Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Cyber Security and Resilience (Network and Information Systems) Bill
(1 day, 7 hours ago)
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Lord Clement-Jones
Member’s explanatory statement
This probing amendment would remove the power for the Secretary of State to amend this Act by regulations so as to change the consultation and parliamentary scrutiny requirements applying to a code of practice. It responds to the recommendation of the Delegated Powers and Regulatory Reform Committee in its 7th Report.
Lord Clement-Jones (LD)
My Lords, I think that we are in the final furlong. In moving my Amendment 92C, I will also speak to the closely aligned Amendment 95C under my name. These amendments raise a profound and non-negotiable constitutional principle. They respond directly to the almost always authoritative recommendations of the Delegated Powers and Regulatory Reform Committee in its seventh report of this Session and are strongly supported by the principles laid down by the Select Committee on the Constitution in its third report. Together, these amendments seek to delete two deeply objectionable provisions that represent a classic example of secondary legislation creep—provisions where the Executive are seeking a blank cheque to unilaterally rewrite the rules.
Amendment 92C targets Clause 37 and seeks to leave out subsection (7). Under the Bill as drafted, Clause 37(7) grants the Secretary of State the unilateral power to make regulations to amend the Act to change and potentially dilute the consultation and parliamentary scrutiny requirements that apply to a code of practice. This is a Henry VIII power of quite an extensive kind. In the Government’s original delegated powers memorandum of November 2025, the department, as it then was, argued that this power was necessary to allow flexibility in case a 40-day parliamentary scrutiny period became, in its words, “unfeasible” or
“a detriment to the quality of … a code”.
But as the Delegated Powers Committee correctly noted in its seventh report, the rules governing how Parliament scrutinises the Executive must be set by Parliament in primary legislation; they should not be subject to the administrative convenience of a Minister. Allowing a Minister to use secondary legislation to alter or weaken the very procedural safeguards that this House has debated is not constitutionally correct. The committee’s recommendation is clear and unambiguous: subsection (7) must be removed.
That brings me to Amendment 95C, which seeks to leave out Clause 40(5). Clause 40 requires the Secretary of State to lay a report before Parliament on the operation of this cyber security legislation. However, subsection (5) grants the Secretary of State the power to amend this primary legislation via regulations to change the matters to be covered in those same reports. Again, in their original November 2025 memorandum, the Government defended this by claiming that they needed flexibility to ensure that reports could be expanded over time as technology matures.
With the greatest respect, that argument is entirely spurious. If the Government merely wish to report on more things, they are already fully entitled to include voluntary supplementary chapters in their reports. But by granting themselves a statutory power to amend the legal requirements of Clause 40, they are taking the power to delete or dilute the core mandatory reporting obligations that Parliament has put in the Bill. They would, in effect, be legally empowered to write their own report cards, deciding behind closed doors what they must disclose to Parliament and what they can quietly omit, including critical scrutiny over how they have used the vast delegated powers under Clause 29(1).
The Delegated Powers Committee was again clear. This power is inappropriate, lacks coherent justification and should be deleted from the Bill. The Select Committee on the Constitution too, in its third report, expressed serious anxieties about the overall design of the legislation. It warned that this is a framework Bill that relies far too heavily on secondary regulations to establish the actual perimeters of national cyber resilience.
When a Bill already delegates such sweeping unprecedented powers to the Executive, amplified by the amendments to introduce a parallel high-risk vendor framework, laid on 24 August and discussed on the first day of this Committee, it is doubly important that the statutory channels of parliamentary oversight remain supreme. We cannot allow the Government to use secondary regulations to dismantle the guardrails that keep them accountable. I urge the Minister to accept these common-sense, committee-backed corrections and agree to delete Clause 37(7) and Clause 40(5) before Report. I beg to move.
Viscount Camrose (Con)
My Lords, I thank the noble Lord, Lord Clement-Jones, for opening the final day of Committee. For a Bill of such importance, I am surprised at the speed of our progress. However, if quantity has been low, quality has more than compensated.
I agree with the noble Lord that this Committee deserves rather more justification from the Government as to the need for the powers they are granting themselves. The Delegated Powers and Regulatory Reform Committee described the Clause 37(7) power as “unusual” and “novel”, capable of watering down requirements for consultation as it is not constrained by set criteria. The Government’s justification thus far for this power is that it allows them to
“prioritise the content of the code of practice, rather than arbitrary requirements”.
It sounds to me rather as if the Government’s position is that they see any set requirements for consultations and codes of practice as arbitrary. If that is the case—I would appreciate clarification from the Minister—I have to agree with the committee’s description that the position is “quite extraordinary”.
By the way, I noted this morning that the Chancellor of the Duchy of Lancaster has demanded an end to the culture of consultation. I fear that that will be quite a wrench for the former DSIT and its functions, it having launched four new consultations on a single day in July without having responded to the more than 11,000 responses to the AI and copyright consultation. We are already unclear about the machinery of government for that former department. Can the Minister tell us whether its existing and planned consultations will continue or whether today’s announcement represents a fundamental change of approach?
It is not clear why the power conferred by Clause 40(5) has to be sufficiently broad to allow the Government to water down the contents of reports on network and information systems. Could it not be amended, as the committee has recommended, so that the power cannot be used to reduce the requirements to report? It is not unreasonable to question whether the Government really need these extensive powers. Your Lordships’ Committee deserves at least more justification than the Government describing set criteria as arbitrary. I appreciate the need for flexible and adaptive approaches to legislating for fast-moving technologies, but that must come with accountability and I am not sure that we have the balance right at this point. I look forward to the Minister’s response.
Baroness in Waiting/Government Whip (Baroness Ramsey of Wall Heath) (Lab)
I thank the noble Lord for his Amendments 92C and 95C, and note that these amendments were recommended by the Delegated Powers and Regulatory Reform Committee in its report of 17 July. Some noble Lords may be aware that, until very recently, I was the chair of that committee. I am wondering how best to describe myself: am I gamekeeper turned poacher or poacher turned gamekeeper? I had better let noble Lords decide at the end of my responses.
These delegated powers were included to prevent a scenario where procedure takes priority over the best possible products, whether that be a code of practice or a report on the legislation. The delegated powers will not allow Ministers to bypass Parliament. They are about ensuring that government can respond quickly and effectively to new threats and new technologies that could undermine our national security. The law has always been slower than innovation, and it is unlikely to catch up unless we change our approach. Ministers must provide clear justification and carry out assessments before regulations are laid before Parliament.
On the code of practice, we anticipate that any code will be updated from time to time to remain effective, in line with the latest recommended good practice, evolving threat information and emerging technologies. Any revisions and reissues of a code of practice must first be consulted on with relevant stakeholders before they are effective.
On consultations, it might be above my pay grade to comment so soon after the Chancellor of the Duchy of Lancaster has commented, but I am sure that my noble friend the Minister will have a further response to that at some point, possibly in writing.
I assure noble Lords that the Government are carefully considering the committee’s recommendations and the views of noble Lords today, and will reflect accordingly ahead of Report. My noble friend the Minister will respond formally to the Delegated Powers and Regulatory Reform Committee in the usual manner ahead of Report.
Lord Clement-Jones (LD)
I thank the Minister for her response, which was the reverse of the usual ministerial response—the sting was not in the tail but at the beginning. The end was much more conciliatory, given that she said the Government will consider taking on board the DPRRC’s recommendations before Report. I very much hope they do. At this stage in Committee, of course, nothing gets decided, but I assure the Minister that, if this continues, and the Government do not respond in some shape or form to both those pretty solid recommendations from the committee, we will bring this back on Report.
When I say that the sting was in the beginning of the response, I mean that it was a bit surprising, given that the Minister has been the chair of the committee and knows the seriousness with which we all take its recommendations. A huge amount of work goes into the detail, and she knows how much store we place on the recommendations. I hope that she will use all her influence to make sure that the Government introduce before Report something along the lines of what I have produced. In the meantime, I beg leave to withdraw Amendment 92C.
Baroness Northover
“Cyber security competence: functions of the UK Cyber Security Council(1) The UK Cyber Security Council is to exercise the functions described in subsection (2) and is accountable to the Secretary of State for the exercise of those functions.(2) The functions are—(a) to validate and accredit professional qualifications, standards and titles for cyber security professionals employed by regulated persons,(b) to monitor the supply of, and demand for, qualified cyber security professionals across the sectors regulated under this Act and the NIS Regulations, and(c) to audit whether, and to what extent, regulated persons employ or have access to appropriately certified cyber security professionals.(3) For the purposes of this section, “regulated person” has the same meaning as in Chapter 3 (see section 30).(4) A regulatory authority (as defined in section 24) must have regard to the information and standards provided by the Council under this section when exercising its functions.(5) The Secretary of State must by regulations made by statutory instrument make further provision about the exercise of the Council’s functions under this section, including provision about its accountability for the exercise of the functions described in subsection (2).(6) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement
This new clause would give the UK Cyber Security Council statutory functions to validate qualifications, to monitor the supply of and demand for cyber security professionals in the areas covered by the Bill, and to audit whether regulated organisations employ certified professionals—a “competence mandate” for the regime.
Baroness Northover (LD)
My Lords, all the amendments that I have put down to the Bill are derived from evidence we received on the National Resilience Select Committee. I am sorry that I was not here last week to address those that came up then, and I am very grateful to my noble friend Lord Clement-Jones for presenting them for me.
Several members of the Select Committee, including me, were in Finland last week looking at its preparedness for attack. Finland has faced the threat from its long border with Russia throughout the history of its country, and its preparedness on a whole-of-society basis is extremely impressive. Although we do not have a long border with Russia to focus our minds, we know that cyber attacks can immediately undermine our whole society and economy. One of the things we heard on our Select Committee is that not only are many companies unprepared for cyber attacks but that there is a shortage of skills in this area.
This amendment is seeking to move things forward. The proposed new clause would
“give the UK Cyber Security Council statutory functions to validate qualifications, to monitor the supply of and demand for cyber security professionals in the areas covered by the Bill, and to audit whether regulated organisations employ certified professionals—a ‘competence mandate’ for the regime”.
I have received some useful information from the sector, which welcomes my attempt to try to ensure that we have sufficient cyber professionals and that there is a mechanism by which they are certified. There are analogies with the certification of medical professionals, for example. Their certification is conducted independently, and I recognise the importance of that. What I am arguing for here is the principle and not necessarily the route suggested by my amendment. How this is best done can be further discussed between Committee and Report.
The National Cyber Security Centre reported that nationally significant cyber incidents have more than doubled in a year. According to its survey, only 7% of UK businesses have formally reviewed the potential cyber security risk presented by their wider supply chain. Evidence to our Select Committee suggests that skills shortages are a key challenge here, especially for SMEs and those in the public sector. It is clear that cyber education, training and apprenticeships, and so on, must accompany these reforms.
The Bill places greater responsibility on organisations to identify and manage cyber risk. However, beyond those technological solutions, these obligations will require skilled professionals to carry them out. The Bill refers to the appointment of a “skilled person” in the context of a national security directive but does not delve into what constitutes a skilled person. I realise that this will change over time, but there should be ways of addressing this.
Neither does the Bill acknowledge the role of skilled persons in delivering its wider objectives. Those in the field have called on the Government to amend the Bill to require organisations to access a cyber security workforce that is qualified to recognise professional standards. We know that this skills shortage exists, weakening our national resilience. One report showed that 87% of organisations experienced at least one consequence due to skills need, so it is becoming strategically important to address this. The Government should use the Bill as an opportunity to professionalise the sector by committing to a cyber security workforce and skills strategy, and mandating that regulators and regulated entities use suitably skilled people for the purposes of compliance with the regulation.
Recognised professional qualifications and certifications anchored in international standards should be required so that we and the regulators are reassured that the work is being carried out to a certain standard. The UK Cyber Security Council was granted royal chartered status to establish a self-regulating, politically independent professional body, structured on proven models of other professional bodies such as the GMC. The UK needs to transition from a fragmented patchwork of varying certifications to a unified national standard of professional competence and ethical conduct.
Therefore, the Bill should recognise the council as the authority for setting and maintaining these standards. Given that the Bill aims to enhance the security and resilience of the UK and the critical sectors that underpin our economy, that needs to be assisted by a suitably skilled workforce to implement it. Of course we need to take further action to make sure that we train people, but this amendment is designed to help move this forward by ensuring that those in this area are sufficiently skilled. I beg to move.
Lord Clement-Jones (LD)
My Lords, I was hoping that there would be other contributors—there will be a double-banking on this amendment.
I support Amendment 99, tabled by my noble friend. Throughout our deliberations on this Bill, the Government have placed enormous emphasis on imposing tough, outcomes-based statutory duties on operators and suppliers across our critical infrastructure, but we must confront an uncomfortable truth: we can pass the most sophisticated cyber security regulations in the world but, if our economy lacks the trained, qualified human beings required to design, implement and maintain those defences, those regulations remain completely meaningless. Without a professional workforce capability, this Bill merely codifies what ISC2 has rightly termed “compliance theatre”—an expensive box-ticking exercise that produces mountains of paperwork without making our national networks one bit safer.
Look at the scale of the crisis facing our domestic cyber workforce. In its landmark 2025-26 cyber security workforce study, ISC2 revealed that 52% of UK cyber security professionals identify severe skills shortages as their single greatest barrier to complying with cyber regulations. Further, 58% of organisations reported a critical or significant skills deficit, with an astonishing 87% suffering direct operational consequences from missed system patches and delayed vulnerability remediation to active security oversights. Across the civilian economy, the UK currently faces an 88% shortage of certified cyber practitioners. In an environment of such extreme scarcity, how on earth do the Government expect regulated water utilities, transport operators and medium-sized managed service providers to fulfil the heavy duties created by this Bill?
Amendment 99, from my noble friend, would provide a structural solution to this workforce crisis by placing the UK Cyber Security Council on a formal statutory footing. Crucially, as she explained, this connects directly to the definition of a skilled person under Clause 43. If the Government are serious about raising our national resilience floor, they must recognise that human competence is just as vital as technological hardware. By embedding the UK Cyber Security Council’s competence mandate in primary legislation, Amendment 99 would ensure that our cyber laws are backed by the skilled workforce needed to defend us.
I strongly urge the Minister to accept this amendment. By professionalising our cyber workforce, we would elevate this Bill from more than a compliance exercise to a genuine national capability.
Lord Vaizey of Didcot (Con)
My Lords, I intervene in support of the amendment in the name of the noble Baroness, Lady Northover. I do not want the Liberal Democrats to be on their own, so I hear the call from the noble Lord, Lord Clement-Jones. It brings me back to the coalition days, when I and the noble Baroness, Lady Northover, were once Ministers in the same department—so my support is heartfelt.
I support the substance of the amendment. As the noble Baroness, Lady Northover, says, it may not necessarily be the right amendment but the spirit behind it is absolutely one that the Government should recognise. I was a bit concerned when the noble Baroness was outlining the intention behind the amendment whether it could perhaps be seen as a burden on business, particularly when we talk about small businesses and the need to audit their cyber preparedness. However, to recall my contribution at Second Reading, I said at the time that, although we tend to debate cyber in the Chamber and other places as a great threat that we need to address, it is also a fantastic economic opportunity. I should declare that I am an adviser to a company called Digital Futures, which trains software developers. We do not train them in cyber but obviously the need to build up a skilled workforce in cyber is absolutely essential.
The noble Baroness, Lady Northover, referred to the patchwork of qualifications that exist in this area. It seems to me that the Government have a clear opportunity and a clear role to guide us through the maze and to put the National Cyber Security Centre on a statutory footing to give it the ultimate role in deciding the appropriate qualifications in cyber and to begin a sustained campaign to show young people, people returning to the workforce or people who are considering a new career that there is a route through to recognised, well set out cyber qualifications that will contribute to the national economy and our cyber resilience. I therefore wholeheartedly back this amendment.
Baroness Neville-Jones (Con)
My Lords, I very much hope that the Government will accept the amendment in the name of the noble Baroness, Lady Northover. It strikes me as a practical and important contribution to the Bill.
In addition to the points that have already been made by noble colleagues, there is one more thought to be added: one of the weaknesses of the present marketplace in which these skills are operating is the cost and affordability of advice and help for SMEs on security issues. It is costly—security does not come cheap. Many of these small businesses that nevertheless provide sophisticated services are up against it when it comes to making an adequate profit to stay in business. Therefore, a source of guidance and help, of the kind that is being suggested by this structure, would make a real contribution to not only the viability of these small firms but the general security of cyber security services.
We should never forget that these SMEs feed into the bigger ones. Often, it is an outlying service being provided to a bigger provider that is the cause of a fault or of an essential service proving insecure. Helping SMEs in this way would not only make them more secure but make the market generally more secure. This is a very important and helpful amendment, which I hope the Government will accept.
Lord Markham (Con)
My Lords, I thank the noble Baroness, Lady Northover, for bringing forward Amendment 99. Throughout our consideration of the Bill, I have returned several times to the distinction between cyber compliance and cyber capability, and this amendment goes directly to that issue. We can impose ever more duties on businesses, require ever more reports and give regulators even more powers but, ultimately, our cyber resilience depends on having enough people with the skills to prevent attacks, protect people from them and respond when they occur. That is why, like many other noble Lords, I support the principle behind the amendment.
The Parliamentary Under-Secretary of State, Department for Business, Innovation, Science and Trade and Department for Digital, Culture, Media and Sport (Baroness Lloyd of Effra) (Lab)
My Lords, I thank the noble Baroness for her amendment, in particular her focus on the importance of the skills and competence of the UK cyber security professionals on whom we all rely and our economy will continue to rely. As the noble Lord, Lord Vaizey, said, an important aspect here is the spirit behind the noble Baroness’s amendment, with its focus on the skill set and professionalisation of these individuals, which we wholeheartedly agree is incredibly important.
I will focus on the council itself for a moment. It is an independent, royal chartered body that unites government, industry and other sectors to boost the professionalism of the entire cyber sector. The council does important work that already encompasses the majority of functions named in the amendment. It sets professional standards and maintains a register of the UK’s accredited cyber professionals. It establishes pathways for cyber professionals—experienced and new entrants—to have an easier route into quality cyber roles.
We disagree that there is a necessity to put this on a statutory footing. The Government consider the council to be akin to other professional bodies in the UK. Although there are some professional bodies with a statutory role and oversight by either government or Parliament, it is standard practice in technical fields for an organisation to be recognised through a royal charter and afforded operational independence from government. This includes the Engineering Council and the Science Council. Going down the route that the amendment proposes would undermine the council’s independence, and that could affect its relationship with the sector.
That is a separate point from the importance of the need to professionalise the cyber sector and the Government’s strong support for that. Indeed, the Government have committed to funding the UK Cyber Security Council over the spending review period until it becomes self-sustainable, working closely with stakeholders across the profession and wider workforce. We believe that professional standards, accreditation and professional titles in cyber security will improve our cyber resilience.
Moreover, to the points raised by the noble Lords, Lord Clement-Jones and Lord Markam, and others, the adequacy of skilled persons remains important. The Government’s TechFirst programme is helping to build the pipeline of talent for all frontier technologies and is available to all secondary schools across the UK. This month, approximately 1,300 undergraduate and master’s students are starting in the TechFirst scholarship programme, including over 300 students on a cyber security pathway.
On the question about how the Government monitor the adequacy of this, the Government publish annual data on the state of the UK cyber security workforce which shows that the supply of cyber skills is increasing. There is currently a net annual shortfall of approximately 3,800 people in the UK’s cyber security market. For the second year running, the workforce gap has remained markedly lower than our previous estimates, now 3,800, compared to 11,100 in 2023 and 14,100 in 2022. Focusing on the skills pipeline is incredibly important and something that the Government are backing.
Equally, the Government agree with the noble Baroness that regulatory authorities must have regard to the information and standards provided by the council. Indeed, we stated the need to align with council standards in the Government Cyber Action Plan. The Government have already worked with regulators to embed cyber security accreditation and professional standards into their guidance. We want to go further, which is why we intend to use the Bill’s powers to introduce security and resilience requirements in secondary legislation. These are designed to be consistent with the NCSC’s cyber assessment framework, and we propose that these requirements will address relevant training, skills and professional standards. We will consult on these proposals later in the year to ensure that the industries, large and small, covered by the regulated sectors will be able to feed back on this, as will the regulators which will be responsible in this area.
To the questions on SMEs raised by the noble Baroness, Lady Neville-Jones, whether inside or outside, whether they are or are not regulated entities, SMEs have access to NCSC and cyber resilience centres. I am sure that we will go on shortly, in the context of the noble Baroness’s subsequent amendment, to discuss further support that we can provide to those SMEs.
We are very committed to the role and function of the UK Cyber Security Council as a wide-reaching and effective independent body, and we continue to support skills development in the UK. As such, we are not convinced that there is a need to put the council on a statutory footing at this stage.
Baroness Northover (LD)
I thank the Minister for her thoughtful reply and I thank other noble Lords for their support here. Clearly, we are all seeking to move in the same direction. There is a challenge and risks here that are incredibly important. Whether this is the right way forward, we will have to see.
I am very grateful to those organisations that fed into our Select Committee, which led me to table this amendment. This is an area that we will need to return to before Report, to look carefully at whether the drivers that the Minister has mentioned are sufficient. But at this stage, I beg leave to withdraw the amendment.
Baroness Northover
“National cyber security support service for small and medium-sized enterprises (1) The Secretary of State must, by regulations, make provision for the establishment and operation of a national cyber security support and incident response service for relevant small and medium-sized enterprises (SMEs), for the purpose of improving the security and resilience of their network and information systems.(2) The service established under this section must—(a) be free at the point of use, and(b) provide, in particular following a cyber incident affecting a relevant SME—(i) advice and technical assistance,(ii) incident response support, and(iii) guidance on recovery and remediation.(3) For the purposes of this section, a relevant SME is a small or medium-sized enterprise which is—(a) an operator of an essential service,(b) a relevant digital service provider,(c) a relevant managed service provider, or(d) a critical supplier,within the meaning of the NIS Regulations.(4) In establishing and operating the service the Secretary of State must have regard to comparable national cyber security support services operated in other jurisdictions.” Member's explanatory statement
This new clause would require the Secretary of State to establish a national, free-at-the-point-of-use cyber security support and incident response service for relevant SMEs, modelled on comparable overseas services such as the small-business support provided by the Australian Cyber Security Centre.
Baroness Northover (LD)
My Lords, this amendment again comes out of the evidence submitted to our National Resilience Select Committee.
It has been reported that many SMEs think that they are too small to be a target. However, as was reported at Second Reading, government research shows that 50% of UK SMEs faced some kind of cyber breach or attack in 2025. It is also reported that, for many small businesses, a cyber incident can be existential and that roughly 60% of SMEs that fall victim to a cyber attack go out of business within six months.
In this amendment, I therefore seek to address the position of SMEs. Coming from the insurance sector, the Association of British Insurers feels that the Bill is narrow in scope and that
“large parts of the economy, including organisations that are economically significant due to their scale, interconnectedness or role in supply chains, will remain outside this regulatory perimeter. The Government’s approach to … these unregulated sectors relies primarily on voluntary governance mechanisms”,
including their new Cyber Governance Code of Practice. It feels that, without stronger incentives, measurement and accountability, there is a risk that it will not deliver consistent improvements. That is obviously concerning a number of people.
There are warnings—we know this—that cyber risk is inherently systemic. Disruption is rarely confined to a single organisation or sector but is increasingly transmitted through supply chains. As I mentioned in the previous group, according to the cyber security breaches survey, only 7% of UK businesses have formally reviewed the potential cyber security risks presented by the wider supply chain, so how do we bring in greater protection in a way that, as the noble Baroness, Lady Neville-Jones, and the noble Lord, Lord Vaizey, have just mentioned, does not overwhelm SMEs?
This proposed new clause would require the Secretary of State to establish a national, free-at-point-of-use cyber security support incident response service for relevant SMEs, modelled on comparable overseas services, such as the small business support provided by the Australian Cyber Security Centre.
The ABI notes that the Bill rightly focuses on building resilience in our critical national infrastructure and that more must therefore be done to address the cyber resilience of SMEs. Not surprisingly, it is concerned about cyber insurance. It points out that the take-up of cyber insurance among UK SMEs is very low—somewhere between 10% and 40%—and argues that cyber insurance can help prevent and alleviate the impact of cyber attacks for SMEs. But, obviously, there is a cost to that. As cyber risks continue to grow, SMEs are typically more vulnerable and less well placed than larger businesses to respond to cyber threats due to overstretched resources, including IT and potential security and skills gaps.
We have to be careful to make sure that reporting is not too onerous for SMEs. It is suggested, for example, that maybe their reporting timelines should be not as short as those for bigger companies, and that there should be better clarification of what is an actual or suspected cyber incident, so that things which are not as significant do not, as it were, clog up the system. However, I think everybody agrees that we need to make sure that SMEs are better supported.
I welcome the fact that the Government have set up some support in this area. There is a cyber action toolkit, which was launched in March 2026 and includes a helpline, and a cyber adviser scheme, which offers a free 30-minute session. There is also a small business guide for response and recovery. But when you look at what they are suggesting, they are pushing companies towards the commercial market, so there is going to be a cost to that, and, down the line, towards fraud analysis and law enforcement. We know how challenging that is in so many areas, so it does not necessarily seem the most helpful or robust system.
The reason I mention the Australian cyber resilience service and have looked at what it does is that it goes further than we are now going, and I hope the Government will give thought to extending this in the way that the Australian system does. There is free, tailored, person-to-person support with two functions: helping small businesses assess and build resilience and helping them to recover after an incident, such as account compromise, phishing or ransomware, with case management and device remediation. It is much more supportive than what we currently have in the United Kingdom.
Clearly, much more needs to be done to ensure that SMEs are aware of the risks and do not simply wait until they have been hit, but also that they are actively assisted. That is important for them, but also for the wider economy, given how interlinked we all are. This is clearly an evolving area and I look forward to hearing what the Minister has to say about how we can move this forward, given how significant it is. I beg to move.
Lord Vaizey of Didcot (Con)
My Lords, I rise early to support the amendment from the noble Baroness, Lady Northover, partly to spare the stress of the noble Lord, Lord Clement-Jones, and also because there is a Liberal Democrat amendment imminent in the Chamber, although we of course will be abstaining—our solidarity with the Liberal Democrats does not extend too far.
However, it does extend to this amendment, which ties in well with the noble Baroness’s earlier amendment concerning qualifications. I was fascinated to hear her referring to the Australian cyber service, which I had not heard about before. I would be fascinated to know more and it would be interesting to hear from the Minister what other lessons there may be for us to learn from similar jurisdictions around the globe. I suspect the Canadians, for example, some of our European partners and some of the south-east Asian nations, such as Singapore or South Korea, will probably have very advanced and sophisticated bureaucracies, if I can put it that way, or institutions looking at the cyber threat.
Again, I shall address, rather than the technical detail of the noble Baroness’s amendment, the spirit in which it is brought and why it fits so well with her earlier amendment. It is about injecting a sense of urgency into how we raise our game in cyber in terms of our economy. When she mentioned the cyber action toolkit, it took me back to the days when I was one of the Cyber Ministers in the coalition Government. My responsibility was towards small businesses, and we launched endless small business toolkits, mainly because we wanted to say that we had launched a small business toolkit. We certainly never put in place any mechanisms for auditing its impact or success, and I think the constant references to about 7% of SMEs now having cyber policies in place may point to my abject failure in that role, and perhaps that of some of my successors.
The more I have listened to this debate, the more it takes me back to my childhood, when we would get leaflets about a possible nuclear conflagration. I know that Ministers and the Government are now telling people to stockpile water and baked beans because of the impact of El Niño, but we know that a cyber attack on the UK would cripple our economy and essential public services, so it is akin, given the geopolitical situation, to a national emergency.
The noble Baroness mentioned the views of the Association of British Insurers. Again, that was part of the toolkit. The feeling was that professional services would drive small businesses towards becoming more skilled in assessing their cyber risks, that you could not get insurance, or indeed cyber insurance, unless you had clear policies to deal with cyber attacks. With professional services firms, you could not necessarily get legal liability insurance for a data breach, which is not necessarily going to cripple your business but will affect your customers and therefore leave you open to liability, unless you could demonstrate that you had proper processes in place to protect your data. There is a whole ecosystem, it seems to me, that needs to be brought to bear to support the uptake of cyber skills and cyber audits by small businesses: we cannot be complacent and assume that 7% is an acceptable figure and that it should be allowed to evolve.
To a certain extent, the noble Baroness’s amendment is about the after-effects: if you suffer a cyber attack then you should be able to call on skilled people, whom we hope will have achieved the kind of recognised qualifications that the noble Baroness talked about earlier. She compared them to doctors but, when I thought about the amendment, I thought more about plumbers and electricians and the technical qualifications that you need to have to do a technical and difficult job.
We also need to look at what happens before. How do we increase the number of small businesses that put in place policies that will protect them from cyber attacks? That involves using the private sector, insurance companies and professional services firms to push forward clear protocols to which small business should be expected to adhere in order to receive the cover that they need to carry on doing business.
Lord Londesborough (CB)
My Lords, I support Amendment 100, in the name of the noble Baroness, Lady Northover. I spoke in support of this type of amendment at Second Reading and I still support its intentions, but I will give it an added twist. The question in my mind is where this resource for SMEs should sit and whether it should have any statutory powers or simply be an information and advisory centre.
There is no doubt that cyber security is needed—and here is another scary statistic—because 96% of all successful cyber attacks in the UK are perpetrated on SMEs, which represent soft targets for hackers. I suggest—here I take noble Lords back to day 1 of Committee— that this resource should sit within the office for cyber resilience proposed by the noble Lord, Lord Clement-Jones, and my noble friend Lord Birt. Indeed, this is yet another example of the need to establish a body like an OCR, given the disturbingly fragmented approach to cyber security in this Bill.
Where can we sensibly draw the line between SMEs across all sectors and the rest of the business world? For instance, advice given to a medium-sized company with, say, 200 staff will overlap hugely with that given to a company with 2,000 staff. In the minds of the hackers and the ransomware merchants there is very little distinction. I argue that our economy needs a coherent, joined-up approach, run by a single competent authority with statutory teeth, for the benefit of SMEs and other companies and sectors.
I am afraid that, as it stands, this Bill is a recipe for chaos. Cooks and broth would be a kind analogy—there is barely any room in the kitchen for the number of departments, teams, councils, centres and agencies involved. The last count I heard was 30 or so, but I believe a few more have cropped up since.
Lord Birt (CB)
I think we all share the sympathy that the noble Baroness, Lady Northover, has identified SMEs need. There are 5.7 million SMEs in the UK and many of them—indeed, most of them—will purchase what are relatively complex platforms. The noble Lord, Lord Londesborough, is extremely experienced in the SME sector; I have less experience than him, but I do have some. Hardly any of them will be able to employ anybody who is able to understand either the complexity of the platform that they have purchased or the highly dynamic threats to that platform that exist. There are many ways in which we need to raise our game and to help.
I personally think that, at least in the short term, the most important thing, which we have not discussed enough so far, is to require providers to supply safe products and, moreover, when they become vulnerable—which happens all the time, often unexpectedly—to patch those products for their customers immediately. The providers have a level of sophistication that the customers do not, and we have insufficiently focused on that in our discussion so far.
The second thing to mention—this is not really part of the Bill—is that the Government’s Cyber Essentials programme is very sound. The Minister quoted a figure the other day, which I forget, but only a trivial number of businesses have signed up and taken the pledge. This needs much more publicity and much more dynamism from within government to raise the understanding of the level of threat that SMEs face.
Lord Clement-Jones (LD)
My Lords, I too support Amendment 100, in the name of my noble friend Lady Northover, and will add my support to the very useful speeches from the noble Lords, Lord Vaizey, Lord Birt and Lord Londesborough. I entirely agree with the noble Lord, Lord Vaizey, about the need to inject a sense of urgency into this. The noble Lords, Lord Birt and Lord Londesborough, asked some very fair questions, which went back to some of the debate we had on a single regulator and product liability, all of which are relevant to the kinds of duties that SMEs are under.
I welcome what the Minister had to say about the Government’s consciousness of the needs of SMEs, but this amendment would provide a blueprint for a much better form of support for SMEs. They account for 99% of all private sector businesses but, as the NCC Group and industry experts have repeatedly warned, they represent what might be described as the soft underbelly of our national supply chains. They are the prime targets for cyber criminals seeking a backdoor into critical infrastructure.
It is completely unrealistic to expect a 60-person small supplier to bear the same heavy compliance overheads as a multinational utility. A single ransomware attack can permanently destroy a small firm. Hostile state actors and ransomware syndicates are no longer focusing exclusively on attacking the fortified perimeters of FTSE 100 utilities or government departments; instead, they deliberately target smaller, resource-poor suppliers and niche contractors embedded in tier 2 or tier 3 of critical supply chains, using them as an easy, undefended backdoor into our critical national infrastructure.
Under the expanded critical supplier provisions in Clause 12 and the managed services duties in Clause 9, thousands of medium-sized businesses and specialised tech vendors will now be pulled directly into the statutory NIS regime, facing severe regulatory requirements under threat of multi-million pound penalties. However, as the Government’s own impact assessments acknowledge, there is a staggering what might be called resource asymmetry across UK businesses. A 50-person specialised component manufacturer or regional logistics provider does not have a dedicated chief information security officer or possess a 24/7 security operations centre and cannot afford to hire elite forensic incident response teams on £500-an-hour retainers. When a sophisticated ransomware attack hits a small business, it is frequently an existential event that forces insolvency.
During Committee stage in the Commons, when my honourable friend Freddie van Mierlo MP brought forward this proposal, the Minister in the Commons rejected it on the grounds that the Government already provide voluntary advice online. A downloadable PDF checklist on GOV.UK is not an incident response service. When a small critical supplier is locked out of its servers by a Russian ransomware gang at 2 o’clock on a Sunday morning, a generic website checklist is completely useless. It does not need advice to check its passwords; it needs an active, human, technical first responder to help it contain the malware, isolate compromised systems and safely recover its data.
Amendment 100 would bridge this capability gap by mandating a dedicated national support service modelled directly, as my noble friend explained, on the proven and globally respected Australian Cyber Security Centre’s framework. In Australia, the federal Government provide small and medium-sized businesses with free direct phone-in emergency technical support, active breach triage and hands-on recovery assistance. It has achieved extraordinary success in hardening Australia—
Lord Clement-Jones (LD)
To continue, if the state is going to impose heavy, legally binding supply chain security duties on small businesses, backed by turnover-based fines, the state has a moral and strategic obligation to provide the operational tools needed to meet those standards. By establishing a free, Australian-style digital safety net under Amendment 100, we would turn the Bill from a purely punitive compliance exercise into a genuine co-operative national partnership for cyber resilience, and I urge the Minister to accept this vital common-sense amendment.
Viscount Camrose (Con)
My Lords, I thank the noble Baroness, Lady Northover, for her amendment and, needless to say, I support the intention behind it. It is clearly right that, having placed several new duties on businesses and their vendors, the Government consider how to ensure that they are able to carry them out. This is particularly the case for SMEs, which are often far less resilient, less well-resourced and more vulnerable to cyber attacks than their larger counterparts. But, when thinking through this idea, I was trying to come up with some sort of framework to estimate the costs of such a provision, and I just could not arrive at a satisfactory estimate, except that they would be very considerable, particularly given the urgency, complexity and difficulty of incident response.
As I think the noble Lord, Lord Clement-Jones, and others mentioned, providing advice on a government website is cheap and useful, but providing urgent incident response is far from cheap. That begs the question: would it be funded by the companies benefiting from this directly or the taxpayer? I am not sure that either is wholly satisfactory. The actual costs of running such a programme will depend largely on how it would operate and the terms of service it would offer. I am very grateful to the noble Baroness, Lady Northover, for pointing to the Australian example; I confess that I was unaware of it before and would be interested to know what service it provides and to what level. It is incredibly hard to estimate how it will operate and what terms of service it will offer. The rate of cyber attacks is non-linear, the scale, nature and complexity of each attack will vary significantly and the number of staff needed or resources available for a response at any one time would necessarily be volatile and unpredictable.
