Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

As Fair By Design and many others have observed, a formal requirement for the FCA to have regard to issues around financial inclusion would accelerate change where it is so badly needed by less well-off households. My Amendment 18, supported by the noble Baroness, Lady Tyler, would not close the financial inclusion gap overnight, but it would become a tool in the arsenal and accelerate change in a number of important areas where the Treasury and the FCA sadly have so far been too slow to act. We will of course listen to the Minister’s response, but as things stand we are minded to test the opinion of the House on this amendment.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I have attached my name to Amendment 14 in the name of the noble Lord, Lord Davies of Brixton, who very powerfully introduced it. I associate myself with all his comments. Essentially, he was talking about reasonable adjustments for people with mental health conditions in dealing with the financial sector.

I will briefly address this consumer protection objective from the other side, which is that the financial sector should not make people ill. I am sure the Minister will recall the meeting we had a couple of months ago with mortgage prisoners. At that meeting, we heard some testimony about the impacts of how people had been trapped in the system and suffered enormously as a result.

I want to reflect on two things. The first is the figures that have come out since Committee and the fact that the head of UK Finance has labelled the UK the fraud capital of the world, with fraud last year estimated at £1.2 billion. That reflects the fact that very many people now approach any interaction with the financial sector with a sense of fear, asking, “Is this true?”, “Is this right?”, “Is this a proper email?” This is something that the financial sector needs to do more to address so that people are not suffering that stress and pressure.

The second thing is that I know some individuals who are somewhat older than me who find that there is an inability to walk into a branch and deal with an issue by having a person solving your problems face to face. People spend weeks and weeks trapped in cycles of emails and phone calls. No one can ever solve your problem and you never speak to the same person twice. That has serious impacts on people’s lives and well-being. We need to acknowledge that and say to the banks that this is not acceptable and not good enough.

On the financial inclusion amendments, I have spoken about this at some length so I will not go over the same ground. However, it is clear, in all the amendments in this group, that the financial sector is not meeting the needs of our society. As a Parliament, we need to ensure we do more to make sure that it does.

[Lord Eatwell (Lab)]

My Lords, I support Amendment 18 in the name of my noble friend Lady Chapman, while also recognising the contribution made in the amendments tabled by the noble Lord, Lord Holmes, and my noble friend Lord Davies.

This is an extremely urgent matter because between 6 million and 7 million of our fellow citizens conduct all their financial affairs in cash. Cash is becoming increasingly unacceptable in a whole series of financial transactions that are conducted by electronic means. This means that cash is ceasing to be money, because money is something which is generally accepted in payment of a debt. If you cannot use cash to buy things, it is no longer money.

It is therefore necessary for both the Bank of England and the Treasury to consider making available to all citizens in this country a means of electronic payment. That is a big challenge, but it is urgent because we are all aware that, over the next decade, virtually everything will be entirely electronic and cash will be unacceptable in most transactions. My noble friend Lady Chapman has hit the nail right on the head by saying that this is a consumer protection objective. That 10% of our fellow citizens needs to be protected by financial inclusion in this way. This is an urgent matter which should not be postponed.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

[Baroness Young of Old Scone (Lab)]

My Lords, I support Amendment 15 in the name of the noble Baroness, Lady Hayman, who introduced it very powerfully. I want to talk to the House about the real relationship between nature conservation and climate change and the need to bring those together in the regulatory process. Nature restoration is essential for our reaching of net zero—we cannot do net zero without restoring nature; I think that is globally accepted now—but nature restoration is important to economic prosperity in several other ways. More than half of global GDP is considered moderately or highly dependent on natural assets and half the world’s population is completely dependent on biodiversity for their livelihoods. That means that biodiversity is as important as climate change.

Biodiversity is also highly material in assessing risk, including financial and economic risk, and it is pretty clear that if biodiversity is going down the tubes, so is the economy and, indeed, so are we. So, it is a bit of a no-brainer, in my view, that financial services regulators should have, as a regulatory principle, net zero and nature recovery together: the two are absolutely indissolubly linked. I hope the Minister will not say that the provisions that are in the Bill for net zero will act as a proxy for biodiversity restoration. It does not work that way: net zero is a necessary condition but not a sufficient condition for biodiversity recovery.

The noble Baroness, Lady Hayman, threatened the House with simply reading out all the commitments that have already been made that are encapsulated in her Amendment 15. I want to add another one that no one has mentioned so far. The Environmental Audit Committee, in its report on biodiversity in June 2021, highlighted the fact that, although some progress had been made in transforming the financial system to reflect the pressures of climate change, the whole accompanying handshake with biodiversity was way down the line and much slower and needed to accelerate. It called on the Government to play a part in creating a narrative that there is a lot of international commitment to biodiversity recovery linked with climate change that we are going to have to respond to in this country, because we have signed up to it globally, and that it is therefore important to get the financial services industry and its regulation up to speed soon in order to cope with that global pressure. The noble Baroness’s Amendment 15 would do that and, more importantly, it would secure this through a legislative approach and not be overly reliant on voluntary action.

Without delaying the House any longer, I also support Amendment 91 on deforestation. I will not repeat what the noble Baroness, Lady Boycott, said, but it was the bee’s knees. I end with a note of distress at the comments made by the noble Lords, Lord Davies and Lord Naseby, about pension scheme investments and investors and pension committees and pension advisers’ responsibility and duty to pensioners. I declare an interest, having set up the Environment Agency pension scheme some 25 years ago to be, at that stage, the only really green pension scheme and now probably the foremost green pension scheme in the world.

Let us not be in any doubt: there is not a dichotomy about responsibility to pensioners and taking action on climate change and biodiversity. They are absolutely one and the same thing. If climate change and biodiversity decline continue, there will be irreparable harm to the economics that pensioners and pension schemes depend on. Let us not be in any doubt about that: pension scheme trustees and their advisers—and I hope, if the Minister will accept Amendment 15, their regulators—have a responsibility towards climate change and biodiversity recovery, because it is absolutely in the economic interests of their beneficiaries.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise very briefly to express Green support for the non- government amendments in this group and acknowledge the way in which the weakness of the government amendment has already been acknowledged. Noble Lords will note that the explicitly environmental amendments, from Amendment 15 onwards, do not have a Green name on them. I am delighted about that because there was not space for one, because the amendments have cross-party support from right across the House, which really shows how far we have come in these debates.

I shall make four brief points, because I am very aware of the time. They are building on the points just made by the noble Baroness, Lady Young, and reflecting on an article published last week in Nature, which demonstrated that in seven of eight key measures, including climate, biodiversity and water, we are outside the safe and just operating space of this planet. We are absolutely at crisis point and I pick up the point made by the noble Baroness, Lady Hayman, that we cannot afford to wait. We cannot wait for the next Bill, the Bill after that and the Bill after that. I very much agree with the point just made by the noble Lord, Lord Vaux, that the country should not have to wait for the House of Lords to insert these things into Bills; they should be there in government Bills as a matter of absolute, basic course.

I have a particular point about Amendments 93 and 113, which strengthen the fiduciary duty of pension funds to ensure investors consider the impact of their investments on environment and society. The case has already been made that there is no finance on a dead planet and there are no pensions on a dead planet, but the society element also deserves to be noted. We have had a huge amount of discussion of the problem of the large number of people of apparently working age who are not engaged in our labour force at the moment, and the public health crisis that is associated with that. It is the kind of thing that Green councillors have been going on about, as members of governing boards of pension funds for years: such things as tobacco and the kinds of food products that are being supported are all issues that have an impact on pension returns.

On deforestation, the noble Baronesses, Lady Meacher and Lady Boycott, among others, have already made points about this, but there is £300 billion of UK pension money in high deforestation risk companies and financial institutions—that is a figure from Make My Money Matter. Again, there is a point about risk. The financial sector in the UK faces up to £200 billion of risk in Brazilian beef and soya and Indonesian palm oil supplies alone.

Finally, there is another risk in terms of our international reputation. We are of course enthusiastic signatories of the global biodiversity framework, which promises, under target 14, that the UK will align

“all relevant public and private activities, [fiscal] and financial flows with the goals and targets of this framework”.

How could the Government not be accepting all the amendments in this group?

[The Earl of Caithness (Con)]

My Lords, I have my name to Amendment 15, so ably introduced by the noble Baroness, Lady Hayman. I thank her for her very clear exposition of it and I thank the noble Baroness, Lady Young, for her little additions just to fill in some of the other parts of this important subject. I thank the Minister for her time yesterday when I came to discuss this amendment with her: it makes a lot of difference that a Minister is so receptive to a discussion, even though we did not part any closer than when I walked through the door.

I congratulate the Government on their world-leading position on green finance. That is a nice position to be in, but we need to work very hard on that if we are to retain it.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

I would dearly like the Government just to do this now or suggest that the FCA gives immediate interim guidance. It is an emergency. It should not need months and months of consultation. It is going back to what worked for years. Quick fixes are one of the things that Brexit is meant for but, instead, we are ruining ourselves for want of flexibility and action. If we cannot do regulatory repairs like this quickly, I do not see any point in a competitiveness objective. This issue shows a monumental lack of awareness from the Government and the FCA about the sharp end in the real economy. A dire problem has been left festering.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to speak to Amendments 10 and 112 in my name; I gratefully acknowledge the support of the noble Lord, Lord Sikka. This is a bit of a diverse group, but Amendment 10 in particular heads in a similar direction to Amendment 9 in the name of the noble Baroness, Lady Bowles of Berkhamsted—a direction that seeks to lead towards a financial sector that meets the needs of the real economy rather than swallowing up the scarce human and capital resources that could be used to far better effect than creating complex financial instruments that, when they go down, threaten to take the rest of us with them.

