of Oulton, said:
“The UK is internationally recognised as having some of the strongest controls worldwide for tackling money laundering and terrorist financing”.—[Official Report, 28/1/21; col. 1880.]
Well, on these subjects, we have come a long way, as indeed the noble Lord, Lord Agnew, has in his views. The debate has shifted far closer to where the Green Party has always been, saying, as the noble Lord, Lord Eatwell, said, in the relationship between society and the financial sector, the settlement is not working. The financial sector is not providing the appropriate support to the real economy and is extracting excessive profits from its traditional sectors and from parts of our society in which it should have no place, such as children’s social care, aged care, water companies and many other public services. Excessive pay is also being extracted, as the High Pay Centre has been so prominent in highlighting, and the sheer size and risk-taking threatens the security of us all. We have too much finance, so the Bill should not be seeking to grow more—as well as of course, too much corruption and fraud. There is another way, as the Global Justice Report by Thomas Piketty’s World Inequality Lab demonstrated this week.
There is also an issue not yet raised by others: the cost of the speculation in the prices we all pay for the basics of life, for food and for fuel, and the impact of the financial sector’s bulking up of lending on house prices. Food security, as the Green Party is trying to get the Government to understand, is a huge and present issue in the UK, and the financial sector is a significant part of the problem.
The noble Lord, Lord Eatwell, said risk aversion has its uses—I can only agree. He questioned, however, the cost to the sector of regulation, but the cost to all of us in getting it wrong is of course enormous and possibly existential. We must not forget how close we got in October 2008 to total collapse.
It is customary at Second Reading to mention issues that one wishes to raise in Committee, and I have pointed to my areas of interest: making the financial sector work for the real economy; tackling corruption and fraud; protecting consumers; of course, nature and climate; and tackling the cost of speculation to us all. But I will raise one final issue, which I will be tackling within the Bill if I can find a way. It is an issue that politicians around the global North have been facing for a long time. I go back to US President Roosevelt in 1936:
“Business and financial monopoly, speculation, reckless banking ... had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob”.
We have, just down the road from us, the City of London and the City of London Corporation, which have a unique, archaic and dangerous place outside the rules that apply to the rest of society—rules about democracy and rules about transparency. This is a place where organised money rules. I mentioned the APPG on Investment Fraud and Fairer Financial Services, which I am working with now on a survey, asking for views on whether the corporation should be maintained as it is, reformed, or abolished, as a royal commission recommended in 1894.
We have come a long way in our understanding of the issues in the financial sector. We will have to see how far we can go, because we need to grasp, as I respectfully say to the Minister, that the City is not one of our greatest economic success stories but an entity that needs far tighter, stronger controls from the Government for the security of us all.
Lord Mann (Lab)
If we had green technology in households and businesses everywhere, then we would be less reliant on Russia, China and Iran. So, why is there no financial product that the householder can get hold of to put, say, solar panels on their roof, so they and the country benefit? Why is there not a product for schools to do the same thing or a product for an NHS trust to do the same thing? If the technology works and is sufficiently profitable, then a good financial product would make common sense. But I see none for schools or for NHS trusts, and those for householders and small businesses in particular are rather limited. I would be interested in the Minister’s observations, because it seems to me that is relevant to the Bill far more than it is relevant to the Energy Secretary.
Secondly, the Minister was very bullish about how mutuals and co-operatives are going to double. We are two years into five years of a Labour Government. I would be interested to know whether we are 40% towards that doubling now, and if not, which are the sectors that are going to lead the way in the next three years, and how. I would also be interested, perhaps in writing, to understand that, in the case of one small sector, county cricket clubs, whether it is the Government’s expectation that in the next three years, they will be as mutualised as they are now, or significantly less so.
My third and most substantial point is on financial mis-selling. I have previously raised the V11 group of working-class footballers who were done out of their investments by fraud. Exactly what happened to them is very similar to what happened to the coal miners—a separate case; it was not financial fraud but lawyers who were ripping them off and taking their money. There, the ombudsman did a special report in 2008. I managed to get 43 firms of solicitors disciplined and fined; I got 12 removed from practice.
Let us take the financial sector and what has happened to those former footballers, as well as to many other groups in society who have been mis-sold products. I do not see the same system. As vice-chair of the Treasury Select Committee in another House, I had to deal with the Financial Ombudsman Service for four years, and I found it lacking in purpose and losing skills and experience all the time. I did not see the level of leadership needed to take hold of things. How is that going to change—I hope it will—with a shift of power to the Financial Conduct Authority?
Looking at the V11 case as an example, the fraud was palmed off to the Serious Fraud Office and the City of London Police. Why? Why did it go to one specific police force? I had dealings with the SFO. When it came to the coal miners and the legal scandals, which were mega, I got money—millions of pounds—back for more than 2,000 of my then constituents. Why is that not being handled more effectively at the beginning? In this case, we are talking about financial mis-selling, which is a conduct issue, as well as fraud, which is a policing issue—and there is a mishmash in the middle. I want to be convinced that the Financial Conduct Authority will cut through that.
If working-class sports stars and musicians come into money and find others taking their money away from them—by mis-selling or, worse, by fraud and mis-selling—why would others invest in those products in the first place? In the case of the footballers and Kingsbridge Asset Management, that idea was brought forward by the Government and the then Chancellor Gordon Brown as a way to develop the UK film industry and as the right thing to do. If working-class people do the right thing and get some money and invest it, who is going to protect that? People are not surrounded by good accountants, if any, or by good lawyers, if any, when they first come into money.
