Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023

Baroness Chapman of Darlington Excerpts

Wednesday 19th July 2023 Grand Committee

[Lord Wallace of Saltaire (LD)]

My Lords, we come to this with several of us having been involved in the economic crime Bill and the National Security Bill, in which we touched on a number of related issues. Some of us, indeed, complained when the economic crime Bill was before us that there was a tendency in that Bill to treat economic crime as if it was entirely domestic, when anyone who knows a small amount about the subject knows that all serious economic crime is transnational and that one has to co-operate actively with other countries to combat it.

There was no reference to the FATF in the discussions on the economic crime Bill, but I thank the Treasury very much for the extensive briefing that my noble friend Lord Fox and I were given the other week on the FATF. It was extremely helpful and detailed, and showed how actively some parts of the Treasury are engaged in—one has to say this in the light of the comment by the noble Lord, Lord Vaux—trying to make the FATF work, or work better.

The FATF is a large, multinational organisation. I used to teach a course in international relations when I was an academic at the London School of Economics. I had to explain that it is a miracle that any international organisation works, because the difficulties are so intense. One has to recognise that there are limits to how far you can get agreement when you have as many member states as the FATF has, many of which are autocracies and systemically corrupt themselves. This creates considerable difficulties.

I was struck, as was my colleague and noble friend Lord Purvis, by the oddity that we have of course regained our sovereignty by leaving the dreadful European Union, which produced regulations that we had to adopt, only to align ourselves entirely with a much larger, looser and more opaque organisation, the FATF, in which we apparently follow what the noble Lord, Lord Vaux, described as its idiosyncratic listings. As I understand it, this is the grey list rather than the blacklist. I will talk a little about who is on the list.

There are two UK overseas territories on the list, which are listed as third countries. I point out to start with that the idea that an overseas territory is a third country is incompatible with the definition of a British Overseas Territory. That corresponds to the deep ambiguity with which the relationship between His Majesty’s Government and the overseas territories is carried on in so many different areas. It is, one would have thought, a scandal of British governance that there are overseas territories on the grey list. When I mentioned some issues to do with Gibraltar on the economic crime Bill, I rapidly received a communication from the Gibraltar Government. I am sure that the noble Lord, Lord Vaux, will shortly receive one in his turn. I understand that the fact that Gibraltar is still on the list relates more to delays in carrying a number of things through the Gibraltar Government than to the depths of the problem. The Cayman Islands, I suspect, is a more serious problem.

The Gibraltar Government said to me, “You have to understand that it is very much part of our position that we are entirely independent in how we carry through our adoption of these various new proposals”. As far as international illicit finance is concerned, the Treasury should be concerned that several British Overseas Territories—not just these two—have some things to answer on this area. They benefit from UK sovereignty and the UK system of law. In turn, that puts obligations on them to follow much more closely than some do, some of the time, British standards in this respect.

I hope that the Treasury has an active dialogue with the FCDO, which is responsible for the overseas territories, and that it pushes the Foreign Office to ensure that the overseas territories do not, as they have in a number of other areas, say that they will meet British standards— I am talking about transparency in beneficial ownership —then spend much longer than we had anticipated bringing their domestic practices in line with what the UK Government recommend.

I follow my noble friend Lord Purvis in asking some questions about the UAE, which is a major financial centre and has close links with the UK. There are 100,000 British citizens living there, some of them wealthy expats. The fact that the UAE is also on the grey list is a matter of real concern. I am sure that the Minister is aware that the largest donation given to the Conservative Party in the first three months of this year came from someone whose financial interests are centred in Dubai; I understand that the donor is also the treasurer of the Conservative Party and a former Minister in an Egyptian Government. This is just one illustration of how we perhaps ought to pay more attention to the delicacy of our financial and political relations with the UAE. On the importance of Dubai and Abu Dhabi as financial centres, as well as the worries and proper concerns that one has about them, I, alongside my noble friend Lord Purvis, note that the Wagner Group has managed its various transactions and financial arrangements through Dubai; this is not something that we should be happy about at all.

There are a number of questions to answer here. I am grateful for the briefing on the FATF that the Treasury provided for us, but Parliament deserves to be told more about this murky area of finance in which not just the overseas territories but, dare one say it, sometimes our Crown dependencies are caught up and which we ought to be more actively engaged in cleaning up as far as we can.

