Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Viscount Colville of Culross) (CB)
Good afternoon, my Lords. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
Before we start to debate the first group, I remind the Committee of the rules on declaring interests. Noble Lords should declare any relevant financial interest the first time they speak at each stage of a Bill. This means that, in Committee, a relevant financial interest should be declared during the first group on which a noble Lord speaks. Thereafter, the declaration does not need to be repeated in debate on later groups at this stage. Declarations should be specific and brief: Members should briefly indicate the nature of their financial interest and not simply refer to their entry in the Register of Lords’ Interests.
I also remind noble Lords of the guidance in the Companion at paragraph 8.82:
“when withdrawing amendments, noble Lords should be brief and need not respond to all the points made during the debate.”
Financial Services and Markets Bill [HL]
(1 day, 4 hours ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Northover
“(2) In section 3B (regulatory principles to be applied to both regulators), in subsection (1), at end insert—“(i) the need to consider climate risk;(j) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term.””
Baroness Northover (LD)
My Lords, in moving Amendment 80 I shall also speak to Amendment 103. My name is also on Amendment 140, and I have no doubt that the noble Baroness, Lady Hayman, will expertly present that. I also support the other amendments in this group.
We experienced, of course, the most extraordinary heatwave last week, made so much more intense because our climate has already changed. It is now anticipated that we will never return to pre-industrial levels, yet, we have gone backwards on climate change and climate risk in this Bill. The Government may say that they have not, and that they want to ensure that the regulators are flexible in how they can tackle this challenge, but Clause 17 strips out all sorts of accountability arrangements in a number of areas. My noble friend Lady Bowles rightly argues that it simply should not stand part of the Bill.
The noble Baroness, Lady Noakes, said on day one in Committee that she concluded that in the Financial Services Act 2023, we failed to understand what the lack of EU oversight, as passed into UK law,
“meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account.””.—[Official Report, 22/6/26; cols. GC 193-4.]
This has to be a major cause for concern to us across the broad range of powers we are passing to the regulators, especially as we do not even know what new rules will be drawn up for them. As my noble friend Lady Bowles said, again on the first day of Committee:
“Our system is not to delegate unconstrained power to regulators. Parliament sets the framework, regulators operate within it and, when necessary, the court interprets.””.—[Official Report, 22/6/26; col. GC 197.]
I know there will be a number of objections to what Clause 17 seeks to do, but in this group, we focus on the steps backwards that this represents in terms of climate risk, climate change and nature loss. I am extremely grateful to my noble friend Lady Kramer, who directed me towards the relevant page in an absolutely enormous tome which details the Financial Services and Markets Act 2000, with all the subsequent amendments, so that I could see exactly what Clause 17 does. If you simply read the Bill or the Explanatory Notes, you would never quite know what was being deleted. Knocking out the regulatory principles eliminates the explicit reference to the desirability of sustainable growth in the UK economy in the medium to long term, and the need to contribute to achieving compliance with the Climate Change Act 2008, on net-zero emissions, and with Section 5 of the Environment Act, on environmental targets.
I am sure the Minister will say that when the rules are drawn up, or when the regulators work out their strategies, they are bound to look at climate risk, for example. But as the earlier debates on this Bill have shown, we are removing protections that were in place and handing them to the regulator, when regulators are so often found lacking. That is why I put down Amendment 80, and I am very grateful to the right reverend Prelate the Bishop of Manchester and the noble Baroness, Lady Griffin, for their support on this amendment.
Our concern here is to reinsert the desirability of sustainable growth in the economy of the UK in the medium and long term, something we managed to get into the 2023 Act. Of course we should be doing this. These are the industries of the future, and that is what we need to do if we are not to drive climate change further, but we have added climate risk. As I mentioned at Second Reading, we know that a lax attitude to regulation helped to bring about the financial crash of 2008 with all its economic, political and social consequences; so, it is all very well saying that of course the regulators will do this, but we know that that is not necessarily so. Climate change is a current and future risk to the financial sector over both the short and long term. Therefore, we should be strengthening, not weakening, the regulations here.
This comes across very clearly from the report of the Adaptation Committee of the Climate Change Committee. The priority risks in the UK are intensifying heat, growing flood risk and rising drought and wildfire risk. The risk to the insurance industry is obvious. There is a report in today’s Times on subsidence and the likely increase in its incidence. It points out that the summer of 2025 was
“Britain’s hottest on record and also its most expensive for homeowners: insurance companies paid out £307 million for subsidence claims over the year, the highest ever amount, according to the Association of British Insurers”’
Moreover, many insurers are now becoming so risk-averse that they no longer cover subsidence, so that leaves the poor home owners on the hook. The Adaptation Committee points out that flood-related insurance claims are rising and that home insurers have paid out more in claims than they received in premiums for the five years to 2024. It notes that this will put stress on the financial sector as banks face higher default rates on mortgages and business loans, and this will then affect the housing market, just as happened with subprime mortgages. As the report states:
“Actions by FIs are needed to ensure that physical climate risks don’t disrupt the financial system”.
Therefore, it becomes vital that we ask the regulators to assess for climate risk. This should be in the Bill as this issue, sadly, is not going to go away.
For this reason, in Amendment 103—I thank the noble Baroness, Lady Griffin, for her support— we propose that the regulators make annual reports to the Treasury on how they have upheld their climate risk and environmental principles. The reports must explain what action they have taken to ensure that climate risk is embedded in their operations, processes and decision-making, and what rules and guidance they have therefore promulgated. The way this is done takes as its template the proposals in Clause 20. Moreover, it should not be just a matter of “having regard” to these issues; it should be informing their day-to-day work, due to the negative impacts already being witnessed on price stability, financial stability, market functioning and growth.
As I have said, I also support the other amendments in the group—which will be fully explained by others—to ensure that UK-related financial institutions develop and implement credible transition plans, as well as those in the name of my noble friend Lady Sheehan. I beg to move.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise to speak to Amendments 83B and 86A, which appear in my name. It is a pleasure to follow the noble Baroness, Lady Northover, and to agree with a great deal of what she said. It is almost as if in the past week or so, the planet itself has been speaking to us and sending us a message that should direct the Committee’s deliberations on this Bill.
I will restrict myself to my two amendments, in the interests of time. I have been asked to table them by people who are gravely concerned about issues of corruption, dirty money, the “London laundromat” and associated security concerns. These are issues on which I do a considerable amount of work, and that is why I have this focus on this group.
These amendments are related. They seek to add both climate risk and the laundering of criminal gains causing environmental harms to the regulatory principles to which the FCA and PRA must have regard. I can pretty well hear the concerns about to be expressed some time soon about “have regard” amendments, but surely these are things that we have to think about. We have to make sure that we direct the regulators to think about climate and the laundering of criminal proceeds through the City and associated institutions.
I note that the Financial Action Task Force recognises environmental crimes as predicate offences for money laundering. The European Union has strengthened its criminal law framework through the environmental crime directive, requiring member states to publish a national strategy on combating environmental criminal offences by 2027.
Looking around the world, in 2018 the United States Treasury sanctioned the Zhao Wei transnational crime organisation and listed wildlife trafficking as one of the many illicit activities undertaken by the network. In Zambia, the economic and financial crimes division of the high court recently forfeited to the state a vast array of assets associated with a major illegal logging operation. Diplomatic momentum for a fourth protocol under the UN Convention Against Transnational Organized Crime to address crimes against the environment is also advancing, with the support of the UK.
As a global financial centre, the UK has a particular responsibility to ensure that it is not supporting financial and environmental crimes globally and it should play an important role in achieving a stronger global approach. Evidently, however, although environmental crimes are recognised as serious at present, without an explicit recognition of this in the regulatory principles, the FCA and the PRA will not be equipped or directed to respond with the necessary action.
It is important to stress that this is also very much a security issue. There is clear evidence that environmental crime is not only associated with financial and organised crime but with terrorist and armed groups as well. For instance, the proscribed terrorist group al-Shabaab has historically benefited from the illicit charcoal trade in Somalia, with state actors also being complicit. More generally, Interpol has found that the proceeds of environmental crime have become the largest source of income for non-state armed groups and terrorist organisations. Without sufficient regulatory framework, the UK could be contributing to these very dangerous, deadly, human rights-abusing forces around the world.
So much of what is happening in the world is criminal. Between 2013 and 2019, about 69% of tropical forest agro-conversion was conducted in violation of national laws and regulations. This, of course, is also associated with human rights abuses. Perhaps this is sometimes less considered, but Interpol says that illegal mining generates up to $48 billion annually, frequently breaching environmental regulations and contributing again to deforestation, pollution, biodiversity loss and harm to local communities.
I have already mentioned illegal wildlife products. Interpol found that the black market for those is worth up to $20 billion annually, and up to 100 rangers are killed by poachers each year while protecting wildlife and habitats. It might seem a very long way from the City of London to the ranger desperately trying to protect the wildlife population in a national park in Africa, but those two things are linked. We bear responsibility here. I urge the Government to consider these amendments in order to put this back into the directions for the FCA and the PRA.
Baroness Hayman (CB)
My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett, and to say that I broadly support the action that she is suggesting in Amendment 83B. Organised environmental crime, including illegal deforestation and wildlife crime, is increasingly acknowledged as a major source of illicit finance and money laundering. It is therefore important that the FCA and the PRA have the ability properly to take account of these risks within their existing anti-money laundering framework. I hope that we will get a positive response from the Government on that.
This group of amendments deals with the gaping hole, frankly, in the Bill on nature and climate considerations. I was going to speak more broadly about the importance of taking these into account—I may still do so in our stand part debate on Clause 17—but the noble Baroness, Lay Northover, did the Committee a great service in setting out very clearly, in her opening speech, the issues that we need to address with some urgency.
Baroness Sheehan (LD)
My Lords, first, I apologise for being unable to take part at Second Reading due to other commitments. However, my interest in nature and climate-related issues in previous Bills on financial services and markets is a matter of record. Two amendments in this group are in my name. I thank my co-signatories, the noble Baronesses, Lady Boycott, Lady Young of Old Scone and Lady Coffey, for their support because cross-party support sends an unequivocal message to government that this is not ideological but concerns the health of our environment and the future of our natural world.
I will speak first to Amendment 142 on the Taskforce on Nature-related Financial Disclosures. In essence, it seeks to insert a duty into the Financial Services and Markets Act 2000—FSMA—so that regulators must
“make rules requiring such regulated persons as they consider appropriate to disclose information relating to nature-related dependencies, impacts, risks and opportunities”.
Nature-related dependencies are things from nature on which businesses rely, such as water, soil, pollination and healthy ecosystems. Nature-related impacts are harms or pressures that companies themselves put on nature, such as through land use change, pollution or deforestation.
Clearly, nature is financially material, and nature is under threat. Investors are demanding comparable information on how nature loss, biodiversity, water, land use and similar issues could affect companies and profits. This amendment would deliver just that. It would tell the regulators to write the rules and decide which regulated persons should be in scope, shifting TFND reporting from a mainly voluntary framework towards a mandatory requirement. The Dasgupta review clearly showed us that nature is not an externality but an economic foundation. It is, quite frankly, utterly barmy to degrade the very assets on which markets depend.
Deforestation-driven biodiversity loss and ecosystem collapse are high-level threats to UK national security, according to the Government’s own assessment in their report, Global Biodiversity Loss, Ecosystem Collapse and National Security. Four out of the six ecosystems identified as critical to the UK’s security are forests. I utterly endorse the excellent speech made by the noble Baroness, Lady Young of Old Scone, at Second Reading, in which she said that having
“a stiff gin by your side”—[Official Report, 8/6/26; col. 1190.]
is necessary before reading the report.
Nature loss is no longer an environmental issue. It is a national security and market stability risk, and it must be treated with the urgency it deserves. Climate change is accelerating, as borne out last week by temperature records being broken daily. The measured carbon dioxide levels in the atmosphere serve as the single best real-time signal of whether the world, as a whole, is on track to a safe future. It is currently at 430.52 parts per million. Pre-industrial levels hovered at around 280 parts per million and never went above 300 per million. We are in uncharted territory and we need urgent action. I look forward to the Minister’s response to Amendment 142.
Turning to Amendment 172, I again thank my co-signatories, the noble Baronesses, Lady Boycott, Lady Young of Old Scone and Lady Penn, each of whom has been a consistent and persuasive advocate for regulatory coherence in addressing the urgent challenge of deforestation. This is a crisis with profound implications for the health of our planet and for those who depend on forest ecosystems, particularly indigenous communities, which are both their most effective stewards and, too often, their greatest victims. This amendment would introduce three clear and necessary measures.
First, it would require that within three months of the passage of this Act
“the Secretary of State must lay before Parliament draft regulations under Schedule 17 … of the Environment Act 2021”
concerning the
“use of forest risk commodities in commercial activity”.
This provision addresses the unacceptable delay in bringing into force measures that Parliament has already approved five years ago. Secondly, it would ensure that at the point those regulations are laid,
“the Secretary of State must immediately commence”
the statutory review required under Section 79 of the Financial Services and Markets Act 2023. That review is essential to understanding how financial systems intersect with and potentially drive deforestation risk. Thirdly, the amendment specifies that the regulations must include provision for both “due diligence requirements” and
“reporting obligations for regulated persons”.
The intention is straightforward but critical: to place due diligence and transparency at the centre of the regulatory framework. By making these elements explicit, the amendment would signal Parliament’s clear expectation that businesses will be subject not merely to guidance but to enforceable obligations, both to undertake robust supply-chain checks and to report publicly on their compliance. Furthermore, by aligning the introduction of these regulations with the commencement of the Financial Services and Markets Act review, the amendment would promote better co-ordination across government and ensure that market implications, including those for regulated financial institutions, are considered alongside the development of the regulatory regime itself.
As Sir Ian Cheshire, former chair of Barclays and head of the Global Resources Initiative taskforce, noted in his open letter of 23 January 2023, addressed to the then Minister, the noble Baroness, Lady Penn, the then Economic Secretary to the Treasury and Members of this House, “regulating supply chains alone” is not sufficient. He recommended that the Government should make it unlawful
“for financial institutions to invest in or lend to … companies that are unable to demonstrate forest risk commodities have been produced in compliance with ‘local laws’”.
This amendment seeks in part to address that gap. It reflects the compelling case that it is more effective to require financial institutions to undertake due diligence at the point at which finance is first provided, rather than attempting to remedy harms further downstream.
Although I welcome the Government’s recent announcement that Northern Ireland will follow the EU’s deforestation regulations, due to come into force on 31 December 2026, and their stated ambition to align rules across Great Britain with those requirements, the position remains one of stated intent rather than concrete action. The commitment to consult on new regulations requiring larger businesses to ensure that forest-risk commodities are produced legally in their country of origin is a step forward, but it falls short of providing the firm timelines and enforceable measures that are now very overdue. It is, after all, five years since Parliament set out its expectation that illegal deforestation would be addressed in regulation. In that context, Amendment 172 remains both necessary and timely. I hope the Minister will accept that these measures are necessary now, not tomorrow—whenever tomorrow may be. My colleagues and I from across the House will push hard for that acceptance.
The Lord Bishop of Manchester
My Lords, I, too, support all the amendments in this group, but I will limit my remarks to Amendment 80, to which I have added my name. I note that I appear to be the only man to have signed any of the amendments in this group. I hope that does not mean that climate concern is now becoming divided on gender lines; climate risks are not sex specific. Perhaps I might encourage some other men to rise and support amendments in this group.
We have heard that Clause 17 will remove the requirement that the FCA and the PRA have regard to certain regulatory principles, including those relating to environmental obligations. As the climate crisis grows and public services are forced to adapt to a growing range of climate-related challenges, weakening such regulations is neither environmentally nor economically sustainable. The regulatory principles of the previous Financial Services and Markets Act 2023 were intended to ensure that climate risks were incorporated into regulators’ day-to-day decision-making. I am afraid that the evidence is not very good that they have been sufficiently incorporated in practice.
We have just heard from the noble Baroness, Lady Sheehan, about deforestation. In 2022, a report from the Make My Money Matter campaign found that over 30% of UK pension fund public equity and corporate bond investments were in institutions with a high risk of causing deforestation. When I was chair of the board of the Church Commissioners, I was very proud that it was one of the major investors in sustainable forestry across the world and was constantly seeking to increase our investment in that sector as something that was doing climate good at the same time as making the returns we needed as an investment institution.
Deforestation is already a priority in the Government’s net zero strategy, but weak regulation has enabled the UK financial system to fuel climate destruction directly. If we weaken the existing framework, it will only move us further in the wrong direction. As the climate crisis deepens, we have a responsibility to exercise wise stewardship over our planet to ensure that the consequences of environmental degradation are not simply passed on to future generations. That, for me, is a theological point as much as a practical one. It can be done only if we embed climate and nature implications in financial decision-making at every level.
It is not just an environmental imperative; it is an economic one as well. Climate change presents significant challenges to the Bank of England in meeting its primary objectives of controlling inflation and ensuring financial stability. As we have heard from the Energy and Climate Intelligence Unit, climate change was responsible for a third of the UK’s high street food price inflation in 2023. Meanwhile, the UK recently experienced its worst inflationary crisis in four decades due to the price volatility of fossil fuels bought on the global market. Without action, vulnerable communities, including those in my own diocese of Manchester, will tend to bear the greatest weight of fluctuating prices and economic insecurity. I have just come from the launch earlier today of a new inquiry by the Trussell Trust into the need for food banks and why that, sadly, continues to be a growth area in our community. Why are people finding it harder and harder to afford to feed their households week on week, year on year?
The General Synod of the Church of England has set out ambitious targets for attaining net zero, recognising our responsibilities as God’s stewards of the planet. I note that similar robust targets have been set by the former mayor of Greater Manchester, where much of my diocese lies. I wonder whether the honourable Member for Makerfield will have, and indeed express, a view in the other place. In the meantime, we need to use every lever we have to bring human-made climate change under control—including this Bill. We should not make any legislative changes that act in a contrary manner. What is set out in Amendment 80 would not only remove the deregulatory changes in Clause 17 but strengthen regulatory responsibilities by embedding climate considerations in decision-making and making environmental responsibilities clearer. I hope the Minister will set out how climate risks will remain central to the decisions that regulators make, should this clause remain in the Bill.
Baroness Coffey (Con)
My Lords, I will speak to Amendment 142, which I have signed, and Amendment 172, which I strongly support.
The whole concept of the TNFD follows on from the TCFD, but it has been driven and particularly supported by Defra over the past several years. As such, David Craig, who has been tremendous in promoting the TNFD, has started, just after another session of London Climate Action Week, to share the frustration of many that we already have the ISSB, which has made progress: at its April meeting, I think it agreed a way forward for its IFRS practice statement to start to be included automatically in accounting standards around the world. Indeed, we know that investors are now asking boards what they are doing about understanding their risk if certain things in nature start to change. That is, in effect, what the TNFD is about: it is not saying that you cannot do this, that or the other but about making sure that you think ahead. Why does it matter? Well, nature is at the very heart of the food we eat and pretty much every pharmaceutical we use. That is why it matters to start having this as a regular, ongoing way for the board of every business in this country to think about it.
I appreciate that there have been various difficulties over recent years when it comes to the subject of Amendment 172. I nearly got the regulations through, but then it was held up because of the issue involving Northern Ireland having to follow EU law and the then Administration finally deciding that they did not want, at the time, to try to work out a way for the two to be managed within the United Kingdom. That issue has been ongoing, and I appreciate that the Minister, Mary Creagh, announced a policy paper last week. I think it is fair to share with the Committee that the European Parliament itself voted to delay the implementation of the EUDR—which is about the forest risk commodities—and to start to restrict some of the elements that were being applied. Mary Creagh suggested that we would perhaps go further than our original suggestions on which commodities we would focus on to get these regulations into place.
Why does it matter? In values, the UK is second only to China in the importation of the products—the commodities—that risk deforestation. We took a pragmatic approach in the UK, in that we were not looking to do what the EU was trying to do, which was trying to make every product “deforestation free”. We took an approach of basically saying that you have to show that your products are not a result of illegal deforestation—at the time I thought that that was a pragmatic move, and I still do.
Again, it shows that we need to recognise the implications of what some of my noble friends may think unnecessary: we actually have responsibilities in a variety of conventions to which we have signed up, over the years, to recognise our role in supporting free trade around the world, while making sure that free trade is done in a responsible way. This is about trying to make sure that supply chains understand where their products have come from and to address that, if necessary, to make sure that their products are not, in effect, being sourced illegally.
On the basis of the two amendments tabled, I hope the Government will consider this further. Mary Creagh made an announcement last week about the Great British version of the EUDR, but apparently no regulation is due in your Lordships’ House until 2027. It is disappointing to hear about the slow work, especially as regulations were pretty much drafted three years ago. With that, I will support this amendment in Committee and if it is put to the test in the House on Report, I will support it then too.
Baroness Penn (Con)
My Lords, I will speak very briefly to Amendment 140 on transition plans and Amendment 172 on forest risk commodities, to which I have added my name. On transition plans, I do not think it is really an interest to declare, but a reason I signed that amendment is that I was a Treasury Minister—in some ways a similar position to that of the Minister now fielding friendly questions from noble Lords—on the previous Financial Services and Markets Bill, in particular on parliamentary accountability. At the same time, I was also acting as co-chair of the Transition Plan Taskforce that worked collaboratively with businesses as well as NGOs and academics to produce the transition plan disclosure framework now hosted by the ISSB. I would like to emphasise the collaborative nature of that work and those involved in it.
This was not government writing a framework for business. The task force was co-chaired by Amanda Blanc of Aviva. Its membership included the London Stock Exchange Group, NatWest, Diageo and many other businesses—and, I think, the Church of England Pensions Board—all working together to develop the content of a framework that worked for business.
I also reiterate my commitment to the importance of climate risk and nature risk to our financial institutions and our financial regulation, and the importance of finding a way to incorporate that into our approach. I believe that disclosure has been important in driving change and will continue to be so. However, it is one of many different approaches. One success that came with TCFD was that it was part of a global move led by the UK that got all G7 countries to sign up to the same disclosure standards, creating somewhat of a level playing field. There is a question as to whether that momentum continues today and whether further action on disclosure is the right thing at this time, versus many of the other different levers that we can pull beyond the UK’s SRS S1 and S2, which were published earlier this year, and on which the FCA is currently consulting.
It is a legitimate and open question to think about how much further at this stage we want to go on disclosure. The Government, though, have a commitment in their manifesto to go further, saying that there should be mandatory transition plans aligned to 1.5 for all UK businesses. They consulted a year ago on that position, and we have had nothing since. I really want to join others in getting some clarity from the Government on what they think the right approach is. Is it further action on disclosure? Is it further action in other areas? To me, the fundamentals remain the same: climate change and nature risk are material to our financial system and its stability. We need more investment in our transition to a low-carbon economy. The UK is a leader in green finance and can be one in transition finance, too. How do we want to maintain and build on that?
I should like to hear how the Government want to achieve those aims. It may be through the different policies contained in the amendments here—it may not be. We have to have a more open discussion about the trade-offs involved in some of these areas: how you get businesses and Governments to recognise these risks, who pays for them, and how you spread those costs. I am not saying there is a single answer or, much as I would like to, that the answer I was working on three years ago continues to be the right answer. But clarity and articulation of the Government’s position, rather than nearly a year of silence, would be helpful in moving us forward in what continues to be a really important area for our country and for financial services regulation.
Lord Pitt-Watson (Lab)
If I might talk on this point, I have huge sympathy with the overall direction of where people want to go on this. Climate risk is clearly relevant for any financial manager managing the assets—the cash—of any ordinary citizen, be they a vicar of the Church of England or simply a worker setting money aside, and that needs to be taken into account.
Even if you do not buy that argument, there are financial risks that go with climate that need to be recognised—for example, assets that will become stranded if we responded to the climate crisis, which should not be recognised as being valuable today. By the way, if I were to find an institution that is a mile ahead of the regulation in trying to make this take place, the Church of England pension fund is exemplary of what it is that we want to do.
As I look at this, I find it rather ironic that we are focusing on the FCA. In the past five years, if there is a financial regulator that has taken steps forward on this, it is the FCA rather than the others. I think—I have tried to check on the internet—the UK now has the highest number of transition plans by companies, and the highest standard of transition plans by companies, of any country in the world. I want to celebrate the companies doing that and the senior appointments that the FCA put in place to make these sorts of things happen.
It might be a good idea for us to scratch our heads about those regulators that, even where there are clear rules on reporting on financially material matters, are finding it difficult to see them enforced. We might want to raise those sorts of issues as well as additional reporting. If it is additional reporting, as the noble Baroness, Lady Penn, said, let us be sure that we know that the extra reporting is bringing about some good.
In Amendment 80, and perhaps in some other amendments, there is a question about parliamentary oversight. Does the Minister consider that parliamentary oversight might be kept under review so that we know that we have a financial services industry that is properly responding to the risk of climate change, and might perhaps do some other things as well?
Baroness Kramer (LD)
I shall be exceedingly brief because the position of my party has been so well-voiced by my noble friends Lady Northover and Lady Sheehan, and there is a great deal more to say in the clause stand part debate in today’s fourth group. My party has made it very clear that it has a deep commitment to the climate, nature and sustainability agenda. I am conscious that it has become quite fashionable in financial circles to say that this agenda should not be the concern of the Bank of England or of any of the regulators. Perhaps the noble Lord, Lord Pitt-Watson, can indicate to me where in the five-year strategy of the FCA he can find any reference to it, because I cannot.
Lord Pitt-Watson (Lab)
For five years, there has been a director of ESG at the Financial Conduct Authority who has specifically taken responsibility for ensuring that, where relevant, it is embedded in what the FCA is doing. Most of the feedback I get from the FCA and financial practitioners suggests that he is called Sacha Sadan, and that he had a senior role in financial services beforehand and has had considerable success in being able to do that. Is it perfect? No, I am sure it is absolutely not perfect. We have a long way to go, but I want to do something that says, “Let us celebrate some success when we have it”.
Baroness Kramer (LD)
I always join in celebrating success but, from our perspective, this is a pivot moment away from what has been the practice and emphasis over the past several years. Indeed, as the noble Baroness, Lady Hayman, said, there was consensus across the parties, with perhaps different strategies, but this appears to be a time when much of this has changed, or is about to change or is changing. I have to say that it makes absolutely no sense. Climate risk is so obviously a financial and economic stability risk, as indeed is the loss of nature and the issue of sustainable growth; surely “sustainable” belongs in growth programmes that we put in front of us.
I am also very conscious that the City and others, which have tended to have very short-term perspectives—typically the next quarter’s results—have voiced opposition to the inclusion of climate and nature in the financial regulators’ remit and that it should have the significance it has had to date, and I am very afraid that the Government are now responding to that particular set of views. Moving these regulatory principles from the Bill—from primary legislation—into a “have regard” for the five-year strategy strikes me as an acquiescence with those voices we are hearing from the City. To me, there is some confirmation in not finding a firm strand in the FCA’s own five-year strategy; that is its forward look, not its historic look backwards.
In a few minutes the Conservative Party will speak, and it will make its own position clear, but I understand that Kemi Badenoch has now said that her party, if in government, would scrap the Climate Change Act. That is a very significant change. I know it is motivated by fear of Reform, but it really has an impact on the overall discourse and the cross-party commitment we have had up to this point.
I agree with the right reverend Prelate the Bishop of Manchester—I think it was him, although I may have attributed this to the wrong person—that this is a very strange week in which to downgrade the significance of climate change. I happened to be in conversation with my daughter in the midst of last week’s heat. When I described what we were doing, she said, “I guess the universe has heard the intention and it’s decided to bite back”. I think it must have been the noble Baroness, Lady Bennett, who made the remark; I am so sorry not to have recognised that.
I think that both Labour and the Conservatives hope that by Third Reading, we will have forgotten the extreme heat and they can reassert a much more convenient and easy agenda of pretending that climate change is no longer an issue of urgency. It has now dropped down the scale and there are other issues of much greater urgency on which we must focus, and this one can be largely set aside. But I and my party continue to look at it as a series of risks that will cause extraordinary pain to ordinary people in Britain, both relentlessly and increasingly—and not just to people in the UK but to far more vulnerable countries across the globe.
The Bank of England and the financial sector have crucial and powerful tools in their hands. Those tools are vital if we are to redesign our world to limit nature loss and climate change, and to ensure that we grow sustainably in the future. As the Bill is now structured, it takes away from those tools and will encourage their being regarded as secondary or tertiary instruments, to be used only when it does not irritate certain voices in the City of London. That is not appropriate for the legislation we pass today.
Lord Reay (Con)
My Lords, I first declare that I own some shares in JP Morgan, where I used to work, and some energy shares, as set out in the register.
It will probably come as no surprise to the Committee that we broadly disagree with the approach taken in this group of amendments. Climate change is, of course, an important issue, but the question before us is not whether climate change matters but whether the answer is to place still more statutory duties, reporting requirements, disclosures and regulatory obligations on businesses and financial institutions in this country. I am not persuaded that it is.
Each of these amendments is no doubt well intentioned, but they point towards a model in which ever more public policy objectives are loaded on to regulators and then passed through into more paperwork, compliance, board time, legal advice and cost for firms. At a time when every week, the London Stock Exchange loses companies that decide to list in the US, is this really what we want to do?
Many of the businesses and organisations that would be affected by this kind of regulatory layering make very limited direct contribution to global emissions. Yet they may find themselves spending more and more time demonstrating compliance, producing reports, revising governance documents and satisfying regulatory expectations. That all has a cost. It takes resource away from investment, innovation, productivity and growth. It makes us all poorer.
We should also keep a sense of proportion. The United Kingdom’s territorial CO2 emissions from fuel combustion are around 292 megatons a year. Those of China are around 13,125 megatons. China’s historical emissions within its borders have now caused more global warming than the 27 member states of the EU combined.
The UK can make a meaningful global contribution by developing and commercialising the technologies that reduce emissions at scale. However, we risk doing precisely the opposite if our response is simply to increase bureaucracy and the cost of compliance and regulation. Indeed, I believe that growth and competitiveness in this sector will be virtually impossible if mandatory 1.5% transition plans are introduced. At one stage, growth was the Government’s prime mission, and it is urgently needed to pay for Labour’s costly plans. It would not make sense for them to go down that path.
There is also the question of regulatory purpose. The FCA and the PRA already have substantial responsibilities. They are responsible for financial stability, prudential soundness, consumer protection, market integrity, competitiveness and growth. We should not ask them to become the delivery mechanism for ever wider public policy objectives. The more duties we give regulators, the less clear their priorities become. The more principles we add, the more difficult it becomes to know which objective should prevail when they come into tension. That does not make regulation better; it makes it more complex.
The Government should instead focus on making the UK an attractive place for climate-related innovation and investment. That means clear rules, proportionate regulation, a competitive market and an environment in which firms are incentivised to deploy capital into the technologies and infrastructure that will reduce emissions. In our view, the cumulative burden of existing kinds of climate and environmental reporting obligations placed on firms is quite high enough; the FCA and the PRA should remain focused on their core financial regulatory functions. For those reasons, we oppose the proposals in this group.
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
My Lords, I am thankful to noble Lords for their contributions. I specifically welcome the noble Lord, Lord Reay, who is making his first contribution on the Bill from the Front Bench.
There is absolutely no denying that this is a critical issue. As set out by the Chancellor in her Mais Lecture, sustainable growth depends on resilient foundations. Action on climate, adaptation and resilience can help reduce exposure to future shocks and support long-term economic stability. At the 2025 spending review, this Government committed £65 billion in capital funding for clean energy, climate and nature, including nuclear, and an additional £3.6 billion in capital funding for flood defences. The National Wealth Fund has been capitalised with over £27 billion and plays a central role in mobilising private investment into priority sectors, including clean energy, and supporting the transition to a low-carbon economy, while contributing to growth and energy security objectives.
Before I turn to the amendments, I stress that sustainable finance is a core priority for the Government. It is also a key opportunity within the financial services growth and competitiveness strategy. The UK is one of the world’s leading sustainable finance centres, with London ranking first in the Z/Yen global green finance index. Our focus now is on how to evolve and expand.
Baroness Kramer (LD)
Let me ask a direct question of the Minister. He referred to the actions that he expects from the FCA. I take it at its word, with its five-year strategy, but I cannot find any reference to anything to do with the climate, nature or even sustainability anywhere in there. Have I missed a page? It is a bit difficult to do that when there are only 20 pages, with very little written language, but it seems to me that, if this matter were of any significance, it would have been somewhere in that document. Is the FCA just anticipating what it believes to be the direction that it is getting from the Government, as reflected in the actions that are being taken in the Bill?
Lord Stockwood (Lab)
We believe that the “have regards” give them the current position, which is that they should consult on the nature considerations. As my noble friend Lord Pitt-Watson mentioned, there is a substantial amount of work going on. There is room for improvement in the governance of that process, but we believe that the next five-year plan should be the place to review that even further.
Amendment 140 would require the FCA and the PRA to make rules mandating transition plans aligned with the Paris Agreement. The Government have committed to mandate UK-regulated financial institutions and large companies to develop and implement credible transition plans that align with the 1.5 degrees goal of the Paris Agreement, and we remain committed to that. We are reviewing responses to the Government’s consultation on the topic from a wide range of respondents and we will set out those next steps in due course.
I make it clear that we are mindful that firms do not approach transition planning in isolation, as this is closely linked to how firms identify, assess and manage climate-related risks. Any requirements must reflect this and sit within a coherent sustainability reporting framework. This policy is not confined to financial services alone; it must be done across the wider corporate landscape. We are therefore considering transition plan requirements alongside the wider modernising corporate reporting programme and discussions on what role the UK sustainability reporting standards should play in our corporate reporting framework. This amendment would risk pre-empting carefully considered and co-ordinated plans following our consultation, so I am afraid that I cannot agree with the noble Baroness, Lady Hayman, that the Bill is the right route forward to deliver this final commitment.
Baroness Hayman (CB)
I hear what the noble Lord says, but that terrible leaden phrase “in due course” was used. He says that there is a way of looking at this in the context of many other issues. Can he give me a little bit of comfort? We are one year into the consultation. Will we have another consultation that takes in all the wider issues that he discussed? How long is this grass?
Lord Stockwood (Lab)
I cannot pre-empt the timing of that report, but I will come back to the noble Baroness and have a follow-up meeting to get the specific details. I do not want to give her the wrong information today. This is important to this Government, as set out in the wider consultation and actions that we are taking. I might have to have a separate meeting to get a specific answer to that.
On Amendment 142, it is important that nature-related risks are properly understood and managed, given the material risks that they can pose to the financial system and wider economy, and we have already made significant progress in this area. As I mentioned, the Government have now finalised the UK sustainability reporting standards, and the FCA has consulted on aligning listed company disclosures with this framework. These standards, based on the International Sustainability Standards Board’s well-established global baseline of sustainability disclosures, require companies to disclose material sustainability-related risks, including nature-related risks where relevant. The Government recognise the important work of the Taskforce on Nature-related Financial Disclosures in this area and we welcome ISSB’s decision to advance further work on nature-related disclosures, building on TNFD’s recommendations. We will continue to ensure that the UK framework evolves in line with international best practice and we therefore do not support this amendment.
Amendment 172, on deforestation, seeks to require the Government to lay regulations on deforestation and undertake the review envisaged in Section 79 of the Financial Services and Markets Act 2023. I reassure the noble Baroness that the Government remain committed to this work. Just last week, the Government announced their intention to bring forward new rules to tackle deforestation. Later this year, we will consult on the proposed approach to bring in a due diligence framework in regulations under primary legislation, including the Environment Act 2021. We aim to require GB businesses using forest risk commodities to carry out appropriate due diligence, with secondary legislation delivered as soon as possible.
Action on deforestation must be co-ordinated across government to be effective. Therefore, the government commitment already made in the Financial Services and Markets Act 2023 is the right one. HMT will publish the deforestation-linked finance review within nine months of the Environment Act regulations being made, rather than laid. I do not accept that this can be speeded up, but I assure noble Lords that the Government will undertake this review. This approach will support coherent regulation across the UK, protect the internal market and support export-led growth. For these reasons, we do not support bringing forward these timelines.
Amendments 83B and 86A are related to climate risk and the financial gains from environment-linked criminal activity. I reassure noble Lords that, as set out in relation to Amendment 103, regulators are already required to take into account and monitor climate risk, including through the requirement that they have related to the UK’s net-zero and environmental targets, where relevant to their functions. This has already resulted in significant regulatory action.
Additionally, financial crime and money laundering, whether related to environmental crimes or not, is illegal and something that financial regulators, and this Government, already take extremely seriously. The FCA has a broad remit to tackle financial crime under its market integrity objective and requires authorised firms to take steps to ensure they are not used to further financial crime. The FCA has robust powers to supervise these controls and take action against firms which do not put adequate financial crime controls in place.
The Chancellor also announced on 21 October 2025 that the FCA will become the supervisor for professional services firms’ anti-money laundering and counterterrorist financing work. This will replace the existing complex system, involving 22 private sector bodies, and recognises the FCA’s effectiveness in tackling financial crime. Clauses 14 and 48 make necessary changes to primary legislation to enable this reform.
I hope this response clarifies why we believe the current framework is the right one. This has been an engaging debate. We have heard a range of views, and I hope I have convinced the Committee that the Government’s approach is the right one, and that we are making significant progress against our commitments, but that we should not rush to action. I ask the noble Baroness to withdraw her amendment.
Baroness Northover (LD)
I too thank everybody who has contributed to this debate. It is concerning, as my noble friend Lady Kramer anticipated, to hear the Conservative contribution, given the obvious risk to the financial sector of climate change and the devastating effects of ignoring risk, which led to the 2008 financial crash.
That said, the Minister will have heard the concern about Clause 17. I note that he has given a speech saying that the Government are doing this, that and the other in all sorts of different areas, and therefore this is not needed, which is a very familiar argument. I think he is about to discover, if he stops reading his note, that this area will come back on Report, because there is widespread concern right across the House about climate change, climate risk and nature loss. We will come back to this on Report. In the meantime, I beg leave to withdraw the amendment.
Lord Holmes of Richmond
“(2) In Section 3B(1) (regulatory principles to be applied by both regulators), in paragraph (b), for the words from “considered” to the end of that paragraph substitute “taking into consideration the nature of the service or product being delivered, the nature of risk to the consumer, whether the cost of implementation is proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness;””Member's explanatory statement
This amendment seeks to amend the existing regulatory principle for the FCA and PRA and require that the nature of, and risk to, the consumer and the service or product being delivered must be considered when imposing a new burden or restriction.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to open on this second group of amendments, to move Amendment 81, which is in my name, and to speak to Amendment 87. I thank the noble Baroness, Lady Altmann, and my noble friend Lord Hunt of Wirral for variously co-signing the amendments.
We ask a lot of our financial regulators—not least in recent times, with international competitiveness and the growth objective, and with the Chancellor calling all regulators, including financial regulators, into No. 11 to seek their commitments as to what they will do to advance the Government’s stated growth objective. My Amendments 81 and 87 seek to assist the regulator in bringing some clarity to how to approach these matters.
Amendment 81 looks to the nature of the financial product and of the risk to the consumer, and how the proposed regulatory intervention sits against those factors and the need to promote international competitiveness. It is entirely possible for our financial regulators to balance their objectives and to do right by consumers and by growth, but they need to consider those objectives alongside one another rather, than having a broad-brush, non-specific approach.
This brings me to Amendment 87, which seeks to put in the Bill the nature of the response the regulators could make in their supervisory activity and interventions. It sets out the difference between retail consumers and professional market participants, not least in wholesale markets. I have no doubt that the regulators are well aware of the different levels of knowledge and experience of people who participate in financial products and financial markets, be they retail, professional, or operators in wholesale markets. But it is potentially helpful to set this out in the Bill in order to assist and support the regulators in what they seek to achieve through this approach: to drive the effectiveness of their regulatory activity, to sharpen their supervisory activities and, not least, to have that sense of dialogue—always where appropriate—rather than reaching for more severe interventions at that stage.
I support the other amendments in this group and look forward to noble Lords’ contributions and to the Minister’s response. I beg to move.
Baroness Noakes (Con)
My Lords, I have Amendments 83, 84, 85 and 86 in this group, and I thank my noble friend Lady Neville-Rolfe for adding her name to the first three of them. We are continuing our examination of the role of the regulatory principles, which we debated to some extent on previous Committee days. To recap, Clause 17 proposes to downgrade the regulatory principles in Section 3B of FSMA so that instead of guiding the everyday work of the regulators, they will now feature in only an element of the regulators’ new five-year plans. Some of us have tried, but so far failed, to convince the Minister that this represents a constitutional assault on the effectiveness of your Lordships’ Financial Services and Regulation Committee. I am pleased that a meeting has now been arranged for the committee to discuss this in more detail with the Minister, together with the Financial Secretary, and I hope we can make some progress there.
On the previous day in Committee, I moved an amendment which called for the Treasury to undertake a review of the regulatory principles, because they are a mixture of important things concerning how regulations should be conducted, some duplicated areas and some special interest items. The Government resisted my amendment, with the Minister saying that they had already reviewed them and found them to be fine, which was a completely bizarre judgment.
My Amendments 83, 84 and 85 take a different approach. If Clause 17 is to remain in its present form—that is to say, downgrading the Section 3B principles to abstracts, to be wordsmithed into five-year plans—it is important to rescue the most important element of them: proportionality. Amendment 83 places the proportionality principle, using the rather wordy parent formulation in Section 3B(1)(b), into Section 1B of FSMA, which is about how the FCA should discharge its general functions. This achieves for proportionality the effect of ensuring that when the FCA draws up rules or guidance or does anything else, it will conform to the proportionality principle. That would allow the rest of Section 3B to head into strategic oblivion, but it would preserve proportionality as a matter that should guide the FCA’s work on a daily basis—for example, when drawing up rules or guidance. That, in turn, would allow the Financial Services Regulation Committee to focus on whether the FCA is indeed reflecting the principle of proportionality in its rules. Amendment 84 seeks to do much the same for the PRA. Lastly, Amendment 85 removes proportionality from Section 3B to avoid yet more duplication cluttering up FSMA.
The Financial Services and Regulation Committee received a lot of evidence for its first inquiry into the secondary competitiveness and growth objective. One of the enduring themes was that neither regulator lived out the requirement for proportionality. For example, the confidential round table that we held with mid-market and specialist banks, which are very diverse and very different from the big banks, reported that regulations are substantially similar for all sizes of banks. The confidential round table with insurers and reinsurers found that there were disproportionate responses to consumer issues, failing to differentiate between different business models or different types of firms.
As an aside, the committee had to hold these round tables on a confidential basis because of a widespread fear of regulatory repercussions if attendees articulated views that did not reflect well on the regulators. This is a serious cultural issue that cannot be dealt with directly in this Bill, but it underlines the need for parliamentary accountability mechanisms to be made stronger rather than weaker. We should make these mechanisms as effective as we possibly can.
As well as finding disproportionate regulations and supervision, the committee’s report also highlighted how thresholds, which can aid proportionality, were often used in a way that in practice impacted the willingness and ability of financial services businesses to grow. The proportionality is a very big ongoing issue in financial services regulation and has real-world consequences.
The noble Baroness, Lady Bowles, has tabled similar amendments to mine, which also include the regulatory principle currently found in Section 3B(1)(f). My own view is that paragraph (f) is a restatement of proportionality from a different angle. I agree that the things in it are important, but I hope that we can work to get some kind of streamlined definition of proportionality that incorporates both strands.