If we look at the financial fraud cases, we see case after case where people are getting done over by people who appear to be cleverer than them, giving them advice and mis-selling—and the system is not helping them out. That is fundamental. That is the bit that I want to see more of in the Bill. If we are appealing to the country by saying, “Do the right thing and invest in the future”—whatever kind of investment—there have to be guarantees. The system has to be robust enough so that, when there is wrongdoing, somebody is going to sort it out. The mishmash of the SFO and the City of London Police is not a system; it is just a hope—and it has proven to be a failed hope.
I ask the Minister, if the FCA is taking that responsibility, what precisely will the Government say to the FCA on the systems, the skills and the reporting back, including to Parliament, that it is going to give, to show that it is up to the mark in being able to handle the mis-selling and the fraudsters? Has it got the powers it needs to prosecute? That seems to me to be fundamental. The separation of prosecution and those looking at financial mis-selling is one of the lessons from the V11 group, the loan charges and the other, multiple scandals that we have seen in the past two decades. People need to be confident in the system around financial services, and we need to make sure they are. I look forward to hearing from the Minister precisely what he is going to say to the FCA, should this Bill be passed and the FCA be given more power.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in this Second Reading debate, and, in doing so, I declare my technology interests as adviser variously to the Crown Estate, Endava plc and Simmons & Simmons LLP. I congratulate the Minister on the clear and cogent way he introduced the provisions in the Bill. I will concentrate largely on what is not in the Bill now but what I hope may be included by the time we get to Third Reading.
First, AI is across our society, our economy and our financial services—be that in fraud detection, credit decisioning or algo trading—yet, currently, the Bill is strangely silent on it. The regulator is having to use existing powers that were never designed for these new technologies.
To that effect, what does the Minister believe is the right approach to AI in the Bill, given that the Government have stated that they will take a domain-specific approach, leaving it to the individual regulators? If one takes that approach, how can a consumer or customer of a financial services product be guaranteed clarity, consistency and a coherent approach when they avail themselves of financial services, not least because there are two regulators in this sector? A business may well have dual regulatory responsibilities, so how would not having horizontal and cross-sector AI regulation work?
There is no effective framework for cyber resilience in the Bill. In contrast to AI, the Government have decided that, on cyber, you can have a cross-economy and cross-society approach. I ask the Minister: what is different about cyber? Why can it be seen to be cross-sector, but AI cannot?
On financial inclusion, I welcome the provisions around access to banking and in-person services. Although, as other noble Lords have mentioned, the devil is largely in the detail as to what precisely is meant by the services, there is almost no point whatever in having a branch open if, when you go into that branch, you are told that there is machine or a screen in the corner that you can go and use. How is that financial inclusion or digital inclusion? When financial exclusion and digital exclusion all too often walk hand in hand, we need greater clarity in the Bill when it comes to these financial inclusion and access requirements.
We should consider what the third-largest economy in the world is. The United States is first, and China is second. In third place is fraud and economic, cyber and financial crime—it amounts to $10.5 trillion, which could affect hospitals, schools, teachers, nurses, doctors, defence or any element of state spending. One can be sure that the UK is losing its share of billions in financial crime and fraud. Yet where is the modern framework in the Bill to address these new fraud vectors, not least AI-enabled fraud? Why is there not more in the Bill that looks to address how AI can be deployed as a sword and shield against the nefarious use of AI?
There are a few nods and winks in the Bill to financial education, but we need to see much more on this. If there is to be less asymmetry between customer and firm, financial education is critical. How can the Government, the Financial Inclusion Committee, the Money and Pensions Service, which does such great work, and firms themselves can be brought together to have a far greater, coherent and consistent approach to financial education for all? How will this tailor with what is currently proposed, with the excellent Francis review of the curriculum? What will financial education look like in that?
There are many positive provisions in the Bill, but it is marked by errors and omissions excepted. There is so much that is not in the Bill that needs to be in it. It is a significant Financial Services and Markets Bill, yet it is silent on AI and cyber and it is quiet, if not completely silent, on financial inclusion, fraud and financial education. If this continues unamended and these issues unaddressed, individuals, our communities and our country will be the worse for it. They will be under-enabled and under-empowered and, as a consequence, there will be more than suboptimal economic activity. We have the Bill. We do not need to make it bigger, but we can make it better.
Lord Sahota (Lab)
My Lords, I welcome the opportunity to contribute to the debate on the Financial Services and Markets Bill, in particular to consider the implications for local authorities, local communities and the people who we are here to serve. At a time when high streets continue to face significant challenges, there are aspects of the Bill that deserve recognition and support.
One of the most important is the effort to preserve access to essential banking services. For many people, particularly older residents, small businesses and those who are less confident using digital services, access to physical bank branches remains vital. The closure of bank branches over the years has had a profound impact on communities across our country. A local bank is not merely a place to deposit money or seek financial advice, but often an anchor institution that helps sustain footfall, support local businesses and contribute to the vitality of the high street. In many of the communities that I have visited, the loss of local bank branches has been felt just as keenly as the loss of local post offices. Measures that seek to maintain access to cash and banking facilities therefore have benefits that extend far beyond the financial sector itself. They help to keep our town centres active, accessible and economically resilient.
The Bill also contains provisions aimed at strengthening consumer protection and promoting a more competitive financial services sector. If implemented effectively, these measures could improve access to affordable financial products, encourage innovation and help to ensure that customers receive fair treatment. Such outcomes would be welcomed by households facing continued cost of living pressures and by small businesses seeking access to finance and investment.
However, while there is much to commend in this Bill, there are also important questions that deserve careful consideration. Local authorities have long played a crucial role in supporting vulnerable residents, promoting financial inclusion and responding to local economic needs. They possess local, detailed knowledge of the challenges faced by their communities and are frequently the first to identify emerging problems. Will the Minister clarify how local authorities will be consulted as new regulatory frameworks and powers are implemented? What mechanism will exist to ensure that local knowledge will be used in decision-making? How will the council be able to raise concerns when changes in banking provision, financial services or regulatory practice have unintended consequences for local residents?
