Gilt Yields

Baroness Bowles of Berkhamsted Excerpts

Tuesday 2nd September 2025 Lords Chamber

[Lord Livermore (Lab)]

My noble friend says it much better than I can. I agree wholeheartedly with what he says. Of course it is important that we grow the green economy, but we must also make sure that we grow the whole economy as well.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, can the Minister explain what the high level of bond yield means for those renewing fixed-rate mortgages, given that those are determined more by bond yields, albeit at the shorter end, than by base rates? At the moment, the disconnect is creeping towards the shorter rates too.

[Lord Livermore (Lab)]

As the noble Baroness knows, the Government do not comment on specific financial market movements, but it is very clear that we have created space for the Bank of England to cut interest rates five times since the election. That will absolutely help those people taking out a mortgage.

Primary Stock Exchange Listings

Baroness Bowles of Berkhamsted Excerpts

Thursday 10th July 2025 Lords Chamber

[Lord Livermore (Lab)]

My noble friend is absolutely right on the importance of capital for start-ups and how we can enable them to scale up. It is why in the industrial strategy and the spending review we significantly increased the funding available to the British Business Bank to help innovative small companies to do exactly that. They now have record amounts of capital. We have increased the capital available to our funding streams in that way by 40% since the election, and I think that is exactly what my right honourable friend is seeking to do.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interest as a director of the London Stock Exchange. In addition to the pull of US investors, does the Minister recognise that there are push factors making the UK a hostile environment for innovative, high-tech growth companies? There are neither public nor private sector customers, as the chair of GSK told our Science and Technology Committee recently. Excessive government retention of IP exploitation rights in procurement and grant contracts undermines companies’ growth prospects.

We are 45 years behind the US, which ended such emasculating IP contract terms in the Bayh–Dole Act, leading to the boom in revenue-producing high-tech companies and university spinoffs. Will HMT put its weight behind the economic benefit and long-term value for money that growth-friendly licensing contracts would have? Will the Minister meet to discuss these and how the UK can get its own Bayh–Dole effect?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I do not necessarily share the overall pessimism that she started her question with. Of course, reform is necessary and that is why next week at Mansion House the Chancellor will publish the 10-year strategy for financial services, which I hope will cover some of the things the noble Baroness is talking about. We need to rebalance our system towards growth in the way she described.

Closed-Ended Investment Companies: Cost Disclosure

Baroness Bowles of Berkhamsted Excerpts

Monday 24th March 2025 Lords Chamber

[Lord Livermore (Lab)]

I am very grateful to the noble Baroness for the question. I also pay tribute to other noble Lords, including the noble Baronesses, Lady Altmann and Lady Bowles, for their continued championing of the investment trust sector and for bringing their concerns to the Government’s attention in their Private Members’ Bills in this Parliament and the previous one. As a result of their campaigning, the Government have now legislated to provide the Financial Conduct Authority with tailored powers to deliver a new disclosure regime. The Government have also temporarily exempted investment companies from cost disclosure legislation.

On the specific matter raised by the Question, of requirements by investment platforms for the investments they offer, that is now a matter for the industry and the regulator. While I recognise that the Government may not have gone as far as the noble Baroness would like, we have a shared objective of ensuring that that this reform achieves the right outcomes for investment companies and for the sector as a whole.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interest as a director of the London Stock Exchange. As the Minister said, in November, the PRIIPS SI made an immediate policy and legislative change in view of responses to HMT’s CCI consultation, aiming to free the investment trust market from incorrect legislation. Did the Government expect the FCA to reverse that in their December consultation? Will the Government reassert their policy? Will they also assert their policies against duplicative legislation and in favour of growth for consumer investments? If not, how do the Government expect to harness either retail or professional investment in this valuable sector for infrastructure?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I absolutely recognise the key role that the investment company sector plays in the UK’s economy, as she sets out, representing more than 30% of the FTSE 250 and investing in assets that support the Government’s growth agenda. We have listened to industry concerns and, last year, as the noble Baroness said, we legislated to reform retail disclosure. The FCA launched a consultation on an entire replacement regime in December. The Government look forward to seeing the outcomes of that consultation in due course.