[Baroness Chapman of Darlington (Lab)]

My Lords, I am aware that we always follow the FATF’s recommendations but, given what we have just heard, it is just as well that we have this procedure as an opportunity to ask the Minister about some issues of concern that arise from the recommendations we are considering. I will not repeat everything that has already been said, because immediately following this we have another SI that took three and a half hours to consider in the Commons and, looking around the Room, I anticipate that it may take a little while this afternoon as well.

This instrument is perhaps relatively straightforward, but I will highlight a couple of the points that have been made in which we are especially interested. On the issue of reputation and our overseas territories, the fact is that Gibraltar and the Cayman Islands are on this list. Do the Government think that this has any reputational impact on the UK? What is the Government’s assessment of that? When this issue was considered in the Commons, providing some kind of support or input from the UK to Gibraltar to move things along was discussed. I do not think that the Minister there gave a particularly expansive response at that point so it might be helpful, if there is an opportunity, to hear from the Minister here today whether a request has been made by Gibraltar and whether any input has been forthcoming from the UK.

I will leave it there for today, given the next SI that we will consider and the fulsome contributions that have already been made by others, which I know the Minister will answer fully.

[Baroness Penn (Con)]

My Lords, I thank noble Lords for their contributions to this debate. I know that we have also touched on this issue in other Bills progressing through the House.

I will start with the FATF process. As I think I said in my opening speech, the UK is an active member of the FATF. We participate in mutual country evaluations, looking at its processes and rules, which we are fully supportive of. Indeed, we were a founding member of the FATF. The processes are agreed internationally and based on rigorous, detailed and robust technical assessment. The FATF also regularly co-ordinates with other major international organisations.

It is worth saying two further things on the FATF. First, as a member of the FATF, we will always look to improve its work and processes and we will always reflect on those. Secondly, it is an important piece of the picture on setting standards for international action on anti-money laundering and counterterrorist financing, but it is only one piece of the picture when it comes to the UK’s overall approach towards tackling economic crime more broadly and some of the issues raised in today’s debate.

Cambodia being delisted is within the scope of the SI. Cambodia has addressed key deficiencies relating to the legal framework for international co-operation and preventive measures, risk-based supervision, financial intelligence, investigation and prosecution of money laundering, asset confiscation and targeted financial sanctions for proliferation financing. By addressing those deficiencies, Cambodia met the criteria to be removed from the list.

The noble Lord, Lord Vaux, also raised Russia’s membership of the FATF. As he noted, in February 2023 the FATF suspended Russia from the organisation. It continues to call on all jurisdictions to remain vigilant to threats to integrity, safety and security of the international financial system arising from the Russian Federation’s aggression in Ukraine. We are absolutely clear that Russia’s actions run counter to the principles on which the FATF is based and we fully support the ongoing suspension of Russia’s membership of the FATF. We have taken a wide range of measures against Russia, including the most extensive sanctions regime that we have ever put in place. We will continue to bear down on the Russian state in that way.

The noble Lord, Lord Wallace, and the noble Baroness, Lady Chapman, asked about the overseas territories and Crown dependencies. The UK has engaged with both on this issue to share best practice, improve understanding of risks and increase compliance with the FATF standards. I went to the ministerial meeting of MONEYVAL, which is a regional organisation that feeds into the FATF process. Some of the Crown dependencies are members and I met the Ministers responsible for FATF compliance as part of that forum. We will continue doing that, as several of the Crown dependencies have assessments that are either ongoing or upcoming this year.

Gibraltar and the Cayman Islands were mentioned. Gibraltar continues to make good progress against its action plan with only one action remaining—for it to show that it can pursue more final asset confiscation judgments commensurate with its high-risk profile. When it comes to that action, judgments coming through can take time and that timing is not all within Gibraltar’s control.

I met representatives from the Cayman Islands this year and we touched on this area. They have made significant progress in addressing deficiencies since the Cayman Islands were listed in February 2021. In June 2023—just last month—the FATF made the initial determination that the Cayman Islands have substantially completed their action plan. On this basis, it plans to conduct an on-site visit in September to verify this, which is the final stage before delisting. We have a positive story to tell in both those areas.

Postal Packets (Miscellaneous Amendments) Regulations 2023

Baroness Chapman of Darlington Excerpts

Wednesday 19th July 2023 Grand Committee

Regardless of anyone’s position on the framework and of the deeply held views about Northern Ireland’s position within our union, this is no way to make legislation for a significant part of our union. I hope that the Government respond positively to the serious conclusions of the Secondary Legislation Scrutiny Committee, and I hope that the way they conducted these regulations is not repeated.