I would also welcome clarification of how the Government intend to measure the impact of these reforms on financial exclusion. What assessment has been made of the effects on rural communities, deprived urban areas and those who continue to rely heavily on face-to-face services? Furthermore, what safeguards will be put in place to ensure that the transition towards digital financial services does not leave behind those who are least able to access them? Finally, can the Minister explain how the Government will balance this regulatory efficiency with the equally important need for local accountability and community engagement?
The success of this Bill should ultimately be judged not on its effect on markets and institutions but on its impact on ordinary people. If it helps to maintain a vibrant high street, protect access to essential services and strengthen financial inclusion, it will make a valuable contribution. However, we must also ensure that local authorities retain a meaningful voice in shaping the outcome for the communities that they know best.
Lord Thomas of Cwmgiedd (CB)
My Lords, I, too, welcome this Bill as an important step in strengthening the position of London in the world’s financial markets. However, I also pay tribute to the regulators, particularly the FCA, who have had to cope with markets that have changed enormously over the years that the FCA has been in existence. However, the fact that one extends praise to them does not mean that things do not need putting right.
There are two areas that I wish to address. The first is the problem of climate change, which has been so ably addressed by the noble Baronesses, Lady Hayman and Lady Northover. I agree completely with what they said. I want to underline the effect that this is having. There is litigation in almost every country in the world about the risks of climate change. Central banks and regulators worldwide are concerned about its impact. We must therefore ensure that this Bill is fit to deal with this problem and that regulation of the financial markets, because of what is involved for the longer term, deals properly with this area.
The second area is the control—I use that word deliberately—that Parliament should exercise over regulators and their accountability. In doing so, I declare my interest as chairman of the Financial Markets Law Committee, though I speak in an entirely personal capacity. One symptom of the current problem can be taken simply from the volume of litigation. We all suffer in this House from, and complain about, the thickness of the Bills and statutory instruments that we have to look at. Perhaps the problem of our age is being unable to express ourselves concisely enough. However, it is an extremely serious problem in the financial markets. Last year, the FCA produced 1,918 pages of regulatory instruments. The fact that so much legislation is being produced—the noble Lord, Lord Pitt-Watson, gave an illustration earlier of the change—shows that someone needs to hold the regulators accountable and ask why we need it all.
There are five points I would like to make. First, there is a serious problem with Clause 17 because of the weakening effect it has on transparency and proportionality and, as the noble Baroness, Lady Noakes, so clearly demonstrated, the more insidious impact it will have on the ability of this House to scrutinise Bills. We must increase scrutiny and outside control, because fundamental to any body that makes laws or, as in the case of the FCA, also enforces them, is accountability, and I think there is a plain lack of accountability.
Secondly, I accept, as the Treasury rightly points out, that expertise is required to draft the regulations. These transactions, when I look at them, are of immense complexity, and you really need to understand the market to draft them, but that does not mean that you do not need someone looking over your shoulder to see whether you are getting it right. It is very easy to see just trees and forget the wood. What I cannot understand is why the regulator is not happy for someone to look over what it is doing, because if things go wrong, it is a mighty source of comfort. There is no doubt we shall have another financial crisis in a way none of us can anticipate.
Thirdly, there is a wider issue as to the form of rules. We have got to a stage now where we produce very detailed rules, and we have to ask ourselves: is this the right approach? Compliance departments like detailed rules, because if you have detailed rules, all you have to do is go through them all—tick, tick, tick, tick—and you have complied with your obligations. But that should not be the test. The test should be: “Have you complied with the principles?” We are in danger of transferring to the regulator the risk that market participants should have in complying with the underlying principles and not merely with the tick-box exercises of dealing with rules. I pointed this out when, with a co-inspector in the system of inspections we used to have many years ago, we said that one of the problems with the whole Maxwell case was a tick-box mentality, and we must always remember that.
It is also necessary to point out that, if you have very clever people, and one of the regulator’s difficulties is that the people he supervises pay so much money, you can always use rules to justify what is done. It is worth turning up what happened in Enron. Time does not permit me to explain, but Enron is a classic case of applying rules to produce a result that was completely contrary to the underlying principles.
Fourthly, there is cost. The point is, very shortly made, long and complex rules are very expensive. Fifthly, there is consultation. It is very important that we look very carefully at the provisions in the Bill relating to consultations with the market. When drafting, it is very easy, as long experience has taught me, to overlook the obvious. We have to be very careful in what we permit the regulators to do without consultation with the market.
For those reasons, therefore, I very much hope we will scrutinise these two areas of the Bill in particular, and again I pay tribute to the noble Baroness, Lady Noakes, for the extraordinarily lucid explanation she gave of the problems with Part 3, Clause 17 in particular.
Lord Tunnicliffe (Lab)
My Lords, for 14 years, I was the most junior opposition Treasury spokesman. A slight problem with that is I was occasionally—in fact, more than occasionally—the most senior opposition Treasury spokesman, largely because there was only one of me. Settling into being a Back-Bencher, I glanced at what was coming ahead and decided I had a duty to participate in this debate and learn. I have looked at the Bill and concluded it is what I am going to call “motherhood”. That is not to belittle it, but part by part by part, it attacks individual problems and proposes solutions. We will be very good at that; we will work at it; and we will, I hope, get a good result.
The only bits that hit my eyes were Clauses 39 and 40 on ring-fencing. The global financial crisis in 2008-09 was right at the beginning of my career as an ill-informed Front-Bencher. I have been through virtually all the Bills—I think only the noble Baroness and I have been there so consistently, although there was of course also the noble Baroness, Lady Kramer. We had the global financial crisis in 2008-09, and we really must remember that. It has been mentioned that there will be another one; we do not know what it is, but we should think about how we are prepared for it. I could not agree more with that.