Had it not been for events between Committee and Report, I might have chosen to sign the noble Baroness’s amendment instead of tabling my Amendment 10, which states that Clause 24—the growth and competitiveness clause to which the noble Viscount, Lord Trenchard, referred—should not be deleted from the Bill. It mirrors exactly the amendment tabled in Committee by the noble Lord, Lord Sikka, signed then by myself. However, in the light of events, I thought it really important that we tackle the “growth at any cost” foundation that underlies Clause 24: “Growth is infinite; let’s chase as much growth as we can”—which is, of course, the ideology of the cancer cell.

In Committee, the noble Lord, Lord Sikka, said:

“The secondary objectives of growth and competitiveness cannot be reconciled with the main role of ensuring financial stability and consumer protection”.—[Official Report, 1/2/23; col. GC 242.]


This is a position that we both hold. However, it was clear in Committee that there was no support from the Front Benches, and the issue might have been allowed to lapse. But then there were events that highlighted the many dangers of chasing growth in the financial sector. After several weekends of financial panic, emergency meetings and sudden bank rescues, parts of the real economy—in particular, the digital sector—were left highly uncertain of their financing. I am referring, of course, to the collapse and rescue of Silicon Valley Bank, Credit Suisse and Signature Bank, the first and last of those being mid-sized US banks and the middle one being a former European banking colossus.

These US events came after President Trump watered down the Wall Street Reform and Consumer Protection Act, better known as the Dodd-Frank Act, in 2018, reducing the supervisory oversight of banks with assets between $50 billion and $250 billion; the noble Viscount, Lord Trenchard, referred to this watering down in his introduction to this group. However, just because someone else is doing the wrong thing and reducing controls and protections, it does not mean that we should chase after and try to compete with them. As David Enrich from the New York Times put it, this was a

“crisis that has revealed the extent to which the banking industry and other opponents of government oversight have chipped away at the robust regulatory protections that were erected after the 2008 financial meltdown”.

What happened is that competitiveness had been advanced while security was lost and risk increased. A great many people had sleepless weekends as a result of that.

What has also become clear since Committee is how Credit Suisse clients withdrew nearly $69 billion from the bank in the first quarter of this year before its fire sale rescue by UBS in March. Of course, Credit Suisse had been hit by the insolvency of Greensill Capital—something that is rather close to home in your Lordships’ House—and the collapse of family office of Archegos Capital Management, which caused huge trading losses. However, the end came very quickly.

Clearly, in the digital age which SVB helped to fund, financial events can occur at a speed that was unimaginable even in 2007-08. I wonder whether, when wrapping up, any of the Front Benches are prepared to say that they believe that regulators today are truly prepared for the world in which they operate, a world that also faces the risks of other substantial shocks, as we have seen highlighted today with the Russian attack on the Kakhovka dam, geopolitical risks and, of course, environmental risks, since as we speak, Canada is essentially ablaze. That will undoubtably have enormous impacts on the insurance sector.

The IMF’s Global Financial Stability Report from April reflects on the challenges posed by the interaction between tighter monetary and financial conditions, and the build-up of vulnerabilities since the global financial crash. It says that:

“The emergence of stress in financial markets complicates the task of central banks at a time when inflationary pressures are proving to be more persistent than anticipated”—


a statement which is particularly true within the UK. There are stresses from the shadow banking sector, the effect of geopolitical tensions on financial fragmentation, the risk of potential capital flow reversals, disruption of cross-border payments, impacts on bank funding costs, profitability and credit provision, and more limited opportunities for international risk diversification. The IMF concludes that there is a need to “Strengthen financial oversight”. This is all referring to events since we were in Committee. That is my case for Amendment 10.

My Amendment 112 is much more modest and addresses in a different way a point that I raised in Committee. I discussed the growing body of literature around too much finance, but in this amendment I am not asking the Government to agree with me on that; I am asking for them to prepare a report to consider the ideal size of the financial sector. What is the Goldilocks range for a financial sector, where we can afford the risks and supply the human resources and it serves the needs of the real economy?

As the House has heard before, I approach this question in the light of the Sheffield Political Economy Research Institute’s study from 2018, which found that the UK had lost £4.5 trillion over two decades because of its oversized financial sector—£67,500 per person. To bring this right up to the present day, in a study published last week, the global hiring website Climatebase has posted more than 46,000 jobs from over 1,500 organisations in the past two years. Of these, data science and analytics were the hardest to fill, taking an average of nearly four months to fill posts compared with three months for engineering roles.

This brings me back to Amendment 10, which would delete Clause 24. I did not have a chance to speak in Committee, but I suggest that Clause 24 as it stands is internally contradictory. It gives the FCA the duty of facilitating the international competitiveness and medium to long-term growth of the economy of the UK,

“including in particular the financial services sector”.

This clause talks of growing the economy of the UK and growing the financial sector. I posit that those two objectives are mutually contradictory. I refer to a Bank for International Settlements working paper from 2018, Why Does Financial Sector Growth Crowd Out Real Economic Growth? It is actually impossible to promote growth both in the real economy and in the financial sector. It comes back to—probably the easiest part of this to understand—the need to think about human resources. We all know the labour shortages and skills shortages that so many sectors of the UK economy are suffering, and we know that many skills are going into the financial sector when they could be going into other areas.

Tomorrow, your Lordships’ House will debate the report of our Science and Technology Committee titled “Science and Technology Superpower”: More Than a Slogan? I am not asking any Front-Benchers or the Government to agree with the claims that I am making here; what Amendment 112 asks for is a report to look at the evidence, so that the Government and the country can make considered judgments about what size financial sector we both need and can afford.

[Lord Eatwell (Lab)]

My Lords, I will address the amendments proposed by the noble Viscount, Lord Trenchard. In some way, they are part of the whole privileging of the competitiveness objective, but I do not want to talk about that. I will talk specifically about his concern about aligning with international standards.

I suggest that the success of the development of international financial markets since the 1970s has been predicated entirely on the development of an international regulatory system. It was first stimulated by the Herstatt Bank crisis in the summer of 1974, which led to the establishment of the Basel committee on settlement risk. Since then, we have developed a whole international financial infrastructure of regulation—the Basel committees, IOSCO and, most importantly today, the Financial Stability Board. That, by the way, was a British idea that has greatly aided the stabilising of international financial markets.

These committees, as the noble Viscount, Lord Trenchard, pointed out, are not part of any form of international law or treaty. They are what is known in the trade as “soft law”. They are laws that countries agree it is in their mutual benefit to align with, and failing to align is against the benefit of individual countries as well as of the system as a whole. It has been the judgment of His Majesty’s Government that it is in the best interests of the United Kingdom to align with international standards.

But there are other international standards with which we align. Take the Paris-based Financial Action Task Force. Would the noble Viscount, Lord Trenchard, suggest that we do not align with the international anti-money laundering police? It is essential that we agree to align with this framework of international financial regulation, which we have been such an important element in creating.

--- Later in debate ---

[Baroness Penn (Con)]

I understand the case that the noble Baroness makes, but it is not for an amendment to this Bill but for regulator rules to address the issue that she raises.

I turn to Amendments 8A and 9A from my noble friend Lord Trenchard, which seek to remove the requirement for the FCA and the PRA to align with relevant international standards when facilitating the new secondary objectives and instead have regard to these standards. As we have heard, international standards are set by standard setting bodies, such as the Basel Committee on Banking Supervision. These standards are typically endorsed at political level through international fora such as the G7 and G20 but, given the need to enable implementation across multiple jurisdictions, they may not be specifically calibrated to the law or market of individual members. It is then for national Governments and regulators to decide how best to implement these standards in their jurisdictions. This includes considering which international standards are pertinent to the regulatory activity being undertaken and are therefore relevant.

Since we left the EU, the regulators have been generally responsible for making the judgment on how best to align with relevant standards when making detailed rules that apply to firms. This approach was taken in the Financial Services Act 2021, in relation to the UK’s approach to the implementation of Basel standards for bank regulation and the FCA’s implementation of the UK’s investment firms prudential regime. It was also reflected in the overarching approach set out in the two consultations as part of the future regulatory framework review.

Part of the regulators’ judgment involves considering how best to advance their statutory objectives. Following this Bill, this will include the new secondary competitiveness and growth objectives. The current drafting therefore provides sufficient flexibility for the regulators to tailor international standards appropriately to UK markets to facilitate growth and international competitiveness, while demonstrating the Government’s ongoing commitment for the UK to remain a global leader in promoting high international standards—which, as we have heard, the UK has often played a key part in developing. The Government consider that this drafting helps maintain the UK’s reputation as a global financial centre.

I turn finally to Amendment 112 from the noble Baroness, Lady Bennett. The Government consider the financial services sector to be of vital importance to the UK economy. The latest figures from industry reveal that financial and related professional services employ approximately 2.5 million people across the UK, with around two-thirds of those jobs being outside London. Together, these jobs account for an estimated 12% of the UK’s economy.

The financial services sector also makes a significant tax contribution, which amounted to more than £75 billion in 2019-20—more than a tenth of total UK tax receipts—and helps fund vital public services. It is not for the Government to determine the optimum size of the UK financial services sector, but in many of the areas that the noble Baroness calls for reporting on, the information would be largely duplicative of work already published by the Government, public sector bodies or other industry groups.

For example, the State of the Sector report, which was co-authored by the City of London Corporation and first published last year, covers talent, innovation, the wider financial services ecosystem, and international developments and comparisons. The Government will publish a second iteration of the report later this year. The Financial Stability Report—

[Baroness Bennett of Manor Castle (GP)]

The Minister said that was a City of London report, but then said it was a government report. Surely the City of London Corporation is not an independent source on the financial sector—it is the financial sector.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Thursday 23rd March 2023 Grand Committee

[Baroness Sheehan (LD)]

My Lords, I thank the noble Baroness, Lady Worthington, for tabling this amendment. I totally agree with its necessity, which is why I have added my name to it. If we are to meet our statutory net-zero targets, carbon offsetting will become ever more important as we decarbonise and reach those emissions that are so hard to abate and the residual emissions that the noble Baroness spoke about.