Baroness Lloyd of Effra (Lab)
My Lords, I thank the noble Baroness for her amendment and for linking the issue of cyber security with wider questions on national resilience; she is absolutely right to situate it in that space. I also thank her for introducing the topic of the right amount of cyber security support for the SMEs regulated under the Bill; indeed, the discussion has led to SMEs that are not regulated under the Bill.
We know that SMEs require dedicated cyber security support. That is why there are a wide range of free tools, guidance and training to help SMEs implement cyber security measures. These resources are available to any business, not just those regulated under the regime. As the noble Lord, Lord Vaizey, mentioned, this includes the Cyber Action Toolkit, designed to scale nationally to empower millions of small organisations through tailored cyber security advice with NCSC-certified cyber advisers. A number of noble Lords referenced the importance of Cyber Essentials, as well as insurance and incident response. If an SME with a turnover of less than £20 million has Cyber Essentials, it also has cyber insurance cover of up to £25,000. That incentive is intended to link the process of getting Cyber Essentials with the benefits of insurance. Likewise, SMEs get cyber incident support 24/7 with Cyber Essentials.
The noble Lords, Lord Vaizey, Lord Londesborough and Lord Birt, talked about the “push”. We are indeed encouraging, perhaps not pushing, the private sector to engage its supply chain through the cyber pledge, which is for entities outside the regulated scope. That is one of the key elements of the cyber pledge. Likewise, under the GCAP, the Government’s cyber action plan, Cyber Essentials, or equivalent, are needed for government procurements using official data. These are the mechanisms by which we are encouraging large organisations to look at their supply chains—on the point that the noble Lord, Lord Clement-Jones, made about the interconnectedness of all our organisations today—and encouraging the uptake of Cyber Essentials with these very tangible benefits.
I was asked a very fair question about the best way to provide cyber support to organisations. I heard at least one noble Lord say that SMEs do not like different provision. I think that many SMEs prefer—or, if asked, would request—local trusted advisers, which is exactly what the regional cyber resilience centres offer. They offer free support to SMEs across England and Wales, covering a wide range of services, such as incident response, a business continuity service and support with Cyber Essentials and security training.
The noble Lord, Lord Londesborough, made a point about a central, monolithic model compared with these local or regional models. There is a lot of merit in a regional model that has some common standards but is located much nearer to the SMEs that it serves. I reiterate that small and micro-organisations are exempt from being regulated as relevant digital service providers or relevant managed service providers. They can be regulated only if they are operators of essential services or designated as a critical supplier, for which there is a high bar. On the picture raised by the noble Lord, Lord Clement-Jones, we do not think that a huge number of small enterprises will be in scope of this legislation. All small businesses will benefit from the current provision, but they would not necessarily benefit from the model proposed by the amendment.
The amendment would also require the Secretary of State to have regard to international regimes. We are indeed aware of such schemes, such as the Australian Small Business Cyber Resilience Service. Many of the offerings that that service provides, such as tailored support and practical incident recovery support, already exist in the UK, as I have set out. We learn from international best practice, but we also tailor it to our local economy and the threats we see, to best support and meet the needs of UK businesses and interact with UK regulations.
I hope that I have set out that guidance for small and medium-sized organisations is already available through existing UK support. We are doing more to look at supply chains through discussions with large firms, through the GCAP and through this Bill. We think that a new dedicated service could divert resources from these existing services and potentially impact on their efficacy. On the central point that the noble Baroness started with, we absolutely agree with the importance of providing support to small and medium-sized enterprises under the Bill, ensuring that they have everything they need to be resilient and respond to incidents.
Baroness Northover (LD)
I thank the Minister, and I thank noble Lords for their support. This is clearly an area where we agree that there is a problem; we are very vulnerable in the United Kingdom. What we have in place is clearly not working sufficiently well if 60% of SMEs that are hit by cyber attacks go under. That is the context in which we ought to look at proposals that might seek to address that. We clearly need to take SMEs forward in a way that does not overburden them.
I hear the point about extending insurance cover. We can indeed take more than one track, but there is a cost to not supporting SMEs. If they are going to go under, that will be an economic cost to the country and, if we do not support them, they are likely to be hit by cyber attacks, taking them and others under anyway, with that effect upon our economy. Clearly, the Government agree—hence putting in place the measures that the Minister has outlined.
I am suggesting, from the evidence we have received, that this needs to go further and faster. We can discuss exactly how, but it is clear that this is an escalating problem and that we need to do more to tackle it. That is on the basis, in particular, of the concerns expressed to the National Resilience Committee on which I serve and which, as I say, gave me the idea of putting this amendment forward. I think that we will need to return to this, because it is a major problem, but, in the meantime, I beg leave to withdraw the amendment.
Lord Clement-Jones
“Appeals against decisions under section 50(1) A person may appeal to the Upper Tribunal against—(a) a confirmation decision given to the person under section 50;(b) a decision under section 50 to require the person to pay a penalty;(c) the amount of a penalty which the person is required to pay under section 50.(2) An appeal under this section must be brought before the end of the period of 28 days beginning with the day on which notice of the decision appealed against was given to the person, or within such longer period as the Upper Tribunal may allow.(3) The Upper Tribunal must determine an appeal under this section on the merits and by reference to the matters before it, and not by applying the principles that would be applied by a court on an application for judicial review.(4) On an appeal under this section the Upper Tribunal may—(a) confirm, vary or cancel the decision appealed against,(b) substitute for that decision any decision that the Secretary of State could have made, or(c) remit the matter to the Secretary of State with such directions as the Upper Tribunal considers appropriate.(5) Where an appeal is brought under subsection (1)(b) or (c), the requirement to pay the penalty is suspended until the appeal is determined, withdrawn or abandoned.(6) Tribunal Procedure Rules must make provision, for the purposes of proceedings under this section, about—(a) securing that information is not disclosed where disclosure would be contrary to the interests of national security,(b) the holding of proceedings, or of parts of proceedings, in the absence of a party or a party’s legal representative, and(c) the appointment of a person to represent the interests of a party in proceedings, or parts of proceedings, from which that party and that party’s legal representative are excluded.(7) Nothing in this section affects any right to apply for judicial review.”Member’s explanatory statement
This new clause would provide a right of appeal to the Upper Tribunal, on the merits, against a confirmation decision or a financial penalty imposed under section 50, with provision for the protection of national security material. It implements the recommendation of the Constitution Committee in its 3rd Report.
Lord Clement-Jones (LD)
My Lords, Amendment 148A stands in my name on the Marshalled List. This amendment would address a profound, structural and deeply disturbing gap in the judicial oversight and democratic accountability of the Bill. It represents a direct implementation of the authoritative recommendation of the Select Committee on the Constitution, in its third report of this Session.
Under Clause 50, the Secretary of State, acting as the direct enforcement authority for national security directions, is empowered to issue a unilateral confirmation decision that potentially imposes hugely significant financial penalties on non-compliant organisations. Under Clause 49, these penalties can reach a peak of up to £17 million or 10% of global turnover for commercial undertakings. Even for non-undertakings—such as our cash-strapped NHS trusts, local government authorities, or educational bodies—the penalty can be a crushing £17 million, with daily ongoing fines of up to £100,000 per day. Yet, under the Bill as currently drafted, the Government expect us to accept that the only avenue of legal recourse for an affected organisation to challenge these business-destroying fines is judicial review in the High Court.
Lord Vaizey of Didcot (Con)
My Lords, in addressing the amendment in the name of the noble Lord, Lord Clement-Jones, I may increase his stress levels, unfortunately, as I oppose it. This means, I guess, that I am supporting the Government—that is, unless the Government are going to perform a volte-face in the face of the noble Lord’s strong arguments for a merits-based review of any decision reached by the First-tier Tribunal.
I do so because it brings back memories of when I was the telecommunications Minister and was, therefore, responsible for Ofcom. At the time, all Ofcom decisions were subject to a merits-based review in front of the Competition Appeal Tribunal, which meant that, in effect, every decision it took regarding broadcasters or telecoms companies was reheard at appeal. As noble Lords can imagine, technical decisions on the charges being levied by wholesale carriers—or, in the case of Sky, the charges being levied on other broadcasters to carry, for example, the Premier League—were extremely complex, and Ofcom faced an army of lawyers deployed by those companies.
Without wishing to give away too many confidences—this was 10 years ago, so I do not think it is a matter of national security—Ofcom found itself extremely frustrated by all this. It was costing millions and millions of pounds. It was being used by commercial providers as a delaying tactic, a firepower tactic, almost, in order, understandably, to put off decisions that were not in their commercial favour. I initially resisted Ofcom’s blandishments to say that we should move away from merits-based appeals, partly because I thought that we would just start a whole new process of the courts feeling their way under the new system and would end up with a whole new set of delays as the courts had to make novel decisions under a novel regime.
However—one of the great telecom chief executives, my noble friend Lady Harding, has just walked into the Committee right on cue; I do not think, though, that she ever used her firepower in the cynical way that others did against Ofcom—the changes did go through. As far as I am concerned, although I have not done my homework properly, things have settled down into a straightforward process whereby a regulator makes a decision based on the facts and, if that decision can somehow be seen as unlawful by the company in question, it can be judicially reviewed.
It must be stressed that removing merits-based appeals would not remove the right of appeal. It seems fairly obvious to me that, as in civil and criminal cases, decisions would be arrived at based on the facts. However, if that decision were somehow so outside the normal judicial process of making a decision and so irrational, as it were—which is what judicial review exists to review—then it could be reviewed. That system should be consistent across regulatory appeals. I cannot necessarily comment on the effective points made by the noble Lord, Lord Clement-Jones, about the clandestine nature of some of the findings, but it may well be that, given the issues to do with cyber security, attacks on critical national infrastructure and so on, some elements of cases must be kept confidential. That is a matter for further debate, perhaps, but I would be extremely concerned if we were to go back to merits-based reviews for regulatory appeals.
Lord Markham (Con)
My Lords, I thank the noble Lord, Lord Clement-Jones, for introducing this important group and all noble Lords for their contributions. Beginning with Amendment 148A, it is reasonable to suggest that there should be a further right to appeal, given that we are talking about potentially large penalties of £17 million or 10% of annual turnover. But, like my noble friend Lord Vaizey, I have concerns about whether the Upper Tribunal system can handle such a process. Right now, it has an open case load of over 800,000, which is a 19% year-on-year increase, and disposals have decreased by 4%. As such, I am hesitant to offer my support without being assured that further pressure will not be placed on tribunals and that this is a workable mechanism.
Amendments 174A and 174B, in my name and those of my noble friends Lord Camrose and Lord Holmes of Richmond, would require the Secretary of State to establish a register of foreign powers posing a cyber security risk to this country, and to review and report on the extent of the risk posed by powers on that list. Part 4 gives the Secretary of State significant new powers to intervene where the use of vendors’ goods and services or facilities pose a risk to national security. We support that objective. A power of that kind is only as good as the intelligence that informs it. At present, the Bill is silent on how the Secretary of State is to identify, in a systematic and transparent way, which foreign powers actually present that risk.
Amendment 174A aims to fill that information gap, outlining a thorough set of criteria for inclusion: a state confirmed by GCHQ to have perpetrated or attempted a cyber attack against the UK in the preceding seven years—one directed at an operator of an essential service or a critical supplier and carried out through a state department, agency or affiliate—or a state that GCHQ has separately warned poses a risk to such systems.
The importance of ensuring that we are fully informed of foreign threats can hardly be overstated. Just this year, the NCSC’s chief executive reported that three-quarters of all attacks on our critical national infrastructure over the preceding 12 months were carried out by hostile states, with Russia, China and Iran named specifically. The NCSC’s annual review recorded 204 nationally significant incidents in the year to August 2025—more than double the previous year, with 18 rated highly significant.
For illustration, the cyber attack that last month shut down a British power plant is reported to have been committed by Iran-backed hackers. Over the course of the last Parliament and this one, China has targeted Parliament and compromised the Electoral Commission; Russia’s FSB has targeted British parliamentarians and successfully stolen and leaked politically sensitive documents; and Iranian state actors have targeted British politicians, Governments and defence with sustained cyber espionage campaigns.
We are seeing a surge in cyber attacks driven largely by foreign threats. If the Government are serious about security and resilience, tackling foreign interference must be a priority. As a start, a published criteria-based register would bring much-needed transparency and rigour to the process. Amendment 174B seeks to achieve such transparency. It would require the Secretary of State, for each foreign power added to the register, to conduct a review of the extent and nature of the risk that that power poses. It also includes a built-in safeguard for the Government: where the Secretary of State considers that laying their report would be contrary to national security interests, they may instead make a Statement to Parliament confirming that the review has taken place and explaining that it cannot be published. It attempts to strike a balance between accountability and the sensitivities that intelligence assessment of this kind will naturally carry.
I anticipate that the Minister may say that such a register already exists in substance within government and that formalising and publishing it risks informing those very powers of the extent of our knowledge. I gently observe that the amendment does not require publication of intelligence sources, substance or methods—only the fact of designation against published criteria and a review to assess the risk. Given the scale of the threat that the NCSC describes and, given the very significant powers that this part confers on the Secretary of State, I believe that Parliament is entitled to ask that those powers rest on a clear, evidenced and reviewable basis. I look forward to the Minister’s response.
Baroness Lloyd of Effra (Lab)
I thank noble Lords for their amendments, starting with Amendment 148A, from the noble Lord, Lord Clement-Jones, which indeed is in line with the recommendation from the Constitution Committee, which I thank for its report and its detailed scrutiny of this legislation.
As the noble Lord points out, Part 4 enables the Secretary of State to issue penalties for regulated entities that do not comply with directions. The High Court will have jurisdiction to review the lawfulness of a particular penalty issued under Part 4. The noble Lord, Lord Vaizey, referred to precedent and consistency. Our assessment is that the High Court is the appropriate route for hearing sensitive national security cases, consistent with the approach that previous Governments have taken to national security legislation. The Telecommunications (Security) Act, the National Security and Investment Act, and the Procurement Act, key pieces of national security legislation, all follow this approach. That is the reason we have adopted it here.
To the point around parliamentary scrutiny of directions, the Government’s default position is that copies of directions will be laid in Parliament, to enable all parliamentarians to scrutinise the Government’s use of these powers. I am of course preparing a formal response to the Constitution Committee, which will be sent in due course.
Baroness Lloyd of Effra (Lab)
I resume with Amendments 174A and 174B, which were introduced by the noble Lord, Lord Markham. They would require the Secretary of State to create a register of “foreign powers” that pose a threat to UK cyber security, to review this register and to lay the report in Parliament. This is intended to inform the use of the powers granted under Part 4 of the Bill. The noble Lord is right that hostile foreign actors pose a clear risk to our essential services. National security is the first responsibility of any Government, which is why we are addressing these risks actively, including through the Bill.
The Bill will grant the Secretary of State important new powers to issue national security directions to regulated entities or regulators, where their compromise poses a national security risk. We will seek to strengthen the Government’s national security toolkit further, to protect our supply chains from hostile actors. That is why we put forward a package of amendments to introduce new powers that would enable the UK to address vendor-related cyber risks by hostile actors in our critical infrastructure supply chains. I look forward to engaging noble Lords further on this essential package ahead of Report.
Any decision to use the powers in the Bill will be informed by expert national security advice, including from GCHQ. The direction powers provide a strategic case-by-case basis to safeguarding our national security, irrespective of the specific actor. As a result, a country-specific approach lacks the nuance required to assess and respond comprehensively to all relevant risks. We also need to proceed responsibly in how we categorise and present these risks in the public sphere.
That is not to say that we shirk transparency about these kinds of risk. The Government are already able to communicate with Parliament and the public about such cyber risks where it is appropriate to do so. As the noble Lord, Lord Markham, set out, the NCSC annual report highlights risks posed by foreign actors; we work with the NCSC to mitigate these risks.
I note that noble Lords have confronted this question before, notably during the passage of the Telecommunications (Security) Act, where there was cross-party support for vendors to be assessed on a case-by-case basis, rather than by designating nations themselves as hostile actors. I hope that, in that vein, noble Lords are reassured that the Government have the tools to act strategically, acting on the right intelligence where hostile states seek to do us harm.
Lord Clement-Jones (LD)
I thank the Minister for her response and the noble Lords, Lord Vaizey and Lord Markham, for their contributions. I cannot help feeling that the approach to this by the noble Lord, Lord Vaizey, is coloured by his history as a Minister. I can understand that because I saw the frustration within Ofcom over the type of judicial review. It was a particular type of judicial review: it was not a full merits-based appeal, but it allowed merits to be considered as part of the judicial review process. Subsequently, that was changed, which has probably calmed the way in which appeals are carried on.
However, in this particular case, although he said that he was not sighted as to the secrecy aspects of this, it was quite interesting to hear what the noble Lord, Lord Markham, had to say. He started by saying that he supported the amendment, then—rather coloured, I think, by the response of the noble Lord, Lord Vaizey—he did a bit of a U-turn halfway through what was a speech originally written in support. I am sure that he knows in his heart that this is the right one.
Really, the argument in this case is expediency versus justice. I think that choosing expediency, especially in the light of what the Constitution Committee had to say, would be extremely inadvisable. I was encouraged by the fact that the Minister is producing a memorandum in response to the Constitution Committee; we all wait with bated breath for when that arrives. In the meantime, I beg leave to withdraw my amendment.
The Deputy Chairman of Committees (Baroness Scott of Needham Market) (LD)
I cannot call Amendment 153 as it is an amendment to Amendment 152.
Clause 55: Laying before Parliament
Lord Clement-Jones
“Computer Misuse Act 1990: statutory defence for cyber security activities(1) The Secretary of State must, within 12 months of the day on which this Act is passed, carry out and publish a review of whether the introduction of a statutory defence under section 1 of the Computer Misuse Act 1990 (unauthorised access to computer material) for persons carrying on legitimate cyber security activities is necessary or desirable to improve the security and resilience of network and information systems used or relied on in connection with the carrying on of essential activities.(2) The review under subsection (1) must consider, in particular—(a) the position of cyber security researchers, vulnerability testers and threat-intelligence practitioners acting in good faith,(b) the conditions and safeguards (including as to authorisation, proportionality and reporting) that any such defence should contain, and(c) the approaches taken in other jurisdictions.(3) On concluding the review, the Secretary of State must lay before Parliament a report which sets out—(a) the findings and conclusions of the review, and(b) whether the Secretary of State intends to bring forward proposals for such a statutory defence, and, if so, the intended timetable for doing so.”Member’s explanatory statement
This new clause seeks to place a statutory duty on the Secretary of State to review, within 12 months, whether a statutory defence under section 1 of the Computer Misuse Act 1990 for good-faith cyber security researchers and vulnerability testing is needed to improve the UK’s cyber resilience, and to report to Parliament.
Lord Clement-Jones (LD)
My Lords, Amendment 164 is in my name and, I am delighted to say, that of the noble Lord, Lord Arbuthnot of Edrom. Sadly, he is tied up next door with matters of national security—I hope that I am not giving away any secrets—and is unable to speak to this amendment, but I value the support that he has given as a long-standing campaigner for changes to the Computer Misuse Act.
This amendment addresses a long-standing, globally recognised and increasingly dangerous absurdity in our criminal law: the fact that our primary cyber crime statute, the Computer Misuse Act 1990, criminalises the very cyber security professionals who are actively working to defend our country. The Computer Misuse Act is now 36 years old. It was drafted in 1990—an era before the world wide web had entered public consciousness, when less than 0.5% of the British public had ever sent an email and when the entire concept of proactive, ethical vulnerability research was completely unimagined. Because the Act was drafted at such a primitive stage of the digital revolution, it contains a blanket, indiscriminate prohibition on all unauthorised access to computer material. In its current form, it draws no legal distinction whatever between a malicious hacker, backed by a hostile foreign state and seeking to sabotage our critical national infrastructure, and an ethical, good-faith cyber security researcher—a “white hat” hacker, if you like—seeking to discover and responsibly disclose vulnerabilities before criminals can exploit them.
The real-world consequence of this statutory blind spot is that British cyber defenders are forced to operate with one hand tied behind their backs. Consider the day-to-day operational reality: if an ethical researcher in the UK scans an internet-facing network, identifies a critical zero-day vulnerability that leaves an NHS hospital dataset or a municipal water control system exposed, and takes the basic technical steps necessary to verify the flaw, they have technically committed a criminal offence under Section 1 of the 1990 Act. They face prosecution and imprisonment, even if their actions were undertaken entirely in good faith, strictly in the public interest and followed by immediate responsible disclosure to the National Cyber Security Centre or the affected operator.
I and others have received overwhelmingly passionate representations from the CyberUp campaign, representing what might be described as the elite of our domestic cyber security industry. Alongside the Criminal Law Reform Now Network and the NCC group, its evidence is stark. It says that the chilling effect of the Computer Misuse Act is actively undermining our national cyber resilience. Leading UK cyber security companies are routinely forced to prohibit their researchers conducting proactive threat intelligence gathering and vulnerability research on UK-based infrastructure because the legal risks are unacceptable. When British researchers identify an active cyber threat originating abroad, they are legally constrained from investigating the command and control servers if doing so involves touching a remote system without explicit owner authorisation.
Meanwhile, our international competitors have moved ahead. The United States updated its Department of Justice charging policies explicitly to protect good-faith security research. Countries such as Portugal, France and Australia have established clear and legal safe harbours for ethical cyber defenders. As a direct result, British cyber talent and commercial investment are migrating overseas to jurisdictions where proactive defence is recognised as a public good, rather than a criminal act.
During the Bill’s passage in the other place and during our Second Reading debate, the Government’s response was to agree with the principle of reform while arguing that this Bill is not the appropriate vehicle. Ministers pointed to an ongoing Home Office review and suggested that reform must wait for a hypothetical future security Bill. We have been waiting for the outcome of that Home Office review for more than five years; it was kicked into the long grass of Whitehall interdepartmental delays while our critical network remained under siege.
There is potentially a contradiction at the heart of the Government’s strategy on this issue. On one hand, Ministers are using this Bill to impose sweeping new legal duties and heavy, turnover-based penalties on operators to secure their networks; on the other hand, the Government continue to criminalise the very security professionals and ethical researchers whom these operators must hire to test and harden their systems.
Amendment 164 would resolve this contradiction cleanly, decisively and safely. It seeks to insert a direct substantive statutory defence into Sections 1 and 3 of the CMA. An individual charged under the Act would have a complete legal defence if they can prove that their conduct was reasonable for the detection or prevention of crime, or that they were carrying on legitimate cyber security activities, specifically defined in the Bill as vulnerability research, penetration testing, threat intelligence-gathering or a responsible disclosure necessary to safeguard system security.
Crucially, this amendment would not create a free-for-all or a loophole for malicious actors. It would empower the Secretary of State to approve a statutory code of practice, setting out the precise standards, rules of engagement and reporting protocols that constitute legitimate, good-faith cyber security activity. Anyone who acts outside those clear standards remains fully subject to criminal prosecution. Let us also consider the significant economic dividend of this reform. Independent economic modelling from the CyberUp Campaign demonstrates that introducing a statutory defence for legitimate cyber security activities would add 9,500 high-skilled, high-wage jobs and generate £2.5 billion in additional revenue for the UK economy.
We cannot build a resilient nation by preserving laws written for the floppy disk era. In an age of automated AI exploits and state-sponsored ransomware, we must unchain our cyber defenders. We have been here before, and the Government’s arguments for delay have run completely out of road. During our debates and correspondence on the then Crime and Policing Bill and, previously, the then Data (Use and Access) Bill, the Government repeatedly acknowledged the strength of our case. The noble Lord, Lord Katz, stood at the Dispatch Box and conceded that the Computer Misuse Act is dangerously outdated and that the Home Office were actively preparing a statutory defence under Section 1 to protect ethical cyber security researchers. Indeed, in correspondence following those debates, Ministers confirmed that engagement with industry and system owners was well advanced, but their stock excuse for resisting our amendments was always the same: “This is the wrong legislative vehicle. Wait for the upcoming cyber security legislation”. Well, here we are—this is the cyber security and resilience Bill. If primary cyber legislation cannot fix the statute that actively criminalises our front-line cyber defenders, what on earth can?
When the Government updated law enforcement powers under the Crime and Policing Act to seize domains and IP addresses, Ministers were quick to assure us that police powers are tightly bound by the Police and Criminal Evidence Act 1984 and statutory exemptions under Section 10 of the CMA. Yet independent security researchers, who discover over half of all critical system vulnerabilities before hostile state actors can weaponise them, enjoy zero statutory protections. They are left entirely at the whim of prosecutorial discretion and the threat of catastrophic legal action. The review of the noble Lord, Lord Vallance, recommended this defence three years ago. The CyberUp Campaign and techUK have drafted the ethical safeguards. In correspondence, Ministers have told us that they agree in principle. It is time to honour those commitments and put a direct statutory defence in this Bill. I urge the Minister to support this vital amendment. I beg to move.
Lord Vaizey of Didcot (Con)
My Lords, I strongly support the amendment from the noble Lord, Lord Clement-Jones, whether technically or in spirit. He is right to point out how outdated the Computer Misuse Act is and that its blanket prohibition on undertaking cyber security activities without any public interest defence is ridiculous.
The noble Lord’s amendment goes to the heart of the frustrations that have been expressed in debates on this Bill, particularly at Second Reading; sadly, I was not able to attend Committee last week, but I imagine they were reiterated again. This is an incremental and technical Bill that clears up some important anomalies. Time and time again, noble Lords have raised the point that it is missing the bigger picture. Now that we live in a digital age when absolutely everything depends on digital infrastructure, it seems to be absolutely extraordinary that we are not taking a much bigger view on updating our legislation, institutions, resources and skill base, to make this core infrastructure fit for purpose. It seems extraordinary to me that the Computer Misuse Act has not been touched for 36 years. It is well out of date. It may well be that there are other elements of it that have to be looked at.
Baroness Neville-Jones (Con)
My Lords, the campaign to reform the Computer Misuse Act is at least 10 years old, not just five. We—including me—have been working to try to get the provision that is contained in the amendment before us from the noble Lord, Lord Clement-Jones. I endorse every single word that he said; he put the case precisely as it needed to be set out. It is absolutely anomalous that we still have this legislation on the statute book, and we need an update to it.
We need to put our researchers, and those who help to protect us and keep us safe, in a safe position themselves, which they are not at the moment. They are subject to potential criminal prosecution, which is stupid and a great disincentive to doing what needs to be done. I very much hope that the Minister will be persuaded to take this opportunity—not to reject it—to put a clause, even if it needs modification to a form that the Government approve of, in this legislation.
Baroness Harding of Winscombe (Con)
My Lords, I will speak briefly in support of the amendment from the noble Lord, Lord Clement-Jones, which he so comprehensively set out. I did not mention this at Second Reading because I thought it was so self-evidently sensible that this needed to be fixed. I should know better, having been in this place for a decade, than to assume that something will happen just because it is self-evidently sensible.
The last three days in Committee have been rather depressing—my noble friend Lord Vaizey is lucky he was not here last week, although he managed to give an excellent speech that suggested he had at least been following us in Hansard or on TV—because it has been so clear that the most important issues are not being addressed in the Bill. This seems like something simple to fix. There are much bigger issues, such as the complete gaping hole of the absence of AI and the huge complexity of all the different regimes that the noble Lord, Lord Birt, set out. I am of the view that you cannot wait for the perfect, and there is a real risk that we are letting perfect be the enemy of the good. This is a straightforward and sensible proposal that I think the Government previously agreed with, but it was just not the right time. Surely, now is the time for us to do things rather than keep kicking the can down the road.
Lord Tarassenko (CB)
My Lords, one of the advantages of being in this Committee Room for these debates in Committee is that I can use Claude—I hope that is allowed—to answer the question of what the cyber security community thinks about the Computer Misuse Act. The answer comes back in bold. I will read just the paragraph in bold: “The UK cyber security community’s view is that the Computer Misuse Act 1990 is dangerously out of date and reform efforts so far do not go far enough”. I rest my case.
Viscount Camrose (Con)
My Lords, I thank the noble Lord, Lord Clement-Jones, for introducing this amendment and the noble Lord, Lord Arbuthnot of Edrom, whom I see in his place. I am sorry he was unable to attend the beginning of this debate, but we are told it was for very good reasons. I will not try to reproduce the many overwhelmingly powerful arguments that we have heard in favour of this amendment, which, on these Benches, we are also keen to support—as we support any measure on the basis that it would help organisations to protect themselves and their systems.
Penetration testing and the wonderfully named bug bounties are excellent ways to identify and address the more technically difficult vulnerabilities before they are exploited. Take one of the most widely used apps anywhere: Google Chrome, which has found that external researchers were responsible for almost a third of its patched and communicated vulnerabilities. The Government’s own consultation included respondents arguing that the Computer Misuse Act prevents cyber professionals, consumer groups and researchers undertaking this kind of legitimate public interest activity.
The amendment is wholly sensible in its design, in that it does not commit the Government to action but begins the conversation on this small but hugely important and valuable change, supported avidly, as we have heard, by everybody—more or less—within the cyber industry. It would explicitly condone good faith researchers and sanction ethical hackers to carry out their work. I cannot imagine why it would not at least be worth reviewing such a change on this basis.
I have some unsatisfied curiosity, as there are no published statistics showing how many Computer Misuse Act investigations, prosecutions or convictions involve good faith cyber security researchers, so it is hard to know how much of a dampening effect on ethical hacking the CMA is currently having. If any of the signatories to the amendment, or of course the Minister herself, could shed any statistical light on that, I would be most grateful. As I said, this amendment would allow all such considerations to be taken into account without committing the Government and, as such, I strongly support it.
Baroness Lloyd of Effra (Lab)
I am grateful to the noble Lord for raising this topic through his amendment, and I recognise the strength of feeling on reforming the Computer Misuse Act. I agree that the UK should have the right legislative framework to allow us to tackle the threats posed by cyber criminals.
The Home Office has already carefully reviewed the Computer Misuse Act and proposes to introduce a defence to Section 1 for accredited cyber security researchers when carrying out certain cyber security activity that would currently be unlawful under Section 1 of the CMA. The Home Office has worked closely with the NCSC, law enforcement and the cyber security industry to refine these proposals. The noble Lord, Lord Clement-Jones, was briefed by Home Office officials on these proposals in February, and I hope this is able to demonstrate meaningful progress that the Government are making on this issue. The Home Office recognises that legislating in this area is a priority and will do so as parliamentary time allows. As noble Lords here are all aware, the King’s Speech in May included a commitment to a national security Bill, with measures to update the Computer Misuse Act, and work is ongoing to bring forward this legislation.
The review proposed by this particular amendment would be undesirable because it would be limited to the scope of the NIS regulations. This would be too narrow for the scope of the Computer Misuse Act; it is also unlikely to provide the Government with new information on how the Act should be reformed. I am sure that the noble Lord and others in this Room will be active in the passage of this legislation once introduced. I have read his correspondence with the Home Office, including the activities that the noble Viscount, Lord Camrose, referenced, and his expertise across all these areas will be hugely welcomed once it is introduced.
Lord Clement-Jones (LD)
I thank the Minister for that response. The noble Lord, Lord Vaizey, said that we know what the Minister will say: that it will be in a future piece of legislation. To that extent, we are pleased that at least we have a commitment to it, but this has been going on for an awfully long time. We tabled amendments during the passage of the Crime and Policing Act and the Data (Use and Access) Act. There has been plenty of time for the Home Office, or any other department to address this—DSIT could have taken this by the scruff of the neck—because it is such an egregious aspect of the current legislation.
I am pleased to hear that the Minister has read the correspondence. I hope she did not fall asleep while doing so; it is pretty interminable. She may well find that we come back to this on Report because, as she said at the beginning, feelings are running high about it. It is almost a demonstration of how not to run a Government. If you cannot get to grips with something as straightforward and important as this and just make a decision about it, that speaks volumes.
I thank noble Lords who have spoken today and demonstrated support across the board. On a light-hearted note, I say to the noble Lord, Lord Tarassenko, that of course Claude said that; it is trained on my speeches. As the noble Baroness, Lady Harding, said, this is self-evidently sensible. The trouble is, it is self-evident to us, but we despair sometimes, and the perfect must not be the enemy of the good. As the noble Baroness, Lady Neville-Jones, said, the objective is to put researchers in a safe position.
Finally, the noble Lord, Lord Vaizey, exhorted me to make sure that we have a date and a timeline. When will the national security Bill come forward? We saw it in the King’s Speech but I have had no contact from anybody in the Home Office about what they might insert in the Bill. I do not know whether anybody in this Committee has had notice of when a Bill might come forward. I think the Minister recognises the sheer impatience that most of us feel in this field, and I very much hope that, between Committee and Report, we can get some more clarity in this area for the benefit of all those researchers. In the meantime, I beg leave to withdraw the amendment.
Lord Markham
“Increasing resilience by reducing data retention(1) The Secretary of State must, within one month of the day on which this Act is passed, open a consultation on the potential impact of minimising data collection and increasing data anonymisation on the resilience to cyber attack of relevant public bodies. (2) In this section, “relevant public bodies” are public bodies that are operators of essential services or digital service providers under the NIS Regulations or this Act.”
Lord Markham (Con)
Amendment 174E in my name and those of my noble friends Lord Camrose and Lord Holmes builds on the point I made in the debate last Thursday that the best defence in cyber is, of course, not to present an attractive target in the first place.
I go back to my experience of the Synnovis hack when I was Health Minister. The reality was that it did not need to hold any of the detail or data that it had in the first place. When you are doing a diagnostic test of someone, you do not need to know their name; there can be a serial number that can be matched up later. Not only did Synnovis have names, it had whole medical records going back years and years, and there was no deletion policy either. The whole reason that it was an attractive target was its very sloppy standards in the data it held and its retention policy.
Lord Clement-Jones (LD)
My Lords, despite the fact that this is the last group, it is a really important area and this amendment rightly reflects that. We strongly support Amendment 174E. It would introduce a fundamentally elegant and highly necessary cyber security principle that the Bill has otherwise completely ignored: that of data minimisation and the proactive reduction of what is called our national data attack surface.
The most sophisticated cyber defence system in the world cannot protect data that has already been stolen. Conversely, the most ruthless ransomware gang or hostile state-sponsored actor cannot compromise data that was never collected or which has already been securely deleted. In the realm of digital defence, we must move past the narrow defensive mindset of simply building thicker walls around our databases. We must begin to ask a more fundamental strategic question: why are we keeping these massive, un-anonymised and highly vulnerable data honeypots in the first place?
The empirical evidence from our public sector is deeply alarming. We have received detailed and coruscating briefings from the Centre for Long-Term Resilience and our technical authorities. The National Audit Office’s January 2025 report on government cyber resilience revealed that approximately 28% of government technology is legacy software, leaving our public bodies highly vulnerable to attack.
Consider the catastrophic ransomware attack on the British Library in October 2023. When the library refused to pay a ransom of 20 bitcoins, the Rhysida ransomware group released 600 gigabytes of stolen customer and staff data on to the dark web. The library’s own subsequent post-mortem was clear: its reliance on legacy applications and older network designs substantially and unnecessarily increased the volume of sensitive customer data sitting on the network. This was data hoarding, plain and simple, and the price was paid by the British citizens whose personal details are now permanently compromised.
Consider the hack by ExfilSquad, when normal teenagers living with their parents managed to breach a public database, leaking the sensitive personal details of 100,000 police officers and staff on the dark web, alongside data from the Ministry of Defence and the Department for Education. How did they do it? They did not deploy supercomputers or advanced zero-day exploits, they simply exploited a basic, misconfigured Power Pages database. The hackers’ own boast on the dark web was chilling. They said the data was accessible without any authentication whatever.
Why are these databases so large? Because our public bodies routinely collect and indefinitely retain vast, sprawling, unanonymised datasets, from birth certificates and benefit records to housing benefits and electoral roles, without any systematic statutory drive to minimise or anonymise them. That is why the Association of British Insurers and the NCSC both advise that data encryption and data minimisation are critical to reducing the leverage that a threat actor has in ransomware attacks. By rendering exfiltrated data unreadable through encryption—or better yet, non-existent through deletion—we take away the hackers’ ammunition.