In the 2008-09 financial crisis, the world teetered on the edge of financial chaos. It was solved by a lot of people, but I am particularly proud of Alistair Darling and Gordon Brown for what they did in those weeks when we really did not know what would happen next. After the crisis, we created the Independent Commission on Banking, the Vickers commission, which reported in September 2011 and proposed ring-fencing. I must say that the consensus view on our side was of a good report, a good commission and great people, and the output produced general approval, including from me.
In anticipation of this debate, and looking at ring-fencing as the most significant point that it would touch on, I decided to read a few reports. I read the Ring-fencing and Proprietary Trading Independent Review by Keith Skeoch. It is a fascinating document, which was published in March 2022. The Treasury produced A Smarter Ring-fencing Regime in November 2024 and Safeguarding Stability, Enabling Growth in May 2026. I am afraid I concluded that the ring-fencing regime was doing little good and, in many parts, harm. It has been overtaken in the area of protection by The Bank of England’s Approach to Resolution, of October 2017.
I became fascinated by this resolution stuff—funny things happen to you in old age—and managed to get somebody in the Bank of England, the official who is in charge of resolution, to give me a series of seminars on the telephone. He was a bit suspicious, so he said he had to have his solicitor with him throughout the conversation. I feel I understood it, and I think the claim made in some of these reports is this: all the good that ring-fencing produces is covered by the resolution regime, but the resolution regime, at the end of the day, takes years in preparation, as various banks are persuaded to take particular actions to make them more robust in a crisis. But it actually happens in about 60 hours over a weekend. It is a very elegant process, and they have enormous powers.
I feel that there is a strong case for a relook at ring-fencing, recognising that the resolution regime gives all the protection. We must not lose sight of what we were trying to do. We were trying to avoid the “too large to fail” dilemma. The resolution regime does that. It does not do it for just ring-fenced banks; it does it for all banks. It achieves almost certainly the minimum cost to the public purse—normally, no cost to the public purse. It prevents systemic impacts.
The reason I am making this so short is because the only Bill that goes into the details last about 40 minutes and I did not think this was the time of night to start on it. I simply say that I hope I will be able to find a way, I hope even some support, to produce amendments to the Bill so that we have a proper discussion that looks at whether ring-fencing is still fit for purpose and the extent to which the resolution regime can take over much of its work. The rest of its work, if any, can be distributed within the regime. We can take away the detailed problems that are all over the place in its application, which is a negative to the system, and remove the fact that there are two regulators, which is always a bad thing, especially when one is going to take over at the last minute, as the Bank of England has the power to do in the resolution regime.
Baroness Kramer (LD)
My Lords, as the first of the winding speakers, I thank the Minister for his willingness to meet. I suspect that after listening to what has been an extraordinary, exceptional debate with everything a powerful contribution, he now knows that this is not a small, technical Bill that will slide easily through this House.
We have agreed generally that the financial services sector contributes something like 10% of the UK’s economic output, and, consequently, that innovation and growth in this sector matters. However, I want to pick up the point, which others have made, that it is important that we do not repeat the mistakes of the past. This sector brought the UK economy to its knees. My noble friend Lady Northover, the noble Lord, Lord Davies of Brixton, and to some extent the noble Lord, Lord Tunnicliffe, gave us a feel of how damaging it was at the time. To say the world teetered was probably the right phrase, but the consequences have dragged on way beyond that and still have deep impacts today on ordinary people dealing with their cost of living.
Following that crisis, the revised regulation put into the books was based on precautionary principles. I never have objections to streamlining, efficiency and limiting duplication, and I agree that some measures went too far or were too broad, but this Bill fundamentally changes that precautionary approach and replaces the principle with assurances of enforcement action in relation to poor or corrupt behaviour, and with bank failures, as the noble Lord, Lord Tunnicliffe, described, resolution schemes come to the rescue. I question whether the Bill adequately structures the capacity to make the shift.
In the case of enforcement, I have asked the Minister directly to demonstrate to me that enforcement has teeth. I talked to the City again this morning and, frankly, it laughed. It is one of the reasons why, if we cannot have certification and precautionary principles around “fit and proper”, enforcement is critical. I want to hear much more from the Government on that issue, and that is just one example.
Picking up on the point made by the noble Lord, Lord Tunnicliffe—I disagree with him completely—that in the case of resolution, we do not need ring-fencing because we have a resolution regime in place or we can weaken the one because the other exists. Will the Minister be able to look me in the eye and say that he would activate a bail-in bond scheme if a big bank failed? The consequence would be huge financial instability among those who held those bail-in bonds—I am talking about the insurance companies and pension funds. Many would be on the verge of collapse if we ever exercised bailing in those bonds. That is one of the reasons why, in the financial crises that have happened, no Government have ever taken that step.
That is a minor issue around ring-fencing, though. There are lots of issues there. I will want to pick up the one on intrabank group services—I am just giving notice to the Government—because the removal of the ring-fence there allows services to be brought in from overseas bodies that are not regulated by any UK authority. We heard from the noble Lord, Lord Eatwell, who I know is very concerned about MREL and whether bail-in bonds could ever be used, the noble Lord, Lord Davies of Brixton, and others on these issues.