[Baroness Chapman of Darlington (Lab)]

My Lords, the noble Lord, Lord Purvis, is correct to emphasise what the Secondary Legislation Scrutiny Committee observed about timing and the lack of consultation and impact assessment; of course, that is important, and I am sure that the Minister will want to respond to it fully. The reason it is so important is not just because it is our job to ask those questions, which we ask frequently; it is because, particularly in the matters before us today—as we heard, issues of Northern Ireland’s place within the union have been raised, as a consequence of the sense that this is being rushed or is not being done adequately—it is beholden on the Government to make an extra effort to make sure that this is done in a way that is beyond reproach, as far as Ministers are able.

These regulations implement part of the Windsor Framework, which we support. The Minister knows this, and we have been clear about it. We think it is a far better solution than that which was arrived at previously with the Northern Ireland protocol. It is also better than the approach that the Government sought to take with the protocol Bill, which we spent many weeks discussing earlier this year. Brexit brought us to this place. A solution needed to be found, and there was always going to be this kind of unsatisfactory compromise on Northern Ireland. This was raised before the vote took place. As we all know and have repeatedly said, Northern Ireland voted to remain and a solution needed to be found. I am afraid that this is probably the least worst option that we can land on at the moment.

Consumer-to-consumer parcels and business-to-consumer parcels will not be subject to regulations, and business-to-business goods intended to remain in the UK will use the green lane, while other goods will be subject to declarations and checks. We know that life will not be that simple and that there will be complications—in the real world, things will not always work as anticipated—and there will have to be some recognition of that as we go forward. The questions raised by the noble Lord, Lord Purvis, will have to be answered—if not today, then in the execution of this. That is life, and that is how we will have to approach this. But, having come to the point of securing an agreement, which was approved by the other place by 515 votes to 29, it is incumbent on the Government to make good on what they agreed.

My noble friend Lady Ritchie spoke of the opportunities for Northern Ireland from its unique position, and she asked important questions about the advice and support for businesses that will have to navigate these new arrangements. Is HMRC adequately prepared and resourced to make this work, and can the Minister explain how the green lane will be policed? The noble Lord, Lord Purvis, described the EU as a foreign power, which it is, but it has our consent and agreement. This is the arrangement that we have come to with our negotiating partners. There were other options: the Northern Ireland protocol was the one that was settled on by Boris Johnson and the noble Lord, Lord Frost. We all agreed that it was unsatisfactory —no one seemed particularly happy with that outcome—and here we have moved on to something that is an improvement.

I completely accept what our friends the noble Lords, Lord McCrea and Lord Dodds, had to say. I understand the challenge, but I find myself searching for an alternative viable solution. I know that one could have been that we all stayed in the customs union or the single market, but that is not the position of any of the main political parties and I believe it is not the position of the DUP. The noble Lord, Lord Dodds, may correct me if I am wrong about that—here he comes now.

[Lord Dodds of Duncairn (DUP)]

I thank the noble Baroness for giving way. On alternatives, I refer her to the report by our Select Committee on the protocol, on which I have the honour to serve along with the noble Baroness, Lady Ritchie. In July last year, it said—I do not have the precise reference, but I can supply it—that, in relation to parcels, the solution was to continue as with the grace period, and that there should be no fettering of parcel deliveries between Great Britain and Northern Ireland. The cross-party Select Committee did suggest a very good solution—one that, unfortunately, the Government decided not to run with.

[Baroness Chapman of Darlington (Lab)]

I read that report and I commend the noble Lord for bringing it to our attention, but we cannot arrive at a solution unilaterally, as the United Kingdom. Whatever solution we arrive at must be agreed with our negotiating partners. I was not part of that negotiation but, from what Ministers have indicated, it would seem they were not able, at this point, to settle on that with the European Union. We can regret that, but it is the reality of where we are. We are surely in the business of dealing with reality as we find it, not as we would wish it to be.

It really ought to be a priority for the Government to rebuild trust. I would urge far more candour and a franker approach when we discuss these issues, and not to do anything which would give the impression that we are somehow trying to steamroller these things through. Can the Minister explain exactly what a business would have to do to become part of the trusted trader scheme, so we are clear about exactly what we are asking businesses to do? We completely understand the dissatisfaction that some have with the framework but there is, at the moment, no other viable alternative solution.