Let me say at the outset, however, that carbon offsetting is not a solution to climate change. There is only one way to avoid catastrophic climate change, and that is to stop adding to the blanket of greenhouse gases in the upper atmosphere that is already at a higher concentration than at any time since records began. Just for the record, the May peak of carbon dioxide in 2022 was a record 421 parts per million. The highest recorded over the previous 800,000 years for which we have records was just under 300 parts per million. This increase has happened in a blink of a geological eye, over just the last 150 years since the start of the Industrial Revolution. This Committee is not the time or place to go into the impact on our planet, save to say that catastrophic events are happening at a faster pace than even the most pessimistic predictions by scientists.

As we know, the biggest contributor to greenhouse gases is the burning of fossil fuels. The second biggest is deforestation. Putting an end to both these practices is well under way but is not going fast enough. I hope that more will be done through this Bill before it becomes an Act, because it deals with the money that fuels the release of those greenhouse gas emissions.

Until decarbonisation measures bite—and resistance to them is strong; we have seen that in some of the contributions to this Committee—carbon off-sets are one tool we have to mitigate the harm of climate chaos and the destruction of nature. The market demand for off-sets is exponential and the scope for fraud in the voluntary carbon market is massive. Greenwashing is rife. I will give one example: the recent chastisement of HSBC by the Advertising Standards Authority for misleading people with some of its claims to be carbon neutral. However, we need a functioning market to off-set hard-to-eliminate sources of greenhouse gases, which will leave residual emissions. It is the role of government to enable regulators to act, which is why this amendment is necessary and why I added my name to it.

Industry is also asking government to play its part. I will quote a substantial part of the recent report by Scottish Widows, Nature and Biodiversity: the Pensions Imperative, because it says it far better than I can:

“With companies potentially needing to put billions of pounds into offsets to meet their net zero commitments, the biggest barrier to date is the opacity of the voluntary carbon market. This breeds mistrust, particularly as a number of bad actors have been exposed in the past. What could really shift the dial here is the establishment of a UK regulator for carbon offsets. This could set quality standards that corporations looking to do the right thing could trust, enabling them to allocate money with confidence in these offsets having additionality and really delivering on those climate and nature goals”.


Finally, when I was a member of the Lords Select Committee on Science and Technology, we produced a report entitled Nature-Based Solutions. The committee heard evidence from a cross-section of practitioners in the carbon credits sector, from both the science and financial communities. As the noble Baroness, Lady Worthington, said, we heard from the science community how difficult it is to quantify and monetise nature-based solutions. From the financial community, we heard that it needs a regulatory framework so that everyone can work on a level playing field and so that the market is less like the wild west—which it currently is.

I will conclude by quoting a conclusion of that report:

“We recommend that the Government provides clear regulatory standards for emerging carbon markets to ensure that any off-sets that are claimed are genuine”.


However,

“these markets will only deliver the desired results if they are properly regulated and verified to prevent inaccurate claims of carbon off-setting. Carbon and nature credits must be for benefits that are additional, measurable, and permanent”.

For carbon credits to have the impact we all want, they must have good governance backed by government.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baronesses, Lady Worthington and Lady Sheehan, and to offer Green support for this amendment, which is obviously urgently needed. I essentially agree with everything that the two noble Baronesses said, particularly the point made by the noble Baroness, Lady Sheehan, that off-sets are essentially a con that should not be used to trade off against continuing fossil fuel emissions. None the less, we are where we are and they are certainly going to happen.

The complexity is really well illustrated by a recent report by HSBC, which found that $246 billion-worth of hydroelectricity depends on water provided by threatened tropical cloud forests. We think about where the funding, support and credits should go, but to maintain that electricity supply, surely the people producing the electricity should fund that. This is also a carbon store. It is a real demonstration of the way that, as the Treasury’s own Dasgupta report illustrated, the economy is a complete subset of and entirely dependent on the environment, which we are fast trashing.

The problems with the current “wild west” system have been clearly demonstrated already. In a paper this week in the journal, Frontiers in Forests and Global Change, the Berkeley Carbon Trading Project presented a study of nearly 300 carbon off-set projects, representing nearly 11% of global carbon off-set projects to date. It found that the projects were systematically overcrediting their results and delivering extremely dubious carbon off-sets. Apparently respected registries did not follow standards to make sure that projects were having a real and tangible impact on carbon levels. A particular area of difficulty was whether the projects would have happened anyway, whether or not the extra carbon credit was claimed.

I will make one final point. The noble Baroness, Lady Worthington, sought ways in which the Government might see this as an advantage. In this wild west, there is a need for extensive due diligence for any financial body to be able to claim that it has genuine, honest carbon credits that will deliver over the long term—because the climate emergency is of course a long-term project and not just for one year or five years. There is a significant cost for any company going into this and wishing to protect its reputation. If it is a regulated sector, that will make it a great deal easier for people to do due diligence and to rely on it, and not to have to do the work themselves at considerable cost, facing considerable complexity and carrying considerable risk.

The need for this amendment is obvious. The problems with off-setting both carbon and biodiversity are very clear. We should not be where we are, but we are where we are, and the amendment offers one way forward that would be good for the financial sector as well as for the planet.

[Lord Tunnicliffe (Lab)]

We do not have a fixed view on this proposal and therefore will listen to the response of the Government. At an individual level, when invited to pay my off-sets to British Airways, I am deeply suspicious of them making any useful contribution. My general view on this Bill is that good regulation is important, because the problem with the financial services industry is that any areas of weakness can escalate into a significant wider impact. I take the point that this area of activity will almost certainly expand and there is a good prima facie case that it should be regulated.

British Banking Sector

Baroness Bennett of Manor Castle Excerpts

Tuesday 21st March 2023 Lords Chamber

[Baroness Penn (Con)]

The noble Lord is right that the Credit Suisse subsidiary in the UK was regulated by the Prudential Regulation Authority and met its obligations under those regulations.

[Baroness Bennett of Manor Castle (GP)]

My Lords—

[Lord Reay (Con)]

My Lords—

[Baroness Williams of Trafford (Con)]

My Lords, it is the turn of the Green noble Baroness, and then it will be my noble friend.

[Baroness Bennett of Manor Castle (GP)]

My Lords, we have had two questions addressing the dangers of the competitiveness agenda of the Edinburgh reforms, which the Green Party has consistently opposed. The other element is that the Government talk about boosting growth. The Minister suggested that was for the general economy, but it has been presented as a desire to grow the financial sector. Is there not, as demonstrated by recent events, a great risk of too much finance and too large a financial sector when what we need is a real-sized financial sector to serve the real economy?

[Baroness Penn (Con)]

I disagree with the noble Baroness. The UK’s financial services sector is one of our great strengths in and of itself and as an engine to power growth across the rest of our economy; that will remain the case under this Government.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

The senior managers and certification regime was introduced following the report of the banking standards commission, chaired by the noble Lord, Lord Tyrie. It aimed at increasing both responsibility and accountability within the professional financial services sector. To a large degree, it was intended as an enforcement tool—a mechanism through which senior individuals could be sanctioned for systemic failings and serious misconduct that occurred on their watch. Although I would not advocate its removal, and it is arguable that it has contributed to improving standards of behaviour across the industry, many are sceptical as to whether it has been effective, because there is no hard evidence that it has been used as the stick which was originally intended. I therefore regret that I am also unable to support Amendment 241D.

[Baroness Bennett of Manor Castle (GP)]

My Lords, in rising to follow the noble Viscount, Lord Trenchard, I have to comment on a couple of the points that he made. When he referred to Amendment 216 and suggested that we could rely on the discretion of the regulators, I regretted that the noble Lord, Lord Sikka, was not here, because I am sure that he could have given some extensive account on that basis. We have cause for concern about the actions of the regulators. The noble Viscount also suggested that the relaxation of the ring-fence in the case of SVB, allowing its purchase by HSBC, was not important or significant. Of course, relaxation of rules under emergency weekend conditions is reminiscent of stopping contagion—rather like the kind of emergency steps we took in the face of the Covid-19 pandemic, where lots of things were done that would not be seen as viable under normal conditions.

On Amendment 216, I confess that I can see the arguments for why this should be considered too technical. However, the points made by the noble Lord, Lord Eatwell, about the fact that we do not have sufficient controls otherwise make the case for it.

On the points made by the noble Baroness, Lady Kramer, we have a problem where the primary purpose of insurance companies and pension managers has been chasing after massive profits, not looking to long-term security. While we are in that situation, we need find rules to manage it.

Responding to the comments of the noble Baroness, Lady Noakes, again suggesting that what has happened in recent weeks suggests that the ring-fence is not working, I think that a military analogy might be quite useful here. If you are in a city under attack and your walls are very nearly overtopped by the enemy, you do not at that point pull the walls down and start reconstructing them. You reinforce those walls. The events of the past couple of weeks have demonstrated that what we have now is not enough of a security system—that is patently obvious—but the answer is reinforcement rather than pulling everything down and starting again, because we saw fit to take actions after 2007-08 which we are hoping will make those defensive walls hold this time.

I would have attached my name to Amendments 241C and 241D had I been able to keep up with the flood of legislation we have before us. In reflecting on them, I want to quote an economist on the New York Times, Ezra Klein:

“Banking is a critical form of public infrastructure that we pretend is a private act of risk management.”


That is the context in which I hope the Minister can today reassure us that, as we come towards the end of Committee and in the new environment in which we find ourselves, the Government will seriously rethink this Bill, particularly key elements of it such as competition and ring-fencing, before we get to Report. I have to borrow from a letter in the Financial Times this weekend —I am relying on this as a source—the fact that apparently the correct name for a group of black swans gathered on the ground is a bank.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I did not prepare a speech on this, but recent events and the speeches have moved round to what a fundamental issue we are approaching here. One important issue, which underlines the Government’s changes on Solvency II, is how to get investment into our economy. That is a fundamental need that we have. It is possibly intertwined with how much national risk we are prepared to take. I do not intend to try to solve that now.