I join my noble friend Lord Sharkey in his utter frustration at the undermining of the FOS, the Financial Ombudsman Service, and the narrowing of protection, the narrowing of free and fair redress. We are going to take that on in this Bill. I also join the noble Baroness, Lady Noakes, in her brilliant speech. My noble friends Lady Bowles and Lady Northover spoke on the same issue, as did the noble and learned Lord, Lord Thomas, in some ways. The noble Baroness, Lady Noakes, used the word “shock” in relation to the regulatory principles applied by both regulators, which currently sit in primary legislation—proportionality, fairness, responsibility, transparency and, yes, regard to climate change—being removed from primary legislation by this Bill and reduced to elements in a five-year strategy document. Those regulatory principles are Parliament’s instructions to the regulators, but will now have no legal standing. If the regulator does not pursue them, there can be no action in court and no charge of judicial review. It is entirely up to the regulator whether those principles are observed.
I note that it is very clear in the Bill that the strategy document on which we will now depend can be revised at any time with no consultation; the regulators are merely required to note in their annual reports whether they have bothered to have any regard to the principles. The main purpose of this change—we have seen this pressure before from the regulator—is to cut Parliament out of any control over the principles of the regulator and make sure that there is no additional recourse when they are abandoned. This change has to go, and I suspect that will be the verdict of most of this House.
That brings me not just to the commissions in this Bill but to its omissions. I am really grateful to the noble Lord, Lord Holmes, who raised AI and cyber issues about which I am, frankly, not sufficiently informed, but I am sure he is right that they need to be addressed in this Bill. The omission that exercises my party most is around access to financial services for both small businesses and disadvantaged individuals who are very poorly served at present. These issues were eloquently addressed by the noble Baronesses, Lady MacLeod and Lady Hyde, the right reverend Prelate the Bishop of Manchester, and the noble Lords, Lord Kamall and Lord Sahota, in really powerful discussions.
This Bill takes some necessary steps on credit unions, credit data sharing, and permits action on the anticipated Lloyd review of in-person banking, but it could go so much further and bolster—I am so glad that the noble Lord, Lord Kamall, and others have mentioned this—community development financial institutions, including credit unions. With thanks to the fair banking movement, I will propose a rating system to show where there are shortfalls in lending and other financial services. I will then go beyond that to propose remedies, including mechanisms to provide investment into CDFIs for those banks that do not wish to change their lending practices. A revival of local banking, which has largely been discarded in the business models of the big banks, would drive up growth, jobs and living standards in all our communities.
The US tech sector is brilliant at not paying its way at the expense of British competitors. Online platforms facilitating fraud should have reimbursement liability; it should not just be for banks. We hope we can find a way to bring in that change. We also insist that across all recognised payment systems, including big-tech, participants—not just the banks—must be subject to the levy to support financial inclusion. Again, I hope we can bring in language for that.
We should also use this Bill to face up to the expected risks in financial stability. A key concern is the burgeoning private asset market—now $18 trillion strong—and the private credit market discussed by the noble Baroness, Lady Bi. It is interconnected throughout lending, investing and derivatives throughout the regulated financial sector. That private market is opaque; it is an intermingling of excellent credit and complete garbage, and it easily becomes illiquid. I want it to be a clear responsibility of the Bank of England and the PRA to assess the risks of a broad-based credit crunch in private markets. I am also concerned that the regulatory perimeter that excludes small businesses from most FCA protections, may become a serious issue in a private credit crunch. So I will seek to add to the regulators’ principles consideration of the risk arising from these issues.
Digital payments and finance are coming at us fast—we cannot be King Canute but, frankly, we have had enough of scams and money laundering. The noble Baroness, Lady Bi, and, very extensively, the noble Baroness, Lady Hodge, talked about the importance of taking action to deal with enablers, but I think this Bill should also be an opportunity to get the right guardrails in place for crypto. I am very much behind putting requirements on the tech sector, and requiring the stablecoin exchanges to act against fraud, sanctions busting and money laundering. But I am not sure this should be done through Henry VIII powers, and I will give you a reason. I am concerned, for example, that in exchange for putting these requirements on stablecoin exchanges, the Bank of England is proposing to step in as a backstop if they have liquidity problems—they have made that statement publicly. Even in the US and the EU, no Government will touch that offer of a liquidity backstop with a barge pole. It is such a big issue that this is an area where Parliament should be making the decision and not the regulator.
History tells us that those who cannot remember the past are condemned to repeat it. If we repeat 2007, we lose all our chances to seize the opportunities for the future. So, my colleagues and I will try to make sure that Parliament’s voice remains, the guardrails are in place for the financial sector and even for crypto, and with the tech companies paying their share, and we will see game-changing improvements that achieve access to finance for all communities, individuals and small businesses. Fair and sustainable growth is more than possible and it is what the public expects of us.
Lord Altrincham (Con)
I thank the Minister for hosting this debate with such courtesy and speaking so well at the start. I declare my interest as a director of South Molton Street Capital and also as former director of the Co-operative Bank. I follow the words of my noble friend Lady Neville-Rolfe in saying that we welcome this Bill. It addresses a widespread sense that financial regulation has become a little too complex. We have heard that this evening in debate, but that sense also seems to be held by the Treasury, the National Audit Office and, clearly, by the Government. The Government have generated multiple reviews and inquiries that underpin the clauses in the Bill.
To look at just a few of them, Clause 26 follows the committee on banking standards. This is the clause that looks at the senior management regime, where there is a huge need for reform and a reduction in bureaucracy. The Government have asked for a 50% reduction in bureaucracy, which we would welcome. The senior management regime itself is really quite a complex thing, and it probably does not quite do what Members of your Lordships’ House would expect—partly because some of the people who participate in it do not fully understand the regime themselves or what their obligations are.