--- Later in debate ---

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. What she is saying is right; the Government share her view. That is exactly why the Chancellor established the pensions review, for example, in her recent Mansion House speech. Her view is that the pensions review could unlock billions of pounds in additional investment in fast-growing businesses and infrastructure while improving outcome for savers. That is exactly the objective of that policy.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the Minister must know that some 329 firms and individuals signed a response to the HMT consultation, and there were many other submissions besides. The Government said that, in response to that consultation, they changed policy. How can that policy be changed a month later? This time, 558 firms and individuals have signed the response to the Financial Conduct Authority, with many more similar, separate responses. Does that not tell the Government that the direction of travel is wrong and that if they want this solved in less than another two years, by when this investment opportunity will be gone, they will have to intervene?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness, again, for her question. I am not sure that we are going to agree on this specific point. I have already set out the Government’s position very clearly. I recognise that there are frustrations among some noble Lords and in the sector. It is the Government’s view that operationalising this legislation is a matter for industry and the regulator. The Government look forward to seeing the outcomes of the FCA’s consultation in due course.

[Lord Livermore (Lab)]

The Government have a very clear objective of increasing living standards in all parts of the country. We want all households to have more money available to spend and to save.

[Baroness Bowles of Berkhamsted (LD)]

My Lords—

[Noble Lords]

Oh!

[Baroness Bowles of Berkhamsted (LD)]

Early last week, the Government published another statutory instrument in draft form with a lot of amendments to MiFID. Can we expect that those MiFID amendments to legislation will likewise be ignored by the Financial Conduct Authority in due course?

[Lord Livermore (Lab)]

I think that is a matter for the Financial Conduct Authority.

London Stock Exchange: Decline in UK Funds

Baroness Bowles of Berkhamsted Excerpts

Thursday 13th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question and for telling us about her first-hand experience this week. She may know that feedback from industry and consumers on the last Government’s proposed Great British ISA was mixed at best, and no clear value-for-money case was made for that, so, as she says, we will not be proceeding with it. But as she will know, at the Masion House speech the Chancellor published the interim report on the pensions investment review and launched consultations on measures that would deliver a major consolidation of the defined contribution market and local government pension schemes. They could unlock around £80 billion for investment in private equity and infrastructure, but of course, there is no guarantee that that will be invested in UK markets, as she says. The pensions review is absolutely committed to looking at further ways in which that can be achieved.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, when the Government chose not to follow the overwhelming response calling to exempt listed investment companies, otherwise known as listed funds, from consumer collective investments and to refer them to the Financial Conduct Authority consultation, did they realise that it would cost another £30 billion in lost investment? Did the Government realise that their interim solution, which the FCA is not enforcing, is a short-term solution and cannot give confidence to what are long-term investors and investments? Does the Minister agree that correct arithmetic cannot be a matter for consultation, and will he facilitate my meeting with officials to explain that beneath the jargon, smoke and mirrors, this issue is a simple matter of correct arithmetic?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question, and once again, I pay tribute to her for her campaigning on this issue. The Government absolutely recognise the key role the investment company sector plays in the UK economy; it represents over 30% of the FTSE 250 and invests in assets that support the Government’s growth agenda. We have listened carefully to the noble Baroness’s concerns, not least through her campaigning in the previous Parliament and her Private Member’s Bill in this Parliament. Last year we legislated, I think as a direct result of her campaigning, to reform retail disclosure, with the FCA launching a consultation on an entire replacement regime in December.

Pension Fund Reliefs

Baroness Bowles of Berkhamsted Excerpts

Tuesday 4th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. I of course agree that adequacy is an absolutely essential part of the pensions landscape. That is what phase 2 of the pensions review is designed to look at. The scope and terms of reference for phase 2 will be published in due course, once we have made fuller progress with phase 1.

[Baroness Bowles of Berkhamsted (LD)]

Is the Minister aware that the resumption of investment flows into investment trusts requires investor confidence, including from pension funds, that the future regime will not repeat the mistakes of the past? How can that happen when the FCA consultation suggests reinstating aggregation of costs for investment trusts, which do not have consumer costs, and then not aggregating costs for ETFs, which do have such costs? Are the Government prepared to lose billions more over the next 18 months or more until the regulator gets it technically correct?

[Lord Livermore (Lab)]

I am aware of the issue that the noble Baroness raises, mainly because of her campaigning on it. I pay tribute to her and to the noble Baroness, Lady Altmann, for their campaigning on this issue and for their Private Members’ Bills when we were in opposition, which I found extremely persuasive. I think we have made some progress since we have been in government. I regret that we are not able to go as far as the noble Baroness set out in her recent Private Member’s Bill right now, but we continue to review these issues and I thank her again for her campaigning.

Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Baroness Bowles of Berkhamsted Excerpts

Tuesday 17th December 2024 Grand Committee

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, with the leave of the Committee, in moving this instrument, I shall speak also to the Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024 and the Short Selling Regulations 2024. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised the ring-fencing and short selling regulations as instruments of interest in its secondary legislation report, published last month.