My other amendment in this group is Amendment 86, which seeks to import the regulatory principles of the Legislative and Regulatory Reform Act 2006 into the regulatory principles in FSMA. I did this in response to a statement in the Explanatory Notes that the Government intended to use secondary legislation to take the financial regulators out of the ambit of the 2006 Act, which I regard as a bad decision.
It is true that some elements of the very succinct expression of regulatory principles set out in the 2006 Act are already found in Section 3B, but not all of them. The 2006 Act requires all regulators to carry out their regulatory activities
“in a way which is transparent, accountable, proportionate and consistent”.
It also says that regulated activities should be taken only for
“cases in which action is needed”.
This goes beyond Section 3B in requiring accountability and consistency, and I cannot find anywhere in FSMA that says that the FCA and the PRA should regulate only when action is needed.
I cannot think that it is right to dilute the FCA’s and the PRA’s regulatory obligations. They are probably the most important regulators in the land; to let them off the regulatory principles in the 2006 Act is just plain wrong. Since Parliament is, in effect, powerless against secondary legislation, the only way to ensure that the FCA and the PRA remain subject to the 2006 Act principles is to hard-wire them into FSMA, which is what Amendment 86 seeks to do. It may well then be downgraded if the Government have their way on the regulatory principles and Clause 17, but it will not disappear completely from the requirements to which the FCA and the PRA will, in some measure, have to have regard.
Baroness Bowles of Berkhamsted (LD)
My Lords, before turning directly to proportionality, I will touch briefly on sustainable growth, because its meaning has drifted over time. Sustainable growth was not part of FSMA 2000. It was introduced later, in the post-crisis reforms, as a macroeconomic guardrail. Its purpose was to ensure that regulators did not focus solely on narrow consumer protection or market integrity but had regard to the wider economy. It was intended to counteract over-regulation, pro-cyclical rule-making and, in effect, to avoid killing the golden goose of financial services. It was, in fact, a pro-growth statement. Later, maybe since 2018-19, sustainability has expanded in understanding to include environmental concerns, although, of course, they now have their own place and, as debated earlier, will maybe have some further places in legislation.
I do not want the original macroeconomic point to be lost. It was designed as a counterpart to proportionality, a reminder that regulation must support durable long-term economic stability, not contribute to boom-and-bust cycles. In that sense, both proportionality and macroeconomic sustainable growth sit in the same family of “have regards”. They are deregulatory principles intended to prevent unnecessary burden and to ensure that regulation does not itself become a source of economic harm. Of course, climate change has macroeconomic effects, but they are of a different character and should not obscure the original boom-and-bust prevention purpose of this duty.
I turn to proportionality and Amendments 83 to 84A. I congratulate the noble Baroness, Lady Noakes, on Amendments 83 and 84, which would restore the proportionality duties to the regulators’ general functions, and Amendment 86, which would import the principles of the Legislative and Regulatory Reform Act into FSMA. These are thoughtful and constructive amendments, which would save something, but there is a great deal they cannot save—we will discuss that later. In particular, they do not save the second proportionality duty: the duty to have regard to the nature and objectives of businesses carried on by different persons. That is the proportionality principle that protects smaller firms, sole traders, mutuals, benefit companies and individuals. It is not just about cost-benefit or even size; it is about recognising that different types of firms have different objectives and experience regulation differently. To some extent, as the noble Baroness, Lady Noakes, said, this should all be understood within proportionality, but if we leave it out when it is still separately listed in the current regulatory principles, even when they are largely disregarded, that might lead to the wrong conclusions.
That is why I tabled Amendments 83A and 84A, which build on the formulation of the noble Baroness, Lady Noakes, and would restore the smaller and different business protections. As has been explained, these would be inserted into clauses that relate to the discharging of the regulators’ general functions so that they restore these duties to the operational level of rules and supervision. But this limb of proportionality does more than protect smaller firms; it may also protect firms whose objectives legitimately involve taking more risk in the interests of growth and innovation. Parliament’s role is not to eliminate risk but to ensure that it is understood, calibrated and supervised fairly. That is why this proportionality duty matters: it is one of the few operational tools that give Parliament visibility into how regulators weigh those differences in practice.
However, even with these amendments, we still would not save the principle of sustainable growth—growth that is durable, predictable and not a flash in the pan. As I have explained, that was a partner “have regard” to proportionality. I hope that during these proceedings I can persuade noble Lords and the Minister that sustainable growth should also be included. It chimes with competitiveness and growth, but it, too, needs to have a place in the real business part of these clauses, in the general functions. To echo my earlier comment, macroeconomic sustainable growth belongs alongside proportionality, as part of the deregulatory family of “have regards”.
These duties were originally conceived as guardrails to ensure that regulation supports the economy rather than constrains it. That operational balance is worth preserving. All the “have regard” duties were carefully designed and each has a purpose, and some of the others work together, as I have explained.
Lord Ashcombe (Con)
My Lords, I declare my interest as an employee of Marsh, the insurance broker regulated by the FCA. A number of amendments in this group discuss the downgrading of the “have regard to” requirement for proportionality, which would be a backward step. At a time of intense global competition, the Bill should strengthen proportionality, not weaken it. These amendments do that by replacing Clause 17’s downgrading provisions with a clearer, more robust and more meaningful principle, based on the distinction between wholesale and retail markets.
There remains a clear need for a better balance between these two sectors. Evidence supports this. A survey of chief risk officers conducted by the City of London Corporation identified simplification of regulation as the single most important step that regulators could take to foster growth and innovation. Similarly, a recent Prudential Regulation Authority survey showed that fewer than 60% of respondents believe that its current approach to proportionality makes the UK a more attractive place to do business, with most of the remainder expressing neutrality. That is hardly a vote of confidence.
In practice, the current one-size-fits-all approach is flawed. London’s world-leading wholesale insurance market is increasingly subject to rules designed for retail consumers. These regimes impose additional compliance burdens and costs, yet offer little meaningful benefit to sophisticated corporate clients, who require flexibility to negotiate bespoke arrangements tailored to their risks. This is what I have spent my working career doing, and I have never dealt with retail consumers, other than being an insurance buyer myself. There is a massive difference between the companies I advise and seek insurance for and the consumers such as me. Indeed, their premiums are often significantly larger than what I am trying to insure. The two entities should not be regulated by a one-size-fits-all regime.
The Financial Services Regulation Committee has highlighted this issue, noting that failure to distinguish between wholesale and retail drives bureaucracy and costs. Evidence from the London Market Group revealed that one UK broker, for example, employs far more compliance staff domestically—almost four times more—than in the EU on a proportional basis. Stronger proportionality would not weaken consumer protection; it would enhance it, allowing regulators to focus on where risks are greatest. In short, we should seize this opportunity not to weaken proportionality but to make it work properly for growth, innovation and the effective protection of consumers.
Baroness Kramer (LD)
I very much support the two amendments of my noble friend Lady Bowles. There is often an assumption that those of us who feel that regulation plays an important role have no instinct or desire to see proportionality in place, which could not be more untrue. My history is as a commercial banker, back in the days when we used to participate intensively in writing the loan documents and creating the covenants associated with our lending, whether to small companies or to some of the largest on the globe. Frankly, covenants that were off the shelf were completely inappropriate for providing the protection we needed in many cases. They were just useless exercises in paperwork for the companies involved. We used to reshape the loan agreements on that basis and, frankly, it worked exceedingly well.
When I look at the amendments, I am glad that proportionality is being recovered from the scrapheap that would result from Clause 17. That is important, and the way that my noble friend Lady Bowles, framed it is particularly significant. Both for the PRA and the SRA, the focus is proportionate to the benefits expected to result from the imposition of the burden or restriction, recognising the difference in size, nature and objectives. I agree with her that this really needs to be considered through the lens of genuinely sustainable—as in durable as well as environmental—growth. That is a very important addition to the discussion.
I am disturbed by Amendment 81. I am not disturbed by most of it, but when I read
“proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness”,
I begin to get somewhat queasy, because the lowest common denominator is not where we should be headed. We need to genuinely assess risk—the cost of dealing with and understanding it—in a very direct way. I have always thought that a distortion was introduced by the competitiveness objective, and I am afraid that it is reflected in Amendment 81, in my reading at least.
I hope that the Minister understands that proportionality is not something for five-year strategies. It is central to the work, culture and behaviour of a regulator; as such, it clearly belongs in principles that sit on the face of the Bill.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to my noble friend Lord Holmes and other noble Lords for bringing forward their amendments in this group.
I was glad to hear that the Minister will meet the Financial Services Regulation Committee to discuss this part of the Bill. I am sure he will be as disturbed as I was to hear about the widespread fear of regulated businesses in expressing any criticism of the regulators—the most important regulators in the land, to quote my noble friend Lady Noakes. We certainly rely on financial services and good regulators for growth in this country.
The central theme of this group is the proportionality of regulation. That is an absolutely fundamental requirement for all regulation; it is particularly so when we are talking about small and medium-sized enterprises, which are less able to afford the costs of regulation—in terms of diversion of time, regulatory fees and legal fees—and are the most held back by excess regulation.
There were 5.6 million small businesses in the UK at the start of 2025. They account for three-fifths of employment and around half of turnover in the UK private sector. Total employment in SMEs was 16.9 million—60% of the total—with turnover estimated at £2.8 trillion, or 51% of the total. Having financial services that operate with proportionality and common sense is important to them; indeed, almost every single one of these firms will access and use financial services through the course of their operations. It is even more important to the thousands of SMEs that operate in financial services, whose remit is of course being extended by the Bill, and the thousands more SMEs in the legal and professional firms that advise on financial services.
In practice, regulation often falls most heavily on precisely those smaller firms least able to absorb it. The reasons are obvious: SMEs do not have large compliance departments or in-house legal teams; and they do not have armies of advisers whose job is to interpret regulatory requirements. In many smaller firms, people wear many hats, as I know well. This means that a regulatory requirement that may be manageable for a large institution can be a serious burden for a smaller firm. Above all, regulation should be designed in such a way that it protects consumers and supports market integrity without imposing unnecessary burdens.
Amendments 83 and 84 in the name of my noble friend Lady Noakes, to which I have added my name, go to this underlying point by seeking to elevate proportionality in the FCA and PRA frameworks; it is pleasing to have the support of my noble friend Lord Ashcombe and the Liberal Democrat Front Bench in this. Proportionality should not be a box that regulators tick after the main decisions have already been made; it should be central to how they think about regulation from the outset.
The amendments in the name of the noble Baroness, Lady Bowles, raise an important point about tailoring regulation to the size, nature and objectives of different firms. The regulatory framework should recognise that a mutual does not have the same objectives as a major bank, and that different business models can present very different risks; the noble Baroness explained all that eloquently.
I would also like to comment on Amendment 86 in the name of my noble friend Lady Noakes. As she said, the Legislative and Regulatory Reform Act 2006 requires regulators to act in a way that is transparent, accountable, proportionate, consistent and targeted, ensuring that regulation is effective without being unnecessarily burdensome. Those are fundamental points and likewise need to be protected as guiding principles.
In closing, I would be grateful if the Minister could assure us: first, that proportionality will be genuinely embedded in regulatory decision-making, ideally by amending the Bill on the lines of Amendment 83. We hope he will look at this issue very seriously. Secondly, can he assure us that the FCA and PRA will in future be expected to take account of the particular position of SMEs, mutuals and smaller firms when designing and applying rules? A proportionality duty would go a long way to fixing the problem and would seem to fit in well with government policy to support small business promoted by his other department, the DBT.
Lord Stockwood (Lab)
My Lords, this will be the first of many groups where we discuss the frameworks that the regulators operate under, so I will say a few words about that framework before turning to the amendments.
Many of these amendments, and those in other groups we will take today, focus on the regulators and their accountability to Parliament. Parliament has enshrined the principle of regulatory independence into primary legislation through the Financial Services and Markets Act 2000, which obviously everyone in the Room knows as FSMA. The Government continue to believe that this model best serves the UK’s long-term interests by delivering effective regulation, informed by evidence and free of political interference. It is absolutely right that financial services markets, firms and activities are overseen by operationally independent, expert regulators. The FSMA model sets out clear roles and responsibilities for Parliament, the Government and the regulators. Parliament sets the objectives for the regulators and holds them to account for how they further those objectives when discharging the statutory functions that Parliament has given them.
The Government and Parliament must be able to scrutinise the work of the regulators to evaluate how effective they are and the impact that their rules are having. It is important that the regulators remain independent and accountable for their actions. The regulators are directly accountability to Parliament, and there are a range of mechanisms within FSMA to support that accountability and allow Parliament to effectively scrutinise the regulators.
A critical part of regulatory independence is the idea that the regulators listen to legitimate criticism and scrutiny—and the regulators do listen. For example, the FCA decided not to progress some changes to its proposed enforcement policy following scrutiny from the House of Lords Financial Services Regulation Committee. However, it is clear from the debate today and from outside the Room that there is room for improvement.
On the recent publication by the Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, I recognise the important work of that committee in its Growing Pains report and share its ambition to see a regulatory culture that is more proportionate, more responsive and more supportive of growth. The committee’s recommendations were directed principally at how regulators exercise their functions rather than at the statutory framework itself. The Bill provides greater legal clarity and certainty but it remains for regulators, through their leadership, judgment and accountability to Parliament, to deliver the cultural change that the committee rightly called for.
On the amendments in this group, Amendments 81, 83, 83A, 84, 84A and 85 each seek to address various aspects related to the principle of proportionality. I recognise the concerns and strength of feeling that I have heard today and I agree that the principle of proportionality is extremely important and must remain central within the regulatory framework.
The Bill’s approach is not to remove proportionality from meaningful consideration. Instead, the reforms will require the regulators to have regard to proportionality in the development of their long-term strategies, ensuring that they are applied in a more coherent and visible way at the strategic level. This would mean that, for example, rather than considering if an individual proposal is proportionate, the regulators will be required to set out clearly how they have considered whether their strategy and workplan as a whole results in burdens on firms that are proportionate to the outcomes they achieve. This change will support more meaningful scrutiny of how the regulators are considering and responding to the regulatory principles, and will support greater overall scrutiny of the regulators’ work.
Amending the framework to prescribe in detail how the regulators must recognise differences in the size, nature and objectives of the firms it regulates goes far beyond the current framework and risks adding unnecessary complexity to the framework. It is for these reasons that the Government cannot accept these amendments.
Baroness Noakes (Con)
I am afraid the noble Lord is going to be assailed from all sides. I was glad to hear the Minister refer to the work that the committee did in relation to the enforcement proposals, otherwise known as naming and shaming. Is he aware that if the proposals in Clause 17 go through, we will be unable to interrogate the FCA, in this case, on the proportionality of particular examples of what they are doing, in this case to change the enforcement rules? Proportionality there related very specifically to a set of proposals. For example, those proposals, which were to name people much earlier in the enforcement process, could have had the effect of wrecking the businesses of very small players in the financial services market. That is something that we were very keen to draw the attention to.
Lord Stockwood (Lab)
I understand it, and I think I have demonstrated in the debate today and outside—I am looking forward to the meeting next week—that we remain open-minded. We are trying to achieve the balance between the regulatory oversight that we believe already exists and the feedback that we have had from the committee. I remain open to those conversations. We believe that the framework tries to keep that balance between the oversight that exists in Parliament and the independence of the regulators, but we genuinely look forward to that constructive discussion.
I turn to Amendment 87, which seeks to expand the regulatory principles and make them more detailed and directive. The Government’s view is that FSMA should provide a principled framework within which the regulators exercise expert judgment. This amendment goes far beyond refining the existing principles and would, instead, replace them with a highly prescriptive set of instructions that risks legal complexity, rigidity and dispute over interpretation.
The concepts highlighted in the amendment are important, but the Government do not believe they should be hardwired into primary legislation in this level of detail via the regulatory principles. The issue is not whether compliance costs, innovation, competition or post-implementation review matter—they clearly do—but whether it is right to place these requirements in primary legislation. The Government’s view is that it is not. It is not a sensible approach to grant the regulators significant powers and responsibilities, and to then overprescribe with how they must fulfil them.
Baroness Bowles of Berkhamsted (LD)
The Minister keeps saying that these things should not be in primary legislation, but they are in primary legislation, and they stay in primary legislation. Even if you try to take the effectiveness away by Clause 17, everything that I referred to in my speech, and that the noble Baroness, Lady Noakes, referred to in hers, is about the existing regulatory principles that are in the Act already. Therefore, I do not understand saying that they should not be in primary legislation—they are.
Lord Stockwood (Lab)
Let me get back to the noble Baroness on that. I believe the amendments were trying to change and streamline the regulation, but I want to make sure I give a precise answer rather than a quick judgment on that.
Let me turn to Amendment 86, which seeks to bring the regulatory principles of the Legislative and Regulatory Reform Act 2006 into FSMA. The Government recognise the importance of certainty in the regulators’ framework. FSMA already contains its own carefully developed set of duties, objectives and principles, designed specifically for financial services regulation. The Legislative and Regulatory Reform Act is very broad in scope, and the principles it contains are important ones. But there is significant overlap between these principles and those already in FSMA, so adding them here would bring duplication and legal complexity, rather than clarity. These will now be considered at a strategic level as a result of Clause 16.
In some way, the Government agree that proportionality matters, that unnecessary burdens should be avoided, and that the regulators must be held properly to account for how they exercise the significant powers Parliament gives them, but they should not be overly constrained in how they approach their work. We should have confidence in their expertise and regulatory judgment, and confidence in the mechanisms in place that allow us to ensure that they are performing as they should do so. Ultimately, an overly prescriptive approach that ties the regulators would not be in the interests of those they regulate, or those protected by their regulation.
This is not a question of whether Parliament should hold regulators to account. We all clearly agree that it should. The matter before us is where we think the right balance lies between democratic oversight and allowing regulators to carry out statutory responsibilities effectively. I recognise that not everyone will agree that the Bill strikes that balance in the right place, and I respect the arguments that have been made this afternoon and the continuing debate that we will have. I hope noble Lords will also accept that I have listened carefully to those arguments that have been made. I will respond either in writing or in meetings outside the Room to any points that I have not answered fully today. I therefore ask the noble Lord to withdraw his amendment.
Baroness Neville-Rolfe (Con)
Perhaps I might press the Minister on the subject of smaller businesses and the Bowles amendment to the proportionality proposal, which takes account of differences in the size, nature and objectives of businesses when the regulators are plying their trade. I am not quite clear what the Minister feels about these smaller businesses and whether he agrees that it is necessary to deal with them in a slightly different way.
Lord Stockwood (Lab)
My business insured a million small businesses, so I think they are vital to the UK economy. Let me come back to the noble Baroness with a full answer on that. It is critical that we make sure that they are protected.
Baroness Noakes (Con)
To return to the question of the 2006 Act, the Minister said that FSMA’s regulatory principles have been specially crafted for financial services. They have, over a period of time; they have changed rather a lot since they were first put into FSMA. However, when the 2006 Act was passed, there was a specific decision, by the Government, to include the FSA within its scope. They were all brought within scope by secondary legislation, just as the Government now propose to take them out by secondary legislation. Why do the Government take a different view from the Labour Government in 2006—who decided that those regulatory principles have, as I have explained, some important additional elements to those within Section 3B—and think that those additional principles are not now relevant?
Lord Stockwood (Lab)
It goes without saying that there are many things on which I do not agree with the Labour Government of 2006, but we will leave that for another day. We believe that this is already covered. I do not want to allow the noble Baroness’s expertise to be undermined by my relative inexpertise, so let me come back in writing on that. The advice I am getting is that we believe that it is already covered, but let me come back in writing before our meeting next week.
Lord Holmes of Richmond (Con)
I paused there in case somebody else wanted to make another point—I did not want to jump in. I thank all noble Lords who participated in this excellent, informed and important debate. I would never seek to offer a Minister of the Crown advice, but, having said that, when the noble Baronesses, Lady Bowles and Lady Noakes, speak on these matters, it is worth paying attention, reflecting, reading Hansard and reflecting again.
I thank the noble Baroness, Lady Noakes, for all the work she has done as chair of the FSR committee. It has produced excellent reports that always cut to the heart of an issue. At a time when, as she rightly identifies, more and more is coming before Parliament as regulation which, on the Floor of the House, we have so little role in which to play or influence to bring to bear, the role of her committee is even more significant and important.
My noble friend Lady Neville-Rolfe summed up with her usual brevity and precision. This is all about proportionality and common sense. The only tiny addition I would bring to that is specificity. In essence, all the amendments in this group have been tabled for the same reason that we debated these subjects on previous committee days. Strategies and frameworks are important, but events do not happen in strategies and frameworks. Events happen: they impact individuals and businesses, particularly small businesses, minute by minute, hour by hour—or, to quote a phrase apropos of nothing in particular, events happen on a day-to-day basis. All the amendments in this group are significant and worthy of reflection.
In conclusion, I apologise profusely to the noble Baroness, Lady Kramer, for causing her to feel queasy. I can only hope that my financial inclusion amendment in the next group can act as an effective antiemetic. For now, I thank all noble Lords who participated in this important debate and beg leave to withdraw Amendment 81.
Baroness Tyler of Enfield
“(2) In section 3B(1) (regulatory principles to be applied by both regulators), after paragraph (h), insert—“(i) the need to consider financial inclusion.””
Baroness Tyler of Enfield (LD)
My Lords, I rise to speak to three amendments I have in this group: Amendments 82, 95 and 97. This group is all about financial inclusion. It is a very important group. I am also very sympathetic to the amendments in the name of the noble Lord, Lord Holmes, and my noble friend Lady Kramer.
Amendment 82 would place financial inclusion where I believe it firmly belongs: among the regulatory principles set out in this legislation which the regulators must consider in carrying out their functions. This is not a novel idea. When I had the privilege to chair this House’s Financial Exclusion Committee back in 2017, we recommended that financial inclusion be given a firmer footing in the regulators’ duties. Indeed, when this House last legislated on these matters, in the 2023 Act, I am sorry to say that financial inclusion was not included as part of the regulatory principles. Despite a concerted effort at the time to put it on a statutory footing, we did not succeed, and my amendment would simply correct that. Financial inclusion, which determines whether millions of people can access the essentials of modern economic life, surely belongs in legislation.
However, the Bill as drafted moves in the opposite direction, confining the regulatory principles to strategic activities only, thus removing them from day-to-day decisions that impact the lives of millions of people, particularly those who are financially excluded. My amendment would ensure that financial inclusion remains a live consideration in the regulators’ day-to-day work. I say this to the Minister: if financial inclusion is genuinely a priority for this Government, why does it not sit among the principles the regulator must consider, and should these principles not be considered when implementing the activities that truly affect many people’s daily lives, rather than being set aside to apply only to more abstract strategic work?
I am conscious that, in the Committee’s debate last week, there were those who felt that any new principles should meet the “essential and enduring” test—I think the noble Baroness, Lady Noakes, said that. In my view, financial inclusion is essential and enduring. Whether people can access banking, credit, insurance and savings is not a passing policy priority but a permanent structural feature of how the system serves, or fails to serve, the population. It has been a concern for decades and will remain one.
I turn now to my Amendments 95 and 97, which would require the FCA to report each year on how the exercise of its functions has affected financial inclusion, and to be ready to account to relevant parliamentary committees, which would include the Treasury Committee and the Lords Financial Services Regulation Committee, which we have just heard about. My purpose here is specific and, I hope, constructive: to ensure that financial inclusion is reported on openly every year and that the public and Parliament can scrutinise the activities of regulators in ensuring that we all have access to the financial services and products we need at a price we can afford.
We all know that what gets measured gets done. What is reported on, transparently and regularly, is far harder to neglect than what is not. This is not an abstract concern. When I chaired the Select Committee, we found that 1.7 million adults were without access to a basic bank account; that communities were losing their bank branches at an alarming rate, as we focused on last week; and that households on the lowest incomes were paying more for credit, insurance and essential services simply because they had less money. Nearly a decade on, too many of these problems persist. An annual report will give this House and the public a clear and reliable picture, year on year, of whether the position is improving or deteriorating on things such as access to bank accounts, access to face-to-face banking services, affordable credit and insurance—the list goes on.
Such a duty asks the FCA to ensure that those who are excluded from financial products and services are taken into account, with their experiences seen and their problems addressed. It creates no new rules for firms, which is an important point. It simply ensures that the fundamental question—“How are the most financially excluded people in this country being served?”—is asked and answered each year, in public, before Parliament.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Tyler. I had the equal pleasure of serving alongside her during her excellent chairing of the Financial Exclusion Committee.
As the noble Baroness rightly identified, since we published our report, financial exclusion—or a lack of financial inclusion—has persisted. She rightly identified the Government’s financial inclusion strategy. There are a number of good things in it, but I ask the Minister: why was it so light on the potential role that fintech, as well as broader technologies, could play in addressing some of the elements of financial exclusion? It was largely silent on those issues.
I shall speak to Amendment 104 and all the other amendments in my name in this group. Similarly, I suggest having a financial inclusion objective and detailed reporting requirements therein. We have the Financial Inclusion Commission, which has some excellent members, but financial exclusion persists.
It is right to have our financial services regulator further empowered to be the lightning rod and the focus for this whole question of financial inclusion. To talk about the principles again, the Government are keen on growth, but financial inclusion does not run counter to that growth or the international competitiveness objective. Financial inclusion is essential to it: enabling people to have financial services and be financially included is likely to increase digital inclusion and social inclusion, as employees become self-employed and the employed become economically active. I ask the Minister: are these things—enabling and empowering financial inclusion—not what any Government should be about?
I suggest a financial inclusion unit for the FCA, so that it can be a powerhouse for innovation and research and a real regulator and driving force for financial inclusion. When the Minister comes to respond, can he identify how financial inclusion has changed in the almost two years of the current Government? Is it not time for greater focus and effort on this most significant of issues?
In many ways, the most significant issue when it comes to financial services is enabling and, in reality, empowering everybody to have a fair go, and to become active and enabled in our economy and our society. Amendment 161 builds on this, but in the specific context of broadening data-sharing requirements—always on a consenting and empowering basis—to look again at what we can do with new technologies. Let us look at other sources of data such as rental history, which can be so helpful in enabling financial inclusion—but currently are far from happening, never mind becoming the norm—to support those millions of individuals. Where is innovation when it comes to financial inclusion? Does the Minister not agree that these amendments would enable the Government to have a human lead on these technologies, with a far greater chance of much greater financial inclusion for all citizens?
My final amendment goes to KYC, or what passes for it. In many ways, you can see this within financial inclusion, where all too often, in whichever context one considers it, “know your customer” means almost completely the reverse or nothing of the sort. Does the Minister not agree that it is time to look again to innovation and the technologies that can be deployed to give us effective KYC and AML? Or does he believe that, because one is able to put a gas bill in paper form in front of a financial services business, it shows just what an upstanding citizen you must be and gives all that is required on KYC and AML? It is so gravely in need of transformation. We have the tools and technologies to achieve this, which would also add to significant financial inclusion. I look forward to the Minister’s response.
Lord Davies of Brixton (Lab)
This is an important and interesting debate. I want to draw attention to and base my remarks on Amendment 95, which refers specifically to the poverty premium in insurance. This is a theme that runs across financial services. It perhaps does not get the attention it deserves, because one of the main reasons for financial exclusion is of course poverty, and poverty is clearly an issue where the Government have a clear and central responsibility.
In practice, the approach taken by the FCA has been to use the obligation for the consumer duty as the primary vehicle for dealing with the poverty premium. The FCA has directly linked the consumer duty to the poverty premium, with the argument that firms are required to deliver good outcomes for retail customers and ensure that products and services offer fair value. The FCA has not itself specifically tackled the poverty premium head on; in effect it has passed the responsibility to providers.
The most obvious manifestation of the poverty premium arises with premium finance, whereby people have to pay premiums by instalments over the year instead of paying a lump sum at the beginning of the year. The terms on which they are financed have been open to significant criticism. People think they are paying the contributions monthly but, in practice, someone lends them the money to pay the initial contribution and they repay that loan over the year. There is a widespread lack of understanding that, in fact, they have two contracts: the insurance contract and the loan contract. The terms of that loan contract have been called into question. Figures from the FCA suggest that about four-fifths of customers in financial difficulty use premium finance and that, in 2024, 60% of motor insurance customers and 41% of home insurance customers paid by instalments because they could not afford to pay annually. There is probably a series of people who fail to do the sums and just pay monthly because that looks easier.
The FCA has found that the cost of premium finance has fallen since 2022, and made it clear to firms that they are under a clear requirement to ensure that fair value is offered. There is a technical problem here in that, as well as the financial issues, with some forms of insurance there is an underwriting issue. It is possible to argue that someone who pays monthly is not in the same underwriting position as someone who pays yearly. It is very difficult to pin down that aspect of the issue. The FCA accepts that this poverty premium exists and believes that some of the premium finance provides a poor product. It has accepted that
“financial regulation cannot tackle financial exclusion or the related ‘poverty premium’ alone. We must work together across government, regulators, industry and consumer groups”
to deal with it.
The Financial Inclusion Strategy published in November refers to the issue, and we now have the FCA’s 2026 insurance priorities, which include expanding access to insurance as a central priority and emphasise the importance of helping vulnerable groups. However, the campaigning group Fair by Design has argued that the FCA is not doing enough to deal with these issues. It points out that the FCA has said that it has the tools to deal with this but, in practice, is just leaving it to the individual companies to act responsibly.
Baroness Kramer (LD)
My Lords, I will speak briefly in general across this set of amendments and specifically to Amendment 141 in my name, supported by the noble Baroness, Lady Altmann.
In the general remarks, I say to the noble Lord, Lord Holmes, that I am excited and thrilled by his amendments in this group and I support every one of them—I would even open champagne; I am that pleased. I say to my noble friend Lady Tyler that I totally support the amendments that she has introduced here. I share with both of them the perception that financial inclusion is absolutely at the core of the requirement that we must place on our financial services sector and on the regulators that deal with it.
To pick up on a point that my noble friend Lady Tyler made, the consumer duty does not deal with financial inclusion, and that is exactly right. The consumer duty is very much a protection against mis-selling. It is not a duty of care, which could indeed have required that gaps left in the market are filled and the regulator take steps to fill them; the regulator was absolutely determined not to have that responsibility when this House attempted to make it address the issue, and the Government of the day were also very determined that the regulator should not play that role. We cannot look to the regulator to be a key player in financial inclusion.
In the five-year strategy of the FCA—I really have read that document—there is reference to financial inclusion; in fact, it is in big, black, bold letters. The problem is that what it anticipates as the role that it will play is to try to address how low financial capability holds people back from accessing financial services and how it could support them in managing their financial life. That is important and it matters, but the reality is that for many people who are excluded, the way to give them support is not to try to get them digital—it would be brilliant if you could but that is not the reality—but to deal with those people as they are in the world that they live in. There is absolutely no reference in this five-year strategy that you could in any way interpret as related to what has become the Richard Lloyd review—to things such as banking hubs. It is focused solely on the individual, whereas issues that we have addressed in previous groups have also been about the financial exclusion of small businesses from financial services. There is no reference to any of that.
I have had so many conversations with the FCA over the years, and it has said things like, “Yes, if we had a set of community banks, that would be absolutely brilliant; CDFIs are absolutely wonderful—not our job. If they appear, we will make sure that we regulate them appropriately, but it is not our job to fill that gap and we resolutely hold to that position”. That clarity needs to be here in this debate. I will not repeat what has been said because it was so well said by the three previous speakers, but I very much hope that the Minister will pay serious attention to this issue. From things that he has said in the past, I hope that he takes it to heart. It very much belongs in a very central way in primary legislation.
The issue I am raising is perhaps not an obvious one to raise in the context of this Bill, but it is in scope. It is dear to my heart, but I think it is widely supported. I am using this opportunity to deal with an issue that, frankly, the Government should have dealt with without any problem. It is child trust funds and the ability of young adults with learning difficulties to access those funds that sit in in their name. My party leader, Ed Davey, who, as I think all in this Committee know, has a son with very severe learning difficulties, has written of his eight-month battle to access the child trust fund put in place and invested in for the benefit of his severely disabled son, who is now 18. The fund should be easily accessible when a child turns 18, but, as the Davey family found out the hard way, this is not true for children with learning or other disabilities who lack the capacity to fill in the forms themselves.
The process of applying to the Court of Protection for a deputyship order is Kafkaesque, consumes endless time and places such a burden and cost that many parents give up altogether. The many steps, and my goodness there are many, include obtaining written permission from three different relatives to demonstrate that you are unlikely to abuse the funds that you will access, and obtaining various doctors’ assessments—well, perhaps that is fair—but then the courts kick in. The Court of Protection charges £412 for a deputyship order. It requires you to obtain insurance against misuse, and the Davey family found that that cost £48. Then comes the Office of the Public Guardian, which charges £100 for its assessment, and it then levies an annual supervision charge of £320. If you add this up, it basically becomes £1,000 to be able to access a child trust fund for your severely disabled child.
What is really extraordinary is that most child trust funds do not have a lot of money in them. I think the average amount is £2,000. You would have to spend 50% of it to be able to access that fund for your child. The people accessing it are parents whom the DWP already relies on to deal with a variety of much more significant pots of money to support that child. I use the Davey family not to ask for any kind of sympathy, but here is an MP whose wife is a lawyer, and they cannot work their way through this maze. How are people without those kinds of expertise going to work their way through this system?
Unfortunately, there is a new legal offering from specialists who will, for a significant sum, offer to negotiate the way through for you. That is a practice that none of us wants to encourage. There are a few child trust fund managers who handle the process a bit better and have been helping some of the people whose funds they manage to minimise the process, but it is a lottery in terms of finding that you have taken out your child trust fund with an entity that takes that approach. Charities estimate that 80,000 to 123,000 young adults are essentially locked out of their child trust funds.
I tried to look for what response the Government have been making to the overtures of the charities and other civic society groups that have been out there trying to speak for these youngsters. Two things came to my attention. The only response I could find from the Department of Justice was that it has now digitised the application form and provided a guide.
My amendment would force the FCA to simplify the whole process for CTFs paying out under £5,000 in any one year. It is formulated around an amendment put before the House in 2021—I am pretty sure that is the correct year—by the noble Lord, Lord Young of Cookham, who is really skilled in developing, designing and presenting the appropriate amendments. In speaking to that amendment, the noble Lord, Lord Blunkett, who was the Minister when child trust funds were put in place, made it very clear that no one had thought of this particular set of problems and that that was why the system was designed in a way that set up this obstacle course. It was not intentional or planned; it was simply a failure to recognise what could happen and has in fact happened.
I say this to the Minister: all the arguments we hear in support of the Bill are about deregulation; here is a piece of deregulation that I think no one could argue with, and which I would definitely and clearly support, as would my party and, I suspect, many others. If the Minister cannot control this himself, could he please go away and berate his colleagues? These youngsters need to be able to access their funds. We are talking about small pots. Simply digitising the 106 sections of the application form is not the answer.
Lord Pitt-Watson (Lab)
My Lords, if I might add to this debate, I begin by noting the huge cross-party agreement we have on lots of the issues the Bill raises, most particularly on this issue of ensuring access to financial services for everyone. That is what is behind so many of the amendments here. It is also the issue that was raised in the debate about affordable credit by the noble Baroness, Lady Kramer, and the right reverend Prelate the Bishop of Manchester, and at Second Reading by the noble Baroness, Lady Hyde, and the noble Lord, Lord Kamall. We all, from all parties, want to know that such services are available to everyone. The question is simply how we can make sure that that takes place and that the industry that has to be there to deliver it buys in to making sure that those services take place. We need to be sure that our actions as rule-makers are helpful in that regard.
At Second Reading, I heard a number of speeches about excessive regulation, all doubtless intending to encourage financial services to do their job better. But there is an issue with regulation and how much of it there is. If there is any concern about this amendment, that is absolutely not its objective. Critically, we need financial services to be available to everyone; the question is whether, by regulating them, that gets us to where we want to be. Maybe it will, but we might argue that, unless we have persuaded those whom we wish to influence that they will strive to improve performance in this regard, the danger is that it might just be another regulation. Whatever we ask the FCA to report, we need to first take a step back and think through how this will affect performance on the ground. It is the finance industry that has to deliver this, and we need to be working in partnership with it—with the industry, customers, potential customers, the Government and regulators, moving ahead together. There are also initiatives, some of which might work, and which, if they had real momentum, with everyone behind them, might start to deliver the sort of things we want.
As many noble Lords know, I have done quite a lot of work with the financial services industry in Scotland. Its industry body, Scottish Financial Enterprise, has laid out as its objective that it intends to
“have a financial services system that allows every citizen and business of Scotland to connect and access appropriate services”.
Wow. Is that not exactly what we are trying to get to happen? But who is following up to make sure that that statement, that vision is realised? It feels to me that we need a new settlement, and institutions to see that such a settlement is delivered.
Baroness Neville-Rolfe (Con)
My Lords, we understand the reasoning behind these amendments. Financial inclusion is, of course, an important objective, as the noble Baroness, Lady Tyler, explained so clearly. Indeed, that is precisely why we have tabled amendments on financial education, to be discussed at a later stage. We believe that one of the most effective ways to improve financial inclusion is to ensure that from a young age, people have the knowledge, confidence and capability to understand how to manage their money to avoid harmful financial decisions and to access the products and services that are right for them—and, I should add, to understand new technology, data and digital inclusion, as my noble friend Lord Holmes explained.
However, we are not persuaded that the mechanism proposed in these amendments is the right one. In particular, when it comes to proposals such as expanding the scope of Section 3B of FSMA and adding further regulatory principles, we encounter the same problem that I raised in previous groups: every time Parliament adds another principal duty, reporting requirement or objective to the regulator’s framework, it may sound reasonable in isolation but, cumulatively, these duties feed through into more process, more internal assessment, more reporting and more consultation paragraphs. That is more compliance requirements, more boxes to tick and less overall efficiency for financial services.
We should be careful not to assume that every social or economic objective is best delivered by placing a new statutory duty on the FCA or PRA. Regulators already have extensive responsibilities, so we have to make the choices with care because, at some point, the accumulation of such duties becomes counterproductive. It makes the regulatory priorities less clear and it can slow decision-making and create uncertainty for firms. In short, it is unwise.
As I have explained, we would improve inclusion via improved education, and we are about to introduce an amendment on debanking, which may be relevant. There is a lot of partnership and voluntary activity, as the noble Lord, Lord Pitt-Watson, hinted at—and as I remember from my time with Tesco Bank, which was centred in Scotland and did some terrific work.
The problem of child trust funds was mentioned by the noble Baroness, Lady Kramer, and it seems like a popular cause for deregulation by the Treasury and the regulators. I am sure the Minister will want to comment on that.
Lord Stockwood (Lab)
My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, the noble Baronesses, Lady Tyler of Enfield and Lady Kramer, of Richmond Park, and other Peers for drawing attention to the important issue of financial inclusion. As someone who grew up in poverty, it is not an abstract concept to me and the community I come from.
The noble Baroness, Lady Tyler of Enfield, asked if I would meet her to discuss this agenda further. I would of course be happy to meet her and any other noble Lords who would like to discuss the topic. I will write to her ahead of that meeting on the FCA’s consumer duty and what it means for financial inclusion, but I assure noble Lords that the Government are not relying on the FCA’s consumer duty as a catch-all solution. The Government agree that people should be able to access the financial services they need—that is an important objective—but we think that these amendments are not necessary to achieve that.
Amendments 124, 128 and 104 would give the Financial Conduct Authority a new statutory financial inclusion objective and require it to establish an independent financial inclusion unit. These amendments focus on action and measurement. Financial inclusion requires all parts of the system to work together. That is why it is important for the Government to lead this agenda, not the FCA. To secure action, we have published a Financial Inclusion Strategy, setting out an ambitious package of measures to improve access to financial services.
The FCA is closely involved in delivering this work. Sarah Pritchard, the deputy chief executive, also sits on the Financial Inclusion Committee, which monitors the strategy and supports its implementation. The Government have taken formal steps to reinforce the FCA’s role in this area. In her most recent remit letter, the Chancellor asked the FCA to have regard to reinforcing financial inclusion, and the FCA is responding to that ask.
The FCA’s 2025-2030 strategy identifies helping consumers to navigate their financial lives as one of its four strategic priorities. As part of this, it highlights an increase in the consumers who hold key products as a success metric for its work, and it is acting on this. For example, to advance the Financial Inclusion Strategy’s aim of boosting savings, the FCA developed a regulatory statement to support the uptake of workplace saving schemes. On measurement, the FCA already plays an important role in tracking progress on financial inclusion through its flagship financial lives survey, which provides a strong evidence base for monitoring outcomes over time.
I recognise Amendment 128’s emphasis on independent scrutiny and prioritisation of financial inclusion in the FCA’s work. As part of the FCA’s statutory framework, the consumer panel is in place to represent the interests of consumers and provide independent advice and challenge to the FCA. As already covered, the FCA’s strategy and membership of the Financial Inclusion Committee means that financial inclusion is embedded in its work. This is more effective than an operationally independent unit.
On oversight and transparency, I understand the intention behind Amendment 104, which seeks to require the FCA and PRA to report annually on financial inclusion, and Amendment 95, which would require the FCA to report on financial inclusion metrics and how it has acted to improve financial inclusion. However, these amendments are not necessary or appropriately targeted. The regulators already report publicly and are accountable to Parliament. Moreover, the FCA’s financial lives survey provides a biannual update on a wide range of financial inclusion metrics in the UK, including the numbers of unbanked people, those who have been declined for a product and the experiences of vulnerable customers. The FCA is also closely involved in the delivery of the Government’s Financial Inclusion Strategy, which is a public document and subject to public review next year. Amendment 104 would place reporting duties on the PRA, whose statutory role is prudential regulation, creating uncertainty about the PRA’s remit and what it would be expected to report against.
Amendment 82 would add financial inclusion to the regulatory principles that the FCA and the PRA must have regard to when discharging their general functions. The Government do not agree that this is the right mechanism to ensure that financial inclusion is prioritised. The amendment would require unclear action from the PRA. Parliament regularly holds the regulators to account for their work on financial inclusion. The Commons Treasury Select Committee recently held a session with the FCA’s deputy CEO for its Financial Inclusion Strategy inquiry. Amendment 97’s requirement that the FCA be prepared to demonstrate to relevant parliamentary committees how it has had regard to financial inclusion is therefore unnecessary. Any relevant Select Committee can call the FCA and hold it to account for its work on financial inclusion.
Amendment 141 seeks to require the FCA to establish a new legal route for third- party access to control another person’s assets, which goes well beyond its regulatory remit. The law requires parents or guardians to have legal authority to make decisions about the financial assets or property of their adult children. This includes accessing funds held in a mature child trust fund. Decisions about who may act on behalf of a person lacking capacity are governed by the Mental Capacity Act 2005 and are determined by the courts, reflecting the need for safeguards to protect vulnerable people. It is not appropriate for FCA rules to seek to substitute or override existing rules and processes. The Ministry of Justice recognises that the process of obtaining access can be challenging for the parents and carers of young people who lack capacity. It is exploring how the Government can best facilitate access for parents and carers to child trust funds on behalf of their children. I would be happy to raise this with the MoJ rather than berate it, as the noble Baroness suggests.