Clauses 16 and 17 are the two quite controversial clauses that were spoken about today. One is on the five-year plan—the unsupervised five-year plan at the FCA—and the other is on weakening the link to the regulatory principles. Noble Lords have spoken today about the importance of oversight and of keeping an eye on what the FCA is up to. But going right back to the beginning of how the regulator was set up—the noble Lord, Lord Eatwell, reminded us of his participation in that, along with the noble Lord, Lord Burns—when the Financial Services and Markets Act 2000 set it up, it established that there would be a cost-benefit analysis that would essentially hold the regulators to account to be honest in how they develop regulation.
The FCA is running a review at the moment of cost-benefit analysis with Dr Felix Martin. We might, at the very least, hold the regulators to that part of their own obligation: proper cost-benefit analysis, and proper supervision of that analysis. That is even before we get to proper supervision in Parliament, which we have only just managed to put into the last Bill, as your Lordships know.
Clause 39 is on the ring-fence. It was interesting to hear the noble Lord, Lord Tunnicliffe, on that. The ring-fence clause also sits on a variety of reviews, in particular the Keith Skeoch review of 2022. It is worth remembering that his review in 2022 said that it supported the ring-fence but was very explicit on a few other points, one of which was that it is very expensive. There is an economic burden to running this ring-fence regime, in the order of £1.5 billion a year. But Skeoch also said that the benefits of the ring-fence regime would be diminishing, for the reasons we have just heard: because of the strength of the regulatory regime elsewhere, in particular the resolution regime. Then he added that the ring-fence might lead to ossification—quite a strong word—in retail bank services.
We might hope that that has not quite happened, but we know that there have been closures of hundreds of bank branches, so we might expect that all those closures would suggest at least a moderate reduction in retail bank services. That is before we even get to the provisions in Clause 3, which themselves are underpinned by a review into what is happening in retail banking at the moment. We might take quite a hard look at that, because it touches on the issues raised by my noble friend Lord Kamall—access to banking services for more vulnerable people—and by the noble Baroness, Lady Morgan: financial abuse and what is happening in the retail bank market. It just underpins the fact that so many of these clauses sit on quite careful inquiry.
This pattern, whereby there is a review and a recommendation, and it winds up in consequential legislation, means that the FCA acquires more powers every single time. Then we come back to why the FCA has all these powers, what it is doing with them and what we can do in Parliament about it, which is why in debating the last financial services Bill we spent so much time on oversight and accountability, so I will start there.
Oversight in Parliament for financial regulation has been improved with the previous Financial Services and Markets Act and, to the credit of Parliament and the Government, there have been quite important changes with the increase in the MREL threshold in September and the deposit threshold for the leverage ratio in November, and a reduction—for the first time since the financial crisis—in the Tier 1 capital ratio by the Bank of England in December. Oversight in Parliament was at least part of the reason for the change but, as a number of noble Lords have said, this Bill removes significant parts of the existing regulatory architecture. That was specifically of concern to my noble friend Lord Howard and mentioned by the noble Baroness, Lady Bowles.
In doing so, the Bill transfers considerable power to the Treasury, the FCA and the PRA to design and implement the new regime. Clause 3 adds Henry VIII powers that might create quite unintended consequences. Clauses 16 to 18 specifically tend to weaken supervision. We understand the argument the Minister is likely to make, which is that placing more of the framework outside primary legislation can allow for greater flexibility, speed and responsiveness. But flexibility must not come at the expense of accountability, and simplification must not become a means of transferring major policy choices away from Parliament and into the hands of regulators without proper oversight.
The FCA and the PRA rightly enjoy statutory independence from the Chancellor, but that independence makes parliamentary accountability even more important. Their principal democratic accountability is not to Ministers but to Parliament, and in practice that accountability is exercised largely through committees in both Houses.
I turn to regulatory proportionality. The second key concern I have is proportionality, which was discussed extremely clearly by my noble friend Lady Noakes and also by my noble friend Lady Lawlor. My noble friend Lady Noakes is right to say that proportionality needs to be uppermost in the minds of the regulators. It is the detail of rules, guidance and decisions that matter, not the broad-base strategies. Of course, lack of proportionality can arise for lots of reasons, perhaps starting with legislation itself, but it suggests a lack of regulatory judgment, which is rather unlucky.
Anti-money laundering rules have reached the furthest corners of English life. Alas, as we guard against wickedness in very small financial transactions in this country, there is a degree of quite significant capital flight out of the country going on. The timing of the Bill suggests that it may be the last chance for Parliament to set clear guidelines on proportionality before the next Government. Only Parliament can do this, because financial regulation will default to maximum caution in most instances, with consequences very clearly identified by noble Lords in the debate.
Clause 14 on AML, Clause 39 on ring-fencing, Clauses 16 and 17 on the five-year plans, and Clause 26 on changes to the senior management regime are all about proportionality. The Government’s own 2025 action plan recognises:
“Regulation can be too complex and duplicative”,
and that the cumulative effects of individually rational rules can impose significant burdens on business, smaller banks, challenger firms, wholesale firms and those caught by overlapping conduct and redress frameworks.
Your Lordships’ Financial Services Regulation Committee has also raised important concerns about whether aspects of the PRA’s capital approach may limit
“the commercial incentives and capital available to provide finance for growth”.
Overcalibration can reduce lending, particularly for SMEs, and productive investment, especially where requirements bear down on smaller, growth-oriented lenders.
The Bill touches on some of these issues of proportionality: reform of the Financial Ombudsman Service; simplification of the senior managers regime; faster application deadlines; and the consolidation of the Payment Systems Regulator into the FCA. Those are welcome steps.
We welcome the Bill. We hope that, through our deliberations in this House, we can help shape a Bill that restores confidence, competitiveness and momentum in our financial services industry for the wider benefit of our economy and our country.