While the Bill focuses heavily on the administrative paper exercise of incident reporting, it remains completely silent on the contents of the databases themselves. Amendment 174E would provide a strategic corrective. It would legally oblige the Secretary of State to open a public consultation within one month of the Bill’s passing to evaluate the cyber-resilience benefits of minimising data collection and increasing data anonymisation across our public bodies. By forcing our public sector to lead by example, this amendment could begin the vital work of shifting the UK towards a genuine resilience-by-design model. It would reduce our vulnerability, harden our national defences and protect the digital lives of our citizens. I urge the Minister to accept this vital safeguard.
Baroness Lloyd of Effra (Lab)
I thank the noble Lord, Lord Markham, for raising this important issue again. Good data hygiene and security is essential to ensuring that public bodies are resilient to cyber attacks. Through the Bill, we are better protecting data, to make our essential services safer and more secure for all those who rely on them. This includes through security and resilience requirements, which will form part of the duties placed on regulated entities and which I have mentioned at previous sittings of this Committee. In our consultation later this year, we will propose that these requirements cover data security.
Let me emphasise that where personal data is concerned, all public bodies must already comply with the data protection principles in the UK GDPR. This includes requirements to keep personal data secure, process only the minimum amount needed to deliver their objectives, periodically review whether this data is relevant and adequate for the public body’s purposes and not to retain this data for longer than is necessary. The Information Commission regulates the data protection legislation independently of the Government. It has a range of powers at its disposal to investigate alleged breaches and require public bodies to address non-compliant practices.
Significant obligations exist under the UK GDPR. In addition, our upcoming consultation will examine measures to strengthen data security within the security and resilience regulations. A separate consultation, as proposed by the noble Lord, would not be a good route through, but it would be a good idea for us to meet and think about the most appropriate route for advice on data security in the context of the SRRs. I suggest that we focus our discussion on the SRRs in the intervening period.
As this is the last time I will speak in Committee, I want to reflect on some of the points made by noble Lords. Obviously, productivity and growing the UK economy are big themes for all of us. It is true that we have progressed through Committee faster than perhaps people anticipated, but I have heard very clearly the points that have been made very succinctly, both on fundamental structural issues—to which, as I have said, I think the approach in the Bill is right, I am just logging the fact that I have absolutely heard the motivation for that, around consistency and so on—and indeed on some of the more technical points that noble Lords have made about some of the details of the Bill, some of which I have already undertaken to come back on.
I thank the Committee for its scrutiny and noble Lords for the experience they have brought to the Committee from their practical walks of life.
Viscount Camrose (Con)
In the spirit of her final remarks on the Bill overall, is the Minister able to give any update as to when the national cyber action plan might emerge?
Baroness Lloyd of Effra (Lab)
I have nothing further to add what I have said in previous sittings.
Lord Markham (Con)
Nice try. I will get the final word then. First, I thank the noble Lord, Lord Clement-Jones, for his strong support. Honey pot is a very descriptive and apt term for it. I thank the Minister for her comments and will definitely take up her offer of a meeting. I must admit that the responses she gave were almost exactly the responses that the NHS gave to me on all this, so she is absolutely right: everything is being kept under GDPR. Data security and how that is held were mentioned quite a few times, but I did not hear anything about data minimisation and why we are collecting or keeping it in the first place. That is a gap in all of this because, as I said, a lot of this data does not need to be held or gathered in that way. It is just basic discipline. I would very much like to take up that offer on how we can do that, because—perhaps the Minister can look at this ahead of our meeting—I do not think this issue is addressed anywhere in the Bill.
I do get the last word. I thank everyone who has taken part in this. There have been a number of important issues raised. I really appreciate the willingness of the Minister to engage, and I know there are a number of follow-up meetings that I think we will all want, because there is a lot that we need to work on between now and Report to make sure that the Bill really gives us the sort of protection we would all hope to have. I beg leave to withdraw my amendment.
House of Lords
Introduction: Baroness McAnea
Introduction: Lord Smith of Ranmoor
Retirement of a Member: Lord Wilson of Dinton
The Lord Speaker (Lord Forsyth of Drumlean)
My Lords, I should like to notify the House of the retirement, with effect from yesterday, of the noble Lord, Lord Wilson of Dinton, pursuant to Section 1 of the House of Lords Reform Act 2014. On behalf of the House, I should like to thank the noble Lord for his much-valued service to the House.
Neighbourhood Health Services
(1 day, 7 hours ago)
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Baroness Maclean of Redditch
To ask His Majesty’s Government how they intend to measure the success of neighbourhood health services in reducing demand for hospital care and improving access to primary care.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, success will be measured against five minimum national goals in the neighbourhood health framework, which was published in March 2026. That will include improved access to general practice and better urgent and emergency care performance. Integrated care boards and local authorities will establish locally owned neighbourhood plans with metrics that reflect population needs. An independent national evaluation, which will be commissioned through the NIHR, started this April to support national policy and delivery of neighbourhood health and evaluate its adoption and uptake.
Baroness Maclean of Redditch (Con)
My Lords, I thank the Minister for that Answer. She set out the government policy, which states that local health and well-being boards will work with communities, health and care organisations and wider partners to establish outcome measures that cover the whole life course of the individual and reflect both health and social care needs. Can the Minister say how, bearing in mind the wider devolution agenda, the Government will measure neighbourhood health outcomes to allow for effective comparison between regions?
Baroness Merron (Lab)
The noble Baroness set out exactly what the plan is, and I am grateful to her for doing so, but I emphasise that the whole point of the independent national evaluation is that it will evaluate the whole breadth of neighbourhood health. It started in April and will run for three years. I further emphasise that it is about continual engagement and developing different ways that neighbourhood health can be successful. It will also model what the long-term outcomes and improvements can be, depending on how you do it. All that will mean working with the local ICBs to see about their progress, but they are well aware of the expectations upon them, and they will set their own ways forward.
Baroness Pidgeon (LD)
My Lords, if neighbourhood health services are to succeed, more care will be delivered through general practice and community settings, yet NHS funding allocated to general practice has fallen over the last decade. Will the Government consider introducing a primary care investment standard to ensure primary care can grow in line with this ambition?
Baroness Merron (Lab)
We do not intend to bring forward the investment standard that the noble Baroness seeks. I am aware that a discussion is going on—probably as we speak—through the Health Bill, which is about to be introduced to your Lordships’ House. That is about increasing accountability and responsiveness to local needs and improving outcomes. I say to the noble Baroness that our fear is that bringing in yet another approach, through an investment standard, risks undermining that.
Baroness Gerada (CB)
My Lords, since 1948, successive Governments have shifted care into the community without a simultaneous shift of people, estates or money. We have just heard that general practice now receives its lowest share of the NHS budget for a decade. Will the Minister agree to address this so that GPs can deliver continuity of care, which we know improves access, reduces demand, improves outcomes and fundamentally delivers better value for money?
Baroness Merron (Lab)
I say to the noble Baroness that that is what I feel the whole neighbourhood approach to the NHS is. As she is aware, it is about joining up around the person and bringing together teams, including GPs. It is important to acknowledge outcomes: we have delivered nearly 14 million additional appointments through GPs in the year to June 2026, and patient satisfaction is going up with GP access. We need to look at what the situation is as well as the concerns.
Baroness Pitkeathley (Lab)
My Lords, one of the most important contributions of a neighbourhood health service is in the preventive work that it does—things like exercise, smoking cessation, addiction counselling, and so on. Does my noble friend agree that it is important to measure those aspects, which reduce further the demand for hospital and primary care services?
Baroness Merron (Lab)
I certainly do agree with my noble friend, who sets out what is at the core of this key shift, which is one of three. There are many examples. The service in Kensington, Chelsea and North Paddington has already supported people to access the right care in the right way. It has seen a reduction of over a third in GP appointments, of over two-thirds in A&E attendances and of over half in sick notes issued, with residents reporting a 40% increase in well-being. That is what can happen when we join up around the person.
Lord Kirkhope of Harrogate (Con)
My Lords, I welcome the Government’s continuation with the initiatives taken by the previous Government to develop much greater online activity and contact between patients and their GPs, but how do we deal with people who are particularly vulnerable, particularly the elderly—those who do not have direct access to online activity? How can they be looked after or helped to be in touch with the new facilities that are going to be available?
Baroness Merron (Lab)
As this will be locally led, the priority groups will be those who are more excluded, and that may well include those who are digitally excluded. But the noble Lord makes an important point. It is not just about local care in a physical sense—indeed, we have already committed to over 120 neighbourhood care centres—but it is also about digital access, because that is how many people now access it. However, in every single case, if someone cannot, there is an alternative for them.
Lord Kakkar (CB)
My Lords, I draw noble Lords’ attention to my registered interest as chairman of King’s Health Partners. The Minister will recognise that, increasingly, pathways of care for the management of chronic diseases will extend across institutional boundaries, both in primary and secondary care, and will be delivered by multidisciplinary teams of different healthcare professionals. Is she content that the present regime for regulation, both institutional and professional, will facilitate that cross-institutional delivery of care and care delivered by multidisciplinary teams?
Baroness Merron (Lab)
As we develop neighbourhood provision, bring care closer to home and join up as the noble Lord suggested, it is key that the regulatory framework supports that as well as all the other work. We are ensuring that the regulators are able to do that. Dr Penny Dash recently did a review and we are looking at what more needs to be done.
Lord Kamall (Con)
My Lords, I thank my noble friend Lady Maclean for the Question, but I want to go back to points made by the noble Baronesses, Lady Pidgeon and Lady Gerada. Successive Governments have spoken about the shift from hospital to community, but one reason it has not always happened is that there has not been a commensurate or corresponding shift in the funding. I therefore ask the Minister once again: what consideration are the Government giving to rebalancing existing funding—I stress “existing”—to deliver that shift from hospital to community?
Baroness Merron (Lab)
First, we are investing where it is needed, particularly on new estates and on improvement support. We are also asking ICBs to refocus their existing resources. This is not just tinkering; it is a fundamental shift—one of the three main shifts—to deliver neighbourhood health, which people very much welcome. We are also creating financial incentives. We are creating—the national evaluation will assist us more with this—funding flows and payment mechanisms, which means that savings from improved quality of care will then go into investment in new services. I say to the noble Lord that that has not always been the case in the past.
Baroness Hussein-Ece (LD)
My Lords, we know, and it is very well researched, that people with learning disabilities face enormous barriers in access to primary health care and have lower life expectancy as a result. Can the Minister assure me that these neighbourhood health services will ensure that screening and support for people with learning disabilities will be embedded in this service?
Baroness Merron (Lab)
I certainly can. To support that, the prevalence review, which focuses particularly on mental health services for those in the group that the noble Baroness describes, will soon come forward with its report, which will help us greatly. Certainly, there are priority cohorts, which are listed by definition, but localities can add cohorts. I very much expect that the group to which she refers would absolutely be a priority.
Public/Private Partnerships
(1 day, 7 hours ago)
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Lord Brooke of Alverthorpe
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, the 10-year infrastructure strategy sets out our approach to private finance and infrastructure through a range of approaches. Public/private partnerships are one model, and the strategy sets out the circumstances in which these are considered. The 2025 Budget considered that public/private partnerships would be available for neighbourhood health centres and projects decarbonising the public sector estate. The Government will carefully consider the most appropriate model for each project to ensure value for money. All this is to be overseen by the National Infrastructure and Service Transformation Authority, or NISTA.
Lord Brooke of Alverthorpe (Lab)
My Lords, I am grateful to my noble friend the Minister for that reply. I am pleased to hear today that the Chancellor has mentioned the possibility of involving mayors in these investment programmes. Can my noble friend ensure that we do some further work to keep the momentum going and that we look at the possibility, on the private side, of starting to offer shares to the public to participate in PPPs? Secondly, in furtherance of that, can we involve the Opposition in this too, so that we have joint partnership in getting greater investment?
Lord Wilson of Sedgefield (Lab)
We committed to getting Britain investing again to support our wider economy. In April, we launched targeted support with a new regulatory regime to improve access to financial guidance, moved the long-term asset fund into the stocks and shares ISA and welcomed the industry-led Invest for the Future campaign and risk warnings review to promote the benefits of investing to the public. The Invest for the Future awareness campaign has pointed out that more and more people are willing to invest their money rather than keeping it in cash ISAs. I confirm to my noble friend that the Chancellor of the Exchequer announced this morning that regional mayors will be involved as strategic partners in the delivery of the National Wealth Fund.
Lord Redwood (Con)
My Lords, will the Government speed up the identification of suitable projects and the granting of the necessary permissions? There is plenty of private capital that could help the Government. Will they make sure that enough risk is transferred to protect taxpayers’ interests?
Lord Wilson of Sedgefield (Lab)
The noble Lord makes some very good points. I do not know whether the noble Lord heard the Chancellor’s speech earlier today, but that is one of the things he wants to do: he wants to break down all the regulation, look at ways of investing more money into infrastructure, et cetera, and make sure that investment is there from the private sector. The National Wealth Fund has £27.8 billion in it, but we want to ensure that it releases £100 billion of investment over five years.
Baroness Kramer (LD)
My Lords, so many PFIs and PPPs were inappropriate, poorly negotiated and cost the taxpayer a fortune. Frankly, they were motivated primarily to keep debt off the public books. Surely it is time to draw a line under those frameworks and update that approach with a much better record, such as joint ventures, concessions and targeted capital collaborations, as well as tackling the overall weakness in government procurement.
Lord Wilson of Sedgefield (Lab)
The noble Baroness has got the wrong end of the stick. We are not going to go back to the PFI contract system that we had in the past and which came to an end in about 2018. However, we are going to learn the lessons of what happened with PFI about flexibilities on contracts, investment and transparency, for example. It is also fair to say that where the PFI worked best, it gave us more schools, hospitals and doctors’ surgeries, and it helped us with Sure Start. It had some good points and we should not throw it all out just because there were some issues. We will learn from that and invest in a way that protects the public purse.
Baroness Wheatcroft (CB)
My Lords, the Minister said that there are still some issues with PFI contracts, particularly with hospitals. Can he confirm the scale of the debt that hospitals are still burdened with because of PFI? What are the Government going to do to renegotiate those contracts and, if possible, renege on them?
Lord Wilson of Sedgefield (Lab)
There is no possibility that we are going to go back to PFI, as I said. We have learned the lessons from that. I am not quite sure about the figure of total expenditure that is out there—I think there were some 700-odd projects, of which 600 are still in progress. We are going to make sure, when we invest using public and private money, such as in neighbourhood health centres, that public money goes to the best rewards. For example, there are going to be 250 neighbourhood health centres, of which 120 are due to be completed by 2030 and all 250 will be completed by 2035. That is good news that should be celebrated.
Lord Hunt of Kings Heath (Lab)
My Lords, does my noble friend accept that where some PFI projects went wrong it was usually because the people negotiating the contract at the local level on behalf of the public sector did not have the expertise to do so effectively? However, as a result of public/private partnerships between 1997 and 2010 in the NHS, we built 100 new hospitals. I therefore ask my noble friend: can we expect to see, as a result of what the Chancellor has said today, a big expansion in capital expenditure with public/private partnerships?
Lord Wilson of Sedgefield (Lab)
We will deploy public/private partnerships where it is in the best interest of the Exchequer and of the public to do so, because we need to protect taxpayers’ money. My noble friend is absolutely right, however, that we benefitted under PFI, with those 100 new hospitals, new schools and new health centres. That has to be celebrated. Yes, you learn lessons, but I hope we will go on to see more public/private partnerships in future—but only if it is in the interest of the Exchequer to do so.
Lord Howell of Guildford (Con)
My Lords, the Minister mentioned the private finance initiative. As he will probably be aware, many countries now, in many jurisdictions, are adopting new risk allocation systems built on PFI. These include—I have a long list here—France, Germany, Norway, Sweden, Finland, Canada, Australia, South Korea and Japan. What are we doing about this, as we were the inventors of it? Can we make some more developments in this direction, which could even help calm the bond markets and lower our appalling debt interest?
Lord Wilson of Sedgefield (Lab)
I thank the noble Lord for that question. The Government are learning from all these other jurisdictions. The 10-year infrastructure strategy set out the Government’s long-term plans for the economy and we are going to invest some £725 billion over that 10-year period—so some £72 billion a year. Obviously, if we are going to do that, some of it will end up being in public/private partnerships but, as I have said repeatedly, just like we would with any other scheme, we are only going to do what is in the best interest of the taxpayer and of the Exchequer.
Lord Lee of Trafford (LD)
My Lords, the Minister mentioned ISAs. Could he tell us why the Government give tax relief, via ISAs, to people who invest in overseas equities?
Lord Wilson of Sedgefield (Lab)
From next April, we are planning to reduce the allowance for investment in cash ISAs to £12,000 to encourage people to invest in stocks and shares ISAs. Figures for 2024-25 will be published later this month on how much more money is being invested in stocks and shares ISAs. We do not have the figures for the current year, but we will see from those figures the investment levels that are being transferred over to stocks and shares ISAs and how that money is going to be spent.
Baroness Neville-Rolfe (Con)
My Lords, will public/private partnerships form part of the Burnham Government’s new architecture for growth beyond the health sector, which the Minister has described, and decarbonisation? It is good to see the noble Lord, Lord Brooke, returning to the battle on this matter.
Lord Wilson of Sedgefield (Lab)
We will always look at public/private partnerships beyond health centres and beyond decarbonising the public sector, but, as I have continually said, we will do that only if it is in the best interest of the taxpayer and of the Exchequer. We are looking at how best to use public/private partnerships through the National Wealth Fund and we are bringing regional mayors into the system. That will broaden out what we can do with public/private partnerships beyond the two main initiatives that have been announced.
Creative and Performing Arts Teaching Grants
(1 day, 7 hours ago)
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The Earl of Clancarty
To ask His Majesty’s Government what plans they have to review the decision to cut funding to creative and performing arts teaching grants in universities.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, decisions on the strategic priorities grant for academic year 2026-27 reflect the challenging fiscal position and not the value we place on creative and performing arts courses. We recognise the important contribution that the disciplines make to our cultural life and economy. We have had to prioritise funding towards the highest-cost subjects and areas facing the most acute skills shortages, while protecting £57.1 million of funding for world-leading specialist providers, including 12 arts institutions.
The Earl of Clancarty (CB)
My Lords, far from being “challenging”, as the previous Secretary of State put it, this is a disastrous decision that will further imperil higher education arts courses already under threat from closure. It is at odds with the industrial strategy’s commitment to the creative industries and the concerns of Skills England, including those skills combining creativity and new technology. Does the Minister agree that increases in tuition fees are not relevant, since that will affect all courses equally? Will the Government reconsider this decision and instead formulate a strategy which will improve access to creative subjects in higher education?
Baroness Smith of Malvern (Lab)
I understand the disappointment in this decision, but to be clear about the scale, we are talking about the removal of £130 per student for those taking some creative and arts subjects. That is roughly 1% of the contribution towards those subjects. A £6 billion increase in the income to higher education that comes from the decisions this Government have made about tuition fees is not insignificant; it is by far the biggest part of the funding for all higher education courses, including those in creative and performing arts.
Baroness Bousted (Lab)
My Lords, before I ask my question, I must apologise to the House for my inadvertent failure to declare my interest as chair of the independent inquiry into the Police Federation of England and Wales when I spoke last week in the Second Reading of the Public Office (Accountability) Bill. This interest is recorded in the register.
Does the Minister agree with me that access to higher education and careers in the creative and performing arts should be open to all, regardless of wealth or social background?
Baroness Smith of Malvern (Lab)
Absolutely I do, which is why, in the strategic priorities grant, we have focused on at least maintaining the funding that goes towards access and participation, including for students going into creative and performing arts subjects. This is why, as a Government, as part of the support of the creative areas, we have additionally invested in, for example, a wider spread of awareness of careers in the sector. In fact, there is a £9 million UK-wide creative careers service.
Baroness Garden of Frognal (LD)
My Lords, given that the creative industries are one of the country’s most productive money earners, is it not perverse to cut grants to young people hoping to bring their skills and talents to the world of work? I was recently up at the Edinburgh Fringe, where brilliant young musicians, actors and dancers often to have to fund themselves, so tight are the purse strings for funds, yet they give such pleasure. How do the Government to propose to encourage more young people into these creative industries with these cuts?
Baroness Smith of Malvern (Lab)
To be clear, this is not a cut of a grant to students; this is a cut of £130 per student to the institutions that run these courses. This is partly in order to safeguard, for example, the £20 million funding that goes to Uni Connect to open up opportunities to get into higher education for more young people. It goes alongside the expansion of other ways to develop skills in this area, such as higher technical qualifications, creative skills bootcamps and the lifelong learning entitlement, all of which provide support and opportunities for young people and people throughout their lives to get into the creative sector.
The Earl of Effingham (Con)
My Lords, universities need more teachers generally, but so do schools. The Government pledged to recruit 6,500 new teachers, but the annual school workforce census shows that there are 1,900 fewer teachers across all schools. Does the Minister agree with Daniel Kebede, the general secretary of the National Education Union, who called it a “mockery” of the pledge?
Baroness Smith of Malvern (Lab)
No, because we have been clear in our pledge to recruit 6,500 more teachers that we would focus them on the areas in secondary and special schools where we are not seeing a fall in the number of pupils and where we know that there is a particular need, and there we have done so. The latest number is over 2,500 more teachers. We are delivering on our commitment to teachers and pupils.
Baroness Caine of Kentish Town (Lab)
My Lords, £76 million of capital funding from this grant has been let out to competitive bidding. The OfS prospectus, subject to separate guidelines and the guidance letter, identifies bids that relate to the creative industries nationally and locally as meeting the criteria for growth and priority skills needs. I am confused, as I am sure the universities and the industries are. Please can my noble friend the Minister clarify the situation? Does she agree that, with a new Secretary of State in DfE, it is an excellent time to reflect on the evidence base, ready for next year’s guidance?
Baroness Smith of Malvern (Lab)
I am sorry that I am not completely clear about the point that my noble friend is making with respect to SPG capital, which I think is what she was referring to. I will write to her about that.
Lord Mendoza (Con)
My Lords, it is not all gloom and doom—I declare an interest at the University of Oxford—as there are other ways to encourage capital and money to come into creative education in our universities. I draw the Minister’s attention to the recent donation by Stephen Schwarzman to the University of Oxford, which provided £200 million for a new centre for the humanities and, within that, all sorts of performing arts spaces using the latest technology. If we can encourage business and commerce to invest here and make more money here, I know of lots of other organisations, like Bank of America and Steve Schwarzman, that would put more money into the creative industries and higher education in this country. Does the Minister support philanthropy coming into this area to help?
Baroness Smith of Malvern (Lab)
Yes, of course. I do. Philanthropy has always been an important way in which facilities in our universities have been supported. To help that happen, as other noble Lords have commented, we have already made the creative industries part of our industrial strategy. As a Government, we are supporting an extra £100 million of investment for the next wave of creative R&D clusters. We are supporting the arts through additional money to Arts England, and we are making sure that there is a pipeline of young people coming into the sector as well. Given the enthusiasm that there always is in this House for the creative industries and the arts, which I know is reflected out in the country, I hope that where people have the money to contribute to higher education and other areas of education, they will consider doing so.
Lord Hampton (CB)
My Lords, the reason that I was able to retrain as a design and technology teacher is that I have a graphic design degree. There is evidence that universities are already reducing their creative courses. How are we going to get the new generation of people with the subject knowledge to teach these badly needed courses that are part of the new national curriculum if nobody has the subject knowledge?
Baroness Smith of Malvern (Lab)
As I have said previously, I am very glad that the noble Lord has a degree and was able to train as a teacher. I am not quite sure when that happened, but I suspect that the availability of a bursary was probably as important as his first degree. It is by investing in our teachers through pay awards and bursaries for shortage subjects, and because of the success that we are having in retaining more of them in the classroom, that we are seeing more teachers in all areas of the curriculum, including the creative areas.
Baroness Blower (Lab)
My Lords, is my noble friend looking forward, as I am, to the freeing up of the curriculum, so that there can be much more drama and other creative subjects in the secondary phase? This will ensure that we have enough students to continue the very good place in which the creative industries are at the moment.
Baroness Smith of Malvern (Lab)
Yes. That was absolutely a theme in the commissioning of the Curriculum and Assessment Review. We are already making changes to the curriculum, as my noble friend says, to ensure that the breadth, enrichment and value of creative subjects are reflected both across the curriculum and in the wider enrichment opportunities that we want all schools to offer to their pupils.
Rural Businesses: Taxation
(1 day, 7 hours ago)
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Baroness Prentis of Banbury
To ask His Majesty’s Government whether they plan to reduce taxation on rural businesses.
Baroness Prentis of Banbury (Con)
My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare an interest as an executor who is currently trying to sell our family farm.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, the Government keep all taxes under review, with decisions being for the Chancellor at fiscal events. We recognise the vital contribution of rural communities and businesses to the UK economy and the need for policies that actually work for rural areas. Support available includes rural rate relief, small business rates relief, a high VAT registration threshold and the small profits corporation tax rate. We are also supporting farmers through reduced red diesel duty rates until the end of this year, and through measures to promote sustainable farming and food production.
Baroness Prentis of Banbury (Con)
My Lords, the family farm tax is both hated and feared. It taxes a business asset as if it is personal wealth. I know that the Minister was not consulted—nor was her department—before the tax was put in place. Will she reassure the House, which I know appreciates all that she does for us, that she will personally make representations to this Chancellor before this Budget, as those of us who care about the countryside and the NFU are currently doing, to make sure that this hated tax can be removed?
Baroness Hayman of Ullock (Lab)
I am sure that the noble and learned Baroness is aware that, absolutely, I support the importance of farming to the rural economy and the importance of the work that farmers do through food security to the wider economy of the country. She will also be aware that we have discussed this matter on a number of occasions and that the Treasury has made it quite clear that it is not intending to revisit the issue of inheritance tax. I am aware that the Prime Minister was asked about this during the by-election in Makerfield. However, as I said in my original Answer, the Government always keep taxes under review. I will ensure that the new Chancellor is aware of the strength of feeling on this matter.
Lord Wigley (PC)
My Lords, does the Minister accept that rural businesses are hit disproportionately by the increases in petrol and diesel prices that we have seen over recent months? These add to their costs: of inputs, of getting goods to the market and of those working in rural areas travelling to work. Is there any way that the amount of taxation that is raised on petrol and diesel can somehow be frozen rather than added to every time there is an increase in international prices? This hits rural areas.
Baroness Hayman of Ullock (Lab)
As someone who lives in a rural area and has to travel long distances to get anywhere, I completely appreciate the noble Lord’s point. We have rural fuel duty relief and are looking at the costs of that. We need to look at how we can best support rural communities and rural businesses as a whole rather than just picking at little issues. It is the cost of the whole that makes the difference and there are other ways in which rural businesses and communities are being supported financially.
Baroness Kramer (LD)
Even before the summer drought, failures of agricultural businesses had risen by 450% under the pressures of the energy costs that we have just heard described, with higher taxes and subsidy changes also playing a major part. Do the Government recognise that many people will be very concerned that today’s announcements by the Chancellor had so little focus on action in the rural UK? Will the Government now put themselves behind the proposed good food Bill that is being demanded by the industry to support domestic producers and provide us with greater food security?
Baroness Hayman of Ullock (Lab)
In Defra we have been working an enormous amount with farmers and other relevant stakeholders around food security. That includes biosecurity. It looks at how farmers can be supported through veterinary services and how we manage drought and climate change going forward. It is about not just drought but flooding. We have potential heavy rainfalls coming this winter. If we are to continue to support good, sustainable food production in this country, it is important that we work cross-departmentally, including with the Treasury, to ensure that we have the best possible support for farmers.
Lord Watts (Lab)
My Lords, has the Minister noticed that over the last few weeks the Opposition have been calling for more public spending at the same time as calling for lower taxes? Have they all joined the “Liz trust” of economics?
Baroness Hayman of Ullock (Lab)
My noble friend makes a good point about how you cannot have something for nothing. If we are to have the public services that people want in this country, we have to look very carefully at how we intend to pay for them.
Lord Gardiner of Kimble (Con)
My Lords, I regret having to ask this question following the noble Lord, Lord Watts. One thing that needs to be taken extremely seriously with the inheritance tax issue is that it is stifling investment. I thought that the party opposite and the Government were supporters of growth. This is the perverse consequence of this imposition. I ask the Minister to act on behalf of Defra with the Treasury and the Government. This is acting as a contrary-to-growth tax.
Baroness Hayman of Ullock (Lab)
I hear very clearly what the noble Lord has said. As I said to the noble and learned Baroness, Lady Prentis, I will make sure that the new Chancellor understands the strength of feeling in this House about the inheritance tax.
Baroness Foster of Aghadrumsee (Non-Afl)
My Lords, I am very pleased to hear the Minister talk about the whole burden on rural dwellers and farmers. In that regard, can she say how her department is looking to minimise the burden on farmers, not just the tax burden but the regulatory burden, and in particular for those farmers in Northern Ireland, given the differential regulations that occur there?
Baroness Hayman of Ullock (Lab)
I am very aware of the kinds of regulations that the noble Baroness is talking about, which is also why, when I visit Northern Ireland, I always make sure to meet the Ulster Farmers Union, for example, because there are slightly different perspectives and it is important that we understand those differentials. For me, the most important thing is to listen to farmers and not make assumptions about what works and what does not. Tomorrow, for example, I am holding a meeting with farmers specifically on bluetongue, because I want to know what is causing their difficulties most of all, what will actually make the difference and what we need to do so that we do not end up with so many problems next year as well. I am keen to work in a very proactive way to provide the best support we can.
Baroness Neville-Rolfe (Con)
My Lords, every day I become more convinced that it is business not government that creates growth. Farming and family businesses in rural areas are under tremendous pressure from a series of high taxes, including IHT. Will the Minister, or her colleague, the Chancellor, meet US economist Arthur Laffer during his visit this week to discuss how the perverse effect of such high taxation might be minimised and government revenues even increased by cutting taxes?
Baroness Hayman of Ullock (Lab)
I think the gentleman that the noble Baroness suggests I meet might be rather disappointed if he met me. I am not sure that I would fully comprehend all the very important points that I am sure he would be making, but I imagine that it would be an opportune moment for him to meet someone from the Treasury.
Lord Swire (Con)
The original Question from my noble and learned friend Lady Prentis concerned the selling of a farm, so that raises issues of probate as well. When the Minister is discussing these fiscal matters with the new Chancellor, will she also raise the blatant unfairness of the 7.75% charged by the Government on late payment during probate, compared with the 2.75% repayment ceiling when the Government owe the taxpayer money?
Baroness Hayman of Ullock (Lab)
If you are looking at issues to do with probate, that is not just to do with family farms. That is a much broader issue. I am sure that Treasury officials will be listening very carefully to this debate and will take that into account.
The Earl of Kinnoull (CB)
My Lords, there is some speculation in the press that farmland might be included in the calculation of the value of a home when it comes to the mansion tax. Perhaps the Minister could confirm whether or not that is true because, clearly, if it is, an awful lot of modest farmhouses would then be included in the mansion tax, and that tax at the highest rate is quite a lot for a farm.
Baroness Hayman of Ullock (Lab)
I am not aware personally of any such speculation, I am afraid, so I am not able to provide any further information to the noble Earl.
Falkland Islands
(1 day, 7 hours ago)
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Lord Callanan
To ask His Majesty’s Government, what recent discussions they have had, if any, with (1) the Government of Argentina and (2) the Government of the United States pertaining to the future of the Falkland Islands; and what steps they are taking to ensure the security of those islands.
The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office (Baroness Winterton of Doncaster) (Lab)
My Lords, the UK remains steadfast in its support for the Falkland Islanders’ right of self-determination. This is not the first time Argentina has made economic threats against the Falklands. These threats have not prevented the community’s remarkable economic development, and we have made clear to Argentina that the measures announced by President Milei will not change the UK’s unwavering commitment to the islands. The US is our closest ally. It can have no doubt about our unwavering support for the islanders.
Lord Callanan (Con)
I thank the noble Baroness for her reply and, indeed, welcome her to the Dispatch Box and her new job. I look forward to many happy exchanges with her in the future.
The Falkland Islands are British. We fought to defend them in 1982 and there should be no doubt of our national resolve. Argentina’s increasingly aggressive rhetoric in respect of the Falkland Islands has no doubt been emboldened by news that the United States is reviewing its position on British sovereignty and, of course, by this Government’s restated policy of handing over another UK overseas territory, the Chagos Islands, to Mauritius. They have been emboldened by our weakness.
Can the Minister reassure us that the Government are preparing for all eventualities, including military scenarios, and can she confirm that they could provide a real deterrent to Argentina by ditching their failed policy of handing over the Chagos Islands?
Baroness Winterton of Doncaster (Lab)
I thank the noble Lord for his kind welcome, and I remember our CPA trip to Singapore and Malaysia.
Baroness Winterton of Doncaster (Lab)
Very fond memories.
Let me be clear. The sovereignty of the Falkland Islands is non-negotiable as far as the UK Government are concerned. It always has been and it always will be. The whole House will I am sure agree with me that we need to reiterate that fundamental principle. Political unity here is really important. The noble Lord mentions defensive forces. We have a variety of military capabilities there for defensive purposes, but it is very important that we do not speculate and get into hypothetical situations.
Lord Purvis of Tweed (LD)
I also welcome the Minister to her brief. I should perhaps declare I was on that visit too, but I saw nothing untoward between the Minister and the noble Lord, Lord Callanan. This is also my first opportunity—since she is here—to thank the noble Baroness, Lady Chapman, for her service as Minister as well.
I have had the privilege of visiting the Falkland Islands and I will relay to the House what I said to the Falkland Islanders. As far as these Benches are concerned, sovereignty has been, is and always will be in the hands of the Falkland Islanders themselves; sovereignty should be under no question whatever.
There will be obvious concern among the islanders that, as a result of what President Trump has been saying, there could be question marks over the health arrangements with our relationship with Chile and Uruguay; there could be concerns over the integrity of the territorial waters, which have seen almost-ingressions by foreign-flagged vessels from China; and there could be question marks over the lifeline satellite communication services. So can the Minister reassure not only this House but the islanders themselves that, when we send very strong signals to our closest ally in the White House, all those services are part of sovereignty too.
Baroness Winterton of Doncaster (Lab)
First, let me thank the noble Lord for his kind words and fond memories of the CPA visit. I also echo what he said about my noble friend Lady Chapman.
With regard to the US, I assure him that we, of course, engage regularly with the US on a range of foreign policy issues. I am sure he will understand that I cannot give a running commentary on all of our engagement with the US, but it is our closest ally. We engage on a number of issues, including this one, and of course I take on board the points that he has made about the areas that may be of particular concern to the Falkland Islanders.
Lord Bellingham (Con)
The Minister is aware that the UK is a prominent member of the CPTPP. Argentina applied to join a few weeks ago. Is this a point of leverage that can be used against a country that is threatening our sovereignty?
Baroness Winterton of Doncaster (Lab)
The noble Lord raises an important point but, just to be clear, accession to the CPTPP is a matter for the member states themselves. We do not comment on individual applications for accession.
Lord Spellar (Lab)
My Lords, I commend the Minister for the forthright statement in support of the Falklands and the Falkland Islanders. But does she share my concern at the interview given last week on Radio 4’s “Today” by the noble Lord, Lord McDonald, the previous head of the Foreign Office, which indicated quite outrageously that, in effect, Britain should consider handing them over and gave arguments regarding how much money was being spent and whether the British public would wear that? This was extremely unhelpful. Can she dissociate the department from that?
Baroness Winterton of Doncaster (Lab)
I thank the noble Lord for that question. Let me be clear that we do not agree with that position. As I have said, the sovereignty of the Falkland Islands is non-negotiable as far as the UK Government are concerned. I welcome the political unity that has been shown today, because it is important that this House and the other House send that message, so that it is very clear that all political parties are united on this issue.
Lord Ahmad of Wimbledon (Con)
My Lords, as a former Overseas Territories Minister, I too welcome the noble Baroness to the Dispatch Box, and her strong statement. I also recognise the services of the noble Baroness, Lady Chapman. What representations have been made to Argentina directly? As someone who served in the Foreign Office for a long time, I know that diplomacy matters, but that diplomacy comes with the hard metal glove of our military strength. I commend the fact that the Minister of Defence is sitting to the noble Baroness’s right. Would she reiterate, once again, as my noble friend said, that military action is on the table if required. That message may be sent privately to the Argentinians. What bilateral representations have been made directly?
