Public Spending: Inheritance

Baroness Altmann Excerpts

Tuesday 30th July 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. Yesterday’s letter from the chair of the Office for Budget Responsibility shows his views on these important overspends being kept from the OBR. My noble friend asks about the reforms that have been announced. As part of the longer-term plan to fix the foundations of the economy, we are going to introduce significant additional reforms to strengthen the fiscal framework and ensure that this can never happen again. Those initial reforms were welcomed yesterday by Richard Hughes, the chair of the OBR. He also said that he will initiate his own review to determine whether those reforms are sufficient, and he may make additional recommendations.

There are two elements to what was announced yesterday. First, we will introduce a fiscal lock, which has already been introduced in the other place as the Budget Responsibility Bill. This fiscal lock will ensure that there is always proper scrutiny of the Government’s fiscal plans. Secondly, we will increase transparency by, in future, requiring the Treasury to share with the OBR its assessment of immediate public spending pressures and enshrine that in the charter for budget responsibility, in essence so that this never happens again—no Government can ever again cover up the true state of public finances.

[Baroness Altmann (Con)]

My Lords, I warmly welcome the noble Lord to the Front Bench and congratulate him on his appointment. We have heard about shock today; I truly confess that I was shocked yesterday to see pensioners being picked on and yet again bearing the brunt of cost savings. This Government promised to protect the triple lock, but what they announced at a stroke yesterday, with virtually no notice, was worse than taking away the triple lock.

The winter fuel payment is worth 3% of the basic state pension for over - 80s. I urge the Government to think again about the enormity of the decision that was made. Three hundred pounds does not sound like a lot to us, but to pensioners who will also have rising energy bills, to 800,000 pensioners who are not claiming pension credit and to those just above the threshold, this is compounding the cliff edge. We have already seen that £300 was taken away in the emergency cost of living payment was last year, and I agreed with that, but I urge the Government to reconsider and think about joining the winter fuel payment with the state pension so that it becomes taxable, saving some money that way. At the very least, they should delay any such decision until they are able to carefully assess the impact on some of the very poorest pensioners.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her kind words. She is extremely expert in these matters, and I have the greatest respect for her, but I think that her analysis is not correct in terms of the value of the triple lock versus the winter fuel payment. In the other place yesterday, the Chancellor confirmed that pensioners will continue to benefit from the triple lock throughout this Parliament.

On the winter fuel payment, this of course is not an easy decision and I can understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend is not sustainable. Left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.

We will, of course, work to maximise the take-up of pension credit in two ways: bringing together the administration of housing benefit and pension credit, and working with older people’s charities and local authorities to raise awareness of pension credit and to help identify households not claiming it.

HMRC Self-assessment Helpline

Baroness Altmann Excerpts

Tuesday 26th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I accept that that can be the case. There is a digital assistant in the first instance, which is like a chatbot which can help with very simple inquiries; then it goes on to web chat; and then if the person on the other end of the web chat says that they cannot help, of course one is then able to phone HMRC. HMRC monitors all its channels for levels of confidence, levels of access, emotional state, mental health capability, comprehension and disability, and those people are referred to the extra support service team.

[Baroness Altmann (Con)]

My Lords, will my noble friend consider the increasing number of pensioners being dragged into the tax net as the tax threshold is frozen and the state pension has increased significantly? Many more will go into the tax zone and many will have never filled out a tax return in their life and have no idea that they are in line to pay tax. Yet, when they get a demand and a potential penalty, they will have nobody to phone; many of them will be unable to get online, and increasingly all it takes is a state pension plus a small extra income for them to come over the limit. Will the department consider some special measures to help those pensioners who are never going to get online? I would be grateful if the Minister would take that back to the department.

[Baroness Vere of Norbiton (Con)]

I accept that some pensioners will not be online but the vast majority are and will be able to access HMRC’s services. As I said previously, HMRC is trying to focus its resources on precisely the people that the noble Baroness is concerned about—those who are digitally excluded, whether they be pensioners or not, and those who are more vulnerable, again whether they be pensioners or not.

Alternative Investment Fund Designation Bill [HL]

Baroness Altmann Excerpts

2nd reading
Friday 1st March 2024 Lords Chamber

Moved by

[Baroness Altmann]

That the Bill be now read a second time.

[Baroness Altmann (Con)]

My Lords, the Bill seeks to remedy legislative errors that have contributed to a haemorrhaging of funds away from UK-listed investment companies. Flawed interpretation of EU regulations, which no EU country has applied as we have, has stoked massive selling pressure, with pension funds, wealth managers and retail investors having to abandon listed investment companies here.

I am grateful to my noble friend the Minister, her officials and other Treasury colleagues, including the EST, my honourable friend Bim Afolami, for their engagement on the Bill. I am particularly grateful for the guidance, knowledge and insights of the noble Baroness, Lady Bowles, and Herbert Smith Freehills, who have helped to draft the Bill. I am also grateful to the officials in the Public Bill Office, who have assisted so ably; my honourable friend John Baron MP, who has raised this issue within government; many industry leaders, such as the London Stock Exchange, the Investment Association and the Association of Investment Companies; and colleagues across the House who support the aims of the Bill.

Investment trusts are a long-standing British success story, democratising investment for small savers and delivering excellent returns. They also provide the only way for most pension funds to gain access to expertly managed specialist portfolios of less liquid assets in UK sustainable growth, infrastructure, social housing and other areas, which pension investors want and need to diversify into and which the Government want them to support.

This important financial sector comprises over one-third of the FTSE 250, and 60% of these companies specialise in managing portfolios of real assets and small growth firms. But waves of selling have led to large discounts in these UK investment trusts and added to the overall weakness of the FTSE itself. Between 2014 and 2021, over £70 billion was raised by investment company IPOs and secondary fundraising, but under £1 billion has been raised since then. The problem has worsened since 2013, when UK-listed investment companies were unfortunately included in the EU-derived Alternative Investment Fund Managers Regulations—AIFMR—introduced after the 2009 global financial crisis, when regulators wanted to bring Wild West unregulated vehicles, like private hedge funds, that potentially posed systemic risk under some regulatory control.

By contrast, UK investment trusts were already well regulated under the requirements of stock exchange listing rules and pre-existing corporate and company law. Boards were providing the governance responsibilities that AIFM regulations were intended to provide for unregulated funds, and they were disclosing all their costs transparently in regular shareholder reporting.