Lord Stockwood (Lab)
My Lords, I thank everyone who has spoken in the debate for their valuable contribution. It has been an incredibly well-informed and courteous debate that, overall, recognised the balance that needs to be found to ensure that consumers are protected and risks are appropriately managed while avoiding an ever-increasing burden of regulation. Noble Lords have a range of views on where exactly that balance might be. In the time that I have, I will try to respond to as many of the points raised as possible. I will not be able to do justice to all the points raised today, but I have meetings scheduled with many people who have spoken. I reiterate that I am happy to meet anyone who would find it helpful to discuss any of the issues ahead of Committee.
As I have said, the Financial Services and Markets Bill will modernise how the sector is regulated. It will help the sector grow and lend more to businesses, and it will make consumer protections fit for the digital age. It will achieve these objectives while maintaining high standards of regulation and oversight. I remind noble Lords that this is why, as I mentioned when I opened the debate, the financial services sector contributes 8% of total UK GVA—although I have been corrected that TheCityUK estimates that, when related to professional services, this rises to 11%. We can all agree it is a substantial part of the UK economy.
The industry is a direct source of jobs and tax revenue, but it is, of course, much more than that. It is a key enabler of growth in other sectors, and it is the provider of payments, credit, insurance and investment services to households and businesses across the UK. A successful financial services sector is one that meets the needs of the broader economy and society at large, and that is what the Bill aims to deliver.
Before I turn to some specifics, I will set out the Government’s position on some of the broader points raised in the debate. A number of Peers, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, asked whether it was appropriate to pass more responsibility to the regulators. FSMA 2000 gives the financial services regulators responsibility for making the detailed rules that apply to firms. The regulators operate within this regime set by the Government and Parliament, including a set of statutory objectives that they need to advance. As the noble Lord, Lord Burns, reminded us, this is a long-established approach and the Government believe that the regulators remain the most appropriate entities to make rules for the sector. Both the IMF and the OECD support the principle of regulators making rules independently from government. The delegation in this Bill is entirely in line with the approach that Parliament has repeatedly affirmed. The Government are in full agreement with the noble Lord, Lord Eatwell, when he notes that the success of the UK’s financial sectors depends in part on a highly respected system of regulation and strong, effective regulators.
The noble Baronesses, Lady Neville-Rolfe and Lady Bowles, also asked about the Government’s use of delegated powers, especially the power related to the banking services in Clause 3. The Treasury has submitted to the DPRRC a full delegated powers memorandum, which sets out the justification for each power. On Clause 3 in particular, the Government are taking this power now to ensure that we can respond swiftly to the independent review of access to banking services once it concludes. The Government are committed to keeping all aspects of the power under review as the Bill progresses through Parliament and as the independent review completes its work. We expect to narrow this power once the review is concluded.
On the matter of regulatory complexity, the Chancellor has been clear that the UK needs to regulate for growth and that regulation must be proportionate while adequately protecting consumers and ensuring we maintain the high standards we are known for around the world. This Bill targets unnecessary, burdensome regulation while maintaining those high standards, and we are focused on speeding up regulator decision-making and removing administrative burdens. The Government are committed to creating a regulatory environment that is proportionate and effective and supports growth. Good regulation also supports consumers. For example, the reform of the Consumer Credit Act is designed to ensure that consumers receive clearer and more useful information from lenders, empowering them to make better-informed choices on their finances.
The government framework is prescriptive and outdated. The literacy trust has found that one in seven adults has literacy skills at or below the level expected of nine to 11 year-olds, yet Fairer Finance has found that the reading age required for credit card providers’ materials is that of 11 to 20 year-olds. It is obvious that a simpler, more flexible regime, one focused on outcomes rather than rigid prescription, will enable firms to produce clearer, more accessible financial information, better meeting the needs of the significant proportion of consumers with lower levels of literacy or numeracy. The FSA has the experience to design the system to deliver this and the powers it needs to enforce compliance.
I have listened carefully to the concerns of the noble Baronesses, Lady Neville-Rolfe, Lady Noakes and Lady Gill, and others about changing the application of the regulators’ “have regards”, applying them to the long-term strategy rather than the day-to-day functions. It is vital that the regulators are subject to effective oversight and scrutiny so that Parliament can have confidence they are acting with the appropriate measures and achieving the outcomes required. Much like other areas of regulation that apply to firms, the reporting requirements on the regulator have developed over time and have sometimes laid on top of each other. What results is a detailed set of information, but there are also areas of overlap and duplication. To use a metaphor also used by the noble and learned Lord, Lord Thomas, at times it can be difficult to see the wood for the trees.
The changes will require the regulator to set out the regulation and supervision clearly, making it easier for Parliament and stakeholders to understand, engage with and challenge them. The “have regards” will remain in legislation. This will support the work of the Government and Parliament to hold the regulators to account, cutting out dense piecemeal reporting to focus on the bigger picture. The reforms will reduce unnecessary and duplicative burdens on the regulators, allowing them to speed up and focus on what is important while maintaining the important information needed for meaningful scrutiny. For example, the Bill will require the FCA and the PRA to continue to report annually on how they are advancing their competitiveness and growth strategies. This will support the Treasury’s biannual performance reviews held with the CEOs and the regulators, introduced as part of the Government’s wider regulation action plan.
I turn to reforms of the Financial Ombudsman Service—FOS. The Government are in full agreement with the noble Lord, Lord Sharkey, and my noble friend Lord Pitt-Watson about the importance of trust. It is essential that our regulatory system supports trust in the financial services sector and that people have confidence that they will be supported when things go wrong.
I can give my noble friend Lord Pitt-Watson the reassurance he asked for: when the FOS considers whether the firms have met their obligations under FCA rules, this will include principle-based rules, including the consumer duty. The new arrangements introduced by the Bill will bring in greater co-ordination between the FCA and the FOS and will mean that widespread issues can be spotted and addressed more quickly and effectively. For example, if the FCA spots that large numbers of firms are letting down their customers in a certain way, it can make the regulatory intervention to nip that issue in the bud, rather than waiting until consumers lose out.