I am not going to comment on the mismanagement of the Joint Committee on Statutory Instruments and the debate that took place in the other place. I read Hansard and found the way it was conducted extraordinary, but that is not for me to manage. This is clearly not business as usual; it is different and unique. There have always been differences, which were previously brought to the fore regarding animals and other things, but it is obvious that some contributors this afternoon feel there is somehow a threat to their constitutional position, and we cannot be relaxed about that. We have to recognise that and take it seriously. I disagree; I am British and if I moved to Belfast I would still be equally as British. I might have to fill in some forms if I wanted to receive goods from a business in GB to my business. I could live with that without a threat to my Britishness, but is it not for me to tell other noble Lords how they should feel about it, and they are quite right to bring those points to the attention of the Committee.

I could not agree more strongly with those who said that what we need is a frank and open discussion, and perhaps a change of tone and being a little more relaxed as a Government about all this. I know we have had some torrid debates on these issues in recent years and that the protocol was a disaster. Things have happened and things were said; promises were made, but they should not have been because they were broken knowingly and very quickly. We have damaged our international reputation as a good partner to negotiate with and I regret that very much but, with a change of attitude from the Government, and a more respectful approach to colleagues in Northern Ireland and to this House, we could move forward in a much more positive way.

Bank of England: Interest Rate Policy

Baroness Chapman of Darlington Excerpts

Wednesday 12th July 2023 Lords Chamber

[Baroness Penn (Con)]

While I will not be tempted by my noble friend to comment on the conduct of monetary policy, I agree that, in the context of high inflation, fiscal responsibility and keeping government borrowing under control are absolutely essential. That is why the Government are committed to that.

[Baroness Chapman of Darlington (Lab)]

My Lords, what is it about the Government’s handling of the economy that means that, with near 0% growth, inflation is still high, despite the Prime Minister promising to halve it, and higher for longer in the UK than in many similar economies? How does the Minister think that 1 million households facing a £500 a month increase to their mortgage payments by the end of 2026 will cope? How concerned should we be at the Government’s voluntary agreement with the banks, which means that over 1 million households will miss out on the support that Labour’s mandatory scheme would have brought?

[Baroness Penn (Con)]

My Lords, growth is better this year than predicted and expected by some. The UK is not alone in facing high inflation. Core inflation in the UK is lower than in more than half of Europe, but we face particular underlying factors that interact with the global challenges causing inflation. The energy shock has been felt more keenly in the UK because of our historical dependence on gas, and we have labour market tightness, due in part to a rise in activity during the pandemic. That is why we are focused on measures to tackle these problems. I talked about the energy price guarantee, which brought down inflation by around two points, and our measures to address childcare. I say to the noble Baroness, reflecting the point from my noble friend, that fiscal responsibility and government borrowing have a part to play in this. That is why Labour’s plans to spend £28 billion a year of additional borrowing would be inflationary and make the problem worse.

Income Tax Threshold

Baroness Chapman of Darlington Excerpts

Tuesday 4th July 2023 Lords Chamber

[Baroness Penn (Con)]

Since 2010, we have introduced additional allowances for people in certain circumstances to pass on up to £1 million to their direct descendants. Inheritance tax makes an important contribution to our public finances, so any changes in that area would need to be properly funded.

[Baroness Chapman of Darlington (Lab)]

My Lords, the former Chancellor and current Prime Minister says that he wants to cut people’s taxes, yet under his watch the tax burden has reached a 70-year high. As other noble Lords have observed, more people are paying more income tax, wiping out the benefits of previous changes to the personal allowance. Can the Minister understand the frustration of those who work hard and pay their taxes only to see non-doms and those with £2 million pension pots given preferential treatment by this Government?

[Baroness Penn (Con)]

My Lords, we have worked hard to put tax cuts in place for working people, which is why we have raised the personal allowance. The increase to the starting threshold for paying national insurance was raised last year by the largest single amount, helping people who are currently facing challenges with the cost of living. The noble Baroness mentioned the changes we have made to pensions tax. That is to try to keep experienced professionals in our public sector workforce, from doctors to head teachers and members of the military. Those changes were made for the right reasons and will have the right effect.

UK Economy: Growth, Inflation and Productivity

Baroness Chapman of Darlington Excerpts

Thursday 29th June 2023 Lords Chamber

[Baroness Chapman of Darlington (Lab)]

My Lords, it is a pleasure, as ever, to follow the noble Baroness, Lady Bowles, who brings such knowledge, experience and specificity to our debate this afternoon. She made a clear pitch to the Minister and I await the Minister’s response—I am interested to know what she will say.