Baroness Winterton of Doncaster (Lab)
I thank the noble Lord for that question and I should say that I am always very reassured when the noble Lord from the Ministry of Defence is sitting next to me. I am very confident that Argentina understands the message that the UK Government and this House are sending. The Foreign Secretary posted on X:
“The UK’s position on the Falkland Islands is unwavering. The Islands are British and will remain so because that is the overwhelming position of the Islanders. Their right of self-determination is paramount, grounded in international law and we will resolutely uphold it”.
I touched previously on the defensive forces that we have in the area, but I hope the noble Lord will understand that I do not want to enter into hypothetical discussions.
Baroness Hoey (Non-Afl)
My Lords, I welcome the noble Baroness to her position and the unanimity of the House on this issue. Argentina obviously has a lot of international support for its claim, which worries me. If a UN advisory council committee were to say that the Falklands were actually Argentinian, would we then do exactly as we have with the Chagos Islands and say that that has to be complied with?
Baroness Winterton of Doncaster (Lab)
Our position is clear, as I have said. When it comes to raising this issue in international fora, I should say that my noble friend Lord Collins attended the Organization of American States on 24 June to provide a right of reply on the Falkland Islands on behalf of His Majesty’s Government, asserting UK sovereignty over the islands and their right of the islanders to choose their own future. We use those opportunities, at international level, to make our position absolutely clear.
Lord Dubs (Lab)
I welcome my noble friend to her post. Is it not a good thing that we are demonstrating clarity in our determination to defend the Falkland islanders and their right to self-determination? It stands in marked contrast to the Thatcher Government, who displayed weakness, took ships away from the Falklands and almost said to the Argentinians, “There you are, it’s yours if you want it”. We are standing in contrast to that and I congratulate the Government on it.
Baroness Winterton of Doncaster (Lab)
I thank the noble Lord for his welcome and for his support for our position. I reiterate again how important it is that there is a clear message from this House itself, so I welcome the political consensus that we have seen this afternoon and thank the noble Lord for his kind words.
Lord Swire (Con)
I also join in the congratulations to the noble Baroness on her recent appointment to the Front Bench. It is extremely important that, whatever we say in this country, we say it together. I think the remarks of the noble Lord, Lord Dubs, were unfortunate and an attempt to rewrite history. That is not what happened last time.
Would the noble Baroness consider calling in the Argentinian ambassador? I am all for not ratcheting this up, because it is purely electoral posturing by the President of Argentina, but would she take this opportunity to call in the Argentinian ambassador to make these points again: that the future of the Falkland Islands depends on the people of the Falkland Islands? As they remain British and wish to remain British, they will enjoy the full protection of this country and everything that that may mean.
At the same time, would she remind those who suggest that this is a transplanted population that there have been many generations of people living on those islands: far longer, perhaps, than the ancestors of the President of Argentina have been living in Argentina, having arrived from Calabria in 1926?
Baroness Winterton of Doncaster (Lab)
I thank the noble Lord for his welcome. The message that will be heard today from this House reiterates our position. Our position is clear: the sovereignty of the Falkland Islands is non-negotiable as far as the UK Government are concerned. That is a clear message. I have every confidence that that message will have been heard.
Lord Redwood (Con)
I warmly welcome the Minister to her well-deserved new post. Will she update the House on where we have got to with the important investment in the oil field 140 miles north of the Falklands? Is that not also going to be transformational for the people of the Falklands, who rightly wish to remain British?
Baroness Winterton of Doncaster (Lab)
I thank the noble Lord for his kind comments. With regard to the oil field and the investment there, that is decided by the Falklands Islands people. It is their investment. We are absolutely supportive of the decision that they have made in that regard.
Social Media Platforms (Ofcom Licensing) Bill [HL]
Economic Affairs Committee
The Senior Deputy Speaker
Building Safety Levy (Amendment) (England) Regulations 2026
(1 day, 7 hours ago)
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Baroness Blake of Leeds
That the draft Regulations laid before the House on 2 July be approved. Considered in Grand Committee on 2 September
Digital Government (Disclosure of Information) Regulations 2026
(1 day, 7 hours ago)
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Baroness Anderson of Stoke-on-Trent
That the draft Regulations laid before the House on 6 July be approved.
Relevant document: 10th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 2 September.
Building Societies Act 1986 (Assimilation to Company Law and Changes to Funding Limit) Order 2026
(1 day, 7 hours ago)
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Lord Pitt-Watson
That the draft Order and Regulations laid before the House on 2 July and 6 July be approved. Considered in Grand Committee on 2 September
Local Plans (Burial Space) Bill [HL]
Lord Mohammed of Tinsley (LD)
My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
Jackdaw and Rosebank Oil and Gas Fields
(1 day, 7 hours ago)
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Lord Moynihan (Con)
My Lords, I declare my interests as chairman of Buckthorn, Amey and Acteon. I warmly welcome the Minister back to the Dispatch Box, and I pay tribute to the noble Lord, Lord Whitehead, who was a highly knowledgeable and impressive Minister.
Given the Government’s outright opposition to new drilling in the North Sea, does the Minister nevertheless agree that there is no reason not to approve Jackdaw and Rosebank, which have already had drilling activity, with Jackdaw now ready for production? In contrast to the response of the noble Baroness, Lady Winterton, to the Private Notice Question just now, given that the Government themselves have the final sign-off on Falkland Islands production licences dating back to the early 1990s, when both Tim Eggar and I were ministerially involved, what is the Government’s position on the Falkland Islands Government’s pro-oil and gas position on the Sea Lion oilfield, which is at the centre of the diplomatic row with Argentina? Is it consistent with the department’s position on the North Sea—in other words, outright opposition to new drilling and new offshore oil and gas infrastructure? If not, what is the difference?
Baroness in Waiting/Government Whip (Baroness Curran) (Lab)
I thank the noble Lord for his warm welcome. We know each other, and I know that we both welcome robust discussion—which is just as well because I think we will have a few disagreements along the way. He made reference to the enormous contribution of my noble friend Lord Whitehead to this portfolio and the work that he has done. I have learned a lot, and will continue to learn a lot, from my noble friend.
On the substance of the issue the noble Lord raises, he will know that the Jackdaw and Rosebank fields are each subject to a live regulatory process. The public notice period is closing on 10 and 17 August respectively. We are part of that regulatory process. The Secretary of State will consider the representations received and make separate decisions on each project in due course. It would be inappropriate to comment further on either project because it is important to maintain the robustness of the process and not pre-empt or predetermine the decisions.
I note the detail of what the noble Lord asked me in relation to the Falklands. I refer him back to the comments of my noble friend Lady Winterton, and it would be inappropriate for me to comment further on that.
Earl Russell (LD)
My Lords, I too congratulate the noble Baroness on her appointment, and I look forward to working opposite her. I also pay tribute to the outgoing noble Lord, Lord Whitehead.
I know the Minister is unable to comment before the decision, so instead I ask if she agrees with me that the Onward report, through which the Conservative Party has argued that we should abandon our net zero targets and could save £320 billion, is not worth the paper it is written on, as it is based on an incorrect underlying assumption that future gas prices will be low and stable and would result in an extra 524 million tonnes of carbon dioxide emissions by 2050.
Baroness Curran (Lab)
I thank the noble Earl for that question and for his welcome, and I pay tribute to his work on this issue in the House. Again, I have learned a great deal and will continue to do so from listening to his speeches. I recognise and appreciate the point being made about the Rosebank and Jackdaw decisions. I recognise the interest in them, but I cannot be drawn on that.
On his wider point, the noble Earl is right about the Onward report, the general disappointment people feel at the breaking of the consensus we have seen from the Conservative Party over recent months, and how significant that is. He will know that climate scientists and energy industry bodies have overwhelmingly challenged the report’s methodology and logic as applied to grid and infrastructure costs, and how it has costed the high volatility of gas along with its political and economic costs.
Lord Hunt of Kings Heath (Lab)
My Lords, I wonder whether my noble friend would confirm that under the Conservatives, production in the North Sea reduced by half between 2010 and 2024—which is no surprise because it is a super-mature basin—and that giving consent to these two oilfields, which I know my noble friend cannot comment on at the moment, would have a minimal effect either on achieving net zero targets or on prices. The reality is that what the Government need to do, whatever the decision on these oilfields, is stick to the policy of going as fast as possible towards clean energy.
Baroness Curran (Lab)
I thank my noble friend for that question. I pay tribute to the work he has done in this field and to the very significant contribution he made as a Minister, particularly within the nuclear field. I cannot be drawn on the points he raises but I can assure him that the North Sea and oil and gas will play a vital role in our energy mix for years to come. He noted that under the Conservatives, by the end of 2016 more than 120,000 UK oil and gas jobs had gone. It is a changing basin, but we see it as part of the mix. We understand that the North Sea not only has an oil and gas sector but can play a vital role in a clean energy economy. That will make an enormous contribution not only to the north-east of Scotland but to the wider UK economy.
Baroness Hayman (CB)
My Lords, I welcome the noble Baroness back to her position on the Front Bench. Does she agree that a major issue underlying the decisions—which I know she cannot talk about—is the widespread concern about the cost of energy in this country? Does she further agree that the important thing is to make some progress on decoupling the price of gas from the price of energy and electricity generally? When are the Government going to make some progress in separating off those two strands?
Baroness Curran (Lab)
I thank the noble Baroness for her welcome and for that question. I recognise the work that she does and, as a former member, I hope I can continue to engage with Peers for the Planet. She makes a central point underlying the work that we do. The cost of energy is central to the Prime Minister’s mission in tackling these issues, and he has said that affordability will be at the centre of what he tries to do. She is also right to emphasise the de-linking of electricity and gas, and that will remain a priority of our work. I look forward to meeting her to discuss that and to continuing these debates in the House. I can assure her that that is a priority for our work going forward, as is affordability.
Lord Redwood (Con)
Why do the Government wish to increase world CO2, and why do they wish to pay taxes to foreign companies and countries rather than to British ones by insisting on importing LNG rather than getting our own gas out of a pipe, which generates much less CO2?
Baroness Curran (Lab)
I thank the noble Lord for the question, but I cannot be tempted to answer it directly, as I perhaps would wish to, because of the implications of what I might say. I ask noble Lords to really appreciate the significance of this decision; we cannot jeopardise it by any loose words. I obviously do not accept some of the assumptions behind his question. This Government are committed to ensuring that all companies pay due tax and regenerate the economy. We will work with businesses in the North Sea and across Scotland to make sure that they are thriving. I plead with him to understand that the work this Labour Government are doing is contributing to a thriving clean energy sector as well, and that that performs competitively in the economy. No doubt that will be something we will discuss in the future.
Lord Boyd of Duncansby (CB)
My Lords, I welcome the noble Baroness, Lady Curran, my erstwhile friend in the Scottish Cabinet, to her place on the Front Bench. Whatever decision is taken on Jackdaw and Rosebank, can she confirm that clean energy, whether developed by solar, wind or other means, will remain at the heart of British energy policy? It not only provides the scope for decarbonisation of our economy, but also for new jobs.
Baroness Curran (Lab)
I thank my noble friend and colleague for that question. He knows that I was a Member of the Scottish Parliament and a Minister in the Scottish Government. In that capacity, I met the oil and gas sector many times and worked very closely with them. I understand the contribution they have made and will continue to make, but there is no avoiding the fact that we live in challenging times in terms of climate change. Clean energy is not only necessary but is a huge opportunity for economic development. It will help us meet the challenge of our times through reducing carbon emissions, electrifying our economy and creating opportunities for people in the United Kingdom.
Financial Services and Markets Bill [HL]
(1 day, 7 hours ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
16:45 - Division on Amendment 5 - Ayes: 76 / Noes: 164 - Amendment 5 disagreed.
17:31 - Division on Amendment 10 - Ayes: 247 / Noes: 165 - Amendment 10 agreed. See col. 495 for explanation of mistake in voting figures.
18:32 - Division on Amendment 11 - Ayes: 69 / Noes: 171 - Amendment 11 disagreed.
19:19 - Division on Amendment 14 - Ayes: 59 / Noes: 144 - Amendment 14 disagreed.
Baroness Neville-Rolfe
Member’s explanatory statement
This amendment, along with another in the name of Baroness Neville-Rolfe, seeks to allow for a debate on the Government’s intentions around a new regime to be laid down in the regulatory rule book in place of that established by the Consumer Credit Act 1974 and associated legislation, and how they will ensure parliamentary and industry oversight of such a regime.
Baroness Neville-Rolfe (Con)
My Lords, I am honoured to open our discussions on Report on the Financial Services and Markets Bill, which we support in general but seek to improve. I congratulate the Minister on his new position and thank him for his engagement. I also thank the noble Lord, Lord Stockwood, whom I am glad to see in his place, and other noble Lords for their constructive approach in six expert Committee sessions. Despite the scale of the Bill and the complexity of the subject, we also ran to time—to the satisfaction, I hope, of the noble Lord, Lord Wilson of Sedgefield. As it is the first day on Report, I declare my registered interest in Meta and Amazon.
This is a large group of amendments, reflecting the anxiety of many of us over the excessive use of delegated powers and the uncertainty this creates in the modernisation of consumer credit law—a move we support. I am moving Amendment 1 to Clause 1, but I intend to focus my remarks on the final amendments in this group: Amendment 93 and Amendments 100 to 103, in my name and that of my noble friend Lord Altrincham, whom I also thank for his work on this Bill.
I hope these amendments might provide a compromise. They address one of the most serious concerns that we and noble Lords across the House have raised about the approach taken in the Bill: the question of how we preserve meaningful parliamentary oversight as increasingly significant powers are transferred away from primary legislation and into the regulatory model established by the Financial Services and Markets Act 2000. That Act was passed when we were still in the European Union, with scrutiny of new areas of regulation in the European Parliament and at ECON, the committee chaired by the noble Baroness, Lady Bowles. Post-Brexit, there is a democratic gap and therefore a huge task for the Treasury Committee in the Commons and the Financial Services Regulation Committee in your Lordships’ House, which is so well chaired by my noble friend Lady Noakes.
We recognise that there are considerable advantages to the FSMA model: greater regulatory flexibility can allow the framework to respond quickly to changing markets, new technologies and innovation. In areas such as consumer credit, the industry itself has argued that moving away from parts of the Consumer Credit Act 1974 could make the regime simpler and less costly to operate. However, flexibility must not come at the expense of accountability. The effect of the Bill is to place considerable trust in the Treasury and, ultimately, the regulators to use their new powers proportionately, effectively and with sufficient clarity for both consumers and industry. Yet we simply do not know what the regulatory landscape will look like once these provisions have been commenced.
These amendments propose a simple and practical safeguard: before the relevant powers are brought into force, the Treasury would publish and lay before Parliament a report explaining how it expects them to be used. The requirement would apply both where the new areas of regulation are being transferred to the FCA, the PRA or the Bank of England, and where the Bill creates significant new powers. This includes: consumer credit regulation, currently provided for under the Consumer Credit Act 1974; payment systems; anti-money laundering supervision transferring from existing professional and industry bodies; the powers relating to overseas recognition regimes; and the new powers under Clause 46 concerning crypto assets. As will be apparent, many of these powers are presently in primary legislation. There is a further problem with the excessive powers on access to banking in Clause 3, but we will come on to discuss a different solution to that in group 2.
The transparency that would be achieved by our proposed approach would benefit not only Parliament but consumers and industry. Greater clarity before commencement should mean better scrutiny, greater certainty and better regulation. I hope the Minister will recognise these amendments for what they are: a constructive, workable and proportionate compromise on an issue that has plagued our discussions on the Bill because of the sheer scale of change envisaged. They preserve the flexibility that the Government say they need while introducing a modest but meaningful mechanism of parliamentary accountability.
I would be grateful if the Minister could set out what assurance the Government can give that Parliament will receive this kind of information before these significant powers are brought into effect. If we do not receive sufficient comfort from the Government, I reserve the right to test the opinion of the House on Amendment 93 and its consequentials on Wednesday. Finally, I thank other noble Lords for their amendments in this group and look forward to hearing from them. I beg to move.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will speak to my non-diminution Amendments 2 and 3, and to Amendments 4 and 5, which stem from them. In Committee, the Government made it clear that they wish to remove tail risk for firms—a theme running through the changes to the CCA and FOS. I agree that issues such as font sizes and business practices need updating—I would certainly prefer not to have to agree instantly to a garbled recitation of terms and conditions over the phone just to access basic service contracts—but the Consumer Credit Act is fundamentally about protecting consumers from bad corporate behaviour. Aside from the much-cited font issue, tail risk usually arises from bad behaviour that simply takes a long time to surface. There is no justifiable reason for remedy to disappear.
Although I see the attractions of using the FCA framework, I do not accept that there should be a time limit after which bad behaviour is insulated from rectification, or that protections requiring judicial remedy might fall away—over which there is no current certainty. That is the purpose of my non-diminution amendments: to allow modernisation, but not at the cost of significant consumer rights.
A long-standing defect in the CCA illustrates the point: the Act was drafted in 1974, before securitisation existed. As a result, consumer credit has been sold on in ways that mean that the statutory definition, and thus obligations, of the lender no longer apply. This was a happenstance of financial evolution, not intentional design, yet it seriously degrades a regulated product and directly created the modern mortgage prisoner problem that my noble friend Lord Sharkey has brought to this House more than once. One can foresee the same happening with student loans once they are sold off.
The solution is straightforward. Whenever any right stemming from lending or credit is exercised, including the setting, levying or collecting of interest, the corresponding obligations must travel with that right. That must hold even where responsibilities are split across multiple entities under securitisation structures that currently allow each actor to claim it is not the statutory lender. This is entirely consistent with the CCA’s original assignment provisions, and we have precedent, because the MCOB rules already require obligations to follow the exercise of rights in mortgage services.
This principle works. We explained it to the previous Minister and officials before the summer, providing copies of my first amendment and documentary explanation. I recognise there have been changes on the Government’s side, but it is regrettable that there has been no engagement since, especially as collaborative working on good ideas was a stated commitment of the new Prime Minister.
Some may ask: who loses? The answer is that no one suffers unjustified loss. When a regulated consumer product is transferred, the protections attached to it must remain intact rather than be severed, whether by design or accident. For consumer credit, this simply maintains existing rights or, in the case of mortgage prisoners, restores them prospectively. But they had those rights when they took the mortgages out.
Taking the same principle to student loans, once sold into the private financial system, they must carry with them the standards of respectable financial products. Borrowers must be protected from predatory interest rates and, under international accounting rules, when projected non-repayment exceeds 50%, the entire corpus of loans, not just the unpaid part, is pulled on to national debt metrics. Allowing predatory interest rates simply deepens that problem.
This is the logic behind this family of amendments. I urge the Minister to engage constructively as the Bill progresses. As he will know, when I have a principled solution in my sights, it does not go away, because it rests on my conscience, as it should on his.
Lord Sharkey (LD)
My Lords, I will speak to Amendment 5 in this group. Structurally, the amendment follows the approach used by my noble friend Lady Bowles in her previous amendment, and I am very grateful to her for the help and support in drafting. My amendment has a simple purpose, which is to bring relief to mortgage prisoners. As many of your Lordships will know, mortgage prisoners are people who are stuck with their existing mortgage holders—who are not active lenders—on very high interest rates and who cannot access a better deal, such as the normal market fixed-rate deals. As a result, mortgage prisoners continue to pay interest at around four percentage points over the normal market fixed-term rates. This costs them hundreds, and even thousands, of pounds extra per year.
According to the UK Mortgage Prisoners action group, there were originally around 195,000 mortgage prisoners. This number is declining slowly due to death, reaching the end of term and repossessions. The largest group of mortgage prisoners are former Northern Rock customers. After nationalisation in 2007, these mortgages were placed in a Government-owned company run by UK Asset Resolution—UKAR. When returning these mortgages to the private sector, the Conservative Government could have sold them to active lenders, which would have offered the prisoners a fair market deal. The Government did not do that. Instead, they sold the mortgages to non-active lenders and vulture funds; the consequences we continue to see.
It is not as though the Government were not warned about the problem this would cause. The risk to customers was clearly identified. In January 2016, the noble Lord, Lord McFall, wrote to the Treasury and UKAR, warning them that:
“Many of … those affected by these sales, will be mortgage prisoners and will be unable to switch lenders”.
He told the Government that the customers affected by the sales should be protected, offered a fair deal and given access to fixed rates. He warned that:
“Given the prospect of rising interest rates it is important that all mortgage customers are given the opportunity to achieve certainty over their payments by accessing a fixed rate”.
He told the Government that he was,
“concerned that some customers affected by these mortgages sales … will not be offered reasonable fixed mortgage rates”.
The Lord Bishop of Manchester
My Lords, I support Amendment 2 in the name of the noble Baroness, Lady Bowles of Berkhamsted, to which I have added my name. As we have already heard, this amendment would ensure that, when provisions of the Consumer Credit Act are repealed or replaced by FCA rules, the overall level of consumer protection would not be diminished. The Consumer Credit Act has long provided established routes of redress to consumers; it has done so for decades. It provides a core of fundamental protections enshrined in primary legislation and developed through parliamentary scrutiny, and probably is fairly well known.
As financial services continue to evolve, the ways in which consumers are protected must be capable of adapting to change. Were we to open up the CCA to repeal by the Treasury and the FCA without putting significant statutory protections in place, it would risk reducing standards of consumer protection for all people. Indeed, in its own review of the Consumer Credit Act, the FCA stated that many of its provisions
“could not be replaced by FCA rules”
under its current powers
“without adversely affecting … consumer protection”.
I have spoken many times before about the importance of equal financial opportunity for underserved communities, especially those who have less financial literacy or who face language barriers. The Joseph Rowntree Foundation tells us that a record number of people in this country are currently living in “very deep poverty”. Without equal access to financial services, they are deprived of the tools that might help them to stay afloat. For many families, credit is a lifeline in the face of the cost of living crisis. It is what enables them to make ends meet, but accessibility must be accompanied by adequate protection.
Data from the last year shows that 25% of cases seen by the Financial Ombudsman involved vulnerable consumers. It is these groups who are least able to advocate for themselves when things go wrong or to navigate complex complaints processes on their own. To increase access to financial services of vulnerable groups while simultaneously hollowing out the protections from which they disproportionately benefit introduces greater risk for those who already stand to lose the most.
The protections of the Consumer Credit Act are to be opened up to repeal. We must be certain that consumers will enjoy protections that are at least as strong as those from which they benefited before. This amendment is essential to preserving the fundamental rights which enable vulnerable groups to participate fully in economic life and provide consumers with the confidence they need that they will be protected when things go wrong—as from time to time they do.
Baroness Altmann (Non-Afl)
My Lords, I support the amendments in this group, and I feel that this Bill has an opportunity to improve—or at least not diminish—the protections that are offered to consumers of financial services. We have long known that from a consumer perspective, the asymmetry of information and the asymmetry of understanding leaves ordinary consumers open to being taken advantage of by financial services companies. The law is supposed to protect them and currently we have legal protections in place—albeit they are out of date and need updating, as we have already discussed. However, I certainly hope that the Minister—who I warmly welcome to his place—would understand that the aims of these amendments are to ensure that the financial consumer is protected both at the retail level and against practices that have arisen in the past and will arise in the future.
I particularly feel that the amendments about non-diminution when it comes to consumer credit and student loans, in the name of the noble Baroness, Lady Bowles, are extremely important to the ordinary person in the street. I commend the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles, on continuing the attempts to ensure that mortgage prisoners are treated much more fairly. We have another opportunity now to remove this stain on our financial services landscape, and I really hope that the Government will be able to agree and accept that capping, at the very least, the costs and interest rates that mortgage prisoners have had to pay—at such great cost and pain—will be a possibility within this Bill.
Baroness Kramer (LD)
My Lords, I will be extremely brief because my Bench has just spoken very clearly on this issue. I share with the Conservative Front Bench concerns about accountability with a further removal of powers directly into the hands of the regulator, and had they pressed their Amendment 1, we would have supported it.
Very briefly, I will address the other amendments. I am still in a state of genuine concern that the Government will not accept an amendment that would confirm that the changes they are proposing to the Consumer Credit Act, which will be absorbed now into the role of the FCA, will not involve a diminution of consumer credit protection; this is the non-diminution of rights that the noble Baroness, Lady Bowles, described. Of course, the FCA could keep those rights in place, but there is nothing that compels it to do so. I find it extraordinary that we cannot be given this reassurance.
However, I am more exercised than anything else about the position of mortgage prisoners. The people who have been impacted, and many are now elderly, have dealt with a shocking situation over the past years. We could now give them relief for the remaining years in which they will be tangled with paying extraordinary levels of interest on mortgages that were taken out in good faith, for which they properly qualified and which were, at the time, market-standard mortgages. It has happened because, in essence, an arm of government has made mistakes when it has sold on those loans to vulture funds. It is shocking that we have not corrected this. The amendment before us today is new thinking. It is incredibly effective at making sure that, going forward, this incredible injustice is ended, and I hope very much that, even in these last few minutes, the Government will think again and provide support.
The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)
My Lords, it is a privilege to be here today to debate the Financial Services and Markets Bill. I put on record my thanks to my noble friend Lord Stockwood for leading the earlier stages of this debate and thank all noble Lords who have contributed to this debate in Committee and beyond.
If noble Lords would allow me, I would like to say a few things about the Bill itself before moving on to address the amendments that have been put forward. The Bill has a purpose on which I think we are all agreed: to construct rules that help the financial services industry to serve its customers better and to prosper as a result of doing so. Noble Lords will therefore see that, in responding to the debate in Committee, the Government have been persuaded of some significant points made then and are proposing some significant amendments which I hope will be welcomed by the House. There are also amendments that will be suggested on Report where the Government disagree with the specific measure proposed but, in many cases, have great sympathy with the ultimate goals of the particular amendment.
However, there are many amendments which we do not believe belong as part of the Bill, in part because they are complex and require consultation, and/or go beyond the scope of the Bill, and in part also because the aims of the amendment are not best served by changing primary legislation but where the Government often would want to help promote the goals of the amendment—indeed sometimes, they already are—and can perhaps seek to encourage better practice. Central to all this is accountability, which I will come to at beginning and end of this group and then again later today.
To turn to these specific amendments, Amendments 1 and 6 would remove Clause 1 and Schedule 1 from the Bill and prevent the Government’s programme of Consumer Credit Act reform. Amendments 2 and 3 would ensure that the reforms do not diminish consumer protections, and Amendments 4 and 5 relate to the assignment of student loans and of mortgages. Similar amendments were debated in Committee, and the Government have carefully considered the concerns raised. However, we have concluded that we wish to press ahead with these much-needed reforms.
I think that we all in this House agree that the FCA is the right body to take on the role of consumer protection, and Parliament has already given it the right powers and objectives to do so, including a consumer protection objective. Since the 2014 transfer of consumer credit to the FCA, important protections, including creditworthiness and affordability assessments, have successfully operated through the FCA framework. I recognise the concern, raised both in Committee and again today, that Parliament is being asked to approve reform before replacement FCA rules have been finalised. However, I emphasise that the FCA must consult on proposed rules and engage with parliamentary committees as part of an established statutory framework. This includes the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.
Both the FCA and the PRA are clearly aware of scrutiny. Last week, they sent me a letter, which I think has been circulated to all noble Lords, making a number of commitments further to enhance parliamentary scrutiny, and I have placed those letters in the Library. I expect to cover this information, including that in the letter, in detail in a later grouping today.
Baroness Neville-Rolfe (Con)
My Lords, I am very grateful to the Minister for his response and his detailed explanation of how Clause 1 is framed. I am also grateful to the other noble Lords who have contributed to the debate—the noble Baronesses, Lady Bowles and Lady Altmann, and the right reverend Prelate the Bishop of Manchester—on the recasting of consumer protection law, which is very important to us all, and the noble Lord, Lord Sharkey, on mortgage prisoners. I would describe that as a sorry tale.
We remain of the view that, when this process of recasting takes place, Parliament and industry must have a practical mechanism through which they can exercise oversight and make such representations as they need to make, such as those that we have heard today, on how the powers are used. The system would not be undermined by that; it is a first-occasion proposal. That is what Amendment 93 and its consequentials seek to provide. It is a workable and proportionate mechanism which allows the Government to achieve their broader objective of introducing a more flexible regulatory framework, but not wholly at the expense of scrutiny, transparency and democratic accountability. We should not be signing away any rights and protections without knowing what will replace them.
I am very grateful to the Minister for engaging with us on our concerns. I do not think that the delegated power memorandum meets them, because it does not explain what all these new powers in these areas are going to be used for, including consumer credit. There must be a meaningful mechanism to acquaint the House with how the powers are exercised and to ensure that regulatory officials turn up to the committee at the convenience of the committee and are able to answer questions on a suitable report on how these important changes are taking place.
We support the general drift of these changes, as the Minister knows well, but we are worried about accountability. I am happy to have further discussions but, if need be, I plan to test the opinion of the House when we reach Amendment 93 on Wednesday. I beg leave to withdraw Amendment 1.
Lord Sharkey
“Protection of consumers where regulated credit agreements or regulated mortgage contracts are transferred to inactive lenders (1) This section applies where rights under any regulated credit agreement or regulated mortgage contract are assigned, sold, securitised or otherwise transferred to a person who is an inactive lender or closed book owner.(2) Where subsection (1) applies, the consumer shall retain against the transferee all statutory and contractual rights, protections and avenues of redress that were available against the original creditor or lender.(3) Any variable interest rate, fee structure or other pricing term applied by an inactive lender or closed book owner must not exceed a reasonable market proxy determined by the Financial Conduct Authority.(4) Any person exercising rights of enforcement arising from an agreement or contract to which this section applies is treated as a creditor or lender for the purposes of this section.(5) For the purposes of this section, the exercise of rights of enforcement includes the setting, varying, applying or collecting of interest, fees or other pricing terms, whether undertaken directly or through an agent.(6) The duties in this section apply from the date on which this section comes into force—(a) to any regulated credit agreement or regulated mortgage contract in force on, or entered into after, that date, and(b) to any person who holds, or subsequently acquires, rights under any such agreement or contract, regardless of whether the assignment, sale, securitisation or transfer of rights occurred before, on or after that date.(7) For the avoidance of doubt, nothing in this section requires the reopening, invalidation or unwinding of any assignment, sale, securitisation or transfer effected before the date on which this section comes into force, but any exercise of rights, variation of interest rates or enforcement occurring on or after that date in respect of such a transfer is subject to the provisions of this section.(8) For the purposes of this section—“inactive lender” or“closed book owner” means a person who holds rights under a regulated credit agreement or regulated mortgage contract but does not actively offer new regulated credit agreements or regulated mortgage contracts to consumers in the United Kingdom;“regulated mortgage contract” has the meaning given by article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544).”Member’s explanatory statement
This new Clause seeks to ensure that when regulated credit agreements or regulated mortgage contracts are transferred to inactive lenders or closed book owners, consumers retain their full statutory and contractual rights. It would allow the Financial Conduct Authority to cap variable interest rates and pricing terms at a reasonable market proxy.
Lord Sharkey (LD)
My Lords, I had hoped that the life-crippling injustice visited on mortgage prisoners by government would produce a more sympathetic approach. In fact, it is hard to tell what approach, if any, the Government are proposing. What are they proposing to do about this long-standing and obvious injustice? Let me point out one thing. There has been a lot of research in this area, much of it funded by Martin Lewis and Money Saving Expert. That report, three years old now, put forward six areas for discussion to arrive at a solution.
Martin Lewis has had no response from the Government at all to his report: more talk, but no action that would actually help. The difference between what the Government are saying and what the amendment is saying is that the Government are promising nothing, not even making a commitment to do something, or even think about it, and the amendment delivers something. I would like to test the opinion of the House.
Baroness Kramer
“(2A) Regulations may only make provision arising directly from the review carried out under subsection (2).”Member’s explanatory statement
This amendment would restrict the scope of the regulations so that they may only implement matters that have been reviewed and consulted upon. It seeks to prevent the power from being used more broadly than Parliament intended.
Baroness Kramer (LD)
My Lords, it was exceedingly remiss of me, when I spoke earlier, not to welcome the noble Lord, Lord Pitt-Watson, to his role. We have had so many conversations that I have begun to think of him as the established Minister, yet sitting just a few Benches away is the noble Lord, Lord Stockwood; we are so glad for his presence and that he will stay engaged with this Bill. The noble Lord, Lord Livermore, was also with us earlier: he was a relentless proponent of the Government’s position and I will miss my engagements with him.
Clause 3 deals with access to banking services. The Government have told us that the powers in this clause are intended to allow them to incorporate into law and regulation recommendations from the independent public review of access to banking services, chaired by Richard Lloyd and due in October. The review will evaluate the impact of ongoing bank branch closures and access to face-to-face banking across the UK.
We on these Benches strongly support this review. Banks have closed a third of their branches in the last five years and, since 2015, nearly 7,000 bank and building society branches have shut down. We have been strong advocates of the banking hub scheme to create at least minimal access to services; 235 have opened, but the commitment is to a total of only 350 hubs. Much stronger action is needed, and soon.
But—and it is beyond my comprehension why—Clause 3 has not been drafted for the narrow purpose stated by the Government of implementing the recommendations of the Lloyd review. It allows the Treasury to amend any Act of Parliament and to give any powers it wishes on access to banking to the FCA. Nothing is confined to the Lloyd review; it is Henry VIII on steroids.
I put down Amendment 7, which would limit powers to allow the Treasury to implement only those provisions arising directly from the Lloyd review. That at least has been consulted on and had some broad engagement. The Government have not accepted that amendment. We therefore cannot accept the huge constitutional breach that Clause 3 represents.
If the Conservative Benches move ahead with their Amendment 10, which would knock Clause 3 out of the Bill, I have strong hopes that the Government will come back with proper wording in the Commons, by which time the Lloyd review will have been published. As I say, we expect to support every aspect of the recommendations from the Lloyd review, although we have not yet seen them, but we cannot set the precedent of allowing sweeping powers that go way beyond the stated objective to be incorporated in a Bill of this significance.
Lord Vaux of Harrowden (CB)
My Lords, as this is the first time I am speaking on Report, I should remind the House of my interests as a shareholder in Fidelity National Information Services Inc, which provides services to the financial sector, and as a non-practising member of the Institute of Chartered Accountants in England and Wales. I, too, welcome the noble Lord, Lord Pitt-Watson, to his new role, and I apologise to the noble Lord, Lord Stockwood, because, when we discussed this clause in Committee, I jokingly referred to the Minister not always being the Minister, for which I apologise.
I have Amendment 9 in this group, which would remove the egregious Henry VIII power from Clause 3. I have also added my name to Amendment 10, which would delete Clause 3 altogether. As I explained in Committee, as someone who lives in a very rural area, my nearest bank branch, now that the last branch in my nearest town has closed, is a 100-mile round trip—so access to banking is a subject with which I have a lot of personal sympathy. I look forward to seeing the Lloyd report once it has been published in October. Like the noble Baroness, Lady Kramer, I expect to support an awful lot that will be in it.
The problem with Clause 3 is that it gives the Government incredibly broad and unfettered powers in this respect, including an unlimited power to amend any Act of Parliament. Indeed, there is nothing in the clause that would prevent a Government reducing access to banking if they chose to do so. I do not think I can put it any better than our Delegated Powers and Regulatory Reform Committee in its report of 17 June, which brought these wide powers to the House’s attention. It concluded that
“the problem with clause 3 is that it confers a wide regulation-making power on Ministers before any key policy decisions have been made, before any problem has been clearly identified and assisted by a power to amend any Act of Parliament ever made. Such a power severely compromises effective parliamentary scrutiny. We consider that the power in clause 3 is inappropriately wide and should be removed from the Bill”.
This Government have form on pushing through legislation before they know what they want to do with it, and this example is particularly egregious. I asked the noble Lord, Lord Stockwood, in Committee when he was the Minister, which Acts of Parliament the Government had in mind to alter using this power. The response, I am sorry to say, was less than illuminating. He said that
“the Treasury expects to use the power if needed to amend relevant legislation, for example, financial services legislation”.—[Official Report, 22/6/26; col. GC 232.]
He went on to say:
“As the recommendations of the independent Access to Banking Services review are currently unknown, it is necessary for Clause 3 to be able to amend primary legislation to respond to any recommendations that are made”.—[Official Report, 22/6/26; col. GC 235.]