The regulations being introduced today will ensure effective, proportionate regulation for the financial services sector in three ways: first, by reforming the ring-fencing regime to be more flexible while upholding financial stability safeguards; secondly, by creating a new framework for the regulation of short selling; and, thirdly, by enabling better supervision and enforcement of designated activities under the Financial Services and Markets Act 2023.

I will first address the reforms to the ring-fencing regime for banks. As noble Lords will know, ring-fencing was introduced following the global financial crisis, on the recommendation of the Independent Commission on Banking, and came into full force in 2019. It requires large complex banks to separate the services that they provide to households and small and medium enterprises from investment banking activity.

In 2022, an independent statutory review of the regime recommended updates to ensure that it operates as intended and is proportionate. This statutory instrument improves the regime and implements changes from the review. The reforms that it contains will improve competition in the banking sector, reduce costs and support economic growth. They have been developed with the Prudential Regulation Authority, which is content that they also maintain appropriate financial stability protections.

The reforms will ensure that, in future, only the largest and most complex banks are subject to the regime, with two key changes. The first of these is an increase in the primary deposit threshold—the amount of core deposits a bank can hold before it is required to ring-fence—from £25 billion to £35 billion. This accounts for growth in the deposit base and other relevant economic indicators since ring-fencing was introduced, and supports competition. The second is the introduction of a new secondary threshold that exempts retail-focused banking groups from the regime where investment banking activity accounts for less than 10% of common equity tier 1 capital.

This statutory instrument also makes changes to the way in which banks within the regime can operate. It introduces measures to encourage more investment by ring-fenced banks in UK small and medium enterprises and to reduce the compliance burden associated with the regime. It also creates significant new flexibilities to allow ring-fenced banks to operate globally, subject to Prudential Regulation Authority rules, as well as to provide a wider range of goods and services to their customers.

I turn now to the Short Selling Regulations 2024. Short selling is the practice of selling a security that is borrowed or not owned by the seller with the intention of buying it back later at a lower price to make a profit. Short selling plays a role in the proper functioning of financial markets. It provides essential liquidity to markets, which drives investment in British companies; it helps drive economic growth; and it helps ensure that investors pay the right price when investing in shares.

This statutory instrument introduces a more streamlined UK short selling regime, which focuses on equities rather than both equities and sovereign debt. The new regime also includes a reformed public disclosure regime for short selling to ensure that there is transparency over short selling activity, without the issues identified with the current regime through the 2022 call for evidence.

There can, however, be risks associated with short selling. As such, it is important for the Financial Conduct Authority to have the tools necessary to monitor short selling activity effectively and to intervene. This statutory instrument provides the Financial Conduct Authority with broad rule-making powers in relation to short selling. This will allow the Financial Conduct Authority, in effect, to oversee short selling in UK markets. It will also mean that the UK’s short selling rules can be adapted and updated by the Financial Conduct Authority in a more agile way in the future—for example, to better adapt to new global standards or to take account of market innovation and new business models.

This instrument also retains the Financial Conduct Authority’s powers to intervene in short selling activity in UK markets in exceptional circumstances—an important feature of the current regime.

Finally, the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 give the Financial Conduct Authority the broad rule-making power for short selling that I have just mentioned. The new short selling regime operates under the designated activities regime introduced into the Financial Services and Markets Act 2000 by the Financial Services and Markets Act 2023.

The designated activities regime allows the Treasury to designate certain activities to be regulated by the Financial Conduct Authority without the requirement for those carrying on the activities to become full authorised persons, such as banks or insurers. This enables proportionate regulation of activities where it would be inappropriate to require full authorisation.

The designated activities supervision and enforcement regulations enable the Financial Conduct Authority to supervise and enforce rules that it makes under the designated activities regime. They do this by extending the Financial Conduct Authority’s existing supervision and enforcement powers under the Financial Services and Markets Act 2000, so that they can be used in relation to designated activities, even where those carrying out the activities are not authorised persons. The extension of these powers applies, in the first instance, to designated activities covered by the Consumer Composite Investments (Designated Activities) Regulations 2024 and the Short Selling Regulations 2024. This will enable effective supervision of the regimes that those regulations introduce.

In closing, these SIs ensure that our financial services industry is subject to a rule book that is fit for purpose, more proportionate and tailored to UK markets. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, first I declare my interests in financial services, as in the register—just in case. I will speak to the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations and then to the Short Selling Regulations.