Turning to Amendment 161, I recognise how a broader set of data might support a more accurate assessment of underserved SMEs’ creditworthiness. However, it should be noted that the Treasury already has the ability in Section 4(5) of the Small Business, Enterprise and Employment Act 2015 to specify the SME information that must be shared. We are actively considering updates to the scope of data in the next phase of the CCDS reforms. However, it will not be expanded in line with this amendment, given that it would require redesigning the scheme entirely, expanding it beyond financial services participants, some of whom see little return for their participation, which already imposes a degree of burden. I do not think it appropriate for financial services legislation to impose regulatory obligations on non-financial market actors in this way, not least without consultation. That is not to say the ambition is misplaced. Indeed, these issues are potentially better addressed through the future development of open finance and smart data initiatives.
Amendment 169 seeks to require a review of know-your-customer requirements. I understand the concern that the current framework may not always operate as it should in supporting access to financial services. As the noble Lord, Lord Holmes, rightly stated, technology is already playing a part but can do better. Indeed, businesses such as Quantexa and Onfido are leading the way in this space. The Government do not believe that anti-money laundering requirements and financial inclusion are mutually exclusive. The money laundering regulations already provide firms with the flexibility to take a proportionate and risk-based approach to customer due diligence. As part of the financial inclusion strategy, major high-street banks have launched pilots on improving access to bank accounts, demonstrating how financial inclusion initiatives can operate within the existing framework.
Reforms to make customer due diligence requirements more proportionate and effective have already been made, including through amendments to the money laundering regulations made via statutory instrument earlier this month. The Government are also taking steps to support the effective use of new technologies, such as through the publication in February of guidance on the use of digital identities to support customer verification. Finally, the money laundering regulations also mandate a review of their regulatory provisions every five years to assess whether they are effective, appropriate and proportionate. The next such review will be published in 2027.
The noble Lord, Lord Holmes, asked how financial inclusion has changed under the current Government. In November, we published the Financial Inclusion Strategy, which supports access to banking for those with no fixed abode and small-sum lending to help people access credit and makes it easier for people to save. The noble Baroness, Lady Tyler of Enfield, noted that when a House of Lords Select Committee looked at this topic, it found that 1.7 million people were unbanked. Although it is still too high, I can report that the latest survey data shows that the number of unbanked people has fallen to under one million. As I already set out, with many of the actions we are taking, the Government hope to reduce this further. Financial inclusion is not a gap in the framework. It is an agenda already being delivered by the Government, with the FCA closely engaged in its implementation. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Tyler of Enfield (LD)
My Lords, I thank the Minister for his response and all noble Lords who have spoken on this group of amendments. The debate has been very thoughtful, and I very much appreciated the collaborative tone of the contributions. I thank the Minister very much for agreeing to meet me and other interested Peers, and I very much look forward to that happening before Report. I was also grateful to the Minister for emphasising the point that the consumer duty cannot be the be-all and end-all. As my noble friend Lady Kramer very clearly put it, it is not a duty of care.
Baroness Scott of Needham Market (LD)
I remind the Committee that when a group is led by a clause stand part debate, after the noble Baroness, Lady Bowles, has spoken, there is no second intervention from me at that point.
Baroness Bowles of Berkhamsted (LD)
My Lords, oppose Clause 17 standing part of the Bill. Before turning to the detail, I will explain how Clauses 16, 17 and 18 fit together. They are not independent clauses. They operate as a single, interlocking structural package—an unholy trinity. Clause 16, which we have already debated, starts the move of day-to-day statutory principles out of operational decision-making and into a five-year strategy document. Clause 17 is the moment where it cuts. It removes the operational duty to apply the principles and the duty to explain how they have been applied. The principles remain in the abstract, but the visibility of their application disappears. Clause 18 then seals the trio by removing the remaining statutory mechanisms through which Parliament once saw how those principles were applied.
I said in Committee last week that deregulation of regulators inherently increases the regulation of markets. A regulator’s default setting is caution, not proportionality. That is precisely why Nikhil Rathi asked Parliament for political cover to take on more risk, because he knows that the system will not shift itself.
However, removing the operational “have regards” does not reduce that institutional caution. It simply removes the focus that keeps it directed at the right things. It removes accountability and removes Parliament from the role or possibility of providing support or cover with its eyes open, a direction of travel that Clause 18 then completes. The result is that Parliament loses operational visibility at the very moment when regulators are being asked to take on more risk. This is the context in which Clause 17 must be understood.
By deleting the principles from their operational position, the Government remove the statutory reporting loop. That deletes the audit trail that allows us to test what the regulators have done and why. Crucially, it also removes the only lever of accountability we have. We do not possess direction powers or hold budgetary levers. We do not have judicial review that bites on the substance of expert rules. All Parliament has is the ability to see, to question and, ultimately, to embarrass. An embarrassment card is a fragile card, but it is the final line of democratic accountability in the UK’s financial regulatory system. Clause 17 strips even that card from our hands. This is not simplification. It is a cultural turnabout that systematically switches off operational accountability.
Parliament is not trying to run the regulators. Our role is that of a critical friend: the only body that can speak openly what industry dares not, and test whether the principles that Parliament set are being applied in practice. Under the current framework, regulators must have regard to statutory principles in consultations, rules and supervision. Have they done this perfectly? No. They adopted a tick-box matrix that has become tedious and uninformative, but nothing prevents them shifting to thematic reporting, highlighting where specific principles matter most. Where the system has fallen down most is on the supervisory side, with an explosion of excess communications, overbearing information requests and a proliferation of Section 166 investigations.
Explanations around the “have regards” are the audit trail of how Parliament understands how a regulator weighed proportionality, firm size and sustainability of growth, or where climate change held relevance. A thoughtful narrative is far more informative than a boilerplate matrix, yet Clause 17 removes all requirements to explain or to show the rationale. In its place, the principles are relocated to a five-year strategy document that cannot be specific or enforced by the courts, and cannot be used to test an individual rule or a heavy-handed supervisory decision. This is not simplification; it is opacity. I pose the question: is the role of Parliament wanted?
At the Treasury Committee on 24 March 2026, the FCA’s CEO, Mr Nikhil Rathi, was asked how the system would handle the blistering speed of financial innovation. His answer was striking. He said:
“That is why I asked for a risk appetite from the Government and Ministers and Parliament so that we all know … what guardrails we are operating within, with appropriate democratic input and oversight”.
He also told the committee during the Sexism in the City inquiry that if the FCA were to set thresholds below that which Parliament had established in employment law, it would need a degree of political cover and agreement through Parliament. This is two sides of the same coin. The FCA is actively asking Parliament for guardrails, oversight, democratic accountability and cover because it is being pushed to accept more risk, and with more risk comes more failure or challenge.
However, Parliament cannot share responsibility if we are blinded from seeing how the principles are applied, and we cannot endorse greater risk-taking if we are denied information on where those choices bite in practice. When scandals happen, what angers Parliament most is when the writing was on the wall for a long time. Woodford funds is a textbook example, and London Capital and Finance is another.
The Minister may point to strategies, outcomes reporting, cost-benefit panels and annual reports, but the FCA itself has conceded that these are visibility tools, not accountability tools. Reports describe outcomes after the event, long after the harm has occurred. A strategy document can say all the right, glossy things, while the actual rules produce disastrous outcomes. We have seen before how FCA high-level assurance, even on specific cases, can look immaculate, while operational reality goes badly wrong. We saw that with British Steel pensions, with motor finance and with Woodford. Clause 17 remains the only operational hook that Parliament has to test whether the principles guided the procedure.
Last week, the Minister indicated that perhaps proportionality would be restored. If so, that is welcome, but a verbal concession is not an amendment and patching one leak does not fix a broken hull. If proportionality cannot be functional in a five-year strategy document, how can other principles survive, exiled there? Clause 17 still deletes the operational requirement that regulators must consider the desirability of sustainable growth. Removing this is nonsensical. The Government cannot possibly want unsustainable growth—growth that does not last.
Let us not forget the legal hierarchy. The secondary objective of competitiveness and growth sits higher up the statutory ladder. Precisely because that objective sits higher, there is all the more need to keep the sustainable growth consideration anchored in the operational functions. Right now, we see a political dash to deploy capital productively. If we encourage a reckless sprint when the underlying assets are not yet created, we are building not prosperity but a bubble, creating systemic fragility. So, restoring proportionality but deleting sustainable growth from sight collapses the government logic. It says that an audit trail for a firm’s compliance cost matters but an audit trail for long-term stability of the economy does not.
The consultation spoke about rationalising the number of “have regards”. It did not propose removing them from rule-making. It did not propose isolating them in a five-year strategy. It did not propose weakening the basis on which the courts can test whether regulators have properly considered Parliament’s intent. It did not analyse the interaction with the secondary competitiveness objective. When the Government consult on one minor administrative tweak but legislate for a far-reaching structural overhaul, that raises serious questions of fairness and due process.
I can see what the Government thought they were doing here. They believed that, by removing the operational “have regards”, they would free the regulators from excessive caution and allow the system to move more quickly. But, in practice, this clause disturbs the balance in a way that the Government have not accounted for. It removes not the caution but the focus and visibility that allow Parliament to understand how risk is being taken, to understand where it is being borne and to play its part in the structural balance of the system, which includes giving cover to the regulators when appropriate. That is the constitutional gap at the heart of this clause and why it represents not a simplification but a weakening of the framework of accountability on which our financial regulatory system depends.
This clause, along with Clause 18, has a serious impact on parliamentary scrutiny, as has been raised by the noble Baroness, Lady Noakes—so I will not go further into that. But these things collectively are why I oppose that Clause 17 stands part.
Lord Vaux of Harrowden (CB)
My Lords, I have added my name to the Clause 17 stand part notice. As has been explained so clearly, the Government’s intention appears to be to put most of the consideration of the regulatory principles and “have regards” into the five-year strategy created by Clause 16. They believe that, having done that and thereby provided long-term clarity as to how those principles and “have regards” will be met at a strategic level, it is no longer necessary to apply them to the nitty-gritty of individual rule-making, which is why Clause 17 effectively removes them from that process. Rightly, the Government consider the secondary competitiveness and growth objective to be extremely important, so they have singled that one out for special treatment in Clause 20, and it alone must be reported on annually. That, at least, is to be welcomed but does have the somewhat odd effect of making the secondary objective more important than even the primary objectives, or any other principles which are not subject to specific reporting.
As we have heard, there are very real problems with this overall approach in terms of the impact on the ability of Parliament to scrutinise the activities of the regulators, including the committees that have been established for that purpose. As the Minister is aware, the Financial Services Regulation Committee of this House, of which I and a number of others in this Grand Committee are members, has taken the unusual step of writing to the Minister to set out our unanimous concerns in that respect. I very much look forward to the meeting that he will attend next week on that.
In passing, just before we started today, we received a letter and a Treasury note from the Minister. Point 15 in the Treasury note would slightly bring together the strategy and the Clause 17 elements, in that it says:
“The Bill will require the regulators in their annual reports to update on the extent to which, in their opinion, they have implemented their long-term strategy”.
I spent a fair bit of time since I received that trying to find where the Bill actually says that. I may be being very dim, but I cannot find it, so perhaps the Minister could point out specifically where that is. I may well have missed it, and I apologise if I have.
I also spent part of the weekend reminding myself of what the FCA’s existing 2025-30 strategy document looks like. I lead a very exciting life, as you can see. While “vacuous” might be too strong a description, it is a classic of its type, being full of motherhood and apple pie generalities and lots of attractive diagrams and pictures, but very little of real specificity or genuine measurability. Statements such as
“We will be a smarter regulator; predictable, purposeful and proportionate”,
sound great, but is this really something that could be meaningfully scrutinised? When I compare the rules in Clause 16 with what is actually in the current strategy, it appears to me that the current strategy would actually comply with Clause 16.
During the previous day in Committee, the Minister said, in reply to a question from the noble Baroness, Lady Noakes, about the existing strategy and whether it is the model on which Clause 16 is based:
“this is the starting point. There is definitely work to do and it needs to be improved”.—[Official Report, 24/6/26; col. GC 337.]
I cannot see how Clause 16 would improve it— I think it already complies—so I have no argument with the FCA having to have a longer-term strategy, but Clause 16 does not provide a sufficient basis on its own for parliamentary scrutiny and accountability, and that is where Clause 17 becomes such a problem. Clause 17 removes the need for the regulators to have regard to the regulatory principles and other “have regards” when going about its general duties, so apart from the annual report on competitiveness and growth in Clause 20 that I mentioned earlier, the only time the regulators will have to consider the regulatory principles—including, but not only, the critical issue of proportionality—will be in its five-year strategy. This would remove the need for regulators to explain how the regulatory principles apply to any draft regulations, at a time when they should be explaining not only the application to individual regulations but the cumulative impact of those regulations.
We debated last week how there is scope for an overhaul of the regulatory principles and other “have regards”, which have a tendency to proliferate. Perhaps that is where the Bill ought to be concentrating its efforts. Clause 17 represents a considerable downgrade on the ability of Parliament and indeed the Treasury to hold the regulators to account. Even as the Bill delegates ever-increasing activities to those regulators, this is a move in the wrong direction. So, by all means let us have a long-term strategy, but that does not substitute for the need for the regulators to have regard to the principles and other “have regards” when setting regulations, and to explain how they have been met. Clause 17 should be removed from the Bill.
Lord Eatwell (Lab)
My Lords, I want to follow on from the noble Lord, Lord Vaux, who commented that the committee was unanimous in its letter to the Minister. It was indeed: Conservative, Liberal Democrat, Labour and Cross-Bench Members were unanimous in rejecting Clause 17. The reason is that Clause 17 embodies the requirement to remove the principles from consideration by the committee. But those principles are the essential toolkit of the committee. This actually neuters the committee and leaves it just examining five-year strategies and annual reports, and without the ability to deal with specific proposals, which is the reason why the committee was established in the first place. By removing that ability, the Bill also weakens the regulators.
I am sure there are regulators in some office who thought that that was a neat way of getting rid of a very awkward committee. But it weakens, because, as the noble Baroness, Lady Bowles, pointed out, of the need for political cover—the need for a relationship between the political decisions and regulatory decisions. At the moment there exists this “proposal, accountability, critique” relationship between the regulators and the Financial Services Regulation Committee of your Lordships’ House. Remove that and the regulators are exposed to significant issues in a way they would not have been before.
I cannot see how in any way this measure improves a regulatory system that was built on the principles relationship established in FSMA at the beginning. It became particularly important once we left the European Union and the responsibility to examine the regulatory structure shifted from the European Parliament to this Parliament; and now, Clause 17 is taking away parliamentary accountability in any serious operational sense. It really should not stand part of the Bill.
Lord Bridges of Headley (Con)
My Lords, I will speak very briefly on this. I declare my interests as employee adviser to Banco Santander in Madrid and a shareholder in Santander. I also apologise to noble Lords, as I was unable to speak at Second Reading.
I will follow on from the noble Lord, Lord Eatwell. I think he and I may disagree on certain aspects of the regulatory and supervisory approach, but I fundamentally agree with every single syllable he has just said. I am very queasy about aspects of the Bill. Many of us spent some time in this Room several years ago trying to ensure that we can hold to account in Parliament, both in this House and the other place, the regulators and supervisors, who hold immense power. That was absolutely right. We put in place a number of measures, including the establishment of the new committee, so ably chaired by my noble friend Lady Noakes, to enable us to do that—just one measure. This clause goes very much in the wrong direction.
I read the letter, for which I am very grateful, from the noble Lord, Lord Stockwood, and I have to say that I am somewhat perplexed by it. My wife says that I have a very little brain, so I very much look forward to the noble Lord telling me that I am wrong—I am very used to it. Let me try to understand what it is saying.
It starts by saying—or, rather, several paragraphs in it says:
“Considering separate rules in isolation is not effective for assessing the cumulative effect of the regulators’ actions—both the benefits in terms of advancing their objectives, and the costs to affected businesses”.
It goes on to say, as noble Lords will no doubt have read, that the publication of the overall long-term strategy will somehow address this. It also says:
“Clause 16 is intended to address this feedback”
from the sector—I am not sure from whom—
“and improve transparency around the regulators’ long-term direction and focus”.
I am very happy to have a long-term strategy but we absolutely need to be able to call to account actions that the regulators take, case by case.
I have read the Explanatory Notes, which say that the long-term strategy will be once every five years. I see that as entirely insufficient. Furthermore, in paragraph 170, the Explanatory Notes go on to say:
“The Government expects that the strategies will be high level and focus on the FCA’s and PRA’s top priorities and the outcomes they aim to achieve over that time”.
I do not see this as anything like the accountability that we were looking for when we introduced the measures in the last Bill, now an Act, and in the new committee. As far as I can see, it is not the case that the Government dispute the need for this case-by-case analysis, for they say this three paragraphs down in the same letter that I quoted earlier:
“There appears to be broad agreement that, in some areas, regulatory requirements on firms have become overly prescriptive, in some cases duplicative, and that this results in high costs for firms, and means that they spend a large proportion of their time and resources focusing on regulatory requirements”.
I agree wholeheartedly. We need, therefore, to address these points case by case.
All these points tie up. We cannot see the regulatory oversight of this House and the other House diluted in the ways that these clauses do when you put them together. I therefore agree entirely with the noble Lord and those who back these two amendments. I will later press for other measures to tighten, not weaken, regulatory accountability.
Baroness Noakes (Con)
My Lords, I will be brief because much of what needs to be said on this topic has already been said. I will not detain the Committee for long but, as I have added my name to the clause stand part notice, I thought that it was worth me reiterating my strong opposition to Clause 17.
Picking up on what the noble Lord, Lord Eatwell, spoke about, in our debate on the first group, the Minister reiterated that the Government think that the FSMA model is the correct model. I do not think that any of us is seriously disputing that as a broad proposition. What we are focusing on is the detail of how the FSMA model can continue to work. When we left the EU, the huge amount of EU law that became assimilated law changed the name of the game around how financial services regulation is lived out in this country.
As we have heard, the 2023 Act tried to deal with that in part by increasing parliamentary accountability through the committees of each House, including the requirement for individual rules proposed by the PRA or the FCA to be accompanied by explanations of how the regulatory principles had been applied. I do not think that any of us clearly understood the scale of the problem back in 2022, when we were considering the Bill, but we thought that these were sensible moves in the right direction. The only thing that has changed is that, now, the Government are coming along and putting even more into the FCA by way of the consumer credit legislation, which is a good idea.
But this has seriously undermined what was still work in progress on how effective parliamentary accountability could be worked. There were never any discussions with either committee of the Houses of Parliament about how the arrangements for accountability following the 2023 Act worked. We suddenly got this decision by the Government to cut away the legs of the committee through its inability to engage with the individual regulations. It is clearly the case that looking at a five-year strategy will never replace the work that needs to be done at a granular level on some of the proposed regulations that come from the regulators. That is the time for interventions—not by looking back at whether actions have complied with a strategy.
We should use this Bill to refine the FSMA model, to make it workable for the scale of the task that is being given by Parliament to the regulators and to make sure that the strength of the accountability mechanisms matches the scale of that activity. That is all that we are trying to do. The direction of this Bill is the wrong direction.
Baroness Donaghy (Lab)
My Lords, I am tempted to say, “What she said” and sit down, but I want to emphasise the unanimity of the Committee on this crucial issue. Some of us think that the FCA has too much to do anyway. Some of us—probably fewer—think that successive Governments have used the regulators as a heat shield and that perhaps the balance has gone the wrong way.
Not to repeat the examples that have been given, the noble Baroness, Lady Kramer, mentioned the five-year strategic plan of the FCA. For some of us it was a glossy PR exercise. Examples have been given, naming and shaming. It took at least two meetings and several bits of correspondence before the FCA even hinted that it might have done it slightly differently had it given some consideration to what it did. In that case, you might argue that it was about a deregulatory issue, trying to hold companies to account. Our committee thought that it had gone too far.
One final example is the issue of cost-benefit analysis, which the Minister used on the first day in Committee. We tried very hard to pin down how the FCA conducted cost-benefit analysis and what was happening to the panels. We heard that they were work in progress. Had the panels met? No, they had not met. What approach did the organisation have to analysing cost-benefit analysis? I am sorry that the noble Lord, Lord Sharkey, is not here as he is the expert on the granularity of analysing cost-benefit analysis. It was a poor show. I am sure that it is working to improve, as it is improving in a number of other areas, but it is extremely important that the work of Parliament should not be inhibited by an attempt to tidy up regulation—which is in fact setting aside protections.
The Minister, on the first day in Committee, used the phrase “modernise protections”. I am sure that he meant to say, “Modernise the transparency, modernise the complexity and modernise the general approach so that people can understand them”. I hope that he did not mean “modernise protections” in the sense of setting them to one side.
Lord Davies of Brixton (Lab)
What she just said.
As the final representative of the committee in this Committee, I agree with what the other members of the Financial Services Regulation Committee have said. It is important. I remember sitting across the Room some years ago when the idea was being discussed. It is worth recalling that the original idea was, I think, a Joint Committee of both Houses but, for whatever reason, the Commons decided that it did not want to adopt that approach. I think there are rules about criticising what the other House does, but there is no doubt that the only effective manifestation of the belief that this sort of work is required has been the work of that committee. It is particularly important that we do not lose something that we achieved through cross-party agreement.
Baroness Bi (Lab)
My Lords, I declare an interest as chair of Norton Rose Fulbright. Some of my firm’s clients are regulated by the FCA and the PRA. I am not a member of the Financial Services Regulation Committee, which is why I am probably breaking what I have heard as unanimity by speaking in favour of Clause 17 remaining part of the Bill.
I note that the current accountability framework, including the role of the committee, was created only three years ago, pursuant to the Financial Services and Markets Act 2023 following Brexit. Before that, we have to remember that we were content with what was probably pretty limited oversight by the European Parliament, so hearing about the importance of very detailed parliamentary oversight when it comes to looking at every proposal that the regulators might have is a relatively new innovation for us.
I do not think it unreasonable for the Government now to consider how well that post-Brexit system has been working and to propose changes to a regime that the committee itself has criticised as overly complex and difficult to navigate. I note that the noble Baroness, Lady Noakes, commented at Second Reading how difficult it had been to hold the regulators to account under the current system. I am therefore curious about why noble Lords are keen to preserve a status quo that is far from ideal.
There has been significant opposition to Clause 17 and concern about the effect it could have on parliamentary oversight, but I am not convinced that that reaction is warranted. I do not think Clause 17 is a retreat from scrutiny, but it is looking to make it more targeted and effective by merely removing the obligation on the regulators to consider every step they take by reference to the eight FSMA regulatory principles for every day-to-day function. The obligation to notify all those processes to the parliamentary committee does not always lead to the kind of analysis or response and targeted feedback that we have been discussing. That volume of information that the regulators are producing has not led to a better system.
The result is that that documentation requirement has become a burdensome compliance exercise and not truly analytical. The Government’s consultation confirmed that the information produced is too granular to support effectively an overall assessment of regulatory performance, and nearly three-quarters of those who responded to that consultation were supportive of or broadly sympathetic to the approach the Government are proposing, and these are the customers, the regulated body, of the people that the FCA and the PRA are supposed to protect.
We should also acknowledge that Clause 17 does not abolish the Section 3B regulatory principles. The FCA and the PRA will continue to be bound to have regard to those principles when they are preparing or revising their five-year strategy plans, for which they will be held accountable not just by the parliamentary committee but by society as a whole. Those strategies will be subject to consultation and will create a public benchmark against which the regulators’ subsequent rule-making can be assessed and progress against the stated strategy can be monitored, in their annual reports if nothing else. I am not referring just to the glossy brochure that we have heard about.
It is also important to note that Clause 17 does not alter the requirement for the regulators to consider and document to the committee how they are pursuing their statutory objectives. In the case of the FCA, so much of the focus is on the competitiveness and growth objectives. That gives the committee a powerful accountability tool. There is nothing to stop the committee calling them in whenever it likes to talk to them about how they are meeting those objectives in line with the principles.
The requirement of the regulators to present their analysis to the committee on each of the eight regulatory principles in relation to each consultation is disproportionate. Its removal does not reflect a material dilution of the regulators’ obligations because the substantive matters of concern continue to bind the regulators in any event. Is it necessary for the committee to be involved in all the detailed work that the regulators need to do in order to exercise proper parliamentary oversight in what we all accept is a fast-changing financial services market in a post-Brexit regulatory environment where the FCA and the PRA now bear responsibility for significantly more rules than was contemplated when Section 3B of the original FSMA 2000 was drafted?
As a common law legal system, it is right that the Government ask the regulators to comply with broad principles and hold them accountable for the outcome without requiring parliamentary oversight of all operational steps and without expecting the regulators actively to consider and document their analysis of how they have complied with each principle every time they exercise their general functions, however routine they are. I know that there is a discussion about the system being modified and improved through this Bill, but that is not what we have at the moment.
The committee’s mandate is to scrutinise whether the UK’s regulatory framework and regulators operate effectively. That requires the committee to have access to meaningful information and a coherent standard against which to test the regulators’ conduct. The long-term strategy provides that broad standard, and the committee will still receive consultations and examine how individual proposals advance the strategy that the regulator has publicly committed to. Its constitutional role could therefore be strengthened rather than rendered ineffective. Clause 17 keeps the Financial Services Regulation Committee’s oversight where it should be: on the substance of regulatory performance, the delivery of publicly stated strategies and the real-world impact of regulation. It also frees the regulators from unnecessary procedural burden, so that they can focus on regulating well. The mechanism does not have to be the same as before, and keeping Clause 17 could materially improve it.
Baroness Kramer (LD)
My Lords, I did not intend to speak in this debate because the case has been put so well. However, having heard the noble Baroness, Lady Bi, I want to join the conversation because I think she has a very different perception of the role of Parliament from that of many others here. We have a responsibility as Parliament collectively—we are not the elected House but the appointed House—directly to the people of this country. The regulators are servants of that responsibility, not masters of it.
What the noble Baroness described is the ability for Parliament to intervene only at the very highest level in a very limited way and to pass huge authority over the financial sector, our financial stability and the economy to the regulators and then walk away. If we were to do that, we would be absenting ourselves from the very requirements that are at the core of a parliamentary system. She dismissed the pretty five-year strategy plan that we have from the FCA for 2025 to 2030, but it is exactly what is envisaged in this legislation: fairly high-level, simplistic comments of the kind that were probably developed by the public relations department.
The committee we put in place in 2023 was put in place not at the proposal of the Government or the regulators but by a Parliament utterly frustrated in not being able to carry out the responsibilities that it has as a Parliament. I have to say that the Labour Party was in a completely different place in 2023—it has now switched; I do not know why it has made such a volte-face. The Government of the day, the regulators and the financial sector were determined to narrow the capacity to scrutinise, to have a parliamentary view and to allow this Parliament to live up to its responsibilities. If we cannot have an expert committee able to look in detail at factors that so fundamentally affect the economy and well-being of the UK, we are, frankly, derelict in our duties. That is why this is a huge constitutional issue. If we were to repeat this in the area—
Baroness Bi (Lab)
I am not sure that we disagree very much on what the purpose of Parliament is and its relationship with the people of Britain, but the FCA asked for a risk metric from Parliament and did not get one. I have heard a lot about the obligations to the people but, if Parliament is so crucial to what the regulators need to do, why was no guidance given to the regulators about the extent of risk they should take in their operations?
Baroness Kramer (LD)
I am not on the committee, so I cannot answer that particular question—I am sure others would be able to consider this issue. However, if the noble Baroness thinks that, because Parliament did not, in her words, provide political cover for activity that the regulators wanted to carry out, Parliament should then be removed so that the regulators would somehow be exposed, who would they be exposed to? They would not be exposed to a committee. The public does not have the ability. I do not see the regulators going around the country talking to ordinary people in regular communities about what they are doing; they do not engage at that level. Many APPGs in this House have asked the regulators to come and talk to them. They are nearly always refused or somebody junior is sent, so it is only through a limited committee structure that this Parliament has been able to hold the regulators to account at all.
I give huge credit to the committee that sits under the chairmanship of the noble Baroness, Lady Noakes, which was created against the resistance of the regulators and the Government. This, now, is their attempt to try to unravel what is turning out to be a very effective committee that is raising really important issues, creating a requirement for proper answers and initiating real investigation. That is what lies at the heart of this: an attempt to negate the effectiveness of a committee that has been making its mark, and which leaves the regulator feeling uncomfortable because it has to answer questions.
Baroness Noakes (Con)
I shall make a brief comment on why Parliament has not offered any guidance on risk metric. The committee was well aware that the FCA sought to get clarity about the risk appetite that it was taking. The PRA had not made that request; it regards it as its responsibility to judge the balance of risk. There is no unanimity in the regulator community on this, but we reported the issues as we found them in one of our reports.
The noble Baroness asks why Parliament has not given its answer. The straightforward answer is that the Government have not brought forward anything. Parliament gives an answer only when it approves something that the Government bring forward. When we asked the Financial Secretary to the Treasury whether she intended to operationalise the giving of a more specific risk appetite to the FCA, she said pretty clearly that she thought that the Government would not do that.
If the Government do not bring forward something for Parliament to approve, it is not going to happen. Parliament does not act in the way that the noble Baroness seemed to think that we would act, which is that a committee would somehow produce an answer on risk appetite. The committee can comment on the issue of risk appetite and has done so, but it is fundamentally for the Government to take any action that is to change the way in which the risk appetite is specified for any regulator.
Baroness Neville-Rolfe (Con)
My Lords, this is an important clause, and I understand why noble Lords wish to probe the Government’s approach to Clause 17. It is always right that we scrutinise carefully any change to the statutory framework governing our financial regulators, and the sponsors have set out their case well. I note that they were introduced into the 2023 Act for good reason: to try to ensure that financial regulation in the UK is proportionate, accountable, flexible and aligned with economic and market objectives.
As I said earlier, I am glad that a meeting with the Financial Services Regulation Committee will take place next week. Certainly, I would like to get to the bottom of whether the change neuters the committee, as has been suggested by the noble Lord, Lord Eatwell, and my noble friend Lady Noakes; indeed, I think that committee was unanimous that there was a problem. I thought it was interesting that my noble friend Lord Bridges echoed concerns that key, case-by-case analysis by the committee would disappear, and that the noble Baroness, Lady Donaghy, expressed concern about the way that her questions about cost-benefit analysis had been answered, presumably under the existing system.
These are all very legitimate questions, but there are other considerations—the noble Baroness, Lady Bi, touched on some of them. Our position is that we do not want to perpetuate overburdensome regulation. In discussions with industry, we have heard repeatedly that the regulatory principles in Section 3B of the 2000 Act can themselves lead to tick-box exercises. That is particularly true where the principles require regulators to consider wider public policy objectives, which may have only a very indirect connection with the firms being regulated or the activities in question. For example, Section 3B(1)(c) includes
“the need to contribute towards achieving compliance by the Secretary of State with section 1 of the Climate Change Act”—
the net-zero target—
“and … the Environment Act 2021 (environmental targets) where each regulator considers the exercise of its functions to be relevant to the making of such a contribution”.
My own experience of serving on a challenger bank’s board is that there is already a lot of climate-related activity required by the regulators that creeps into many aspects of governance. It is generally costly and sometimes of little worth. That was before the regulatory principles were added. That reflects, harking back to our earlier conversation, the extensive net-zero regulations that exist, the remit letters and the sustainability reporting network, all of which were cited earlier. Therefore, the real question is whether financial regulation is the right vehicle through which to pursue such goals and whether embedding such considerations produces better regulation or simply more process, as we suspect.
The Bill is meant to be deregulatory, and it is meant to simplify the regulatory environment and to support growth and competitiveness. I think the Government may be genuinely reducing a burden that has been identified by industry. We should be careful before assuming that every principle must remain in place. For me, the real tests are about what improvements are coming about here. I am interested in the detail. Does it make the FCA or the PRA more effective? Does it protect consumers? Does it support financial stability? Does it help growth? Alternatively, does it simply create another layer of process, the cost of which falls on firms?
I would be grateful if the Minister could explain more clearly the Government’s rationale for Clause 17. What burdens have been identified and what will the impact be of the changes proposed here? What evidence have the Government received from industry and regulators about the operation of the current Section 3B principles? How will the Government ensure that removing or amending such principles reduces unnecessary burdens, without weakening the core protections that consumers and markets expect?
As the Official Opposition, we are, in essence, in listening mode on this quite radical proposal. We would like to understand whether the “whereases” that are being partially abolished are a burden on only the regulators or whether that feeds through to industry and consumer protection—and, if so, how. I believe that, sometimes, a clearer, simpler and more focused framework is more effective. If Clause 17 helps move us in that direction, it may be needed in the Bill, as the noble Baroness, Lady Bi, suggested. However, it also seems very important to work out how the two parliamentary committees will exercise proper oversight going forward in a post-Brexit regulatory environment, and to ensure that any regulatory resistance, which we have been hearing about this evening, is minimised.
Lord Stockwood (Lab)
My Lords, it is clear that the Committee places a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously and genuinely value the contributions made in this debate.
Before I start, it is important to remember that the regulators have both principles and objectives. The regulators need to advance these objectives—regulatory principles are something that they consider only when doing so—and the Bill does not change that. The noble Lord, Lord Vaux, asked me whether the regulators will be required to report on the long-term strategy. Clause 16(6) amends Schedule 1ZA to FSMA so that the FCA must explain, in its annual report, the extent to which it has implemented its long-term strategy. Clause 16(7) does the same for the PRA.
The Government agree that the regulatory principles are an important part of the statutory framework. They are also aware that each of these principles has strong support, so, while there may be a view that some could be removed, there is no consensus on which ones it would be suitable to remove. This is why, when the Government reviewed the principles, they concluded that none of the individual principles should be removed from legislation. Instead, the Government concluded that the regulatory principles must continue to play a significant part and a central role in the work of the regulators through new long-term strategies. The regulators will be required to have regard to those principles when preparing or revising their strategies, ensuring that they are applied in a more coherent and visible way at the strategic level and in a manner that supports an overall assessment of the regulators’ performance and actions.
In our debates on other clauses, there has been a widely shared view that, in some areas, regulatory requirements on firms have become overly prescriptive and, in some cases, duplicative. The Government consider that, in some areas, this is also true of the regulators, and that, over time, various requirements have been added to and extended. This places the resourcing burden on the regulators, which is ultimately paid for by firms and can reduce their capacity to act quickly and effectively.
That is why the Government consider it appropriate to change the way in which the regulatory principles in FSMA are applied to the regulators. The Government consider that this new approach will support more meaningful scrutiny of the regulators’ strategy, as opposed to repetitive and fragmented processes across the individual exercising of their functions. As I explained earlier, it would mean that, for example, rather than considering whether an individual proposal is proportionate, the regulators will be required to set out clearly how they have considered whether their strategies and work plans as a whole will result in a proportionate burden on firms.
Let me be clear: the regulatory principles will remain central to the regulators’ work under the new framework. Parliament will continue to have the full range of statutory and constitutional levers through which it can hold the regulators to account, including scrutiny by parliamentary committees and review of the regulators’ publications, such as their annual reports, on how they have advanced their statutory objectives and their annual responses to the Treasury’s letters of recommendation on economic policy—both of which the Treasury is required to lay before Parliament. The requirements for the regulators to consult on proposed rules and demonstrate how they have advanced their objectives will remain. If the rules on which the regulators are consulting will impose costs, their cost-benefit analysis must also be published. The regulators must also notify the chairs of parliamentary committees when they issue consultations. This requirement is also unchanged. If a parliamentary committee writes to a regulator concerning a publication, the regulator must respond to that committee in writing. The Government consider that these are the most effective ways of holding the regulators to account.
The accountability of financial services regulators is a significant matter for this Committee—I have heard that loud and clear. The regulatory principles are important for shaping the work of the regulators, and I recognise the strength of feeling on how they operate. However, the way in which they currently operate can reduce the regulators’ agility while doing little to support effective overall scrutiny or to materially benefit firms. Reforming how the regulatory principles work will ensure that these principles continue to be central to the work of the regulators and will support enhanced scrutiny of their overall performance. I therefore move that Clause 17 should stand part of the Bill.
“Treasury statement of concern(1) Where the Treasury considers that rules or guidance made by the Financial Conduct Authority or the Prudential Regulation Authority are inconsistent with primary legislation or statutory objectives, the Treasury may publish a statement of concern.(2) Where a statement of concern is published under subsection (1), the Financial Conduct Authority or the Prudential Regulation Authority must, within 60 days, publish a response explaining—(a) whether it agrees with the concern, and(b) what action it proposes to take.(3) The Treasury must lay before Parliament any statement of concern published under this section, together with any response received from the Financial Conduct Authority or the Prudential Regulation Authority.”Member’s explanatory statement
This new Clause would enable the Treasury to publish a statement of concern where regulator rules or guidance appear inconsistent with primary legislation or statutory objectives, requiring a published response and Parliamentary transparency.
Baroness Bowles of Berkhamsted (LD)
In a way, it is a pity that I tabled this amendment, because it would probably be a whole lot more informative for us to go straight on to Clause 18. However, Amendment 88 would introduce a new mechanism that was suggested to me: a formal Treasury statement of concern. The idea is that it would fill a gap that has always existed—one that becomes all the more glaring alongside the opacity created by the Bill.
The FSMA 2000 settlement imagined a world in which Ministers were hands off and regulators were left to get on with it. That world has long gone. The Government are now highly interventionist in the name of growth. More generally, they signal priorities, express expectations and raise concerns, but almost all of that happens privately or through speeches and press releases that are approximate and not subject to parliamentary scrutiny.
My amendment would formally put the record straight. If the Treasury considers that
“rules or guidance … are inconsistent with primary legislation or statutory objectives, the Treasury may publish a statement of concern”
and the regulators must respond publicly within 60 days. That is all. It is not a direction, and it is not interference; it is a constitutional signalling mechanism. It would simply show that the Government have taken action on a concern, which otherwise might be unknown. The Government may say that they do not wish for such a mechanism—they do not have to use it—but legislation is not written for the preferences of a particular Minister at a particular moment in time; it is written for the system. The truth is that the Government already intervene with regulators, only informally, privately and without transparency. Why not have a formal system as part of escalation or as a pre-legislative tool?
There is also a practical point. Parliamentary time is limited, and correcting regulatory inconsistencies through statutory instruments can take months, if it happens at all. A statement of concern is a stage earlier. It would allow the Treasury to flag a potential inconsistency without immediately reaching for legislation. It would also allow the regulators to respond and, where appropriate, adjust course. It could also help resolve issues that arise when different things are said or interpreted differently in different places.
In that sense, this mechanism’s greatest strength may lie in its quiet deterrent effect: it would rarely need to be used because its existence would encourage early correction and avoid the need for statutory intervention later. A statement of concern provides exactly that. It would allow the elected arm of government to say transparently, on the record, “We see a potential inconsistency. We are not directing you, but we expect a reasoned response, and we think that this needs to be done publicly”. It would also have the benefit to the Government of them showing formally that they have taken a concern forward.
As I say, this was proposed to me, and I think that there is a point to it. There is a missing link. The Treasury often says that it does not interfere, but there has been an awful lot of correspondence and hugger-mugger between regulators and the Treasury recently in order to come forward with the growth strategy. This is a missing link. The power of Parliament has been eroded. I did not recognise a lot of the things that the noble Baroness, Lady Bi, said about how the system works. There is a missing link in terms of what the Treasury is able to do. I beg to move.
Baroness Noakes (Con)
My Lords, I will speak briefly in support of Amendment 88 in the name of the noble Baroness, Lady Bowles. It would be a useful addition to FSMA to have a specific power for the Treasury to issue a statement of concern; I particularly like the fact that it could be used without the full parliamentary process of regulations. As the noble Baroness may recall, when we debated the then Bill in 2023, the Treasury took a power to tell regulators to make rules. However, that power has to be exercised via regulation, so it needs to go through the whole statutory instrument procedure. It has not yet been used, as far as I am aware, but it is a useful backstop that the Treasury has if it wants to direct the work of the regulators, which is a perfectly reasonable thing for it to do in certain important areas.
The existence of the Treasury’s ability to issue a statement of concern would be particularly useful when interested parties were trying to get a point about things that were not working heard by the regulators. The ability to engage the Treasury in that would be very helpful, although I am sure that it would be used more as a background factor in the relationship than as an active part of the Treasury’s relationship with the regulators. I applaud the noble Baroness on her ingenuity in bringing this amendment forward.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward these amendments. They raise two very salient points about the accountability of the financial regulators and the mechanisms by which Parliament, the Treasury and the public can scrutinise how those regulators use their powers.
One of the core functions of the Bill is to increase the power and scope of the remit of the regulators, in particular the FCA. Across the Bill, more responsibility is being transferred, more detail is being left to rules and more of the practical operation of the regime will depend on regulatory judgment, rather than primary legislation. My concern is that although the Bill increases the power of the regulators, it does not always provide a corresponding increase in oversight or scrutiny of them; as an ex-Treasury Minister, I am slightly surprised that the Treasury is entirely happy with that.
To me, Amendment 88 seems a sensible and proportionate form of challenge. It would create a formal and transparent way for the Treasury to say that, in effect, a regulator may have gone beyond what Parliament intended or may have acted in a way that is not consistent with its statutory remit. This matters because the Treasury is directly accountable to Parliament in a way that independent regulators are not. If regulators are to exercise substantial powers delegated by Parliament, there must be some meaningful mechanism by which Ministers can challenge, explain and account for how these powers are being used. We will come back to this point again at a later stage in Committee; my noble friend Lord Bridges has tabled an amendment that speaks to this same broad issue.
The underlying point is simple: if regulators are powerful, they must also be accountable. How best to achieve this should be a key objective of our scrutiny in Committee and on Report. I would be grateful, therefore, if the Minister could set out the Government’s position on this wider issue. He wrote to us shortly before Committee—a little too shortly before Committee; I say that politely—but I am not sure whether what he sent us, including the Treasury memorandum, answers our outstanding questions. So do the Government accept that the Bill increases the powers and responsibilities of the FCA and PRA? If so, do they accept that stronger oversight mechanisms are called for? What formal routes currently exist for the Treasury to raise concerns about regulator rules or guidance that may not reflect Parliament’s intention?
Also, what is the Government’s objection, if any, to periodic independent reviews of regulator performance and burden? As a former Minister, I found that, although such requirements were unpopular with the department at the time they were put into law, they proved useful in helping me keep on top of the responsible regulators and their policies.
I very much hope that the Minister will engage constructively with the problem, answer my questions, on both the previous group and this group, and appraise in a constructive spirit the amendment tabled by the noble Baroness, Lady Bowles. Above all, we need reassurance that the Government recognise the importance of scrutiny, transparency and trust in the regulatory system.
Lord Stockwood (Lab)
My Lords, the accountability of our financial regulators is a serious matter, and Parliament rightly takes a close interest in how the FCA and PRA exercise their powers. We have extensively discussed the FSMA model of regulation today. It is the foundation of a system of regulation under which Parliament sets the regulators’ objectives, invests them with the powers that they need to further those objectives and sets out a clear system of governance and accountability under which the regulators are required to account for their actions and effectiveness in furthering the objectives that Parliament has set for them. As I said before, the Government remain of the view that this is the most appropriate and effective model of regulation available. It has served us well and is internationally respected.
The difficulty with this amendment, therefore, is that it would cut across the foundational principle of our regulatory architecture. The FCA and PRA are operationally independent bodies. That independence is not incidental; it is the source of their authority and credibility and, ultimately, their value to the consumers and markets they serve. Under the FSMA model, it is the responsibility of the regulators to interpret their statutory objectives. It is not the role of HM Treasury to do so. This amendment would, over time, erode precisely the independence that makes those regulators effective. Markets, firms and consumers need to know that regulatory decisions are made on the merits, free from political pressure. This amendment, however well-intentioned, risks compromising that assurance.