In other words, “We don’t know what we want to do, so we’re just going to make it as wide as possible”. My guess is that it is actually highly unlikely that any primary legislation will need to be changed as a result of this, but we shall see.
I think that makes the case against Clause 3. It is not satisfactory for the Government to give themselves the widest of powers, including the unlimited power to change any existing Act of Parliament, when they have no idea what they want to do with those powers.
The Government claim, in the Explanatory Memorandum and elsewhere, that they will narrow the powers once the Lloyd report has been received. But this is Report. We have not seen the report. It will take I do not know how many months for the Government to come up with recommendations based on the report. The Bill will probably already be law by then, so there will be no real opportunity to narrow the powers.
I am sure that the House will support moves to improve access to banking when in due course the Government actually have a plan, and, in the unlikely event that changes are required to existing law, a short, focused Bill can be created to do that, which, as all changes to the law should be, can be subject to the proper scrutiny processes of Parliament. This unfocused clause is too wide and any resulting changes to law would not be subject to proper scrutiny. That is not the right way to legislate. At the very least, the Henry VIII clause should be removed, as I suggest in Amendment 9, but the clause as a whole is too wide, and therefore I urge all noble Lords to support Amendment 10 from the noble Baroness, Lady Neville-Rolfe, to remove this unrestricted power.
Baroness Hoey (Non-Afl)
My Lords, I want to support Amendment 8, but no one seems to have spoken to it, so is it in order for me to say a few words on it? It is an important amendment because it contains really the only mention in the whole Bill of post offices. The amendment, in the name of the noble Baronesses, Lady Tyler and Lady Kramer, and the noble Lord, Lord Holmes of Richmond, talks about the Treasury considering
“the effectiveness of alternative frameworks, including the Post Office Banking Framework, in providing access to banking and cash services”.
That is an important aspect of all this.
Increasingly, we are seeing that people, particularly in rural areas or areas where there is high deprivation where people do not have access to online facilities and do not particularly want to go online because they do not trust banks enough to go online or they do not trust the internet, are using their post offices. The post offices could be doing so much more to widen access to cash and money.
I draw attention—although I am sure most noble Lords will have seen it—to the National Federation of SubPostmasters 18-page report on the access to banking services review, which shows statistically just how much more post offices are being used by people and how they could be used to provide even more services. When banks close in areas now, it is usually the post office that picks up a lot of that business.
I welcome the Minister to his position, and I hope he will say whether the Government are serious about increasing the use of post offices, not just for some of the issues to do with banking. You can no longer pay your television licence—if you still want to pay it—in the post office. So many services have been taken away from the post office, but such services would make it much easier and more accessible for people, particularly in rural communities. People trust their local post office. They find that it is somewhere they can go and get the advice and reassurance that they cannot get in a local bank because they do not ever see a bank. I have already mentioned the lack of trust.
I ask the Minister to respond to this amendment and say whether he is willing to talk directly to the National Federation of SubPostmasters to discuss these issues further and how we can make our post offices more vibrant and involved with the local community by being able to offer them the services that they want.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to follow the noble Baroness. As this is the first time I have spoken on Report, I declare my technology interests as set out in the register, as adviser to the Crown Estate and Simmons and Simmons LLP and as non-executive director at Avalanche Foundation and Avalanche (BVI) Inc. I shall speak to Amendment 8, which I had pleasure in signing.
How many brands or businesses have we in the UK that have been on our high street for over half a millennium? That is what we have with the post office, which rode into our lives in 1511 and continues to have just shy of 12,000 branches up and down the country. Whatever happens with digital—and finance certainly is going to become, and already in many areas is, digital—we need, and must support, physical presence and human access to, and interaction with, finance, not least for those who find themselves at the sharpest end of financial exclusion. As I have already mentioned, financial inclusion often and perniciously goes hand in hand with digital exclusion, compounding both of those exclusionary forces.
The post office has a unique role. Of course, it has had well-known difficulties recently, but that does not diminish the potential role it can play as other financial services providers retreat, and have already retreated, from so many of our high streets. It can be the core of the community with inclusive, accessible finance at that core and rippling out all kinds of other financial, digital and small “s” social services. It has such positive potential. We have seen this with the hub model, and I would be interested in the Minister’s response as to whether the Government believe we have enough hubs, whether the plan for hubs is ambitious enough and whether we need to bring other players into this hub model to ensure that, wherever you are, whoever you are, in the country, in socioeconomics, you can have effective access to finance and through that meaningful, sustainable and often physical access to cash and financial services. I very much look forward to the Minister’s response to this amendment.
Lord Massey of Hampstead (Con)
My Lords, I rise briefly to support Amendment 10 from the noble Baroness, Lady Neville-Rolfe, to add a few of my own concerns on Clause 3 and to support the remarks made earlier on this matter by the noble Lord, Lord Vaux, and the noble Baroness, Lady Kramer.
Protecting customer access to essential banking services is, of course, a goal we all share. However, the granting of such wide-ranging executive powers, basically conferring almost unlimited powers on the Treasury for this matter, seems unnecessary, even allowing for the understandable desire to act quickly. The Treasury’s own review of in-person banking access does not report until October, as has been mentioned, and we are being asked to legislate before we know the nature of the problem we are solving or the policy decisions that might follow. Would they be proportionate? Would they be effective? We really have no way of knowing this at this stage and do not even have the benefit of seeing the report.
The Treasury’s memorandum to the DPRRC seeks to narrow these powers when the review concludes, so the Government are implicitly aware, I assume, that the delegated powers are too broad. But the answer is not to grant excessively wide powers now and then tidy up later; surely it would be better to wait or bring back a properly balanced set of powers when the evidence exists. I offer my support to Amendment 10, which would delete Clause 3 altogether.
Baroness Altmann (Non-Afl)
My Lords, I also support the amendments in this group. I believe that the description of these extremely wide powers should, in itself, alert the House to the dangers that Clause 3 of the Bill could pose. I believe that it is important for the Government to understand, for example, what has been revealed in the latest report, just a few days ago, from Age UK about digital exclusion among the older age groups in this country. It is all very well for policymakers—and Members of this House, indeed—to believe that everyone can manage to bank online and that there is no need to go into a physical branch. But when it comes to the older generations, that is simply not the case. Certainly in terms of the population aged over 65, the research suggests that only 15% of pensioners, or of the over-65s, are fully digitally included and able to use all services digitally—it is 20% of men and 10% of women—and that 1.4 million over-65s are fully digitally excluded. The more we see bank closures and the less access to banking these people have, the more excluded from society they become.
I hope the Government will recognise that we need to make sure that there is an opportunity for Parliament and for the legislation to ensure that these older people are not forgotten or left behind and that the access to banking that they may rely on is not removed, perhaps inadvertently, from legislation where it could have been avoided. For example, if we agreed some of the amendments in this group, they would ensure that either Clause 3 altogether or the most egregious parts of it are removed, as the noble Lord, Lord Vaux, said. As the noble Baroness, Lady Kramer, said, we should make sure that the Lloyd review, which is meant to deal directly with this, is part of the legislation.
Baroness Lawlor (Con)
My Lords, I support my noble friend Lady Neville-Rolfe’s amendment, which would leave out Clause 3. I very much agree with the noble, Lord Vaux, and other noble Lords who have spoken.
I support these amendments on constitutional grounds, because of the importance of the separation of powers and the role of Parliament in checking executive power, as my noble friend Lord Massey mentioned. How can we hold the Government to account if we have no knowledge of the powers proposed? Clause 3 allows the Treasury the power to make any regulations it considers appropriate. We have no knowledge of what they are. Clause 3 also gives the Treasury power to delegate powers to the FCA. It allows the FCA to “make rules”,
“amend an Act of Parliament”
or
“make different provision for different purposes”.
There are many concerns about the regulators. I will mention two. First, the regulators do not supervise or explore predictably in accordance with their own rules. You will find different interpretations given to their rules in their rulings. We must ensure that their decisions are consistent between firms which operate businesses of similar sizes. Secondly, formal decisions by the regulators do not necessarily include sufficient explanation to serve as precedents to allow the application of the relevant rules.
I am very pleased to welcome the Minister to the Front Bench and to say how much we miss the noble Lord, Lord Stockwood, but I wish the Minister well. It is on constitutional grounds that I ask him to think very carefully about these amendments.
Lord Mackinlay of Richborough (Con)
My Lords, I will say a couple of words on Amendment 10 in the name of my noble friend Lady Neville-Rolfe, which I fully support. The phrase:
“The Treasury may by regulations make such provision as they consider appropriate in connection with providing access to banking services”,
is not just wide; it is ocean-wide. It is far too wide, and it is without parliamentary consent or any investigation as to what our democratic processes consider to be the right level of banking services and access to banking across this country.
I will also say a few words on Amendment 8. I am very pleased that the noble Baroness, Lady Hoey, spoke about the Post Office. When I was a constituency MP, I faced—as anyone who lives in any part of this country faced—the closure of banking services, which always caused concern, particularly to older residents. I purposely kept my father, now deceased, away from digital banking because of the risk of scams and of those dodgy emails coming in. He was of perfectly sound mind and very capable, but he perhaps was not as scam aware as younger people are, so I wanted him a long way away from digital banking services—and why should he not stay away from digital banking services?
We were always told by the banks that were closing, “Fear not: we have a Post Office network for all that your constituents and customers need to do in terms of access to cash, banking cheques and that more standard stuff”. I do not know about other noble Lords, but I use digital banking—of course I do. However, when faced with cheques, which are a little bit rarer these days than they used to be, I struggle—for obvious reasons—to hold the camera and go up a bit, left a bit, right a bit, down a bit, get told, “It’s not all in the picture yet”, and press the button. I am sure we all share that frustration. Let me leave your Lordships with this about the Post Office: it is not the panacea of everything. Over the last few months, Lloyds Bank has stopped the use of Post Office services to its customers. I do not know why. This is a two-way street: at the banks’ discretion, they can have a relationship with the Post Office or not. For reasons known only to itself, Lloyds has decided not to use the services of the Post Office. For those reasons, I sympathise massively with the noble Lord, Lord Vaux, who now has to make a 100-mile round trip to a bank. No doubt there is a post office nearer than that, but if you are a Lloyds customer, hard luck: 100 miles.
This is not about the quantity and texture of tomato sauce in a can of beans, which might lead to officials and statutory instruments; these are fundamentals of life that everybody faces on a daily basis. To allow the extent of this power is a power too far. We see far too much Henry VIII in all legislation, not just from this Government but from the Government I was with over the years. There has been a temptation for this creep to happen, and it must not enter the Bill.
Baroness Neville-Rolfe (Con)
My Lords, I thank the noble Baroness, Lady Hoey, and my noble friends Lord Holmes and Lord Mackinlay, for reminding us of the value of post offices and the importance of banking hubs, especially in this ever-expanding digital world. There are serious issues here across the country.
I will speak to my Amendment 10, which would do a very simple thing: remove Clause 3 from the Bill. My argument for it is equally simple: Clause 3 contains no detail about what the Government intend to do. Instead, as the noble Baroness, Lady Kramer, explained, it grants Ministers extraordinarily broad powers, including the power to amend primary legislation on access to banking.
Once the Richard Lloyd review has concluded, the Government may legislate for whatever they subsequently decide is necessary. That could include anything on banking services, with huge implications for consumers, banks, other financial services and the high street. As the noble Lord, Lord Vaux, said, the Government will have the power to amend any Act of Parliament. That is a huge power grab by the Treasury and a very significant delegation of power to ask Parliament to approve in advance. We do not know what problems these powers will ultimately be used to address, what regulations the Government envisage making, or which Acts of Parliament they wish to amend. Yet Parliament is nevertheless now being asked to hand over the power to do all these things.
We should be very cautious about giving any Government powers of this breadth on the basis that they will decide later, in good faith, how they wish to use them. Parliament should not be asked to give Ministers carte blanche, particularly where the powers include the ability to amend primary legislation with minimal parliamentary scrutiny. That would set a terrible precedent.
The right course is straightforward: Clause 3 should come out. Once the Government have completed the review of access to banking and know what they wish to do, they can return to Parliament with legislation setting out the policy, the powers required to deliver it and the appropriate safeguards.
I am very grateful to the noble Baronesses, Lady Kramer and Lady Altmann, the noble Lord, Lord Vaux, and my noble friends Lord Massey, Lord Mackinlay and Lady Lawlor for supporting this amendment. The Minister has a problem: we have a lot of concern across this House, not only among those engaged on the Bill. The amendment reflects the concerns of the Secondary Legislation Scrutiny Committee, with its very expert membership. The committee has also advised that Clause 3 be removed; I say to the Minister that that is usually a killer argument. For these reasons, I do not believe that Clause 3 can remain in the Bill. When Amendment 10 is called, I intend to test the opinion of the House.
Lord Pitt-Watson (Lab)
My Lords, I am hearing two arguments here: a strong consensus across the House for the need for access to banking and for the appropriate actions to be taken to make sure that that takes place; and a concern, also raised in Committee, about the breadth of the power, particularly its constitutional implications and the degree of scrutiny that Parliament would be able to exercise over any regulations made under it. These are serious points and the Government have considered them seriously, but they have concluded that Clause 3 is needed at this stage. Because the independent Lloyd review of access to banking has not yet concluded, we do not know whether it will recommend intervention, which consumers may be most affected, the nature of any detriment, and what form any intervention should take. Removing Clause 3 altogether, as Amendment 10 would do, would risk leaving the Government without a mechanism in the Bill to respond promptly if the review identifies a focused and time-sensitive need for intervention.
Amendment 9 would remove the ability to amend primary legislation through regulations made under Clause 3. If acting on the review’s findings required changes to an Act of Parliament, removing this ability would risk removing the mechanism to respond promptly to the review and could delay implementation. Amendment 7 would take a different approach by limiting the powers to matters arising directly from the review. I understand the intention behind that amendment and the review should clearly play the central role in shaping any future intervention. That is why the Bill already requires the Treasury to have regard to the review’s recommendations, but it would not be right to prevent Ministers from considering other relevant evidence alongside the review when deciding whether and how to act. The Government need to preserve the ability to respond proportionately to the full evidence that is available.
Amendment 8 is probably one on which we all agree. The noble Lord, Lord Holmes, and the noble Baroness, Lady Hoey, talked about the central part that post offices can play in making sure that banking access is available. I can confirm that the chair of the review into access to banking services has received representations from and has engaged with the Post Office and the National Federation of SubPostmasters and that officials will continue to engage as part of the development. As noble Lords know, the target is more than 350 full banking hubs, plus 10,500 post offices, involved in this, and I thoroughly commend the points that they have made.
I absolutely understand the concerns about the Henry VIII powers, which seem very broad. Clause 3 does not itself impose new obligations on firms, or any specific model of banking provision. Any regulations under the power would also be subject to the affirmative procedure. However, I assure noble Lords that the Government do not expect Clause 3 to remain in its current form. I forget how the noble Baroness, Lady Kramer, said her hopes would be fulfilled, but I think they would be fulfilled by amendments that were focused on the thing that we all agree on, which is the need for proper access to banking for older people, for younger people—for everyone.
The Government remain committed to keeping the scope of the power under review as the independent review completes its work. We expect to narrow this power after the review reports in October, when I expect the Bill will be in the Commons. Once the Lloyd review has concluded, the Government will be in a better position to consider the correct scope of this power. It would therefore be premature to narrow the power at this stage. For those reasons, I ask the noble Baroness to withdraw her amendment, though perhaps more in hope than expectation.
Baroness Kramer (LD)
My Lords, given that the Conservative Front Bench have expressed their interest in moving Amendment 10, I will withdraw Amendment 7.
Baroness Neville-Rolfe
Baroness Neville-Rolfe (Con)
My Lords, I seek to test the opinion of the House on this amendment.
Baroness Kramer
“Access to affordable credit(1) The Financial Conduct Authority must—(a) within 12 months of the day on which this Act is passed, establish and publish a framework for assessing and rating the performance of relevant deposit takers in providing access to affordable credit,(b) annually publish updated ratings and scores produced by the FCA under the framework, and(c) keep the framework established under paragraph (a) under review and publish an updated framework as it deems necessary.(2) The framework must—(a) assess the extent to which relevant deposit takers serve the credit needs of individuals, households and small businesses, including those who are underserved by mainstream financial services, and (b) enable comparisons to be made between relevant deposit takers.(3) In developing the framework, the FCA must have regard to—(a) the distribution of lending across income groups, geographic areas and customer characteristics,(b) the availability of affordable credit to consumers who may otherwise be at risk of financial exclusion,(c) the provision of affordable credit to small and medium-sized enterprises, and social enterprises,(d) the extent to which a bank supports access to affordable credit through partnerships, referral arrangements and funding agreements, with credit unions, community development finance institutions or other community-based lenders, and(e) such other matters as the FCA considers relevant to the objective of promoting access to affordable credit.(4) For the purposes of subsection (2), the FCA may—(a) make use of regulatory data already collected by it, including product sales data,(b) require relevant deposit takers to provide such information as it reasonably considers necessary for the purposes of the framework, and(c) make different and proportionate provision for different sizes of business.(5) Where a relevant deposit taker receives a score or rating below a minimum threshold prescribed by rules made under this section, the FCA must require the deposit taker to take proportionate remedial action to improve its rating.(6) For the purpose specified in subsection (5), the FCA may—(a) make such rules or issue such guidance applying to designated persons as appear to the FCA to be necessary or expedient, and(b) give a direction under this section to a designated person if it considers that it is desirable to give the direction.(7) For the purposes of this section, “relevant deposit takers” are—(a) banks, within the meaning given in section 2 of the Banking Act 2009;(b) building societies, within the meaning of section 119 of the Building Societies Act 1986;which meet an FCA-set threshold for the total volume of personal and small and medium business lending.”Member’s explanatory statement
This amendment requires the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit, including via partnerships with credit unions and community development finance institutions. It uses existing regulatory data where possible, with proportionate requirements for firms of different sizes.
Baroness Kramer (LD)
My Lords, this group of amendments concerns itself with financial inclusion. I have two important but very different amendments in this group. The first is Amendment 11, to which the right reverend Prelate the Bishop of Manchester has added his name, and I thank him for that. The House will know that I have long been an advocate for CDFIs—community development financial institutions, which are usually banks or credit unions—which are dedicated to serving the banking and finance needs of local communities and small businesses, as our high street banks once did. They do what I suppose in modern terms we would call “place-based lending”; they know the community, its businesses and its people, and they are structured, staffed and skilled to provide those services. By contrast, SMEs struggle to get mainstream bank credit.
The Government have taken steps to grow CDFIs, providing £150 million to the British Business Bank to develop a community ENABLE fund, and increasing the growth guarantee scheme by a significant £6.5 billion over four years. They have set up a UK community finance partnership taskforce, with an impressive membership, to build partnerships between CDFIs and mainstream banks. But the key piece of the puzzle is missing; we do not have the driver to create many more CDFIs or community banks, if you prefer that term, and credit unions across the country, especially in our most disadvantaged areas.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to speak in this group and, indeed, to follow the noble Baroness, Lady Kramer. There is a thread which unites all the amendments in this group: they all make sense, they are all clear and the Government should accept them.
Before I talk about the amendments in my name and the ones I have signed, I echo the points made by the noble Baroness, Lady Kramer, around child trust funds and follow her in acknowledging the great work that the noble Lords, Lord Blunkett and Lord Young of Cookham, in particular have done for years on this issue. The words of the noble Lord, Lord Blunkett, are particularly pertinent to this point. He was the Minister in charge at the time, in a Labour Government, and he has said things on numerous occasions in this House along the lines that this was never the intention. If this was never intended government policy from a Labour Government, then we now have a Labour Government. Would this not be the ideal opportunity to stop this being government policy and to make the changes set out in this amendment—and, if not to make the changes along the lines of these words, for the department to come up with some words of its own to make this change?
A review is not the solution. We know the issues; they have been well set out over years. We have the opportunity, with this Bill, to resolve the issue and to make such a difference, not just to the 80,000 or so individuals who have those trust funds but to the hundreds of thousands of family members, friends and communities who are adversely affected by this current position for want of government action, which could make this change and, through that, make such a difference.
I turn to my amendments on financial inclusion and the role of the various regulators. The regulators have a lot of obligations put upon them. I suggest just this: how can we have, in the United Kingdom, a financial services regulator which does not have clear responsibility for financial inclusion and a clear obligation to report on what it has done to advance it, specifying in detail all those affected? Financial inclusion—and, indeed, the adverse, financial exclusion—is not just a matter of the same people having the same effects and suffering the same exclusion. It is specific to older people, to disabled people, to those in certain socioeconomic groups and to those in certain geographies. Specific solutions and a strategy which incorporates all that and puts it into an operational road map are required if we are to get behind solving financial inclusion.
We have a Financial Stability Board, but I argue that you cannot have financial stability if you do not have effective, sustainable financial inclusion. It may not be measured, because the adverse impacts are often in other government departments and other parts of the state. But be in no doubt: when you gross up all the costs, implications and consequences of financial exclusion, that is financial instability, not just for individuals but for communities and for our country.
The financial regulators, among others, should take a leading role to get after this pernicious problem of financial exclusion, which has dogged our society for decades, blighted lives, impacted individuals and had an impact, when all put together, on what the Government constantly—and rightly—go on about in terms of growth. Well, if they want growth then financially including individuals right across this country would be a fine place to start.
Lord Mackinlay of Richborough (Con)
My Lords, I have only put forward one amendment to this entire Bill, Amendment 70. I spoke at great length in Committee and highlighted then, as I will highlight now, that I am a chartered accountant and chartered tax adviser, and have conducted probate work over many years.
Let us just lay out a little the framework of where we got to in the provision of IHT423, because it will not be familiar to everyone in this House, I am sure. The IHT423 arrangement was first rolled out in 2003 and applied only to banks and building societies, or cash-based liquid accounts. It allowed for the breaking of the Catch-22 situation which executors find themselves in when they administer an estate. An estate is often in two parts, one of which is called the free estate, which is your cash and liquid investments. The IHT on that has to be paid six months after the end of the month of death. The other part of the estate is property and often unquoted securities, where there is a non-liquid market; an instalment basis can apply over 10 years. Given that the new rate of IHT interest chargeable on unpaid tax, following Rachel Reeves’s first Budget, is now 4% above base, so currently 7.75%, then no matter whether it is free estate, payable immediately, or part of the estate that can be paid over 10 years, given the 7.75% interest rate, which is truly penal, most executors would like to pay the tax as soon as they possibly can, and certainly by the due date of six months after the date of death.
In the old days, the IHT423 procedure, which is a means by which a financial institution can release funds before probate, was working, because very few estates were hit by IHT. But because of fiscal drag—I will admit as much as anybody else that a lot of it occurred over our Government—the levels of free amounts for IHT have remained unchanged since 2009, which has meant that more and more estates are dragged into the IHT pot. So the IHT423 arrangement, of getting funds out of an estate before probate can be obtained—as I say, a Catch-22 of chasing one’s tail of having to pay the tax before probate can be obtained—was widened to any types of investment. That was negotiated by HMRC in 2024, so fairly recently, in recognition of the huge number of estates that now face IHT.
Baroness Altmann (Non-Afl)
My Lords, I fully echo the comments that the noble Lord, Lord Mackinlay, just made, having had personal experience, sadly, of just what he described. Amendment 70 would provide at least some relief to those executors who cannot access funds and who see the interest racking up while probate delays or other delays beyond their control are occurring to the estate.
I urge the Minister also to take back to his department that if inheritance tax is indeed levied on unused pension funds from next April, there is not even the allowance in the new system for a 10-year delay, as there is with property, so it will not just be interest that racks up; there will be penalties and so on. There is a real problem in that regard and, indeed, there is a real issue with the costs involved in probate for the executors who cannot have the money released because some institutions have decided that even though the money is going to be paid directly to HMRC to satisfy inheritance tax, it will still not release the money—and, of course, it will still be charging fees on the funds that it retains. So I hope that the Minister will take seriously the ideas in Amendment 70.
I strongly support Amendment 60, and I would have added my name to it had I been more on the ball. It was so nobly spoken to by the noble Baroness, Lady Kramer. She spoke of the child trust fund issue, where parents and carers of children—who cannot make the decision for themselves—who are managing the money for those children, and have done so since the child’s birth in some cases, are being told that they must go through an enormously lengthy legal process just to be able to take a bit of money out of the money that the Government gave for those children, which was safeguarded until age 18. When they reached that age, they were unable to access the funds.
Child trust funds started in 2005 so this problem of people being unable to get money from the child trust fund has been going on since 2023. Indeed, there was a consultation in 2022, which recommended that a small payment scheme at least should be introduced, but in the meantime, nothing has happened. As the noble Baroness, Lady Kramer, said, the costs of going to court and obtaining an order to be able to take money out of a trust fund could use up most—or, even, in some cases, all—of the money in the fund. There is an issue that needs to be addressed. Amendment 60 would be a way of helping these families, and I hope that the Minister will take this back to the department and come back with some positive news on this issue.
The Lord Bishop of Manchester
My Lords, I have sympathy with all the amendments in the group, but I will focus my comments on Amendment 11 in the name of the noble Baroness, Lady Kramer, to which I added my name. As we have heard, this would require the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit.
Credit is a lifeline for families facing debt and financial hardship. According to a recent report, 60% of the clients of Christians Against Poverty—CAP—an organisation that is very active in my diocese, find that they have to borrow money to pay for household essentials and bills. They are not borrowing for luxuries: when credit is unavailable, they are left to delay essential spending and go without meeting their most basic needs. Sometimes, spending a little now will save you spending a lot more down the line.
I am extremely grateful for the remarks made by the noble Lord, Lord Holmes of Richmond. Credit inaccessibility has real consequences for those who are struggling the most. According to CAP, 47% of UK adults who currently have debt that they are struggling to manage have been unable to access their preferred credit option in the past two years.
This kind of financial exclusion means that we are locking vulnerable families into a cycle of poverty. We are depriving them of the tools they need to climb their way out. Unable to look beyond the pressing need to put dinner on the table, it is those with the most desperate need who are forced to sacrifice the most to get by. Left with limited choices, they are the ones most likely to enter riskier credit deals and to pay the greatest poverty premium. I have worked as a vicar in parishes where loans were enforced by men with baseball bats.
Since Committee, we have had the report of the Commons Treasury Committee on the Government’s financial inclusion strategy. The report highlights the need for
“proportionate firm-level financial inclusion metrics. These should focus on the largest providers and on markets where exclusion causes the greatest consumer harm”.
That specifically includes “affordable credit”. The report proposes that metrics
“should be designed to identify whether progress is being delivered consistently across firms and sectors”.
The committee also concluded:
“Voluntary action and pilots … cannot be the main driver of a national financial inclusion strategy unless there are clear routes to scale and clear consequences if voluntary action fails”.
What is proposed in this amendment clearly has much wider parliamentary backing than simply from the noble Baroness, Lady Kramer, and me. Indeed, several major lenders indicated to the Treasury Committee that they would be entirely happy to provide financial inclusion data as part of a statutory system.
This Bill, and this amendment to it, provide a sensible and practical solution to implement what the Treasury Committee advocated. Importantly, it will place responsibility for access to affordable credit on the lender, and introduce a clear framework by which banks and building societies can be assessed on how effectively they are meeting the financial needs of underserved communities. The new requirement for this framework to be kept constantly under review will ensure that those requirements remain open to scrutiny and adaptable to ever changing patterns of financial exclusion—patterns that could become more dynamic and entrenched as society rapidly changes. This amendment is an important step towards ensuring that our financial services meet the needs and uphold the dignity of real people, rather than expecting individuals to adapt to systems that too often exclude them from full participation in economic and community life. The only people who will not like it are the dodgy lenders who harass people in my diocese. I pray that we all support this amendment.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to all noble Lords who have contributed to this interesting debate. I much look forward to the Minister’s response, particularly on child trust funds for those in that capacity. I agree with my noble friend Lord Mackinlay that we have a problem with HMRC administration of estates, with the risk of more chaos in prospect as IHT on pensions arrives. We should be finding a way to improve the system—for example, by widening the application of IHT423.
I will focus on Amendment 94 on financial education. This is an issue on which I have campaigned for a long time. It reflects my belief that financial capability is an essential life skill and, indeed, that it is essential if we are to have financial inclusion for those struggling to make ends meet. I will not repeat the strong case I made in Committee on 8 July which can be found in Hansard at column 149. Our revised amendment would require the FCA to take reasonable steps to work with the Money and Pensions Service, the Secretary of State for Education, relevant education bodies, providers of teacher training and professional development and industry bodies to support the effective delivery of financial education. It is good that I now have the support of the noble Baroness, Lady Kramer.
The financial decisions that people are expected to make are increasingly complex. Young people, as well as adults of all ages, need a working understanding of concepts such as compound interest, inflation, pensions, savings, taxation, borrowing and so on. My noble friend Lord Agnew was on the BBC this weekend. He has written about how 10 million adults in Britain right now have the numeracy of a primary school child, yet we are asking young people to make extremely significant financial decision—sometimes taking on tens of thousands of pounds of student debt—without necessarily giving them the grounding in financial concepts that would allow them to understand those decisions.
I was very grateful to the Minister for helping to arrange a meeting with the Money and Pensions Service. I recognise the work that it is doing. However, one concern I took away from that meeting was that a considerable amount of financial guidance focuses on moments when an individual has reached a major financial event, such as taking out a mortgage, dealing with a divorce, approaching retirement or experiencing financial difficulty. I believe we need to be more ambitious. Our objective should be to build financial capability throughout the population before people reach these moments and, indeed, to encourage sound investment and savings for a rainy day.
Lord Pitt-Watson (Lab)
I am grateful to noble Lords for raising these issues around financial inclusion. The Government fully recognise the importance of improving access to appropriate and affordable financial services—particularly those for people on low incomes and in vulnerable circumstances—and of improving the financial education of the nation. We support the intention behind many of the amendments, but we are not persuaded that putting this measure into primary legislation is necessarily the right way forward. I hope to describe what the Government are doing, including actions that we have taken as a result of some of the issues raised in Committee.
I start with Amendment 11, which would measure what banks and building societies are doing about affordable credit then set standards for them; for example, setting up something such as a CDFI would count against what they would be required to do. I would like to take a step back because quite a lot is already happening and there are important things that the Government are doing, as was articulately described by the noble Lord, Lord Holmes. Let me start with small businesses. In the Mansion House speech in July, the then Chancellor announced the expansion of the British Business Bank’s growth guarantee scheme, doubling SME lending to £3.5 billion.
I share the focus of the noble Baroness, Lady Kramer, on community development through financial institutions. Through the Community Finance Taskforce, we have brought together banks, community finance advisers and the Government. At Mansion House, more than £10 million of philanthropic funding from JPMorgan Chase and support from BNY was announced for the sector. The taskforce will publish a road map early next year to support the ambition of unlocking a further £1 billion of SME lending over five years. The British Business Bank’s Community ENABLE Funding Programme committed nearly £120 million of funding, with a second phase intending to grow that to £500 million. We are improving competition and supply through the enhancement of commercial credit data sharing in order to strengthen bank referral arrangements.
On personal lending, the Government’s financial inclusion strategy includes measures to strengthen community finance and partnerships between mainstream lenders and CDFIs. We are supporting practical interventions, including a small sum credit pilot in which Monzo has already announced it will be the first participant, as well as a transformation fund for credit unions alongside the common bond reforms—those are even part of this Bill—to make sure that credit unions can do their job better. I was quite taken by what the right reverend Prelate the Bishop of Manchester said about the centrality of being able to provide this sort of fund; I note that the only businessperson to receive a Nobel Peace Prize was someone who did that by finding a way to lend unsubsidised money to poor people in Bangladesh.
This is important, but a lot is already going on, and I wonder whether supporting that might be something that we would want to think about. The amendment would require the FCA to act against firms that do not meet minimum lending standards. However, do we not want customers and businesses to access appropriate credit and balance that with risks of overindebtedness? The noble Baroness, Lady Kramer, is right that what gets measured gets managed; equally, we need to be worried about creating a system where people are hitting the target and missing the point. For these reasons, the Government are not persuaded that these amendments are the right way of improving behaviour or pricing. I ask the noble Baroness to withdraw her amendment and, please, support the other actions that are being taken by the Government to address this critical question.
Amendments 57 and 61 concern how the regulators report on financial inclusion. Amendment 57 seeks to require the FCA and PRA to publish annual reports on how they have advanced financial inclusion. Amendment 61 seeks to require the FCA to publish an annual report on financial inclusion detailing how it has had regard to financial inclusion in exercising its functions and assess the impact of its activities on financial inclusion outcomes. These amendments would impose new statutory reporting duties that risk duplicating existing arrangements for how the FCA reports about the state of financial inclusion and its impact on it. Amendment 57 would also place reporting duties on the PRA, whose statutory duty is prudential regulation. This would create uncertainty about the PRA’s remit and what it would be expected to report against.
Financial inclusion is a shared responsibility across government, regulators and particularly the industry rather than a matter for regulators alone. We know that exclusion is driven by a broad range of complex and overlapping factors, including wider economic conditions, technological change and behavioural drivers. Accountability for improving financial inclusion should therefore remain a collective effort rather than being placed on one or two institutions whose powers extend to only part of the challenge.
The Government have set out this collective approach through our Financial Inclusion Strategy. We continue to work closely with regulators, firms and consumer groups to improve access to financial services and support those who are underserved. The strategy is subject to a public review, which will take place next year, to assess the progress that has been made through this collective effort and where further work is needed. I look forward to the input of Members of this House when that is published.
Amendment 60 concerns child trust funds, which have been spoken about passionately and very articulately by a number of noble Lords, including the noble Baroness, Lady Altmann, and the noble Lord, Lord Holmes. Decisions about who may act on behalf of persons lacking capacity are governed at bottom by the Mental Capacity Act 2005 and determined by the courts. The Act provides a well-established framework, including oversight by the Court of Protection, to ensure that access to and management of a vulnerable person’s account takes place where appropriate safeguards are in place and in that person’s best interest. This reflects the very real need to safeguard and protect vulnerable people.
This amendment seeks an alternative route of access outside that framework. However, it is difficult to ask the FCA to put that court protection aside—and the FCA does not even have the power to do that. Legislating to permit that would require giving the FCA the power to alter the effect of primary legislation through its rules via a Henry VIII power but without the same degree of oversight. That cannot be the right way forward.
As the noble Baroness, Lady Kramer, mentioned, on 8 July the Ministry of Justice convened a round table on mature child trust funds and young adults who lacked the mental capacity, not least because of debates in your Lordships’ House. That meeting was attended by the noble Baroness, Lady Kramer, other stakeholders and the previous Economic Secretary to the Treasury, Rachel Blake. My noble friend Lady Levitt spoke directly with the noble Baroness, Lady Kramer, and members of the public, and she made it clear that any solution to this issue would likely need to be delivered through primary legislation. Ultimately, this cannot be resolved through the FCA rules or changes to tax legislation. Primary legislation would be required.
However, we do take this matter very seriously, and I have raised it with the Ministry of Justice. I reassure the noble Baroness, Lady Kramer, that it is exploring how the Government can best facilitate access for parents and carers to child trust funds on behalf of their children. I do not have a solution, but we are trying. In the meantime, the FCA is conducting a review into provider practices under child trust fund accounts, including on whether there are barriers to vulnerable young adults accessing their money. We welcome this review. However, as I said, the underlying issue lies in the Mental Capacity Act, and it is not possible for the FCA to substitute or override the primary legislation in that Act.
Amendment 70 would require the FCA to ensure that financial institutions that are registered or regulated by the FCA facilitate the payment of inheritance tax by executors, before probate is obtained, through direct payment schemes. I thank the noble Lord, Lord Mackinlay, for raising this question. I am sorry to hear of the difficulties that he experienced. The duty of administering an estate often arises at one of the most difficult times in a person’s life, and I understand the noble Lord’s desire to ease that process for people who face similar circumstances.
The noble Lord has previously acknowledged that the direct payment scheme generally works well in its existing voluntary form and that it is rare to come across a case where an institution refuses a request to pay tax that is due. Following our debate on this amendment, we asked HMRC officials to contact the company where the money was lodged to understand more generally its policy on the direct payment scheme. The company confirmed that it does in fact facilitate direct payments to HMRC, normally through investment holdings, but there were some types of investment products that it did not consider suitable for release directly to HMRC before grant of probate. These included certain types of bond products. That is as far as we have got on this.