As far back as 2009, our Investment Management Association had written to the EU Commission, stressing the importance of the UK listed-investment company structure to UK financial markets and investors, and stressing that they should be excluded from the AIFM classification. Listed investment trusts were far more extensive and important to UK markets than in other EU countries. Nevertheless, in 2013, all these companies were classified as alternative investment funds. This may have been a minor irritation for UK investment trusts, adding extra costs estimated at £50,000 to £100,000 a year for each fund. AIFM duties included cash-flow monitoring services, asset safekeeping and due diligence over net asset value reporting, which generally duplicated some liabilities of the board of directors. It also introduced potential conflicts of interest, as the investment adviser is allowed to double up as the AIFM. But the sector adapted, absorbing the costs.

Clause 1 would exclude closed-ended investment companies listed on a UK-recognised exchange from the 2013 regulations. In subsequent years, EU-derived MiFID rules for financial product distributors, PRIIPs requirements for retail investors, KIDs and further tightening of consumer charge disclosure rules were all unhelpfully applied to UK-listed investment trusts and REITs. The result has been a disaster for many UK investment companies, which must now disclose exaggerated and misleading investor charge figures. In line with the classic boiling-frog principle, each ongoing layer of regulatory change added extra burdens, now reaching the point of existential damage.

Of course, investors must be fully informed of all charges—those that they pay directly out of their investment each year. However, the combination of UK financial regulations, which have evolved to encourage investors to select investments on the basis of lower cost, charge caps introduced for workplace pension funds and flawed rules intended to give consumers full charges information so that they can make properly informed decisions is having the opposite effect.

Regulators decided that charge disclosures should focus on just one figure: the so-called ongoing charges figure, or OCF. I believe in full transparency with no hidden fees, but information must be clear and not misleading, which is precisely where the problems that this Bill seeks to address have arisen. The way in which the FCA applies the EU-derived PRIIPS and MiFID rules to UK investment companies misinforms investors, telling them that they bear costs that they do not actually pay. No other EU country, by the way, applies those same rules as we do. The inflexibility of the UK requirements, focusing on one reported high-level figure, has undermined this sector, worth more than £0.25 trillion. The corporate expenses for managing these funds and their business are labelled as “ongoing investor costs”, making them look artificially expensive to own and driving investors to switch into overseas companies or higher-risk individual shares instead.

The market dysfunction is exacerbated by UK-listed funds which have chosen simply to ignore the legal requirements, without any regulatory consequences, and by overseas competitors receiving unfair competitive advantage. UK wealth managers and pension funds must double-count or exaggerate investment costs, so they have been selling their holdings, despite large discounts. Also alarmingly, flawed OCFs have caused retail investment platforms such as Fidelity to remove UK investment trusts or incorrectly label them as extremely expensive, blocking retail access to funds that invest in areas such as wind farms, solar farms and battery storage—crucial areas for our future sustainable growth. Investors are now selling these good-value assets on the basis of flawed information. I believe that the obsession with driving down costs is also resulting in investors being misled into believing that the investment charge, the OCF, is more important than expected returns and ignoring the vital elements of investment decisions that need to be understood before purchasing assets, such as liquidity factors and discounts or premia to net asset value.

Clause 2 of the Bill would remedy a clear misinterpretation of the wording in the MiFID regulatory annexe, which the FCA has interpreted differently from everyone else. It states that charges which must be disclosed are any deductions from the value of the investment. For listed companies, consumer value is the share price. It does not, and should not, include the management fees or other expenses that are not deducted directly. But the FCA seems not to agree and refuses to bring its own interpretation into line with everyone else’s, despite the damaging consequences for the markets and our economy. This Bill could help Parliament take back control by excluding investment companies from MiFID disclosure rules which should never have been applied.

The Chancellor asked the FCA to remedy this problem urgently in his Autumn Statement, but its subsequent forbearance announcements, widely anticipated, made no difference in practice. It says that it cannot do more under current legislation, but this seems questionable, since it could simply adopt the interpretation that all other countries have given to these same rules. The FCA could just forbear on its own enlarged interpretation to end the misleading charge disclosures. Does my noble friend agree, or could she check with her department, that the FCA could just bring its guidance into line with everyone else in the world so that its own interpretation of the current legislation no longer causes this market and economic detriment?

Clause 3 seeks to remedy an erroneous interpretation of the PRIIPS regulatory disclosure requirements. These cost disclosures need apply only to funds with a redeemable value, so they should exclude investment trusts. Unlike open-ended funds, investment company shareholders have no right to redeem their investment at net asset value on the next dealing day; they must sell at the market price, possibly at a significant discount. The FCA has suggested that such investments are savings products. I am afraid that seems utterly misguided. They are not savings products; they are not used as such. Just because, for example, Sainsbury’s has a share option scheme does not make all Sainsbury’s shares a listed investment company. Removing those companies from PRIIPS charges disclosures would again stop the requirement to mislead the retail investor by telling them that they are paying costs that they do not directly bear. Of course, the costs are still fully disclosed in the relevant documentation that they must produce.

This Private Member’s Bill is a simple, short-form measure to correct regulatory errors that have had increasingly damaging consequences over time. It seeks to offer the fastest-possible legislative route to help industry and regulators uphold the principles on which our financial system is based, as instructed and intended by Parliament.

Sadly, the FCA has failed to take urgent action. Its eagerly anticipated forbearance statement is no resolution and may even add to investor confusion, because UK investment companies now have to report, or are able to report, two different OCF figures, one for the fund KID, which is more correct, and one for the distributor—the OCF—which is still wrong. So the European MiFID template, which is that used by the whole industry for the OCF figure, is unchanged. It is also important to note that the ongoing dithering and delays are leaving many excellent UK investment companies vulnerable to predatory takeover or even to collapse—a collapse that could be alleviated by the rapid issuance of new regulatory guidance, requiring the industry to use EMT data feeds accurately to display correct OCF information. By not requiring these firms to do so, the FCA is responsible for retail platforms and authorised corporate directors but is encouraging them to produce misleading information rather than going by its own statutory duty to ensure that information is clear, fair and not misleading. It is also breaching its duty to ensure orderly markets, maintain international competition and promote growth and sustainable investment in financial markets.

I hope the Government will support this Bill, notwithstanding the apparent concerns that my noble friend the Minister expressed in our recent meeting. Even better, I urge the Government to try to persuade the FCA that it should issue new guidance urgently so that the Bill is not even necessary. I hope that our unique interpretation and application of the legislation, which is damaging vital parts of the UK economy and cutting them off from capital flows at a time when the Government seek to encourage more pension and private funds into productive investments, can be remedied to the benefit of all in society. This Bill is both important and urgent. I beg to move.

--- Later in debate ---

[Baroness Altmann (Con)]

I thank my noble friend for her concluding remarks and engagement with this issue. I hope that she will indeed take some of the messages back to the department because, so far, they do not seem to have been taken on board as seriously as one might have hoped. We all want thriving capital markets in this country, and I thank all noble Lords—I will thank them individually rather than taking up the House’s time now—who each explained so clearly why this is so important.