Of course, Parliament can and does challenge the regulators where it thinks they have done something wrong. Given that their authority ultimately flows from Parliament, the regulators take that incredibly seriously. Parliament can and does make its views known to the regulators on key issues. For example, after a highly critical report from the House of Lords’ Financial Services Regulation Committee, and in recognising the lack of consensus among the stakeholders, in 2024 the FCA dropped plans to change the way that it publicised ongoing enforcement cases.
The noble Baroness, Lady Neville-Rolfe, asked whether the Government are satisfied with the current framework. There is an appropriate requirement already set out in FSMA that is designed to support scrutiny and oversight and, in certain circumstances, to allow the Government to give the regulators some level of direction. For example, the Government can require a regulator to review one of its rules or to appoint an independent person to review those rules where they consider this would be in the public interest. The Government can also require the regulators to make rules but cannot direct their content or purpose.
The regulators have a statutory duty to keep their existing rules under active review. This is contained in Section 3RA of FSMA. Furthermore, the Treasury has an ability to direct regulators to launch an independent review of specified rules, with the outcome laid before Parliament. The regulators are also subject to robust wider parliamentary accountability, including through the information they are required to provide to relevant committees and the vital role those committees play in questioning the regulators and critiquing their work. Those are the appropriate channels for testing the consistency of regulators’ actions with legislation or statutory objectives, not a ministerial statement of concern, which starts to undermine the principles of independent regulation. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Bowles of Berkhamsted (LD)
My Lords, I still think that there is a missing link here, but I heard what the Minister said and it is what I was expecting: the Government are frightened that this would look as if they were going to undermine independence in some way. I fully understand that. There are other regulatory interventions that Ministers make with other regulators, so it is not an entirely off-the-wall idea. It certainly was not meant to be part of the routine kind of application of day-to-day accountability. A “very rare or never” kind of application is what was envisaged, but we have given it an airing. It is not going anywhere. With that, I beg leave to withdraw the amendment.
Baroness Noakes
Member’s explanatory statement
This amendment, together with another in the name of Baroness Noakes, ensures that the FCA and the PRA continue to give guidance about how they intend to advance their objectives.
Baroness Noakes (Con)
My Lords, we now come on to a bit of a ragbag group of amendments, which I should probably have split into more than one group. In moving Amendment 89, I shall also speak to Amendments 92, 93, 94, 96 and 98.
I will start with the FCA’s guidance. At present, the FCA has a power under Section 139A of FSMA to give guidance on, for example, the operation of specific parts of FSMA or its rules. Section 1K says that the guidance must—that is, must—
“include guidance about how it intends to advance its operational objectives … in relation to different categories of authorised person or regulated activity”,
and, inter alia, it has to consult on that guidance. What does this Bill do? Predictably, it eviscerates the provisions. Clause 18(2) removes Section 1K from FSMA, and Clause 18(8) takes all the substance out of Section 139A. This is part of the insidious pattern of this Bill, removing information that regulated persons might find useful—removing guidance about how a regulator would advance its objectives—and removing the requirement to consult on what is left of Section 139A. This is a Bill solely for the regulators’ convenience, regardless of the needs of those subject to regulation. Similarly, Section 2L of FSMA currently requires the PRA to consult those it regulates about how its general policies and practices are consistent with its general duties, and Clause 18(3) removes this. My Amendments 89 and 92 would remove these retrograde provisions from the Bill.
Amendments 96 and 98 are rather different. They concern statutory references to the Financial Services Regulation Committee, and I thank my noble friend Lady Neville-Rolfe and the noble Lord, Lord Vaux of Harrowden, for adding their names. The current FSMA wording about parliamentary committees derives from the 2023 Act, which, as initially drafted, referenced only the Treasury Select Committee in the other place, but that was amended during the passage of the Act to encompass any committee of your Lordships’ House set up to deal with financial services regulation or indeed any Joint Committee of both Houses. Following the passing of the Act, your Lordships’ House decided to set up the Financial Services Regulation Committee, to which I, like others, have referred several times in this Committee. Amendments 96 and 98 merely amend the 2023 wording inserted into FSMA to reflect the fact that your Lordships’ House now has a specific committee which should be referred to in legislation.
When the Bank Resolution (Recapitalisation) Act was passed last year, we managed to get it amended to incorporate a specific reference to the Financial Services Regulation Committee, and I am a bit disappointed that the Treasury, which agreed to those amendments last year, has already forgotten that the FSMA wording is out of date and needs to be amended. I therefore hope that Amendments 96 and 98 are non-controversial and that the Government will accept them. I should explain for those noble Lords who did not take part in the passage of the Bank Resolution (Recapitalisation) Act that the references in the amendments to the Chairman of Committees are in fact references to the Deputy Lord Speaker—when that role was created, it encompassed the function of the Chairman of Committees, but that nomenclature remains in statute. That is the Committee’s fun fact of the day.
My remaining two amendments in this group, Amendments 93 and 94, are pretty arcane for those who have not audited a bank or sat on a bank or insurer’s board. For my sins, I have done both. Following the Parliamentary Commission on Banking Standards, FSMA was amended to require meetings at least annually between the regulators and the auditors of PRA-regulated persons. This was definitely overkill, and I am pleased that the Government have decided to delete most of Section 339B of FSMA, through Clause 18(11). They have, however, retained the requirement for the PRA to do those meetings, even if it no longer has to report on them; my Amendment 93 would remove Section 339B in its entirety. This does not mean that the PRA will never meet the auditors of the bodies it regulates: it used to meet the auditors before Clause 339B was enacted in 2013 and can continue to do so if the clause is eliminated, but it would remove the obligation on the PRA to do so. Clause 339B has in fact spawned a small industry of the PRA thinking up questions to ask the auditors to report on. The auditors then go away and write a report, usually asking their client to produce a lot of information first, and then the auditors ask the client for a fat fee. It is not value-added activity. We should leave meeting auditors to the regulator’s discretion.
In a similar vein, my Amendment 94 would amend Section 340 of FSMA, which requires the PRA to make rules about auditor co-operation. It has a similar provision for the FCA, but that merely empowers the FCA to do so. My amendment is unlike most “may”/“must” amendments in your Lordships’ House. We normally seek to replace “may” with “must”. My Amendment 94 does the reverse, so that the PRA “may” make rules if it chooses to do so, and hence aligns with the FCA by giving discretion to the PRA, which is also what my Amendment 93 aims to do. I beg to move.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, before we continue the debate, we have started group 6 and we have one more complete group to do. We are going to finish at 8.45 pm and I would hate to think that we would finish mid-group, but I am in your Lordships’ hands as to whether we do that.
Baroness Bowles of Berkhamsted (LD)
My Lords, this is the third of the trio. Clause 18 is a deletion clause, the final clause in the trio that removes consideration of the regulatory principles from the context of actual rule-making. It strips out the guidance duties, reporting duties and consultation hooks that once gave Parliament visibility into how the regulators applied their objectives and principles. Let us look at what is being systematically dismantled here. There is some overlap here with some of the things that the noble Baroness, Lady Noakes, has addressed.
Clauses 18(1) and (2) delete the FCA’s and PRA’s guidance about their objectives—the very provisions which, as the Explanatory Notes admit, required the regulators to explain how they advanced those objectives. It is not a question that they still have to explain now; that has gone. Clauses 18(3) and (4) remove the explanations required on directions on consolidated supervision and authorised decisions. Clause 18(7) removes the FCA’s obligation to notify, consult or explain when issuing guidance relating to its objectives. Clauses 18(9) and (10) delete large parts of the FCA’s and PRA’s annual reporting requirements, one of the most sensible and accessible ways for Parliament to understand how objectives were dealt with in practice and would ideally be built upon. Clauses 18(12) to (14) remove linkages to other Acts of Parliament, including the auditor engagement duties that once provided an additional source of supervisory insight.
What is left? Guidance? Gone. Explanations? Gone. Participation? Gone. Annual reporting? Gone. Audit? Gone. These were the exact mechanisms through which Parliament and others scrutinised how the regulators applied their objectives and principles. Clause 18 removes them all. It is the inevitable consequence of the Clause 16 and 17 shift: the practical reality of decoupling principles from operational effectiveness and removing Parliament’s line of sight. It leaves us with no checks and absolutely no balances. For these reasons, I oppose Clause 18 standing part of the Bill.
Lord Pitt-Watson (Lab)
My Lords, I will speak to Amendments 93 and 94. I have not audited a bank or sat on a bank board, but I was a member of the Sharman committee that looked at the problems with auditing following the global financial crisis. I sat on the board of one of the big four auditors, chairing its public interest committee, and I talked to a number of partners who audited the banks.
I think that we agree that audit is absolutely a foundation stone for the integrity of the capital markets. For those who are interested, it was part of the settlement following the collapse of the City of Glasgow Bank in 1878 that we would have audits of limited liability banks. It is particularly critical where entities are highly geared or where there is a considerable element of judgment in determining their value. If we look at the banks, they are hugely geared. People like to talk about the common equity tier 1 ratio, but if we look at the gearing that most companies use, it is the equity versus the liabilities. For a typical bank, equity is about 6%: on the back of that, you can borrow £94 and lend £100. That means that, if you have overvalued your assets by 3% and undervalued your liabilities by 3%, you end up with no equity whatever.
This is a really sensitive calculation and, historically, it would have been made with a degree of prudence and conservatism. Prudence and conservatism have now gone as guiding principles, and valuations are done neutrally. For example, this would allow a bank to declare a profit on a zero-interest credit card, on the grounds that it can bring forward the profits it thinks it will make in future. The noble Baroness, Lady Bowles, has been great in raising these issues for some time.
There are of course huge temptations to optimism. Indeed, it is surely testament to the professionalism of our bankers, and the independent agents we employ to monitor and control bank behaviour, that banks have not got into greater trouble. There are four such agents: the independent non-executive directors; the auditors; the investors and the regulators. Many more resources are devoted to auditing banks than to regulating them, and vastly more than fund managers devote to their role as stewards. The auditors have inside knowledge and huge expertise, and it is precisely that insight, given independently, that regulators need in order to play their role.
I think that that was recognised by the noble Baroness, Lady Noakes, when she suggested that the PRA “may” ask to speak to the auditors. The problem is that the auditors have a delicate job: they are referees. The report is done for the investors, but they need the trust of the audited entity. Indeed, they are, in effect, appointed by the audited entity, and they even sometimes describe the audited entity as a client. They are unlikely to go to the regulator without having profound concerns.
Regulators may find it helpful to call in the auditors because of problems that are visible to them: the known knowns. Under those circumstances, this amendment would of course work. However, what the regulator really needs to know is the unknown knowns: something that is known by the auditor, who has gone inside, but not known by the regulator. That is why it makes sense to mandate that the regulator “must” talk to the auditor to hear their concerns, to pick up potential emerging problems before they become critical, and to understand how the auditor judged the numbers to be true and fair.
The audit is the foundation of the integrity of our capital markets. For auditors to have material knowledge of a bank’s position that is relevant to the stability of the system and for that not to be known by the regulator seems to be completely perverse and potentially very dangerous. With that perspective, I wonder whether the noble Baroness, Lady Noakes, might be content with Clause 18, on audit reporting, to remain as it stands.
Baroness Neville-Rolfe (Con)
My Lords, we are sympathetic to the concerns raised by noble Lords across this group. I was glad to add my name to several amendments tabled by my noble friend Lady Noakes. I entirely agree with her and with the noble Lord, Lord Vaux, that the role of the relatively new and very effective Lords Financial Services Regulation Committee should be added to the 2023 Act. We are lucky to have such an assembly of experts and effective questioners, as well as Lords clerks, to help with the enormous task of scrutiny in the financial services sector.
We have just been discussing the accountability of the regulators, the importance of scrutiny and the need to ensure that the FCA and PRA exercise their considerable powers in a way that is transparent, proportionate and properly justified. This group raises those same issues in the more specific context of guidance, consultation, cost-benefit analysis and the way regulators explain the impact of what they do. I look forward to the Minister’s response to the noble Baroness, Lady Bowles.
Our Amendment 90 asks a serious question about cost determination. The cost-benefit analysis panels within the regulators are an existing mechanism of accountability. They are designed to provide scrutiny of the costs and benefits of regulatory proposals and to help ensure that regulators properly consider the burden that their rules impose.
But there is a significant limitation. As I understand it, the cost-benefit analysis panels are engaged only where the regulator makes a rule change that the regulator itself considers to be materially significant. Should there not be a more independent mechanism for testing whether a regulator’s view that a proposal has no or minimal cost impact is actually correct? If the regulator decides that a proposal has no or only minimal cost impact, then the process may not trigger a cost-benefit analysis—but that judgment may itself be contestable, especially if it is a net threshold, hiding both the costs and the benefits. Firms may take a very different view about the practical cost of implementation, the operational burden, the systems changes required and the cumulative impact when viewed alongside other requirements. Indeed, cumulative effect is a concern rightly enshrined in my noble friend Lady Noakes’s Amendment 119, which we will discuss on a later group.
There is also a wider issue. The cost-benefit analysis panels are not generally able to assess changes in guidance or enforcement activity. Guidance can be hugely significant in practice. Enforcement activity can create powerful incentives and costs across the sector, even beyond the firm that is directly affected. So the question is not simply whether a formal rule change has costs; it is whether the regulators’ activity as a whole is proportionate, whether it is evidence-based and whether the burden it places on firms is properly understood. That is why we want to press the Minister on whether the Government will give thought to expanding the remit of the cost-benefit analysis panels. For example, how will they operate in relation to the FCA’s new powers on credit, on in-person banking and on payment regulation?
Equally importantly, should they not be able to consider whether guidance, supervisory expectations and certain enforcement-related approaches carry material cost implications? Cost-benefit analysis forces a discipline on regulators. It requires them to summarise what they are doing succinctly and clearly, and to ask whether the benefit justifies the burden, whether the same objective could be achieved in a less costly way and whether the cumulative effect of regulations is proportionate. I always turn to the impact assessment of a rule if it is available, as it allows one to get to the heart of what is happening.
The broader point is that transparency, consultation and cost scrutiny are not bureaucratic obstacles to good regulation; they actually help to prevent unintended consequences and excess red tape, and they sometimes draw attention to harm to SMEs. They give Parliament and industry confidence that regulatory powers are being exercised responsibly.
So I would be grateful if the Minister could address the specific issues raised by Amendment 90. I have five questions, to which the Minister may want to respond by letter if necessary. First, who in practice decides whether a proposed regulatory change has no or minimal cost impact? Secondly, what is the threshold, in millions of pounds, and is it gross or net of benefits? What safeguards exist to test that judgment? Fourthly, are the Government satisfied that the cost-benefit analysis panels have a sufficiently wide remit? Fifthly, will the Minister consider whether that remit should be expanded to include guidance, supervisory expectations and other regulatory activity that may impose material costs on our important financial services sector?
As we have said throughout Committee, accountability must keep pace with regulatory power. If regulators are to be given more responsibility, the scrutiny of their decisions, their processes and their costs must be strengthened. I will listen carefully to all the Minister’s responses on cost-benefit and, unless these are satisfactory, the Opposition will want to bring forward an amendment on Report.
Lord Stockwood (Lab)
My Lords, I begin by explaining the Government’s purpose behind Clause 18 and why it should stand part of the Bill. Over time many reporting and procedural requirements have been placed on the FCA and the PRA, increasing burdens, introducing duplication and in some cases complicating oversight, scrutiny and accountability. There is broad agreement that this dynamic is true for firms subject to regulation. I ask noble Lords to reflect on whether it might also be true for the regulators and on whether that is slowing them down and ultimately having a negative impact on firms and consumers.
These burdens are not without consequences. The regulators must follow the letter of these requirements, diverting time and resources away from other work. Ultimately the cost of that work is passed on to firms through the levy they pay and through their engagement with the asks of the regulator. The Government’s view is that there is scope to rationalise parts of this approach to enhance the effect of scrutiny and to help regulators become more agile and ultimately better support innovation and growth.
The Government sought feedback on which regulator publications stakeholders found most useful and then worked closely with the regulators to consider this feedback and further assess the range of requirements placed on them. Feedback to the regulatory environment consultation indicated very low engagement with certain types of regulator publications, and the regulators’ data confirms this. In recent years, the FCA and the PRA consulted on several proposals to which they received zero responses, although I accept that not all publications are created equal.
I have listened carefully to the concerns raised, particularly the argument that these provisions remove practical tools that help Parliament and stakeholders understand what the regulators are doing and why. I recognise that concern, and that is why the Government have approached this area carefully. Clause 18 is carefully targeted and relatively modest. The Government are retaining the vast majority of the existing transparency and reporting framework. Clause 18 is focused on removing a small number of requirements where the burden of complying is disproportionate to their value. These changes do not prevent the regulators undertaking any of these activities where they judge it useful to do so. Instead, they give the regulators greater flexibility to focus on delivering their strategic priorities.
This clause must also be read in the context of the wider framework. The Bill introduces new long-term strategies, maintains the requirement for regulators to respond annually to Treasury recommendation letters and provides for an additional annual report on how the FCA and the PRA have complied with their competitiveness and growth objectives. Taken together with the existing framework in FSMA, these measures are intended to strengthen overall transparency, not weaken it.
I turn to the amendments, starting with Amendment 89—
Baroness Noakes (Con)
Before the Minister moves on, can I just press him on the evidence of stakeholders that has been relied upon to sweep away so much stuff in Clause 18? Did the stakeholders specifically say they were not interested in guidance that was issued by the regulators or in the consultation on that guidance?
Lord Stockwood (Lab)
Unfortunately, the precise question was not asked in the consultation.
Baroness Noakes (Con)
So on what basis are the Government making the decision to remove the requirement under FSMA to issue the guidance, and obviously, therefore, to consult on it?
Lord Stockwood (Lab)
I will have to come back to the noble Baroness. The broader requirement is that we are trying to streamline the process to take the regulatory burdens away. We recognise that we need to give a precise answer on that.
Baroness Bowles of Berkhamsted (LD)
The Minister mentioned taking away regulatory burdens, but the Government are actually taking away regulator burdens. They are not the same thing.
Lord Stockwood (Lab)
They are not the same thing. The approach we are trying to take is to streamline duplication while not in any way detracting from the overall process. That is the principle we are trying to follow here.
Amendment 89 would preserve the statutory requirements on the FCA and the PRA to give guidance about how they intend to advance their objectives. This requirement was introduced by the Financial Services Act 2012, and since it came into force, both the FCA and the PRA have published guidance fulfilling this requirement, which is updated when necessary. For example, most recently the PRA updated this approach to policy statements in February 2025. Removing these statutory requirements will not prevent the regulators giving such guidance where they consider it beneficial to do so. These requirements would also be duplicative with the new long-term strategies, which will set out the regulators’ approach and priorities for advancing their objectives, as well as other statutory publications, such as the regulators’ annual reports.
Baroness Kramer (LD)
Is the Minister suggesting that, in dealing with the long-term strategy, there will be the same level of detail as is normally provided in guidance? I am somewhat confused when he explains that one is a substitute for the other.
Baroness Kramer (LD)
If I understood the Minister correctly—do correct me if I am wrong—the FCA or the PRA will have the opportunity to provide guidance if they deem it necessary. But if they choose not to, that should not be worrying, because the equivalent statement will occur either in the five-year strategy or in a report on how the FCA is achieving its five-year strategy. Is he suggesting that that will be at the same level of detail as the guidance that is required today? That is what I am trying to understand.
Lord Stockwood (Lab)
I believe that they still have to publish the full guidance, but let me come back with a written response on that.
Turning to Amendments 90 and 92, the Government recognise the impact that changes in rules and guidance can have on firms, particularly smaller firms and regulated persons trying to understand what is expected of them. The government reforms are intended to avoid imposing full consultation and cost-benefit analysis requirements where proposals are genuinely minor or low impact, while preserving the wider consultation framework for substantive changes. Minor changes to rules include corrections, clarifications or minor technical updates, and it will be for the regulators themselves to determine whether a rule change meets this definition, as they are best placed to assess the impact of such changes. For example, last year, the FCA consulted on reducing late filing charges from £250 to £100. Under this provision, the FCA would not be obliged to consult and could make these changes faster.
Baroness Kramer (LD)
What if the change had been in the other direction and had added an additional £100 pounds? Would the FCA have been in a position to decide that that was not material for consultation?
Lord Stockwood (Lab)
I think there is a broad principle: we are trying to give the FCA the power to make those small changes in both directions.
Baroness Noakes (Con)
Where does that power begin and end? I can understand it when we are talking about hundreds of pounds; I am not sure I understand how much flexibility is now being given to the regulators to do things. We can probably recognise, at one end of the spectrum, something that is very significant, but who is the arbiter of what is so unimportant that it does not have to be consulted on? The regulator. Are the regulators the right people to make that decision? No, they are not, because they are not the people affected by the change.
Lord Stockwood (Lab)
Our overarching principle is that we are trying to show trust in the regulators while recognising the significant feedback from the debate today. We are hoping that minor changes will be in their gift and their expertise.
I will come back to my notes here. The measure is about giving the regulators the flexibility to gather industry input in more efficient ways. It is not about bypassing industry, but rather about recognising that the industry’s time is valuable and should be focused on engaging with consultations that genuinely have impact. Other channels, such as round tables with firms, supervisor interactions, meeting with trade bodies and engagement with statutory panels, can provide a more efficient route to understand industry’s issues on what are minor or technical changes. The Government’s view is that retaining these specific requirements in all cases would preserve unnecessary process, even where it adds little value in practice, and that the Bill preserves consultation requirements in most cases and where there is genuine value for the sector, as well as regulatory oversight.
Amendments 93 and 94 seek to remove all requirements on the PRA to meet the auditors or PRA-authorised persons. As the noble Baroness, Lady Noakes, noted, the Bill removes the requirement for the FCA to meet at least once a year with the auditor of any PRA-authorised firm that has been designated as important to the stability of the UK financial system. Requiring both the FCA and the PRA to meet PRA-authorised firms is duplicative and unnecessarily burdensome in terms of the effective use of resources. However, the Government’s view is that removing all requirements around engaging this important group of auditors would go too far. It is vital that the PRA continues to engage with these auditors and plan for meetings to take place at least annually, to ensure that the PRA can secure the valuable insights into the health of systemically important, regulated firms that auditors can provide. It is for this reason that the Government cannot accept these amendments.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who have taken part in this debate. Clause 18, guidance, consultation and whether regulators can be trusted is unfinished business as far as this Committee is concerned. I look forward to getting the answers on questions that have been put, but my instinct is that the Government’s approach is going too far in favour of letting the regulators determine what their interactions will be with the regulated community. On the one hand, there are independent regulators which need forms of oversight, and this Bill is just chipping away all the time at those points at which there can be some interaction between those charged with the oversight of them. By constantly removing these points at which there can be some intervention, we end up with a weaker situation overall. I will need to think very carefully about what we do about Clause 18 in general when we get to Report. I think it is part of the issues that we have been developing. Clauses 16, 17 and 18 are all part of one picture that we need a more satisfactory answer to.
Turning to the auditors. I was not trying to stop auditor meetings—
Lord Wilson of Sedgefield (Lab)
I mentioned at the beginning of this afternoon that when an amendment is being pressed, noble Lords have to be short. The withdrawal of amendments is starting to take longer and longer, which eats into the time for the other groups.
Baroness Noakes (Con)
I hear what the noble Lord has said. I think it is important that we have the opportunity to comment before withdrawing amendments. It is not simply a case of getting up and saying, “I withdraw”.
Lord Wilson of Sedgefield (Lab)
I just say to the noble Baroness that it is clear in paragraph 8.82 of the Companion that noble Lords should
“be brief and need not respond to all the points made during the debate”.
Baroness Noakes (Con)
My Lords, I had no intention of responding to all points made in the debate. There are a number of different amendments in this group. They could have been degrouped into four or five separate groups, and we could have had a short winding-up on each one of them. We have effectively four groups here, so we are going to be talking about all of them.
On auditors, I was not trying to suggest that auditor meetings should not take place: of course, there is value in those meetings, which have taken place for decades. They were not invented when FSMA was being drafted; they were already part of the thing. The amendments are not that important; I was simply trying to give the PRA the same flexibility that the FCA has.
On the nomenclature in the Act and the Financial Services Regulation Committee, I give notice that I will return to that matter in Committee. My committee will think that it is important that, now that it exists, it is reflected in statute. I beg leave to withdraw my amendment.
Baroness Noakes
“FCA and PRA secondary competitiveness and growth objectivesThe Financial Services and Markets Act 2000 is amended as follows—(a) in section 1EB (competitiveness and growth objective) for “aligning with” substitute “consideration of”;(b) in section 2H (secondary objectives and duty to have regard to regulatory principles) for “aligning with” substitute “consideration of”.”Member’s explanatory statement
This amendment modifies the secondary competitiveness and growth objectives of the FCA and the PRA by requiring international standards to be considered rather than aligned with.
Baroness Noakes (Con)
My Lords, I will speak also to Amendments 100 and 102 in this group. I thank my noble friend Lady Neville-Rolfe for adding her name to Amendments 99 and 102, and I thank the noble Lord, Lord Vaux of Harrowden, for adding his name to Amendments 99 and 100. My noble friend Lord Hunt of Wirral is unable to be with us today, as he is on our Front Bench in the Chamber dealing with the Steel Industry (Nationalisation) Bill, so I shall also speak briefly to his Amendment 101.
Amendment 99 concerns the secondary competitiveness and growth objective, which applies to both the FCA and the PRA. When it was introduced in the 2023 Act, it was no secret that the regulators were less than enthusiastic. Our regulators have always been heavily involved with the international financial institution community. They often act as chairmen, as is currently the case with the Governor of the Bank of England and the Financial Stability Board. They are members of as many committees as they can get on, and they are completely embedded in the international standards infrastructure. It was unsurprising, therefore, when they managed to convince the Treasury that it should make the secondary competitive and growth objective subject to alignment with international standards.
During the passage of the 2023 Act, I tried to get this watered down, because I had a real concern that the PRA and the FCA would hide behind international standards when making rules, in a way that does not optimise UK competitiveness and growth. International standards are a good thing, but only if all the major countries implement them. In fact, there is a history of patchy adoption—not least by the United States of America, which is, of course, one of our main competitors in financial services. Unfortunately, the Treasury supported the regulators and kept alignment in the 2023 Act.
I return to this theme with Amendment 99, which would change the words of the competitiveness and growth objective so that the regulators must consider international standards only, rather than automatically aligning with them. We have had three years of experience of the operation of the Act. It is time, I believe, that we made growth and competitiveness an unambiguous part of the regulators’ objectives.
In the past three years, we have seen the continuation of US exceptionalism. It has not implemented Basel III, and we have to remember that it never implemented Basel II. To be fair to the PRA, it has found reasons to follow what other countries are doing to delay certain aspects of Basel III and has performed contortions to justify implementing other aspects in a way that does not fully hit smaller UK banks, but the fact is that other countries are implementing Basel III in ways that suit them, and it would be more honest if our own regulators were given that freedom.
Another problem area in bank capital is the requirement to hold MREL, the minimum requirement for eligible liabilities. This started as a European requirement that went way beyond the international rules for total loss-absorbing capital for global systemically important banks. The UK has just three G-SIBs out of 29. Unfortunately, the UK sets MREL for many more banks than three. This is not set by the PRA, which might have a problem justifying it by reference to international standards, because the international standards are clearly less than the European model which we are sticking to. It is in fact set by the Bank of England, which does not have a competitiveness and growth objective. This shows what happens when regulation is detached from the interests of the UK economy.
I turn to the FCA. When the Financial Services Regulation Committee looked at stablecoins, we asked the FCA about its work on stablecoins aligning with the secondary competitiveness and growth objective. The director of payments and digital assets at the FCA was keen to tell us what the FCA did on committees at IOSCO, how it helped to draft the FSB’s paper on stablecoins and how it brought together regulators and standard-setting bodies in London. Although the executive director for payments said that the FCA was trying to find solutions right for the UK, it is clear that the instincts of the regulators’ staff is to look to international standards bodies rather than to think about what is best for UK competitiveness and growth. I do not think that the secondary objective’s potential will be maximised while the comfort blanket of international standards is reinforced by the FSMA requirement to align with them.
Amendment 100 is much more straightforward and I hope that it is uncontentious. I fully support Clause 20’s requirement for the regulators to report annually on the secondary objective. The two initial reports required by the 2023 Act make it clear that the competitiveness and growth objective is not a finite event but a continuing challenge. This was also one of the key findings of the first report by the Financial Services Regulation Committee. My amendment would merely require the Treasury to lay the annual reports before Parliament. It is customary to lay key accountability documents before Parliament. If this is not a key accountability document, I do not know what is. I hope that the Minister can accept this amendment.
I was going to go on to Amendment 101 in the name of my noble friend Lord Hunt of Wirral, in anticipation of his absence, but I see that he is with us, so I will not speak to his amendment but will conclude with my final amendment in this group, Amendment 102.
Lord Wilson of Sedgefield (Lab)
I am afraid that the noble Lord, Lord Hunt of Wirral, was not here at the start as he came into the Room two minutes late, so the noble Baroness may go ahead.
Baroness Noakes (Con)
I thank the noble Lord for telling me about my noble friend’s disqualification from speaking; I will now speak to his Amendment 101. I find that it would be a useful addition to Clause 20, by imposing some modest requirements such as making the reports comparable with previous reports and covering things such as the cumulative cost of regulation and an explanation of how proportionality has been applied, including for SMEs. I do not think that any part of this amendment should be controversial, and I hope that the Minister will be able to accept it.
Baroness Noakes (Con)
My last amendment in this group, Amendment 102, is also about the secondary competitiveness and growth objective, but, this time, for the Financial Market Infrastructure Committee of the Bank of England. The FMIC was set up with a secondary innovation objective, and there is clearly a link between innovation and growth and competitiveness—but they are not synonymous. I am not sure why the FMIC was set up with innovation objectives rather than full competitiveness and growth objectives, and I do not recall a substantive debate on that during the passage of the 2023 Act.
Lord Bridges of Headley (Con)
My Lords, I agree with all the amendments to which my noble friend Lady Noakes just spoke, but Amendment 99 merits attention. I will speak to it very briefly, as I get a sense that everyone is wanting to get out of this lovely Room to eat something.
This amendment asks an interesting question; perhaps the Minister can answer it when he winds up. I am interested in what is more important. Is it the alignment with global international standards, or is it the competitiveness and growth objective? When one is thinking about these international standards, do we think that it is more important to align with those standards than it is to improve the competitiveness and growth of the financial services sector? I ask this as a genuine question. I can see an argument for saying that alignment with international standards adds to competitiveness and growth, but, if we believe that those international standards undermine growth, what is more important?
I ask that because—once again, I draw your Lordships’ attention to my entry in the register—every day, I am seeing, as my noble friend Lady Noakes alluded to, the fragmenting of international standards. Noble Lords may take very different views on that, but it is undeniably the case that the overall approach of the large financial sectors to adhering to those standards, if they ever really existed, is now under enormous pressure. Therefore, if we want to retain the competitiveness of the City and its contribution to the growth of this country, we need to be very mindful of that. If we want to continue to attract high levels of global capital here, we cannot, to my mind, just blindly say, “We must align with international standards”, without being fully cognisant of the consequences.
The amendment moved by my noble friend asks a very big question, which I look forward to hearing the Minister address.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise briefly to speak against all of these amendments, but the noble Lord, Lord Bridges, has asked an interesting question here: are we making this legislation for the City or for the country? My question to the Minister, therefore, is: does aligning with international standards mean that we can actually set higher standards? That is certainly what I would like us to do in terms of money laundering and the other issues that I raised earlier, but I think that the assumption in this amendment is that we might set lower standards.
One of the things that aligning with international standards would do is improve our international standing in this uncertain geopolitical age. Undercutting standards would be severely damaging to our international standing in the world. That is a much broader question than just the City.
I will cover all these amendments collectively. It is no secret that throughout all the previous financial services Bills I have worked on, I have opposed competitiveness and growth objectives. I am sure the noble Lord, Lord Vaux, will be delighted to know that it was his earlier contribution to the clause stand part debate that helped me to see clearly that what we are doing here is singling out the growth and competitiveness objectives from everything else. One of the ways in which noble Lords tried to deal with that in earlier groups was by adding crucial issues such as climate. The other way of approaching the problem, which I may well be tempted to do on Report, is by proposing that Clause 20 does not stand part.
It is important to raise the issue again now, given that just this week the Bank for International Settlements has spoken about the financial risk associated with big tech’s AI spending spree—in its terminology—which could lead to a prolonged investment bust that could have significant impacts on financial markets and the global economy. It produced the figure that the five biggest hyperscalers expect to invest more than $1 trillion from 2025 to the end of 2026. We are in a position of risk, so I believe we should look at growth and competitiveness again.
Amendments 102 and 104 seek to extend further than the Government have gone on the growth and competitiveness agendas. That is an extraordinarily bad and extremely risky idea. I am happy to carry forward that idea and keep saying it on Report.
Lord Wilson of Sedgefield (Lab)
My Lords, we have come to the end of the time available for Grand Committee today. Although it is unusual, I beg to move that the debate on this amendment be adjourned. We will return to this debate on the next day in Committee. Only those noble Lords present at the start of this group can speak when the group resumes. I have asked the clerk to circulate a list of those present in the usual channels.
House of Lords
Palantir: Public Service Contracts
(1 day, 4 hours ago)
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Baroness Chakrabarti
To ask His Majesty’s Government what assessment they have made of the human rights and reputational risks presented by their public service contracts with Palantir.
The Minister of State, Ministry of Defence (Lord Coaker) (Lab)
My Lords, government departments operate within a robust procurement and assurance framework, ensuring that contracts are awarded only where requirements are met and no exclusion grounds apply. Palantir’s software is used globally across public and private sectors. Within the UK Government, its use is governed through established legal and assurance frameworks. In defence, Palantir supports data integration and AI-enabled analysis, providing timely insights that improve operational planning, decision-making and effectiveness.
Baroness Chakrabarti (Lab)
My Lords, I am perennially grateful to my noble friend. If we are to avoid a future Fujitsu-style scandal of even greater proportions, how can our public money, personal data, national security and reputation be safe in the hands of a company credibly implicated in gross human rights violations, both in Gaza and ICE operations in the United States?
Lord Coaker (Lab)
My noble friend is quite right to challenge the Government on these incredibly important issues around human rights and how the Government establish their contracts. To be clear about the UK Government, we are talking about a relationship and contracts that are negotiated with Palantir UK. The contracts that we operate with Palantir UK have strict protocols in place. We retain full ownership and sovereign authority over all defence data, including how it is stored, how it is accessed and how it is used. Contracts with suppliers include legally enforceable provisions to ensure that data sovereignty is maintained. I understand the points that my noble friend raises, but with respect to our contracts with Palantir UK, we ensure that the correct provisions are in place.
Lord Austin of Dudley (Non-Afl)
My Lords, given the Government’s decision to partner with Palantir as part of their defence modernisation programme and the role that advanced data and AI capabilities will play in future warfare, does the Minister agree that such technologies are critical to delivering the strategic defence review, strengthening the UK’s ability to respond to hostile state threats and supporting the Government’s wider objectives for growth, innovation and defence-industrial capacity?
Lord Coaker (Lab)
My noble friend makes a really important point. Many people across this Chamber will know that the responsibility of government requires difficult decisions to be made. As my noble friend Lady Chakrabarti has rightly raised, there are sometimes difficult decisions and difficult dilemmas to be resolved. Alongside that—my noble friend asked about defence—we have a responsibility to ensure that with the AI capability and the data management capability, we can take forward our strategic defence review and can give our Armed Forces and those who work with them the best possible tools to ensure that we deliver the objectives of His Majesty’s Government. That is what we seek to do, while recognising the moral responsibilities we also have.
Lord Gove (Con)
My Lords, I am grateful, as ever, to the Minister for his lucid and authoritative response. When I was a Minister, I saw how Palantir’s technology helped to save lives in the NHS. I saw how Palantir helped to ensure that those fleeing persecution from the Ukraine war could have a safe home in this country. I also appreciate that Palantir is playing a role in defending democracy, not just in the Middle East but in Ukraine. Is it therefore not a matter of regret to the Minister, as it is to me, that the Mayor of London has specifically ruled out Palantir helping to fight crime on the streets of London when the commissioner of the Metropolitan Police has made clear that, as a result of the Mayor of London’s decision, our citizens will be less safe?
Lord Coaker (Lab)
My understanding is that the mayor and the commissioner have now reached an arrangement with respect to the activity of Palantir within the Metropolitan Police, where there will be a 12-month period to establish a proof of concept as to whether Palantir can move forward. The mayor and the Metropolitan Police commissioner have agreed that because, as the noble Lord says, the commissioner believes it will help fight crime. It is a matter for them to resolve that, but it seems they have found a way in which both are happy to try to take it forward.
I do not want to underestimate the moral questions that Governments sometimes have to answer. The noble Lord knows the issue of education particularly well, but let us look at the issue with respect to health: 41 ICBs and 171 trusts have signed up to use the NHS federated data platform; more than 100,000 extra patients have been seen; hundreds of thousands of patients have been safely removed from the waiting list; and nearly 94,000 patients have been supported on their cancer journey. That is the sort of dilemma that Governments need to resolve to try to find the best way forward.
Baroness Smith of Newnham (LD)
My Lords, on these Benches we understand the importance of the Armed Forces modernising, including with AI. My understanding is that Palantir received a £240 million contract without the MoD going out to tender. While there are clearly national security exemptions for genuinely exceptional cases, is the Minister concerned that this could just move towards being a way of avoiding competition rather than helping national security? Will the next contract go out to procurement?
Lord Coaker (Lab)
The noble Baroness is quite wise to raise that point; it is a question I asked too. Officials told me that it was the only company—the only available platform—that could provide what the MoD needed and give us the operational capability that was required. Under the single tender regime—I cannot remember the exact title—where there is no other option available, it is okay and legal for the Government to operate in that way. That is why the Government did that. Of course we are looking at whether other people can provide the sort of expertise that the noble Baroness refers to, but there was no point going out to procurement when the only provider was Palantir.
Baroness Goldie (Con)
My Lords, by common assent, Palantir’s technology has rapidly and dramatically improved the Ministry of Defence’s logistics and operational planning systems without either human rights or reputational risks. Given that the current challenge confronting the MoD is recognised in the SDR, which recommended achieving a 10% efficiency saving by greater use of AI systems, what progress has been made on that objective to date?
Lord Coaker (Lab)
The noble Baroness will see in due course some of the ways in which we are taking forward AI, but she is quite right to ask about this. AI is crucial to the future provision for our Armed Forces and to enabling them to have the capability and capacity they need for the conflicts of the future. Palantir is one example of the way in which we seek to take that forward. Other options will be brought forward as part of the defence investment plan. Clearly, AI is the future of much of the technological co-operation that will be needed both within government and with our allies.
Lord Spellar (Lab)
My Lords, the Minister is quite right to resist attempts, which happen quite regularly, to demonise individual companies rather than looking at the underlying reality. He is also right to look at results. In this very fast-changing world of information technology, the company leading this year may well not be leading next year or even in six months. I recognise that Palantir has a major presence in the UK, which is welcome, but other companies are available. I caution against the department and the Government becoming overdependent on individual companies that almost become too big to fail, as we have seen in other sectors.
Lord Coaker (Lab)
My noble friend makes a really important point. Palantir provides us with the capability that we require at the moment, but he will be reassured by the fact that, alongside granting this contract to Palantir for the next three years from this April, we are seeking to look at options with small and medium-sized and other companies that could provide the same capability, so that we have a competitive process in future. That also answers the noble Baroness’s point. I suggest that will keep Palantir on its toes in the marketplace as well.
Baroness Bennett of Manor Castle (GP)
My Lords, have His Majesty’s Government considered applying a fit and proper person test to owners and managers for public sector IT contracts, particularly those involving Britons’ private data, with particular attention to their respect for human rights and the rule of law? If they do not have that, the contracts will not be worth the paper they are written on.
Lord Coaker (Lab)
I understand the point that the noble Baroness is making, but the point I made at the beginning is that these contracts are with Palantir UK. Anyone who has been a Minister knows that contracts signed on behalf of the Government have to have a fit and proper process. We will not take on people to run things for us who have criminal records of a particular sort, do not pass the monetary test or have other considerations around them that mean we see them as a security threat—of course we would not. The people who have gone through this process and been given the contracts have passed the tests set for them as part of the risk assurance process.
The noble Baroness is perfectly entitled to her opinion, but taking the decision not to grant Palantir the contract would have consequences as well—many patients now being seen would not be seen, many crimes being solved would not be solved and the operational abilities and capabilities of our Armed Forces would be undermined because no one else can provide that capability. That is the side that I am on. The noble Baroness can take the side that she is on.
Covid Fraud
(1 day, 4 hours ago)
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Lord Foulkes of Cumnock
To ask His Majesty’s Government what action they have taken regarding the recommendations in Pursuing Recoveries and Preventing Reoccurrence: Final Report of the Covid Counter Fraud Commissioner, published on 9 December 2025.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, on 23 June, I laid the Government’s response to the Covid Counter-Fraud Commissioner’s report before this House setting out our plan to pursue those who defrauded the state during a national emergency, to put money stolen by fraudsters back into the public services and to tighten our counter-fraud controls to make sure that this scale of fraud can never happen again.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, I am grateful to my noble friend for that reply, but does he not think it strange that Peter Murrell is in jail for embezzlement of £400,000 whereas not one person responsible for £10 billion of fraud has been charged, let alone convicted? Will the Government speed up their action to use legal methods against these people and recover the money, which, I am sure my noble friend will agree, will help balance his books?
Lord Livermore (Lab)
I am very grateful to my noble friend for his question and his continued determination to see justice in this matter, which I share. Covid fraud and corruption is an appalling financial scandal that has cost UK taxpayers dearly. I thank the commissioner, Tom Hayhoe, for his tireless efforts to chase down fraud so that public money can be used as intended on public services such as hospitals and schools, as my noble friend said. The Government will continue relentlessly to pursue Covid fraud to retrieve taxpayers’ money, to hold those responsible to account and to ensure that such failures can never be repeated. In his report, the commissioner made 22 separate recommendations. The Government have fully accepted 18 and partially accepted the remaining four. The Treasury will now establish a Minister-chaired scrutiny panel to review the implementation of the recommendations every six months for at least the next two years.
Baroness Kramer (LD)
My Lords, fraud during Covid—heinous though it was—was carried out mainly by individuals and individual firms. Do the Government accept that, with AI, the character of fraud has now evolved into highly co-ordinated operating systems falsifying identity, behaviour and documentation, and it escapes detection by using digital money—primarily stablecoin and primarily among that tether? Work by Juniper Research shows that in 2025, tech platforms earned £430 million from scam ads in the UK alone. Will the Government require the tech platforms to close down these crimes?
Lord Livermore (Lab)
While I absolutely accept what the noble Baroness says about the evolving nature of fraud, I am not sure that I fully accept it is becoming as overwhelming as she says. I understand that the FCA is engaged in cracking down on exactly the type of practice she outlines, and we fully support its actions to do so.