This has been a wide-ranging and thought-provoking debate. There have been too many quality contributions to mention them all. However, I assure my noble friend Lord Liddle that Rachel Reeves rules the Parliamentary Labour Party with an iron grip, and I am one of many hopeful Labour parliamentarians to have gone to see her to ask her to invest in something of absolute importance without which we will never win another election, only to be given a very hard no. Obviously she was right and I was wrong, and I am sure that is where it will remain.

We have shared some disagreement this afternoon on the issues of inflation, productivity, investment and the role of government. To generalise and perhaps simplify, we on these Benches favour an active, engaged state with a mission. We do not agree that it is good enough for a Government to leave the pitch—to deregulate and then allow our citizens to sink or swim in all but the most extreme of circumstances.

In his introduction, which I agree was delivered with absolute clarity, my noble friend Lord Eatwell said that investment requires confidence in the prospect of future growth. For this we need the foundation of a stable Government with a plan that is shared and understood by the country.

My noble friend Lady O’Grady talked about AI and its potential to increase productivity. I think most of us would wholeheartedly agree with that, but we need it to happen as part of a modern industrial strategy. How do we think our life sciences have done so well? It is because the then Labour Government made it a priority and created the framework and support in higher education and investment in research to enable it to happen.

The truth is that economic growth in the UK has been weak since the global financial crisis. Had the pre-crisis trend continued, our economy today would be 26% bigger than it is. In 2010, growth had begun to return but austerity sucked demand away, and we know what has happened since. We have heard various judgments today about the relative significance of different factors, including Brexit, Covid and austerity, and how they have affected productivity growth and stagnating business investment, and more recently labour market inactivity. The points from the noble Lord, Lord Londesborough, about leading a productive workforce were very well made. We agree with him on the need for strategy.

The arguments from my noble friends Lord Leong and Lord Wood about investment are important. I observe that skills degradation over time is undermining what should be one of our strongest suits as a nation. The graduate salary premium outside the south-east is declining, which tells us that too many graduates do not leave university with the skills that businesses are prepared to pay more for.

That is not all. A report published just this morning by the Sutton Trust showed that highly able disadvantaged pupils achieve, on average, a whole grade lower per subject at GCSE than the most affluent highly able children. Some 62% of better-off high-potential pupils got five or more 7 to 9 grades at GCSE in 2021, compared to 40% of disadvantaged high-potential children. Over 28,000 disadvantaged young people who would have been expected to achieve top grades at GCSE between 2017 and 2021 did not do so. It is impacting their future life chances. Despite their high potential, disadvantaged highly able pupils are twice as likely as their better-off peers to say that people like them do not have much of a chance in life. This is a criminal waste of potential and it is holding the UK back.

It is not just educational inequalities; regional inequalities are important too. The IMF says that regional disparities are harmful for economic efficiency, as limited opportunities for those stuck in the wrong place lead to the underutilisation of potential and constrain overall growth. More broadly, regional disparities, including urban and rural differences, can fuel social tensions, promote political polarisation, and threaten the social fabric and national cohesion. Free markets cannot fix these things. It takes leadership from both national and, probably more importantly, regional government.

My noble friend Lord Whitty mentioned international productivity comparisons, and well he might. Twenty years ago, the average Briton was wealthier than their European neighbour but today the average French family is 10% richer than their British peers, and in Germany that figure rises to 19%.

Austerity trashed our public services—everything from Sure Start to social care, community policing to cancer. Life expectancy gaps are growing and regional inequalities are more entrenched than ever. We have hammered public services, and now we can see it: austerity has hammered our growth as well. Ed Balls was right. He said that George Osborne was going too far, too fast. He said that austerity would fundamentally undermine the ability of our population to thrive and would threaten productivity.

Brexit without a plan, followed by a bad deal, increased the administrative burden on business, left us out of Horizon, does not allow for mutual recognition of professional qualifications, left the institutions of Northern Ireland paralysed and sucked every ounce of political energy away from where it needs to be—focused relentlessly on delivering a stable and secure economy. We are paying the price for all those things today. The Covid inquiry is just beginning to reveal how ill-equipped the UK was for the pandemic in terms of our planning but also our health service and our supply chain resilience.

Where we make things and who owns them matters. We need to develop new partnerships between an active state and a free market with countries across the world which share our values. We believe that leadership of the economy does not start and end with management of interest rates.