That is where I would urge my noble friend to focus, because the SIs for PRIIPs and MiFID, even if they were introduced “quickly”—which presumably means in the coming months—would still require further consultation before anything changed in the market, unless listed investment companies are excluded from the definition of the CCI. But that is not the current proposal. We are actually keeping them in there, despite the industry unanimously recommending against that; hundreds of members of the industry have said that this needs to be done. If this is not achieved—and it sounds to me as if it may not be in the plan—the Bill would be the quickest way to resolve the problem that is affecting the market now.

I urge my noble friend to urge her colleagues to speak to the industry, because selling waves have begun again. This is depriving the economy and investors in this country of capital that otherwise would be directed here. It seems there is a sense of complacency at the regulator and a fear of change, even when it is clearly required. As so many noble Lords have said, we need to ensure that investment comes back to the UK.

Could my noble friend perhaps write to me—I hope that we can engage further on the Bill in the coming weeks—on whether it is the FCA’s interpretation of the legislation that is causing the problem? No EU country is interpreting the very same rules in the way that the FCA has applied them to our investment companies. No other investment company, either in the EU or anywhere else, is misleading investors in this same way. If that is the case, the guidance from the FCA could be brought into line with that everywhere else in the world, and that would solve some of these issues in relatively short order.

As I have said, I would be happy to withdraw the Bill or discuss amendments with my noble friend—for example, to add a clause saying that there must be consultation on removal from the AIFMR, if that is considered essential. I hope that the views of the House, which have been unanimously expressed, will prevail, as this matter cannot be left to languish any longer, because the industry of which we are so proud is under existential threat. Capital is fleeing this country and we need it to come back. I thank my noble friend for all her engagement.

Bill read a second time and committed to a Committee of the Whole House.

Climate Risk Models

Baroness Altmann Excerpts

Thursday 25th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

As the noble Lord is aware, our financial regulators are of course independent of government. However, the Government are clear in their annual letters to the various regulators that climate risk is a key part of all the elements they must consider when considering financial stability in the UK and, indeed, globally.

[Baroness Altmann (Con)]

My Lords, the climate models currently used by the Bank of England and pension schemes have been shown by the Institute and Faculty of Actuaries, the Pensions Regulator, and even the coalition of central banks that developed them, to be deeply flawed, yet the Bank of England remains publicly committed to them. What are Ministers doing urgently to learn from academic and climate science, and to make recommendations to the Bank under Section 30B of the Bank of England Act to help it improve the financial modelling of climate risk? Also, what is my noble friend’s department doing to ensure that pension schemes invest more in our solar farms and wind farms, particularly, for example, via investment trust portfolios?

[Baroness Vere of Norbiton (Con)]

Goodness—that is a very wide-ranging question from my noble friend. I do not think it quite right to say that the Bank of England is committed to the scenarios it used back in 2021. For example, as my noble friend will have seen, two more scenarios were published fairly recently. The Government are not, for example, going to mandate a particular model or scenario for the pensions industry or indeed any part of it, because there are different scenarios out there. They are not forecasts but scenarios, and different groups will feel that different scenarios will come into play. Most pension schemes now have to follow the TCFD requirements, which came into force substantially in October 2022. That will really focus the pension schemes on their climate risks but also the climate opportunities.

Pension Investments

Baroness Altmann Excerpts

Tuesday 23rd January 2024 Lords Chamber

Asked by

[Baroness Altmann]

To ask His Majesty’s Government whether they plan to encourage UK pension investors to increase support for (1) long-term UK growth, and (2) UK financial markets.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, the Government are delivering a series of measures to reform pension fund investment, strengthen the UK’s competitive position as a leading financial centre and support long-term UK growth, building on the Chancellor’s Mansion House package of reforms. These measures include an industry-led compact whereby 11 of our largest defined contribution schemes have committed to the objective of allocating at least 5% of their default funds to unlisted equities by 2030.

[Baroness Altmann (Con)]

I thank my noble friend for her Answer. However, the Mansion House reforms focus only on unlisted companies and do not require the investing of a penny in the UK itself. Will my noble friend agree to meet with me and like-minded peers, who are concerned that there are ready-made portfolios in UK-listed investment companies, trusts and REITs that are already investing in wind farms, solar farms, sustainable energy projects and other infrastructure that could be used for pension investments to support UK growth and revive confidence in UK markets? Does she agree that the current problems with charges disclosure have driven pension funds to invest in overseas infrastructure rather than our own and we urgently need to address that, either through a statutory instrument or my Private Member’s Bill?

[Baroness Vere of Norbiton (Con)]

I should be delighted to meet with my noble friend to discuss these matters further. The UK has a world-leading investment trust sector representing over £250 billion of assets and is highly aligned with the Government’s priority to promote long-term productive investment. She will know that at the Autumn Statement, the Government published draft legislation to replace the packaged retail and insurance-based investment products, or PRIIPs, regulations. We also announced that we will bring forward the repeal of the relevant provisions of the Markets in Financial Instruments Directive. This will enable the FCA to put in place more proportionate cost disclosures.

Alternative Investment Fund Managers Regulations 2013

Baroness Altmann Excerpts

Monday 13th November 2023 Lords Chamber

Asked by

[Baroness Altmann]

To ask His Majesty’s Government what assessment they have made of the impact of disclosure obligations under the Alternative Investment Fund Managers Regulations 2013 on UK-listed investment companies, in terms of competition, consumer duty, exclusion from investor platforms, and funding crisis for such companies investing in UK small growth businesses, renewable energy and infrastructure.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, the Government and the Financial Conduct Authority understand industry concerns regarding investment company cost disclosure requirements. The issue sits across multiple areas of legislation and we are working at pace to repeal retained EU law under the smarter regulatory framework, enabling the FCA to deliver UK-tailored rules. On the alternative investment fund managers directive specifically, work has already started on plans for reform, with a discussion paper issued by the FCA in February.

[Baroness Altmann (Con)]

I thank my noble friend. However, does she recognise that an important UK financial sector is being undermined by selling pressure based on exaggerated reported charges figures? These listed, closed-ended investment companies and their institutional investors support British companies in areas including battery storage and wind and solar farms, and offer particularly suitable vehicles for pension funds and other investors in sustainable growth. However, they are deterred by misleading aggregated costs, including by retail investor platforms. Has the Minister’s department urged emergency action following FCA failure to protect the market stability, international competitiveness, fair competition and the consumer duty?

[Baroness Penn (Con)]

My Lords, I agree with my noble friend in recognising that investment trusts play a vital role in raising capital for infrastructure projects across the UK. The FCA is of course independent, but I understand that it is taking forward work to look at what can be done in this area while we take forward the wider programme of measures to repeal retained EU law and replace it with UK rules that will help to address the issue that she raises.