However, the noble Lord’s amendment proposes to mandate the use of the direct payment scheme by FCA-regulated institutions. Our experience—and, I think, his experience—is that most financial institutions facilitate direct payment schemes most of the time. There may be certain types of financial product where releasing funds to HMRC before the grant of probate presents a particular legal and technical complexity. Perhaps we can write to people who are not following the voluntary scheme well, but the advantage of a voluntary scheme is that institutions can assess the level of risk involved and make payment only if they are satisfied that they are releasing those funds correctly. The amendment as drafted would not allow for that to happen.
The noble Lord suggested that this change be made through FCA rules. However, changes to primary legislation may also be required to make this change. FCA rules do not generally displace the private law framework. Making this change through FCA rules could leave financial institutions on an uncertain legal footing. However, we have taken most seriously the points that the noble Lord has raised. They are good points and this area may still need to be addressed, but not by this amendment.
Baroness Kramer (LD)
My Lords, I will not reargue the points, and I thank everybody who has participated in this debate. I will just say to the Minister on Amendment 11 that, having cited a number of American banks, I suggest that he goes to talk to them and tell them that this amendment both works and is vital. Because of that, and because of the significance of growth for the future of the UK economy and growth in every postcode, I intend to press Amendment 11.
The Deputy Speaker (Baroness McIntosh of Hudnall) (Lab)
My Lords, before I move to the next amendment, I should inform the House that there was a small discrepancy in the numbers announced for the second Division, which did not affect the result, but the result should have been: Contents 246, Not-Contents 165. That was Division 2 on Amendment 10.
Clause 4: The Financial Ombudsman
Amendment 12
Lord Pitt-Watson
“(ga) in paragraph 14 (scheme rules), in sub-paragraph (2), omit paragraph (f);”Member's explanatory statement
This amendment would remove the power of the scheme operator to make rules providing for the delegation of functions from the Financial Ombudsman to staff, given the Financial Ombudsman’s general power to delegate under new paragraph 1B inserted by clause 4(8)(b).
Lord Pitt-Watson (Lab)
My Lords, I will speak to the amendments in my name in this group. Before turning to the detail, I should briefly note that almost all these amendments were previously tabled by the Government in Committee, where, in light of concerns expressed about the way in which they were tabled, the Government agreed to bring them back on Report. The group contains a modest number of minor and technical amendments, which are not unusual for a Bill of this size. They do not alter the underlying policy of the Bill. Their purpose is to ensure the Bill is relevant and that the relevant provisions in FSMA operate clearly and consistently. I will try to be quite quick, therefore, in going through them all, so as not to tire your Lordships.
First, turning to Amendments 18, 21 and 23 to 25. These are minor technical corrections to Schedule 2 to the Bill, which, taken with Clause 13, abolishes the Payment Systems Regulator and gives broadly equivalent functions to the FCA. Amendment 18 removes the duplicative provision from new Section 131Z19. Amendment 21 corrects a cross-reference so that the Bill refers to the correct FCA payment system. Amendments 23 to 25 ensure that references to the chair of the PSR, which should be obsolete after the PSR is abolished, are deleted in the correct places.
I hope this is all making sense, but if noble Lords have a particular thing they want to talk about, please do indicate. Amendments 73 to 75 are, once again, minor and technical amendments.
Amendment 12, which relates to Clause 4, makes a consequential amendment. New paragraph 1B of Schedule 17 to FSMA, inserted by Clause 4, permits any function of the Financial Ombudsman to be performed by any member of staff.
Amendments 76 to 79 relate to Clause 33. As noble Lords will be aware, the Bill introduces a more flexible senior management approvals framework, including the ability for firms to apply for conditional or time-limited approval in specified circumstances. These are technical amendments to ensure that the framework operates consistently and in line with the original policy intent.
As regards Amendment 81, finally, when the Bill before us gains Royal Assent, there will already exist a number of overseas recognition regimes created under existing powers in FSMA 2023 to restate regimes inherited from the EU. This amendment enables the Treasury to make consolidating provision, which would restate the existing regimes within the new overseas recognition regime framework. This is essentially a tidying-up exercise.
In summary, this group of government amendments makes technical corrections to ensure the Bill works as intended. I hope noble Lords will join me in supporting them.
Lord Altrincham (Con)
I thank the Minister for bringing forward these already tabled amendments, assembled this evening in group 4, and declare my interest as a director of South Molton Street Capital. These amendments, as the Minister explained, remove duplication, correct drafting, make the provisions of the Bill work better together, and make the Bill intelligible, internally consistent and ultimately more workable in practice. Therefore, we support them.
Lord Sharkey
Member’s explanatory statement
This amendment would remove provisions relating to how the Financial Ombudsman Service may refer matters on complaints to the FCA.
Lord Sharkey (LD)
My Lords, I will speak to my Amendments 13 to 15 and 99. Clauses 7 and 8 propose radical reform of the relationship between the FOS and the FCA, and of the method of determining complaints to the FOS. These proposals will have a critical effect on consumer protection. They will turn the independent FOS into a subset of the FCA and make successful complaints harder to progress or achieve. Parliament designed and brought the FOS regime into being to provide accessible, no cost procedures for quickly determining complaints. At its heart is the “fair and reasonable” test. This test is abolished by the Bill, despite having been explicitly confirmed in July last year in the memorandum of understanding signed by the FOS and the FCA. The Bill will reduce access to free and impartial redress, introduce additional bureaucracy and costs, and ultimately risk damaging confidence in the financial services industry.
The Government have not supplied any meaningful hard evidence that might justify, or at least explain convincingly, the rationale for these reforms. They say only that the Government’s review found that,
“in a small but significant minority of cases, the FOS has acted as a quasi-regulator”.
They do not say how small or how significant these cases are, or how significance was defined and engaged, and they have completely ignored repeated requests from these Benches to provide a clear description of the problem being addressed and of the necessity for such radical changes.
Three months ago, at Second Reading, I asked for hard evidence. I got none, not even an acknowledgement of the request. I asked again on the first day in Committee, and again had no result. I asked again on the last day in Committee. This time, the then Minister—who is in his seat—apologised for not writing in answer to my questions and promised to get back to me
“as soon as we have that information to hand again”.—[Official Report, 8/7/26; col. GC 161.]
I have heard nothing since. This lack of response displays an almost contemptuous approach to parliamentary scrutiny, and it also makes obvious that the Government are unclear about the existence of any significant problem in the way that the FOS and the FCA operate under their current MoU.
I am grateful to Sarah Pritchard, FCA deputy CEO, for her attempts to persuade the Government to answer our questions in a meaningful way. In her letter to me and my noble friend Lady Kramer of 6 August, she said:
“We recognise that you have consistently sought further evidence from HM Treasury to support the case for reform, particularly the contention that uncertainty in FOS decision making may be constraining innovation. Following our meeting, we have formally re-iterated this request to HM Treasury and highlighted the importance of ensuring parliament has access to the evidence and analysis underpinning these proposals”.
HMT appears to deal with these things even-handedly; it has ignored her as well.
Her letter went on to say:
“One area where legislative change is being proposed concerns the interaction between our rules and the Ombudsman’s ‘fair and reasonable’ test. The aim is to provide greater consistency and alignment between regulatory requirements and complaint outcomes, while preserving the Ombudsman’s discretion to consider the wider circumstances of the case”.
This sounds like the arrangements currently in place under the MoU, but the Bill goes much further in practice. In effect, it reduces the scope of this discretion and reduces the FOS to a subset of the FCA, with the FCA rulebook being the determinator. It is very hard to see that this preserves the independence of the FOS and, of course, independence is desirable.
In evidence given to the Treasury Select Committee on 15 July, Nikhil Rathi said:
“From the FCA’s perspective, we want an independent Financial Ombudsman Service. That is a really important safeguard for your consumers”.
Both Mr Rathi and Mr Alder, the FCA chair, in the same TSC session, went on to express concern about the interaction between the FCA’s interpretation of rules and the FOS’s decision-making. Mr Rathi said that
“with a system where people can try to instrumentalise it so that everything that they disagree with can get pushed to us to try to deal with in 30 days because it is deemed ambiguous, you will gum up the system”.
His chair emphasised the point of this:
“To Nikhil’s point, if we get this wrong, the system will become gummed up … As a result, the main objectives of those changes in the legislation will not be met. It is very important that we get this right”.
This is the very real danger of a requirement for the FCA to respond to a referral from the FOS within 30 days. In the same session, Sarah Pritchard said:
“We have been clear that we want the Financial Ombudsman Service to deliver quickly for consumers. We do not want to turn into a backdoor appeal mechanism. Where there are important matters around the intention of our rules, absolutely we should be there to clarify. We are already taking referrals from the Financial Ombudsman Service that do that”.
The July 2025 MoU between the FOS and the FCA is in operation now. It seems clear that this blueprint has taken into account current and anticipated problems, but it differs radically from the FOS proposals in Clauses 7 and 8, including on the absolutely critical criterion of the FOS making a determination. If the MoU is working and if it is working with, as it says, the fair and reasonable test at its heart, why are the Government proposing to abolish that test and the FOS’s effective independence?
My Amendments 13 and 14 address these issues. Amendment 13 would remove Clause 7, with its referral method and four other pages of prescriptive micromanagement, including a kind of Henry VIII power on page 6. Amendment 14 seeks to restore the “fair and reasonable” test agreed in the MoU.
Consumer groups have noticed the proposed changes in the Bill and many are very strongly opposed. For example, Martin Lewis of Money Saving Expert strongly supports the removal of Clause 7 and the replacement of Clause 8 with the current “fair and reasonable” test. In all, 12 leading consumer organisations have written to us asking for support for Amendments 13, 14 and 15. I will not read out the whole list, but they have agreed a statement that says:
“At a time when the cost-of-living crisis is pushing household budgets to breaking point, the Government should not be altering the fairness test and introducing new bureaucratic hurdles in the very system that provides redress for financial loss”.
Finally, my Amendment 15 would create breathing space to enable a proper evidence-based review to take place, with a report to Parliament on its findings and recommendations. Amendment 15 sets out the proposed independent review process and its scope and timelines. It requires the review to take place not before the second anniversary of signing the MoU and then to report within 12 months. Amendment 99 would simply put the commencement of Clauses 7 and 8 on hold until the review’s report has been laid before Parliament. I beg to move.
Lord Davies of Brixton (Lab)
I congratulate the noble Lord, Lord Sharkey, on making a very powerful case for keeping the existing system under which the FOS operates. The problem here, expressed in the considerable representations that we have received from consumer groups, is a lack of clarity about the problem that this is meant to address, coupled with clear concerns about the loss of the fair and reasonable requirement. That is the central point. We have a system that works, in which there is a degree of consumer confidence. The reason for interfering in that system is not clear to the bodies representing consumers, so my Government have to do more to justify these changes.
Interestingly, I had some discussions with the previous Minister, who is now sharing the same Bench as me, and one of the points that came out is that it is quite difficult for the Government to point to cases in which they expect a different result following this change from what was happening before. It would be unreasonable for the Government to pick on individual cases and say, “Those people really should not have had that finding from the ombudsman”, but that is at the heart of what is being proposed here.
Before my noble friend the Minister’s elevation, I discussed this with him at length. He assured me at the time that the impact on the consumer would not be material—that the way that the legislation is worded, in particular the rules that the FCA would have to interpret for the FOS, would embrace the concept of “fair and reasonable”. It would certainly help a great deal in allaying my concerns if those assurances could be given to the House. The Minister probably cannot express it in these terms, but it would help if he could say that these changes are contingent and will be reviewed and judged on their effect. That would allay my continued concerns about what is being proposed here.
Baroness Bowles of Berkhamsted (LD)
My Lords, I rise briefly to support my noble friend Lord Sharkey’s amendments. Some years ago, I gave a speech on ethics in finance in connection with the international Robin Cosgrove Prize in which I outlined what I called my eggshell strategy. The premise was simple: we must force firms, boards and employees to think, not merely to comply. Worry is a warning system. The question is never “How close to the line can we sail?” but “How fair have we been?” The core issue here is exactly that: rule compliance is not a substitute for fundamental fairness. The FCA’s consumer duty expresses the same principle, but that does not mean that the FCA should become the sole repository of judging fairness. We have always had the courts as the backup, and the Financial Ombudsman Service more recently, because courts are financially inaccessible to most consumers.
The proposal to tie the ombudsman strictly to FCA rule compliance assumes that, if a firm follows the letter of a rule, it has acted fairly. The motor finance saga demonstrated the opposite. For years, firms relied on nuances in the FCA’s disclosure rules to argue that discretionary commission arrangements were permissible, but these were hidden discretionary commissions, and any reasonable person looking at those structures from a consumer’s perspective could see that variable hidden commissions, with costs levied on the consumer, were inherently unfair.
Honesty and transparency are always the best policy, irrespective of rule nuances. They are your defence. Firms must think like a consumer when considering what is fair, rather than asking their compliance officers how close to the line they can sail. If we shackle the ombudsman to technical rule compliance, we destroy its core statutory purpose to provide an independent, common-sense check where formal regulations have fallen short or lagged behind market practice.
Equally, imposing a rigid 10-year absolute long-stop creates a dangerous incentive. In long-tail products or hidden commission structures, unfairness may be actively concealed. A 10-year cut-off rewards firms that manage to keep material facts hidden for a decade, while shutting the door on consumers who discover the harm only years later. Under Section 32 of the Limitation Act, the courts do not allow time to run when material facts have been concealed. Why should the Financial Ombudsman be forced to do so? A regime that rewards concealment is not a regime that promotes fairness.
Lord Altrincham (Con)
My Lords, we take a different view on the Financial Ombudsman Service. Our position is that the present FOS model now requires more fundamental reform. We propose that the Treasury should publish draft legislation to replace the FOS with a new financial adjudication service, alongside a dedicated financial services chamber within the First-tier Tribunal.
We accept the need for consumers and SMEs to have access to redress that is fast, expert and affordable. Our concern is that the FOS has evolved well beyond a simple dispute resolution function. Its decisions can shape market behaviour and influence how FCA rules are understood, without the same accountability as a regulator or the legal certainty created by binding precedent.
At the heart of that concern is the fair and reasonable test. A firm may comply with the law, FCA rules and its contractual obligations but still face uncertainty about whether the ombudsman will take a different view. We simply cannot have this situation if we want a regulatory landscape that is conducive to business confidence. We therefore understand the position taken by the noble Lord, Lord Sharkey, but we start from a different premise. Our position has not changed. We want a redress system that remains accessible to consumers but is also more predictable, legally certain and consistent.
Lord Pitt-Watson (Lab)
My Lords, I start with an apology to the noble Lord, Lord Sharkey, if I have failed to respond to him appropriately, but perhaps I can do so in the remarks that I will now make. In response to my noble friend Lord Davies, I am clear that treating customers fairly is one of the business principles of the FCA and is therefore one of the criteria by which a complaint will be able to be made to the FOS.
The FOS plays a vital role in the redress framework for financial services, ensuring that consumers have confidence that, if there is a complaint about a financial services provider, there is an independent, impartial service that can resolve that complaint and has the ability to put things right. That role will not be changing as a result of these reforms. However, the framework within which the FOS operates is not as consistent as it needs to be, and that is not good for consumers or financial services firms. That inconsistency is not surprising because the FOS’s fair and reasonable test was determined before the consumer duty came to the FCA.
The Government’s review of the FOS found that there is a small but possible minority of cases where that inconsistency in the framework could cause false determinations to have the effect of quasi-regulations by setting standards that may not be in line with FCA regulations. To be clear, these are all the FCA regulations. If noble Lords had been with me three months ago, they would have seen me writing letters to my predecessor confirming that that was indeed the case.
As far as the House of Lords is concerned, the Financial Services Regulation Committee stated in its report Growing Pains, that the FOS’s actions can,
“have regulatory impacts by creating precedents that the FCA requires firms to follow”—
again, a quasi-regulator. That is the background to why we are doing this.
Baroness Kramer (LD)
The key issue that I think the Minister has rather glossed over is the evidence base for making these changes. We have been told it would be coming; it has not come. Consistently, we have been told that letters are being developed, but letters have not arrived. I asked for a specific letter and was told that of course it could be provided. It is about the car finance scandal, which was basically exposed through the FOS while the FCA stood to the side, and what would be different now in the consequences of the complaints. What would happen to the complaints that would be different? This seems to be the issue that lies at the heart of this. The FOS exposed a major scandal. As the Minister will know, car finance is the second largest financial market in the UK. Nine out of 10 people who buy a car finance that car. The redress scheme that the FCA has been forced to put into place is currently £7 billion. If I understand correctly from listening to the Minister and his various advisers, in future the FCA approach to the problem would reign, this scandal would never be exposed and there would never be redress. I am waiting for the letter that is supposed to tell me whether that is exactly correct.
Lord Pitt-Watson (Lab)
Let me try to address that question. The FCA and the FOS are independent. It is not for the Government to decide what was a correct or a false decision. All that the Government are saying is that the criteria by which the FOS adjudicates should be similar to the rules that practitioners are trying to exercise in the way in which they are working. I think that is just good common sense. I believe there will be a publication coming out shortly from the industry with examples of where the industry may think that the FOS treated it in a way that was inconsistent with the FCA. It is not for me to judge whether that took place. It is for the FOS to judge whether that took place. That may be the reason that I am proving so frustrating in being able to write back properly to the noble Baroness.
Amendment 14 would remove Clause 8 from the Bill and add a list of factors that the FOS must take into account when determining what is fair and reasonable in all the circumstances. In Committee, the noble Lord and others raised concerns that Clause 8 might remove the ability of the FOS to consider fairness in the round. That is not the case. The FOS will still make its determination based on all the circumstances of the case.
The amendments made to FSMA by Clause 8 do not abolish the fair and reasonable test. That is the final adjudication that will be made by the FOS and, because of the principles of business, treating customers fairly is one of the criteria by which a complaint could be made.
Where the relevant FCA rules apply, the Government consider that FOS determinations should be consistent with those rules. Consumers and firms should be able to understand and rely on the FCA rules as providing the standards against which conduct is going to be assessed. I want to be clear: that extends to all the FCA’s rules—I think that addresses my noble friend Lord Davies’s question. That includes the principles for business, the consumer duty and the code of conduct. These are designed to secure high standards of conduct and consumer protection. If a firm fails to meet its obligations under these broad principles-based rules, the FOS may conclude that it should pay redress to the complainant, taking into account this failure and any other relevant information, such as the impact the failure had on the complainant. There is no requirement for a firm to have breached one of the more specific, detailed rules in the FCA’s rulebook.
The consumer duty was introduced by the FCA to improve consumer protection across all financial services, and the Government are confident that it sets a high standard of care that firms should provide to their customers. It includes a requirement to act to deliver good outcomes and an expectation that firms will act in good faith, avoid causing foreseeable harm and enable and support retail customers to pursue their financial objectives. The consumer duty, as I pointed out, did not exist when the FOS was established and the fair and reasonable test was introduced. It is right that the framework governing the FOS should be updated to reflect this landmark piece of consumer protection regulation. Without clarification, we are left with a situation where two different bodies are independently making assessments of what standards firms need to meet, and that does not seem like a sensible approach. The reforms to the fair and reasonable test strengthen consistency across the framework. They do not weaken consumer protection.
Amendment 13 would remove Clause 7. In Committee, the noble Lord suggested that the referral mechanism would in effect subordinate the FOS to the FCA. That is not the case. The FOS will remain completely independent and responsible for resolving complaints between consumers and financial services firms. The FCA will not determine individual complaints, it will not investigate disputes and it will not direct the outcome of cases. Those functions will remain entirely with the FOS.
The amendments to FSMA made by Clause 7 ensure that, where the FOS considers there to be an ambiguity within the FCA rules, the FCA must provide an opinion requested by the FOS. That is entirely consistent with its statutory role as a rule-maker. The FOS will then use that opinion, applying it to the individual circumstances of the case to make a determination.
Lastly, some noble Lords expressed concerns about the potential for referrals to lead to delays, including with reference to the FCA’s comment about the potential operational load. The Government recognise the importance of maintaining the FOS’s quick and informal model, but the Government anticipate that only a very small number of cases are going to be referred to the FCA. The vast majority will be resolved without the need for referral. To avoid delays, the timeline for the FCA to respond will be set out in secondary legislation.
The FCA and the FOS are already gaining practical experience of operating such a mechanism by trialling arrangements through their memorandum of understanding. The experience gained through this trial has provided valuable lessons for the implementation of the legislative mechanisms. The Government will continue to work closely with the FOS and the FCA ahead of those changes taking effect, preparing them to ensure that the new system works effectively. The memorandum of understanding, by the way, is creating a very small number of referrals from the FOS to the FCA.
Lord Sharkey (LD)
My Lords, I thank the Minister and all the others who have spoken for the way in which they have covered the issue. But it is notable that a lack of evidence for the reform proposals still exists. We still have not seen what it is that is wrong with the current system. We have not seen any hard data. We have seen soft data that suggests there is a problem with the operation of the FOS. It is the case as well that the definition of the determinator contained in the memorandum of understanding contains direct references to the FCA rules in its book, and that is the expanded definition that is currently being worked on by the FOS and the FCA. But it is still the case that I cannot see a compelling problem that is addressed by the radical changes that the Government seem bent on making.
If possible, I would like at some stage to continue the conversation about the evidence. I feel that we are somewhat wide apart, perhaps unnecessarily when on the one hand we seem to have a system that works very well, and on the other hand we have a desire for fairly radical reform. I am not sure that that plays out happily together, but I would be happy to discuss that if the Minister is willing. Having said that, particularly my remarks about the evidence, I beg leave to withdraw the amendment.
Lord Sharkey
“Determination of complaints: matters to be taken into accountIn section 228 of the Financial Services and Markets Act 2000 (determination of complaints under the compulsory jurisdiction of the ombudsman scheme) in subsection (2), at the end insert “, having taken into account the relevant law and regulations, the relevant regulator’s rules, guidance and standards, the relevant codes of practice and (where appropriate) what the Financial Ombudsman considers to have been good industry practice at the relevant time”.”Member’s explanatory statement
This amendment would remove Clause 8 from the bill and insert a new clause requiring the Financial Ombudsman, when determining whether an outcome is fair and reasonable in all the circumstances of a case, to take into account various other points.
Lord Sharkey (LD)
My Lords, I would like to test the opinion of the House on Amendment 14.
Local Government Reorganisation
(1 day, 7 hours ago)
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The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Housing, Communities and Local Government. The Statement is as follows:
“This Government are committed to delivering good growth across the country and power in every postcode, with places able to set their own ambitions and integrate services to meet people’s needs. Achieving that requires a fundamental rewiring of the state, giving power held in Whitehall back to the people and the places where they live and work. As we set out in the Cabinet statement on rewiring the state, effective and sustainable local government is the vital foundation of our devolution ambitions.
As we are now determined more than ever to devolve power closer to the people we represent, it is only right that, as the new Secretary of State, I make sure that everything we do is working towards that plan to change Britain without delay. The Prime Minister told the House last week that he was
‘prepared to look at local government reorganisation’.—[Official Report, Commons, 1/9/26; col. 65.]
and he asked me, as his Communities Secretary, to do that. Throughout this process, the Government have listened to representations from Members of this House, councils and the public, and I want to be clear how critical this is to me, given their importance to our democracy and the services they provide for local people. But there will always be a wide range of divergent views, which means that achieving perfect consensus will never be possible.
I understand that feelings run high and people naturally have strong views in different directions. In that context, and in the light of legal advice, I want to satisfy myself, first, that the right process is in place, that it is robust and, of course, that it complies with the law. Secondly, I want to fully test whether our proposals for local government reorganisation meet the priorities of the new Administration and the new Prime Minister, and any additional considerations.
With those two considerations in mind, I have decided to withdraw the decisions made in March this year for Essex, Hampshire, Norfolk, and Suffolk, and, where relevant, their neighbouring unitary authorities. The Government’s legal representatives have notified the court of this step. I have also decided to conduct a full review of the local government reorganisation programme, including the decisions that were announced in July this year for a further 14 areas, and the two areas where decisions have not yet been taken, and I ask that reorganisation activity be paused. These 14 areas are Derbyshire, Devon, East Sussex, Gloucestershire, Hertfordshire, Kent, Lancashire, Leicestershire, Lincolnshire, Nottinghamshire, Oxfordshire, Staffordshire, Warwickshire and Worcestershire, and, where relevant, their neighbouring unitaries.
I do not take this lightly. I recognise the huge amount of work that has already gone into progressing reorganisation in each of these areas, and I am very grateful for it. I know that many Members of the House and many council leaders outside the House will have lots of questions about what this means for them and their communities, and I will try to address these as best I can today.
First, we are working across Government on rewiring the state following the Cabinet statement. We recognise that effective and sustainable local government is fundamental to our ambitions for a devolved country that works better for and with communities. We will consider this issue as part of our wider approach.
Secondly, as an immediate step, I have asked the Minister for Local Government, Devolution and Regional Growth to undertake a rapid review of the current local government reorganisation programme, including the position in the four areas where we have withdrawn and the further 14 areas that we are reviewing and pausing, alongside the two remaining areas. The new councils for East Surrey and West Surrey will be unaffected because they are already established in law, have had their first elections and are on track to go live in April 2027.
Thirdly, I want to be clear about what this means for elections scheduled for next May. Elections will go ahead in May 2027 on existing council boundaries.
Fourthly and finally, my department will provide support to council leaders, officers and Members representing impacted areas, and the Minister for Local Government has written to leaders and copied in Members of this House.
I want to ensure that all those who represent these areas feel included in considering their future, and I will update the House at the earliest opportunity. My ministerial team and senior civil servants from the department are ready to discuss and to work with those representatives. My team will proactively reach out to discuss the local implications in detail. My department remains committed to working in partnership with local government, both in this immediate period and in the longer term. I commend this Statement to the House”.
My Lords, that concludes the Statement.
Baroness O’Neill of Bexley (Con)
My Lords, I thank the Minister for repeating this quite significant Statement. The Government have suddenly paused the reorganisation plans they started for local government. This is astounding. Proposals to merge councils in Norfolk, Suffolk, Hampshire, and Essex have been withdrawn. The 14 areas which formed the third tranche of the programme have also been put on hold. Cambridgeshire and Peterborough, and West Sussex, which were awaiting the Government’s decision, now face further uncertainty for residents, councillors and council officers.
We are told that this new review follows updated legal advice but is also to align the plans for local government with new government priorities. The only area unaffected is Surrey, where the two new unitary authorities have already been established. This has come too late for them.
It was only in June that we were told that this Government
“remain fully committed to the timetable already set out”,—[Official Report, Commons, 16/7/26; col. 141WS.]
and that their local government reorganisation programme was
“a once-in-a-generation opportunity to ensure that councils genuinely represent the communities they serve today and stand the test of time”.—[Official Report, Commons, 16/7/26; col. 139WS.]
Time has hardly passed, and the programme is paused.
Let us not forget that local elections were postponed. Now, elections in May 2027 will go ahead on existing council boundaries. So much time, not to mention money, was spent drawing together proposals, conducting and responding to consultations nationally and locally, with staffing, governance, finance and service delivery about to be restructured—without, by the way, any guarantee that this would end up saving taxpayers any money or improving services for local people. Are we now being told that it may have all been for nothing because the Government did not think through the legal implications or because the new Prime Minister simply does not fancy it?
What is the estimated total cost of this review, both to national government and to the authorities affected? Do the people making those decisions have any idea how damaging the uncertainty and inconsistency is to many councils, including to staff recruitment and staff morale? Councils are losing large numbers of staff who want certainty on their future, and, for the same reason, cannot recruit replacements.
Your Lordships’ House spent eight days in Committee and two days on Report on the English Devolution and Community Empowerment Act 2026. The Minister said at Second Reading that the Bill would
“drive the biggest transfer of power out of Whitehall to our regions and communities in a generation”.—[Official Report, 8/12/25; col. 30.]
However, we now have the rewiring of state White Paper to look forward to, which will focus on devolution and local government. Can the Minister clarify, if this new Bill is to deliver devolution, was the English Devolution and Community Empowerment Act not devolution at all? As we said at the time, it was not community empowerment. It shifted power away from the local to the regional and to Whitehall—from locally elected councillors to mayors, and from democracy routed in local identities to new managerial, technocratic boundaries. Will this new Bill reverse that direction of travel?
We are hearing the same platitudes from this Government to disguise their lack of long-term vision. Can the Minister tell us exactly what the priorities of the new Prime Minister are, and how they will differ? What certainty can she give to local councils receiving this news? I look forward to her response.
Baroness Pinnock (LD)
My Lords, I too thank the Minister for repeating the Statement. Across England, there will be thousands of councillors and council officers who have worked for months, sometimes years, to deliver an effective solution to the Government’s top-down reorganisation diktat. They will have devoted scarce resources in both funding and precious time. Today, they will be despairing. With the stroke of a ministerial pen, all their careful planning has been consigned to the waste bin.
The principle of devolution is the right one. Unfortunately, the Government have conflated devolution with local government reorganisation, and that has resulted in this sorry mess. There are any number of questions that the Minister must answer, given that, in July, she gave an assurance in this Chamber that a decision on the final reorganisation plans for the remaining councils would be made in October.
I am confident that there will be many specific questions about individual councils, so I will restrict my questions to general principles. First, given that the Government’s decision has been made following legal advice, can the Minister publish that advice and provide a summary for us in her response? Will she tell the House when those councils with agreed plans were informed? Some councils had already developed financial planning on the basis of agreed reorganisation. What support will the Government provide for those councils now facing severe financial pressures?
Today’s announcement has left councils and their residents in limbo. The Statement makes it clear that elections for districts will take place next year. That indicates a longer timeframe for reorganisation than a speedy review. Asking people to become councillors for a non-specific period is difficult. Equally, encouraging voter enthusiasm will be more challenging. What are they voting for? How long will it last? Local democracy has been the real loser in all this, with elections cancelled and democratic terms of office extended on a whim.
The process by which the Government determined the parameters of this reorganisation defied the importance and relevance of local communities. For example, new councils were told they had to have a population of at least 300,000, with a maximum of around 500,000—although, of course, one of the new Surrey councils has a population of 700,000. That was stated despite many existing unitary metropolitan councils being smaller than that. For instance, Calderdale, in my own west Yorkshire, has a population of just over 200,000. Many councils in the Manchester mayoral authority have a population of around 300,000 or fewer. That was one reason why communities lost out in this top-down reorganisation.
This is a thorough and embarrassing dog’s breakfast for the Government. It has all stemmed from the flawed notion that the financial crisis facing county councils could be resolved by changing the seats around the table and going for reorganisation, while ignoring the historic community ties around which many councils were created. The Government have much to do to put the “local” back into local government. I look forward to a thorough explanation from the Minister.
Baroness Taylor of Stevenage (Lab)
I have to deal with the Front Benchers first, although I thank the noble Lord, Lord Fuller, for his enthusiasm. I am very grateful to both noble Baronesses for their comments, and I understand the frustration that has been expressed.
The noble Baroness, Lady O’Neill, asked about updated legal advice, government priorities and the fact that, in June, we said we were fully committed to the timetable. It is important that we do not conflate the timetable with the commitment to LGR. As I said, there has been additional legal advice, but we also have a new Prime Minister and a new Secretary of State. In view of both those things, it is only right that we take a step back and have a look at these issues; it would not be right to not do so.
The noble Baroness, Lady O’Neill, spoke about elections being postponed, the time and money that has been spent, and improving services and financial gain. The Government’s vision is still that local government reorganisation will go ahead; we are not stepping back from that in any way whatever. This afternoon, my right honourable friend in the House of Commons stated many times, specifically, that our intention is not to row back from local government reorganisation. We see that as a way of improving services, generating the growth we all want to see, and making much more efficient use of the finances that go into local government. The work that has gone in already, which the noble Baroness mentioned, is certainly not wasted, because we are not scrapping the LGR process; we are taking a step back to have a look at it, but we are not scrapping the process.
The noble Baroness asked about the cost of the review and the uncertainty. The uncertainty caused by legal uncertainty is not tenable. The programme that we are setting in place will probably last for at least 50 years and maybe longer—the last local government reorganisation did—and it is very important that it is built on a firm foundation of legal certainty. Otherwise, our colleagues, not just in local government but their partners in business and the third sector, will be facing that uncertainty going way forward into the future. We need to make sure that we have the certainty we need.
I still stick by what I said when we debated the English Devolution and Community Empowerment Bill: this is the biggest transfer of power out of Whitehall. That is why it will never be straightforward or easy to do. It is a dramatic change to the way the state is wired, and the Prime Minister wants to see that happen. We want to get powers and funding out of Whitehall—I think there was not much disagreement to that in the Chamber when we debated the English Devolution Bill—and, to do that, we need a firm foundation of local government to build on.
The other question the noble Baroness asked was around the Prime Minister’s commitment and the long-term vision. I do not think you could have a stronger advocate for promoting devolution than our Prime Minister. He lived and breathed devolution and the devolution agenda during the time he was Mayor of Manchester. He genuinely believes in the transfer of power to every postcode in the country and he has set out very clearly that he has a long-term vision for this country to do just that.
The noble Baroness, Lady Pinnock, spoke about top-down reorganisation. This absolutely was not that. I have sat through many meetings with our local government colleagues, who came forward with their own proposals. They did not always agree in each area and it was sometimes very difficult to work through the different options that they came forward with. It will continue to be so, as they can once again put forward their views—some of them very strongly held, as the noble Baroness is aware—as we go through this review process. The process is certainly not confined to the waste-bin, as the noble Baroness put it; it is still very firmly on the table to be worked on, and I look forward to working with our colleagues in local government as we go forward.
The noble Baroness, Lady Pinnock, spoke about the assurance that decisions for those areas where we had not taken decisions already would be made in October. We are going to work as quickly as we possibly can on this review. My right honourable colleague the Secretary of State referred many times this afternoon to the fact that she wants this review to proceed at pace. This is not being kicked into the long grass or anything like it. She wants that to move forward as quickly as possible, so we can provide the certainty that local government needs.
The noble Baroness, Lady Pinnock, mentioned legal advice. We considered the legal advice provided as part of the judicial review process and the decision to withdraw the four decisions reflects that legal advice. It is a long-standing principle, as she will know only too well, that Governments do not publish or comment on legal advice. The legal powers for local government reorganisation remain valid. There are no court findings against the Government. We want to be able to review the decisions, so that the Secretary of State can reassure herself and the Prime Minister that they are the right ones. Respecting the court process means that the way to do this is to withdraw those and consider the programme afresh.
The noble Baroness, Lady Pinnock, also asked when councils were informed. They were told today. The legal advice was considered over the weekend and the Secretary of State informed the councils involved today: the 14 that were going to be paused and reviewed and the four that have been withdrawn from the court process.
The Secretary of State received many questions on financial provision this afternoon. The Government were putting forward some £63 million to help councils through the transition phase of local government, and she will consider the issues around funding as we go through the review process.
I turn to the elections next year. Elections will be held according to the usual boundary elections, so if a council was up for election by thirds next year, that will happen, and if it is the election of a full council, that will happen. From talking to councils in my local area, I can say that they are all very keen on the process of LGR going forward and they look forward to this. They know that the process is coming. They know that it is paused and not stopped, so they will continue to work with their local parties and local councils, as they have done so well in the past.
On the importance and relevance of council size, we have always said that council sizes were not fixed. Having gone through all the applications myself, it was clear that you cannot make a fixed point in terms of size. You have to look at each area individually. Geographies and demographics are different, and it is very important that each area is considered separately, according to its needs.
On the issue of historic communities and all the other issues, this pause will give the opportunity for people who had those strong views to put them forward again in the review process. I am sure they will do that. Nobody is backward in coming forward in this process and I look forward to hearing from many of them. But the right thing to do at the moment is take this short pause, particularly in respect of the legal advice and the wish of the Prime Minister and the Secretary of State to review this, so that, when we go forward, it will be with the certainty that everybody in local government needs.