Lord Pitkeathley of Camden Town (Lab)
My Lords, I declare my interest as a previous small business owner. While greater transparency for regulators is clearly desirable, can the Minister confirm that the Government have listened to concerns from small businesses about making commercially sensitive profit and loss accounts publicly available? Can he also explain how the balance has been struck between improving fraud detection and protecting legitimate commercial confidentiality?
Lord Livermore (Lab)
I thank my noble friend for his question, and I agree with the underlying point he makes. In his report, the commissioner recommends that small companies and micro-entities be required to file profit and loss accounts with Companies House under the Economic Crime and Corporate Transparency Act 2023. I said before that the Government have only partially accepted four of his recommendations, and this is one of them. While small businesses and micro-entities will be required to file profit and loss statements, as announced in June 2026, this requirement will come into effect in April 2028—one year later than initially anticipated—to give companies and businesses time to prepare. Small companies and micro-entities will have the option to opt out of publishing their profit and loss information on the public companies register. These changes reflect the Government’s consideration of concerns raised by stakeholders following the June announcement. The opt-out option addresses legitimate concerns about the commercial sensitivity of profit and loss information for smaller companies. Publishing this data on a public register carries privacy and competitive risks that are disproportionate for businesses of this size.
Lord Watts (Lab)
My Lords, the company owned by the noble Baroness, Lady Mone, owes the taxpayer £120 million. People who defraud the benefit system by £100 or £200 end up in jail; why is she not in jail? Why do the Opposition not say anything about this type of fraud, which brings disgrace on this House?
Lord Livermore (Lab)
The Government have been clear that we expect robust action to be taken to protect the taxpayer, and we have fully supported the appropriate legal and insolvency processes being followed. As I understand it, PPE Medpro Ltd is now in liquidation, and matters related to the recovery of funds are therefore for the liquidators to pursue in line with their statutory duties. Any recoveries that can be made will be determined through those independent processes. It would not be appropriate for me to comment on those proceedings.
Lord Sikka (Lab)
My Lords, one of the problems with the commissioner’s report on Covid fraud is that it pays little attention to the role of consultants in devising various schemes. For example, the furlough support scheme did not ask companies to provide the national insurance numbers of employees; it was, therefore, open to fraud. Companies seeking loans were not required to say when they were formed and what their HMRC reference number was; again, it was open to fraud. Are the Government still using the same consultants? Have they taken any action to ensure that those consultants pay the price for the poor design of various schemes?
Lord Livermore (Lab)
I am afraid I do not know whether we are still using the same consultants; I am more than happy to check for the noble Lord.
Baroness Neville-Rolfe (Con)
My Lords, I think we need to stand back and take a broad view of the problems. We all know that Covid was a challenge right across government and that fraud was an issue. However, the important thing is to do better next time, which is why we set up the Public Sector Fraud Authority in 2022 and introduced the use of AI into fraud detection, which helped with some of the sort of problems that have been raised. Given the doubt expressed in parts of the report, is the Minister confident that the Government of the day will, in practice, do significantly better next time? I am looking for a commitment here.
Lord Livermore (Lab)
I can fully understand the noble Baroness’s desire to stand back from this. On entering government, this Government found that £674 million of contracts were in dispute. However, we also inherited a recommendation from the previous Government that any attempt to reclaim that money should be abandoned. The commissioner’s report set out that £10.9 billion was lost to fraud and error from Covid spending. Failed pandemic-era PPE contracts cost the British taxpayer £1.4 billion and over £1.9 billion of bounce-back loans have been flagged as suspected fraud to the British Business Bank. The commissioner also found that the previous Government’s over-ordering of PPE and delays in quality-checking meant that £762 million is unlikely to ever be recovered, with substandard PPE gowns, masks and visors remaining uninspected for up to two years, preventing recovery of public money. Covid fraud and corruption is an appalling financial scandal which has cost UK taxpayers dearly. The noble Baroness asks for a commitment that we will do better next time; I think we could hardly do any worse.
Lord Pannick (CB)
My Lords, can the Minister say how much of the billions of pounds of public money which was wasted due to fraud and corruption in relation to Covid has now been recovered?
Lord Livermore (Lab)
As I said in my previous answer, the estimated level of fraud and error stands at £10.9 billion. Some £1.6 billion has so far been recovered and a further £1.5 billion is in the act of being repaid. The Public Authorities (Fraud, Error and Recovery) Act has extended the limitation period for Covid cases by a further six years, giving us longer to recover the outstanding amounts.
Lord Anderson of Swansea (Lab)
Does my noble friend not find it somewhat surprising that no Back-Bench Member of the Opposition thought it worth while intervening on a matter which affects one of their own?
Lord Livermore (Lab)
Obviously, whether they choose to intervene or not is a matter for them.
Lord Spellar (Lab)
My Lords, does my noble friend the Minister find slightly odd the intervention from the Opposition Front Bench? Surely if we are to send a message for future contracts, dealing with fraud in previous contracts is essential, otherwise people will think they can get away with it. Why does he think that the Opposition spokesperson was so keen to brush this under the carpet?
Lord Livermore (Lab)
I completely agree with my noble friend. It is vital that we deal with past instances of fraud. As he said, that must act as a deterrent to future acts of fraud. We will continue to pursue these fraudsters and ensure that we get as much money back as we possibly can.
Food Security
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Baroness Carberry of Muswell Hill
To ask His Majesty’s Government what assessment they have made of the current condition of UK food security.
Lord in Waiting/Government Whip (Lord Katz) (Lab)
My Lords, the UK has a secure and resilient food system, built on strong domestic production and diverse trade relationships that provide a stable supply and safe food despite recent global crises. Defra lays the UK Food Security Report in Parliament every three years, providing a comprehensive assessment of all aspects of food security. The next report will be released in 2027. In the intervening years, a shorter UK Food Security Digest is published.
Baroness Carberry of Muswell Hill (Lab)
I thank my noble friend for that reply, and I congratulate the Government on today’s publication of the farming road map, with its recognition that the UK’s food system is vulnerable. Food manufacturing is a vital contributor, among several others, to the UK’s food resilience. It is the biggest manufacturing sector by turnover and supports almost half a million jobs in our economy. Will the Government therefore consider treating food manufacturing as a strategically important sector, with the associated support that that would bring?
Lord Katz (Lab)
My noble friend is of course entirely correct to underline the importance of the food manufacturing sector and the fact that the Government’s new farming road map recognises it as an important part of the food supply chain. We are supporting food manufacturers with export support, innovation funding and growth programmes; we are working with industry to address barriers such as regulation and labour shortages; and we are strengthening supply chain resilience by monitoring risks and improving preparedness for shocks, and considering targeted interventions where appropriate.
We are driving growth and innovation by funding research and development, including £25 million from Defra and nearly £50 million from UK Research and Innovation. Alongside this, we are working across government to improve market access for UK food and drink exports, to support healthier and more sustainable products and to provide the long-term stability that businesses need to invest. Taken together, these actions are helping to build a more productive, resilient and competitive UK food sector, supporting jobs, growth and food security.
Lord Gardiner of Kimble (Con)
My Lords, it was your Lordships’ House that agreed that, instead of five years, as was in the Agriculture Bill, we should consider these matters every three years. It is very important for His Majesty’s Government to keep this under review, because we are in an even more volatile situation: I ask the Minister to comment on that. It is also fair to say that I know no farmer who feels in a confident position. We should be ensuring that British food production is put at a much higher priority as a matter of national resilience, as we have seen increasing volatility across the world.
Lord Katz (Lab)
The noble Lord of course has a great deal of experience in this. On his first question around the frequency of the report, he will know that it is a huge undertaking. It takes over a year to produce and usually weighs in at well over 300 pages, covering five themes, from global availability to household access to food security. The annual digest is shorter and more focused, which, as he commented, focuses on more material factors and recent changes in food supply.
When it comes to wider government support for farmers and the agricultural sector, the Government have allocated a record £11.8 billion to sustainable farming and food production over the Parliament, and the food sector is one of the UK’s 13 critical national infrastructure sectors. That tells the whole House how seriously we take it.
Baroness Grender (LD)
My Lords, does the Minister agree that the real test of this policy and the new farming road map is whether it leaves the poorest households better protected against disruption to food supply and prices? Given that the poorest fifth of households would need to spend 70% of their disposable income for the Government’s version of a healthy diet, what assessment have the Government made of the urgent need right now for the affordability of healthy food?
Lord Katz (Lab)
The noble Baroness will be aware that UK annual food price inflation in the current month, June 2026, was 2.2%, which is lower than overall inflation for the first time since January last year. Historically, of course, our food has been more affordable than the EU average. But she is right to stress the importance of affordability; that is why the Government are providing targeted support to help households manage food costs in a number of different ways. First, we have extended free school meals to 500,000 extra pupils, which will save up to £500 per child per year. The Chancellor of the Exchequer also recently announced targeted tariff cuts on over 100 everyday food items as part of the Great British Summer Savings scheme, which, it is estimated, will save more than £150 million per year.
Baroness Batters (CB)
I start by thanking the Minister for publishing the farming road map and for responding to my review on farm profitability. It was a stark fact, leading the review, that over 50% of all farms in England remain unprofitable and below the level of median household earnings. Given that, in the last Parliament, there were legislated targets put in place for the environment, is it not time that we had annual reporting on our food security and targets set to make sure we are not lowering our self-sufficiency?
Lord Katz (Lab)
I begin by thanking the noble Baroness, Lady Batters, for all her hard work on the profitability review. The Government have responded to a number of her recommendations, including ensuring that the new round of funding for the SFI opens up with a focus on active farmers, rather than just landowners. As she will know, through the Farming and Food Partnership Board, we are focusing on sector growth plans, with an initial focus on the sectors that need boosts, help and support the most, including horticulture and poultry, as well as focusing on a workforce strategy. However, I heard what she said about the targets. There is a lot of detail in the new farming road map. The Government are of course always open to listening to these ideas.
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate the noble Baroness, Lady Batters, on her report, which has been a fantastic contribution to this area. I say to the Minister that the Government should revisit the clean energy proposals to take 10% of the most productive farmland out of food production and make sure that it remains in food production for food security purposes—which is, after all, national security.
Lord Katz (Lab)
I point out to the noble Baroness that, even in the most ambitious scenarios under the Government’s solar road map, only 0.4% of total UK land and up to 0.6% of total agricultural land is expected to be occupied by solar farms. Indeed, the changes that we made to the National Planning Policy Framework strengthened the ability of food businesses to grow and improve the productive use of their land. I gently say that there is a way that we can balance both clean energy generation and a growing and profitable farming sector.
Baroness Foster of Aghadrumsee (Non-Afl)
My Lords, as a former Economy Minister in Northern Ireland, I know too well the importance of the agri-food sector to Northern Ireland. It is a key economic driver. We have a population of just 1.9 million, but we provide almost £10 billion-worth of food across the UK. Given that, do His Majesty’s Government accept that Northern Ireland is a very strategic part of the food supply for the United Kingdom?
Lord Katz (Lab)
Absolutely. We celebrate and enjoy the contribution that Northern Ireland makes to the agri-food sector. It is an important part of our UK economy.
Lord Winston (Lab)
My Lords, as my noble friend the Minister knows, there were some concerns from many scientists about the precision breeding Bill. I wonder whether he might be able to give us an update on what is currently happening with regard to the modification of crops and animals in our food security.
Lord Katz (Lab)
I do not have an update to hand on the follow-up from the precision breeding Bill, so it will probably be best, in the interest of time, if I undertake to write to my noble friend with some more detail.
Lord Roborough (Con)
My Lords, I refer the House to my registered interests as a farmer and landowner. Farming in England is struggling, with globally high employment and environmental costs, while selling at prices set in international commodity markets by lower-cost regions of the world. Despite the dedication of our farmers, that threatens our food security. How will the Minister ensure that farmers are adequately rewarded for the ecosystem services they supply alongside food, beyond the low-margin ELMS payments?
Lord Katz (Lab)
The ELM scheme, which is backed by nearly £12 billion, is already delivering sustainable and profitable farming approaches. We need to work on this and develop this more. We have strong food security. We do not take anything for granted and we will continue to work across the supply chain and with partners to maintain and enhance it.
Construction Sector: Skills Shortage
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Lord Allen of Kensington
To ask His Majesty’s Government what steps they are taking to address the skills shortage in the construction sector and to ensure a steady future supply of skilled workers.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, in 2025, the Government announced a £625 million investment to train up to 60,000 more skilled workers in construction. This includes £100 million for skills bootcamps, £98 million for industry placements, £100 million to establish 10 construction technical excellence colleges, a £90 million uplift for 16-19 courses and £75 million for adult retraining. Construction will also benefit from new foundation apprenticeships, with employers receiving up to £2,000 for each apprentice they take on and retain in the industry.
Lord Allen of Kensington (Lab)
My Lords, I declare an interest as chairman of Balfour Beatty Plc. I welcome the steps that my noble friend the Minister outlined. Attitudes to the sector are outdated and sometimes ill informed. Attitudes toward careers in construction and infrastructure are contributing to the reduced pipeline of people coming into the sector. Almost half—47%—of young people report that construction and infrastructure careers are not even mentioned in their school’s career advice. I started life in the steel industry in Scotland as an apprentice, and I am proud to say that. What steps are being taken to ensure that career guidance in schools accurately and positively represents the significant opportunities in this important sector for Britain?
Baroness Smith of Malvern (Lab)
My noble friend is absolutely right. There are well-paid, secure jobs in the construction industry. One of the benefits of my role is that I quite often get the chance to meet young people who have made that decision. We need to make sure that that message gets through in the improved careers education that we are providing in schools. Also, as part of the construction support package, we are delivering targeted communications to raise awareness of those construction careers and promote the sector as a pathway to good jobs and progression. That will increasingly focus on young people, alongside tailored promotion for women and for those returning to work, in order to spread more widely the message that my noble friend has ably communicated.
Lord Mohammed of Tinsley (LD)
My Lords, I welcome the Government’s announcements about apprenticeships, particularly in the construction industry. Given that small and medium-sized businesses deliver the bulk of the construction infrastructure, particularly housebuilding, in the country, what support are the Government going to give to those smaller-sized construction firms that we dearly need across the country? These small business are often the ones that find government red tape the most difficult when it comes to apprenticeships.
Baroness Smith of Malvern (Lab)
The noble Lord is right. What is more, of course, small businesses are often the businesses that offer apprenticeships to young people and to people from disadvantaged backgrounds. That is why Skills England is focused on engaging with small businesses to help them understand the range of opportunities there. It is why we are introducing a new apprenticeship hiring payment of £2,000 for small businesses that take on 16 to 24 year-old apprentices. It is why, from August this year, we will also fully fund apprenticeship training for small businesses for eligible people aged 16 to 24. It is why no employer is required to pay employer national insurance contributions for employees under 21 or apprentices under 25, and it is why the Construction Industry Training Board’s new entrant support team is working to provide practical support to employers, particularly SMEs, who are recruiting apprentices.
Lord McLoughlin (Con)
My Lords, what role will the Government take in directing the infrastructure projects that they are responsible for to ensure that the companies participating in those projects take enough apprenticeships and give the proper training via the longer opportunities which those companies can naturally provide?
Baroness Smith of Malvern (Lab)
The noble Lord makes a really important point about the power of government procurement. Many of those contracts already require support for training, and particularly apprenticeships. For example, in the estates strategy in the Department for Education, we expect, if I remember rightly, 8,000 additional training places to be provided as a result of the investment that we are putting into maintaining and rebuilding schools.
Baroness Winterton of Doncaster (Lab)
My Lords, does my noble friend the Minister agree that, as well as looking at national infrastructure, it is important to get companies involved locally through organisations such as UTCs, as in Doncaster, where they have been very effective by not only having career guidance but putting on courses that are relevant to the local area? Combined with that, could more be done through local procurement, with local authorities, for example, requiring more apprentices to be employed?
Baroness Smith of Malvern (Lab)
My noble friend makes a really important point. It is why local skills improvement plans, of which the second round are due to be published quite soon, identify where there are local skills needs that need to be met locally, and why UTCs, as she identified, and the strong partnerships that construction and technical excellence colleges are developing between colleges and employers locally are really important ways of reflecting the local need for construction skills into the provision of training opportunities for young people.
Lord Londesborough (CB)
My Lords, the construction sector is suffering from an acutely ageing workforce, with 35% over the age of 50. This means that 750,000 workers will retire over the next 10 years. At the other end of the spectrum, numbers of apprenticeships are falling, with more than half of those taking them dropping out before they complete their training. What can be done to attract more young people and, in particular, improve apprenticeship outcomes?
Baroness Smith of Malvern (Lab)
We have a target to increase by 50,000 the number of young people starting apprenticeships, after 10 years in which that number fell by 40%. That is the reason behind some of the support that I have identified, including full funding for small businesses, the hiring incentive for businesses taking young people into apprenticeships, the support being provided through colleges and the increased recruitment of people who have had experience within the industry into our colleges, to ensure that young people get the best and most up-to-date information about those training opportunities. All those things are part of the construction skills package that we have focused considerable investment on, as I have demonstrated.
The Senior Deputy Speaker (Lord Ponsonby of Shulbrede)
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 the increased use of solar technology in construction and with the drop-out among construction and engineering students due to the emphasis on academic skills, could we promote two separate initiatives? The first, as a priority, is viring students into solar-related trades. The second is promoting the use of specialised solar engineers from abroad to train others and clear any backlog that develops in solar fitting programmes. We need to unleash the non-academic but inventive skill set that often lies behind Britain’s successes.
Baroness Smith of Malvern (Lab)
My noble friend is right about some of the new areas within construction where we need to support training. I am sure he will be pleased to know that one of the new apprenticeship units that we launched in April, where employers can use their growth and skills levy to fund something other than a full apprenticeship, includes one in solar PV installation. That is an example of how the Government are recognising the changing challenges in construction and supporting it through the growth and skills levy.
Baroness Stedman-Scott (Con)
My Lords, given the Government’s ambition to build 1.5 million homes and our reliance on a strong construction sector for economic growth, what specific steps are being taken to ensure that a larger proportion of pupils take design and technology GCSE and similar qualifications with strong, relevant, practical content to help increase their interest in following construction pathways in post-16 education?
Baroness Smith of Malvern (Lab)
The noble Baroness makes an important point about how the curriculum overly narrowed during recent years. That was the reason for the Government’s Curriculum and Assessment Review and the widening accountability measures of those qualifications that will be recognised. This will lead to more young people being able to take those types of qualifications, as will the investment that is going into colleges—particularly in high-cost courses such as construction—and the efforts that we are making and funding to get more teachers into colleges to provide the highest quality construction qualifications.
Immigration and Asylum: Appeals
(1 day, 4 hours ago)
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Lord Davies of Gower
To ask His Majesty’s Government what assessment they have made of the impact of replacing immigration judges with adjudicators on the consistency of asylum appeal decisions; what qualifications, if any, adjudicators will be required to have; and what safeguards and accountability mechanisms will be put in place to ensure public confidence in the new Independent Immigration Appeals Authority.
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
I am grateful to the noble Lord for his Question. In the Government’s Restoring Order and Control Command Paper, which was published on 17 November 2025, we announced systemic reforms to the appeals system. The Government have provided additional funding to the First-tier Tribunal Immigration and Asylum Chamber to increase capacity, and we remain grateful for the ongoing efforts by the tribunal to clear its backlog. However, its current backlog stands at 151,767, with appeals taking, on average, 61 weeks to resolve across all case types, as of March 2026. The Government will shortly bring forward legislation that will underpin the new independent immigration appeals authority. The new authority will be able to determine appeals in a way that provides justice to appellants, with suitably qualified adjudicators independent of the Executive. Further details of the independent immigration appeals authority will be set out in the near future, including the measures that will be put in place to ensure public confidence in the new authority, as the noble Lord requests.
Lord Davies of Gower (Con)
I am grateful to the Minister for his Answer. What steps will the Government take, through the recruitment and vetting process, to ensure that adjudicators are genuinely independent and impartial, and to guard against the new authority becoming dominated by individuals who have publicly campaigned in favour of open borders or who have otherwise taken partisan positions on immigration policy?
Lord Hanson of Flint (Lab)
I remind the House that the backlog stands at over 151,000, but that that has not happened in just the last two years. It is the result of 14 years of individuals not being processed, dealt with or sorted by the noble Lord and his party. To answer his question, as of now, we will ensure that individuals are vetted, that there are strong safeguards in place to ensure high standards, and that those making decisions in the independent appeals authority will be entirely independent of the Executive. He will not have to wait too long because, tomorrow, on 30 June, we will publish a Bill setting out the matters that were trailed in the immigration White Paper in November. The noble Lord’s party will have the opportunity to test that Bill through both Houses of Parliament, and I assure him that that independence is critical and will be maintained.
Baroness Deech (CB)
My Lords, there is currently an issue with immigration tribunal judges that will be exacerbated, especially when it comes to public confidence, in that the tribunal judges, and no doubt the adjudicators, are not declaring their interests. We, as parliamentarians, have to declare our financial interests and memberships. It is high time that tribunal judges and adjudicators are made to list their financial interests and any controversial, or even uncontroversial, organisations that they have joined; this would fit within the judicial conduct guidance. At the moment, we do not know whether those judges should be recusing themselves and what interests they have, because they are not declared and they should be on a register, in the same way that ours are.
Lord Hanson of Flint (Lab)
I am grateful to the noble Baroness for raising that point. If she will allow me, can I reflect on it? The issue is self-evidently important, but I cannot answer her question right now. I will make sure that the appropriate policy Ministers in the Home Office and the Ministry of Justice examine those issues in detail.
However, I can tell the noble Baroness that we are doing this because the demand for adjudications is far outstripping what we can currently offer. We have around 26,000 additional funded places for sittings this year, so the backlog of over 151,000, which I mentioned earlier, is simply unsustainable. We have to take action on that. The backlog has not just appeared from nowhere; it has appeared through the inaction of the previous Government. We are committed to restoring it and that is what the Bill to be produced tomorrow will begin the process of doing.
Lord German (LD)
My Lords, following the last question, I declare my interest: I am supported by the RAMP Project. Can the Minister tell us whether the adjudicators will need to possess specific legal qualifications or accreditation in asylum and human rights law? On the process of getting the adjudicators in place, how long will the training programme take?
Lord Hanson of Flint (Lab)
We are moving at quite a pace. The Bill that establishes the new authority will be published tomorrow and has to make its way through both Houses of Parliament. The principle behind it is that there will be a body that is fully independent of the Government and staffed by professional trained adjudicators, with safeguards to ensure high standards, so that appellants are able to receive impartial and independent redress, as is required under our obligations. We intend still to meet our international obligations as part of this change, which I hope will give comfort to the noble Lord. He will have an opportunity to see the Bill when it is published tomorrow. At some point, this House will have the opportunity to examine it in detail. For the moment, I suggest that he waits for the Bill to be published.
Baroness Chakrabarti (Lab)
My Lords, I remind the House that there are lawyers on all sides of the House who have spoken on all kinds of immigration measures. Nobody impugns their ability to continue to give legal advice or, indeed, sometimes to sit in judicial office. I agree with my noble friend that there is a crucial need to deal with the backlog. Can he say a little more about the legal qualifications for the new independent adjudicators? That is more important than whether they were once a member of Amnesty International—which, by the way, is a good thing to be.
Lord Hanson of Flint (Lab)
The Bill will be published tomorrow and will establish the framework for the body and examine in detail the issues my noble friend has raised. My right honourable friend who is dealing with these matters is cognisant of the fact that the independent body will be responsible for monitoring qualifications and standards. I am happy to answer questions on that once the Bill has been published. I am not in the position today to be able to do that.
Lord Harper (Con)
My Lords, I accept that the Minister is a little frustrated, but this is what happens when you trail things in the media ahead of a Bill being published. He cannot expect people not to have questions. If he does not want questions in advance, he should not do the trailing. In the trailing in the media, it was said that the body the Government are looking to establish will be like the magistracy. The problem in this case is that people often come to asylum decisions with very clear views, either against people claiming asylum or very pro people claiming asylum. If the adjudicators are members of the public, how will the Government guard against them bringing those preconceived ideas to determining these important legal questions?
Lord Hanson of Flint (Lab)
If the noble Lord, as a past Cabinet Minister, has never trailed anything, I trust that he will stand up now and tell me that that is the case. I rest my case. But he raises an important point. The key issue is that all members of the new independent immigration appeals authority will have the required training. Decision-making expertise to make determinations will be part of that process of skills and experience. The body will be established in accordance with the Cabinet Office’s Public Bodies Handbook. We are currently considering accountability and governance structures, including the body’s relationship with Parliament and with the Government. We will safeguard independent decision-making. I return to the trailing: the noble Lord has only 23 hours to wait for the publication of the Bill. I look forward to engaging with him on it in due course.
The Lord Bishop of Manchester
My Lords, picking up on the point about training, can the Minister tell us what support will be available and what training will be offered to the adjudicators around religious literacy? Decisions regarding people’s cases often hinge on claims of religious persecution and involve people who have deeply traumatic pasts. They must, therefore, be well-informed and accurate.
Lord Hanson of Flint (Lab)
It is an extremely important point. It is self-evident that we want the individuals who undertake this very serious role to have the required training and support to do it in an effective way. All members of the new independent immigration appeals authority will have the required decision-making expertise to make determinations on appeal cases through a comprehensive training programme and will possess a range of skills and experience. The organisation of that will be down to the new body. The Bill that we are producing tomorrow will establish that body, which is independent of government. The key point I bring the House back to is that we have a backlog of around 151,000. We currently have capacity for around 26,000 extra sittings that we have put in place. It is not possible to end the backlog without significant changes and that is the purpose of this policy.
Lord Pannick (CB)
My Lords, I quite understand that the Minister cannot give us the details until the Bill is published tomorrow, but he will know that we currently have a body of independent impartial adjudicators who deal with immigration matters. Of course, I understand that we need more of them to deal with the backlog and the delay, but what I do not understand is why, in principle, the Government think that the current arrangements for the appointment of adjudicators are inadequate.
Lord Hanson of Flint (Lab)
I pay tribute to those who are doing this difficult and challenging job. We owe them a debt of support, and this is not critical of the way in which they have approached their role. But given the level of training and support required, and that the time that we can give to get additional judges is not sufficient to be able to meet the objective, we are looking at widening the pool and this is the start of that process. The establishment of the new body will put that revised process in place. We ran a targeted call for evidence from March to May this year and sought input from individuals. We have ensured that the judiciary has been kept fully informed of relevant developments and communications. I am hoping that once the Bill is produced and when it reaches this House—because it will be in the House of Commons first—the noble Lord can put some of those issues to the test.
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
It is the turn of the Labour Benches next, then the Conservative Benches.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, as my noble friend knows, in my advancing years I have become more understanding, particularly of those who find themselves, sadly, in opposition. The Front-Bencher opposite clearly got up early this morning to put in this PNQ so that he could have a go and attack the Government. Can my noble friend say what positive proposals the Opposition have put forward for reducing the huge backlog that they created?
Lord Hanson of Flint (Lab)
I try to be fair when dealing with the Opposition—if possible. In the years up to the general election in 2024, they suppressed the number of activities taking place in this field, they reduced the number of appeals being brought forward, they took action which did not address the backlog, and every action they took created a further backlog, so the 151,000-plus backlog that we have now is entirely the responsibility of the previous Government, including, potentially, the next speaker, who was a Minister in the Home Office. I presume that when he stands up, his first question will be: how do I apologise for the backlog?
Lord Murray of Blidworth (Con)
We have a backlog of 151,000 cases. Will the Minister tell us whether it is the plan to transfer the backlog from the First-tier Tribunal Immigration and Asylum Chamber to the new independent authority that is being set up under the Bill? If it is not the proposal to transfer the backlog to the new authority, on the current rate of case resolution, the First-tier Tribunal will still be hearing cases into the 2040s.
Lord Hanson of Flint (Lab)
The noble Lord has detailed knowledge of this matter because he was responsible for the policies that led to the backlog in the first place. The Bill tomorrow will establish a new body. We are looking at how we merge the new body. There will be a parallel operation for some considerable time, but the purpose of the Bill that will be published tomorrow is to establish a new framework to ensure that the backlog built up when he was a Minister is eradicated. That is the policy objective of the Government.
Baroness Butler-Sloss (CB)
If I may add to the questions on training, will the new people working have some training on genuine cases of modern slavery and human trafficking?
Lord Hanson of Flint (Lab)
Again, self-evidently, it is important that individuals who make determinations about life-changing matters have the support to understand the reasons why those decisions have to be taken, and the mechanisms of training and support that are required to do that. The noble and learned Baroness raises important points about modern slavery and our international obligations. That is for the Government to determine. I am in the difficult position of not having the Bill until tomorrow, but within it the opportunity for the successor body to develop the types of policies that she has mentioned is one that I would wish to see and encourage.
Business of the House
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
My Lords, I thought it would be helpful if I updated the House on the plan for the consideration of the National Security (State Threats) Bill tomorrow. I will email all noble Lords with this information shortly to save a rush to write it down, and to help colleagues not currently present in the Chamber.
Committee and all remaining stages will take place tomorrow. A Marshalled List has been issued and the Whips’ Office is preparing groupings today in the usual way. Committee will take place as normal, with debates on groups of amendments. However, given that the Bill has been fast-tracked, the usual channels have agreed that issues should be resolved in Committee and that Report could potentially be taken formally. This means that, if noble Lords feel that they need to press amendments, Divisions should take place in Committee. I know the Minister has been engaging positively across the House to address concerns.
If the Bill is unamended in Committee, we will proceed to a formal Report stage and Third Reading. After that, we will debate the statutory instrument and the associated Motion on the Order Paper before taking a Statement on steel trade measures as the last business.
If the Bill is amended, it will need to be reprinted and prepared for Report. Once the Bill is reprinted and in the Printed Paper Office, there will be a 30-minute window for noble Lords to table amendments for Report, which I expect to be debated in one group. I will make a further announcement tomorrow, and the today’s list document will be reissued and precise deadlines will be advertised on the annunciator. Given the time needed for reprinting the Bill, the tabling windows and the other preparations, the SI and the Statement would need to be taken after Committee and before the remaining stages, but hopefully no amendments will be tabled before Report and it will be taken formally.
My noble friend Lord Hanson of Flint remains happy to discuss the details of the Bill ahead of tomorrow’s debates, and noble Lords should find that useful.
Planning and Infrastructure Act 2025 (Consequential Amendments) Regulations 2026
(1 day, 4 hours ago)
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Baroness Taylor of Stevenage
That the draft Regulations and Order laid before the House on 27 April and 14 May be approved.
Considered in Grand Committee on 23 June.
Nuclear Safeguards (EU Exit and Fees) (Amendment) Regulations 2026
(1 day, 4 hours ago)
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Baroness Wheeler
That the draft Regulations laid before the House on 23 April be approved.
Considered in Grand Committee on 23 June.
Captain of the King’s Bodyguard of the Yeomen of the Guard and Deputy Chief Whip (Baroness Wheeler) (Lab)
My Lords, on behalf of my noble friend Lord Vallance, I beg to move the Motion standing in his name on the Order Paper.
Media Green Paper
(1 day, 4 hours ago)
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Lord Parkinson of Whitley Bay (Con)
My Lords, there is much to be commended in the Green Paper, not least adding on-demand rights to the listed events regime which we have been discussing in the Sporting Events Bill. As the Government recognise, some of the questions in there are thorny ones which will need careful consideration, not least how we ensure greater prominence for trusted news sources in our increasingly crowded media environment.
When this Urgent Question was taken in another place last week, one of the Labour members of the Culture, Media and Sport Committee urged the Secretary of State to consider “reining in GB News”—a question that the Secretary of State rather sidestepped. Can the Minister provide a bit more reassurance that that is not the Government’s direction of travel? Do the Government consider GB News a trusted news source?
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Baroness Twycross) (Lab)
The noble Lord makes an interesting point. The whole idea of prominence is to ensure that people know the difference between trusted sources of news and opinion, and that is where the prominence issue comes in by looking at ways we can make sure that such sites come further up in the searches that people make. On the specific question, I would say it would depend whether the item on a particular news programme was opinion purporting to be fact or more factual.
Baroness Bonham-Carter of Yarnbury (LD)
My Lords, we welcome the Green Paper, which rightly recognises the severe financial challenges facing our PSBs, vividly exposed by the recent devastating cuts at the BBC. We have long proposed on these Benches that the BBC World Service should be fully funded directly from an FCDO budget, freeing up millions of pounds per year. The World Service is so important both for underpinning soft power and for the security implications of guaranteeing a source of trusted news in a polarised world. Will the Minister take this on board and tell us what conversations her department is having with the Foreign Office on this really important matter?
Baroness Twycross (Lab)
One of the real strengths of the BBC is that it is such a trusted source of news, and that is behind a lot of the issues within this. On the ongoing discussions with the FCDO, I am happy to meet the noble Baroness to discuss that. As she is aware, another Minister in the department deals with this. The Secretary of State has referred to the BBC’s overseas coverage as
“a light on the hill”,—[Official Report, Commons, 16/4/26; col. 992.]
and somewhere that people go to, so we do recognise the real importance of the World Service.
Lord Birt (CB)
My Lords, I too welcome the Green Paper because, frankly, Rome is burning. Two of the UK’s greatest, most respected and historic achievements are threatened by the globalisation of media—a lively, challenging and diverse press, which we have had for centuries, and an unmatched tradition of public service broadcasting, encompassed by Channel 4 and ITV, as well as the BBC, which we have had for almost a century. For over a century, through those means, we have created a very effective national debating chamber and brilliantly captured our national culture, talent and capability. Does the Minister accept that radical measures will be needed to arrest these trends?
Baroness Twycross (Lab)
The Government are fully behind the BBC, both at the present time and as a future source of trusted news and content. Through the charter review process, a lot of these conversations are happening and we are looking in particular at how we can ensure that the funding model is sustainable while being fair and affordable for households. We are clear that,, if we can get sustainable funding and make sure that we get the prominence regime on the internet as well as on television screens, then we should go a long way to ensuring a strong future for our press and media. I would probably draw back a little from saying Rome is burning. There is so much good practice out there that we should celebrate, but I appreciate that we need to see the warning signs of what might come down the road, which is where the paper comes from.
Baroness Armstrong of Hill Top (Lab)
My Lords, the Green Paper is really welcome. If this is got right, then digital switchover will mean many more people in this country will get sufficient media and digital understanding to be able to use what they need to improve their lives, so this is much bigger than many people have been thinking. I welcome that and hope that the department will fully involve those who are really concerned about digital inclusion in the consultation so that we get it right for everyone.
Baroness Twycross (Lab)
The intention is to make sure we get it right for everyone. If people have not read the Green Paper, it is worth the read; I thought it was a really interesting document. A striking point made in the paper is about information being part of public infrastructure, and recognising that is critical. In terms of the switchover from digital terrestrial television to the internet provision, there is a question about whether that should be in 2034 or in the decade afterwords. It is not just critical for people and their news; it is also about how people get jobs and apply for pretty much anything. The world is now online, and we need to do what we can to make sure we listen to those people as part of this process.
The Archbishop of York
My Lords, none of us underestimates how hard it will be to preserve and protect the place of what we must now call public service media in this new world, but I would contend that it is impossible to understand our world at the moment if we do not understand the place of faith in the affairs of the world. It is impossible to understand our own nation’s culture, literature and law without understanding the place of faith; I do not think we can understand ourselves without it. But I notice that, in the Green Paper, there is little or perhaps no mention of the place of faith, which has always been such an important part of the public service broadcasting economy. I wonder whether the Minister would like to mention—I know how difficult it is—what steps are being taken to make sure this is preserved.
Baroness Twycross (Lab)
I will feed the right reverend Prelate’s point back. I think it is a really interesting point. I know that having knowledge of the Bible and Bible stories meant that I was much better equipped to understand literature. I think there is that cultural aspect, as well as the faith aspect, to it. The main thrust of the paper was around making sure nobody was left behind in the move towards digital, but I will feed those points back.
Baroness Stowell of Beeston (Con)
My Lords, a trusted source of news that everyone can rely on is good for society, but we should not kid ourselves that that is what currently exists. Levels of trust in the BBC and other mainstream broadcasters are not universal across all demographic groups. The cause of that is the failings of the broadcasters and that is what pushes these people in search of other sources of information—not all of which is bad, I must add. Before any decision is made on giving greater prominence to broadcasters, will the Minister require them, especially the BBC, to publish a breakdown of their audience trust scores by demographic group, using a modern model, such as that deployed by More in Common or Yonder, that goes deeper than just age and socioeconomic groups? Will she demand from the BBC especially that, for any prominence to be awarded, it must first improve its performance among those groups?
Baroness Twycross (Lab)
The noble Baroness makes a really interesting point. I hope the noble Baroness will take part in the consultation, but I will feed that back. We are clear that a free and fair media is essential to our democracy; part of that is people actually accessing information, and that trust piece has to go beyond just the surface level. I will feed the points back.
Lord Young of Acton (Con)
My Lords, the Green Paper does not simply propose that the prominence regime be confined to public service media, including public broadcasters; it suggests that it should also be extended to news publishers. Therefore, if some news publishers are going to be included in the prominence regime and given various privileges, and social media companies will have to promote the content of those news publishers, how are those news publishers going to be selected? Can the Minister assure the House that this is not a Trojan horse for forcing some news publishers to bend the knee to a state-approved press regulator, such as Impress?
Baroness Twycross (Lab)
This is entirely why we have a consultation period that runs to 31 August. As part of the consultation, we will work and engage with relevant parties to determine the criteria that we use. We will decide the criteria for a trustworthy news provider in an open and transparent manner. On protecting media freedom, this is not about censorship or people having to take a different view; this is about making sure that the general public—and we as the part of the general public with a particular interest in news—can understand what is more likely to be high-quality content, and ensuring that that comes further up the search mechanisms.
Nottingham Maternity and Neonatal Services
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Lord Kamall (Con)
My Lords, I thank the Minister for the opportunity to ask questions on this Statement on the report, which raises many troubling issues. I add my thanks to Donna Ockenden and her team for their extraordinary work in conducting what has been the largest review of maternity services in the history of our NHS. Our thoughts are with the thousands of mothers, babies, fathers, partners and families whose experience lies behind this report. It is only because of their courage and determination that these failures have finally been brought to light.
When, in the past, I have spoken to families who feel that they have lost a relative or friend due to medical negligence, they often say to me that they are reluctant to pursue justice, since it adds to their grief. They also point out that they often face hostility for raising concerns, as they are seen to be criticising the NHS. This is a terrible indictment. No organisation, including the NHS—perhaps especially the NHS—should be above criticism. The findings expose years of failures in leadership, governance and culture, not just a few isolated cases of clinical failure. Women were not listened to, families were dismissed, and staff were unable to raise concerns in an environment where bullying and intimidation were embedded. Most disturbing of all, the report noted that evidence of these failings already existed, yet action was repeatedly delayed or avoided.
However, we on these Benches wish to be constructive in our response, since maternity safety has challenged Governments of all political persuasions. Will the Government and the healthcare system introduce measures that genuinely improve safety and strengthen accountability, and will they listen to women and families? If so, they will have our support. But the real test will be whether the report leads to meaningful and lasting change across every maternity service in England, because, regrettably, many of the report’s conclusions are not new. Previous inquiries in Morecambe Bay, Shrewsbury, Telford and East Kent identified many of the same underlying themes: women not being listened to, poor communication, inadequate staffing and weak governance. This report must become the point at which recommendations are accepted and demonstrably delivered.
I have four questions for the Minister. First, can she outline whether the national implementation plan will include clear milestones and regular public reporting, so that Parliament, families and clinicians can judge whether progress is being made? Secondly, how will boards be held accountable for creating an environment and a culture in which openness and patient safety genuinely come first? Thirdly, what steps are the Government taking to ensure that maternity services have the workforce training and leadership they need to provide safe care? I understand that the former Secretary of State felt that there should be more of a focus on technology than recruitment. That is not necessarily a bad thing, but can the Minister explain how this would work in maternity care?
I also welcome the Government’s recognition of the distressing findings on mortuary services. The treatment described in the report represents a lack of dignity and compassion towards bereaved families. The actions announced are important and I look forward to the Minister reassuring the House that the lessons from these failings will be embedded across the NHS and not just confined to Nottingham.
Fourthly, the Minister will be aware that Henrietta Hughes, the Patient Safety Commissioner, is increasingly frustrated that, having proposed a system for redress and compensation for those poor victims of valproate and pelvic mesh, there has still been no movement from the Government. Can the Minister update us on that?
No woman’s experience of pregnancy or childbirth should be determined by their ethnicity, background, language or confidence in navigating the healthcare system. This report highlights clear disparities. The evidence of racism and discrimination identified in the review is deeply concerning and underlines the importance of ensuring that every woman receives safe, personalised and compassionate care. This is not asking for special treatment for anyone; it is about making sure that patients of all backgrounds are treated equally.
Trust in our maternity services will not be rebuilt through apologies alone. It will be rebuilt when women know that they will be listened to, when families see concerns acted upon rather than dismissed, when staff are empowered to speak up without fear, when boards are judged by the safety they deliver and when Parliament sees clear evidence that today’s commitments have become tomorrow’s reality.
The families of Nottingham and other maternity scandals have carried this burden for far too long. They should never have had to fight so hard simply to be heard over many years. They now deserve our determination that this report marks a genuine turning point, and, if the Government achieve that, they will have the support of all Benches. I look forward to the Minister’s response.
Baroness Pidgeon (LD)
My Lords, the Statement before us today from the Secretary of State in the other place is distressing reading, as is the report by Donna Ockenden. This review shocks us all to the core and must shake the Government into real action at every level of our health service and its regulation. Staff concerns were dismissed, a board did nothing and regulators failed in their duties. There was a simple refusal to listen to women and their families, causing such loss, trauma, negligence and damage, alongside bullying, organisational failures and the horrendous misplacing of bodies. Words just cannot express this horror. What brave and resilient families to keep fighting for justice; I thank them all.
I heard the deeply moving testimony at the press conference last week about the mental health legacy for bereaved parents. One explained how she had lost all trust in the NHS and had the constant, triggering experience of having to engage in her daily life with the organisation she holds responsible for the loss of her baby. It is hard to imagine.
This review, and the upcoming wider review from the noble Baroness, Lady Amos, must draw the line. This has to stop. Mothers, babies, children and families must have confidence that they will be provided with first-class maternity services, wherever they live in our country. There must be quality services that meet their needs whatever their age or background, with respect and dignity at the heart.
I welcome the taskforce, chaired by the Secretary of State. It will be crucial to ensuring the implementation of recommendations at every trust and to ensure that whistleblowing throughout the NHS works. An independent patient voice must remain part of our health service to help hold NHS trusts to account. We will revisit this point with the NHS Bill later this year.
I understand that, in 2018, over 50 members of staff wrote to the chair of Nottingham’s board, stating plainly that there were significant safety concerns. The letter was not even discussed by the board—it went to a sub-committee and was buried. In 2023, the chief executive found that the trust had never formally investigated staff shortages. I cannot get my head around this, as someone who has sat on many different boards over the years. This is not good practice. I therefore ask the Minister what urgent work the Government are undertaking to assess the competence of NHS trust boards. What changes may take place to strengthen them and to ensure that they carry out their serious role and responsibilities thoroughly and robustly?
The Government must also take action to strengthen whistleblowing powers in the NHS. My Liberal Democrat colleagues in the other place have tabled amendments to the Health Bill which would provide new powers for coroners and medical examiners to report suspected health failings. Will the Government look to support those amendments to strengthen whistleblowing in the NHS?