--- Later in debate ---

[Baroness Penn (Con)]

My noble friend is absolutely right. The Government consulted extensively when the Alternative Investment Fund Managers Regulations were introduced. That was some time ago but, as part of the smarter regulatory framework, we are working closely with the FCA to explore what changes can be made to AIFMD to make it more streamlined and tailored to UK markets. I assure all noble Lords that that work is being taken forward with urgency.

[Baroness Altmann (Con)]

My Lords, may I press my noble friend? She says the FCA has regulatory powers for forbearance. Given that this is EU-derived legislation that has been misapplied in the UK, no EU country adopts it, no other country in the world adopts it and it is uniquely disadvantaging British companies, is there not a case for emergency action from the FCA once it is aware of this particular problem?

[Baroness Penn (Con)]

My Lords, the FCA can apply forbearance when it comes to its rules, but it cannot when it comes to the law; it is for this House to amend the law. I set out that the Government intend to look at the various pieces of underlying EU legislation, including PRIIPs and MiFID, to ensure we address the underlying problem as well as applying forbearance while that work is under way.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I will speak very briefly and I apologise for being late.

The Governor of the Bank of England was just in front of the Economic Affairs Committee and our final question was on CBDCs. He gave an answer that I thought was lukewarm at best in his support for them, which was very interesting in and of itself. Before going any further, I remind the House of my interest as an adviser to Banco Santander.

The last time I debated a CBDC, I think there were five of us in the Chamber. Just as I was summing up my speech, suddenly the Chamber filled up, and I thought: “My God! Everyone is suddenly interested in my thoughts on CBDCs”. Only then did I realise that there was just about to be a debate on Brexit for the 231st time, and my views on CBDCs were completely and utterly irrelevant.

As my noble friend has just so eloquently summarised, this is an issue that we really need to focus on a lot more in Parliament as a whole. You may be a fan of CBDCs—here I am looking at my friend the noble Baroness, Lady Kramer, who I think is more persuaded by the merits of them and may see them as the best thing since sliced bread, or perhaps in this case one should say decimalisation—or, like me and my noble friend Lord Forsyth, you may be of a more conservative disposition and need to be convinced of the need for change. Whichever view you have, as my noble friend has just said, it is imperative that Parliament has the chance to debate, scrutinise and vote on primary legislation before a CBDC is introduced.

My noble friend has summarised many of the most important points, including privacy, financial stability and the impact of bank disintermediation. There is also the entire issue of how a CBDC might affect the operational independence of the bank, as my noble friend pointed out. One estimate is that a CBDC could—I stress “could”—increase its balance sheet by £400 billion, and it would obviously give the bank entirely new tools in monetary policy.

Then there is the entire issue of cost. I have to say that the words “IT infrastructure project” are possibly the most expensive three words that you can put together. I am very concerned about how much this will cost. No one seems to be able to say how much it will cost or who will pay.

Then there are issues of cybersecurity. The Bank states that new infrastructure needed to support a digital pound would make

“an attractive target for hackers and fraudsters who wish to steal funds”

and

“may become a target for hostile attacks with the aim of disrupting the system and, potentially, the wider economy”.

According to GCHQ, while a digital currency presents “a great opportunity”, it goes on to say:

“If wrongly implemented, it gives a hostile state the ability to surveil transactions”.


Those are just some of the enormous issues that a CBDC raises, and why we must have primary legislation to be able to scrutinise and vote on all this. I am very grateful to my noble friend the Minister, her colleague the City Minister, Mr Griffith, and the Chancellor for focusing on this.

I should actually say that the Chancellor may be forgiven: I am christened James George, so he might have just been signing this late at night, even though I have known him for 20 years. I will put that to one side. I got a very nice letter from the Chancellor, as did Harriett Baldwin. The problem is that, although it is signed by Jeremy Hunt, I feel that it is almost signed by Lewis Carroll because it gives you the feeling that it comes from Alice in Wonderland at a certain point.

If I may, I will detain your Lordships by reading two paragraphs:

“The Government and the Bank of England are at an early stage of policy development and have not made a decision on whether or not to introduce the digital pound”—


that we all know. It goes on:

“As a result, we do not yet know whether a digital pound will require primary legislation”.


When you read that back a few times, it begs a question, and I would be grateful if my noble friend the Minister, when she sums up, could answer it. Could a digital pound be introduced without primary legislation? This seems to suggest that potentially you could have one and it would not require primary legislation.

Be that as it may, the letter then goes on to say:

“However, in recognition of the potential significance of a digital pound, and the views of Parliamentarians, the Government commits to introducing primary legislation before launching a digital pound”.


So even though one might not need primary legislation, the Government are committing that there would be primary legislation.

Obviously, that is a great step forward. My problem is that it is still is not watertight. Much as I would like to say that my noble friend, Mr Griffith and the Chancellor are going to be there for years to come, I somehow do not know whether that is going to be the case. That is why I very much echo what my noble friend has said, and would like the Minister to go as far as possible in saying why it is not the case that they are not willing to put this into primary legislation. Moreover, I would be very interested to know the view of the Labour Party and the Liberal Democrats on this, and whether they too would say that they will commit not to introduce a CBDC without primary legislation.

I end by echoing my noble friend. The introduction of a digital pound—a “Britcoin”, as you might call it —would be an enormous undertaking. We cannot and we must not leave it to be passed by statutory instrument one wet Wednesday afternoon in the Moses Room. That would be an absolute disaster. It needs to be debated on the Floors of both Houses and voted on.

[Baroness Altmann (Con)]

My Lords, I too apologise to the House for being late.

I have added my name to my noble friend’s amendment. I urge my noble friend the Minister and the House to think very carefully about what possible advantages there could be relative to the disadvantages of having a central bank digital currency. We have seen so many people lose so much money, and so many money launderers, thieves and so on make so much money from digital currencies. This may be one of the biggest scams of the century.

It is very difficult to see why we need digital currencies at all. The risks for money laundering and economic crime, the lack of transparency and security for anyone putting money in, and the opportunity that this would offer to rogue states and actors to try to undermine our entire financial system require significant warning. The possibility that this could be introduced without primary legislation seems to me to be unconscionable and a dereliction of our duty to make sure that we are looking after the currency of this country.

[Baroness Kramer (LD)]

My Lords, I had the privilege of serving on the Economic Affairs Committee, with the noble Lord, Lord Forsyth, as chair, when it produced the report. Your Lordships will gather that my views on whether we adopt a digital currency are distinctive somewhat from others who have spoken today. It is not that I am some enthusiast for it; I recognise all the issues and disadvantages that have been named today, particularly financial stability and privacy. However, 18 countries will be adopting a central bank digital currency this year—including China, initially for its domestic market. It has been piloting it in 12 cities, but eventually it will become an offering that it takes to the many other countries where it expects to exercise influence, in both Asia and Africa.