If we look at recent events and the responses to them, we see that we have different risk appetites in different countries, in how they will accept failure and what, in essence, they are prepared to bail out. As my noble friend Lady Kramer said, it appears to be the assumption that the Canadians would bail out the pension fund. Maybe they think that is a decent quid pro quo for getting a large amount of infrastructure investment and other investments. That is a balance that it is legitimate for a country to make, but I do not think it is one that we have made here in the UK. We have said “No more bailouts”. That may be something that can never be absolutely held to, as we know, but we do not operate on a principle that it is going to be the case.

Let us look at what happened with Silicon Valley Bank in the UK, where there was not really a great deal wrong other than it suffering the repercussions of what happened in the US and a bank run through co-ordination and a loss of confidence. What does that say about our challenger banks, if people are not prepared to rely on the amount of the deposit guarantees that we have? For industry, we have next to nothing. The Americans are talking about raising their amounts of guaranteed deposits because they realise that businesses will not trust smaller banks with large deposits if there are not higher guarantees. That worries people in the United States, because they do not want to lose their regional banks and to have everything go into large systemic banks. It should worry us that we have lost a challenger bank and that it has gone into a large systemic bank.

We may have to re-examine what our risk appetite is around things such as deposit guarantees. It is not pertinent to these amendments, but we have the same kind of risk issues when we expand and try to get insurance money into more risky investments. The same can be applied to what we want to do with pension funds. I suppose I had better declare my financial services interests as in the register again, just for the record. The recent history is that our institutions are not very good at investing in UK assets. Of the fallout from LDI, one of the things that is already under way is that pension funds will invest less in gilts. They will want to invest in something else—something that they can repo. They will therefore invest in corporate bonds but, to get the liquidity to be able to repo, they will be US corporate bonds. We will have yet another shift from investing in something in the UK. Even if that was the systemic risk concentrations of gilts, nevertheless it is a shift away from investment in UK assets, or not taking an opportunity for a switch in assets to be able to invest in those in the UK. Some of this is to do with our size. Maybe the Canadians have thought about that; I do not know. I am just sort of tossing these thoughts in. They are not hugely relevant to these amendments, but they are hugely relevant to the big issue that underlies the change on the matching adjustment —that is, how do we get investment into the UK economy? I should think absolutely every person in this Room wants that. It is hard to do it in a piecemeal way by changing the eligibility to the matching adjustment.

I do not fully trust the consultation process that we have in this country, because the pre-consultation process is dominated by an industrial lobby which knows what it wants. The consultation responses are weighed, and they are inevitably heavy with what the industry wants and why, and there is much less that comes in to counteract that. Therefore, we go down the track of accepting the proposals of the Government and getting what the industry says—but where is the backstop? This is where we come to the backstop that my noble friend has put in. The backstop is that it is for Parliament, through primary legislation. She does not say in her amendment, “Thou shalt never amend ring-fencing” or, “Thou shalt never amend the things that the Parliamentary Commission on Banking Standards did”. It says that it requires primary legislation. It says that this should go back to the body—albeit different people at a different time—and that there should be that analysis. This is the same sort of thing that the noble Lord, Lord Eatwell, was saying. Maybe you could get legitimacy from Parliament through a better accountability mechanism but, absent that, the only one we have is that it has to come back to primary legislation. With a Whip system and a government majority, that does not necessarily guarantee anything, but it will get at least a thorough airing and, in normal circumstances, you would get some toing and froing and some reasonable amendments if necessary.

--- Later in debate ---

[Lord Eatwell (Lab)]

May I comment on the issue of stress tests, which the Minister also raised during Questions this afternoon? You can stress test only risks that you know are there. It depends on the underlying model that you create to examine in your stress tests. Thus stress tests did not pick up the LDI problem at all because it was not there in the models that were used. In financial services, risks appear in entirely unexpected places, and relying on stress tests is, and has been demonstrated to be, a very weak answer. She should reconsider her reliance on this argument.

[Baroness Bennett of Manor Castle (GP)]

Since it is related, I also question the readiness for a 1-in-200-year shock. We have seen very similar kinds of mathematical approaches, if you like, taken to issues such as flood risk and other climate risks, and they have been found to be very ineffective in dealing with problems. They only increase the failure to understand risks.

[Baroness Penn (Con)]

I would point to stress tests as one of the tools that the Bank of England, including the FCA and the PRA, has in its toolbox for securing financial stability. It is not the only tool that it uses. The noble Lord is right that it tests against certain scenarios, which are updated each year to take into account the changing picture around the world and look at different risks, but it can test for only the risks that we have thought about. It is a tool in the toolbox, not a solution to everything.

The noble Lord mentioned LDI. The picture there is mixed. It was identified as a source of risk by the Financial Policy Committee but the extent of movement in gilt prices that it was then stress-tested against was far greater in the scenario that we saw unfold. It may be a good example of the benefits of being able to horizon-scan and look for risk—risk was identified—but also of the limits of some of that work. I completely acknowledge that. The same applies to the point made by the noble Baroness, Lady Bennett.

Amendments 241C and 241D relate to important regulatory reforms introduced following the global financial crisis and the recommendations by the Parliamentary Commission on Banking Standards. I pay tribute to the important work of that commission and to its members who are here today. It has had a lasting legacy in improving the safety and soundness of the UK’s financial system.

Amendment 241C relates to the ring-fencing regime, which, as we have heard, is a major post-crisis reform separating retail activities from investment banking activities in large banking groups. As required by the Financial Services (Banking Reform) Act 2013, the Treasury appointed an independent panel, chaired by Sir Keith Skeoch, to review the ring-fencing regime. The legislation required this review to take place after the regime had been in operation for two years; that review concluded in March 2022. I say to my noble friend Lord Trenchard that the Skeoch review looked at the questions about the effectiveness of the ring-fencing regime, and it is in the context of that review that we are discussing the way forward.

In December, as part of the Edinburgh reforms, the Chancellor announced a series of changes to the ring-fencing regime. These broadly follow the recommendations made by the independent review. It concluded that the financial regulatory landscape has changed significantly since the last financial crisis—a point made by my noble friend Lady Noakes. UK banks are much better capitalised and a bank resolution regime has been introduced to ensure that bank failures can be managed in an orderly way in future, minimising risks to depositors and public funds.

In the light of these considerations, the independent review concluded that changes could be made in the short term to improve the functionality of the regime. Crucially, the panel stressed that these could be made while maintaining financial stability safeguards. The panel also recommended that, over the longer term, the Government should review the practicalities of aligning the ring-fencing and resolution regimes. I assure noble Lords that the Government remain firmly committed to the objectives of the ring-fencing regime: to protect core banking services, such as retail deposits, from risks elsewhere in the financial system while minimising risks to taxpayers in the case of a bank failure. As recent events have shown, it is critical that the Government and regulators have the necessary powers to act decisively in pursuit of these objectives.

In response to the review, the Government have announced their intention to consult later this year on a series of near-term reforms to the ring-fencing regime to implement the independent review’s recommendations. The proposed reforms will make the regime more adaptable, simpler and better placed to serve customers, while maintaining important protections for depositors and financial stability. Alongside this, and in response to the review’s longer-term recommendations, the Government recently published a call for evidence that explores how better to align the ring-fencing regime with the resolution regime. I assure all noble Lords that, in the context of that longer-term call for evidence, no decisions have been made on the longer-term future of ring-fencing. The call for evidence is seeking views on a wide range of options including the possibility of disapplying the regime where banks are deemed resolvable, which was one of the Skeoch review’s recommendations. It also seeks views on retaining or further alternative options for reforming the regime.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

I apologise for not being able to attend the Committee last week because I was not in the Lords. I have been asked to speak to Amendment 241F, which was tabled by the noble Lord, Lord Bridges, who is currently in the Economic Affairs Committee interviewing the Chancellor. I shall speak also to my Amendment 241FD. I am grateful for the support of my noble friend Lord Holmes for the idea that there should be primary legislation in respect of any CBDC.

The Committee might be relieved to know that I am not proposing to go through the merits of CBDCs. I am very happy to do so if the Minister would like it, but the arguments are well set out in the paper, which was produced by the Economic Affairs Committee that I chaired, published on 13 January 2022 and entitled Central Bank Digital Currencies: a Solution in Search of a Problem? That might give noble Lords an idea of the conclusions of the committee.

The Government and the Bank of England are not convinced. They are still in search of the problem and the solution and a lot of work is being carried out on this. I do not propose to get into whether they are right or wrong about that, but I commend the committee’s report and the Government’s response, which was a letter to me dated 9 March 2022 which ran to all of seven pages—a commendable example of brevity from the Treasury.

On the first page of the letter, the then City Minister, John Glen, said:

“No decision has been taken by the government and the Bank of England as to whether to issue a UK CBDC, which would be a major infrastructure project.”


Indeed, it would. He went on:

“A decision will be based on a rigorous assessment of the overall case for a UK CBDC and will be informed by extensive stakeholder engagement and consultation. Exploring and delivering a UK CBDC, if there were a decision to proceed, would require carefully sequenced phases of work, which will span several years.”


Noble Lords will note that there is no mention whatever of Parliament in those considerations.

In their response, the Government acknowledged that there was

“a broad range of opportunities and risks, which require careful evaluation.”

In response to the committee’s request to get a commitment from the Government that this would require parliamentary approval, the sentence which stands out is:

“The government expects to fully engage Parliament—including through any possible legislation—in an open and transparent manner to ensure that there is a full and proper scrutiny of any proposals over the coming years.”


I am prepared to bet any Member of the Committee a bottle of champagne that, when the Minister replies, we will hear exactly the same words.

The problem with those words is that they are not a commitment to parliamentary scrutiny; they are not a commitment even to secondary legislation, which my noble friend Lord Bridges’s amendment calls for. They are certainly not a commitment to introduce primary legislation to implement something of this scale and importance, which is what my amendment calls for.