Lord Fuller (Con)
My Lords, first, the un-cancellation of local government elections and now the embarrassment of this one, from a hapless MHCLG. Back in April, when your Lordships debated local government reorganisation, I characterised the proposals for Norfolk as a cut-and-shut job that would shame Arthur Daley. It would create England’s poorest council in east Norfolk and throw up in the air the authorities responsible for homelessness, housing, economic growth and planning. No wonder we challenged it. Today, the leader of my council tells me that the Government will refund our legal costs, well into six figures. Can the Minister tell us quite how much money the Government will be refunding to councils across the country to reimburse them for challenging decisions which we now conclude were unlawful and should never have been taken in the first place?
Baroness Taylor of Stevenage (Lab)
The strength of the representations of the noble Lord, Lord Fuller, on this matter shows the differing opinions that we have seen throughout this process. There are strongly held, different views on all sides, and it is important that we continue to take those into account as we go through the review process.
First, as I should have emphasised more when I was speaking earlier, I recognise the amount of work that councils have already put into preparing for reorganisation. As I said, this work will not be wasted, but I appreciate that it comes with a cost. Financial commitments may have been made, and we will look at this as part of the review.
I have already spoken about transition costs. The overall costs of reorganisation are of course to be taken into account, but we also know that reorganisation can save money. There has been a £90 million saving in North Yorkshire and £75 million in Buckinghamshire since their unitaries were established. I know that the noble Baroness, Lady Scott, saved money when she reorganised Wiltshire into a unitary.
There are also associated legal costs. LGR is often contested in the courts. It is a right and proper part of our democratic system that important issues can be challenged in the court system. The Government engage legal advisers to defend those decisions whenever challenges are brought, and that brings costs with it. But the questions are so significant, and the implications so long-lasting, that the extent of legal costs should be viewed in that context. Legal costs will be determined in the usual way.
Lord John of Southwark (Lab)
My Lords, I start by acknowledging the hard work that my noble friend the Minister has been putting into this over the last couple of years, and the work of those councillors who have been arguing for these changes in their boroughs and counties over the last few months. I speak as someone who is entirely supportive of these proposals; they offer a much better way forward for local and regional government. I have benefited from a similar model in London for many years.
However, there have been some mixed messages today, which I ask the Minister to help with. First, both my noble friend and the Secretary of State have talked about this being a rapid review, but I also understand that officers are being told to stand down all work and elections have been postponed, which does not suggest rapidity in the review. Can my noble friend the Minister throw any light on this, and can she reassure us that devolution will happen in this Parliament and that new unitary authorities will be up and running by the time of the next general election?
Baroness Taylor of Stevenage (Lab)
I thank my noble friend for his support for the overall programme. We are asking councils to pause work on progressing local government reorganisation. It will be a short pause. This means that councils should cease work on implementing previous decisions, but there are shared projects that will be useful in any potential reorganisation and of course they can be continued. We want this process to be done with good local engagement and we will listen very carefully to the views that councils provide.
As they have done throughout this process, officials will proactively engage with places and support them throughout the period. Ongoing work, for example, could include improving data quality and data sharing, mapping services, finances, workforce assets and contracts, identifying key risks and dependencies, undertaking ICT and digital discovery work, and continued engagement with partners and residents. We recognise the need to provide certainty as quickly as possible, so that areas have clarity over their future. We will work at pace on the review and report back to Parliament at the earliest opportunity.
Lord Lansley (Con)
My Lords, I draw the House’s attention to my registered interests as chair of the Cambridgeshire Development Forum. The House understands that the Government will not publish their legal advice, but are these decisions the result of specific legal advice about the nature of the decisions that were made or of changes of mind on the part of the Prime Minister and the Secretary of State? Would it not be better to start a rapid review by restating or amending the criteria against which the decisions are to be made? Would that not make the decisions, ultimately, less prone to legal challenge?
Where Cambridgeshire is concerned specifically, we were told that there would be a decision in October. Is that still the case? We were also told that that would lead to elections on new boundaries in May. Presumably that is not to be the case.
Finally, on strategic spatial planning, which I know the Minister—and I and others—supports, can she say that the lack of progress on unitaries does not mean that we cannot have progress on establishing strategic planning boards?
Baroness Taylor of Stevenage (Lab)
I thank the noble Lord, Lord Lansley. The criteria will be looked at as part of this review process. It is important that we take account of the legal advice—we are not going to publish it—and look at the impact on the future programme; it would be unwise not to do so.
On the issues around Cambridge, the noble Lord asked me about elections. Let me start with the October decision-making. We had said to colleagues in Cambridge and Peterborough—and indeed in West Sussex, where decisions had not been taken—that we would endeavour to have decisions in October. Both those areas will go into the review process, so those decisions will now be announced alongside the other areas that are being reviewed. I hope that that will not lead to too much further delay in Cambridgeshire, Peterborough and West Sussex. Noble Lords will be aware that an important part of this process is the statutory instruments that have to go through both Houses. We were on a very tight timetable for all this anyway, so it is not likely that elections will be able to go ahead to the shadow authorities as planned in 2027. That is why we have said that elections will go ahead, but on the old boundaries.
On spatial planning, the devolution work can continue to look at planning and how that will work through in the devolution process.
Lord in Waiting/Government Whip (Lord Katz) (Lab)
My Lords, it is the turn of the Liberal Democrat Benches, then we will hear from the Labour Benches and the Conservative Benches.
Baroness Thornhill (LD)
My Lords, if the legal concerns were serious enough to halt the programme today, suddenly, with rapid action, can the Minister tell the House whether any similar concerns had been raised previously by officials, local authorities or external counsel? Will she place a letter in the Library with the chronology of the key decisions that led to the suspension of the programme, so that Parliament can understand how this arose?
To be a little more specific—I think the noble Lord, Lord Lansley, is on the same page as me in this—I am not asking the Minister to disclose privileged legal advice, but can she tell the House which aspect of the process is now considered potentially unlawful? Is it the criteria, the consultation, the decision-making or the implementation? How can Parliament scrutinise ministerial decision-making if Ministers are unwilling to explain the nature of a legal defect that has caused such extensive disruption and waste of public money?
Baroness Taylor of Stevenage (Lab)
I will have a look at the chronology of the decision-making and talk to colleagues about it. Clearly, as I have said, very categorically, we will not be releasing the legal advice, but I appreciate that there is a chronology that takes account of the legal advice but does not divulge what it is. As to which aspects of the programme, I fear that that would be part of the privileged advice. We will look at any issues that have been raised as part of the programme of review. We will be clear and transparent about what we are doing in the review, so I hope that it will come out as part of the review process.
Lord Cryer (Lab)
M, my noble friend has talked about this to some extent, but can she assure the House that there will not be a wholesale return to the drawing board, as it were—in other words, that all that work will not be wasted? By that, I suppose I mean: does the Government’s commitment to devolution remain as strong as it has been for the past two years? Many of us feel that power has drained from municipalities to Whitehall for probably the past 50 years; we would like some of it to start going back to municipal centres.
Baroness Taylor of Stevenage (Lab)
I can reassure my noble friend that there is no drawing back on the programme of devolution. It is a very key part not just of government policy but of the Government’s vision for the country. For too long, we have had a very centralised model in this country. Many of the people in this room have been council leaders and will have been at the sticky end of that model. We do not want a begging-bowl culture where local councils have to go to Westminster for almost anything they want, whether a small power to do something or funding for an important local project. There is no rowing back from that at all. I am sure that noble Lords have heard enough from our new Prime Minister to know that his commitment to devolution has been strengthened by the years he spent as Mayor of Manchester, not weakened or diminished in any way. I know he is keen that we get that power and funding out to every postcode in the country, so that our country can achieve the potential we know it has—in every corner of the United Kingdom.
Lord Harper (Con)
My Lords, I would like to probe the Minister on a couple of the things she said, because I think they were a tiny bit inconsistent. The Statement says that there will be a full review and the Minister said it would be a rapid review—and she also said in one of her answers that outside organisations would be given the opportunity to contribute, implying that there will be a public consultation. If it is to be a rapid review, then I do not understand why we are having elections next year. Can the Minister give some indication to those council candidates and successful councillors the term of office they are seeking to be elected to? If it is a rapid review, arguably the decisions will be taken before the elections have even taken place. You have to give people a level of certainty. There are a lot of inconsistencies in what the Government have set out, and they need to clarify these sooner rather than later.
Baroness Taylor of Stevenage (Lab)
It is possible to have both a rapid and full review. It means doing the work carefully but as quickly as possible. To create the level of certainty everybody wants to see across local government, the decision-making has to be completed quickly. The rapid review will look at the programme as a whole, and the work on the rewiring the state delivery plan must include a question about the role of local government in the devolved country. The review will be led by the Minister for Local Government, Devolution and Regional Growth, and it will engage with MPs and all councils impacted. An extended delay is in no one’s interest. It is right that Ministers listen to concerns and the new Administration undertake this review to make sure that local government reorganisation aligns with our priorities and work on rewiring the state.
Lord Bellingham (Con)
My Lords, I declare my interest as a former Norfolk MP. Judging by my mailbox this evening, there is real anger and consternation across Norfolk. A huge amount of work and professional resources have been put into this. For example, King’s Lynn and West Norfolk Borough Council and Breckland District Council have spent a vast amount of money on preparing for the new unitary; that is money that could have been spent on vital services that is now down the drain. Furthermore, dozens of Norfolk County councillors took a decision not to stand last May because they trusted the Government; they stood down and many of those seats were taken by paper candidates put up by Reform UK. Morale is at rock bottom, and the chief executive of Norfolk County Council, Tom McCabe, has resigned. The Government have multiple questions to answer, and they should be ashamed of what they have done.
Baroness Taylor of Stevenage (Lab)
I hope I have already made clear that I do not think any of the money that has been spent is wasted. The work will go ahead on local government reorganisation and on devolution. When I did the engagement meetings on this, it was really interesting to hear stories from around the country of councils, which had not spoken to each other in 20 years or more, sitting down and working together. We have really appreciated that. It has been a good way of bringing councils and councillors together to work on this jointly, and we have no intention of rowing back on it. The money spent is not down the drain, nor has it been wasted; the money will be used in the future programme.
Lord Bach (Lab)
My Lords, I support the Government’s policy in this area; it is a brave policy and one I think the Opposition parties have behaved shockingly badly about over the last few months. Today is a difficult day; I feel it is difficult as well. But it needs to be said that this Government have support for the prospect of proper devolution. How can that take place without some local government reform? The two obviously go together. It is nonsense and just not right to say there is no relationship between them—there has to be.
I want to ask my noble friend about the cities that lost out so badly during the last local government reorganisation so they have become much too small, not natural in the slightest way and incapable of managing to get the necessary funding to be able to build the even more necessary houses and generate growth. Is it still the Government’s policy to make sure that those cities—including my own city of Leicester—have that extra space and are expanded in the way that is intended?
Baroness Taylor of Stevenage (Lab)
I thank my noble friend. I do not think it is helpful for me to comment on individual areas. However, he is right to point to the focus on growth. There were three main focuses that we looked at: the potential for growth and making sure we could achieve that across the country; ensuring that the key services delivered by local government are protected and supported going forward, including those for vulnerable people; and the issue of community identity which the noble Baroness, Lady Pinnock, mentioned.
Wherever we looked at those issues, there were different opinions in different areas, which is why we stuck very firmly to the criteria we set ourselves. The growth criteria came in the first criteria, and we looked at all of the proposals before us in respect of that. But we must not make any bones about the fact that we need to change things to get the growth we want to see. That involves making sure local government is enabled to drive that growth forward in the way it is organised, and that we have the devolution so that people who are taking decisions about growth, the economy and key services in their local areas are in that local area and have some skin in the game in relation to the decisions being taken.
Baroness Stedman-Scott (Con)
My Lords, when the elections take place next year, what period will the people elected serve? Will it be one year, two years, three years or four years?
Baroness Taylor of Stevenage (Lab)
For elections that take place next year, if the programme works through as we anticipate it will, the shadow elections will be in 2028.
Lord Stoneham of Droxford (LD)
My Lords, I suspect one of the main reasons why there has been a delay is that not enough attention has been given to the financial viability of these new authorities. In my own area of Hampshire, that is certainly so. I dispute the assertion that opposition parties have not been co-operative in trying to help the reorganisation, but there is an issue about the viability of the authorities. Is the question of viability the problem, or is it more likely that the Government are reluctant to put the resources in that are needed to make them viable?
Baroness Taylor of Stevenage (Lab)
To answer the last question first, we have already made a significant financial commitment to make sure that this programme works properly. A great deal of attention was paid to the issue of financial viability as we went through the process. We need to make sure we continue to focus on financial viability; it is incredibly important that these councils are financially sustainable. As I have already stated, we have seen that the councils that have already gone into unitaries make very significant savings, so that financial stability is absolutely key to what we are doing on this.
To come back to the original points that I made, we are making a generational change here to local government. We must make sure that we give the certainty to local government that we all want to see and that we create a local government framework across the country that can actually deliver the power and funding we need in every postcode, to see opportunity realised in every postcode in this country.
Financial Services and Markets Bill [HL]
(1 day, 7 hours ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
21:06 - Division on Amendment 17 - Ayes: 26 / Noes: 119 - Amendment 17 disagreed.
Baroness Hoey
“Claims management services: Northern Ireland(1) The Treasury may by regulations made by statutory instrument make provision for claims management services provided in, from or into Northern Ireland to be regulated under the Financial Services and Markets Act 2000 on a basis equivalent to claims management services provided in, from or into Great Britain.(2) Regulations under this section may amend primary legislation, assimilated direct principal EU legislation or subordinate legislation, including—(a) the Financial Services and Markets Act 2000,(b) the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and(c) Part 2 of the Financial Guidance and Claims Act 2018.(3) Regulations under this section may make consequential, supplementary, incidental, transitional, transitory or saving provision.(4) Before making regulations under this section, the Treasury must consult—(a) the Financial Conduct Authority,(b) the scheme operator of the ombudsman scheme under Part 16 of the Financial Services and Markets Act 2000,(c) the Department of Finance in Northern Ireland, and(d) such other persons as the Treasury considers appropriate.(5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(6) In this section, “claims management services” has the meaning given by section 419A of the Financial Services and Markets Act 2000.”
Baroness Hoey (Non-Afl)
My Lords, this amendment follows on from the amendment tabled in Committee by the noble Lord, Lord Hunt of Wirral. I am bringing the House’s attention to a growing and deeply concerning problem in Northern Ireland’s insurance market. The market is shrinking in insurer capacity, it is becoming less competitive, and it is leaving consumers and businesses facing higher premiums and fewer choices. It is an issue that the British Insurance Brokers’ Association has been highlighting for some time, and about which it has been getting in touch with noble Lords and Members in the other place.
The evidence suggests that the root cause is claims inflation driven by various factors that are within the power of government and regulators to address. Let me be clear to noble Lords, especially to the Minister: I am not calling for a new, immediate regulatory regime without proper consultation. Rather, the amendment would provide the Treasury with a targeted enabling power, subject to consultation and affirmative parliamentary approval, to extend FCA regulation of claims management companies to Northern Ireland. They are, of course, currently regulated in Great Britain by the FCA.
I will give a brief backdrop to the amendment, which paints a very stark picture. In home insurance, brokers in Northern Ireland now have access to just six markets, down from 11 in 2020. In motor insurance, the number of available providers has fallen from more than 15 to just eight over the same period. As competition has reduced, premiums in Northern Ireland have continued to rise, even as prices in Great Britain have begun to stabilise or fall. In motor insurance, Northern Ireland consumers are being affected by premiums increasing year on year, and they are already paying much higher premiums compared with the rest of the UK. Of course, as noble Lords will know, access to public transport in Northern Ireland’s extensive rural areas is very limited.
Therefore, there is no regulation of claims management companies in Northern Ireland. This has led to many of them exercising poor practices, which in turn leads to inflated claims settlements and therefore higher premiums for consumers and businesses. As fewer insurers have a physical claims-handling presence in Northern Ireland, so the prevalence of CMCs has become more apparent. The number of CMCs has grown rapidly. We estimate that there are probably twice the number operating than a year ago, suggesting that it is a very lucrative enterprise. Adverts appear everywhere, pointing people to them if they have a car accident, et cetera. Of course, in GB, since the regulation came in, the number of CMCs operating has halved since 2019.
Another reason for the growth of CMCs is their attraction of higher personal injury awards in Northern Ireland, which makes it a lot more lucrative for them. The difference between Northern Ireland and England and Wales is striking. For whiplash, for example, in England and Wales a compensation of around £1,500 would be paid. In Northern Ireland, it could be up to £15,000 with psychological claims added on. Obviously, those higher awards feed directly into higher insurance premiums for consumers and businesses alike. In some cases, we see clear conflicts of interest. Vehicle hire, legal services and CMCs are brought together under the same commercial structure, creating clear conflicts of interest, with some CMCs operating various companies under different names but with the same overall ownership. Ultimately, these additional costs are paid by consumers through higher premiums.
As we all know, insurance is not a luxury; it is essential. It must be accessible and affordable for all. It is very unfair that we in Northern Ireland are paying a higher premium compared to those in Great Britain.
The consequences of no regulation at all of CMCs are becoming increasingly clear. Major insurers have already withdrawn from Northern Ireland and new entrants are refusing to come. Some insurers are refusing to insure young drivers at any cost, and some insurers are refusing to cover certain postcodes where there is a high prevalence of CMCs and perhaps more perceived evidence of collusion. One insurer has reportedly reduced its Northern Ireland motor business by 75% and customers of a major broker have seen their premiums rise by 45% between 2023 and 2026. All this, of course, could lead to market failure.
Northern Ireland consumers deserve access to affordable, fair and competitive insurances. To achieve that, we will need co-ordinated action from the Northern Ireland Executive, the Treasury, Westminster, regulators and industry alike. We have to work together to make this happen. Everyone agrees that there is a problem and now we have to fix it. The issue has become quite a political hot potato in Northern Ireland, because the Department of Justice, the Department of Finance, the Department for the Economy and the Department for Infrastructure have all been examining it.
The FCA is aware of the problem but powerless to protect consumers. The Treasury is aware of the problem. MPs and MLAs continue to hear from frustrated constituents, yet despite all this—and, I hope, an agreement between the Opposition Front Bench and the Liberal Democrat Front Bench—nothing has actually changed and there is no regulation. While responsibilities pass from one department, committee, regulator and jurisdiction to another, premiums remain higher, choice remains limited and opportunities are denied to people who can least afford it.
The solution does not require years of further review or consultation; it requires action. Primary legislation is needed and the Bill is the perfect vehicle to deliver it. The amendment is practical, proportionate and targeted. It seeks to address what may become a market failure and create the conditions for a more competitive, affordable and accessible insurance market in Northern Ireland.
This is not a party-political amendment; it simply seeks to ensure fairness in Northern Ireland for consumers and to stop the rip-off merchants operating in this field. I hope that the Government will engage constructively with the amendment and work with us before the Bill goes back to the other place so that we can get the regulation needed.
The Bill is all about regulation. This is in the one place in the United Kingdom where we do not have that regulation. We have the ability to make it happen and I hope that the Minister will have some positive things to say. I beg to move.
Lord Weir of Ballyholme (DUP)
My Lords, I support the amendment in the name of the noble Baroness, Lady Hoey. It is well thought through, balanced and modest. The House will be relieved that, for once, neither I nor the noble Baroness, Lady Hoey, are even mentioning the Northern Ireland protocol or the Windsor Framework as part of this, albeit that that may be to our shame. The amendment is about trying to tackle a genuine problem for consumers. It is very much within the keeping of the Bill. Part of the purpose of the Bill is not necessarily to increase regulation but to have better and smarter regulation. This proposal very much fits in with that.
The amendment is cautious in its nature, because it would not compel the Government to take immediate action. It would give the power to the Treasury. Indeed, before any next steps could be taken there would need to be consultation, discussion and agreement with the devolved institutions and the respective departments. It would not be acted on by government but would have to be brought forward through the affirmative procedure. The amendment would take this in a sensible approach, one step at a time.
Ultimately, the amendment is to deal with a very real problem. Any of us who has been involved politically in Northern Ireland know that, during canvassing for every election, people will raise the issue of the higher rates of insurance. I am sure there will be agreement across the Chamber about this. Even as recently as the last general election, a number of candidates from different parties said that that was something that had to be tackled.
The noble Baroness, Lady Hoey, highlighted that part of the issue is that this has tended to fall between the cracks. It is not under the exact remit of any one particular department. Whatever the long-term issue is, it has become exacerbated in recent years, particularly since the end of Covid. In the last few years, we have seen shrinking choice. The number of insurance brokers and insurance companies has reduced for home and motor insurance. This has led to a vicious cycle of increasing premiums which, of itself, has meant more dependence on the role of CMCs. The direct impact of CMCs has been to raise overall premiums in Northern Ireland perhaps by around 30%.
As indicated by the proposer of this amendment, it is not purely the CMCs that have led to these increases, but they have played a very significant role. When part of the industry is unregulated, unaccountable and unchecked, it is no wonder that, for some, this has become almost a licence to print money. How this has then filtered down to the consumer has had a major impact. Any of us in Northern Ireland is used to the annual exercise, when we renew either our house insurance or our motor insurance, of our brokers quote us an exorbitantly increased level of cost. Generally speaking, we then try to probe that by asking them to explore whether there are any other options. At best, they will come back with something slightly less than what they originally quoted, but the prices go up and up for everyone. It is particularly acute for first-time motorists, for example. They face a situation either of exorbitant motor insurance costs or, in some cases, of simply not being quoted at all.
This is something which can be tackled. We have offered a very practical way forward through this amendment. The Government and, in particular, the new Prime Minister have put at the heart of the agenda the cost of living, not simply in a general sense but for every postcode in the country. If we are looking for something that can deliver on this promise then this is quite low-hanging fruit. I urge the Government either to accept the amendment or to find some formula, through discussions, in which its spirit can be brought forward so that we can actually start to tackle this problem once and for all. The amendment offers a solution by way of the Government intervening through the Treasury—or, at the very least, the sheer threat of the power may well lead to CMCs reducing back their costs. I hope that it may lead to good behaviour on their part. I urge the Government to give this very serious consideration. I look forward to the Minister’s response.
Lord Empey (UUP)
My Lords, taking up the last point from the noble Lord, Lord Weir, the Prime Minister, on his recent visits and tour of the UK, has emphasised that the primary focus of the Government is to help people with the cost of living. Because our population in Northern Ireland is spread out more than it is in Great Britain, there is much heavier reliance on motor vehicles to get around. This has a huge impact not only on farmers but on people who are resident in rural areas.
At one point a number of years ago, as Minister for Enterprise, I had responsibility for consumer protection. I have no recollection that financial matters of this nature were incorporated in the devolution settlement, so I believe that the Treasury has a key role to play. It seems odd that we in Northern Ireland have a sector that is unregulated. It is the only part of the United Kingdom where it is unregulated. People need to grasp that there is a different legal framework for dealing with claims for damages under insurance. For instance, the noble Baroness, Lady Hoey, referred to a list of settlements that should be reached, whereas we have a thing called the green book, which allows for much greater flexibility and has resulted in much higher claims.
The noble Baroness quoted one example, for soft tissue injury, but that is only one. It does spread out, and of course that is not the only potential claim. There could be other mental health claims arising from the situation. So the Minister should perhaps reflect on this. If he is not content with this amendment, cautious though it might be, he could table something at Third Reading.
Lord Hunt of Wirral (Con)
I support the noble Baroness, Lady Hoey, and the noble Lords, Lord Weir of Ballyholme and Lord Empey. In doing so, I declare my interest as past chairman of the British Insurance Brokers’ Association and a practising solicitor in the City of London.
We have campaigned within the broking community for proper regulation of claims management companies for a very long time. Therefore, BIBA was particularly disappointed that this Bill did not address the problem, which is urgent. Average motor claims costs in Northern Ireland have tracked more than 30% higher than in England and Wales since 2021. The figures given by the noble Baroness bear that out. There is a need to do something about this problem. I agree with noble Lords who have spoken that this is a great opportunity for the Government to put right the anomaly. Claims management companies add between 15% and 30% to a total claim by taking a percentage out of compensation that does not reach the claimant. We must keep reminding ourselves of that.
This amendment would be a practical, targeted correction alongside the Bill’s wider focus on consumer protection, redress and better regulation.
Lord Altrincham (Con)
My Lords, notwithstanding the anomalies that have been discussed—there are significant anomalies in insurance in England as well—we have some concerns about this amendment. It would hand the Treasury very extensive powers to act through secondary legislation, including the ability to amend primary legislation. We have raised concerns consistently in Committee and on Report about the use of broad, delegated powers of this kind. The same concerns apply here. Regulations being subject to the affirmative procedure provides a degree of parliamentary scrutiny. However, it does not alter the fundamental point that Parliament will be delegating significant legislative discretion to the Treasury before the detailed regime on any transitional arrangements has been set out.
Lord Pitt-Watson (Lab)
My Lords, Amendment 16 would give the Treasury the power to extend regulation of claims management activity to Northern Ireland through secondary legislation. I am aware of the concerns relating to high insurance costs across the UK and would be supportive of action to tackle these where we can, but we should not rush to regulate without clear evidence.
The Government’s Motor Insurance Taskforce has examined the drivers of motor insurance costs, including claims-related costs and market practices. This work has not identified clear evidence that claims management companies are a primary driver of higher premiums in Northern Ireland. Moreover, any proposal in this area would also need careful engagement with the Department of Finance in Northern Ireland and proper consideration of the devolution implications. I therefore ask the noble Baroness to withdraw Amendment 16.
Baroness Hoey (Non-Afl)
My Lords, there I was thinking that we had a Minister who was going to be much more reassuring, but, in fact, that was a very negative response. All the things he said have already happened and could be happening in more detail if the Government were to move forward with this. It really is a missed opportunity for the Government and it is not going to go away; it will have to come back in a different form.
I had not realised until recently—probably like many people here tonight—how appalling this situation is. I do not know where the Minister got his facts and figures; perhaps from the Treasury, but certainly not from the people who know what is going on in Northern Ireland. There is obviously no point putting this to a vote tonight, but I hope that, following this, the Minister will meet a group of us who understand this a bit more and will make it clear to him that perhaps, sometimes, he might be given the wrong advice. I beg leave to withdraw my amendment.
Baroness Kramer
“Reimbursement of fraud: liability of technology companies(1) The FCA must make rules providing that, where a person is to be reimbursed in respect of losses arising from an authorised push payment fraud, the cost of that reimbursement is to be borne, in whole or in part, by any relevant technology company on whose service the fraud was initiated, facilitated or communicated.(2) Rules under subsection (1) must provide for—(a) the apportionment of the cost of reimbursement between relevant technology companies and payment service providers, by reference to the extent to which each contributed to the fraud occurring,(b) a process by which a payment service provider that has reimbursed a victim may recover the apportioned cost from a relevant technology company, and(c) the information that a relevant technology company must provide to the FCA and to payment service providers for the purposes of the rules.(3) In making rules under this section, the FCA must have regard to the principle that the cost of reimbursing victims of fraud should fall, so far as is reasonable, on the persons best able to prevent the fraud.(4) In this section—“authorised push payment fraud” means a transfer of funds executed by a payment service provider on the instruction of a payer, where the payer was deceived into giving that instruction;“relevant technology company” means a person who provides— (a) a user-to-user service or a search service within the meaning of the Online Safety Act 2023,(b) an electronic communications service, or(c) any other online service by means of which an authorised push payment fraud may be initiated, facilitated or communicated.”Member’s explanatory statement
This new Clause would require the FCA to make rules placing liability for the cost of reimbursing victims of authorised push payment fraud, in whole or in part, on the technology companies on whose platforms the fraud originates, rather than solely on payment service providers, and to apportion that cost according to who is best able to prevent the fraud.
Baroness Kramer (LD)
My Lords, let me address Amendment 17 in my name, which is also signed by the noble Lord, Lord Vaux, which I very much appreciate. It addresses authorised push payment fraud and would require the tech companies whose platforms are host to this fraud to share in the reimbursement of losses to the victims of such fraud.
At present, victims of APP fraud are reimbursed up to £85,000, half by the bank sending the payment and half by the bank receiving the payment. This is under rules set by the Payment Systems Regulator. The rules and the cost of reimbursement have had a positive effect, in that banks have set up a much more effective regime to alert people to the possibility of fraud. Many of us have seen that in transactions that we do and the warnings that we receive. However, APP fraud continues to grow relentlessly and, on the most recent figures, is up by 19% in the last year, reaching £576 million in the UK. Payment fraud altogether in the UK has reached £1.3 billion a year. It is essentially 40% of all serious crime.
Some 66% of these scams—that is what they are—originate on online tech platforms. These platforms made £430 million in revenue last year from advertising these scams. I find that outrageous. Surely these platforms should be picking up at least part of the cost of reimbursement, instead of the cost falling wholly on the banks while the tech companies pocket the advertising revenue. I do not think that the tech companies will ever stop scams and take them seriously until it starts costing them money.
I cannot understand why the Government are rejecting my amendment. Are they so afraid of the tech companies and Trump that they cannot provide this protection to ordinary consumers who are being defrauded on such a scale? But I also had a eureka moment in understanding why the FCA has not acted. It came from an absolutely chance conversation. Neither the FCA nor Ofcom is apparently sure which one of them should take the initiative in trying to deal with tech companies and this form of fraud.
Regulatory courtesy has led to inaction. Frankly, when I look at the number of victims and the size of the losses, this is completely unacceptable. This amendment breaks that conundrum, and I would expect the Government to attempt to break that conundrum and ensure that action takes place.
On other amendments in this group, I support Amendments 19 and 20. I know they will be spoken to eloquently, but I admit to not fully understanding the issues in Amendments 95 and 97. But I will listen carefully.
I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I have added my name in support of Amendment 17, which the noble Baroness, Lady Kramer has already explained, I have also tabled Amendment 19. Both amendments relate to the continuing problem of fraud. As noble Lords are probably aware, the last Financial Services and Markets Act led to the introduction of the compulsory reimbursement for APP fraud losses by the banks, split 50:50 between the paying bank and the receiving bank.
This has had two effects. First, it has increased reimbursement to victims; but also, importantly, by imposing the financial costs of fraud on to the banks, it has given them a strong incentive to take steps to protect their customers from fraud, and they have done so. There are some valid concerns about how this might change victims’ behaviour—the question of moral hazard—and I hope the FCA will keep that under review; but it is fair to say that the requirements to reimburse customers in respect of fraud has generally been seen to be successful.
The logic for pushing the obligation on to the banks is that almost every fraud has to be cashed out through the banking system at some point in the chain. It is also true, however, that very little fraud arises from the banks themselves. As we have just heard, most APP fraud starts online or on a telecoms service—around 66% online and 17% from telecoms. Once again, I will namecheck Meta, from whose platforms the greatest amount of such fraud originates. Surely, it would be better to try to prevent fraud where it originates than to just reimburse it. Despite various voluntary charters, this is not improving at all. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, recognised this in its report four years ago. We said:
“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act”.
We were right: they have not acted. The Government's most recent fraud strategy also recognised this. It says:
“if industry partnership and market incentives alone remain insufficient to drive improvements, the Government will take legislative action within this Parliament”.
There have been no improvements. It is time to legislate.
I am sure the Minister is going to explain that the Online Safety Act is going to deal with all this, and it does help, but only to a certain extent. It is quite limited on what is covered and where in relation to fraud, primarily paid-for advertising, which is only a small area from where fraud originates. Amendment 17 would make the tech companies directly liable for their share of the cost of the fraud arising on their platforms. This Bill gives us the perfect opportunity to take the legislative action the Government have themselves committed to: to make the tech and telco companies take their responsibilities to their customers seriously without further delay. It is four years, as I said, since the committee reached its conclusion on this. So, I urge noble Lords to support the noble Baroness, Lady Kramer, if she decides to press Amendment 17, as I hope she will do.
My Amendment 19 is very simple. During the passage of the last Financial Services and Markets Bill, the then Government agreed to ensure that the Payment Systems Regulator should prepare a report every six months that sets out how the payment services providers are performing in relation to paying out and receiving fraudulent payments, as well as their reimbursement performance. Since the compulsory reimbursement scheme started, that reporting has stopped, but the reports were very helpful—not only in relation to reimbursement performance under the then voluntary scheme, but also in identifying and publicising which of the payment providers were the riskiest. It led to some being closed down because their performance in identifying and preventing fraud was so poor.
Lord Howard of Rising (Con)
My Lords, my Amendment 95 raises the issue of non-compete legislation. When this was raised in Committee, the Minister undertook to respond. His response was to refer to a 2025 working paper, but action is needed. Could I urge the Minister to pursue this and not to allow the report just to sit?
In Committee, the Minister commented that he was not an expert on employment law. That may be the case, but the ability to maintain confidentiality of important and expensive systems is vital in the financial services industry. Algorithms and sophisticated and complex computer systems are an essential part of today’s top-level financial service companies. They must be able to maintain the confidentiality of their systems.
Non-compete agreements are an essential part of this. Whether the Bill we are debating today is the right place for this is uncertain, but it must be dealt with if we wish to retain Great Britain’s predominant place in the industry—something that I hope the Minister favours. Even if non-compete is not precisely within his remit, he should certainly make it his business, in the interest of his department. I urge the Minister not to allow the 2025 report just to sit in a pending tray.
Baroness Bennett of Manor Castle (GP)
My Lords, I speak to Amendment 97, which appears in this group in my name. I commend the noble Baroness, Lady Kramer, and the noble Lord, Lord Vaux, for providing us with powerful arguments, particularly for Amendment 17. I echo the noble Lord’s comments as, if the noble Baroness wishes to put this to the vote, the Green Party will certainly support it. We need to see the tech companies being made to pay for the huge profits they are collecting while continuing to allow illegality to operate in their spaces.
However, I will primarily speak to Amendment 97. I begin by acknowledging the work of Joshua Tjeransen, who is my King’s College London intern. He has identified this issue for me and done a great deal of work on this amendment. This amendment is about a different sort of fraud from that covered by the amendment from the noble Baroness, Lady Kramer; it is about ransomware. I am sure noble Lords have come across many cases of this; it is a great concern to businesspeople, individuals and institutions, particularly the NHS. It is where a computer system or database is locked and access is prevented. The ransomware takes it over, and companies are told, “Pay up or you will never get this back”.
It is worth thinking about the circumstances of this. Very often, payment is demanded in cryptocurrency. People are told, “If you don’t do this in the next hour, the figure will double and double again” and so on, through alerts appearing on someone’s computer screen. These are tremendously frightening, difficult, challenging circumstances to face.
The figures we have for this come from Report Fraud. In the year from April 2025, 323 UK organisations reported such an attack. More than half of them were small and medium-sized enterprises, and the average loss was £270,000, which for SMEs is a huge sum of money. I said “reported” because it is generally acknowledged by experts in the field that there is a real issue of stigma here. Companies and organisations do not want to admit that they have fallen victim to such a fraud, and it is generally agreed that those figures are the tip of the iceberg. The accepted advice from law enforcement is “Don’t pay”, but it is generally acknowledged, although it is very hard to put figures on it, that a lot of people are paying right now, and this must be very lucrative for some very nasty criminals.
I come to the amendment, which would insert a new clause that would place a duty on the Financial Conduct Authority to make rules within 12 months of Royal Assent prohibiting the firms it regulates from
“making, offering, authorising or facilitating a ransom payment”
and would prevent the insuring or indemnifying of anyone against such a ransom payment. Firms would have to notify the FCA within 72 hours of becoming aware of a ransom demand. The only exception provided is where the payment is needed to prevent an imminent risk to life or serious injury, and then only with the prior approval of the Secretary of State. It covers authorised persons and firms supervised by the FCA under the Payment Services Regulations and the Electronic Money Regulations.
I think it is worth going back over how we have got to the point where we still do not have any action. In January 2025, the Home Office consulted on three proposed measures on ransomware: a targeted ban on ransom payments by public sector bodies and operators of critical national infrastructure; a payment prevention regime under which other organisations would have to notify the Government before paying; and mandatory incident reporting. The response was reported on 22 July 2025 and recorded 72% support for a targeted ban. There was an announcement that all public sector bodies and CNI operators would be banned from paying, and there would be a notification requirement.