The set of rules and provisions under which the FCA can give directions is important. Every time something is the subject of such a direction or supervisory action, there is an opportunity to go to a tribunal. I wonder whether the Minister has any statistics, from looking at the FCA’s present powers and at when tribunals can be invoked, on how frequent that is. I am trying to get at one of the things that has irritated me, which, as the Minister knows, is that the FCA seems quite slow to respond when something is going on in the market. One’s instinct, if we know that something is going wrong, is to want quick action. These provisions allow that, but they could always be subject to challenge. So how might that interfere? The question is a little theoretical, but is anything already being done in that way with which we might compare it? I realise that that information might not be to hand; if it is not, I would be happy to have a letter.

Listed Investment Companies (Classification etc) Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

3rd reading
Friday 13th December 2024 Lords Chamber

Moved by

[Baroness Bowles of Berkhamsted]

That the Bill do now pass.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I wish to make a few thanks and remarks, but first I must declare my interest as a director of the London Stock Exchange and as a long-term investor in listed investment companies. I thank everyone involved in the drafting and discussions of this Bill, including the Minister—the noble Lord, Lord Livermore—who has been supportive on the issue, all noble Lords who have supported the Bill during its progress, the Public Bill Office, Nigel Farr of HSF, the AIC, many industry specialists who have contributed to the drafting, and consumer organisations such as Which? and ShareSoc which support the Bill and the wider cost disclosure campaign. I also thank journalists who have put the issue in the public eye. The noble Baroness, Lady Altmann, who is unable to be in her place today as she is recovering from a shoulder operation, trod a similar path with her Bill in the previous Session and has stood with me on this issue through many a debate and meeting. I also thank in advance the honourable Member for Hazel Grove, Lisa Smart, who is sponsoring this Bill in the other place.

Yesterday was the deadline for submission to the Treasury’s call for evidence on growth and competitiveness in financial services. I cannot help but say that it seems peculiar to be hunting for changes to promote growth when there is low-hanging fruit available to end the market disruption for listed investment companies that has resulted in more than £20 billion and counting of lost investment in the UK economy over the past two years. HMT or the FCA could lean on platforms and the Investment Association to get fully behind the changes for listed investment companies made by the legislative actions and forbearance in September. Instead, it seems they await the slow turning of the handle of consultation on, rule-making for and embedding the entire PRIIP legislation, which will take well into 2027 with tens of billions more pounds of lost investment in UK infrastructure.

By way of help, the chair of the FCA did finally confirm to the Lords Financial Services Regulation Committee on 13 November that, for listed investment companies,

“ongoing charges are not deducted from the share price”,

and that,

“as a fact, there is not a deduction from the share price”.

Yet platforms such as Hargreaves Lansdown still insist that a misleading disclosure about cost deductions from the investor must be entered or they will block retail purchase. I am told that they claim that they are urged to do so by the Investment Association, which is the association for the dominant open-ended fund sector, not for listed investment companies. The open sector is a sector that may relish scooping up some of the lost equity investment for itself but, make no mistake, it cannot replace the lost billions in social and environmental infrastructure. While this regrettable situation continues, I believe this Bill still has an important role to play.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I shall say a word in support of the noble Baroness, Lady Bowles, before we wave this Bill goodbye. The investment trust movement is a proven success story in this country but has been uniquely caught up in the PRIIP regulations. For three or four years we have been trying to find a way through that thicket.

I appreciate that the noble Lord, Lord Livermore, and the Government have produced some temporary forbearance regulations that are now in effect, but that is only a quarter of a loaf. To rebuild the sector, we need new investment trusts, but no one will launch investment trusts with only temporary relief that might at any moment be withdrawn. Therefore, while of course the industry is grateful to the Government for what they have done, it is only a sticking plaster.

The worrying aspect is that, now that we have forbearance relief, there will be no pressure on the regulators to make their mind up and the hitherto glacial progress will proceed even more slowly. I hope the Minister might take the noble Baroness’s Bill, stick it in his back pocket and say, “It has no commencement date but, if you don’t get on and sort your mind out, we’ll put a commencement date on it and bring it in”.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

3rd reading
Tuesday 12th November 2024 Lords Chamber

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Bank Resolution (Recapitalisation) Bill will enhance the UK’s resolution regime, providing the Bank of England with a more flexible toolkit to respond to the failure of banks. The recapitalisation mechanism introduced by this Bill will strengthen protections for public funds and promote financial stability, while promoting economic growth and the competitiveness of the UK financial sector by avoiding new upfront costs on the banking sector.