My noble friend Lord Holmes mentioned that the Chinese were keen on CBDCs. I am not surprised: they are a means of controlling and knowing what every citizen is doing with their money and how much of it they have. Although the Bank of England will say that its system would be devised in a way which acknowledges the privacy issues arising from CBDCs, I do not for a moment imagine that there will be any such undertakings in China. I can see the attractions of it; there are huge civil liberty and privacy issues at stake here.

There are also substantial risks to financial stability arising from a CBDC and how it is constructed. On the one hand, if you go the whole hog and everyone’s cash holdings are held digitally by the central bank, that clearly has all kinds of implications for privacy and stability. If, on the other hand, it is argued that the commercial banks will carry this out and you would be allowed to hold only a certain amount in a central bank digital currency, it rather defeats the object of doing it in the first place.

If there is the ability to move money into your CBDC account on any scale, in circumstances such as those that have occurred in recent days with some banks, where people fear stability, they will move their money out of the banks into the central bank digital currency, which is clearly a safer haven. That could create huge liquidity problems for the banks. Depending on how it is designed and operates, we could see ourselves moving towards the nationalisation of credit. At this point, I should declare that I have an interest as chairman of Secure Trust Bank.

All of this, we are told, is going to take a lot of time and require a lot of consultation. However, it seems to me that something as fundamental as this cannot be left for the Bank of England and the Treasury to cook up without proper consideration by Parliament, given the issues that are involved.

In paragraph 13 of its equally lightweight response to the committee’s report, the Bank of England states:

“The Committee cites privacy and identity as key considerations related to CBDC and points out potential reputational risk to the Bank of being drawn into controversial debates on these issues. The Bank recognises that these are important topics for the design of any CBDC system and that appropriate safeguards must be ensured if CBDC is to command users’ trust and confidence. These matters are being looked at as part of the Taskforce’s exploratory work and will be taken forward in the Consultation Paper.”


Then there is the important part:

“The Bank also recognises that these issues extend beyond the remit of the central bank. As such the Bank will closely support the work being undertaken by, and take its lead from, HMG”,


not Parliament. Once again, as with the previous set of amendments and as so often in this Committee, we are wrestling with the question of accountability and accountability to Parliament. Here, we are looking at a major change with huge risks to personal privacy, financial stability and the cost and availability of credit. The notion is that this can all be done without proper consultation by Parliament.

In speaking to these amendments, I am a reasonable person. My noble friend Lord Bridges’ Amendment 241F simply requires a vote in Parliament and looks to secondary legislation. I would support that, but I would prefer that if the Bank of England and the Treasury decide, having carried out their consultations, that they wish to proceed with this it should be the subject of primary legislation and subject to extensive debate.

Again, we have not made a lot of progress today, so all I ask of the Minister is for her to fill in the blanks in the undertaking that was given to the committee of this House. It was an all-party report, supported by the members of the committee. They included the noble Lord, Lord King of Lothbury, who knows a certain amount about central banking, and several members of the committee have great experience. I hope that the Minister will be able to say that she can give an undertaking on behalf of the Government—if not at this stage, certainly at a later stage, but ideally at this stage so that we will not have to discuss it again later—that there will be primary legislation and that the Government will instruct the various committees of the Treasury and the Bank of England to proceed on the basis that it will require primary legislation, a draft Bill and an undertaking to deal with the many issues that arise from a central bank digital currency, which I will not bore the Committee with now.

There has been a lot of talk about what caused the financial crisis in 2008 and the risks that occur. In my experience, the really dangerous thing in financial services is groupthink and belief in models. This is an absolutely classic example of thinking, “The Chinese are doing it and others are doing it so perhaps we need to do it as well. What is going to happen in future?” That is fair enough—have an eye to the future—but just because everyone else is going to do something that might increase risk is not a reason to copy them.

I have a simple request for the Minister: will she please give an undertaking that we will have legislation should the Government decide to go down this course in future?

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly out of a sense of obligation and with a sense of déjà vu because on the previous financial services Bill I recall that I was the only Back-Bench speaker addressing a group of amendments from the noble Lord, Lord Holmes of Richmond, on digital issues associated with the financial sector. As then—having written a thesis on artificial intelligence 20 years ago, when we were said to be almost reaching it—I argue that we are no closer now than we were 20 years ago. We now have big data, not genuine, rich artificial intelligence. If noble Lords do not believe me, they should try putting mathematical questions into ChatGPT and see how far they get. What they will get is plagiarism and statistics, not understanding.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

Thank you. I rise to move Amendment 241FA. Patient, long-term capital is crucial for both the growth of innovative companies and investment in green infrastructure to support the transition to net zero. One of the key sources of patient and venture capital is institutional investors, in particular pension funds in the City. Compared with our peers, such as Canada, the Netherlands and Denmark, the UK sees relatively little patient capital funding coming from pension funds; while around 70% of venture capital funding in the US comes from pension funds, in the UK, the figure is under 20%. The Government must do more to enable pension funds to invest in the British economy.

I have tabled Amendment 241FA, which would compel the Government to review how to incentivise defined contribution and defined benefit pension funds to invest more in high-growth firms and diverse long-term assets in the UK. The review would cover three areas. First, we know that a significant barrier to increasing DC pension fund investment is the relatively small size of many UK DC funds. The Government could raise the threshold at which schemes are required to produce a value for members’ assessment; they previously legislated to do this for schemes smaller than £100 million but a review could explore raising the threshold significantly —up to £5 billion, for example—to deliver real change. I would appreciate the Minister replying to the merits of this particular point, if possible, but this figure is something that the review could explore.

Secondly, we know that Local Government Pension Scheme funds have around £340 billion of assets under management, of which £30 billion is already invested in alternative asset classes such as VC. In order to mobilise some of this capital into regional green infrastructure and business, a review should look at adjusting the terms of reference for LGPS funds so that they could consider regional development as an investment factor.

Thirdly, a review should explore how the British Business Bank could put the necessary framework in place to allow DB pension funds to invest alongside it. DB pension funds have nearly £3 trillion in assets under management; unlocking even a small proportion of this would be a substantial boost to the amount of additional financing available to British companies and projects.

It is helpful that the Chancellor referenced exploring unlocking pension funds’ potential in his Budget speech. I would appreciate an update from the Minister on HMT’s work in this area. I am aware that the FCA is currently consulting on the value for money framework for DC pension schemes, for example, but does that work fit into a wider government strategy to incentivise DC schemes to invest in UK firms and green infrastructure?

I beg to move.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I thank the noble Lord, Lord Tunnicliffe, for introducing this amendment. I have chosen to address simply the green infrastructure parts, and at this time of the evening I shall park the high-growth debate in the interests of not sidelining the main issue.

The idea of a review is useful here, because the evidence we have of other measures the Government have tried to take to encourage green investment is perhaps mixed—that is the charitable description. I refer to a survey published this month by Pensions for Purpose, which looked at the first wave of obligatory reporting of the scheme introduced in October 2021 based on the Task Force on Climate-Related Financial Disclosures being done by the larger occupational pension schemes and authorised master trusts. That study found that this introduction by the Government was having very limited effects and that it was, to a large degree, being treated as a tick-box exercise. Where it was having an impact on investments, it was not driving towards green investment but rather to a portfolio decarbonisation—a stepping away from things rather than into the kinds of investments we need. This is something we are also seeing implicitly, in that the pension regulator is about to launch a publicity campaign for pension trustees, stressing the need to look at ESG responsibilities, particularly around climate issues—that has been its responsibility since 2019. It is clearly thought necessary to have a publicity campaign about this.

We really need to see steps forward and to see things joined up here. I am reminded of a debate last week with the same Minister, when we finally finalised the UK Infrastructure Bank Bill, which, of course, is looking at another source of investment going into green. I am very encouraged by the Government’s decision to include nature-based solutions there, which is obviously a cross-reference to our need to see much more private investment in nature-based solutions as well. Dare I say it, it would be nice to see some circular economy as well—if I can just put that in there.

On the idea of a review, we desperately need to see money going into green infrastructure. All the evidence we have says that is simply not happening. I also note that the Government need to create the frameworks in other areas of policy to make this happen. I was sitting here, thinking of when I was in this very same Room a few weeks ago with the Energy Bill. One of the things that could be a very good target for investment would be that if we are to get community energy schemes up and down the land—if we get delivery of the widely-backed Local Electricity Bill, as it is in the other place—that would be a great area to see pension funds investing in and supporting. I was at an event this morning debating social value and the importance of that in procurement.

We need to tie all these things together. All these things are running off at different angles, but we are still not creating an environment where people who are putting money into their pensions, seeking to invest in their own future, will have a liveable future for that pension to pay out in.

[Lord Eatwell (Lab)]

My Lords, it is obvious that the issue of pension funds investing in equities and longer-term growth prospects was highlighted by the LDI crisis in the autumn. I hope that, when the Government come to consider the consequences of that crisis, they will look at the letter that your Lordships’ Industry and Regulators Committee sent to Andrew Griffith MP, the Economic Secretary to the Treasury, setting out the reasons it saw for the peculiar financial structures that led to the LDI crisis and the lack of long-term investment in equities and growth stocks by British pension funds. They traced this to the accounting regulations that are imposed on British pension funds—particularly the way in which liabilities are assessed—and noted that, since those regulations were introduced maybe 15 years ago, there has been a dramatic reduction in the investment by British pension funds in long-term equity assets and a focus mostly on rather low-yielding government securities instead.

The LDI scandal was produced by the development of a peculiar financial device using repos, which were then used to make some investment in equities. There is clearly a fundamental problem in the regulation of British pension funds, which has both reduced the returns on their investment and limited the sort of investments they might be able to make in growth assets to their benefit and that of the economy as a whole. There needs to be a major review on the regulation of pension funds, both to make them more secure—to avoid them resorting to very unstable financial constructions to try to increase their returns—and for the overall benefit of the economy.