I understand that some noble Lords have concerns about limiting claims to the FOS at 10 years. Concerns about potential long-term liabilities that are difficult to assess can hold back investment, making firms unwilling to invest or to serve certain consumer groups. However, historic complaints also pose significant practical challenges when we look at the lack of availability of relevant evidence on which to base a decision. The Government conducted a comprehensive cost-benefit analysis when designing this policy. Looking at recent history, only 11% of cases that are older than 10 years result in redress been paid, much lower than the overall rate. In order to assess these claims, the FOS has charged firms £18.1 million per year in case administration fees, while awarding only £600,000 to consumers, so the case fees are 30 times higher than the redress awarded.
However, I appreciate the point that some financial products are long-term by design, such as life insurance. Issues with these products may not come to light within the 10-year cut-off. so I am happy to assure my noble friends Lord Pitt-Watson and Lord Davies of Brixton that Clause 6 enables the FCA to make exceptions to time limit these types of products. This is aimed exactly at ensuring that holders of long-term products continue to be protected.
The noble Baroness, Lady Kramer, raised concerns that the Government are weakening the senior managers and certification regime. I assure noble Lords that this is not the case. These reforms are about improving how the regime operates in practice by removing unnecessary complexity to help increase efficiency and effectiveness while preserving the regime’s core focus on maintaining strong accountability standards. Firms will remain responsible for assessing the fitness and propriety of senior managers, and pre-approval by the regulators will still be required where regulators determine it necessary to advance their statutory objectives, targeting the regulators’ attention where it matters most. The regulators will continue to hold all senior individuals to account where standards fall short.
Where there is any tension between reducing the regulatory burden and maintaining high standards of senior-level individual accountability, regulators will be expected to prioritise the latter in accordance with their statutory objectives. Senior managers will remain responsible and accountable for the areas of their business that they oversee, including where they fail to take responsible steps to prevent regulatory breaches, regardless of whether they are approved or appointed.
My noble friends Lord Pitt-Watson and Lord Eatwell asked for assurances on the reforms to the ring-fencing regime. As I set out when I opened this debate, the independent review led by Sir Keith Skeoch in 2022 concluded that ring-fencing should be retained but recommended better alignment with the resolution framework. The Bill enables that alignment, meaning that the PRA will not need to duplicate efforts where protections are already delivered elsewhere, especially through the resolution regime. This fundamental safeguard—the separation of retail banking from riskier investment banking activities—is unchanged.
The Government will set out the wider reform programme in the ring-fence review, which will be published and will go beyond the measures in the Bill today. It focuses in particular on enabling ring-fenced banks to support growth, including consulting on a new growth allowance and expanding the range of products and services that they can provide to support UK businesses and the real economy.
My noble friend Lady Hodge asked a number of questions about the FCA’s new responsibilities for anti-money laundering, and I will try to answer them briefly. The Government are working closely with the FCA to ensure that it is ready and able to take on new responsibilities. On registration and legal privilege, the Treasury will shortly publish a response to the consultation on anti-money laundering supervision. This covers the FCA maintaining a register of supervised firms, access to legally privileged material and powers to ensure robust supervision during the transition period.
A duty of co-operation between anti-money laundering supervisors already exists in the money laundering regulations. OPBAS also has a censure power and can recommend that the Treasury strips PBSs of their supervisory role. The Bill provides authority to HMT to make payments to the FCA for proprietary work, therefore the FCA’s AML-CTF supervisory activities will be fully funded by fees paid by the supervised population. This funding for start-up costs will be fully ring-fenced for these purposes, and the Government intend for the FCA’s AML-CTF supervisory activities to be funded on a cost-recovery basis through its fee charges to supervised firms, consistent with the existing funding model. I expect the FCA to consult separately on the detailed structure and operating of these fees.
The noble Baronesses, Lady Young and Lady Hayman, and others raised sustainable finance. As they noted, the Government have clearly set out our ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and drive growth. The Government are working closely with the regulators to drive forward this ambition through work including the FCA’s recent consultation on aligning listed companies, sustainability disclosures with international standards, the launch of the Transition Finance Council and work to regulate ESG ratings. To answer the specific question of the noble Baroness, Lady Young, the Government consulted last year on how to implement our manifesto commitment to require financial services firms and listed companies to develop and implement credible transition plans. The Government are considering next steps and will respond to the consultation in due course.
I make the general point that noble Lords should not conclude that if something does not appear in the Bill, that means that the Government are not doing anything about it. The Government have a much broader programme of financial services work sitting alongside the measures in this primary legislation. I acknowledge the thoughtful questions from the noble Lord, Lord Kamall, the noble Baronesses, Lady Young of Old Scone, and my noble friend Lady MacLeod about business and community finance. In the interests of time, I will write to them following the debate. I will be happy to meet the noble Lord, Lord Holmes, to discuss the issues he raised related to technology and innovation. Finally, the noble Baroness, Lady Morgan, raised the important issue of economic abuse. Tackling economic abuse is a priority for the Government and a key theme of the financial inclusion strategy. Ministers will be happy to write to the noble Baroness with details of how we are working with industry, regulators and specialist organisations to tackle economic abuse and help victim survivors to regain financial independence.
I have rather breathlessly tried to answer as many questions as I can. I look forward to revisiting all these points in detail in Committee, and I beg to move.
Lord Stockwood
That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order:
Clause 1, Schedule 1, Clauses 2 to 13, Schedule 2, Clauses 14 to 31, Schedule 3, Clauses 32 to 53, Title.