I am afraid that we are facing potentially a King Canute situation: we may not particularly want such a currency but might simply have to accept that to remain in the forefront and in play within financial services and as a major exporter and participant in global trade, we may have no choice but to go down this route. But I absolutely share with every other speaker the view that this should be determined by Parliament in primary legislation. The issues are sufficiently fundamental and far-reaching. They carry risk, and they require judgment and perspective—and it is in debates in the other place and here that that can happen.

It seems to me that something so fundamental as currency surely is the responsibility of a democratic Parliament. It cannot be transferred, in effect, to either the Treasury to run through an SI, or to the regulators to not even bother with an SI but largely to put it in place through various regulatory changes. So, here we have absolute common ground; this should be on the face of the Bill. I am concerned that this may be the last piece of legislation coming forward where we have the opportunity to put it in the Bill. There might be a further opportunity in a year’s time, but it depends on the speed of change that we experience.

Guarantees from the Government would be good. I am glad that a letter has been written to Harriett Baldwin and the noble Lord, Lord Bridges, but we need something that recognises the significance and importance of doing this through primary legislation.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

My Lords, I support the amendment. I still think of myself as a relatively new Member of the House, so it is useful to remind the House of my lifetime spent working in the pensions industry, broadly in support of scheme members. I have been a scheme trustee, I have chaired the Greater London Council investment panel and I have advised trustees of pension schemes as the scheme actuary. I am just stating my expertise here.

I support the amendment because I think a review is required. I take on board the remarks about the thin end of the wedge, but unless we have the review those concerns cannot be addressed. As the noble Baroness, Lady Bowles, said, there is now a big conversation about using pension scheme money to promote the British economy. There is actually a long history of that sort of proposal going back over many years, but it seems to have reached a crescendo over the last year or so.

It is essential that we have a review. What is also essential, of course, is that the review is undertaken by those who know what they are talking about, but that has not necessarily been true about all the comments made so far. For example, I draw the attention of the House to the recent useful report produced by the Pensions and Lifetime Savings Association—not a body that I consistently agree with—on supporting pension investment in UK growth and thinking up quicker and simpler ways to promote pension fund investment in our economy.

I was going to raise two issues. One has already been explained clearly by my noble friend Lord Eatwell: the funding standards that have been established work against the principles that I am sure we all support. Another problem that we have is the Conservative Government’s introduction of freedom and choice. It is difficult to oppose freedom and choice but, when you come to pensions, which are long-term arrangements depending on long-term investment, giving people freedom of choice weakens the very basis upon which they are being organised. It is all very well saying to pension funds, “You’ve got to invest in infrastructure”, but if the members of that scheme have the right to pull their money out at any time, it is very difficult to take the long-term view. That is a fundamental incoherence behind the so-called policy of freedom and choice. Those issues need to be addressed in the review.

I also hope that the list of consultees for the review is not a complete list; to the extent that it is possible to consult the scheme members, they should be consulted as well. I also hope that the issues can go somewhat broader than those listed in the amendment.

In general terms, a review is needed, and I hope it will lead to the objective being clearly set out of promoting the UK economy.

[Baroness Altmann (Con)]

My Lords, I fully support and have added my name to this amendment. It is a pleasure to follow the noble Lord, Lord Davies. We both go back a long way in the pensions industry. My entire career has been in pensions—examining occupational pension schemes as an academic, then managing occupational pension investments in the City, then advising schemes and Governments. I have also been a trustee on investment committees for pension schemes.

I have to say that the current position that members of pension schemes find themselves in—both members of defined benefit schemes and members of too-often-forgotten defined contribution schemes—has not been positive in terms of the experience of the 2022 markets. As we have heard, trustees and managers of pension schemes have been encouraged to believe that the right way in which to invest a pension fund is in supposedly low-risk—which actually also means relatively low-return —investments, rather than in the traditional and older-fashioned way of managing schemes that persisted until the noughties, which was to try and maximise returns.

We have now moved to a position whereby we were supposed to be minimising risk, but I argue that that entire movement away from supporting the British economy and away from supporting UK equities and UK growth assets has been underpinned and misled somewhat by quantitative easing. The Bank of England’s policy, which effectively offered a natural large buyer that underwrote and underpinned the government bond market, perhaps led people to believe that that was the best or safest way in which to invest pension funds. That was partly because the long-term value of the liabilities, as well as their present value, is discounted and measured as of today by using the gilt yield or bond yield measure. In corporate reporting it is double-A corporates; in actuarial valuations it is typically gilt yields.

In 2022, conventional gilts lost 20% and index-linked gilts 30% of their value. The FTSE 100 rose a little. Yes, smaller companies did not do so well, but the idea that pension schemes were investing in a low-risk manner was actually confounded last year, and I would argue that, as we move into a post-QE world and as we have recognised and I have been warning since 2011, or even earlier than that, the policy of quantitative easing is a significant danger for pension scheme investments and members.

We must recognise that we do not fully understand what investment risk means any more. The capital asset pricing model is based fundamentally on the idea that gilt yields are the lowest-risk assets and all assets are more risky—even if they offer more returns, potentially they are more risky—and may need to be considered with a little more circumspection.

That leads on to the idea that, if we do not quite know whether gilts and fixed income are indeed low risk in the way that we thought they were and they have been in the past—because central banks are going to need to offload at some point and are certainly no longer underpinning the markets—diversifying investments and supporting the domestic economy in the way that this review would be investigating must come into the public debate.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I had the privilege of adding my name to this amendment because it seems to me, as has just been said, that this is such an important Bill for our nations. It also has this distinguishing feature. Regulation of financial services and matters of this kind is extremely complicated; it is very easy to get them wrong. Why do the Government not feel that they need the expertise of this House, which was so evident during the Grand Committee hearing on aspects of financial services? That completely defeats my understanding of the way in which we should have good government.

[Baroness Altmann (Con)]

My Lords, I add my support to the amendment so excellently moved by the noble Lord, Lord Sharkey, and I thank my noble friends Lord Hamilton and Lord Naseby, who have spoken about the dangers that are entailed if we do not introduce measures such as this amendment into the Bill. There is a risk of executive power-grab. I am not at all saying that that is the intention, but the possibility of that would be opened and surely, as we have just argued in the previous legislative discussion, it is so important that we ensure that Parliament has control, not a few Ministers. That is what I hoped we were going to do when we were revising the laws that had been adopted from the EU.

[Baroness Kramer (LD)]

My Lords, I can add very little to the extraordinary speeches we just heard, many of them quite brief but absolutely targeted and to the point. I simply want to add just two more issues that perhaps have been mentioned but not stressed.