UK Infrastructure Bank Bill [HL]

Baroness Bennett of Manor Castle Excerpts

Consideration of Commons amendments
Tuesday 14th March 2023 Lords Chamber

[Lord Bourne of Aberystwyth (Con)]

I support the noble Baroness, Lady Hayman, in her proposed amendment and congratulate her on her tenacity in pursuing this issue. She has achieved something notable, and I thank her very much indeed. Account being taken of nature-based solutions improves the Bill and, on that basis, I also congratulate the Minister. My noble friend has proved herself to be a listening Minister, and the Government have taken a very common-sense approach, which improves the Bill. It was previously a good Bill, and it is now a better Bill after changes made in this House and the approach of the Minister and the Government.

I do not propose to detain the House, except to say that I agree with much of what the noble Lord, Lord Teverson, said in Committee and at Second Reading. I regret that we have not gone a bit further, but at least we have an improvement in this legislation. On that basis, I once again congratulate the Government.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I join in the congratulations to the noble Baroness, Lady Hayman, who is both a force for nature and a force of nature in your Lordships’ House. I thank everyone else who has joined in getting this progress on nature-based solutions, although we should not look at those solutions as an alternative to cutting our carbon emissions. Both those things have to be done.

I was not going to speak but, given something the Minister said in her introduction, I feel forced to ask her a question. In justifying the exclusion of “circular economy” in the Commons amendment, she said that it was “not a precise term”. Does the Treasury understand the term “circular economy” and its essential nature in delivering the sustainable society we need? If the Minister wants a source for this, I point to a government paper entitled, Circular Economy Package policy statement, from 30 July 2020, which was put out jointly with Wales, Scotland and Northern Ireland and which defined “circular economy” as

“keeping resources in use as long as possible, extracting maximum value from them, minimizing waste and promoting resource efficiency”.

Will the Minister confirm that the Treasury recognises that the circular economy is an acknowledged term and is urgently needed?

[Lord Vaux of Harrowden (CB)]

My Lords, I wanted to thank the Government and to associate myself with the words of the noble Baroness, Lady Hayman. I thank them for their constructive engagement, which has allowed us to reach a satisfactory conclusion.

However, I thank the Government for listening in relation to a couple of other places. First, during the progress of the Bill through this House we had a lot of discussions about the position of the devolved Administrations and how they should be involved. While they have not gone as far as I should have liked, I welcome the amendments that have now been included and the constructive engagement that has obviously taken place with the devolved Administrations. That is a nice change from some of the things that we have seen with other legislation in the past.

Secondly, Amendment 8 is identical to an amendment that I tabled on Report, which shortens the reporting cycle to five years. My amendment was not accepted by the Government at that time. When I tabled it, it led to what I think was a unique achievement of being co-signed by both the noble Baroness, Lady Noakes, and the noble Baroness, Lady Bennett of Manor Castle. That has not been achieved before or since. I said at the time that such a unique and powerful alliance should make the Government take that amendment seriously, so I am delighted and grateful that they have done so.

Silicon Valley Bank

Baroness Bennett of Manor Castle Excerpts

Tuesday 14th March 2023 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, I have been reading paragraph 11 of this Statement against paragraph 17. Paragraph 11 rather surprisingly says that

“the system worked as we would hope.”

Paragraph 17 notes that officials at the Treasury and regulators

“worked tirelessly through the weekend to grip the situation … and to prevent real jeopardy to hundreds of the UK’s most innovative companies.”—[Official Report, Commons, 13/3/23; cols. 560-61.]

As the noble Lord, Lord Fox, observed, it was lucky that it was a weekend. We surely do not want to have our financial sector and the stability of our economy dependent on that kind of luck.

Paragraph 11 states:

“the system worked as we would have hoped.”

If this is really how the system is supposed to work, I suggest that we need a new or at least significantly reformed system—a more secure, stable, less fragile system than what followed the collapse of the Silicon Valley Bank at the weekend. The noble Lord, Lord Fox, talked about the speed at which events happen these days. There is a Bloomberg article headlined, “The Digital Age Ushers In A Speedier, More Viral Breed of Bank Run”, and I think that was clearly demonstrated here.

The Minister mentioned the Financial Services and Markets Bill, which refers to maintaining the UK’s position as an open and global financial hub. Have not the events of the weekend demonstrated the extreme dangers of pushing that as far as we possibly can, and the dangers of Clause 24, on the competitiveness of UK markets, which the Finance Innovation Lab, among many others, has noted is a push towards deregulation—to reduce regulation and increase risk—when it is clear we cannot afford the amount of risk we have now, as demonstrated by this case and the events involving our pensions last October? As we speak, the situation with Credit Suisse in Europe is still very unclear, as is that of a number of US banks.

Will the Government take a real look at the Financial Services and Markets Bill and their positioning of the UK’s financial sector, and look for a safe, secure sector that meets the needs of the real economy, rather than chasing growth?

[Baroness Penn (Con)]

On the noble Baroness’s final point, I do not think that those two aims need to contradict each other. In fact, the Financial Services and Markets Bill aims to deliver on both. I emphasise to the House the importance of a healthy financial services sector to growing our economy in all parts of our country. I point out to the noble Baroness that no one has said that the events over the weekend have brought into question the UK’s prudential regulatory regime and the protections we have put in place.

However, the point made by the noble Lord, Lord Fox, about the changing context and being able to remain dynamic in our assessment of the risks and, therefore, in looking at how our system works, is absolutely right. The world changes very quickly and there is absolutely no room for complacency here. But do I think that the reforms we are proposing in the Bill are right? Do I think they will both promote growth in the UK and protect the safety and soundness of our system? I do, and we will continue to strike that balance as we take our reforms forward.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I am delighted to support Amendment 197, moved by the noble Lord, Lord Sharkey, and to which I have added my name. I served on the former Services Sub-Committee of the former European Union Committee with the noble Lord and have been impressed by his accurate understanding of, and thoughtful approach to, this and other financial issues.

The noble Lord explained the reasons for his amendment with his customary clear logic. I will not take up the Committee’s time by repeating them. I particularly endorse the introduction of a cap of 2% over the standard variable rate for mortgage prisoners. UK Finance has identified 195,000 borrowers from inactive lenders, of whom 47,000 have been identified as mortgage prisoners.

I welcome the FCA’s recent review of this problem and its review of the effectiveness of its regulatory interventions to remove barriers to switching. Recently, only a small number of borrowers have been able to switch from an inactive lender to a new deal with an active lender. I share the FCA’s hope that more mortgage prisoners will be able to switch their mortgage and I hope that the Minister will support this amendment.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly to offer Green support for this amendment and to agree entirely with everything that has been said thus far. I feel a sense of déjà vu all over again. I was just looking back at the comments I made in 2021, when, it is worth noting for the record, this issue of mortgage prisoners went to ping-pong: the House of Lords passed an amendment, and it went back and forth between the two Houses. Back then, we were talking about people suffering under high rates of 4% or 5%, and some were suffering with the vulture funds of 9%. As we have heard set out clearly, the situation has not improved but has got much worse, and we also have a cost of living crisis.

The noble Lord, Lord Sharkey, noted that Martin Lewis is now involved in this, with his crucial supporting research. What a state our country is in when everyone can feel a great sense of relief and hope because someone who is, after all, only a private individual has stepped in where Parliament has failed. Surely this is the stage where Parliament—or the Government—can step up and rescue people trapped in often terrible situations through no fault of their own.

[Baroness Noakes (Con)]

My Lords, like the noble Baroness, Lady Bennett of Manor Castle, I recall our debates on this subject in 2021. Indeed, I think the amendment that the noble Lord, Lord Sharkey, has tabled is word for word the amendment he tabled on Report during the passage of what became the Financial Services Act 2021. It will not surprise the noble Lord that familiarity with it has not made me any warmer to the amendment.

As the noble Lord, Lord Sharkey, reminded us, mortgage prisoners derive from lending practices before the financial crisis. These mortgage borrowers were much more likely to have got a mortgage without proof of income or with an impaired credit history. They still have relatively high loan-to-value ratios, and they often have unsecured debt as well. Many of them have interest-only mortgages, with no repayment plan. Put simply, they typically have higher-risk characteristics than borrowers with active lenders.

The noble Lord, Lord Sharkey, has correctly excluded 50,000 or so of the population of mortgage prisoners from his amendment, because they are in arrears or within the last 12 months of their mortgage term, but I think he intends the remaining 143,000 to benefit from the largesse provided by this amendment. This is notwithstanding that the FCA estimates that 66,000 of them could, in fact, switch to active lenders because the active lenders in the market have changed their risk appetite, with the encouragement of the FCA, and they would now be able to remortgage. I do not believe that it is right to legislate to give preferential financial terms to those who choose not to take advantage of the opportunities available to them in the market.

The FCA’s last review found that around 30,000 of the remaining 47,000 would be unlikely to benefit from switching, because if they did find a deal it would cost them more than the interest rates that they are currently paying. High-risk borrowers do not get the best rates in the market, however much they might wish to. Amendment 197 would give these borrowers a rate that did not reflect the market for them, and I do not believe that it is fair to give them a special advantage by legislating for them.

The FCA has proposed some practical steps to assist the remaining population, but it does not propose anything like that which is contained in Amendment 197. That is not surprising because the LSE in its earlier, independent study—I have yet to see the study that the noble Lord, Lord Sharkey, referred to—concluded that market interventions were not justified and could cause markets harms.

We all have sympathy for those stuck with debt that they struggle to afford, but the problem is not confined to mortgage prisoners, and it is just not fair to single out this group of problem borrowers for special treatment. It is also an extraordinary departure from regulatory norms. The FCA does not tell lenders to whom they must lend money; that is not how regulation works. Under this amendment, the FCA would be telling lenders what their risk appetite should be, which raises big issues of moral hazard and fails to deal with the prudential consequences in terms of capital, on which the PRA is the arbiter.