Finally, families need to have confidence in their local maternity services, and those services need to all be at the highest standard. Will the Government commit to a maternity rescue package to deliver this, including one-to-one midwifery care for every woman in labour and consultant obstetricians present 24/7 on every labour ward?
A big step change is needed to transform maternity services across the country that every family and every individual can have confidence in. I look forward to the Minister's response.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, we find ourselves deeply affected, as we have heard from both Front Benches. I am grateful for the tone and for the acknowledgement of the experiences of bereaved and harmed families who are at the absolute centre of this. The noble Baroness, Lady Pidgeon, said that she could not get her head around many of these things; I am sure we are all in agreement on that. I share the views of both Front Benches. I am grateful for the support for action. I absolutely agree with the noble Lord, Lord Kamall, that there is only one test: action. As the noble Baroness, Lady Pidgeon, said, it is also about confidence and step change. We all want to get this right. It is not recent; it is not isolated—as both Front Benches identified. It should not be the case that those who are bereaved and harmed have had to show such courage and determination. This is an impossible circumstance that people are in. The noble Lord, Lord Kamall, said that people understandably often do not wish to add to their distress. The fact is that women, babies and families have all been terribly let down, not as a one-off but by a system—a system that failed to listen, failed to be transparent and, to make it even worse, failed to provide the truth when things went wrong. We are looking at 13 years, since 2012. This is a sustained approach that was totally unacceptable.
On behalf of the Government, I want to say how deeply sorry I am, and the Government are, for what every family has suffered and for those who have been affected. I also want to thank parents and families for their courage and determination for sharing their experiences. Without that, Donna Ockenden and her team—to whom I express great gratitude—could not have done the work that they did. They have been diligent; they have shown compassion and great detail, and it will make a difference.
To the noble Lord, Lord Kamall, I can say that, certainly, the Government are going to deliver a clear and deliverable plan by the end of the year. As the noble Lord and the noble Baroness have asked for, these will indeed be system-wide improvements, so that everyone can have full confidence across maternity and neonatal services—and, yes, it will have milestones and transparency. How will this be done? The noble Baroness, Lady Pidgeon, has spoken about the taskforce. That is important. It is personally chaired by the Secretary of State. There is a very good reason for that—to give the absolute authority of his office. I am the deputy chair of that taskforce. It brings together many groups, including through the expert reference groups, but, crucially, it includes affected families and Michelle Welsh, MP for Sherwood Forrest, who would describe herself as someone who has been harmed in this terrible catalogue of heartbreaking experiences. She is our first appointed maternity adviser to the Secretary of State.
How will we deliver through the taskforce a clear action plan that will make a difference? We will bring together the national recommendations from this review and the independent review from my noble friend Lady Amos, rightly established by the former Secretary of State, which will report this Wednesday. The work will also look at previous reviews. It is right to say that there have been many previous reviews and lessons clearly have not been learned, which is totally unacceptable. It will be our duty to deliver that lasting change through the National Maternity and Neonatal Taskforce.
I have some immediate responses to the points raised by noble Lords on the Front Benches. The Secretary of State announced last week that we are extending Martha’s rule straightaway to all maternity and neonatal services. That means that every parent or caring person supporting a birth can request a rapid review from an independent medical team if the condition of a baby or mother is deteriorating and they are concerned that it is not being responded to. This is a very important step on the point of real listening.
I was also absolutely shocked to read the findings on mortuaries. They are chilling and deeply distressing. It is hard to believe that these things could ever be allowed to happen. There is a live police investigation, and two people have recently been arrested—noble Lords will appreciate that I cannot say more. Two immediate actions are also being taken: the Human Tissue Authority is conducting an urgent national review of mortuary incident reporting and NHS England, on instruction from the Secretary of State, is writing to all trusts to ensure that they consider the findings on mortuary care in this report.
I will pick up some of the questions asked by the Front Benches. On the point about boards being accountable for an open culture and patient safety coming first, that is their job. Noble Lords will not be surprised to hear that there has been a change of leadership. This week, the Secretary of State is meeting the chief executive and interim chair to discuss this point. Boards are held accountable to ensure that there is a patient safety culture through strict duties, independent oversight and targeted regulatory assessments. Clearly, this was not the case here and in other areas, but I welcome the change in leadership and their commitment to delivering a change of culture. I am grateful to Donna Ockenden for recognising that there have been improvements, though she is right that more needs to happen. As I said earlier, this is not just one random situation in one area—it goes so much deeper than that.
The noble Lord, Lord Kamall, asked about workforce. One of the recommended actions from the Nottingham report is that a perinatal workforce tool be developed. This will be considered by the taskforce along with all the other recommendations, as we have discussed.
The noble Baroness, Lady Pidgeon, asked about the urgent work to assess the competence of NHS trust boards. For example, the Nottingham trust has a learning and improvement board to oversee the required improvements, chaired by Michelle Welsh MP. It is supported by a family board and a staff board, which is the model we need to see.
On strengthening whistleblowing as part of the taskforce’s work, we will be looking at all parts of the health system when things go wrong, including how accountability is established and, if necessary, strengthened. On a maternity rescue package, continuity of care, referred to by the noble Baroness, Lady Pidgeon, is an action in the report from Nottingham and will be considered closely by the taskforce.
The noble Lord, Lord Kamall, asked about sodium valproate compensation. The Patient Safety Commissioner rightly continues to press on that. I do not have a specific update for the noble Lord; as soon as I do, I will be very glad to write to him.
It is impossible not to be affected by this report, but I consider it a luxury that I am affected in how I feel rather than in what has happened to me. Again, I apologise for myself and on behalf of the Government for the harm, losses and trauma that continue to this day. I commit us to doing all we can to make sure this is not repeated, and I am grateful to have the support of the Front Benches in doing this.
Baroness Chisholm of Owlpen (Non-Afl)
This is the most appalling thing that has happened. I have great respect for the Minister, and I thank her for letting us know about some of the action plans going ahead. What has gone wrong with a profession where the professionals have seemingly no empathy for those they are caring for? Is this about society? Have we given up putting others first? Have we become a society where we do not listen and do not treat each person as an individual with needs individual to them? That is what I was taught when I was given my nursing training. Is that being taught now? Have we forgotten how we behave towards individuals when they are asking for help? Do we not listen and do everything in our power to make them feel better? Government cannot do everything; it has to be society that can, in some way, teach people in these very important roles how they treat the human beings in front of them.
Baroness Merron (Lab)
I certainly agree. Every woman, in the case of maternity services, deserves safe and compassionate maternity care. That is why we are so determined to drive urgent improvements in maternity services. It is worth noting that this review—the largest ever of its kind, as the noble Lord, Lord Kamall, said—considered the experience of more than 2,500 families and 830 staff. I think it is important that your Lordships’ House also remembers how many staff have found themselves in situations they would never have wanted to be in. I am sure that the noble Baroness, like me, pays great tribute to the many NHS staff who are in the majority in doing their work in a compassionate way—as the noble Baroness has experienced.
I cannot comment on whether it is specific to society but, from Donna Ockenden’s conclusions, there was something deeply wrong here. Whether it was not listening, culture or racism and discrimination towards women, families and staff, and between staff, we cannot have it.
Lord Hunt of Kings Heath (Lab)
My Lords, to continue this theme, the report describes a bullying and toxic culture, with junior midwives not being sufficiently supported when dealing with complex cases. It was a culture that did not allow them to refer such cases up the chain. There was a constant turnover in senior midwifery leadership and those they appointed were not given proper induction, mentoring or even guidance about their roles. In the work that the Minister is taking forward with the Secretary of State, will there be a concerted national programme of training and development for senior midwives so that there is a real opportunity to try to grip these issues?
Baroness Merron (Lab)
My noble friend’s analysis is quite right. One of the reasons we are developing an anti-discrimination programme is that cultural change across maternity and neonatal services is much needed. I use that as one example; all NHS trusts are to have completed that programme by 2027, and that is already under way.
I found it absolutely shocking that so many senior people at Nottingham did not give evidence to Donna Ockenden’s investigation. That is why, once the Hillsborough law Bill receives Royal Assent, we will extend the duty of candour to the Leeds and Sussex reviews so that the chair, Donna Ockenden, will have the powers to find the truth from organisations and staff. On the earlier point, it is quite shocking and totally unacceptable that they refused to participate.
Baroness Wheatcroft (CB)
The Ockenden report does a great job in looking at the problems in one specific trust. However, the problems go much deeper, as the Minister has said. It is cultural, and one of the cultural problems appears to be that there is a complete split between a contingent of midwives and the rest of the medical profession about medical intervention. Until that is tackled, I cannot believe that we are going to get to the root of the problem. Will the Minister commit that the taskforce will delve into that difficult issue? It is cultural, but it is a very deep difference of opinion that goes back to the noble Baroness’s question about what has changed. That is part of what has changed.
Baroness Merron (Lab)
The key is to bring together the recommendations from Donna Ockenden’s report with the independent report that we established, chaired by my noble friend Lady Amos, which will report on Wednesday, as well as the reviews from before. I do not think we necessarily need a description of the problem but, to the noble Baroness’s point, we do need action to challenge and monitor this. Transparency and accountability will also be our friends, which in Nottingham they were not.
Baroness Hodgson of Abinger (Con)
My Lords, as we know, this horrific failure is not confined to Nottingham University Hospitals NHS Trust. A number of other NHS trusts are being investigated, and I suspect it goes much further. Neither is this a problem of just the last 13 years; it goes back decades.
Forty years ago, one of my twin sons died at birth, a combination of bad decisions, inadequate systems and negligence. It was similarly impossible to get answers, with the name of the midwife withheld and the notes disappearing, including the only photo, and no one held accountable. The damage to families from this type of behaviour is unquantifiable. How is the Minister going to change this endemic culture of cover-up in the NHS and ensure that systems are put in place so that when even one baby is put at risk, is damaged or dies, the situation is properly examined so that it cannot happen again?
Baroness Merron (Lab)
I am so very sorry to hear of the noble Baroness’s experience; I am grateful to her for sharing it with your Lordships’ House. I am sure we all offer our condolences and understanding as far as we can to support her and her family, and I say how sorry I am for her loss.
The noble Baroness is right to talk about cover-up. That did happen in this case and has also been identified through other reviews. Certainly, as Donna Ockenden conducts reviews into Leeds and Sussex, we will be able to find out what happened there. But we are not waiting, and I assure the noble Baroness of that.
It is worth speaking about the role of the regulators, because it has come up not by using the word itself but by how account is kept. The Secretary of State is meeting with the GMC—which we currently have a three-month consultation on reforming—because he wants to hear its personal account for failings in care. The Nursing and Midwifery Council has been undergoing a widespread programme of reorganisation and change under new leadership, which, again, is much needed. I assure the noble Baroness that, as part of the taskforce, we are looking at all parts of the health system where things go wrong, including how accountability is established, because we should be avoiding that harm where it is avoidable.
Baroness Nargund (Lab)
My Lords, I welcome the report and thank my noble friend the Minister for all the work she is doing with the Secretary of State to support and to implement recommendations. Our thoughts are with the families affected. The report has yet again shown the racial bias in care, which is harming mothers and babies. I request that my noble friend the Minister ensures that cultural competency training is integrated in medical school and in midwives’ training, so that they are qualified after receiving that training and it is not left for later.
Baroness Merron (Lab)
It is absolutely crucial, as my noble friend says, that the training should reflect the needs of the care that will be given. That is something that I know the taskforce will look at very closely. Donna Ockenden’s report offers insight and recommendations on workforce and training. The noble Baroness, Lady Amos, may also do so. I mentioned the anti-discrimination programme, but I should also say, on inequalities, that we have launched a maternal care bundle on what the best practice is for clinical conditions that are the leading causes of death for women from Black and Asian backgrounds. As I say, the numbers reflect a great inequality which cannot be allowed to continue.
Baroness Berridge (Con)
My Lords, building on the Minister’s comments on the maternal care bundle, which was introduced because Black women are 2.3 times more likely to die in childbirth, this report also confirms that, in Nottingham and Nottinghamshire, infant mortality rates were significantly higher for Black and Asian women. In the report, a full dataset is not given of women of ethnicity. Can she also reflect on the recommendations from the Preterm Birth Select Committee report that we need more nuanced recommendations in this regard, and more work on causality? It is not clear, from what I have read in the report, why there is a 2.3 times greater likelihood that these women die; we need more work on that as well.
Baroness Merron (Lab)
The noble Baroness is right to refer to the report undertaken by the Lords committee, which I was pleased to be invited to appear before. It is true that there is a complexity. Outcomes also vary between trusts. There are a lot of potential reasons, but “potential” is not good enough. In 2023, the number of stillbirths in the most deprived areas remained much higher than in the least deprived.
In all the ways that noble Lords, including the noble Baroness, have mentioned, there are deep inequalities. NHS England has published an inequalities dashboard. That is important because it supports the identification of areas where populations face the greatest disparity, so that interventions can be appropriate for them and there can be more equitable support. We will certainly look very carefully at the differences and the inequalities, because that will be a real driver for change.
Lord Roe of West Wickham (Lab)
My Lords, I thank my noble friend the Minister and the Secretary of State for their hard work, shining a light on the inadequacies in maternity services in this country. My question is more general. The Minister referred to the coming Hillsborough law—one would hope in the next Session—which will be vital to accountability and driving candour across reviews into areas of both public and private failure. I respectfully ask, if the Minister cannot update me on progress being made on an oversight mechanism, whether the relevant Cabinet Office Minister might write to me to provide an update on progress. I am afraid that without the addition of an oversight mechanism, whether through a powerful public committee set up within Parliament or an independent body, we will once again return to terrible stories, whether in maternity, construction or other aspects of care.
Baroness Merron (Lab)
I will be pleased to raise that with my ministerial colleague in the Cabinet Office. I agree that an oversight mechanism is very important. On the Bill—which will, of course, become an Act—it is key to note that it will establish a new duty of candour and assistance at inquiries, inquests and other investigations. To the point that we are discussing here, the Bill will also allow for that duty of candour to be applied to health investigations by regulation. That is crucial, and it is by using that power that we will ensure that the Leeds and Sussex reviews, which are live, are included through secondary legislation.
Baroness Manzoor (Con)
My Lords, I align myself with the comments that have been made by the noble Lord, Lord Kamall, and the noble Baroness, Lady Pidgeon. This a totally devastating outcome. I pay tribute to the families that have been affected in this way.
I am just absolutely disturbed by the quality of the governance at the trust. I am shocked. I have chaired a number of trusts. To not put patient safety first and to not have the data available to make that judgment is absolutely appalling. Therefore, in terms of accountability, will the Minister assure me that the chief executive, the chair or, indeed, any members of the board who have been given honours as a result of their service to their trust are stripped of them? It is not an honour; it is absolutely devastating, and there has been a lack of duty in what they have achieved.
Baroness Merron (Lab)
I completely understand the noble Baroness’s point. I am grateful for her sensitivity on this subject. I do not feel qualified to comment on honours and their removal, but I will raise it with the appropriate ministerial colleague to say that this is a view—exactly as the noble Baroness said. I know that she is not alone in feeling that.
Lord Beamish (Lab)
My Lords, this is an appalling case, but some of the themes in it are common to other scandals, including the Post Office scandal: people being ignored, people not knowing how to complain and the system basically coming together to protect itself rather than representing and identifying failings. I accept that the Hillsborough Bill will be a step forward, but we also need a cultural change, and I stress that one of the issues is the GMC. Self-regulation has to go. It is about time that doctors were held to account, because anyone who has tried to complain about a medical situation through the GMC finds that it is labyrinthine and slow, and does not put the patient at the centre.
Baroness Merron (Lab)
My noble friend is right to draw comparisons and, as I said earlier, I certainly agree on the point about culture that is made very clearly in the report from Donna Ockenden. I will be looking very closely at that also in the recommendations of my noble friend Lady Amos. As I said earlier, we have sought to make change. I do also think that accountability and transparency are absolutely key. It is one thing to seek to make change, but another for people to feel confident and to know it has happened.
Baroness Shawcross-Wolfson (Con)
I am grateful to the noble Baroness for her eloquent and moving statement and her commitment to taking action on this. The noble Baroness said that the workforce planning recommendations from the Ockenden review and potentially also from the Amos review will be picked up in the maternity taskforce action plan, due at the end of the year. Can she tell us how that will fit with the upcoming wider NHS 10-year workforce plan? Will the wider 10-year workforce plan also look at the staffing and training needed for safer maternity services, and can she confirm when it will be published?
Baroness Merron (Lab)
We are soon expecting the 10-year workforce plan. In its considerations, it will address patient safety, because that is one of the requirements when thinking about workforce. But the really close look in the way the noble Baroness seeks will be through the plan which the taskforce is overseeing, having received the recommendations. It is the case that maternity services, for a whole range of reasons, including the absolutely shocking experiences that we have all referred to, have suffered in some areas because of a lack of safety, a lack of listening, and the wrong kind of culture and leadership—the list goes on. I know that noble Lords will have looked at the report and I would want to ensure that maternity services have their particular focus, in order that what I believe will be a credible plan by the end of the year will take account of the very points that the noble Baroness rightly makes.
Steel Industry (Nationalisation) Bill
(1 day, 4 hours ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment seeks to narrow the definition of a steel undertaking so that it had to be a business consisting predominantly of the manufacture or processing of steel, or iron for the purposes or in connection with the manufacture of steel.
Lord Sharpe of Epsom (Con)
My Lords, Amendment 1, in my name and that of my noble friend Lord Hunt of Wirral, is very simple. It seeks to confine the powers in this Bill to genuine steel businesses. Those are undertakings consisting predominantly of the manufacture or processing of steel—or iron for the purposes of steel manufacture.
As drafted, the definition catches any business which merely includes steel-making as part of its operations. That is a very broad formulation. It could, in principle, sweep up a diversified business in which steel was only a minor part of what it does. Businesses with a limited connection to steel production should not face uncertainty about whether it falls within the reach of these nationalisation powers.
When this point was pressed in the other place, the Secretary of State was asked whether a business with only 1% of its operations in steel would be caught by Clause 1. He did not say that it would not be. However, a statement of intent is not a limit on the face of the Bill, and future Governments are not bound by the assurances of this one. The Government say that these powers are intended for British Steel, and British Steel is obviously and predominantly a steel business. Therefore, this amendment should create no difficulty for that purpose. If the Government’s intention is genuinely not to use these powers against businesses with only a peripheral connection to steel, they should have no difficulty in accepting this amendment. I beg to move.
Lord Redwood (Con)
My Lords, I fully support this amendment and hope that it will tease out from the Minister a little more about what the underlying purpose of the general legislation is, as I am not too enamoured of this becoming a fully nationalised industry with the ability to acquire all sorts of other steel interests.
I felt that the Government’s policy arose out of the circumstances of British Steel at Scunthorpe and the question of blast furnace-produced steel, where we are down to our last two blast furnaces. I did not think that the intention was to build an electric arc furnace set of businesses when progress has already been made in establishing these in the private sector and where there are plans in certain cases for government grant aid to achieve an electric arc steel additional business by that combination of subsidy assistance and private capital.
I hope that the Government will accept this quite substantial narrowing of such a broad piece of legislation, because there are many with general interests in steel whom we would not like to get caught up in this. I would also like clarification on whether there is any possibility that the Government might want to build a nationalised electric arc steel set of businesses. This would be an expensive and difficult proposition.
Lord Fox (LD)
My Lords, I thank the Minister, his team, the department and the two experts who came all the way from Coventry in 35-degree temperatures to educate the noble Lord, Lord Hampton, and me on the technology of steel. It has been very co-operative and I thank them.
I am slightly confused by how narrowing these words are: “of or including” versus “predominantly”. What is predominantly? Is it 60:40? Is it 55? I do not know. You have to look upon it with the body language of the Government. The Government have shown no tendency to go on a nationalisation rampage through all businesses that have ever touched a piece of steel. It is very clearly focused in one area, as the noble Lord, Lord Redwood, alluded to. Also, I remind noble Lords that there is a sunset clause in here which closes it after two years. So the talk of subsequent Governments does not have particular purchase and I am much more relaxed than the noble Lord, Lord Sharpe, on this.
The Parliamentary Under-Secretary of State, Department for Business and Trade (Lord Leong) (Lab)
My Lords, I thank all noble Lords for their constructive engagement in advance of Committee, and for all the amendments and valuable contributions that they will make during it.
Amendment 1 in the names of the noble Lords, Lord Sharpe and Lord Hunt, seeks to introduce a narrow definition of a “steel undertaking”. I fully understand the purpose of the amendment, but the Government have no desire for these powers to extend beyond what is necessary. They are exceptional powers for exceptional circumstances and should be exercised only where Parliament intends.
I respectfully suggest that the amendment would not provide greater certainty; instead, it risks introducing greater ambiguity into the Bill. The proposed test, that a business must be “predominantly” involved in steel, immediately raises difficult questions, as alluded to by the noble Lord, Lord Fox, on how “predominantly” is measured. Is it turnover, assets, employees, production, profit or some combination of these? The amendment provides no answer. That uncertainty would inevitably invite legal challenge, precisely when swift and decisive action may be required. Businesses with significant steel operations could argue that they fall outside the definition, because steel is not their primary activity. Equally, complex corporate structures could be organised to make the test easier to avoid altogether. In seeking to narrow the definition, the amendment risks creating loopholes that undermine the legislation’s very purpose. The Government’s drafting avoids these difficulties; it provides a clear and workable definition that gives legal certainty, while ensuring that powers are used only when genuinely needed to protect the public interest.
For those reasons, while I appreciate the spirit in which the amendment was tabled, I cannot agree that it improves the Bill. I know this is not what the noble Lords intended and I can accept that the current drafting is broad, but this definition follows closely that used in the Steel Industry (Special Measures) Act and it ensures that there can be no disputes about its meaning. In practice, we do not expect many companies to fall within the current definition, so the amendment would have minimal effect.
I will repeat the Government’s position expressed throughout the Bill’s passage so far: we are strongly minded to use the powers to acquire British Steel if it is in the public interest to do so, and we do not have any plans to acquire any other steel undertakings. It is therefore very unlikely that this would be used for any other company, let alone one that is engaged primarily in non-steel activity. I hope this helps clarify the matter and respectfully request that the amendment is withdrawn.
Lord Sharpe of Epsom (Con)
I am grateful to all noble Lords who have spoken. It was remiss of me not also to thank the Minister and his team for their extensive engagement on the Bill.
This amendment is simple. I am afraid that I do not agree with the Minister’s comments or those from the noble Lord, Lord Fox. This is very straightforward. In fact, I refer noble Lords to the Merriam-Webster dictionary, which says that the word “predominantly”, in formal or technical usage, can denote a precise majority, such as more than 50%, or an even higher threshold, such as 60% to 80%, depending on jurisdiction. I am not an expert on which jurisdiction we are in, but it clearly means north of 50%. The way the Bill is written, as I pointed out, could allow for as little as 1%.
I have listened to the Minister’s objections to the wording of the amendment and am very happy to work on tightening it up, if he thinks that would help. The amendment is simple: it would confine the powers in the Bill to genuine steel businesses—that is, undertakings
“consisting predominantly of the manufacture or processing of steel, or iron for the purposes or in connection with the manufacture of steel”.
I think that answers most of the Minister’s objections, which, frankly, if they are relevant to my wording, are also relevant to the wording currently in the Bill, so I do not really believe in the ambiguity argument.
Businesses with a limited connection to steel production should not face uncertainty about whether they fall within the reach of these nationalisation powers. The present drafting does not provide that reassurance; it permits powers to apply to an undertaking that merely includes steel-making or related iron production, as I have already pointed out. I will not press the amendment for now, but I would like further discussions with the Minister, if he is amenable, to see whether we can find a way to tighten up the language so that it both suits the Government’s purposes and makes it clearer for all those undertakings that we are discussing. For now, I beg leave to withdraw.
Lord Hunt of Wirral
Member’s explanatory statement
This amendment seeks to limit the public interest test to the areas set out in subsections (a) to (c).
Lord Hunt of Wirral (Con)
My Lords, I speak to Amendments 2, 3 and 8.
Amendment 2 limits the public interest test to the specific factors listed in Clause 2. On first reading, the test looks robust: national security, the economy and
“the construction, maintenance and operation of critical infrastructure”.
These are serious criteria that one might think provide a meaningful check on the exercise of what are very significant powers. However, when one reads on, Clause 2(2) says that the test
“includes (but is not limited to)”
those grounds. I contend that, with those five words, the floor falls away. If the test includes but is not limited to the listed grounds, surely, in practice, there is no test at all. Any Secretary of State of any political persuasion at any time can conjure a reason and call it the public interest.
The amendment in my name and that of my noble friend Lord Sharpe of Epsom would remove those words and make the listed grounds exhaustive. It would ensure that when Ministers say that these are exceptional powers subject to a robust public interest test, it is actually true—not merely true for now with this Secretary of State in these circumstances but true in the legislation for every Secretary of State who follows.
The Government may say that there need to be other grounds, beyond national security, the economy and critical infrastructure. I would genuinely like to know what they are. What situation could possibly arise that those three criteria do not already cover? If the Government can answer that question, let them do so today. Let them set out on the record what additional circumstances they have in mind. If they cannot, these words should not be in the Bill.
We have a Bill that, as we just discussed in the first group, can capture businesses with only a peripheral connection to steel. We now have a public interest test with no effective limit. Will the Minister confirm that the powers in the Bill cannot be triggered simply because of industrial pressure; for example, because a trade union decides that the answer to a dispute is public ownership? Will he rule that out?
On Amendment 3, the Government’s impact assessment describes the difficult environment in which the steel sector operates, including high domestic operating costs and a lack of long-term investment. It recognises that these pressures bear directly on the ability of UK steel producers to compete. Yet Clause 2 refers only in the broadest terms to “supporting the economy”. That phrase could cover almost any intervention; it does not require Ministers to demonstrate that the intervention will leave the United Kingdom with a stronger, more productive or more internationally competitive steel sector.
There is a difference between preserving an undertaking for the moment and putting it on a sustainable footing for the future. Nationalisation may avert an immediate crisis, but it should not become a means simply of transferring losses, risks and difficult decisions from a company to the taxpayer. The question must be whether public ownership can help to secure the investment, modernisation, productivity and commercial resilience needed for this sector to compete successfully.
There is also a point of consistency with the Government’s own drafting. The Bill makes clear that the public interest test is not intended to be limited to the matters specifically listed. It says that the test includes but is not limited to national security, critical infrastructure and the economy, as I said earlier, so the Government have already chosen not to confine the public interest test. In those circumstances, why would they resist including economic growth and international competitiveness expressly within it? Growth is the Government’s stated number one priority. International competitiveness is plainly fundamental to the future of a sector exposed to intense overseas competition and high energy costs. If the Government consider national security and critical infrastructure important enough to name in the Bill, surely growth and competitiveness should also be named. I invite the Minister to explain why those two objectives do not appear in the Bill. How will the Government assess whether an intervention is likely to strengthen competitiveness? Will that assessment include energy costs, investment, productivity, output, technological modernisation, export potential and the undertaking’s ability to operate sustainably without indefinite support from the taxpayer?
On Amendment 8, the Government have confirmed that they have already provided approximately £555 million to British Steel for working capital, including raw materials and salaries. The National Audit Office reported that, as at 31 January this year, the Department for Business and Trade had spent £377 million on its intervention. At the then current rate of spending, total costs were expected to exceed £642 million by the end of this month. More importantly, the National Audit Office warned that if spending continued at the then current rate, costs could exceed £1.5 billion by 2028—and that figure was before any potential transformation of the business, compensation to the current owner or the eventual costs of exit. The NAO also found that the intervention has
“no clear end date … has not stabilised the company’s finances”
and began
“without a clear exit strategy”.
This Bill is not simply emergency legislation to keep the furnaces operating over a weekend. It creates enduring powers to transfer businesses, assets, rights and liabilities into public ownership. Before those powers are exercised, the Government must be able to demonstrate that the proposed course represents value for money.
The facts since the emergency intervention underline why this matters. We are told that the business in its present form is structurally unprofitable. We know that substantial decisions remain to be made on its future, including any transition in production technology, the cost of investment, the length of any transition period and the eventual route to a viable and sustainable business. The taxpayer needs protection against an open-ended commitment.
The Government may argue that the Treasury’s Managing Public Money framework already requires departments to consider value for money. I suppose I could look forward to the day when there is some evidence of the Treasury acting responsibly in this way. Can the Minister tell us what value-for-money assessment will be undertaken before a principal transfer power is exercised? Will it include the expected costs of compensation, operating losses, capital investment, decommissioning, restructuring and any eventual exit?
This amendment would not frustrate the Government’s ability to act where action is genuinely justified. It would simply ensure that before nationalisation takes place, the Secretary of State is satisfied that it is a responsible use of taxpayers’ money. I beg to move.
Lord Sentamu (CB)
My Lords, Amendment 2 would replace
“includes (but is not limited to)”
with the word “means” so that we knew what we were describing. The worry is that leaving it as it is could create a public interest so large that there was a mission creep that I do not think should be in the Bill, which is trying to nationalise steel. We need to be slightly more economical in the words we are using, so that we need not fear that on another day, if another public interest was being taken into account, the definition would prove far too loose. The word “means” does the job: we know exactly what one is talking about, and it lists the three elements. The noble Lord, Lord Hunt, wanted to include two other areas but, for me, limiting it to those three objects seems to be where we should stop. The word “means” would stop mission creep.
Lord Redwood (Con)
My Lords, I welcome these three amendments. Amendment 2 is a necessary slight curtailment but would still leave the Government with enormous scope, given how wide-ranging the three cited reasons for public interest intervention are. Like my noble friend, I cannot think of any other reason why they might want to do this that could not be adequately covered by the wide-ranging proposals in the existing text.
I agree that it would be a good idea to change the language through Amendment 3 to stress that intervention should, in the longer term, be interested in economic growth, profitability and successful investment. Surely the Government do not want a lame-duck investment that costs a large sum of money for a limited period of time but then they have to disappoint all those people who thought that it was going to be kept going for a rather longer period or that it might break through to profitability and success. If I had to choose between the three amendments, I hope my noble friend would particularly press Amendment 8 on value for money, which sums it all up.
At Second Reading, in looking at the general legislation, we had some discussions asking: what is the medium and longer-term future of blast furnace steel? As I think we have agreed across the House, at Second Reading and now, the main reason for the previous emergency legislation and this legislation is the temporary cessation of closure of two very important blast furnaces, which are our last blast furnace-making capabilities in the country. But I believe—I would love to have the Government either confirm or deny this—that it is still their medium to longer-term intention to close all blast furnaces in this country, as previous Governments have been doing, and to transfer to electric arc steel-making, preferably with private finance and successful competitive private sector businesses doing that work. In the previous exchanges, I think the Minister signalled that the Government do not wish to build a nationalised electric arc business with these powers, although for understandable reasons they have to be general and will most likely be exercised in the case of the blast furnaces. It would be helpful to workers and taxpayers if there were greater clarity over the time period for keeping these blast furnaces open, and whether there are any limits on the costs that the Government are prepared to run, so that people can make proper plans concerning their jobs and their futures in this important steel industry, and so that taxpayers could have some reassurance.
Lord Fox (LD)
My Lords, one of the things that the briefing from the high value catapult team confirmed is the enormous difficulty there will be in creating a viable business from what His Majesty’s Government intend to take control of in Scunthorpe. There is the age of its blast furnace, the potential cost of any replacement of a blast furnace, the expense of conversion to an electric arc furnace—if that is what is intended—and the hugely competitive landscape of the global steel markets. These are just the headlines of the complexity, but the choices go beyond blast furnace or arc furnace.
If investment is found to install a new electric arc furnace, what will it produce? Will it aim to produce the full range of steels that we need—longs, flats, rebar—or will it specialise in particular steels that perhaps are more strategic and less easy to source? If it goes down the specialisation route, the UK will probably need access to much more direct reduced iron, or DRI. It is likely that this would have to be imported, and these would be very high CO2 emission imports from most countries, because making our own DRI would need a whole new bit of kit which is very pricey. Choices and making the right calls will determine whether Scunthorpe has a long-term future and what that future looks like. It will determine whether it is indeed an investable prospect and whether it can attract the private sector.
When the Government begin—assuming this Bill becomes an Act—to use the terms of the Act to take ownership of this plant, that will change the focus of these choices. Of course, there will be a new board and management to run the plant, but the cost of the choices will rest with UK taxpayers, at least at first. We will be providing the capital. As we have heard, we have already made available £555 million in working capital, but clearly these sums could increase massively at scale. It is the scale of risk that the Government are taking on that is guiding my approach and our approach, because this Bill needs more scrutiny from Parliament at all levels. From these Benches, we will be pushing those buttons.
These three amendments start at least to open up that point around accountability. I am a bit intrigued because while I do not always agree with the noble Lord, Lord Hunt, he is normally internally consistent. However, the noble Lord started out by saying there should be no expansion of the terms of Clause 2 and then put forward two pretty reasonable ones about growth and expanding the economy. I have one that I think the noble Lord, Lord Redwood, would agree with, which is cost. We should have a clear understanding of the cost before the public interest test. I completely disagree with Amendment 2 because there needs to be a broader discussion around “public interest”. We need to understand the numbers around it, otherwise we do not know whether it is interesting to the public. I do not agree with Amendment 2. I have some sympathy with the other two amendments, and I am sure we will talk more about public interest tests as we deal with other groups.
Lord Leong (Lab)
My Lords, I thank the noble Lords, Lord Hunt, Lord Redwood and Lord Fox, and the noble and right reverend Lord, Lord Sentamu, for their contributions to this group. There are several amendments to the articulation of the public interest test in Clause 2. This is a key clause in the Bill; it is a necessary safeguard to ensure that the powers are used proportionately in response to a clear need.
Amendment 2 would limit the public interest factors that the Secretary of State may consider to those set out in the Bill. The Government agree that the three factors of national security, critical national infrastructure and support for the economy are likely to be the most relevant to the steel sector. Accordingly, the current approach ensures that they are given particular weight when assessing whether to pursue an intervention. However, circumstances may arise in which a case for intervention may not be clearly made on the basis of these three factors, yet it would clearly be in the public interest to take action. It is therefore pragmatic to build some flexibility into the Bill to address this issue.
I turn to Amendment 3. It has been suggested that the third public interest factor should refer specifically to
“economic growth and international competitiveness”,
rather than “supporting the economy”. With respect, this is a distinction without a meaningful difference. It is largely a matter of drafting rather than substance. The phrase “supporting the economy” is deliberately broad. It clearly encompasses economic growth and international competitiveness but also recognises that the economy is more than growth figures alone. It includes strengthening economic resilience, protecting strategically important industries, supporting employment, safeguarding supply chains, encouraging investment and ensuring the long-term productive capacity of the United Kingdom. By contrast, narrowing the text to
“economic growth and international competitiveness”
could unintentionally exclude other legitimate public interest considerations that any responsible Government should be able to take into account.
There may be circumstances where intervention is necessary to preserve critical industrial capability or economic resilience, even where the immediate effect on growth or competitiveness is less direct. The Government’s intention is to provide Ministers with a sufficiently broad framework to consider the full range of economic factors that may arise. The existing wording achieves precisely that: it is flexible, comprehensive and future-proofed, while fully capturing the objectives that the amendment seeks to emphasise. For those reasons, I do not believe that the amendment would improve the Bill. The Government believe that protecting our sovereign capability in what is a foundational sector for the economy will help to underpin our resilience and leave us less exposed to volatile international trading conditions. The Government therefore cannot support the amendment.
I turn to the amendments tabled by the noble Lords, Lord Sharpe of Epsom and Lord Hunt of Wirral, and by the noble Lord, Lord Fox. In different ways, all three noble Lords seek to require the Secretary of State to consider value for money or the impact on the public finances before exercising the principal transfer powers.
Lord Leong (Lab)
I am referring to the noble Lord’s later amendment.
I fully agree with the principle that taxpayers’ money must be spent wisely. Any decision to bring a steel undertaking into public ownership would be among the most significant interventions that a Government could make. Such a decision should never be taken lightly, and it would not be. However, these amendments seek to place into statute an obligation that already exists as a fundamental principle of government. Every significant spending decision is subject to the rigorous disciplines of managing public money—as stated by the noble Lord, Lord Hunt—Treasury approval where appropriate, and the established accounting officer framework. Ministers are already required to demonstrate that public money is being used properly, proportionately and with due regard to value for money.
The question, therefore, is not whether value for money should be considered—it absolutely should—but whether it is necessary to restate an existing, well-established constitutional obligation in the Bill. I do not believe it is. Doing so would add no new safeguard, create no new accountability and impose no duty that does not already exist. More importantly, this legislation is intended to ensure that, where a vital national interest is at stake, the Government can act decisively. Decisions of this nature will always involve weighing immediate fiscal costs against the far greater economic and strategic costs of inaction. The loss of sovereign steel-making capability, thousands of skilled jobs and critical supply chains, and industrial resilience could ultimately impose a far greater burden on the taxpayer than timely intervention would. The Government will continue to ensure that every decision made under the Bill is subject to the highest standards of financial discipline and accountability. Those safeguards already exist; they are robust and will continue to apply.
Lord Hunt of Wirral (Con)
My Lords, I am grateful to all noble Lords who have contributed to this debate and to the Minister for his response. I reiterate what the noble Lord, Lord Fox, said earlier about the way in which the Minister has given us every opportunity to think ahead into the future and to receive expert advice as to the way ahead.
To summarise these three amendments, they do not sit easily together, as has been pointed out, but they have provoked a widespread debate. The noble and right reverend Lord, Lord Sentamu, was absolutely right to point out that mission creep should stop here. There should not be ways that the Minister could include all sorts of other reasons. In Amendment 3, I suggested two reasons, but the Minister carefully responded by not ruling them out and not ruling anything else in. It seems that either the noble and right reverend Lord, Lord Sentamu, is right, or the noble Lord, Lord Fox, is right or the Committee is confused. It has considered all the various options, but it would be useful, as my noble friend Lord Redwood said, to have greater clarity in the form of some draft business plan that could look to the future and work out the way ahead. Value for money, as my noble friend said, sums it all up. Although the Minister thought that the noble Lord, Lord Fox, had signed Amendment 8, either it has not come to my attention that he has or he has not signed it. It may be a later amendment which suggests that value for money is required.
I remain far from convinced by the Government’s case. These amendments address three basic questions which ought to be answered before the state is given a power of this significance. First, in what circumstances will the power be used? Secondly, what is it intended to achieve? Thirdly, as my noble friend Lord Redwood pointed out, how will the taxpayer be protected? The Government’s response seems to be that Ministers will behave reasonably, that the powers will be used sparingly and that the existing public interest test provides sufficient protection.
As my noble friend Lord Sharpe of Epsom said in the previous group, this Bill sends a message well beyond the immediate circumstances of British steel. Investors considering whether to commit capital to the United Kingdom will examine not simply what Ministers say today but what the legislation permits tomorrow. The Government say those risks are mitigated by a clear public interest test. But the reality is there is no actual test. There is much in this debate for the Government to consider, but for now I beg leave to withdraw the amendment.
Lord Wigley
“(d) supporting the local economy of any steel-making location which may be adversely affected by this Act.”Member's explanatory statement
This amendment seeks to ensure that consideration is given to the impact on the local economy arising from decisions made under this legislation.
Lord Wigley (PC)
My Lords, I beg to move Amendment 4 standing in my name and to speak to Amendment 36, which is also in my name and which is grouped with it—as is Amendment 29 in the name of the noble lord, Lord Fox, and Amendments 30, 31, 43, 44 and 46 in the names of the noble Lords, Lord Sharpe and Lord Hunt.
I quote Amendment 4, just to bring it to everyone's mind. It would add, at the end of line 20 on page 1, a new subsection:
“(d) supporting the local economy of any steel-making location which may be adversely affected by this Act”.
I would have thought that those words would commend themselves very much to this House. All these amendments have to do with the impact of the Bill when enacted—an impact which may be so significant to various aspects of the economy, and indeed on the communities which may benefit or may suffer directly or indirectly from this legislation. I shall look forward to hearing the Opposition Front Bench when they speak, particularly on Amendment 43, on the possible impact of this Bill when enacted on inward investment—a subject close to my heart, as the noble Lord, Lord Hunt, will recall, from prior incarnations. But I digress. Amendment 4 in my name would specifically impose a duty on the Secretary of State, in relation to his responsibilities regarding the public interest, to broaden that responsibility to include, via the proposed new subsection (d),
“supporting the local economy of any steel-making location which may be adversely affected by this Act”.
I have deliberately drawn this new subsection widely and not confined it to Wales, as I know from our experiences in Wales how badly steel-making communities across these islands can be hit when steel-making is ended or run down, wherever those communities may be located. I saw this with my own eyes when I was living in Merthyr Tydfil in the 1970s, at the time of the rundown of the steel manufacturing in nearby Ebbw Vale. The economic decline of the Blaenau Gwent area has been staggering, as the noble Lord, Lord Murphy, mentioned in the Second Reading debate of this Bill. It is now amongst the poorest areas, economically speaking, not only in Wales but throughout Britain. Decisions arising from the operation of this Bill, when enacted, could have far-reaching consequences for communities that have depended on steel in the past, and which may be facing dire consequences of specific and deliberate action undertaken by the Government through this Act. A duty surely lies on us to help safeguard those communities.
There will inevitably be winners and losers as a result of actions taken under this legislation. Hard-working, skilled industrial communities may be undermined through no fault of their own. Indeed, the decisions taken by the UK Government may be, in some regards, for the good of the industrial base of these islands, but do not tell me that, to an unemployed skilled steel-worker in Margam or Shotton or Llanwern—or, for that matter, in Teesside or Sheffield or Doncaster—this does not matter. If the actions of the Government in consolidating steel-making in a limited number of locations has that knock-on effect, then the Government surely have a responsibility to support those local economies hard hit. I cannot believe that a Labour Government will not readily acknowledge this. I invite them to accept Amendment 4 or at least to undertake to return with their own amendment on Report to secure the objectives I have outlined.
Amendment 36 in my name is also in this group. It would provide a vehicle, via Clause 58, whereby the financial aid outlined in Amendment 4 could be channelled through local authorities in steel-making areas hard hit by this Bill so that they were compensated for the adverse effects on local communities arising from the exercise of the powers in the Bill relating to steel-making in their area. As I stated at Second Reading, I support the objectives of this Bill but, with all the good will in the world, there will inevitably be losers as well as winners. As such far-reaching changes will be triggered by Act of Parliament, surely it behoves Parliament to safeguard those who may be adversely hit as a direct consequence. I beg to move.
Lord Fox (LD)
My Lords, this is a mixed bag of amendments. I will speak primarily to Amendment 29 in my name but also to some of the others.
Amendment 29 highlights the potentially distorting effects that CBAM—the carbon border adjustment mechanism—would have on various elements of the steel industry, from supplier to steel user. On the one hand, if applied fairly, CBAM could and should deal with the currently distorting global steel market, whereby Chinese steel, with a high carbon investment, is competing unfairly with greener steel in Europe and the United Kingdom. So far, so good, but the effects of CBAM on other steel users and manufacturers could, if applied wrongly, be very detrimental. That is why the international picture, particularly our future agreement with the EU, will be so important in ensuring that manufacturers do not have one hand tied behind their back.