The first is that a carve-out of financial services from the REUL Bill is not the carve-out of some minor area of insignificant interest. Financial services are in effect our largest and most significant industry at this point in time in the UK and will be for many years in the future, and indeed the products that come from financial services are the lifeblood of our economy, both for businesses and for ordinary people. Therefore, scrutiny of decisions that are made within this arena surely has to be a central and significant responsibility of Parliament.

I say to the Minister, who always prays in aid consultation, both formal and informal, in the process of making change, when did consultation replace scrutiny in the mind of this Government? Parliament is not a consultee but the body that is democratically elected to make the key legislative decisions about the future of our country. Its relegation to the role of a consultee, which in effect happens and which this legislation would in some ways counter, is, I believe, completely unacceptable to most people when they have the opportunity to face up to it and think through this issue. Therefore, we on these Benches are very much in support of these amendments, and if necessary we will go through the Lobbies if the Minister is unable to accept at least a significant one of them.

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[Lord Davies of Brixton (Lab)]

My Lords, I support the amendments in this group, particularly Amendment 93. It is always a pleasure to follow my noble friend Baroness Drake, who has said it all. I will join on the back of her comments to say that I strongly support the approach she has taken.

I also support Amendment 113 from the noble Baroness, Lady Hayman. I respect the extent to which some concerns have been taken into account to make it clear that the interests of the members are paramount in the amendment—that is crucial. On the idea that pension funds should have a more active role in growing our economy, obviously its time has come. It is not new—people have been making suggestions about it; I have been involved in it in the past—but there now seems to be a confluence of views that something must be done. However, it has to be done in a way that respects the fiduciary duty to put the interests of members front and centre in the decisions that are taken. I take a fairly broad view of what constitutes members’ interests, but it is the members and their trustees acting on their behalf who have to take that decision, rather than bodies which do not have the direct results inflicted on them if they get it wrong.

It is important to stress that any ideas have to be practical and effective. I have some doubt as to whether the problem we face is about the supply of money; rather, it is about how the money will be used. Putting these proposals forward without having the other side of the bargain improved will be a problem. It is also important to stress that there are very different types of schemes, and they all have different investment needs. Again, whatever guidance is given has to respect the particular types of schemes.

I have one concern, which I would like the Minister to address, about the phrase “have regard to” in relation to guidance. It appears in the government amendment and in Amendment 113 put forward and supported by my noble colleagues. The problem with the “have regard to” is that it is a legal lottery. It is very difficult to know in advance what exactly it means, so it would be very helpful to me, and I hope the House, if the Minister could say something about that. Is it, as is sometimes suggested, like the accounting requirement—you comply or explain—or do you have to, in some way or another, follow the requirements as they are set out? What does “have regard to” mean in this legislation? It would be good to have clarification during the progress of the Bill, because the phrase appears several times.

[Baroness Altmann (Con)]

My Lords, I congratulate my noble friend the Minister on her Amendment 4. I am sure that it is very well-intentioned, and it meets some of the concerns that were clearly expressed in Committee. I welcome the update that will be coming from her on the green taxonomy; I believe that there will be a consultation on that. There is also the new green finance strategy, which has been published. They are all welcome.

Amendment 4 is welcome, but, as the noble Baroness, Lady Hayman, explained, although it will ensure that the Treasury produces guidance or requirements for sustainable investing by pension schemes and others, it would appear that the FCA and the PRA may not have the powers to issue that guidance. So, once the Treasury has produced its recommendations, we will still need to legislate. Can my noble friend the Minister confirm that that is the case, and that we will need further legislation if we want to implement the impacts of Amendment 4 through to pension schemes?

I have added my name to Amendments 93 and 113 in the name of the noble Baroness, Lady Hayman. Amendment 93 deals with the investment duties of pension providers and investment managers, and Amendment 113 deals with the investment duties of occupational pension trustees and managers. Clearly, if we are to make progress in line with the Government’s laudable objectives—and I congratulate them on all the work they have been doing, including some of their world-leading work on trying to ensure that pension schemes invest more in line with green objectives and sustainable investments for the long term—the amendments will ensure that the FCA and the PRA can make those rules. The amendments are very reasonably drafted; the FCA and the PRA may make these rules, but they do not require them at this stage to do so. The trustees and investment managers must then have regard to the rules, but, as the noble Baroness explained, they can explain why they are not going to implement the rules. However, at least we can set up a system where the trillions of pounds of long-term investment money in pension schemes can assuredly do more to protect the planet and provide investment opportunities that will help with social objectives for this country.

I do not have a problem with the concept of government directing pension schemes to invest a certain proportion of their assets, if necessary, in green, sustainable and socially desirable projects, including infrastructure, forestation, nature preservation and so on. At least 25% of all pension schemes—we are talking about hundreds of billions of pounds—has come from the taxpayer in the first place in the form of tax relief. Given that 25% of everyone’s pension is tax free, that is money that was spent by taxpayers. Given the budget circumstances that the country faces, and as taxpayers would otherwise be funding these projects outside pension schemes, I do not think that it is impossible to justify the idea that, should the private sector not be forthcoming with its investments in these vital elements for future growth and for a sustainable future for us all, the Government might themselves decide to require it.

These amendments will at least pave the way to ensure that there is more chance of these huge amounts of money, which are put aside for millions of people’s retirement income later in life, being invested in a way that will benefit them and the economy, as well as ensuring that there is much more and better protection for the planet, which I know that the Government wish to achieve. So I support Amendments 93 and 113, and I have added my name to Amendment 114, so excellently explained by the noble Baroness, Lady Wheatcroft, again facilitating rules that it will be necessary for schemes to follow, should the Government desire that—which is the indication that I have had from my noble friend the Minister and which is implied in the Government’s Amendment 4.

[Baroness Meacher (CB)]

My Lords, I shall speak to Amendment 91—this is a somewhat variegated group. The amendment was very ably introduced by the noble Baroness, Lady Boycott, and I am privileged to be asked to speak to it—it has widespread support across the political parties and within the public, as well as from key figures such as Sir Ian Cheshire and financial institutions representing no less than £1.18 trillion in assets under management and advice.

The UK is in the invidious position of being a leading financier of global deforestation and linked human rights abuses. This country provided an estimated $16.6 billion to businesses implicated in deforestation over five years to 2020. How many of us have money in pension funds contributing to the £300 billion of UK pension fund money supporting high deforestation risk companies and financial institutions? The Government claim that the answer to this problem—if you like—is the Taskforce on Nature-Related Financial Disclosures. However, the Government’s own expert Global Resource Initiative task force has already explicitly rejected the TNFD’s disclosure-based model as a solution. It has told the Government that new due diligence laws are needed to stop UK finance flowing to deforestation —and that is precisely what this amendment does.