Furthermore, the FCA is required to set interest rate caps, but only by reference to LTVs. This ignores the other key driver of interest rates—namely, the credit risk of the borrower. Whatever rate the FCA comes up with, it will be the wrong answer for some borrowers, and it would be plainly unfair if the FCA set the rate assuming high credit quality, because that is very likely to be at odds with the facts. In addition, requiring the standard variable rates to be no more than two percentage points above base rate ignores any evidence about the correct uplift for the particular type of loan and borrower characteristics, which can produce outcomes that do not reflect objective market realities. I hope that the noble Lord, Lord Sharkey, does not pursue this amendment, as he did in the 2021 Bill; it really does not make sense.

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[Lord Naseby (Con)]

My Lords, I will speak broadly in support of these amendments, starting with Amendment 202. The incidence of fraud is growing almost daily. It is a huge worry and, unfortunately, it rests on His Majesty’s Government to try to find an answer to it. I accept that it is not an easy problem, but we cannot shy away from it. Over lunch today I was having some discussions with Transparency Task Force, a certified social enterprise. Certainly, some of the evidence it has is quite extraordinary and deeply worrying. I do not know whether there are other types of scams not covered in the Bill. I have not given any notice to my noble friend on that, but we would certainly like an answer.

On Amendment 203 on qualifying cases, I have spoken to only about half a dozen people who have had scams, but none of them knew anything about who was behind it. It is not very likely, is it? Having watched “The Gold” on television on Sunday, I can see how creative some people can be. It does not seem realistic, which is why Amendment 203 is important.

I have had a chat with members of the All-Party Group on Personal Banking and Fairer Financial Services. The only way to get a grip of these problems is to know what is happening on the ground. The noble Lord, Lord Vaux, asked for a six-monthly report, which is quite right. A quarterly report would probably be better, though it might be too tedious. At this point in time, His Majesty’s Government do not have a handle on the rate of growth, which is deeply worrying. I do not know whether these amendments are exactly right, but the problem is there, and it is the responsibility of His Majesty’s Government to get a grip on them.

[Baroness Bennett of Manor Castle (GP)]

My Lords, like the noble Lord, Lord Naseby, I broadly support this group of amendments. I particularly want to address Amendment 205 in the names of the noble Lord, Lord Vaux, and the noble Baroness, Lady Bowles.

As the noble Lord, Lord Vaux, said, it is worth highlighting uncertainty and trauma. We have a society in which every time people pick up their phones or emails to look at a message, many of them think, “I’m worried. Is this right or wrong? Is this official-looking email something I should click or not?” That is where we are. These amendments seek to address some of this, although even with them we would not get far enough. In the other place, the Treasury Select Committee last month expressed concerns about the Payment Systems Regulator dealing with push payment scams regarding the banks handing out the money and controlling the Pay.UK body that would be doing that. There is a concern that this needs to be seen as fair and rapid; to take away some of that fear is the key issue.

Amendment 205 is particularly interesting because we are talking here about a league table for how fairly banks treat victims of fraud. I could not help thinking of the comparison with schools. We have intensely scrutinised and detailed league tables for schools; surely we can manage similar league tables for banks. We had a lot of debate on earlier days in Committee on whether we wish to encourage competitiveness. But however much we might debate competitiveness, surely we all agree that competition between banks to see who is fairest towards victims of crime would be good.

This may not go far enough, but there are amendments here that the Government should certainly consider, particularly Amendment 205 concerning the league table.

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[Baroness Sheehan (LD)]

My Lords, I support my noble friend Lord Sharkey’s amendment. I should declare that, as a Muslim woman, I have a number of relatives who will be, and are being, affected by this. Not every Muslim feels unable to take out student loans as they are currently structured but there is a significant minority. It is usually women affected because they always come at the bottom of the list of who will be financed without a loan through private means. I urge the Minister, particularly given all the conversations we had last week about International Women’s Day, to consider this.

I will not detain the Committee long; my noble friend Lord Sharkey gave us chapter and verse on the Government’s position and prevarication on this issue, which, we are told, they have been able and willing to support for over a decade now. The Higher Education and Research Act 2017 allows the Government to introduce a student finance product consistent with Muslim beliefs regarding interest-bearing loans. However, as my noble friend said, the Government have yet to launch such a product. In February last year, as part of the conclusion of their review of post-18 education and funding, the Government said that they were still considering whether and how to deliver sharia-compliant alternative student finance and whether they would do so as part of the lifelong loan entitlement.

We have a situation where, not only are 18 and 19 year- old Muslims—predominantly girls—unable to access higher education but it now looks as though, with the LLE, they will not be able to access post-18 further education either. That will curtail their life chances, their ability to contribute to the life of this country and the financial contribution that they make to their families.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Sheehan, who has highlighted the gender aspects of this debate, and the noble Lord, Lord Sharkey, who has been a consistent champion on this issue in your Lordships’ House. I wish to make a couple of comments additional to what has already been said, while offering support for this amendment to push the Government to take action.

It was Green Party conference at the weekend, and I found myself discussing again and again how the public, who once thought that when the Government announced something that meant it would happen, are increasingly aware of the legislative process, and even the role of your Lordships’ House, because it is taking so long between government announcements and something actually happening. That is true of the announcement of a bottle deposit scheme for England, but there has been an even longer stretch between the promise of sharia-compliant finance, particularly for student loans, and the delivery.

The last figures that I saw showed that 9% of higher education students in the UK were Muslim. Extending loans for lifelong learning into further education makes it very likely that the percentage of students affected by the lack of sharia-compliant loans will increase. It is not as though the Government have not been reminded of this again and again. I note, again, that it was in July 2021, during the passage of what became the Skills and Post-16 Education Act, that we debated this. We were promised, “Yes, it’s going to happen; it’ll come”, but, yet again, we have just had a report from the Government which shows that there has been no progress. That is simply not good enough.

We often debate in your Lordships’ House how to get trust in government and the system. One way is to deliver on your promises in a reasonable and timely manner, particularly the things that really should not be that difficult, of which sharia-compliant loans is a case in point.

[Lord Carrington of Fulham (Con)]

My Lords, I support the noble Lord, Lord Sharkey, in this. There is no question that there are a large number of Muslims, both students and others, who have the very strong belief that their religion forbids them from engaging in normal financial practices as recognised in the West. It is about time we did something about it; it has taken far too long to get to where we are now, and we need to find a solution, particularly for student finance, where it is urgently indeed.

I can entirely understand why there is a problem. I understand why His Majesty’s Treasury is finding it difficult to find a solution. I spent a considerable part of my banking career devising means of meeting the religious requirements of Muslim communities to access financial services, often in conjunction with the Islamic Development Bank. It is an extraordinarily complex business. There are many different ways of doing it, but one of the problems is that there is no universal agreement as to what is an acceptable form of finance under the sharia. That is partly because of the difficulties between the various types of Islam—Sunni or Shia—and the various interpretations within the various branches of Islam itself, which also impact the nature of the financial products that are capable of being used. Indeed, Islamic scholars, particularly in the Sunni version of Islam, cannot agree among themselves what is acceptable and what is not. All this leads to considerable problems in devising a universally acceptable product.

Of course, the additional problem that the Treasury will have is that there is considerable scepticism among the conventional financial markets, particularly the western ones, about the credibility of Islamic finance altogether. To put it bluntly, there is scepticism about whether it is not just a con. In some cases, it is: the market is full of rogues, charlatans and crooks who will try to put up products that do not, in fact, meet the sharia requirements. So there is no great agreement on what should be done.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Davies of Brixton (Lab)]

Both. I am not really being given that choice but, as I said, it was just a narrow point.

My question on Amendment 237 is: would you take investment advice or guidance from the Secretary of State? Is the Secretary of State even authorised to provide investment guidance or advice? I am troubled by the involvement of the Secretary of State, and I hope that we could perhaps consider a different wording if we wish to raise this on Report. If the Government want something to happen—net zero—as a matter of public policy, they have to accept the risk themselves and not pass it on to private individuals. I am talking about pension schemes, and the underlying point is that the money in a person’s pension scheme is their money, provided to them to be used in accordance with their wishes to provide them with a retirement income. Part of that retirement income depends on solving climate change—that is clear. I do not doubt the importance of taking these issues into account; I simply question the relevance and role of the Secretary of State in that process.

Over many years’ involvement with pension funds, I have seen that, when people see the massive amount of money involved, as highlighted by the noble Baroness, Lady Altmann, they see that the economic power is there, but it is there on behalf of the members’ interests and not, in principle, as a means of implementing government policies—however worthy. They might be in alignment, but the leading factor should be the members’ interests.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord Davies of Brixton. Since the noble Lord, Lord Lilley, appeared to be directing a question at me about whether I oppose fossil fuels, I will take a moment to answer that. Do I think that pulling up carbon which has been stored in the ground over hundreds of millions of years, which was a crucial part of delivering the Holocene that gave us 10,000 years of incredibly stable climate in historic terms, and then pumping it into the atmosphere needs to be stopped with great speed? Yes, I oppose pumping out that stored carbon.

More than that, the fact is that extracting, transporting, burning and getting rid of the waste products from that fossil fuel causes huge damage to the health of people on this planet. One in five premature deaths that occur on this planet is as a result of burning fossil fuels—that is based on a study in environmental health in 2021. So do I want to do something urgently to make this a healthier planet for people? Yes, I do. However, that is not what any of these amendments are about. These amendments are to the Financial Services and Markets Bill, and all of them are about trying to stop the crashing of the financial markets, which are also crucial to our security and health in different kinds of ways. That is what all these amendments address.

It is really interesting that we have here a set of amendments which we might, collectively, for the purposes of Committee look at how we can hone and shape—I take the point made by the noble Lord, Lord Davies. But what we have in Amendment 168 are directions to the PRA to review capital adequacy requirements. That is about the security of firms. In Amendment 201, we have directions to the FCA to direct personal pension providers. Picking up on that point, I note the figures from the Pensions Regulator’s most recent survey of defined contribution schemes, which found that more than 80% did not allocate any time or resources to managing climate risk.