The way that CBAM interacts with tariffs, which has not been discussed terribly much, is important and issues around energy costs have been put in this group, but in truth CBAM, the EU and energy costs fall outside—or at least at the very edges of—the scope of this Bill. However, Amendments 4 and 36 in the name of the noble Lord, Lord Wigley, and Amendment 44 from the noble Lords, Lord Sharpe and Lord Hunt, are front and centre within it. Tata, for example, is making considerable investments on its own account and should not be disadvantaged by any publicly owned business. Similarly, the communities in which the industry is located are vital and must be a key part of decision-making.
The nature of the amendments in this group is almost a snapshot, whereas in reality it will be a long-term issue. That is why, later in Committee, I have proposed a stakeholder advisory committee in Amendment 22 and an explicit role for Select Committees in Amendment 38. This will be an ongoing issue and we will need ongoing parliamentary review of it. While I support elements of this group and the intentions within it, I think the heavy work will be done in a different way going forward.
Lord Sharpe of Epsom (Con)
My Lords, I will speak to Amendments 30, 31, 43, 44 and 46 standing in my name and that of my noble friend Lord Hunt of Wirral. I thank the noble Lords, Lord Wigley—who I thought made a very powerful case—and Lord Fox, for their previous speeches.
Amendment 30 goes to the valuation of a steel undertaking and the need for that valuation to reflect the real commercial environment in which the undertaking will operate. That environment is not fixed; it is being shaped directly by government policy and, in particular, by the new steel trade measure coming into effect from 1 July. Only days ago, the Government changed the detail of that policy, relaxing the original proposals somewhat, with tariff-free quota reductions pulled back from the level first proposed. We will no doubt discuss that in more detail when the Statement is taken tomorrow, and I do not intend to rehearse that debate now.
However, the fact is that the Government’s choices on trade policy will have a material effect on the commercial position, and therefore the value of any steel undertaking. A tighter quota and a higher above-quota tariff will limit import competition. The way quotas are set will affect downstream industries, supply chains, customer relationships and the availability of particular steel products. The Government cannot, on the one hand, present their trade policy as central to the future of UK steel and, on the other hand, resist any requirement for that policy to be factored into what a steel undertaking is actually worth.
The need for clarity is made more acute by the uncertainty of recent weeks. Businesses have been trying to understand what the new quota levels will be, how quickly quotas may be exhausted, which products will be covered and what the practical effect will be for producers and steel-consuming industries alike. Do the Government accept that the new steel trade measure will affect the value of steel undertakings? If so, why should the independent valuer not be required to consider it?
On Amendment 31, electricity costs are among the central determinants of the viability, competitiveness and future value of steel. The position facing British industry is stark. The United Kingdom has had some of the highest industrial electricity prices in the developed world. UK industrial users pay substantially more than competitors in France and Germany, and—on the most widely cited international comparison—around four times as much as businesses in the United States.
For steel-makers, the gap remains significant. That is particularly serious as the sector moves towards more electricity-intensive production methods, including electric arc furnaces. A business may have the workforce, the plant, the orders and the ambition to modernise, but it cannot compete indefinitely if one of its principal inputs costs materially more than it does for its overseas competitors. These costs, I am afraid, reflect recent policy choices by the Government. The fact that the Government provided some limited relief from network charges to eligible energy-intensive industries rather demonstrates the point.
The Government now say that further measures will bring prices closer to those in competitor countries, but closer is not the same as competitive—and nor is a future scheme with questions of timing and eligibility still to be resolved an adequate basis on which to value a business today. This amendment would require the valuer to consider the prices paid by UK steel producers, the disparity with comparator countries and the effect of any support intended to reduce energy costs, including both the costs after existing reliefs and the risk that relief may be time-limited, incomplete or dependent on eligibility. It should also include a clear comparison with major competitor countries.
Is the Government’s objective genuine parity in industrial electricity prices with our principal competitors? If not, what continuing cost disadvantage do the Government consider acceptable for a strategic trade-exposed industry? How will the valuer assess the effect of support, which is prospective rather than guaranteed, particularly where broader measures are not expected to operate fully until 2027? The Government’s own impact assessment accepts the seriousness of this problem. It states that energy costs threaten the sector’s long-term viability and its ability to compete. It also acknowledges that UK steel producers face higher electricity prices than comparable countries, and that contributes to the uncompetitive production costs and pressure on margins.
On Amendment 43, as we raised at Second Reading, the Government’s impact assessment recognises the risk of a chilling effect on investment if businesses and investors perceive a greater risk of state intervention—a point very well made by my noble friend Lord Redwood in the last group. The United Kingdom has long depended on its reputation as a stable, predictable and rules-based place in which to invest. The risk is greater in the current climate. Steel businesses are already dealing with high electricity costs, rapidly changing trade policy and significant regulatory burdens. Adding an open-ended power of nationalisation can only increase the sense of risk for those considering whether to invest in the United Kingdom. If the Government are confident that their actions will strengthen confidence and attract private capital, they should have nothing to fear from transparency.
Amendment 44 addresses a basic point of fairness. If the Government take a steel undertaking into public ownership, that business must not receive selective advantages which place comparable privately owned steel businesses at an artificial disadvantage. Without this safeguard, there is a clear risk of distortion through subsidies, preferential access to public contracts, more favourable regulatory treatment or other support unavailable to private companies. The Minister in the other place stressed the need for flexibility and for the Government to act quickly, but flexibility need not mean unfairness. It is entirely possible to support a strategic undertaking in exceptional circumstances while maintaining a level playing field for the wider sector.
On Amendment 46, if we accept the Government’s central argument that British Steel is critical national infrastructure and that domestic steel production is essential to our national security and without it we cannot build our Navy, jets or submarines, they must accept the logic of what follows from that argument: you cannot declare something critical to national security then leave it defenceless. Amendment 46 states that, where the Secretary of State has exercised a principal transfer power where steel has been brought into public ownership precisely because it is in the public interest, the Secretary of State must have the power to prevent industrial action destroying the very thing that public ownership was meant to protect.
We have seen what happens when Governments are all too timid to act. We have watched the railways held to ransom by the RMT, and we have seen it in healthcare where the former Health Secretary himself felt compelled to call out what he described as “cartel-like behaviour”. The Government have made themselves more vulnerable still. The Employment Rights Act 2025 stripped away strike safeguards that existed for a good reason. The ballot thresholds are gone: the Government unlocked the door and then expressed surprise when it was pushed open.
If a steel undertaking is nationalised in the name of national security and a trade union then calls a strike that shuts down production, what will the Secretary of State do? Will he stand at the Dispatch Box and explain that our defence supply chains have been severed because he did not want to upset the unions? Do the Government seriously want domestic steel production halted because a union decides the moment of public ownership is the moment to press its advantage?
The Government cannot have it both ways: they cannot argue that steel is so vital to this country that it must be brought into public ownership and simultaneously argue that, once it is in public ownership, it should be just as exposed to industrial disruption as any other business. The whole point of this public interest test, if it means anything at all, is that some things matter too much to be left to the ordinary run of commercial risk. Industrial action that threatens critical national infrastructure is precisely such a risk.
I invite the Minister to tell the House that the Government have considered the risk. I invite him to explain what powers the Secretary of State would have on the day a strike is called at a nationalised British Steel to keep the blast furnaces lit. If he cannot answer that question satisfactorily, this amendment provides exactly the answer that is needed.
Lord Redwood (Con)
My Lords, I am grateful to my noble friend for raising the crucial issue of electricity prices. As the strategy is to convert more and more to electric arc furnaces, the price of electricity becomes the critical variant in determining how successful those businesses will be, how competitive their prices will be and whether they will generate cash and profit to reward those who ventured in them, or whether there will be problems for those businesses, just as there are problems in the British Steel carbon-based system through its blast furnaces. I hope the Minister can give us a little more background by way of reassurance, given that the steel strategy has been, and is still to be, based on electricity as the prime source of energy. There needs to be a policy that will consistently deliver competitive electricity prices because the current prices, without specific and targeted subsidy intervention, are way out of sync with the electricity prices in the more competitive world of our major competitor countries.
It is very important that this group of amendments raises the issue of tariffs. Of course, anybody valuing the assets that might be acquired under this legislation, or valuing what we already have by way of control and operating responsibility, will need to look at the impact of tariffs. It is a good idea to stress this because these are a very major change to the background for the conduct of steel businesses in this country, and we cannot be sure exactly what the impact is going to be. We have two types of impact arriving around the same time. There is the carbon border adjustment mechanism, which is, in effect, a fairly universal tariff based on the carbon content of imported material, which is clearly going to apply substantially to this industry. Then there are the specific tariffs which the Government have announced to come shortly, which target competitive steel coming into Britain with a very large increase in tariff and a rather low protected quota so that there will definitely be a substantial increase in cost for import.
You could argue, as I presume the Government do, that this is completely benign for our steel industry because it means that the combination of the immediate tariff and the soon to come CBAM tariff will make imported steel so much less competitive, and will therefore help reduce the pressures on our existing electric arc furnaces in the private sector and the two blast furnaces now, in effect, under the control—but not in the ownership—of the public sector. There will be some relief, as the policy intends. However, there can be other consequences which a valuer would have to take into account.
For example, the higher the cost of imported steel, the more difficult it will be for those many companies and industries that use and add value to steel in our wider steel-using industry. There will be limited scope for all users of imported steel to find exactly the right specifications of steel, and the right availability and pricing, from the rather limited-scale industry that the United Kingdom now has as a steel producer. There could well be financial difficulties, reductions in turnover and activity, or the collapse of steel-using businesses in the United Kingdom that face these very high tariff impositions on their main raw material. If they acquire more by way of import than at home and they cannot immediately substitute, you could have the paradoxical effect that the tariff designed to protect the British industry lost orders to the British industry as well as to the exporting industry from abroad. You could well have businesses here collapse—those that are substantial steel users but can no longer carry on the business efficiently to sustain their limited purchases from the UK, because of the cost of the expensive imports.
This needs careful policy examination. I am glad that the Government had one rethink about the tariff quota arrangements for this, but they probably need to do a bit more homework about the balance between the rather larger turnover at risk in steel-using businesses in the United Kingdom and the rather too small turnover available in steel production. They therefore probably need to consult a bit more widely over the medium- to longer-term impact on steel demand from domestic as well as imported sources.
I am interested in the proposals on impact on the economies, but I am not quite sure what is in mind and how it would work out. It is quite right, as the noble Lord, Lord Wigley, said, that there will have been impacts from previous closures or redundancies, and there could be future bad impacts as steel plants become more productive and need less labour, or as the final conversion is made from blast furnaces to electric arc, when there would clearly be a substantial loss of employment. There will need to be assistance and help for those who lose their jobs or have lost them in the past but still have not been able to retrain or find good alternative employment. One needs rather more by way of detail, and I am not quite sure that this Bill is the right place to do that, because it relates to a series of other government initiatives, funds and programmes that are more generally available. However, the noble Lord, Lord Wigley, might be right that they need to be improved. That is a subject for another conversation on another day.
Lord Leong (Lab)
My Lords, noble Lords have raised a number of amendments to ensure that there is a level playing field across the steel industry. I thank noble Lords for their commitment to ensuring that the Bill positively impacts the UK steel industry. A number of amendments have been tabled on this topic so, with this in mind, I will address those before turning to the new clauses proposed for the Bill. I will consider Amendments 29 to 31 together, as I believe they are intended to have the same effect.
Amendment 29 seeks to specify that compensation regulations under Clause 54(4)(b) allow the independent valuer to take into account external tariffs, as mentioned by the noble Lord, Lord Redwood, and the carbon border adjustment mechanism when valuing the steel undertaking, as mentioned by the noble Lord, Lord Fox. Meanwhile, Amendment 30 seeks to require that any valuation of a steel undertaking takes into account the steel import quota and tariff measure that is due to take effect from 1 July 2026. Amendment 31 would require any valuation to consider the anticipated effects of electricity prices.
I am sympathetic to concerns about the impact that these trade-related measures and electricity costs may have on steel undertakings, and therefore on any compensation determinations made by an independent valuer in relation to them under any compensation scheme regulations. However, I emphasise that the Government consider it unnecessary to add these amendments to the non-exhaustive list of examples of matters for a valuer to take into account under any compensation regulations. Any valuation would reflect the wider economic and market context, including the trading environment in which the steel undertaking operates, with or without tariffs, without the need to single out specific factors in primary legislation. This means that the valuer will ultimately have discretion to determine what they consider to be the relevant factors in making their determination.
Valuing a steel undertaking would be complex. The independent valuer would necessarily have, or be advised by those who have, expertise and experience in this area and would be well equipped to make informed decisions on their approach to valuation. For this reason, the Government do not consider these amendments necessary.
I turn to Amendment 43, which would place a duty on the Secretary of State to report to Parliament on the impact that any nationalisation of a steel undertaking would have on inward investment in the UK. I emphasise the commitments the Government have already made to support investment in the steel sector. The Government’s steel strategy set out commitments to removing barriers to investment and creating a more supportive business environment so that steel companies are better able to compete, are protected from carbon leakage and unfair trading practices, and have greater security and certainty. The Government welcome new entrants to the UK steel industry, which would foster a more competitive business environment. Government funding is available to support this.
I reassure noble Lords that the impact of nationalisation would be taken into account in any impact assessment on the use of transfer powers. This is the most appropriate mechanism for reporting on any expected impact on the economy. Given the complexity, interlinking and scale of investment trends, it would be difficult to report further on the exact impact of a single intervention. It is for this reason that we ask for this amendment not to be pressed.
Amendment 44 seeks to ensure that the powers in the Bill do not confer any advantage on publicly-owned steel undertakings which could distort competition and trade. I understand the concerns from the noble Lord, Lord Sharpe, that the Bill may unfairly distort competition and investment across the steel sector. However, I reassure your Lordships that this is not the Government’s intention. Any financial assistance provided to publicly-owned steel undertakings will be time-limited, targeted and proportionate. Furthermore, we will continue to comply with domestic and international subsidy control obligations to avoid market distortions. I hope this clarifies that the Government are committed to ensuring a level playing field between state and privately-owned steel companies. This amendment is therefore not required.
Amendments 4 and 36 were tabled by the noble Lord, Lord Wigley, who has raised concerns about what he considers to be the potential adverse impact of the Bill on local communities in steel-making areas. Amendment 4 would create an additional public interest factor for a Secretary of State to consider ahead of exercising the principal transfer power. This would be to support the local economy of any steel-making location adversely affected by the Bill.
The Government have introduced the Bill to support domestic steel-making, not to threaten it. Additionally, one of the three factors set out under the public interest test in Clause 2 is supporting the economy, including any part of the UK economy. The same applies to Amendment 36, which would allow financial assistance to be provided to compensate communities adversely affected by the Bill. I do not expect the Bill to have any adverse impacts on local communities, so I do not consider this amendment appropriate.
I emphasise to the noble Lord that the steel industry in Wales is the only part of the industry with a ring-fenced fund: £500 million for Port Talbot to transform the steelworks and secure steel production at that site and to secure the future of the south Wales steel industry. This is a significant investment that will benefit the local community in that area for years to come. This demonstrates the Government’s confidence in the Welsh steel community and the crucial role that Tata plays in it.
I understand the objective of Amendment 46, tabled by the noble Lord, Lord Sharpe. We all want to ensure that any publicly owned steel undertaking can operate effectively, maintain production and continue to serve the national interest. On that objective I do not believe there is any disagreement within the Committee; where we differ is on the means of achieving it. The amendment would give the Secretary of State the power to prohibit or restrict industrial action where it is considered to pose a sufficient risk to the public interest.
The Government do not believe that curtailing workforce rights is either necessary or the right way to secure a successful and resilient steel industry. The people who work in our steel plants are not an obstacle to operational success; they are the reason it is possible. Their skills, commitment and professionalism keep furnaces running, fulfil customer orders and sustain a strategic industry on which our economy and national security depend. The long-term success of a publicly owned steel undertaking will be built on partnership with this workforce, not on restricting their rights.
Moreover, good industrial relations are an asset in themselves. Constructive engagement with employees and their trade unions is far more likely to ensure stable operations than legislation that risks damaging trust and co-operation. Indeed, imposing additional restrictions could prove counterproductive, making disputes harder rather than easier to resolve. The Government have established constructive relationships with the trade unions representing workers at British Steel and across the wider steel sector. We value the role they play in representing their members and in helping secure the future for this vital industry.
Existing industrial relations legislation already provides the legal framework for industrial action. The Government see no justification for establishing a separate and more restrictive regime merely because an undertaking has entered public ownership. Public ownership should not mean fewer workers’ rights; it should mean responsible stewardship of a strategically important industry, working with the skilled men and women whose expertise will determine its success.
I thank all noble Lords for their amendments, which aim to ensure that the Bill does not distort the market to create inequality between public and private sector steel companies. I hope I have reassured noble Lords that the Government remain committed to revitalising the steel sector, which should be achieved through co-investment from the private and public sectors. I respectfully ask that the amendment be withdrawn.
Lord Wigley (PC)
My Lords, I am grateful to the Minister for his response on the whole range of diverse amendments we have before us. No doubt the Opposition Front Bench will have their own opinion on which ones of these they may want to return to on Report, because there are important issues that undoubtedly have arisen from those amendments.
Amendment 4 seeks to support
“the local economy of any steel-making location which may be adversely affected by this Act”.
I noted the Minister’s response, that this may be taken to be covered by other words in this subsection and in other parts of the Bill. But, with respect, words such as
“supporting the economy of the United Kingdom or any part of the United Kingdom”,
are so general that they do not actually address the point we are specifically addressing in Amendment 4, which is the impact on local communities of steel-making locations which may be adversely affected by the Act. It may well be that some such locations are not adversely affected by the Act—they may not be helped by the Act, but they may be able to get on with it—but some almost certainly will be, and there should be express and specific provision to ensure that the needs of those areas are on the face of the Bill.
In Committee, we are quite clearly only probing these matters. But I ask the Minister whether, between now and Report, he will come back and consider that. This is because the reaction against the Act will not be from the generality of the UK economy, or regional economies; it will be from specific places that are in danger of losing out because of the changes, some of which are perhaps inevitable, but which need to take place in order to facilitate the general objective of the legislation. Therefore, in begging the leave of the House to withdraw Amendment 4, I ask the Minister to consider that specific aspect between now and Report.
Lord Hunt of Wirral
“(2A) The Secretary of State may not exercise a principal transfer power unless the Secretary of State has commissioned an independent assessment of whether the exercise of the power is in the public interest, and that assessment has demonstrated that it is in the public interest.(2B) The Secretary of State may appoint such independent person as the Secretary of State thinks fit to carry out an independent assessment under subsection (2A), and may pay remuneration and allowances to that person.”Member’s explanatory statement
This amendment would require an independent assessment of whether the public interest test had been met before the Secretary of State could exercise the principal transfer powers.
Lord Hunt of Wirral (Con)
My Lords, Amendments 5, 6 and 42, standing in my name and that of my noble friend Lord Sharpe of Epsom, go to three basic questions which ought to be answered before the Government exercise powers of this scale. They are: on what evidence is nationalisation justified, by what criteria will Ministers make that judgment, and what will be the financial and economic consequences?
Amendment 5 would require an independent assessment before a principal transfer power is exercised, establishing that the proposed transfer is in the public interest. That is not an attempt to prevent the Government acting in a genuine emergency. It is an attempt to ensure that before private assets are transferred into public ownership, there is an objective check that the case has been made.
The sums involved may be very substantial. Once the state acquires a business, it may assume not only its assets but its liabilities, its working capital requirements, its investment needs, and the risks of continuing operating losses. These may be decisions with billions of pounds at stake. They should be based on evidence, not merely urgency or political pressure.
Amendment 6 is the natural counterpart. It would require the Secretary of State to lay before Parliament the full criteria by which the public interest test has been judged. The Bill currently gives Ministers a broad discretion. I believe that Parliament is entitled to know how that discretion has been exercised before a transfer takes place. What precisely has been considered? How have national security, economic consequences, competition, costs to the taxpayer and the future viability of the undertaking been weighed? Those are not matters which should be left to assertion after the event.
Lord Redwood (Con)
I am very glad that my noble friend raised the issue of an impact assessment, because if the Government press ahead with the acquisition of British Steel under the legislation, that could be the first opportunity we have for a realistic impact assessment. Yet, the taxpayer has been responsible for the losses in working capital and investment funds for over a year now, with the lack of clear reporting that we have commented on before.
We have an impact assessment for this piece of legislation. Understandably, it says that there are not any costs or benefits to report, because there is not a transaction. These are enabling powers, which would enable the Government to undertake and complete a transaction. But it would only be at that point that officials tasked with the difficult question “What is the impact?” would be able to come up with some numbers, because we would then presumably have some visibility on the cost of acquisition, if any, the operating costs and working capital costs that will go forward. That would be very helpful, in connection with the difficult investment at Scunthorpe, where, as we heard earlier, the NAO reported that there has already probably been £642 million of taxpayer expenditure up to the current month, with a very high run rate going forwards. So, I hope that the Government will offer us reassurance—if not a new clause in the Bill—to say that there will have to be a proper and timely impact assessment.
That, too, would clearly require proper due diligence, which I trust has been under way, now that the Government are responsible for the business. We would need to know that there had been a proper study of Anne and Bess, the two blast furnaces, which were either built or last substantially modified in the early 1950s. These are ageing assets. They have had deep maintenance in this century, but we would need a condition statement on that, so that the Government are reassured that however long they think they can run these blast furnaces for is feasible in terms of the condition of the plant. In order to sustain the employment for the next month, year or whatever it may be, we would need to know that there will not be major maintenance required or no question of having to cool the furnaces down, because that is a dangerous and expensive process and would raise issues about how easy it would be to spend enough money to reinstate these particular assets.
Of course, it would also require proper reporting to the Government—not supplying all the detail to us, but proper reporting on market prospects and how the steel product produced at Scunthorpe is perceived, and what the market opportunities, in general terms, might be and other supporting documents. It will require a serious impact statement, for the benefit of democratic accountability. More importantly, that would prove that the Government have done their homework, because the Government should not be taking on a plant like this unless they have a condition report, a marketing report, a proper cost examination and so forth, which I and my noble friends have been referring to.
Lord Fox (LD)
My Lords, I do not want to be the bringer of bad news to the noble Lord, Lord Redwood, but I suspect that it is pretty clear that the condition of the blast furnaces is poor and whatever happens, either to reinstate them to the level that would take them forward or to invest in electric arc, will take a lot of money. That is the point that we are focusing in on, and that is why we are focusing in on the public interest test. We have not yet gotten past Clause 2 yet, because this is the crunch.
I have a group of amendments in the next group, so I will reserve almost everything I have to say. The noble Lord, Lord Hunt, has already disobeyed his Amendment 2, because we are seeking to broaden the scope of the public interest test. With respect to the noble and right reverend Lord, Lord Sentamu, there is such a number of issues that have to be addressed within the particular field of potential investment that the public interest really requires focus. I will leave it at that for this group and then come back to these in the next group.
Lord Leong (Lab)
My Lords, I thank the noble Lords, Lord Redwood, Lord Fox and Lord Hunt, for their contributions.
The noble Lords, Lord Hunt and Lord Sharpe, tabled Amendments 5, 6, and 42 to provide for an independent person to assess the public interest. Further amendments tabled by the noble Lords would require the Government to publish both the criteria used to assess the public interest and their assessment on how those criteria are met, before exercising the principal transfer power. Amendment 42 would require an impact assessment to be published before any intervention or the exercise of any power under the Bill. As these amendments deal with similar issues, I will address them together.
I start by saying that I understand and sympathise with the desire for the greatest parliamentary and stakeholder scrutiny of a decision to intervene under the powers in the Bill. Stakeholder engagement is a key part of the Government’s policy approach to the sector, with Ministers regularly meeting key industry groups and representatives through the steel council and other forums. The Government have published an impact assessment alongside the Bill, explaining how the public interest test will be considered. A further impact assessment will be published alongside any secondary legislation exercising the transfer of power.
The framework for decisions to intervene will stem from what has been included in Clause 2, with regard to the three public interest factors. There is no attempt on our part to obfuscate or hide the criteria that will be applied in practice. The Government will not only consider whether a steel undertaking is engaged in activity that serves the public interest; they will also consider whether the activity is at risk of not receiving government intervention.
The Government cannot support these amendments as each would create additional hurdles and process pre-intervention. In the kinds of situations that the Bill envisages, speed will be crucial. Likewise, commercial and market sensitivities mean that swift action will, in most circumstances, be necessary to avoid uncertainty.
None the less, I am aware that there are strongly held concerns about this issue, and I can confirm that the Government will consider options for Parliament to scrutinise decisions taken either at the time of or after the exercise of the transfer of powers ahead of Report stage. I hope that this offers some reassurance to noble Lords, and I look forward to continuing further conversations with the noble Lord, Lord Fox, ahead of Report. With that, I ask that the amendment be withdrawn.
Lord Hunt of Wirral (Con)
My Lords, I am very grateful to the Minister for his response, particularly his closing words. My hopes were raised when he started by saying that he understood everything that I had said and was sympathetic. Then the situation clouded a little as he said that these amendments would present additional hurdles at a time when speed would be essential, but then he said that the Government would consider options between now and Report—and that is what I was seeking to hear.
I am very grateful to my noble friend Lord Redwood for putting it all in the historical context. It is easy to forget the pace at which we entered this debate, by being summoned to Parliament in April of last year. As the noble Lord, Lord Fox, reminded us, Clause 2 is the crunch. It is a key part of this Bill. To remind colleagues, Amendment 5 would require an independent assessment confirming that nationalisation is in the public interest before transfer powers could be used. Therefore, as we approach that amendment, I obviously cannot press the Minister on the options that the Government will consider, but it would be a way forward if we could find a solution comparable to that in Amendment 6, requiring the Secretary of State to lay before Parliament the criteria used to assess the public interest before using transfer powers—and then Amendment 42, which would require an impact assessment.
I recognise the point that the Minister has made about the practical difficulty of preparing a full assessment before the exercise of emergency powers—particularly, as he explained, where Ministers may need to act quickly to prevent serious harm. However, that cannot mean, as I believe the Minister accepts, that the financial consequences are treated lightly. The cost to the taxpayer of taking on a steel undertaking—its liabilities, its working capital needs and its future investment requirements—may be substantial. As my noble friend Lord Redwood pointed out, Parliament has a proper understanding and an interest in understanding those costs, the risks assumed and the basis on which the decisions have been made. Parliamentary scrutiny should not be seen as an obstacle to action. It is surely a necessary part of ensuring that exceptional powers are used responsibly and transparently.
We await the decision of the Government. I had hoped that the Minister would commit to publishing an impact assessment alongside the exercise of the power. I will examine his words carefully, because that assessment is the key. It should set out the costs incurred, the economic implications, the liabilities assumed, the anticipated future costs and the risks to the taxpayer. There is much for the Government to reflect on. I beg leave to withdraw the amendment.
Lord Fox
“(2A) The Secretary of State may not exercise a principal transfer power unless they have laid a statement before both Houses of Parliament explaining their reasons for concluding that it is necessary to exercise the power in the public interest.”Member's explanatory statement
This amendment would require the Secretary of State to lay a statement before Parliament explaining their reasons for concluding that it is necessary to exercise a principal transfer power in the national interest, before exercising that power.
Lord Fox (LD)
My Lords, I shall speak also to Amendments 10 and 11 in my name.
Agreement appears to have broken out. The noble Lord, Lord Hunt, the Minister and I all agree that the wording of Clause 2 is central to how we move forward. I always suspected that the public interest test element would be the hardest bit to resolve in this Bill. We are beginning to see that this might be true.
Lord Sharpe of Epsom (Con)
My Lords, I am very grateful to the noble Lord, Lord Fox, for bringing forward these amendments. As he has observed, there are similarities with some amendments of ours and we are happy to work together to clarify them. He could also have said that Parliament will be acting at speed tomorrow on the National Security (State Threats) Bill from the noble Lord, Lord Hanson—so it can be done.
We have already raised significant concerns about the breadth of the public interest test in Clause 2. The amendments in this group go directly to those concerns. The noble Lord is quite right that, before such exceptional powers are used, Parliament should be told why nationalisation is considered necessary. It is also right that the Government should have to consider the effect on the public finances and whether the undertaking has any credible short-term and long-term prospect of being investable. A business may be capable of being kept open in the short term, but that is not the same as being viable, competitive or capable of attracting the investment needed for its future. The public interest also cannot be assessed without proper regard to the liabilities and continuing costs that may fall on taxpayers.
The Government’s approach so far has relied heavily on broad discretion and ministerial assurance. These noble Lord’s amendments would introduce greater transparency, discipline and realism into that process. For those reasons, we support them.
Lord Leong (Lab)
My Lords, I thank the noble Lords, Lord Fox and Lord Sharpe, for their contributions. I also thank the noble Lord, Lord Fox, for his constructive engagement over the past few weeks. I understand that he is trying to support the steel sector and the Bill while ensuring value for money, which is the Government’s objective as well.
Amendment 10 would require the Secretary of State to take into account the impact on the public finances when applying the public interest test. Of course, any decision to nationalise a steel undertaking should not be taken lightly, given the significant costs that could be incurred. However, the principle of securing value for money for the taxpayer is already well established and embedded in government decision-making, as I said on an earlier group. Any decision to exercise the powers in the Bill is subject to the usual Managing Public Money governance and the framework of accounting officer checks, which includes consideration of the impact on the public finances. I therefore respectfully suggest that incorporating the amendment into statute would not serve any particular purpose, but we are mindful of ensuring that costs associated with the Bill are well managed.
The noble Lord, Lord Fox, also proposes, in Amendment 11, that the Secretary of State should take into account the short-term and long-term investability of a steel undertaking when considering whether to intervene in the public interest. I understand the sentiment behind the amendment, but I do not think that investability should directly inform the public interest test.
If a steel undertaking is an investible prospect in the short term, it is unlikely that there would be a case for government intervention, as the need could be met by the private sector. The intention behind the Bill is not to crowd out private investment but to act where private ownership has failed. Whether a steel undertaking is investible in the longer term is highly speculative, so I do not think it would be particularly helpful for it to form part of the statutory framework for the decision. By intervening, the Government would hope to turn a steel undertaking that is not investible into something that may become investible. To the extent that this is what the noble Lord hopes to achieve, we share his ambition, but I do not think that the amendment is workable.
Amendment 7 would prevent the Secretary of State exercising the principal transfer powers until a statement explaining how the public interest test is met has been provided to Parliament. I am sympathetic to the desire for greater parliamentary and stakeholder scrutiny of any decision to intervene under the powers in the Bill.
As I said previously, the Government have published an impact assessment alongside the Bill, explaining how the public interest test will be considered. Any further impact assessment would be published alongside any secondary legislation exercising the transfer powers. The framework for the decision to intervene will stem from the three public interest factors included in Clause 2. The Government will consider not only whether a steel undertaking is engaged in activity that serves the public interest but whether that activity is at risk without government intervention.
The Government cannot support this amendment, as it would create additional hurdles and processes pre-intervention. In the kinds of situations that the Bill envisages, speed will be crucial, as I said previously. Likewise, commercial and market sensitivities mean that swift action will, in most circumstances, be necessary to avoid uncertainty; I take note of what noble Lords said about speed. None the less, I am aware that there are strongly held concerns about this issue and I confirm that, ahead of Report, the Government will consider options for Parliament to scrutinise decisions taken either at the time of or after the exercise of the transfer powers. I hope that this of some reassurance to the noble Lord and ask that his amendment be withdrawn.
Lord Fox (LD)
My Lords, I thank the noble Lord, Lord Sharpe, for his support for these amendments and I was pleased to hear the closing part of the Minister’s statement. We all want the costs of any nationalisation to be well managed; we are looking for those costs to be well understood in advance of any commitment by the Government on behalf of the people of this country. We look forward to those discussions and I beg leave to withdraw Amendment 7.
Lord Wigley
“(2A) In assessing the “public interest” in regard to the exercise of transfer powers relating to a steel undertaking located in Wales, the Secretary of State must consult the First Minister of Wales before exercising such principal transfer powers.”Member’s explanatory statement
This amendment is to ensure that the UK Minister and the First Minister of Wales work together in taking forward transfer powers which involve a steel undertaking in Wales.
Lord Wigley (PC)
My Lords, the amendment proposes inserting a new subsection (2A), which provides that:
“In assessing the ‘public interest’”—
which is the whole dimension underpinning the Bill—
“in regard to the exercise of transfer powers relating to a steel undertaking located in Wales, the Secretary of State must consult the First Minister of Wales before exercising such principal transfer powers”.
This is surely basic common sense, since many, if not most, of the responsibilities impacted by such transfers in Wales rest with Senedd Cymru. These powers include economic development, town and country planning, roads, education and training, and the environment. Each one of these may, and almost certainly will, be impacted by the consequences of transfer decisions.
To those who argue that responsibility to co-operate already exists, I say that, if that responsibility is spelled out in the Bill, it would trigger an earlier and more thorough approach. Otherwise, it would be so easy to treat such dialogue and mutual action as an afterthought when it should be a cast-iron statutory requirement.
This brings me to the associated Amendment 19. Clause 50 provides powers to the Secretary of State
“to modify law in connection with … property transfers”.
Clause 50(3) is very serious as it provides for retrospective legislation. This should always trigger alarm bells, in whatever context it arises. As many of the legislative responsibilities that might be impacted by this are fully devolved to Senedd Cymru, any such regulations must be made only with the prior agreement of Senedd Cymru. This must be included in the Bill, otherwise it would be open to a Pandora’s box of utter chaos.
Amendment 19 specifically provides a route to avoid such consequences by requiring the prior agreement of Senedd Cymru to any such regulations that involve devolved powers. Including this in the Bill would avoid misunderstanding and unhelpful polarisation, so I beg to move Amendment 9 and would like to hear the Minister’s response to both it and Amendment 19.
Lord Fox (LD)
I will be very brief and speak with some support for the noble Lord, Lord Wigley. As far as I can tell, the Bill does not require legislative consent from either Cardiff or Edinburgh. Perhaps the Minister could confirm that. If it does not, the principle set out by the noble Lord, for both Wales and Scotland—I know that there may be industrial differences, but the two things apply—would be very important. I look forward to hearing what the Minister says in that regard.
Lord Hunt of Wirral (Con)
My Lords, I very much echo what the noble Lord, Lord Fox, has just said, and I thank the noble Lord, Lord Wigley, for his amendments, which raise very important points. There are considerable concerns about what is happening at steel plants in Wales and the consequences for the workers, their families and the much wider community. It is right that, where these powers may affect a Welsh steel undertaking or devolved responsibilities, Wales should be properly involved. I urge the Minister to respond positively to the concerns so rightly raised by the noble Lord.
Lord Leong (Lab)
My Lords, in this group of amendments, the noble Lord, Lord Wigley, has raised important concerns about the ways in which the Bill includes the Welsh Government and legislature in decision making. Amendment 9 would amend Clause 2 on the public interest so that the Secretary of State would be required to consult the First Minister of Wales before exercising the principal transfer power in relation to an undertaking located in Wales.
The Government have been keen to engage closely with the devolved Governments throughout the passage of the Bill, and I am grateful for the approach taken by all parties in that engagement. I am delighted to inform your Lordships that the Scottish Parliament granted its legislative consent to the Bill on 23 June. I record my thanks to Ministers and officials who worked swiftly to complete the legislative consent process ahead of the Scottish Parliament’s Summer Recess.
I am happy to confirm that the Government will ordinarily consult the relevant devolved Ministers if it is likely that the principal transfer power will be used in relation to a steel undertaking with its principal place of business in Scotland, Wales or Northern Ireland. If this is not possible because swift action in the public interest is required, Ministers will engage with their ministerial counterparts at the earliest opportunity following the exercise of the principal transfer power. I also understand that my colleagues, Ministers and the Secretary of State for Wales will meet their counterparts in the Welsh Government tomorrow to discuss the Bill further.
Amendment 19 would require the Senedd to give approval to any proposed use of the modification power that would relate to devolved regulations. Again, I am sympathetic to the sentiment of this amendment and reassure the noble Lord that the modification power in Clause 50 is targeted and limited to applications necessary to ensure that transfer powers can be exercised effectively. It is not a general power to amend legislation. The drafting does not permit any changes to other laws unless they are for the purpose of ensuring that the powers in the Bill can be exercised effectively.
Although I cannot agree with these amendments, I reiterate the Government’s desire to continue engaging closely with our partners in the devolved Governments. In particular, the Government are continuing to discuss the Bill with the Welsh Government, and I hope to be able to provide noble Lords with further updates later in the Bill’s passage. However, I ask the noble Lord to withdraw his amendment.
Lord Wigley (PC)
Well, well, well—I thank noble Lords for their positive responses. I thank the noble Lords, Lord Fox and Lord Hunt, and indeed the Minister, for the tone and content of their support for the principles here, if not the exact wording on the Order Paper. I noted with interest the ongoing discussions with colleagues in Cardiff and that there are further discussions about to take place. If, arising from those discussions, the Government feel it is appropriate to tweak the Bill to cover those points, I am sure that would be widely welcomed all round. On the basis of this general positive approach, I beg leave to withdraw the amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment seeks to prevent the Secretary of State extending the sunset of the principal transfer powers.
Lord Sharpe of Epsom (Con)
My Lords, I hope that this outbreak of agreement means that the Government will accept my Amendment 12. The Government have repeatedly spoken of a long-term plan for steel—securing private investment, increasing domestic production, safeguarding jobs and creating a viable future for the industry. Against that background, Clause 3 comes as something of a surprise. Earlier, the noble Lord, Lord Fox, indicated that he was somewhat reassured by its presence, but I suspect that its actual terms have escaped his usual vulpine scrutiny. A sunset clause is intended to place a clear limit on exceptional powers, but the Bill allows the Secretary of State to substitute, by regulations, a different period for the two-year limit.
Subsection (4) makes it clear that this can be done more than once. Therefore, in practice, the powers could be extended again and again, which gives no reassurance at all. Two years could become five years, 10 years or longer. That is not a meaningful sunset clause; it is a potentially perpetual sunset clause. It is an indefinitely renewable power.
What does that say about the Government’s confidence in their own ability to secure a viable private sector-led future for British Steel? If Ministers genuinely expect these powers to be exceptional and temporary, why do they require the ability to extend them without any stated final limit? This goes directly to the concerns raised throughout our debates—the risk of open-ended liabilities for taxpayers, uncertainty for investors and a lack of clarity about the Government’s intended endpoint.
The Constitution Committee of your Lordships’ House has considered this point and has been unequivocal. It said:
“The use of delegated powers to bypass sunset clauses undermines their purpose, and sets an unusual and unwelcome precedent”.
It recommended either that the final period of extension be set out in the Bill or that there should be a statutory time limit each time the power is used. This would not prevent the Government seeking additional time when there is a compelling case, but it would require Ministers to return to Parliament with a clear final boundary rather than retaining power capable of perpetual renewal.
Will the Minister accept the Constitution Committee’s recommendations and bring forward amendments before Report? Will the Government set a final limit on these powers and demonstrate that they have genuine confidence in securing a thriving, investible and private sector-led future for British Steel? I beg to move.
Lord Fox (LD)
My Lords, I see the point that the noble Lord, Lord Sharpe, has made, and I commend him for getting past this amendment before 9.21 pm, which is of course sunset.
Lord Leong (Lab)
I thank the noble Lord, Lord Sharpe, for his contribution. I note the Constitution Committee’s comments on this clause in its recently published report on the Bill. The inclusion of the sunset provision demonstrates the Government’s commitment to ensuring that powers remain on the statute book for as long as necessary to serve their purpose. Ultimately, we want to see the domestic steel sector return to a more sustainable and stable state in which government intervention is unnecessary.
As we have said, we do not currently see another use case beyond the possibility of British Steel. Therefore, we hope that noble Lords get their wish and there is no need to extend the sunset period. However, the current geopolitical landscape creates a volatile backdrop for this sector, making it difficult to anticipate what may transpire in the coming months and years. We have therefore built in some flexibility to extend or shorten the two-year sunset timetable if circumstances change. We consider this a reasonable precaution to take.
The drafting ensures that there will be full parliamentary scrutiny of any change to the sunset period through the affirmative procedure, meaning that parliamentarians will be able to test and debate any regulations brought by the Government to extend the sunset period. We anticipate needing to use this extension power only in extenuating circumstances. I therefore request that the amendment be withdrawn.
Lord Sharpe of Epsom (Con)
My Lords, that was a very brief debate, and I am grateful to the Minister for his response, but I am afraid I remain unconvinced. The Government say they want to secure a sustainable private sector-led future for British Steel. But a power capable of being extended repeatedly without any final statutory limit sends exactly the opposite signal. It risks making investors more, not less, cautious about committing capital to the sector. There must be a reasonable period that the Minister can identify and put in the Bill. If the Government genuinely regard these as exceptional and temporary powers, they should be willing to set out a clear limit.
The noble Lord cannot realistically blame external circumstances. There are always external circumstances. This has fallen foul of the Constitution Committee for very clear reasons, which it has set out. Speaking personally and from experience, I think it is unwise to fall foul of the Constitution Committee.
We urge the Government to take seriously the recommendation of the committee and either specify the final extension period in the Bill or impose a statutory limit on each extension. I think we will have to return to this matter at a later stage, but for now I beg leave to withdraw the amendment.
Lord Hunt of Wirral
Member’s explanatory statement
This amendment seeks to require regulations transferring securities of a steel undertaking to be subject to the affirmative procedure.
Lord Hunt of Wirral (Con)
My Lords, Amendment 13 makes regulations transferring securities in a steel undertaking subject to the affirmative procedure. Amendment 14 makes regulations transferring the property rights or liabilities of a steel undertaking subject to the affirmative procedure. Amendment 15 makes regulations on continuity obligations subject to the affirmative procedure. Amendment 18 in this group makes enforcement regulations subject to the affirmative procedure. I will begin by referring to those amendments but speaking to the question of whether Clause 50 should stand part of the Bill.
This clause gives the Secretary of State a very broad power to modify primary legislation, secondary legislation and common law in connection with a share or property transfer. It may be used retrospectively and, in some circumstances, before Parliament has had the opportunity to approve the regulations. These are considerable powers, particularly when we are discussing property rights, contractual rights and the compulsory transfer of businesses and their assets. My noble friend Lord Sharpe of Epsom has already referred to the report of the Constitution Committee, and he speaks from personal experience of knowing the dangers of ignoring the recommendations of that committee. The committee is pretty clear about Clause 50, and I will quote from its report:
“We recommend that the broad power granted to the Secretary of State in Clause 50(1) to modify the law in relation to share or property transfer by regulations should either be removed or significantly tightened to specify the circumstances in which such law may be modified”.
I believe that the Government should take that recommendation seriously.
The Government’s delegated powers memorandum sets out at some length why Ministers believe that a broad power may be needed. It refers to the complexities of company law, insolvency law, commercial law and supply chains, and the possibility that an obstacle to a transfer may emerge unexpectedly. A compulsory transfer may well give rise to legal complications, but the memorandum does not provide concrete examples of the circumstances in which primary legislation would need to be disapplied or modified. If those circumstances can be identified, they should be placed in the Bill, or at least the power should be more tightly defined.
On Amendments 13 and 14, the Government’s own delegated powers memorandum confirms that the transfer powers in Clauses 4 to 29 are subject to the negative procedure. That is a very wide suite of powers. They not only concern the initial transfer of shares or property but include the legal effect of those transfers, continuity arrangements, the conversion and delisting of securities, the position of directors and senior managers, licences, termination rights, foreign property and supplemental onward, reverse and connected transfers. Amendments 13 and 14 focus on the central powers, the compulsory transfer of securities and the compulsory transfer of property rights and liabilities. Those are the acts by which the state takes control of a private business, or part of one.