I am aware of the noble Lord, Lord Field’s rather wonderful Cool Earth charity, which finances indigenous tribes in the great forests to retain the trees and live within them. Amendment 91 is vital to prevent all Cool Earth’s good work being undermined by UK financial institutions investing in high deforestation risk companies. The UK led the Glasgow leaders’ declaration on forests and land use at COP 26, making a commitment to halt and reverse deforestation and land degradation by 2030, including by realigning financial flows. This amendment begins to meet that commitment; surely, this should not be neglected. My only regret is that the amendment allows for a 24-month delay before due diligence obligations come into force to allow the sector to prepare—and, of course, I understand that sectors need to prepare. But this issue has been debated in Parliament for some months. I wonder how far the sector has reached in its preparations and whether it would support a reduced delay. How does such a delay fit with the view of experts that commodity-driven deforestation must end by 2025 at the latest to limit global warming to 1.5 degrees centigrade? A 24-month delay takes us right into 2025. I understand that agricultural expansion drives more than 90% of tropical deforestation. Again, the amendment is business friendly and widely supported, and I hope that the Government will support it and accept it.

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[Lord Eatwell (Lab)]

My Lords, as a founding member of the Regulatory Decisions Committee of the Financial Services Authority who served from 2001 to 2006, I reflect on the fact that at that time the FSA took extraordinary care in preparing the documentation that was submitted to the RDC. This clearly had an effect on the way in which the RDC prepared itself. This is an important element in ensuring that our regulatory system is not only fair but seen to be fair. Having read with care the pamphlet from the noble Lord, Lord Tyrie, I support the arguments that he made there, which I am sure he recently repeated in the House.

[Baroness Altmann (Con)]

My Lords, I support all the work that the noble Lord, Lord Tyrie, has put into this amendment. He has worked for so many years and has so much knowledge on this subject. If my noble friend cannot accept the amendment today, I urge her to come back at Third Reading if possible, perhaps with the Government’s own proposals for at least a consultation, which would be a reasonable compromise. There is a strength of feeling on this issue.

As the noble Lord said, the FCA has already been clipping the RDC’s wings. We can see dangers and that there is huge support for proper independence on a statutory basis. We do not want the City to become an oligopoly; we need to protect some of these smaller firms for healthy competition. What is the Government’s objection to this proposal?

[Baroness Chapman of Darlington (Lab)]

My Lords, we commend the noble Lord, Lord Tyrie, on his amendment and on using it to raise important questions. We understand that concerns have been raised about the perceived watering down of the RDC’s role within the FCA. While we know that the Government respect the operational independence of the FCA, we hope that the Minister is able to say something about the regulator’s recent decisions on the RDC, which are causing substantial concern.

The FCA believes that the current balance of responsibilities is correct and that the recent reforms were necessary to ensure quicker decision-making. However, it would help if the Minister could outline what steps, if any, the Treasury might take in future, should it come to the view, if it has not today, that the system is not quite working in the way that it should.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Lilley (Con)]

We ought to allow the industry to invest as long as we are phasing out demand. If it invests too much, it is its problem. If it invests too little, it is our problem.

[Baroness Altmann (Con)]

My Lords, I declare my interests as set out in the register. I support many of the amendments in this group. My Amendment 241A is in this group. I have added my name to Amendments 201 and 237, which require FCA guidance about long-term returns for occupational pension investors. I think that is very important when considering climate change and is very relevant to the remarks of my noble friend Lord Lilley. I have also added my name to Amendment 235 as I think it is equally important for institutional investors in the UK to be equipped with some green taxonomy so that we have some standards by which we can measure the impact of climate investment.

As regards the issues raised by my noble friend, particularly, perhaps, in relation to Amendment 168, when I read that amendment it seems to me to be calling for a review. It calls for the FCA to review and perhaps guide pension schemes and insurance companies, which have very long-term liabilities, on assessing the long-term risks of investing in assets such as fossil fuels. There is a widespread opinion suggesting that over the long term, whether that is 20 years or 30 years —those timescales are relevant for Solvency II and the annuity books of insurers, for example—there is a significant danger in relying on the continued thriving of those large energy companies.

It makes sense. We have been taken by surprise too many times in the financial world by supposedly very small long-term risks which materialise in a cliff-edge event that people had not been prepared for. Whether or not the review concludes that there should be any change, it is appropriate that this review should be carried out, so I support the amendment, but I understand the points made by my noble friend. Perhaps, on a shorter-term timescale, given the need for fossil fuels and the work that is being done by those large companies to try to transition to more green energy, that is an issue that needs to be carefully weighed up by any investor who is considering the potential returns from their investment.

In the interests of time, I will now speak to my Amendment 241A. I hope that my noble friend will be interested in this amendment and, indeed, that other Members of the Committee might consider that there is merit in this proposal. It is a relatively modest reform. It would be deregulatory. It supports the transition to net zero and nature preservation and it would encourage innovation. I hope it would garner more of our domestic institutional asset base to be used for the kinds of investments that all of us who are concerned about the long-term impact of human activity on the climate and nature would want to see happen.

I thank the Public Bill Office and Susannah Street, as well as Peers for the Planet, for their assistance in trying to ensure that the amendment is in scope of the Bill, which was quite a feat. It is a probing amendment; I am not wedded to the wording, but the principle of the proposal would make it easier for funded occupational pension schemes to join together to establish fund managers under a lighter-touch regime that already exists in order to invest in and support climate and nature protection. We all know that there is a growing need to find the funding to rebuild, repurpose or have new infrastructure for low-carbon and nature-friendly projects. Indeed, nature’s impact on and interaction with climate change and net zero is increasingly recognised. These issues feature in the other amendments I have attached my name to, so I hope that the scientific and political consensus that we need urgent action might help my noble friend and the Committee recognise that this could be a win-win for pension funds to get better long-term returns, for pensions to be perhaps better than they otherwise might be, and for the economy.

Much of the investment needed to reach net zero will be in very large long-term projects. It is not always easy to find the money. Normally, perhaps, with a Government who were in a much stronger fiscal position than most western Governments now are, we might look to the majority of this being funded by government, but that is less likely at the moment. Yet we have in this country this enormous pool of long-term assets that is currently being encouraged to invest in assets with a much lower expected return or so-called safe assets—gilts and corporate bonds, for example—shunning long-term growth with equities and projects such as the one I have in mind for this type of approach. Only 100 schemes or so have more than £5 billion worth of assets. Even with the kind of forecast consolidation, it is unlikely that we will have very many of the £5 billion-type scale that is normally suggested to be required to put forward a prudent, risk-diversified portfolio of such infrastructure and other protective investments.