The noble Lord, Lord Effingham, rightly focused on public health: this is about good jobs, decent pay and fair working conditions so that working people can contribute to our national success and their financial security will underpin our economic strength. Rachel Reeves talks about “securonomics”—I can sometimes barely say that without really focusing, but that is the word we are using to describe it. What she means is that she wants to build the kind of economic security that provides hope: that our best days are ahead and knowing that we can get on, not just get by.

I again thank my noble friend Lord Eatwell for providing the opportunity for this timely debate. As we all know, he brings enormous experience. The name Andy Haldane has come up a few times today and, coincidentally, I was talking to Andy last night and I mentioned that this debate was going to be led by my noble friend, and he said, “Ah, yes, John Eatwell. He wears his learning lightly”. I think I know what he means. His introductory speech was as coherent and comprehensive an explanation of our current predicament as I have heard. I look forward to reading it back later, but for now, I look forward to hearing the Minister’s response.

Financial Services and Markets Bill

Baroness Chapman of Darlington Excerpts

Consideration of Commons amendments
Tuesday 27th June 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I want to comment on Motion B, which no one has addressed. I congratulate the Minister, her colleagues, the Bill team and all the Peers who have contributed to this 337-page whopper of a Bill, which has been broadly welcomed by all. I remind your Lordships of my declaration of interests, which includes the fact that I am an employee of an FCA-regulated business that is currently seeking to merge with another FCA-regulated business.

That takes me to Amendment 10. Within the Bill are the important amendments to Sections 1B and 1E of FSMA 2000. Amendment 10 seeks to add subsection (2)(ca) to the already strong provisions for consumer protection in Section 1C(2)(a) to (h). I agree with my noble friend the Minister that we should not push through Amendment 10.

I can tell my noble friend the Minister and fellow Peers that in the market the Bill is desperately sought. There is still huge frustration at the FCA about the time taken to progress and execute transactions. That has been a significant block on economic growth, which is one of the objectives that the FCA will now have. I ask the Minister to ensure that the FCA is aware of its new objectives and requirements and that this actually takes place in practice.

[Baroness Chapman of Darlington (Lab)]

My Lords, we on these Benches supported all three of the amendments that we are discussing today when we looked at them last time, including Amendment 7, which would expand the regulatory principle on net-zero emissions to include conservation and nature. We also voted for Amendment 36, imposing a duty on those conducting regulated activity to conduct due diligence with the aim of preventing illegal deforestation.

We have listened carefully to what the Minister has said and will be listening to what she says in response to this debate, particularly to the questions asked by the noble Baroness, Lady Boycott. However, I thank the Minister for her openness in engaging with these issues and for the amendments in lieu, which demonstrate an agreement with your Lordships that these are issues that the Government need to address urgently. They may not be doing so in a way that we would have preferred today, but it is right that we acknowledge the moves that the Government have made.

Amendment 10 in my name would require the FCA to take financial inclusion into account when advancing its consumer protection objective of securing an appropriate degree of protection for consumers. The Government disagree with that amendment, saying they consider that the FCA is already able to tackle issues of financial inclusion within its remit. We argue that the problem is that the Government have failed to address our key concern in tabling the amendment, which is about the poverty premium—that is, the extra costs that poorer people pay for essential services such as insurance, loans or credit cards.

We see this Bill as something of a missed opportunity to build a strong future for our financial services and rethink financial resilience, including how some of the wider well-being issues are tackled by the regulator in the future. Everybody should be able to access the financial services they need, regardless of their income or circumstances. Although we do not intend to push this to another vote today, I can assure noble Lords that we will be returning to this subject at every opportunity—especially if that opportunity arrives in the form of a Labour Government.

For now, I place on the record our sincere thanks, particularly to the noble Baronesses, Lady Hayman and Lady Boycott, who have been highly effective in raising nature and deforestation issues. I also thank my noble friends Lord Livermore and Lord Tunnicliffe for their work on this Bill. We are probably at the end of it now. I note what the noble Lord, Lord Leigh, said about the need to get this Bill through and on to the statute books for the benefit of this important sector.

[Baroness Penn (Con)]

My Lords, I am grateful to noble Lords for the debate today, and I would like to address some of the points raised.

On the addition of the obligations under the Environment Act to the principle on climate change, I intended in my opening speech to clarify some of the language in that amendment. I am very happy to emphasise again the Government’s intention that the legal effect of the new provisions will be the same as the original climate principle, with the addition of the targets under the Environment Act. The intention is that it will be at least as strong as the provisions in the Financial Services Act 2021. I explained in opening the reasons for amending the language. It is not about diluting the principles or commitments, but further clarifying them, given that these are new areas.