Lord Fox (LD)
My Lords, I have to say I was a bit grumpy when the Conservative Party tabled these amendments that we had tabled in the Commons, but in retrospect I am very pleased. No joking—that was a tour de force from the noble Lord, Lord Hunt. This is his specialist area, and that was his best speech on Henry VIII that I have heard. All the points were points that I would have made except that I am not good enough to have made them, so in that respect I am glad that he was the person proposing this, rather than I. The only thing that stops the noble Lord from being risen to the pantheon is that, having won affirmative powers, he and his colleagues never actually exercise them through fatal Motions. Frankly, that is the only flaw in what we have just heard.
I countersigned Amendments 13 to 15 and 18 but my pen ran out when we got to Clause 50 stand part. All the points that the noble Lord made are valid. I hope the Government are able to take on board both what he said and what your Lordships’ committees have said about the shortcomings in this draft.
Lord Leong (Lab)
My Lords, before I turn to the amendments in this group, I thank the members of the Select Committee on the Constitution for their report on the Bill, which relates to this grouping. The report recommended that in Clause 47 the provisions for dispute settlement should be set out more fully in the Bill. The approach to drafting here is in line with existing precedent under the Banking Act 2009 and reflects the approach taken for similar powers, such as enforcement powers. We think it is appropriate to provide for dispute settlement on a case-by-case basis through regulations.
Noble Lords have tabled a number of amendments relating to parliamentary scrutiny of and procedure on the transfer regulations. In particular, the noble Lords, Lord Sharpe and Lord Hunt, have tabled amendments which would change the parliamentary procedure for the principal share and property transfer powers, continuity obligations and enforcement powers from negative to affirmative. I understand the concern expressed by the noble Lords. From the outset, I reassure all noble Lords that the Government take parliamentary scrutiny extremely seriously. For that reason, we have ensured that a number of substantial powers in the Bill, such as the compensation and tax powers, are subject to the affirmative procedure. However, the Government consider that changes to the procedure for transferring powers would adversely affect the Government’s ability to effect a smooth transfer where necessary in the public interest.
Steel is fundamental to the UK’s industrial base and our national resilience, making it critical to secure supply. Any delays, especially in a non-consensual transfer, would prevent the transfer from taking place, particularly if the transferer was unco-operative. I draw noble Lords’ attention to the recently published report from the Delegated Powers and Regulatory Reform Committee, which did not raise any cause for concern about these powers, including the level of parliamentary scrutiny attached.
To set out the necessity for the negative procedure for these powers, I will discuss them in turn. I will address Amendments 13 and 14 together as they seek to amend the procedures for the share and property transfer powers respectively. It is important that the principal transfer powers can be exercised with speed and operational and legal certainty. The Government expect that, if these powers were exercised, it would be in a fast-moving, commercially sensitive situation. The affirmative procedure would introduce a substantial delay, creating a vacuum in ownership. Such uncertainty would significantly affect the business, particularly the supply chains and third-party contracts.
Amendment 15 seeks to amend the procedure for continuity obligations. The continuity obligations in the Bill are essential to ensure that the company continues to operate as normal following the transfer, minimising disruption and maintaining operations at the steel undertaking. This is achieved by imposing obligations on residual steel undertakings and their group companies to ensure that all services and facilities required by the transferred business continue to operate as normal. Any changes to the procedure would affect the effectiveness of the transfer. The Government’s primary objective with this provision is to ensure a smooth transfer of ownership. As I have set out, it is imperative that there be no delay to any transfer of a steel undertaking into public ownership.
Amendment 18, in the name of the noble Lord, Lord Sharpe, aims to amend the procedure for enforcement regulation. Clause 45 gives the Secretary of State the power to make provision in regulations for the enforcement of obligations under the share and property transfer regulations. As with the other amendments, if the Government consider it necessary to enforce obligations, they must do so at pace. Any delay in using these powers risks interrupting the transfer process and reducing its effectiveness.
For those reasons, the Government do not consider these amendments necessary. However, I have reflected on the argument made by the noble Lord, Lord Hunt. While it is critical that the Government are able to preserve their ability to enforce as necessary, there is a reasonable rationale for further parliamentary scrutiny. I cannot accept this amendment but I will consider this issue further, ahead of Report.
The noble Lords, Lord Sharpe and Lord Hunt, have given notice indicating their intention to oppose Clause 50 standing part of the Bill. That would remove the modification power in Clause 50. This power is not taken lightly, but it is a necessary measure to ensure that the transfer powers under the Bill can be used effectively. The clause has precedent because the same power was used in the Banking Act 2009 to resolve complex companies in the financial sector. Given that the transfer powers would be used only in circumstances where a public interest test was met, it is crucial that the Government have the necessary tools to ensure that any such transfers can be implemented effectively to deliver the intended outcome.
The powers in Part 1 of the Bill interact with commercial, company and insolvency law. This is the law that normally governs the consensual acquisition of companies or of their businesses. The legislative environment is therefore varied and complex and, because general legislation was not designed with compulsory transfers in mind, as the Bill envisages, there will be some tension between applying the Bill’s powers to a steel undertaking and the highly complex private law that it will inevitably cut across. The clause therefore provides a necessary power to modify other laws that may ordinarily interact with a transaction of this nature in order to integrate the Bill’s powers into the existing legislative and commercial landscape.
The use of the modification power is limited to the purpose of enabling the transfer powers to be used effectively. It is not a general power to amend legislation; it is targeted and limited. It cannot be used in isolation from the use of powers in respect of a particular steel undertaking to amend or disapply laws, and it cannot be used to amend the Bill—or Act—itself. In the absence of these powers, there is a real and significant risk that the Secretary of State could not fully and effectively implement a transfer. This could result in an ineffective or incomplete transfer to public ownership, affecting a company’s ability to continue operation. If a smooth transfer is not achieved, the public interest aims could be undermined.
I turn to the potential retrospective effect of the power. The Bill permits it to be applied retrospectively but does not require it. Preserving the possibility of applying this power retrospectively anticipates circumstances in which the transfer powers may need to be exercised at pace and in which there may be limits on the ability to conduct the level of due diligence necessary to support acquisition. Similarly, it may not be possible to identify all legislative interactions in the transfer scenario before making a transfer. This may mean that any secondary legislation made under the transfer powers may not fully affect the transfer that was intended. In such circumstances, it would be necessary to address this through the modification power, with the modification backdated to the time of transfer. The use of the power will be subject to the affirmative procedure unless there are particular circumstances that justify the Secretary of State proceeding on an affirmative basis, likely due to time pressures.
I hope that I have provided some clarity on the need to include the provision, and its retrospective effect. For these reasons, I respectfully ask that the amendment be withdrawn.
Lord Fox (LD)
On a number of occasions, the Minister has painted a picture of a breathless process, where all the organs of government have to operate at breakneck speed. Taking the Government at face value, we are talking largely about a particular asset that we have been talking about for around 15 months, since the discussion at Easter last year. At some point, perhaps not at the Dispatch Box but when we are having our meetings, the Minister will explain why there is this predisposition to putting everything in place to have things moving at the speed of light when, in reality, they have been moving relatively slowly.
Lord Leong (Lab)
I am happy to give that commitment in our further conversations.
Lord Hunt of Wirral (Con)
My Lords, I am grateful to the noble Lord, Lord Fox, not only for his generous praise, which I felt was completely undeserved, but for his support. At some stage, this great Chamber of ours will consider better ways to deal with secondary legislation. He will know that I gave quite a lot of support, when I chaired the Secondary Legislation Scrutiny Committee, to one of his noble friends who moved that there should be a new Bill—the Statutory Instruments (Amendment) Bill. But that is for another occasion. In the meantime, I thank the noble Lord for his strong support.
There is clearly much now for the Government to consider, in particular in view of the commitments made by the Minister. How do we achieve the right balance between acting swiftly where necessary and, at the same time, ensuring that Parliament has a meaningful role in scrutinising powers, particularly where they affect property rights, liabilities and commercial arrangements? I am sure these issues will merit further discussion as the Bill progresses. For the present, I beg leave to withdraw the amendment.
Climate Change Act 2008 (International Aviation and International Shipping) Regulations 2026
(1 day, 4 hours ago)
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Lord Whitehead
That the draft Regulations laid before the House on 14 April be approved.
Relevant document: 58th Report from the Secondary Legislation Scrutiny Committee, Session 2024–26
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, I thank the House for its consideration. The draft Climate Change Act 2008 (International Aviation and International Shipping) Regulations 2026 were laid before the House on 14 April.
This instrument makes the necessary regulations under the Climate Change Act to include emissions from the UK share of international aviation and shipping in the sixth carbon budget, all subsequent carbon budgets and the 2050 net-zero target. It formalises the Government’s long-standing planning assumption that the sixth carbon budget, starting in 2033, will be the first to include emissions from the UK share of international aviation and shipping. This has been the position of successive Governments. In 2021, the previous Government set the sixth carbon budget, factoring in the UK’s share of international aviation and international shipping. It also reflects the advice of the independent Climate Change Committee.
This debate is not about whether we take action in these sectors—we already are. The Government are committed to ensuring that long-term growth in the aviation and shipping sectors is compatible with our climate obligations. We have been working multilaterally to reduce aviation and shipping emissions within the International Civil Aviation Organization and the International Maritime Organization. We are now formally reflecting this effort in our domestic legal framework.
For earlier carbon budget periods, international aviation and shipping were not formally included in our legally binding targets. Instead, we left headroom, setting tighter limits for other sectors in order to deal with the assumptions of being in those targets in general. We are now revising this approach by legislating to formally include these emissions in the overall emissions limit from the sixth carbon budget onwards.
Accounting for international aviation and shipping emissions within the formal framework is clearer and more flexible than accounting for them outside the framework. It allows the Government to choose the best overall pathway to meeting our targets. For example, if progress in reducing aviation emissions is faster than expected, it will make it easier to meet our targets overall. Equally, faster progress in other sectors could allow more flexibility for international aviation and shipping.
Although aviation is a hard to decarbonise sector, we are already taking great strides towards greener aviation. This includes implementing the sustainable aviation fuel mandate last year, providing a further £219 million to scale up SAF production through to 2030, and up to £2.3 billion over 10 years for the Aerospace Technology Institute to support the development of more efficient and zero-emission aircraft technologies. We are also driving cost-effective decarbonisation through carbon pricing mechanisms, including the UK emissions trading scheme, or UK ETS, and the global offsetting scheme, CORSIA.
We are also committed to decarbonising shipping through the UK maritime decarbonisation strategy, investment in clean maritime technologies and support for low-carbon fuels. The UK is proud of our leadership at the International Maritime Organization, ensuring the sector contributes fully to our net-zero ambitions while maintaining the UK’s competitiveness as a global maritime nation.
To note, this statutory instrument does not alter the stringency of the UK’s climate targets, introduce new sector-specific limits or set new policy requirements for the aviation or shipping industry, and nor does it alter the climate considerations in the draft Heathrow expansion national policy statement. What it does provide is legal clarity—something colleagues in the Environmental Audit Committee and the Transport Select Committee have called for repeatedly. Successive Governments have pledged to legislate for this change as soon as parliamentary time allows; now we are keeping our word.
I recognise the amendment tabled by the noble Lord, Lord Moynihan, for discussion today. The noble Lord raises two points of concern, which I shall address in turn. First, the noble Lord regrets that the draft legislation does not define a methodology for accounting for the UK’s share of international aviation and shipping emissions for the purposes of carbon budgets. That omission is for good reason. Not prescribing a specific methodology now allows for continued methodological development in the period before the sixth carbon budget period commences—that is, in 2033. That will be in line with developments in international carbon reporting practice, in which the UK participates in ongoing discussions. That has to be an international discussion with the international agencies responsible for getting that right on an international scale. I am sure that the noble Lord would not wish to tie the Government to an outdated methodology, out of sync with wider international practice. It is not that there is no methodology; it is a question of making sure that the final methodology is fit for purpose when the sixth carbon budget comes in.
That final methodology will be determined separately by the Secretary of State before laying the first annual statement of UK emissions for the sixth carbon budget period. In the meantime, I refer the noble Lord to the technical annex of the Government’s carbon budget and growth delivery plan, which sets out the Government’s working assumption on defining a UK share of international aviation and international shipping emissions when setting and making policies for future carbon budgets. If the noble Lord wants to cut to the chase early, I suggest that he refers to paragraphs 125 and 126 of the technical annex to do just that.
Secondly, the noble Lord suggests that the regulations will place additional costs on industry. As I noted earlier, this is an accounting change that clarifies how emissions are counted within UK targets; it does not set new policies for international aviation and shipping. The Government will continue developing policies to reduce emissions in international aviation and international shipping, and these will be subject to their own assessments.
Notwithstanding that, I emphasise that the Government are acutely aware of the importance of international aviation and international shipping to UK economic growth. We are committed to pursuing solutions that do not risk displacing emissions to elsewhere in the world or damaging UK competitiveness, working closely with industry to ensure that our high climate ambition is deliverable and affordable for them and passengers. Indeed, schemes such as the sustainable aviation fuel mandate are carefully designed to protect against excessive cost increases. At the same time, measures such as the Sustainable Aviation Fuel Act and grant funding will tackle barriers to investment and support UK manufacturers to gain a share of the growing global advanced fuels industry, with all the economic benefits that entails.
I urge noble Lords to consider these points when and if they consider voting in favour of the amendment tabled by the noble Lord. The measures formalise an approach supported by successive Governments and reinforce the credibility of the Government’s strategy for aviation and shipping decarbonisation, both domestically and internationally. I beg to move.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I thank the Minister for introducing today’s regulations. I know my noble friend Lord Moynihan is disappointed not to be here for this debate—the second one in a week on an instrument that we all believe will be deeply damaging to the economy. He offers his apology as he has to attend a long-standing political appointment to which he is committed. I declare my interest as the unremunerated chair of Eq.flight, working towards the development of nuclear-derived sustainable aviation fuel.
This House voted to regret last week’s instrument due to the nationwide effects that it will have on our economy and our way of life. Although this week’s is not quite so wide-ranging, we regret that the Secretary of State is taking his economic wrecking ball to two specific industries.
Before I speak to the economic impact that this statutory instrument and other associated measures the Government are taking will have, I first note that the implementation of the instrument raises concerns. The Explanatory Memorandum states:
“The exact methodology for determining the UK’s share of IAIS emissions for the purposes of measuring and reporting emissions from CB6 onwards will be determined separately by the Secretary of State, and before laying the first annual statement of UK emissions for the CB6 period”.
The Government are putting the cart before the horse.
International aviation and shipping will be expected to comply with regulations to help the Government reach their net-zero target without being told how and even when their emissions will be measured. But I note the Minister’s explanation of the methodology of the calculation of emissions for carbon budget 6 period.
This is becoming a worrying trend within the department. Two weeks ago, my noble friend Lord Moynihan rightly pointed out that the legislation brought forward to implement the RO to Exchequer policy in Northern Ireland was done without a comparable offer having been agreed with the Northern Ireland Assembly. Now, entire industries are to be expected to comply with net-zero policies without being told how to do so. Regardless of the policy’s aim, that is not how to instil business confidence in the Government’s plans. I hope that the Minister can today outline when we can expect to see the accounting methodology and more generally reassure the House that the department takes the practical implementation of policy as seriously as it does the principles behind it.
On the economic impact, this instrument is merely a formalisation of the Government’s recent drive to ensure aviation and shipping compliance with net zero. It will set into statute the adverse effects that government policy is already having. By carbon budget 7, shipping emissions are projected to have been reduced by more than 60%, at a net cost of more than £1 billion annually. This is to be done primarily through fuel switching. To incentivise this transition away from carbon-intensive fuel, the Government have extended the UK ETS scheme to the sector, at an up-front cost of more than £0.25 billion. That is despite the fact that alternative fuels still cost four times more than conventional fuel, while there are only two shore power facilities in the country.
The industry has said that these shortfalls would be manageable if the Government set out a clear revenue recycling plan to reinvest ETS proceeds into maritime transition, but they have yet to do so. The result is that the ETS scheme will operate as a tax rather than as a decarbonisation incentive for the industry that moves 95% of the UK’s goods. I hope that the Minister can outline how net zero-derived revenue will be recycled back into these industries in his response.
Similarly, the aviation industry will be forced to transition not through economic incentives but through state-mandated demand management. CB7 states that the supposed cost savings that net zero will bring the sector will come almost entirely through a reduction in demand operating capabilities. This will not happen naturally, but through “demand management” that will
“increase ticket prices, either directly through taxes or indirectly through technology costs”.
That is a highly unnatural market distortion. The industry will be forced to invest in net-zero technology, and if that fails in reducing emissions to the Government’s desired extent, they will simply raise taxes. This too is expected to cost over £1 billion annually by CB6.
These regulations incorporating these sectors into carbon budget accounting will now present an incentive for future regulations upon them. My worry is that aviation and shipping will now be seen as fair game to be sacrificed for the Government’s rushed drive to net zero. Given that the impacts of current regulations have already been highly damaging, I hope that the Minister will be able to reassure us that the regulations are entirely formal and that these sectors will not be subjected to future punitive measures.
Lord Teverson (LD)
My Lords, though it has been far from perfect, I would like to start by congratulating the Prime Minister on what has happened over climate policy over the last two years. Unfortunately, he seemed to forget it in his speech in Downing Street, but perhaps we could put on the record that the last coal-fired station was closed; onshore wind has started again; we have carbon budget 7 agreed; the future homes standard at last has been published; solar capacity has gone up substantially; and we had a very successful AR7 round in comparison with AR6. I was disappointed that the Prime Minister failed to mention these matters when he talked about his resignation in Downing Street last week.
What strikes me, remembering the Climate Change Act itself back in 2008, pretty well everybody around the House regretted at that time that it was pretty well impossible—for all sorts of technical reasons and where we were in terms of the start of this process—to include international air transport and international shipping. It was seen as a hole in the system that needed to be repaired as time went on. So, there we were, back in 2021, when the carbon budget 6 was agreed under the previous Government and they took that step on the Carbon Budget Order 2021 to put this into practice at last. Hallelujah from all of us who had been waiting since 2008 for that to happen. I congratulate the last Government on achieving that.
It is a shame that there seems to be this regression in terms of appetite to make sure that the climate for our children and grandchildren is on the mend rather than degrading from here. Let us be clear: we are kidding ourselves if we believe that this sector can be left out of our equations. It accounts for something like 10% of carbon emissions in terms of our own emissions, or part of them, and globally—much more for airlines than for shipping, but both are important and both are growing, which is the important thing. As we know, if you do not measure it, you cannot manage it, and if you do not manage it, it will not happen—and it needs to happen. These are important sectors.
To the Front Bench of the Opposition, I say that this is one of the occasions when we are liberated from the European Union. This is a Brexit win: in terms of airlines, the European Union still relies on the Coursier scheme, mentioned by the Minister, which is the offsetting system that the EU has been part of. We welcomed it as well, apparently, but it is a system that is far from perfect: much better that we include it within these systems ourselves.
I agree entirely that we have big challenges in terms of sustainable aviation fuels. There is a lot to do there and we certainly cannot grow crops to get us out of that problem.
Baroness Hayman (CB)
My Lords, it is a pleasure to follow the noble Lord, Lord Teverson. I agree very much with the final point that he made. I find many things depressing at the moment in reactions to issues of climate change, but one of them is the lack of enthusiasm about British innovation. We can grow the green economy; we can tackle climate change; we can tackle emissions; and we have the intellectual firepower and the companies and the individuals who are interested in doing that. Yet here we are tonight with a perfectly reasonable proposition being put to us by the Minister to approve these regulations. I will not be insulting and say it is a bit of process-ology, but it is part of a process, and it is a process that has been going on for a long time.
It is certainly not new news. It was announced in April 2021, nearly four Prime Ministers ago, by the then Conservative Government when the noble Lord, Lord Sharma, was our COP 26 president-designate, and when the atmosphere and the cross-party consensus on the need to change and to make progress was very much accepted. So what we are debating here tonight in terms of the regret amendment is something that has been agreed for many years—decades, actually—that has been accounted for in our forthcoming carbon budgets, and that industry has known about for many years. As I say, it is not new news.
I know that the noble Lord, Lord Turner, who I think could not be here this evening, would be telling us that he discussed this issue when he was chair of the CCC over 15 years ago. I look forward to hearing from the noble Lord, Lord Deben, as a more recent chair.
I understand that the methodology is not yet perfect, but the Minister clearly explained why it is sensible to allow ourselves some room to develop it and, I hope, for it to be widely adopted by others. However, it makes no sense whatever for aviation and shipping to be left out of our carbon budgeting. They are important areas; progress is being made and we should be leading in what they are doing, not cavilling. At the moment, the rest of the UK economy is captured under our carbon budgets. Although there have been many arguments about the benefits and disbenefits and the pace of transition, I have never heard it said that the simple act of having carbon budgets has imposed cost on any industry. What they will do is place a legal requirement on the Government to ensure that these industries, alongside all the others, reduce their emissions. We have already legislated in the Sustainable Aviation Fuel Act to get started here. Enshrining this in law will create the legal certainty that businesses need, especially after the political upheaval of recent years, to invest and innovate.
I am tempted to say, “Nothing to see here”. I see the Whip would like me to sit down, so I end by saying that, if we do need to have a vote, which I consider unnecessary, I would certainly support the Government.
Baroness Jones of Moulsecoomb (GP)
I am very annoyed that the Government and the Opposition keep talking about sustainable aviation fuel. That is a nonsense; it does not exist and it never will. However, I will direct most of my remarks at the regret amendment, which is ludicrous. I cannot even believe we are debating something like this. It is climate-denying nonsense. It is time that everybody understood and read up on the science. We have just had record temperatures for June and could easily be into the hottest year ever recorded. We cannot sit and talk about the economy being more important than the human ecosystem that the economy is destroying. We have to make the economy different.
Here is a better suggestion for debate. We could start naming those heat domes that sit over Europe in the way that we name hurricanes and storms. We could call them “Exxon”, “Texaco”, “BP”, or after any other highly polluting fossil fuel company that created them. We talk about the economy—what do you think will happen when we have the consequences of flooding, heatwaves and droughts? Do you seriously think that will benefit the economy? It absolutely will not. Insurance companies will be hit hard, food supplies will devastated and I will still be calling you clods.
Today, we heard a really anodyne, supercilious answer from Defra about the dangers to our food supply and food security—“No, it’s fine; it’s all sorted out. You don’t have to worry your pretty little heads about it”. That is absolute nonsense. Our food supplies are threatened. If we do not do something about it, we will be very hard hit. The Government are not warning the public about food supplies and food security; they are not moving fast enough. I spoke today to Tim Lang, a professor of food policy who wrote a report for the National Preparedness Commission that has still not been implemented. I suggest that the Government get on it very fast, as well as the Opposition so that they can attack the Government when they do not move fast enough.
I despair that, next year, climate deniers will be saying exactly what this regret amendment says and I will be standing here saying the same thing I am saying now. We will not have moved forward. We will not have made ourselves safer. We will have an economy that is slowly disintegrating because of the impacts of climate change. If we do vote on this ridiculous amendment, can we please all vote against it?
Lord Deben (Con)
My Lords, I remind the House of my declared interests and the fact that I was for 11 years chairman of the Climate Change Committee, appointed, reappointed and extended by Conservative-led Governments.
What is being proposed today was presented by the Conservative Government. My noble friend who spoke here supported that with me. I heard nothing explaining what has suddenly changed. This is just like last week. The Opposition are constantly putting forward these things without explaining why they have changed their view from what was the concerted view of every Conservative Government going back to the speeches that I used to write with Lady Thatcher.
Let us realise that this was a Conservative proposition and that the Climate Change Committee proposed it because it is a necessary way of explaining what will happen once we get the methodology right. Of course, we have to get the methodology right with the IMO and the international aviation authority. That is a perfectly reasonable way to do this. Had a Conservative Government been doing this a few years ago, they would have done exactly the same thing. There is no need for us to argue about it.
This is 10% of our emissions. It is not acceptable to come to this House objecting to what the Government are doing without an alternative. If you are not going to do this, you have to say that you will do something else. I exclude the noble Lord, Lord Moynihan of Chelsea, from this, because he has never believed that climate change is something that you need to fight. That is his position. He is entirely wrong, although we will listen to him, but he is not blameworthy. I think the Opposition are blameworthy, as they are coming forward without an alternative for what we need to do.
The reality is that this could become the largest-emitting sector if it is left out. It is stupid to leave it out. You need to have it in and help the industry get through and make its proper contribution. You cannot ask agriculture or manufacturing to make their contribution if you are not asking the aviation and shipping industries to do so. Only last week, the noble Lord, Lord Moynihan, was complaining that he thought we were sending emissions abroad and shipping them here. This is one of the things we have to get right to meet the proper complaint that he made.
I have to say to my noble friend that, if this is an economic wrecking ball, it was one created by the Conservative Party. This is what we did—and thank goodness we did, because it is not an economic wrecking ball. It is a means of enabling this country to play its proper part in ensuring that our children and grandchildren have an economic system of any kind. This general comment about how difficult things are ignores the fact that we are facing an existential danger. Thank goodness that the voices who speak out on that side, including the Pope with Laudato Si’, and all those who really bother about the future of our society and our children, are making it very clear that we have to make these changes.
This is a very modest thing for the Minister to have brought forward. I have real complaints about the Government not moving quickly enough, but I am very pleased that they have moved as quickly as they have. It is not acceptable to argue about these issues unless you have an alternative, particularly when what is being proposed is something you yourself put forward.
The Lord Bishop of Manchester
My Lords, it is a privilege to follow the noble Lord, Lord Deben, on matters of climate change. The way he spoke with such passion and wisdom is an example of this House at its best.
Climate change presents the greatest collective action problem of our age. Every nation would prefer others to act first, which is why strong climate leadership matters. I found myself challenging the Government for not doing enough earlier this afternoon in Committee of the Financial Services and Markets Bill, so I want to commend these regulations tonight.
Emissions from aviation and shipping have grown rapidly over the past 20 years. According to the Climate Change Committee, as the noble Lord, Lord Deben, has just said, aviation emissions are projected to become the largest sector by 2040. Legislating specifically to incorporate these industries into carbon budgets is, therefore, the fair and proportionate thing to do. These regulations are not introducing new sector limits or altering targets. As the Government have already said, they are fulfilling prior commitments set out in carbon budget 6, which has already been legislated for, and carbon budget 7.
Embedding these commitments in legislation empowers the Government to hold these industries to account for their emissions. It sets a clear example to other nations of our commitment to international climate goals. Omitting aviation and shipping from carbon budgets would weaken the credibility of our climate framework and damage our position when it comes to international climate diplomacy, which is so important.
Earlier today, in Grand Committee, one noble Lord sought to persuade us—if I understood the argument—that, because there are other nations with a worse record than ours on combating climate change, it would be detrimental to our competitiveness, and therefore a mistake, for us to take carbon emissions seriously. Britain’s role in the world should never be to seek to win some unsavoury race to the bottom.
Turning to theology, if I may, most serious modern Christian theologians—including the Pope, as the noble Lord, Lord Deben, has just referred to—have long discarded the old argument of dominion. At its least pernicious, this assumed humans could disregard our impact on the environment because God had given it to us to exploit. At its worst, often among ultra-conservatives in the USA, it positively encouraged exhausting the planet’s resources in the belief that destroying our environment would hasten the return of Jesus Christ. Those views may be less often publicly stated now than 20 years ago, but I fear their malevolent presence still lurks behind some of the most vehement opposition to limiting carbon emissions. We are not the planet’s despotic overlords; we are a part of creation. We have a responsibility, as others have said, to pass on to future generations a world as beautiful as the one we inherited.
We are already witnessing, as the noble Baroness, Lady Jones of Moulsecoomb, has reminded us, the effects of climate change through fluctuating weather patterns, pressures on food production and more extreme climate events. As time goes on, it will be the most vulnerable, those experiencing poverty and the generations after us who will feel the effects most strongly. This lunchtime, I was at the Trussell Trust food bank in Hammersmith and Fulham for the launch of a much-needed inquiry into the need for food banks, for which I am a member of the panel.
The rapid increase in prices of basic foodstuffs over recent times, so impacting on our poorest sisters and brothers, is a direct consequence of the increasingly extreme weather climate change we are already experiencing and which, last week, we lived through. If noble Lords had been trying to take a service wearing fancy robes on Sunday in Manchester Cathedral, they would be very much on my side.
The window of opportunity for action is quickly closing, but these regulations present an important step towards ensuring that every sector fairly plays its part in meeting our climate commitments. I commend them.
Lord Hunt of Kings Heath (Lab)
My Lords, it is a pleasure to follow the right reverend Prelate. Like the noble Lord, Lord Teverson, I very much welcome the regulations themselves; they have been a long time coming, but it is good that we are now including aviation and maritime within the sixth carbon budget. It is going to be challenging, and I certainly understand the need for flexibility in methodology. The Committee on Climate Change has set out some of the challenges we are going to face, but that we should do it I am absolutely convinced.
This debate follows last week’s rather dispiriting debate, when the Conservative Opposition essentially turned their back on net zero and on any concern about climate change. In criticising the Government last week, the noble Baroness and the noble Lord, Lord Moynihan, said nothing about the impact of climate change and nothing about what they would do in relation to net zero.
The Commons debated last week’s and this week’s SIs together, and I read the debate. The shadow Energy Secretary, Claire Coutinho, made not one mention of what the Conservatives would do to mitigate or adapt to climate change. Instead, her sole response was to get rid of carbon tax and repeal the Climate Change Act—as noble Lords here will know, we were the first country to establish a long-term, legally binding framework. Are the Conservatives really serious about wanting to axe this landmark piece of legislation? In 2019, they beefed it up with commitments on net zero under the noble Baroness, Lady May, and the last Conservative Prime Minister stated that energy transition and net zero were among the greatest opportunities facing this country.
We come back to the issue of economic growth. I thought that the noble Baroness, Lady Jones, was absolutely right: the real catastrophe to prosperity and economic growth is climate change, not the actions we are taking to try to mitigate and adapt to them. Noble Lords will have read the CBI report that came out a couple of weeks ago, looking at the green economy. It is massive. It is one of the only sectors which is really growing in this country, and we can add aviation and maritime to that. We now have a £105 billion net zero sector and 1.1 million full-time equivalent jobs—and they are good-quality jobs as well.
The issue of other countries taking advantage of the UK taking leadership is absolute nonsense. There is huge advantage to the UK in being a key player in a net-zero economy. We know from the work of the International Energy Agency that actually, despite what some leaders say, many countries are speeding on with a transition to net zero. We need to be part of that, and aviation and maritime need to be part of that. So I very much support the statutory instrument. Tonight, we are seeing that, around the House, there is a strong consensus in favour of dealing with climate change and moving to net zero as fast as we can.
Baroness Foster of Aghadrumsee (Non-Afl)
My Lords, I declare my interest as chair of InterTrade UK, which is beginning a piece of research on ports and connectivity between Northern Ireland and Great Britain. We believe this is an important piece of work, given what has happened in terms of the Windsor Framework.
I will concentrate my remarks on the shipping industry and the lack of methodology, which has been referred to by most of the speakers. That is not a criticism; it is just that I think there are things that need to be put on the record when it comes to adopting a methodology to deal with shipping, particularly in relation to Northern Ireland. As further carbon and climate policies are introduced, it is important that His Majesty’s Government recognise Northern Ireland’s specific circumstances and ensure that the cumulative impact does not disproportionately disadvantage businesses and consumers that rely on maritime services. Around three quarters of goods entering or leaving Northern Ireland do so by sea, meaning that additional costs imposed on shipping are borne ultimately by the exporters, importers and, of course, consumers. Does the Minister and the Government recognise that Northern Ireland has particular geographic and economic circumstances which should be taken into account when the methodology is adopted in relation to shipping?
The existing UK ETS recognises this. It has a 50% concession for Northern Ireland-Great Britain ferry routes. Of course, there is a zero concession for the Highlands and Islands, which we would say should apply to Northern Ireland as well. The existing UK ETS comes into effect this week, on Wednesday 1 July. Maintaining that concession for the industry is a priority and, despite the concession that the UK ETS implementation gives to Northern Ireland traffic, it will add £9 million annually in additional costs to the shipping industry.
It is important that the Government continue to monitor the real-world economic consequences. I hear voices saying that we should not be worried about them. Well, frankly, I am worried about economic consequences for Northern Ireland. There is no stand-alone economic impact assessment of this SI, but given Northern Ireland’s reliance on maritime services, its geography and economic circumstances, it would be very helpful to all if the Government would undertake a dedicated economic impact assessment for Northern Ireland, perhaps in conjunction with the Northern Ireland Assembly, because decarbonisation must be of course environmentally sustainable but also economically sustainable. As the Government pass decarbonisation into law, we must ensure that climate policy does not inadvertently undermine our economic competitiveness across the UK, including, in this instance, in relation to Northern Ireland.
I note from the Secondary Legislation Scrutiny Committee that both the Scottish and Welsh Governments have laid legislation to include international aviation and shipping in their carbon budgets. Can the Minister say what has happened in relation to the Northern Ireland Assembly?
Lastly, in his opening remarks, the Minister said that there will be flexibility between the different sectors impacted by this. Will there also be flexibility within the sectors—in other words, within international aviation and shipping—given our unique position in the United Kingdom? I welcome the debate on this issue and look forward to the Minister’s response.
Lord Moynihan of Chelsea (Con)
My Lords, I have three brief points to make and three questions for the Minister, and I hope in speaking to avoid the hysteria noticeable in some speeches this evening.
My first point is that this whole ETS approach is yet another failed attempt at “We know best”. I could give many examples, but perhaps the most interesting recent one is that with the recent collapse of scenario RCP 8.5—on which much of the climate catastrophists’ claims have been based in the past couple of decades—and with the complete collapse as being agreed as no longer plausible, those catastrophist claims can now be seen as disinformation. That is a good reason for the noble Lord, Lord Deben, to understand why change is needed. By 2050, despite the “net zero” words, 50% of aviation fuel will still be fossil fuel. Again, so-called clean fuels, as the noble Baroness, Lady Jones, so eloquently said, are not at all carbon zero. Does the Minister agree that the whole ETS is built on shaky foundations and is better off abandoned?
My second point is that the ETS market itself is a confected artefact. The intent was to create a free market in carbon. In fact, it is all government controlled and that is the direct opposite of a free market. In the end, and at the moment, 100% goes to government, so it is just another tax. It does not reduce carbon generation; it just transfers it to another country. Economic activity here is lower; economic activity elsewhere is higher. Does the Minister accept that the ETS is, in essence, another way of generating tax to “pay for more benefits”, in the words of one of his own MPs?
My third point is that it ends up as yet another hit to economic activity in the UK. Net zero has already hollowed out the economy. Adding ETS for aviation and shipping just worsens it. The ETS carbon price has gone from £34 to £70—so there is a cost, despite what the Minister claimed. Refineries have spent some £175 million on ETS and aircraft operators have spent over £200 million. There is a cost to all this. Our economy suffers, while not a dent is made in global carbon emissions. In India they recently increased their number from 74 to 164 airports, and they are adding another 50—there is no ETS there. Will the Minister agree that charging the ETS on aviation and shipping further damages our four remaining refineries, the only manufacturing entities that incur this in the UK, further accelerating the deindustrialisation of our nation?
Earl Russell (LD)
My Lords, I thank the Minister for introducing these regulations and all those who have spoken.
Extreme heat records and regret amendments appear to be competing with one another for frequency at the present time. Last week, the UK broke the record for the hottest June day three days in a row, reaching 37.3 degrees Celsius on Friday. Six NHS trusts declared critical incidents, and the London Ambulance Service recorded its busiest day in its entire history, with demand higher than even at the peak of the Covid pandemic. Europe is the fastest-warming continent on earth, and forecasters are warning that future heat events are likely very soon. I find it genuinely difficult to hear arguments that we are doing too much, too fast on climate change.
I will say something about the politics before turning to a couple of comments for the Minister. I want to return to the cross-party consensus on these issues, but I will first challenge the unravelling of our climate policy. When I hear calls from some to repeal the Act, abolish carbon taxes and cut renewable subsidies, with no credible alternative offered in their place, it becomes very hard to sustain the view that opposition to every government climate measure is made in good faith. If the Conservatives challenge settled climate policy, they should expect a response.
The challenge put today, and in our last debate, by both the noble Lords, Lord Hunt and Lord Deben, was: if not this then what? The policy assumption underlying these regulations was not made by this Government. It was made, as others have said, in April 2021, by the then Conservative Government, announced personally by Prime Minister Boris Johnson, who declared that the UK would set what he called the most ambitious targets to cut emissions in the world. That Government confirmed explicitly that the sixth carbon budget would incorporate the UK’s share of international aviation and shipping emissions as an important part of their decarbonisation efforts. These regulations do no more than formalise that commitment in statute. The Conservative Party supported this policy in government; the question before this House is simply whether to honour it.
I want to be clear about what this instrument does and does not do. It introduces no sector-specific limits, no levies, no charges and no cuts to aviation or shipping. It is an accounting measure. It formulates a framework already assumed in policy since 2021, and we are pleased to see it. If we exclude aviation and shipping from our accounting, we do not make those emissions disappear; we simply allow them to consume a disproportionate share of the UK’s available carbon removals and offsets, at the direct expense of agriculture and heavy industry.
I have two comments for the Minister. First, on methodology, I really appreciate the way the Minister set that out. I recognise the need for international negotiations and that those are also complicated at the moment. I simply seek a reassurance that we will continue to work internationally on these issues, and that the Government will continue to engage with the aviation and shipping industries to give them a formal role in that process. On economic impact, I similarly call on the Government to continue to monitor the impact of this and to continue to work with industry to make sure that this system and these processes are as streamlined as possible.
The honest answer to the noble Lord’s concern, introduced by the noble Baroness, is this: a clear framework actually helps these industries by giving investors the certainty and legal clarity needed, as the Minister said, to back sustainable aviation fuels and green maritime technologies. Uncertainty is the enemy of investment; these regulations reduce it. They fulfil a commitment made by a Conservative Prime Minister, have passed the Commons already and align with our Climate Change Committee’s advice. I support them and I urge the House not to support this regret amendment.
Lord Whitehead (Lab)
My Lords, I thank all noble Lords for their valuable contributions to the debate. I am greatly buoyed up by the tremendous speeches in support of this measure. It has restored my faith that this House is facing the right way on climate change and is behind measures to tackle climate change and get us to net zero. That is great.
In that respect, I recognise that I was gently chided by the noble Baroness, Lady Hayman, for being rather proceduralist in my first comments. I would like to put that right now by saying hurrah! We now have this on the statute book. It is something that the noble Lords, Lord Teverson and Lord Deben, and many others—including me—have been banging on about for many years. It always seemed that it was a terrible gap in our armoury to fight climate change that we were apparently allowing international aviation and international shipping to have a free pass as far as climate change contributions were concerned. In those days, it was partly because people could not think of how to do it easily.
The noble Baroness, Lady Bloomfield, underlined the point that we are not discussing methodology because we cannot think of what to do but because there is a still emerging and developing consensus across the world in the negotiations with the international aviation authority and the International Maritime Organization on exactly how this can best be done—not that it cannot be done, but to get it right.
As far as aviation is concerned, it is a question of getting a point-to-point arrangement, where your contributions are relevant for the outward flight and someone else’s contributions are available for the flight back. How to establish the point-to-point arrangement internationally and make it work within each country that agrees it is part of the discussion that is going on with the international aviation authority.
As far as shipping is concerned—and this is relevant to the contribution made by the noble Baroness, Lady Foster—we are now talking about international shipping coming into climate change arrangements. Obviously, domestic shipping has been in there for a while. The noble Baroness and I were engaged in an interesting discussion just recently about exactly how Northern Ireland gets treated as far as domestic shipping is concerned and the particular circumstances for Northern Ireland. As the noble Baroness said, they have led to a half-price arrangement for Northern Ireland shipping so that it is not disadvantaged compared with Republic of Ireland shipping.
There are things already that can be put into place in terms of taking account of particular circumstances. But the particular thing that has to be taken account of as far as international shipping is concerned is the fact that ships do not go to one place and then back to another place; they go to multiple places around the world. So how do you get a fair arrangement for what international shipping is paying in? You go through international bunkering arrangements and things such as that, but there is still some work to do in getting that absolutely right.
It is right that we do not put something down now on a statutory instrument and that we make sure, along with our international partners, that we have got this right on an international basis. This has to be done on an international basis to make sure that people do not escape or get out of their obligations and that it is fair to people all round. That demonstrates that this is clearly not a wrecking ball to UK industry. Indeed, as the noble Lord, Lord Deben, mentioned, if it was a wrecking ball, it would have been a wrecking ball firmly in the middle of the last Conservative Government’s arrangements for the economy, because that is what they did at the time.
It is not a wrecking ball because it will be fair to everybody. This will be the basis on which international aviation and international shipping will continue. There will not be people who get a free ride on the back of it. It will be fair shares for everybody. That is why it is important that we get the methodology right.
I do not think I need to go on a great deal about the rest of this SI, because noble Lords have made such a good case for it this evening and I do not need to add to it. If I have missed anything out in my contributions, I will write to the relevant noble Lords.
I do not agree that ETS is a method of tax raising. It is in the form of a tax, but it works with the market rather than against it to distribute properly how those contributions can be raised. It makes the cost of high-carbon activities higher than that of low-carbon activities—that is one of its purposes. However, it is not unfair taxation for particular groups of people or economies; it is a fair, market-based method of ensuring that the move towards a low-carbon economy is distributed among all people.
This measure should be passed by consensus among everybody in this Chamber. It is so important that that consensus is maintained. It was embedded in the Climate Change Act originally and has provided stability, certainty and credibility to our framework. These regulations do not raise our ambition or weaken it but ensure that it is applied consistently. I therefore urge noble Lords to support these regulations and, in doing so, uphold the United Kingdom’s status as a global leader in tackling climate change. Should this matter be put to a vote, I would urge that this Chamber vote solidly against the idea that there should be a regret amendment attached to it.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I thank all noble Lords for their contributions to this important debate and genuinely take note of their comments.
It is the speed of the rush to net zero that is harming our industry. I accept the entirely correct focus of the noble Lord, Lord Hunt, on the 1.5 million jobs and the contribution to the economy of the burgeoning green economy. However, these Benches are united on the focus needing to be on cutting energy bills. Our grandchildren will equally never forgive us if we destroy our economy with high energy prices. That must be a concern for us all. We currently have electricity prices which are four times higher than those of the US. That is the issue that we need to address.
Let us not ignore warnings from Tony Blair, who said that the net-zero policies being pushed forward are “unaffordable, ineffective” and “politically toxic”, or Gary Smith of the GMB, who recently said that the policies being pursued by the Government are “economic madness”. Even Unite the Union said:
“No ban without a plan”.
These points are worthy of consideration because the North Sea issue is very important. While everyone was distracted by Makerfield, an important referendum was, in effect, being undertaken in Aberdeen South. It was an overwhelming rejection of both measures in these climate change carbon budget regulations and the Government’s currently policy on the North Sea, which is referred to.
Having said all the above, I beg leave to withdraw the amendment standing in the name of my noble friend Lord Moynihan.