Then in Amendment 233, we have sustainable disclosure requirements, so that companies would report to investors what risks they are taking with their money by not dealing with all the sustainability risks which relate to the fact that we are exceeding planetary boundaries—not just on climate but on biodiversity, the loss of ecosystems and novel entities, and on phosphate geochemical flows. All these things are taking risks with people’s money, which is what we are talking about. Amendment 233 might indeed guide us in the direction of each major company having to have a chief environmental officer, who should be of equal status and importance to a chief financial officer because it is about ensuring the sustainability of the company, as well as the sustainability of this earth. Going on to Amendment 235, we are directing the Treasury to provide government guidance on how we achieve all of this.

That is an overview but I want to pick up one specific point. I would have signed Amendment 119, in the name of the noble Lord, Lord Randall of Uxbridge, and others in a full cross-party group, had there been space. When people think about forest risk commodities, they often start by thinking, naturally enough, about timber but, if we look at some statistics, palm, beef and soya production collectively amount to 36% of global deforestation. When Orbitas, an investment body, surveyed 24 capital providers in 2020, all of which had high levels of tropical commodity exposure, not one had screened their loan books and/or investments for agricultural transition risks. I want to major on that point while we debate this today, because if we look at Indonesia, 76% of unplanted forest concessions and 15% of existing palm oil assets could be at risk—that is, financial risk—should Indonesia adopt what is seen as its essential plans to meet its Paris climate commitments.

I said that we need to look at all aspects of planetary boundaries being exceeded. We also must include water risk. Fresh water supplies rely heavy on fossil water aquifers—in the American high plains, in Mexico, in eastern Europe, in Egypt, in Arabia, Iran and China. All agricultural production of food—the big sectors globally and financially—is utterly dependent on fresh water supplies, which are not being replenished. That is a huge financial risk as well as a risk to when any of us can eat in the future, at a basic level.

Finally, I focus on Amendment 168, tabled by the noble Baronesses, Lady Worthington, Lady Drake and Lady Sheehan. I would like to work with them ahead of Report because, as others have highlighted, this focuses particularly, though not exclusively, as the noble Baroness, Lady Worthington, said, on fossil fuel exploration, exploitation and production. We must broaden this out to look at the agricultural sector, because it is an area of enormous financial risk. I draw on the work of the investment group FAIRR, which looks at the extremely high financial risks. The majority of the largest protein producer companies are at high risk for greenhouse gas emissions, deforestation, water and waste. Over 60% of them saw soya feed from areas at high risk of deforestation and have still not set deforestation targets. Fewer than one in five meat, egg and dairy firms is adequately managing the pollution of waterways from manure. Just ask the people of Herefordshire about that if you want to know more.

FAIRR finds that the volume of waste produced by the 70 billion animals processed each year is equivalent to the volume of waste produced by twice the entire human population on this planet. Only 18% of global meat and dairy producers track even partial methane emissions, even though annual methane emissions from global capital and livestock make up 44% of anthropogenic methane emissions.

We are talking about the future of our life on this planet. We are talking about a liveable planet. That is inescapable. However, today we are talking about ensuring that we do not see the next financial crash. Let us remember the last financial crash, when the cash machines were within hours of stopping working. We must do something to stop the next financial crash from being at the point where the size of the carbon bubble, the level of stranded assets across a range of sectors—fossil fuels, animal agriculture and other areas—is such that it suddenly hits the markets. The markets are not counting this now. They must count this in if we are to have a sustainable financial sector.

[Lord Naseby (Con)]

My Lords, I will not repeat what my noble friend Lord Lilley said earlier, other than to say, speaking for myself and, I suspect, for my colleagues, that we do believe in net zero. That is a target. It is not an immediate diktat, but it is a target that I guess almost everybody in Parliament has accepted.

My noble friend is right that key in the judgment of those of us who have worked in the commercial sector, as I did before I came to Parliament nearly 50 years ago, is that we live in a free society. The answer to this problem is to phase out demand. It is easier to phase out demand than to phase out supply. If they both have the same effect in the end, you might as well take the easier and cheaper route, which does not involve subsidy to remove activity. We live in a free society and unless it is absolutely vital, it should be based not on government diktat, but on competition.

I will also comment on Amendment 199 on forestry. I had better declare an interest; it is hardly a forest, but there are 40 acres of woodland adjacent to my property. It is a wonderful hobby for me to have become someone who now understands woodland, at least; I could not claim that it is a forest.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly to offer the Green group’s support for the general sense of direction here on both the provision of cash and the review of resilience. It is not an accident or a convenience that those two things have been brought together, as the noble Baroness, Lady Twycross, just made clear.

We come back to a fundamental question: what is the financial sector for? If it is there to serve the real economy and real lives, it must meet people’s needs in both good and bad times. That applies at the individual level and the national one. The system must be able to stand up to not just financial shocks but the kinds of shocks that we know about in this age of the climate emergency, the nature crises and the threat of pandemics.

As the noble Baroness, Lady Twycross, was speaking, I was reflecting on being in Lancaster in 2016 about a week after Storm Desmond. I saw a city in shock. I saw what happened when they lost electricity for a day and a half or so. Digitisation and the disappearance of cash have come a long way since 2016 but people were absolutely desperate. They were not able to meet their basic needs, which surely must be part of the financial sector’s responsibility.

I broadly agree with the general tenor of everything that has been said but I want to make one strong point of disagreement with what most people have said. There is an idea that this is a transitional phase and that, once we have gone past the generation where people have not had digital in the prime of their life, the phase will end and everybody will then be able to use digital. I was going to tell exactly the same story as the noble Lord, Lord Hunt of Kings Heath, did. I will not repeat it but I will draw a further lesson from it. It is a story about a 91 year-old lady. She may have been able to cope with the telephone system and the buttons at 70 or even 80. I know someone in this situation; he is an older gentleman who finds it harder and harder each year to navigate the complications of digital.

None of us in this Room knows what our capabilities will be in 10, 20 or 30 years’ time. Just because you can do something now, you cannot guarantee that you will be able to do it in 20 years’ time. In terms of national resilience and meeting everybody’s needs, we genuinely have to make sure that, long into the future—potentially for ever if we look at that kind of scale—there will always be somewhere where you can walk up to a person and say, “This is my problem. I need you to help me sort it out”. That person needs to have the resources, knowledge, skills and power to sort out that situation for you because, ultimately, only having a person who looks you in the eye, sees the problem and deals with it will really meet everybody’s needs.

I have one final thought. There is sometimes a feeling that we have to have maximum efficiency and meet the needs of the majority, and tough luck for the rest. If we have a system that meets the needs of the most vulnerable people in our society—this is often said about public transport systems but it applies far more broadly—we have a system that is good for everybody in our society.

[Lord Blackwell (Con)]

My Lords, since I have not spoken in Committee so far, I should remind noble Lords of my interest as a former chairman of a bank and a current shareholder. However, I am not going to defend the service levels of banks, which I recognise need improvement.

On these amendments, I point out that, while I understand the rationale behind the desire to maintain access to cash, everything has a cost. We need to consider the cost of what is proposed as well as the benefit. My noble friend Lady Noakes is right that the shift towards digital and away from cash has snowballed over the past few years. It is not just customers who prefer not having to carry cash around. Many small businesses, clubs, associations and societies find it much easier now to have a low-cost terminal with which they can process membership dues, fees or even small transactions. It makes the accounting so much easier and avoids having to deal with collecting and disbursing large amounts of cash.

The move towards digital is happening across the whole economy. People talk about keeping branches open but there are many branches where only a handful of people come in during the week. When you think about the cost of maintaining the building infrastructure, as well as the staffing, security and systems, the cost per transaction becomes astronomical. Those costs have to be borne by somebody; they are borne by the other bank customers in higher fees, charges and interest rates. Nothing comes without a cost so we have to consider what the appropriate cost-benefit answer is.

As many noble Lords have said, clearly there are people who find it difficult to use digital technology and need access to cash, but there are other ways of—

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[Baroness Lawlor (Con)]

My Lords, if I may come in briefly, I am very sympathetic to the aims of noble Lords who wish to see cash access and banking services available to those who need them and do not use or rely on digital. However, I agree with the aims of the Bill: international competitiveness and growth. I do not think that this Bill’s powers regarding the financial markets and services sector should be used in a blanket way to impose an obligation on service providers to provide a service whose use, by all accounts and evidence, is on the decline.

Not only do I support the two amendments from my noble friend Lady Noakes, but I think we should pay attention to the overall aims for the regulators in this Bill, which are international competitiveness and growth. I urge the Minister to focus on the real problem of access to cash and banking services for many people, and, where there is a problem or gap, to focus the efforts and use the powers of government on trying to deal with the declining number of users in our society—albeit a real group—rather than use the law to impose obligations in a blanket way on the sector, contrary to the aims of competitiveness and growth. As noble Lords have explained, such a move could undermine the competitiveness of the banking sector.

[Baroness Bennett of Manor Castle (GP)]

The noble Baroness appeared to be suggesting that the provision of services, including the cost, should be done by the Government and that the private sector should collect the profits. Could she clarify whether she was saying that?

[Baroness Lawlor (Con)]

I thank the noble Baroness for her intervention. No, I was saying that, when we use the law, we should be very careful not to impose the costs on providers if the aim of the law is to encourage competition. There are reasonable aims which are agreed to by the whole of society. It is a reasonable aim for society to require and want cash access. My heart agreed with the noble Baroness, Lady Tyler, as she powerfully moved her amendment, but we should draw a line between a blanket restriction on providers of these services and finding how government can help and encourage other providers of services to do it. I was just talking to other noble Lords in the Lobby about this. I know of voluntary groups, market groups and social providers which are out there helping such groups and finding ingenious solutions to meet the gap, where there is one.