I thank all noble Lords for their valuable scrutiny and engagement which has genuinely led to some important improvements to this Bill. I would like to formally thank the Opposition Front Benches, particularly the noble Baroness, Lady Vere of Norbiton, for her valuable input and overall support for the Bill and its intentions. I thank the noble Baronesses, Lady Bowles, Lady Noakes and Lady Kramer, and the noble Lord, Lord Vaux, for the invaluable expertise they have brought throughout the passage of this Bill. I thank my noble friend Lord Eatwell for his support for the Government’s position and my noble friend Lord Sikka for his contributions to the debate. The Government will, of course, continue to reflect carefully on all the points raised and debated as the Bill moves to be debated in the other place.

I also extend my gratitude to my officials in the Treasury for their hard work in developing this highly technical Bill. Specifically, I thank Henry Grigg, Prakash Parameshwar, Katie Evans, Helen Lowcock, Ted Hu, Ed Henley, Chris Goodspeed, Rosie Capell, Andrew Clark, Minesh Gadhvi, Kate Lowden, George Barnes and Will Smith for providing me with their support as the Bill passed through this House. I also thank the House staff, parliamentary counsel and all other officials involved in the passage of this Bill to this point.

I am grateful for the engagement with this Bill and its broad support across all Benches, which will ensure that the bank resolution regime is as effective as possible. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I also thank the officials and other noble Lords, the Minister and, notable among those who did most of the heavy lifting, the noble Lord, Lord Vaux, and the noble Baronesses, Lady Vere and Lady Noakes. This Bill contains useful measures improved by amendments but is notable for diverting private bank money to addressing a matter of public interest in place of public funds. For that reason, I hope that the Government will reflect on the wisdom of keeping the amendment limiting the mechanism to small banks.

[Baroness Vere of Norbiton (Con)]

My Lords, I am pleased that this Bill leaves your Lordships’ House to wend its way to the House of Commons for further consideration. The Bill has widespread support and has been somewhat improved by the deliberations in your Lordships’ House over the last few months.

I am extremely grateful to the core crack team pulled together specifically for this Bill: my noble friend Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, whose expertise—far greater than mine—ensured that the roughest edges were smoothed away. I am also grateful to my noble friend Lady Penn, who so skilfully stepped up for Second Reading, and to the new opposition research team for their support.

Last but certainly not least, I am enormously grateful to the Minister and his officials, who were as accommodating as they felt able to be in improving the Bill. All noble Lords will share my hope that this mechanism is never, ever used but if it is, the statutory framework is now there to support one or more small banks through the resolution process and ensure that the first port of call is not taxpayers’ funds.

Autumn Budget 2024

Baroness Bowles of Berkhamsted Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the Government are hoping to launch innovative companies into exports, growth and wealth creation. Unfortunately, that will not happen without fair procurement and ending the unfair way in which departments are encouraged to get intellectual property on the cheap. Help may come following the Procurement Act, but if the Government are serious they should revoke the Cabinet Office’s Intellectual Property Rights Guidance Note dated June 2023—although I know that some of it has been going on rather longer.

In the recent science and technology debate, I explained how feasibility studies and early-stage commercialisation contracts require the recipients of grants to give government and its partners free, perpetual, irrevocable and royalty-free licences, together with the right for them to grant sublicences to anyone to use all the information, data, results and conclusions arising from the project. The intention is that all the IP is given to competitors. This appears in contracts for as little as £30,000—for slave labour rates, a grab at IP rights that could be worth a million and a company’s future if they were not expropriated by the Government to give to competitors. Such treatment destroys opportunity to scale and creation of home-grown technology unicorns and decacorns.

On page 14 of the guidance note—which is about procurement, not grants—it encourages departments to retain IP rights and

“gain some future financial benefit from its exploitation”.

That is expropriation for financial gain.

On the same page, the prime directive—if I can call it that—is:

“First and foremost in your thinking should be the needs of the department”.


That is not the public interest, scale-up in the economy or fair dealing, but the department. It does note that:

“The greater the restriction over the IP for the supplier, the higher the cost of the contract will likely be”.


I can think of lots of abuses for that. Who is valuing the IP? How can small companies negotiate? Will the fact that IP is existential to them be taken into account, or are they just quashed because they have no leverage? IP does not neatly divide into background and foreground, so the use and the reach go deep.