I accept the noble Baroness’s point that often, these issues can be two sides of the same coin. We had the debate on whether the issues were sufficiently covered by just mentioning climate. Adding the explicit reference to the Environment Act targets led to a desire to be even clearer about the effect of that principle, but it has not changed in the wording of our amendment.

On Lords Amendment 36, there were questions on the timing of the provisions under Schedule 17 to the Environment Act. I am afraid that, as hard as I have tried, I cannot provide a definitive date, but I reassure noble Lords that I have met the Minister leading on this at Defra. Work is under way to bring forward those regulations, and we are seeking to do it at the earliest opportunity.

The noble Baroness, Lady Boycott, and my noble friend Lord Randall of Uxbridge asked what commodities those provisions will cover, and the noble Baroness mentioned a consultation on two forest risk commodities. My understanding is that the consultation and impact assessment covered a variety of policy options across three different turnover thresholds and seven different commodities. While I cannot pre-judge the outcome of the regulations under Schedule 17, our approach to this review will mirror the approach taken forward under Schedule 17.

On the point about the outcomes of this review, I am sure that the noble Baroness will understand that I cannot prejudge that, but I can say that it is not intended to duplicate work already being done; it should build on it. I am happy to make sure that noble Lords and other parliamentarians are involved in the progress of that review as we take it forward, so that they can see that it is heading in the right direction.

I thank the noble Baroness, Lady Chapman of Darlington, for the constructive way she has approach the Bill in its latter stages. She raised the issue of the poverty premium that can be placed in financial services. We are progressing work in areas where the poverty premium can occur. For example, we are working with Fair4All Finance, the organisation set up to use funding from dormant assets for financial inclusion, to improve access to affordable and appropriate financial products, including a package of tailored support to scale affordable credit in order to help the sector develop a sustainable model for serving people in vulnerable circumstances. We also looked at issues in the insurance industry in a number of areas, in terms of outcomes and access. We will continue to look at the areas where the poverty premium occurs, the factors that are driving it and the right levers we should think about to address it. It is different for different sectors, services and products, but that work will continue, despite our not being able to accept the noble Baroness’s amendment.

I therefore ask noble Lords not to insist on Amendments 7, 10 and 36 and to agree with the Commons in their Amendments 7A, 7B, 7C and 36A in lieu.

Financial Services and Markets Bill

Baroness Chapman of Darlington Excerpts

3rd reading
Monday 19th June 2023 Lords Chamber

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

My Lords, this Bill helps to deliver the Government’s vision for an open, sustainable and technologically advanced financial services sector. I thank all noble Lords for their valuable scrutiny and input, which has led to some important enhancements to this Bill. I formally thank the Opposition Front Benches, particularly the noble Baroness, Lady Chapman of Darlington, and the noble Lords, Lord Livermore and Lord Tunnicliffe, for their positive engagement and overall support for the Bill and its important aims. I also thank the noble Baroness, Lady Kramer, from the Liberal Democrats, supported by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles, for their thorough scrutiny and constructive debate. Finally, I thank the noble Lord, Lord Fox, for bringing his considerable expertise to the scrutiny of this Bill.

The Bill delivers the outcomes of the future regulatory framework review, giving the regulators significant new rule-making responsibilities while balancing that additional responsibility with clear accountability, appropriate democratic input and transparent oversight. Thanks to the positive engagement of this House, we can now be more confident that we have got that balance right.

I also thank my noble friends Lord Forsyth of Drumlean, Lord Bridges of Headley, Lord Holmes of Richmond and Lady Noakes, in particular, for their constructive challenge of the Government’s approach to the important issues that the Bill deals with. I hope that the package of amendments brought forward by the Government on Report demonstrates the open and collaborative way in which we have engaged with the important matters raised in this House.

The level of scrutiny and debate on the Bill rightly demonstrates the vital importance of the financial services sector to the UK economy. Financial and related professional services employ more than 2.5 million people across regional hubs in all four nations of the UK, and create £1 in every £10 of the UK’s economic output. Building on the strengths of our financial services sector is fundamental to its continued growth and to the wider economy. I am therefore pleased to see the Bill progress towards becoming law. It will allow us to begin the process of revoking EU law and replacing it with an approach that is guided by what is best for the UK.