On 14 October 2025, answering a Question from the noble Lord, Lord Fox, on the Jaguar Land Rover attack, the noble Lord, Lord Leong, told the House:
“The Home Office is progressing a new package of measures to protect UK businesses, and we will update the House accordingly”.—[Official Report, 14/10/25; col. 169.]
In December 2025, the Security Minister said that the ban remained a priority and would progress—noble Lords know the dreaded phrase—when parliamentary time allowed. You might think that there would be coverage of this in the Cyber Security and Resilience (Network and Information Systems) Bill, but my understanding is that there is no coverage of such issues.
Why does this amendment work? Why can we do this through the Financial Services and Markets Bill? Nearly every payment will pass through a financial company. If there is any kind of scale to this at all, whoever the victim is, the money will go through a firm that the FCA supervises. A rule on these firms therefore reaches most payments made from the UK, not just payments by financial firms themselves. I think the amendment is elegant. It would not create a new offence or a general ban on businesses as the Public Bill Office said that that would be outside the scope of the Bill. Instead, it would place a duty on the FCA to create the rules within 12 months. This is a step forward in dealing with a critical issue that is affecting businesses and organisations right now and on which the Government have promised to act. It follows the Government’s own design.
I am not expecting the Minister to accept the amendment, and I am not going to put this to a vote because we have not had the time or capacity to work through the detail of exactly how this is written, but none the less I hope that we will hear from the Minister that there is going to be significant progress in this area very soon. I am really hoping not to hear the phrase “when parliamentary time allows” because the Government have done the consultation on this and have promised to act. We need to see protection in this fraud capital of the world—the UK—for firms. If ransoms cannot be paid, it will not be in the interests of criminals to put the effort in to try to get ransoms.
Baroness Neville-Rolfe (Con)
My Lords, we are concerned about the scale of fraud, and in particular by the continued growth of authorised push payment fraud and other forms of online economic crime. The Government and the banks have made progress, but the truth is that it is hard to keep up with the scammers, and the sums at stake are significant, as the noble Baroness, Lady Kramer, has explained. I therefore strongly welcome the proposal from the noble Lord, Lord Vaux, for an annual report.
My noble friend Lord Howard of Rising is right to be concerned about the future protection of commercially sensitive information as part of a competitive UK sector. I am glad he has brought his amendment back, and I hope the Minister will be able to provide an assurance that this will be addressed.
The amendments in this group raise important questions about transparency, monitoring and the practical steps that firms can take to identify scams earlier, warn consumers, share information more effectively and pay compensation where that is appropriate. Indeed, there has been considerable progress since the APP reimbursement regime was introduced in 2024. I always remember my card being used in Korea to buy £2,500 worth of Louis Vuitton luggage. That would not happen today, as banking procedures and scrutiny are so much better.
However, the proposal from the noble Baroness, Lady Kramer, is a difficult one, as it is not clear what the technology companies could do to stop fraud systematically. They are not passing money on in the same way as the banks do. That may have been what the noble Lord, Lord Stockwood, was getting at in Committee when he responded to this amendment at that stage. New regulations of this kind could also have a chilling effect on the supply of online services in the UK, so more analysis is needed before the FCA introduces new rules. We believe this is an area where the Government and the regulators should be prepared to make progress, but we also understand the constraints.
It is also important that people learn to avoid scams with simple procedures such as face ID, and to take care over what they buy online. This should be an important part of education, and indeed Ofcom, working with the FCA and the tech companies, should be able to make more progress here. I very much look forward to the Minister’s response on this important area and how he thinks we can best address this problem.
Lord Pitt-Watson (Lab)
My Lords, before I respond, I must start with a correction. In the third debate, I said that commercial credit data-sharing schemes improve bank referrals and strengthen personal lending. However, the CCDS and the bank referral scheme are different schemes. To correct the record, I meant that the Government are improving competition and supply through enhancements to commercial credit data sharing in this Bill and working with industry to strengthen bank referral arrangements. Both these schemes help to improve lending to SMEs. I apologise for that; I was speed-reading my way through my responses. I will try to be more careful in future.
I am grateful to the noble Baronesses and noble Lords for tabling these amendments and to all noble Lords who have contributed to this debate. On Amendment 17, fraud causes profound financial and emotional harm. As noble Lords know, this Government take the issue of fraud very seriously and are dedicated to protecting UK citizens. As my noble friend Lord Stockwood explained in Committee, the Online Safety Act requires tech companies to take proactive steps to prevent fraudulent content. The Government remain committed to ensuring that Ofcom makes full use of its powers to undertake fast and decisive action against illegal online harms, including fraud. At the request of the Secretary of State, Ofcom will share an annual update on its enforcement strategy for online safety with Parliament.
In July, Ofcom published the fraudulent advertising code consultation, proposing more than 40 new measures to tackle online fraud on the UK’s biggest digital services. Among these measures, Ofcom proposes the mandatory verification of financial services advertisers. This will support legitimate financial promotions from FCA-authorised firms while cracking down on illegal financial promotions such as scam investments and crypto ads.
Lord Vaux of Harrowden (CB)
I am terribly sorry to interrupt the Minister, but perhaps he could explain why the FCA has stopped the reports that the PSR was previously providing.
Lord Pitt-Watson (Lab)
I am unable to answer the noble Lord’s question; might I write to him with an answer?
Amendment 20 was discussed in Committee and the Government’s position remains unchanged. As set out in Committee, a range of measures is already in place and further work is under way across government, regulators and industry. This includes firms using increasingly sophisticated fraud detection systems, confirmation of payee checks, work to improve data sharing between payment service providers and steps to ensure that fraud prevention is built into the design of future retail payments infrastructure.
Turning now to Amendment 95, concerning the protection of intellectual property, I agree that weak protections can be a drag on competitiveness. On non-compete clauses, in particular, there are no provisions in the Employment Rights Act 2025 that would affect the use of non-compete clauses by financial services firms. The Government published a working paper on options for reform of non-compete clauses in employment contracts at Budget 2025. We are currently reviewing responses and will respond to the working paper in due course. The focus of the paper was on options for reform of non-compete clauses in employment contracts. It does not consider reform to intellectual property law or other means to protect confidential information. The Government understand that a well-designed, balanced intellectual property system offers confidence for business investors and consumers to contribute to growing our economy.
Turning finally to Amendment 97 in the name of the noble Baroness, Lady Bennett, I recognise the continued threat posed to the UK by ransomware criminals. Following public consultation last year, this Government are already taking forward work through the Home Office to break the business model of ransomware and provide law enforcement with the information it needs to understand, investigate and disrupt ransomware activity. This includes proposals for a targeted ban on ransomware payments and mandatory reporting for businesses above a certain size. Taken together, the Government consider that the objectives of these amendments are already addressed through the existing framework and work that is under way and do not believe that further statutory requirements are needed. With that in mind, I ask noble Lords not to press their amendments.
Baroness Bennett of Manor Castle (GP)
Before the Minister sits down, can I ask for a potential timeframe on when the noble Lord expects to see progress on that work in the Home Office?
Lord Pitt-Watson (Lab)
Again, if the noble Baroness will accept it, I will write to her on that. I do not know the timetable offhand.
Baroness Kramer (LD)
My Lords, the online platforms know exactly what they have to do to stop online fraud; they are just choosing not to do it. The Government say that the answer will come from Ofcom, but that has certainly not worried the platforms one iota. The platforms will take notice only when they have to pay out to reimburse people who have been victims of those fraud scams. That is why Amendment 17 matters, and that is why I am going to test the opinion of the House.
Lord Pitt-Watson
Member’s explanatory statement
This amendment would remove a subsection which duplicates section 131Z19 of the Financial Services and Markets Act 2000 (inserted by paragraph 18 of Schedule 2).
Lord Pitt-Watson
Member’s explanatory statement
This amendment would correct a cross-reference.
Lord Pitt-Watson
(ii) in its application as a secondary objective, the objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation).”Member’s explanatory statement
This amendment is consequential on the amendment in the name of Lord Pitt-Watson that inserts a new clause after clause 22 relating to the Bank of England’s functions relating to payment systems and service providers.
Lord Pitt-Watson (Lab)
In moving my Amendment 22, I will also speak to government Amendments 58 and 59. Amendment 22 is developed from our discussions in Committee.
Payment systems are essential national infrastructure. They allow households to pay bills, businesses to trade and financial institutions to transfer funds securely. As technology changes how we pay, those systems must continue to evolve, becoming more efficient and capable of supporting new services while remaining trusted and resilient. The Bank of England has a critical responsibility to protect and enhance UK financial stability. The Bank is also working with the Government and other authorities to support safe innovation in payments and digital finance. The Bank has welcomed this measure and will reinforce that work while preserving the primacy of financial stability.
Amendment 58 places the Bank’s role in facilitating innovation on a clear statutory footing. When exercising certain key functions for recognised payment systems, recognised digital settlement asset service providers, and in-scope service providers, the Bank must, so far as is reasonably possible, facilitate innovation with a view to improving the quality, functionality and economy of those systems and related services. The objective is expressly secondary and does not require the Bank to facilitate innovation where doing so would undermine its primary financial stability objective. This change will also bring the regulation of systemic payment systems and digital settlement assets into closer alignment with the Bank’s supervision of other financial market infrastructure. The Bank already has a secondary innovation objective for central counterparties and central securities depositories. Providing a comparable objective for payment systems and digital settlement assets provides the Bank with a clear and consistent statutory framework.
Amendment 58 also ensures that the Bank can be held accountable under its new objective. It enables the Treasury to make recommendations about aspects of the Government’s economic policy for the Bank to have regard to when considering how to advance its financial stability and secondary innovation objective in relation to payment systems. Those recommendations must be published and laid before Parliament. The Bank must explain the action it has taken, or its reasons for not acting, and provide updates where required. The Bank’s annual reports must now also explain how it has advanced the secondary innovation objective and engaged with interested stakeholders.
Amendment 59 reinforces that accountability by requiring the Bank to publish a stand-alone annual report on both secondary innovation objectives. The report must explain how objectives have been embedded in the Bank’s operations, processes and decisions, and how it has advanced them with respect to relevant functions. This will give Parliament and industry clear sight of how the objectives operate in practice.
Amendment 22 is consequential. It ensures that the mechanism already in the Bill for co-ordination between the Financial Conduct Authority, the Prudential Regulation Authority and the Bank with respect to relevant payment functions makes appropriate reference to regulator objectives, which would now include the Bank’s secondary innovation objective.
In summary, these amendments together place the Bank’s role in facilitating safe innovation on a clear statutory footing, while preserving financial stability as its primary objective. They also provide stronger and more transparent accountability for how the Bank applies the objectives in practice. I hope that noble Lords will join me in supporting these amendments.
Baroness Kramer (LD)
My Lords, I have a couple of very brief comments. I am comfortable with the amendments that the Minister has just described, but I have one note of caution. The drive for innovation, which we all think is a good thing, in many ways also increasingly exposes the UK to a loss of monetary sovereignty, particularly where that innovation has to be brought in from overseas, and gives overseas companies far greater control of the payments systems in the UK. That is one of the ongoing fears that we have had. Scott Bessent has been quite open in saying tariffs are very old-fashioned in controlling western economies’ and that stablecoin is the way to do it.
I am therefore cautious when I hear this drive for innovation without some counter-warning and counter-consideration of the monetary sovereignty impacts. I never hear those words used, nor are they captured in any way in anything that I hear around regulation. So often, the move into digital assets—which is, in essence, what this is all about—is about plumbing and pipelines; it does not recognise the political implications. We have seen this in many other areas, such as where we have given away food security and energy security. We need to be very careful that we do not give away security in the financial services and payments sector.
Baroness Neville-Rolfe (Con)
My Lords, we welcome these amendments and the movement from the Government on this important issue. I look forward to the Bank of England’s first report on its innovation objective and hope that it will help to drive much-needed growth in the economy. I am sure that the reports will also be useful to our specialist parliamentary committees.
Lord Pitt-Watson
“(aa) in paragraph 2(3), omit“, (ca)”;”Member’s explanatory statement
This amendment would remove a cross-reference to the paragraph omitted by paragraph 58(a) of Schedule 2.
Member’s explanatory statement
This amendment would correct a cross-reference.
“(ca) in paragraph 5(a), for“, (c) or (ca)”substitute“or (c)”;”Member’s explanatory statement
This amendment would remove a cross-reference to the paragraph omitted by paragraph 58(a) of Schedule 2.
Baroness Kramer
“Anti-money laundering: provision of support to professional services firms(1) Within three months of the day on which this Act is passed, the Treasury must publish an assessment of the arrangements that will be made to provide education, guidance and compliance support to professional services firms subject to anti-money laundering supervision by the FCA.(2) The assessment must include a comparison between—(a) the education, guidance and compliance support currently provided by professional body supervisors, and(b) the support that will be provided by the FCA.(3) The Treasury must lay the assessment before Parliament.”Member’s explanatory statement
This amendment seeks to require the Government to explain how education, guidance and bespoke compliance support currently provided by professional body supervisors will be maintained following the transfer of anti-money laundering supervisory functions to the FCA.
Baroness Kramer (LD)
My Lords, I am afraid that all the amendments in this group are mine. Amendment 29 has also been signed by the noble Lord, Lord Vaux, for which I am most grateful. I will be brief as the hour is late.
In this Bill, the Government will transfer all supervision of professional service firms in respect of anti-money laundering and counterterrorism financing from the current professional bodies to the FCA. Members of this House have received representation from a wide range of professional groups which are, frankly, utterly dismayed. They recognise that the FCA is trying to respond to their needs and issues, but it seems to have very little idea how to fund or resource the complex guidance and education required as part of that supervisory and monitoring process. It seems, as far as I can understand, that the FCA now says that it would like the professional bodies themselves to continue to provide all that work but, in essence, on an unpaid basis. That is not realistic.
The FCA has produced a high-level road map, but I hear universally that it is very short of information and low on timing details. I can agree that the current system has historically suffered from fragmentation, but I am not sure that we needed a remedy on the scale of the changes that are in the Bill. The fragmentation issue was being dealt with reasonably effectively by OPBAS—the Office for Professional Body Anti-Money Laundering Supervision—that had been created to sit above the professional bodies to provide co-ordination standards and make them effective. Where OPBAS had a weakness was in its communication with enforcement agencies, but this issue could have been remedied without the radical change on the scale represented in the Bill.
My amendments require an assessment of this transition process, particularly on issues such as education guidance and compliance support, timetables, regional coverage and supervisory fees. There is real concern now that with an additional layer of supervision brought into the picture, fees are going to increase very significantly. My amendment would also require the FCA to have regard to having the appropriate expertise on hand to provide that support and guidance—that is significant expertise ranging from accounting to taxation. It has not really taken on these issues historically.
I will not be pressing this issue because the FCA is trying to find ways to make this system work. I honestly do not think that the FCA would have wished this upon itself; nor would the professional bodies have wished it upon themselves. It really is important that the Government understand that they need to think much more carefully when they introduce radical change when, frankly, much more modest and targeted change would have served the purpose better.
Lord Vaux of Harrowden (CB)
My Lords, I support the noble Baroness, Lady Kramer, on her Amendment 29, to which I have added my name. The noble Baroness has already explained with her usual clarity the concerns that lie behind this group of amendments so I will try not to repeat what she said.
The changes proposed by the Bill to the AML supervisory regime will move the AML elements of supervision from the relevant professional body to the FCA. This means that firms will now have to deal with two separate regulators rather than one: the FCA for AML and the professional body for everything else. It seems inevitable that this will have cost impacts for those firms even if, as the FCA argues, the regulatory rules themselves will not change. That is likely to be especially true for smaller firms.
The impact assessment that accompanies the Bill on this section is, frankly, almost laughably poor, relying almost entirely on the statement that the AML rules themselves will not change. It does not address, in any meaningful way, the question of moving from one supervisor to two. It must, therefore, be sensible to carry out an assessment of what the impact of the changes will be on firms and to ensure that the costs remain proportionate to the benefits that the FCA and the Government argue will accrue, before going ahead with the changes. That is what Amendment 29 is looking to achieve.
The Government are commendably keen to reduce the regulatory burden on businesses, so I look forward to hearing what the Minister has to say on this. Does he agree that there is likely to be an increase in costs to firms from having to deal with two supervisors rather than one? How will he ensure that that is proportionate to any benefits that will arise?
Lord Altrincham (Con)
My Lords, these amendments reflect a number of important concerns about the proposed transfer of anti-money laundering supervision to the FCA. We do not believe that each of these points requires legislative commitment. However, we have also been made aware of serious concerns from industry about how this transition is being communicated and how the new regime will work in practice.
These concerns include the governance arrangements following the transfer of the timetable and the transitional process, the maintenance of professional standards, proportionality, and the extent to which the FCA will retain specialist expertise needed to supervise highly technical sectors such as accountancy, legal services and trust and company service provision. There are also legitimate questions about the practical support available to firms, the likely cost of the new regime and whether smaller firms in particular will face disproportionate burdens.
This is why our Amendment 93, in my name and that of my noble friend Lady Neville-Rolfe, covers a transfer of AML supervision. Parliamentary and entire industry oversight of these changes will be vital in making sure that this new architecture works in the way the Minister wants.
The common thread running through our amendment and the other amendments in this group is therefore a sensible one. If the Government are going to centralise this responsibility within the FCA, they must demonstrate that the FCA is genuinely equipped to undertake it, and provide clarity to industry about how this process is going to be practically achieved. That means not simply having the formal regulatory powers, but having the right people, the right sectoral knowledge, appropriate transitional arrangements and a clear understanding of how supervision will operate across the country.
Industry is concerned about these questions, and those concerns should be taken seriously. I therefore hope the Minister can make a firm commitment today to provide considerably greater clarity about how this transfer will be implemented, how professional expertise, standards and proportionality will be maintained, and what firms should expect during transition.
Lord Pitt-Watson (Lab)
My Lords, I am grateful to the noble Baroness, Lady Kramer, for tabling these amendments concerning the implementation of the reform of the UK’s anti-money laundering and counterterrorist financing supervisory regime. The points everyone is raising about the implementation of this needing to be well done are extremely important, as is the comment made by the noble Lord, Lord Altrincham, about parliamentary oversight of what is taking place here.
Amendments 26 and 27 concern support for firms and implementation planning. Amendment 26 would require the Treasury to publish and lay an assessment before Parliament, including a comparison between the education, guidance and compliance assistance currently available to firms and the support that will be provided by the FCA. The Government recognise the concern that professional services firms should continue to receive clear guidance, appropriate support and access to sector-specific expertise following the transition to the FCA.
Existing provisions in the money laundering regulations, which require supervisors to provide information about money laundering risks to supervised populations, will apply to the FCA in relation to its expanded responsibilities. The FCA already has significant experience of providing AML/CTF information and guidance to a large and diverse supervised population. For these reasons, the Government do not believe that a statutory assessment is necessary.
Amendment 27 would require the Treasury to publish a statutory timetable for implementation. While we do not believe such a requirement is necessary, the FCA has provided some additional clarity on the expected implementation timetables. The current expectation is that the first businesses will begin to be supervised by the FCA before the end of 2028. Further onboarding will take place in phases, with the broad aim that all firms within scope will be supervised by the FCA by mid-2030.
Implementation should proceed only when the necessary preparations are complete. This includes ensuring that appropriate systems and effective information-sharing arrangements are in place, supervisory staff are adequately trained, and sufficient clarity is provided to firms about the future regime. Retaining flexibility will allow the Government and the FCA to respond to stakeholder feedback and lessons arising during the transition.
Existing supervisors will continue to supervise firms, taking enforcement action where necessary and maintaining standards until the FCA assumes its new responsibility. The Office for Professional Body Anti-Money Laundering Supervision, OPBAS, will continue to oversee the existing professional body supervisors during that period. The FCA is already engaging with professional body supervisors and HMRC on information-sharing and data-sharing arrangements.
Amendment 28 concerns professional expertise. The Government fully recognise that effective supervision depends on supervisors understanding the sectors they regulate. Legal services providers, accountancy firms and trust and company service providers have different business models, risks and regulatory arrangements.
Of course, the FCA already supervises a large and diverse population, including many smaller firms, and has extensive experience applying a proportionate, risk-based approach across different business models and firm sizes. The FCA’s independent Smaller Business Practitioner Panel also provides direct insight into the perspectives and challenges facing smaller regulated firms.
This reform is not about applying a banking-style or one-size-fits-all supervisory model to professional services firms. The future regime will be proportionate and risk-based and establish a more consistent and effective framework, while recognising the different characteristics and risks of those sectors.
Amendment 29 is on supervisory fees. All businesses, particularly smaller firms and sole traders, want assurance that the future regime will remain proportionate and that firms will not be required to pay excessive supervisory fees. The FCA will consult on the design of its future fee model before assuming responsibility for these sectors. The Government expect fees to be proportionate and consistent with the FCA’s wider fee framework, where smaller firms generally face lower costs than larger firms. The detailed fee structure will depend on the final supervisory model and is therefore better developed through consultation.
Finally, Amendment 30—
Lord Russell of Liverpool (CB)
My Lords, I apologise for interrupting. The Minister has not answered the question of what assessment the Government have made of the cost impact on firms of moving from a single supervisor to dealing with two, particularly for small firms.
Lord Pitt-Watson (Lab)
I am not aware of an individual calculation that has been done for that. I do not think that there will be a materially greater cost once the move is made. The key issue that we are trying to address here is that, right now, we have 23 regulators of AML, and that job needs to be done in a more co-ordinated and consistent fashion. If I have information on that, I would be delighted to write to the noble Lord on those costs.
Finally, Amendment 30 addresses the FCA’s capacity to undertake effective AML/CTF supervision across all parts of the United Kingdom. Amendment 30 would require the FCA to report on its capacity to supervise firms throughout the UK. The FCA already operates across the United Kingdom through its offices in London, Leeds and Edinburgh and anticipates having a significant presence for the new AML regime outside London. This provides a strong foundation for maintaining regional coverage, preserving local knowledge and ensuring that jurisdiction-specific issues continue to inform supervision and implementation planning. This will also help with ensuring that regional risks and jurisdiction-specific considerations are understood and addressed, while maintaining a consistent approach across the United Kingdom.
I recognise the objectives behind these amendments: careful implementation, appropriate support, maintenance of expertise, proportionate fees and sufficient FCA capacity. The Government understand why these assurances are being sought. However, additional statutory reports, assessments and fixed requirements are not necessary. These matters are being addressed through implementation planning, capability building, stakeholder engagement, consultation and parliamentary scrutiny of the necessary secondary legislation. The Government will continue to work closely with Parliament, industry, existing supervisors and the FCA. Our aim is to deliver a more consistent, effective and co-ordinated AML/CTF supervisory framework, while ensuring that firms receive proportionate supervision and appropriate support. I therefore ask the noble Baroness, Lady Kramer, to withdraw her amendment.
Lord Pitt-Watson
“(ba) the competitiveness and growth objective (see section 1EB), and”Member's explanatory statement
This amendment would clarify that the strategic priorities set out by the FCA in a long-term strategy under new section 1JZA of the Financial Services and Markets Act 2000 must include strategic priorities in relation to the competitiveness and growth objective.
Lord Pitt-Watson (Lab)
My Lords, growth is the top priority for the Government, and the financial services sector is key to delivering this. As my noble friend Lord Stockwood set out in Committee, the Government always intended that the FCA’s long-term strategy would set out its priorities for advancing its international competitiveness and growth objectives. The noble Baroness, Lady Noakes, rightly questioned if our legislative drafting was clear and, after further consideration, the Government have tabled this amendment to ensure that the law is clear on this point. I thank the noble Baroness for bringing this matter to our attention.
I turn to Amendments 32 and 33 which would place detailed statutory requirements on the content of the FCA’s and PRA’s long-term strategies, including requiring descriptions of future regulatory initiatives, indicative timelines and assessments of potential trade-offs. The Government agree that this is an important part of Parliament’s role in scrutinising the work of the regulators. I welcome the commitments made by Nikhil Rathi, the CEO of the FCA, in a letter he sent to me on 2 September, which has been shared with the Lords Financial Services Regulation Committee, the Opposition Front Bench and interested Peers. The letter made a commitment to pro-actively engage relevant parliamentary committees on their priorities before settling future strategies. Katharine Braddick, the new CEO of the PRA, also made commitments in her letter of 3 September to engage its stakeholders and Parliament in the development of its strategy. As I committed to earlier in today’s debate, I am placing these letters in the Library.
Much of the information that the noble Baroness seeks is, or should be, already available through existing channels, including the Regulatory Initiatives Grid, which is updated regularly and is specifically designed to provide firms and stakeholders with forward-looking information on forthcoming regulatory activity. The FCA also publishes and will continue to publish an annual work programme that details what it will deliver in the coming year against the strategic priorities in its current strategy.
The purpose of the long-term strategy is different. It is intended to set out the regulator’s strategic direction and priorities over a five-year period, rather than to operate as a detailed business plan. As the FCA sets out in its letter, the strategy is intended to provide greater clarity and predictability about its priorities, and to provide a strong basis on which Parliament and others can hold it to account for its performance against those priorities. The Government therefore do not consider that these additional statutory requirements are necessary.
I now turn to Amendment 68, which seeks to create new statutory offices for regulatory evaluation within the FCA and the Bank of England. I recognise the concerns expressed during Committee about ensuring that Parliament has access to meaningful information about the performance of the financial regulators. It is a point well made. This amendment would go further than this. It would establish permanent statutory bodies with dedicated directors, governance arrangements and reporting requirements, introducing additional costs on the regulators. As we discussed in Committee, there already exists a range of mechanisms to provide this information. This proposal could potentially duplicate these arrangements, and the Government do not agree that more institutional machinery will necessarily lead to better scrutiny.
Baroness Bowles of Berkhamsted (LD)
My Lords, it is late, so I shall be relatively brief and not revisit the issues that we looked at in Committee. When I tabled these amendments, I still hoped that there would be some agreement reached on restoring the information hooks that Parliament has relied on until now for oversight, and to suggest a minimum set of reporting requirements in the current void of the strategy report. But it has been made clear by the Minister now, and in discussions between the Minister and the noble Baroness, Lady Noakes, as chair of the Select Committee, that the Government will not accept any statutory requirements. If that is the case, the committee will have to draw that information in itself, and the letters from the regulators offer the promise that they will co-operate in that. I suggest that we should take that opportunity to be able to do more things in real time, rather than long after decisions are made.
Obviously, it is for the committee to decide what written and oral information it wants and when, but one way to address the gap would be a triennial cycle of structured meetings with regulators. Each session could explicitly track developments in consultations and rule-making, including the work of the statutory panels, with an additional cycle of other matters. A suitable timing could be late February, when you could do an operational alignment review of draft business plans, budgets and cost-benefit analysis variances before they are locked in for the financial year. In mid-June, a session could be focused on the secondary competitiveness and growth objective, tracking live authorisation times, licensing, service-level agreements and regulatory overlap arising from current consultations and rule-making activity. In October, one could do a post-Recess review of rule-making, “Dear CEO” letters and summer-period backlogs ahead of the autumn Budget. Those are just examples of how you can get matters to fit in with the other fiscal events.
Adopting that kind of timetable would give Parliament timely visibility. We could avoid boilerplate reporting and ensure accountability, even though we lose the statutory hooks. But I think that neither the regulators nor the Government really appreciated the message that crossing out all these previous statutory things indicated, and it seemed as if Parliament had been totally ignored as a stakeholder and as a party that should have been consulted.
I hope that we can recover and come through this, probably with more reporting in the end that is pulled in at our request. I do not see that this as something that we have to negotiate; this is something where Parliament can ask, and we expect that the regulators will comply. Now that sounds aggressive, but I actually think that it will be able to be negotiated relatively reasonably, at least if it is anything like the experience that I have had elsewhere.
Baroness Noakes (Con)
My Lords, this is the first time I have spoken on Report, so I need to declare my interests as shown in the register, namely, that I hold shares in listed financial services companies, which may well be affected by the content of this Bill.
I start by thanking the Government for tabling Amendment 31, which is in fact identical to an amendment that I tabled in Committee. The Minister, the noble Lord, Lord Stockwood, who is in his place, said then that he could not accept my amendment because the Government were
“looking into this point to determine if this is fully clear within the drafting of the clause”.—[Official Report, 24/6/26; col. GC 333.]
That was nonsense, and I feel sorry for Ministers who are told by their officials to say these sorts of things. It was clear that the drafting of the Bill was wrong, and that my amendment put it right. I am very glad that the Government have now caught up with me.
The rest of the amendments in this group deal with the knotty issue of accountability of the regulators. The noble Baroness, Lady Bowles of Berkhamsted, has tabled several amendments to try and improve what is in the Bill and reverse some of the changes in the Bill that will undoubtedly weaken the accountability arrangements. Of course, I support those amendments. But accountability means much more than plans and reports, which is what the noble Baroness’s amendments tend to focus on. Some of us put forward various ideas in Committee about how we could improve accountability—the point being that we are looking to get a step change in the accountability arrangements.
This all comes back to the FSMA model, which my noble friend Lady Neville-Rolfe spoke about in the first group. I support the FSMA model in principle, but it is under increasing strain, as has been mentioned already today. It was first invented long before Brexit, when swathes of financial regulation were drawn up in the EU and scrutinised in detail via the EU Parliament. When FSMA 2023 paved the way for this additional delegation to the regulators of all of those EU competences, it was partially offset— only partially—by strengthening the role of Parliament. When the regulators use their powers to create rules and guidance, they now have to send that into the parliamentary committees, including the Financial Services Regulation Committee, which, as has already been said, I currently chair.
I am clear that holding the regulators to account for how they are using their powers—that is, real-time accountability rather than the ex-post accountability that annual reports deal with—is an uphill battle for very many reasons, not least an imbalance between the scale of resources devoted to parliamentary committees compared with the vast resources that are deployed within our financial system regulators. As we know, this Bill creates yet more areas of delegated powers to the regulators—consumer credit, which we debated earlier today, but also the payment systems which the Minister spoke to a few moments ago. This, again, is why we need to strengthen the accountability arrangements rather than weaken them, as the Bill currently does.
The Government have partially recognised that the Bill went too far and have tabled amendments on proportionality, which we will debate on our next Report day. The balance, however, has still shifted away too far from Parliament being able to operate effective accountability mechanisms. That is why I tabled Amendment 68, and I thank my noble friend Lord Bridges of Headley, the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, for adding their names to it.
Lord Bridges of Headley (Con)
My Lords, I declare my interest as an adviser to and shareholder in Banco Santander. Your Lordships will be pleased to know that I will speak very briefly on Amendment 68. My noble friend Lady Noakes just covered the waterfront incredibly well, in her exemplary manner, and made all the key points.
I will briefly say this. The first leg of this amendment, about the FCA’s office for regulatory evaluation, is an extremely measured and well-constructed proposal from my noble friend, but I propose to set up something different: an office for financial regulatory accountability that stands outside all the regulators and looks at financial services regulation, consultations and proposals in the round. It would therefore provide an independent source for Parliament and everyone else to look at the impact of those actions, so that they could be analysed and, critically, the regulators and supervisors could be held to account.
Many said to me that they felt this office would become a back-seat driver for the regulators and supervisors, and that we would, essentially, have someone second-guessing their actions, potentially undermining the operational independence that they have been given. This proposal from my noble friend overcomes that very well. While I am very pleased that the Minister is making constructive noises about the need for greater accountability and scrutiny, I am somewhat disappointed that it seems that this proposal, which builds, as far as I can see, on the work of the cost-benefit panels within the FCA, would help Parliament hold the FCA to account with much greater independent analysis. When he sums up, I would like the Minister to give us a bit more argument about why this is a bad idea.
I turn to the second leg of this amendment, which relates to the Bank of England and the office for regulatory evaluation. It is rather sad that, at 10.05 pm, about 15 of us are debating one of the most important institutions in this country, how it is held to account and the means by which it evaluates its performance. This speaks volumes about how we in Parliament potentially need to up our game in how we hold the Bank of England to account. That criticism may be aimed at all of us rather than at the Government.
The independent evaluation office within the Bank performs, and has performed, a critical role. When you look back to see what various chairmen of the court have said about it, many of them have gone on the record over the past decade praising its work and saying that it provides valuable input to the court by analysing what the Bank is up to and making sure that the Bank is internally held to account. So when the Financial Times reported several weeks ago that the Bank of England was dismantling the IEO, I have to say that alarm bells started to ring.
When the Minister sums up, perhaps he can answer some simple questions. I realise that he is speaking on behalf of the Treasury, not the Bank of England, but what I am trying to understand is, first, what is the problem that this decision to dismantle the IEO is trying to solve? What is it that the Bank is trying to achieve? What is the progress it is trying to make by abolishing and dismantling the IEO, in particular given that so many chairmen of the court have spoken in favour of it?
The second point builds on what my noble friend Lady Noakes said. When the IEO is abolished and these external independent analysts are brought in, how many reviews does the court expect to commission? As my noble friend pointed out, the IEO has published only a relatively small handful of reviews. Is it going to be more or less? Next, if the court chooses the subjects, how will we ensure that the uncomfortable issues that the Bank needs to confront will be confronted? Finally, does the Minister think that this move will increase the accountability and scrutiny of the Bank? That is my litmus test: will it make sure that the Bank’s performance is held even more to account?
There are questions to answer here. I very much welcome what the Minister said about his wish to increase accountability and scrutiny. I think that we are disagreeing here on the means by which to do so, so I look forward to his answers.
Baroness Neville-Rolfe (Con)
My Lords, I begin by paying tribute to my noble friend Lady Noakes, to the Financial Services Regulation Committee, including the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, and to my noble friend Lord Bridges of Headley for their persistent pursuit of a very simple but important principle. As regulators gain more power and their remit expands, so too should the scope and effectiveness of the oversight to which they are subject.
My noble friend Lady Noakes powerfully articulated the concern that the FSMA model has been stretched too far and that even our expert parliamentary committees are struggling with the volume and complexity of oversight. We need stronger, not weaker, democratic accountability, which is why we saw value in the office of regulatory evaluation and/or my noble friend Lord Bridges’s original model tabled in Committee. We also share his concern about the dismantling of the Bank of England’s IEO.
This is an area where the Opposition will continue to develop our thinking for future legislation and would welcome engagement. We are not comfortable with a system whose reaction seems to be to delegate every new or persistent problem to our regulators. We are very pleased that my noble friend Lady Noakes will continue to work with the Treasury and the regulators on improving parliamentary oversight through the relevant committees, and we look forward to working with her and others across the House, including the noble Baroness, Lady Bowles. What she has proposed represents a practical compromise that would allow us to move on. However, a positive response to Amendment 93 on first use of the new powers would also be important.
One practical way in which the accountability gap could be narrowed a little—and, indeed, trust in the FCA improved—would be to strengthen the remit of the cost-benefit analysis panels, which already sit within the regulators. Their remit could extend beyond rule changes to include guidance and enforcement activity. They could be given the ability to request an assessment of changes that the regulator has judged to be immaterial. This would strengthen internal challenge, improve confidence in the regulatory process and provide Parliament with more useful and more independent information. I have not brought back yet another amendment on this proposal, but I hope the Minister can commit to looking seriously at it as a follow-up to this useful debate.
I welcome the Government’s amendment on competitiveness and growth. I am only sorry that the name of the Financial Services Regulation Committee does not seem to have made its way into the statute.
Lord Pitt-Watson (Lab)
My Lords, I will not take up too much time because I responded to many of the points at the beginning of the debate. On the Independent Evaluation Office at the Bank of England, the Bank is committed to independent evaluation. It is strengthening the independence of the reviews that it commissions by moving to a model where it commissions external independent experts to lead the reviews.
I echo the noble Baroness, Lady Neville-Rolfe, in thanking the noble Baroness, Lady Noakes—and the noble Baroness, Lady Bowles, I should add—because we have a commitment from the FCA. If you want to be cynical about it, it may not be as fulsome a commitment as we might want, but it says that accountability, scrutiny and proportionality are central and it wants to support effective parliamentary scrutiny, which I think is where we are all coming from. I thank the noble Baroness and her committee for picking up the baton on this because we must all—Parliament and regulators, with the help of the Government where we can help—work together to have a regulatory environment that is effective and proportionate.
With that in mind, the Government do not think that at this stage further legislative amendments are helpful. I beg to move Amendment 31.