Contracts with large organisations press IP requirements into the supply chain. It is becoming obvious why we are unproductive, as we are not commercialising promising R&D. Outside military use, the big excuse is that expropriation of IP is a useful way to avoid subsidy control issues. That is simplistic, and I am very sceptical.

It levels things down in the UK. It undermines innovation and small companies, based on assumptions that cumulative experience, experiments and trials have no value, and everything can be given away to copycat scroungers or insider incumbents who do not carry those costs and can underbid and be fed the IP ripped out of those who have invested in R&D. We need to think harder. What other countries give IP away like this? Do foreign companies have similar terms imposed in their UK contracts? Or is this just Brits on Brits and why contracts go overseas?

What is the NAO analysis of the valuations and additional cost of contracts due to the presence of these clauses? What of investors in innovative companies? At the innovation summit, were foreign investors told to kiss goodbye to any IP, or do they get better treatment? With this IP grab, how can companies be invested in if the route to market needs to be via procurement? Now I understand why the country is failing and why our technology growth companies leave. It is rip-off Britain.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I add my support to my noble friend’s amendment.

If the power were used on a bank that had already achieved the MREL set for it, that use of the mechanism would raise questions about whether MREL and the minimum capital requirements had been set correctly—and whether there had been a regulatory failure. In either event, the Bank is conflicted, whether through the setting of MREL in its capacity as a resolution authority or through setting capital levels through its PRA arm. I am clear that the Bank should not have the power to cover up regulatory failure, which this unconstrained provision allows. There is no way for the Treasury to stop the Bank using the power other than by using the power of direction that exists but has never been used in the existence of the Bank since nationalisation. Unconstrained powers are unhealthy. That is why I support my noble friend’s amendment.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I concur with what other noble Lords have said about this amendment: that is why I have added my name. It cannot be left as a possibility for any size of bank; if it needs to apply to a larger bank, perhaps the MREL level should have been set higher. We have this rather unusual situation in the UK where we set MREL at a much lower level; it is set at about a quarter of the level of other countries. If there is a nervousness about needing to use it for a bank that is a little bit larger, perhaps some other fundamentals about where MREL is being set are wrong.

The premise of this Bill is based on it being an alternative to insolvency, where that would have been the normal end result. Maybe the compensation scheme would have had to pay out on deposit guarantees and so there is the happy thought that the money could be perhaps put to different use this way round. But the assumption should still be insolvency and we need a public interest test before we go looking at the Financial Services Compensation Scheme. It is already an extraordinary event—so how extraordinary are extraordinary events? I do not think one can layer extra extraordinariness on top of it: there has to be a line somewhere.

We do not know how many dips into the Financial Services Compensation Scheme there are going to be. In insolvency, there is one dip for the deposits that are guaranteed. It does not say that there cannot be multiple dips. There is already the notion that there is this enormous pot of money. Maybe it looks like a bank tax—and everybody hates banks and it is a pot to raid—but it is a very good way to cause more issues within the wider banking sector. Frankly, it is unfair if there are not some bounds somewhere. So I think this is the right one and, if the Minister is not going to incorporate the amendment, which I think would be a jolly good idea, we on these Benches will be supporting the noble Baroness, Lady Vere.

[Lord Eatwell (Lab)]

My Lords, my colleagues from the Financial Services Regulation Committee are rather confused on two issues; that is very unusual, but they do seem to be. First, there is the idea that somehow, if MREL were exceeded in a financial crisis, that would be a regulatory failure. The only way to prevent such a regulatory failure is to have MREL at 100%; that is to avoid the total failure of the financial system. That would be a disaster for lending in this country. At the moment, MREL is set at levels that are deemed to be a reasonable buffer under circumstances that might reasonably, even in extremis, be expected to occur. As we saw in 2008-09, even events that are deemed to be events that would occur only once in a millennium can occur several times in a week in a severe financial crisis. An MREL which can never be exceeded is 100% and if my colleagues are seeking to impose that on the British financial system, I would be very surprised.

The other point that seems to be neglected—it is why I deem this amendment to be irrelevant—is that my colleagues should recall that, in one of the letters from the Financial Secretary, he pointed out there was a cap on the amount that would be raised from the financial compensation scheme for these purposes. That cap, as I recall, was £2.5 billion. In those circumstances, £2.5 billion would never be sufficient to deal with the collapse of one of the big banks. So the cap itself defines these regulations as fitting only relatively small banks.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I think that everything that needs to be said about these amendments has probably already been said. I have added my name where I could; one came in very late, so I could not. I congratulate the noble Baroness, Lady Noakes, on her diligence in getting the committee name in properly so that everybody knows where to go, with all these hundreds of people who are going to be reading this legislation. Nevertheless, we are an institution, as it were, so it is good to see our name there.