My amendment would facilitate asset pooling for the smaller pension funds as well, so they can all join together in FCA-authorised investment managers specifically for pools of pension assets to benefit from and contribute to the benefits for green growth and sustainable long-term returns for the specific purposes set out in proposed new subsection (3) of my amendment. The Local Government Pension Scheme is already starting to do this, but private schemes would have to use commercial fund managers, which often either deters such investing or incurs much higher costs, whereas big schemes such as USS and NEST are already looking to invest or have the expertise to do so, but they are not joined with the smaller schemes.

I hope that the currently existing lighter-touch regime that the FCA offers in its occupational pension scheme firm rules, which currently apply only to fund management firms that are wholly owned by one pension fund, could be applied to a combination of pension funds that are investing for their own purposes in the various schemes that belong to it. It is not commercially available or available to other members of the public, but it is for long-term pension investing.

I would be grateful if my noble friend considered this modest reform, or, if she feels that there is some flaw in the wording of the amendment that could be changed and still facilitate this, I would be happy if she, or indeed any other noble Lords, wanted to meet to discuss it. As I said, it is deregulatory, it supports the aims of net zero and nature preservation, it would encourage innovation and it should provide better diversification and therefore long-term risk reduction for a number of occupational pension schemes which otherwise could not take advantage of it.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

Amendment 231 basically covers a subject whose ground I have already covered, so I will not add any more other than to say in conclusion that these three amendments seek to empower consumers and create pressure points to force the suppliers of financial services and regulators to act with integrity and honesty.

[Baroness Altmann (Con)]

My Lords, I added my name to three of the amendments in this group. I will speak to Amendments 225 and 226 first. The noble Baroness, Lady Kramer, has expertly explained the issues surrounding the Equitable Life compensation scheme and the problems suffered by more than 1 million people who lost money through what was reputed to be an extremely strong and stable investment company. Even though the Parliamentary Ombudsman ruled that this was due to official maladministration across a wide range of actors, about 900,000 people have received only 22% of the compensation due.

I understand that taxpayer money is not a bottomless pit and that it is difficult when there is such an enormous number of people involved for any Government to consider this kind of compensation, but we have a Parliamentary Ombudsman for a reason. If a Parliamentary Ombudsman rules in a particular direction, it is troubling to me that the Government would suggest that they disagree with their own referee and therefore are not going to comply. The amendments from the noble Baroness, Lady Kramer, would require the Government to honour the recommendations of the ombudsman. I urge my noble friend to look seriously and carefully at how much has been paid out and to whom, and whether the Government can justify not complying with the recommendations of their own ombudsman.

I have personal experience in the case of the Financial Assistance Scheme where the Parliamentary Ombudsman ruled that government must compensate. The then Government in 2005-06 simply said that they were not going to and that they disagreed. We had to take the Government to court. They lost in the High Court and then in the Court of Appeal. It was only after that and at the risk of the complainants losing their homes and everything else, after also having lost their pensions, that in 2008, thankfully, a proper redress scheme was set up. So it is possible, but it was very much dependent on the Secretary of State at the time being willing to agree.

Amendment 120 in the name of the noble Lord, Lord Tunnicliffe, to which I added my name too, refers to the Financial Conduct Authority’s Consumer Panel. The amendment would like to see the Consumer Panel reporting to Parliament. At the moment this excellent panel is doing quite a bit of work trying to look at the interests of consumers. Clearly, consumers as a group and individually do not have the resources that the financial services industry has in order to promote their interests relative to those of the financial services companies. The Consumer Panel has often come up with important recommendations to the board of the FCA to look at and act on behalf of consumers who have been wronged in different ways. But Parliament generally does not tend to hear about what the Consumer Panel says, and the board of the FCA is at liberty not to agree or comply with recommendations of the Consumer Panel.

It would be helpful for parliamentarians, particularly Members in the other place representing their own constituents who may have been wronged in these cases, to know what has been considered by the Consumer Panel. I hope that my noble friend might consider this very reasonable amendment, which is just asking that Parliament is directly informed by the Consumer Panel of its concerns at actions taken by the financial services industry to the detriment of consumers.

That leads me finally to the other amendments in this group. The Consumer Panel has recommended that a duty of care is required in the financial services industry. As we know, Section 29 of the Financial Services Act called for a duty of care, and Parliament was supposed to introduce a duty of care, yet what we have is this consumer duty rather than a fully fledged duty of care.

Amendment 76 calls for a duty of care, and the amendments tabled and so eloquently explained by the noble Lord, Lord Sikka, Amendments 229, 230 and 231, also represent what could be considered a duty of care—as, indeed, does Amendment 77 from the noble Lord, Lord Davies, which talks about consumers with mental health issues, and how the industry looks after them. These are all extremely important for the Government to consider in strengthening the protection for the public.

To give one brief example, if noble Lords will indulge me, most recently we have had the problem of liability-driven investments and the dislocations in the government bond markets caused by the market turmoil a few months ago. For many investors in personal pensions—where the Financial Conduct Authority oversees the supposed “know your customer” and new duty of care requirement—the products and offerings given to ordinary members of the public in pensions under auto-enrolment and in other areas have default options, which the majority of workers are put into. They typically use what is called a life-styling or target date approach, which means that, in the approximately 10 years running up to retirement, those customers are switched out of assets with higher expected returns such as equities into what are meant to be safe assets such as bonds, in the expectation that they will buy an annuity when they reach retirement—and annuities are priced relative to bonds, so everything should be fine.

There is no duty on those pension providers to ask a customer once a year, for example, if they are planning to retire at the date that they are gearing towards or if they plan to buy an annuity. They may plan to keep the money invested. If that is the case, we have seen millions of people—potentially, certainly hundreds of thousands, although we do not have the number—who have been coming up to retirement and lost a huge chunk of their pension, because the price of those supposedly safe assets has fallen significantly. They were never asked whether they were going to buy an annuity, and the majority of them will not do so. No provider had any requirement to check with their customer, on something as fundamentally important as this, whether they planned to buy an annuity or even to take out any money at all at the date that the product automatically switches them to. Nothing has been updated on that since the pension freedoms were introduced.

That is just an example of where, I hope, my noble friend will understand that a duty of care must extend beyond where the industry is today, so that the interests of individuals are taken into consideration by the financial services industry.

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[Baroness Penn (Con)]

My Lords, the concept of a duty of care in financial services may be different to the concept of a duty of care in other contexts. This was considered very carefully and consulted on by the FCA in 2019 and in 2021. It considered these questions and the issues we have discussed in the Committee today.

[Baroness Altmann (Con)]

I thank my noble friend for giving way. On these consultations, did the financial services companies generally respond not wishing to have the right of redress? Were the consumer organisations in favour of it?