I also congratulate the noble Lord, Lord Vaux, on his diligence in hounding to a conclusion the final report, because it is, as he said, very important. In the meeting we had recently, those present from the Bank of England wondered why we might want this and suddenly nodded when I said, “Because otherwise Parliament may never find out what really happened”: that is what it is all about. They might think we do not want to know, many years on, if it is a long period. The sorts of people who sit on these committees do want to know, because we are the ones who have to learn and have to ask the questions, to make sure that it is not going wrong again. It is very important, and I hope the Minister will accept it. If votes are called, these Benches will be supporting the noble Lord, Lord Vaux.

[Baroness Vere of Norbiton (Con)]

I am enormously grateful to all noble Lords who have spoken today. I too add my thanks to the noble Lord, Lord Vaux, for tabling his amendment. This group epitomises what is so good about your Lordships’ House: a lot of movement has happened to date on these issues from the Minister, and we are grateful for his engagement and for the fact that we have been able to get a little further down the road. However, like terriers with very sharp teeth, noble Lords are not quite willing to let it go just yet, and I too support the amendments in the name of the noble Lord, Lord Vaux, and of course those of my noble friend Lady Noakes, who has also done a fantastic job in ensuring that the issues she raised, and which most noble Lords agreed with in Committee, come to the fore. Helpfully, the noble Lord, Lord Vaux, has tabled Amendment 9, which plugs a big gap, and I hope the Minister will accept that and the amendments in the name of my noble friend Lady Noakes.

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Moved by

[Baroness Bowles of Berkhamsted]

6: Clause 1, page 2, line 3, at end insert—
“(6) When discharging its functions in respect of the exercise of recapitalisation payments under this section, the Bank of England must observe the competitiveness and growth objective.(7) The competitiveness and growth objective is facilitating, subject to aligning with relevant international standards—(a) the international competitiveness of the economy of the United Kingdom (including in particular the financial services sector), and(b) its growth in the medium to long term.”

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak principally to Amendment 7 in this group, which has also been signed by the noble Baronesses, Lady Vere and Lady Noakes. Amendment 6 was my first attempt, when I was worried that defined first and secondary objectives were not already specified in connection with resolution. In fact, there are a whole load of objectives that have to be balanced in Section 4 of the Banking Act 2009. However, I then hit upon the formulation of claim 7, to make it agree with how it had been rendered in FiSMA 2000. I am suggesting that this is a secondary objective to all the existing ones, and the formulation is the one with which we are already familiar.

We on these Benches are not always certain of the merits of the competitiveness and growth objective, which is what I am inserting into the Bill here, in respect of the resolution authority. Our concern is that in other places, it might return to too much of the animal spirit that led to the financial crisis, but here, it has a different and particular role. The Bank has to balance all the Section 4 objectives to get the best results, and, in its resolution capacity, it is not really in a situation to be prey to animal spirits.

When it comes to the Financial Services Compensation Scheme as a source of funds, as we have already said, there are no bounds, or at least no written ones. How many dips into it can be made if the first one is not enough? How big can those dips be, compared to what might have been needed to compensate depositors if the Bank had gone bust instead? What happens if there are multiple resolution events in a narrow period of time? For how many years can the extra levy be put on to the banking sector in order to pay back the scheme? As the noble Baroness, Lady Noakes, has said before, how can we be certain that, years later, it is not called upon again in connection with some kind of legal action?

All these things are left open for the Bank of England resolution authority to decide and to do its best on. It will, of course, receive advice from the PRA, which has to consider what is an affordable levy for the industry, but it is receiving advice from a body which has in one sense just failed, and to which it is always close. It is advice that it does not actually have to take, either.

The only lever—other than the one suggested in the amendment of the noble Baroness, Lady Noakes, a requirement to minimise cost—is to impose the objective of competitiveness, which in this instance means affordability, and for that to be imposed on the resolution authority itself. It is secondary to everything else, so it cannot kick the other objectives into touch in any way; it is just making sure that there is a small reality check about what this does to other banks, especially in the circumstance that this is not the only bank or that this is not the only dip into the fund.

So, this is an instance where the secondary competitiveness and growth objective is relevant, and I hope the Minister can see his way to accepting it. If not, I shall probably seek to test the opinion of the House. I beg to move.

[Baroness Noakes (Con)]

My Lords, I have Amendment 16 in this group and added my name to Amendment 7, to which the noble Baroness, Lady Bowles of Berkhamsted, just spoke. As she indicated, the two amendments are related in that the imposition of unnecessary costs, which is the target of my Amendment 16, will do nothing to help the financial sector grow, be competitive or, indeed, support the real economy.

I fully supported the growth and competitiveness objectives introduced for the PRA and the FCA in the Financial Services and Markets Act 2023, and I am very glad that the Chancellor of the Exchequer has given her support to those. But I hope that the Government will want to go further and make all regulators, and indeed all other public sector bodies, pay attention to growth and competitiveness. Extending this to other organisations is important, particularly in the financial services universe, as they were not included within the competitiveness and growth objective in the 2023 Act.

One of those omitted at that time—perhaps we should have spotted it during the passage of the Financial Services and Markets Act—was the Bank of England in its capacity as a resolution authority. The noble Baroness, Lady Bowles, has had to confine her amendment to the use of the bank recapitalisation power because of the Long Title of the Bill. But the competitiveness and growth objective ought to apply to the Bank as the resolution authority in toto, not simply when it exercises the new bank recapitalisation power but also when, for example, it is setting MREL levels.

My Amendment 16 adds a special resolution objective to the seven already listed in Section 4 of the Banking Act 2009, and it requires the Bank to consider the minimisation of costs borne by the financial sector when the recapitalisation power is used. It is not an absolute requirement, as it would be just one of eight objectives, and it is for the Bank to determine, under the 2009 Act, how to balance those various objectives.

When it is using the power, the Bank is playing with other people’s money. Ultimately, it is the money of those of us who are customers of the banks, because at the end of the day the money that flows through the banks will end up being borne by customers, and it is only right that the Bank should have regard to the minimisation of costs that are ultimately borne by the banks’ customers.

In Committee I tabled an amendment that focused on the costs being borne through the FSCS not exceeding the counterfactual of the bank insolvency procedure to which the Bank should be paying regard in any event. My amendment today is a less complex test and is simply designed to act as a reminder to the Bank that it should treat other people’s money as carefully as it treats its own. If it does that, it should also help to keep the sector competitive and to help it grow. I hope that the Minister will agree that this amendment is right in principle and that it responds to a number of concerns expressed by several respondents during the consultation on the power over the last year or so.

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I hope I have provided some explanation to the noble Baroness of the Government’s position on this matter, and I respectfully ask that she not press her amendment.

[Baroness Bowles of Berkhamsted (LD)]

I thank the Minister for his explanation. I have some sympathy for the position in which he finds himself, which is the usual one with the Bank of England: you cannot touch it or interfere with it, and it is infallible. You cannot occupy its mind with even a tiny other thought, as it might distract it from the resolution that it has in mind. I find that quite concerning.

Yes, we have the code of conduct and other things that are not in the Bill, but we are dealing with something a little different here. It is ruled by a public interest test, but what about the private interest test? You are using private funds to replace public funds, so there is a big difference. Some little corner of the mind of the Bank of England’s resolution authority has to register that point: private funds are replacing public funds—a special tax on the banking sector to help keep its competitors going.

Imagine you started doing this with grocery stores; what would they think about it? It is quite remarkable. It is not using private funds, by agreement, for a deposit guarantee in the public interest—that would be a specific amount that has previously been agreed—it is stretching the piece of elastic when you do not know how long it is and you are not prepared to have another little test. I find that unacceptable. Something is needed there.

I intend to press my Amendment 7 to a vote and to beg leave to withdraw Amendment 6. If the Minister can find a better way of doing that—this is a private interest test to go alongside the public interest test—he might come up with a better amendment, but this was the best that I could find for now, just to put something in the Bill that shows that we acknowledge what we are doing. This is a momentous precedent, and to say that we cannot have something in the Bill that acknowledges that is a very bad state of affairs. Where will it take us next? I beg leave to withdraw Amendment 6.

Amendment 6 withdrawn.

Moved by

[Baroness Bowles of Berkhamsted]

7: Clause 1, page 2, line 3, at end insert—
“(6) As a secondary objective to the special resolution objectives in section 4 of the Banking Act 2009, when discharging its functions in respect of the exercise of recapitalisation payments under this section, the Bank of England must observe the competitiveness and growth objective.(7) The competitiveness and growth objective is facilitating, subject to aligning with relevant international standards—(a) the international competitiveness of the economy of the United Kingdom, and(b) its growth in the medium to long term.”

[Baroness Bowles of Berkhamsted (LD)]

I wish to test the opinion of the House.