Before the Bill returns to the Commons, I extend my thanks to the significant number of Treasury officials, in the Bill team and beyond, for their work in preparing such a substantial Bill and for their support in engaging fully with your Lordships’ scrutiny. I also recognise the work of the Office of the Parliamentary Counsel in drafting the Bill, and of House staff.

While the Bill is the culmination of a large amount of work over a number of years, it is also the foundation of much work still to come, and I look forward to continuing to discuss these important issues with noble Lords in the future. I beg to move.

[Baroness Chapman of Darlington (Lab)]

My Lords, I thank the Minister for her kind words as she introduced this Third Reading. The Bill leaves the House in a much better condition than when it arrived. We have made changes to the Bill on the treatment of politically exposed people, financial inclusion and the FCA’s accountability to Parliament, and through measures that help to protect the environment. I thank all Members of the House who contributed to our consideration of the Bill, from both sides, and from the Liberal Democrats and Cross Benches, especially those from Peers for the Planet. I also thank the doorkeepers and House staff teams, and everyone who enables us to do our work.

I thank the Minister for her open and welcoming approach to our discussions. I particularly thank my noble friend Lord Livermore for doing more than his fair share of the work from Report onwards, and of course my noble friend Lord Tunnicliffe who led the Labour Party—he did not lead the Labour Party but led for the Labour Party; that was quite a thought experiment—throughout the long Committee stage. His advice and support have been invaluable. Lastly, I thank the outstanding Dan Stevens for his impeccable advice, preparedness and thoughtfulness.

We hope that the Government accept the Bill as amended and do not feel the need to bring it back to the House for further amendments.

[Baroness Kramer (LD)]

My Lords, I join in the thanks to the Minister, who has been very generous with her time, as has the Bill team, and who provided us with explanations and listened to our issues and concerns. I also give particular thanks to my noble friends Lord Sharkey and Lady Bowles on my Benches, who bring extraordinary expertise and analysis to all these issues. They covered for me while I was recovering from surgery, and I very much appreciate their willingness to pick up and carry that burden.

I join in the good words about the noble Lord, Lord Tunnicliffe. He has been an absolute stalwart on this entire portfolio. He is phenomenal in dealing with statutory instruments especially—an area that most of us avoid. I will miss the opportunity to be with him on these Benches, as it were, when these issues come forward again. He might have made a very good leader of the Labour Party, I should say. I also thank the noble Baroness, Lady Chapman, and the noble Lord, Lord Livermore, for the final stages and their close working. The Cross Benches have been quite exceptional on this Bill, as, frankly, have some on the Back Benches of the Conservative Party. It has been an excellent example of cross-party working in the interests of better governance.

A striking feature of the Bill has been that common concern, particularly focused on the issues of parliamentary scrutiny and the accountability of regulators to Parliament. There have been modest steps to improve the Bill on those issues, but there is a great deal more to be done. I remain concerned, as do my Benches, about the risk being injected back into the financial services sector, but again, that is business for another day. We hope that the Bill will go through unamended in the other House. The improvements that come particularly from Peers for the Planet and from those involved in financial inclusion have been important. Again, my thanks to the attendants and the others who have supported us so well throughout this entire process.

Financial Services and Markets Bill

Baroness Chapman of Darlington Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Naseby (Con)]

My Lords, the noble Lord, Lord Eatwell, mentioned the Crown dependencies. I want to ask my noble friend on the Front Bench about the position of the British Overseas Territories.

[Baroness Chapman of Darlington (Lab)]

My Lords, I accept that we are politically exposed people—of course we are—and we can be bribed, so it is right that there are rules around this. This topic has attracted a lot of interest throughout the passage of the Bill, along with a number of questions and debates. I completely understand why that is.

While the enhanced checks faced by politically exposed persons are often onerous, as we have heard—all power to the elbow of the noble Viscount, Lord Trenchard; well done to him for finding the names of two actual human beings to speak to at American Express, and I hope he gets his situation resolved—it is vital that this country maintains strong anti-money laundering regulations and acts in a manner consistent with international standards. Unfortunately, to an extent that involves us, but I think the Government’s amendments in this group do what is needed in making the distinction, as do many other jurisdictions, between domestic PEPs and those from other countries, which is consistent with the Financial Action Task Force guidelines.

We welcome the support for the amendments from the noble Lord, Lord Forsyth, and my noble friend Lady Hayter of Kentish Town, both of whom have raised this issue consistently for some time. Most of all, though, it is right that we thank the Minister for bringing the amendments forward. She has worked hard to try to resolve colleagues’ concerns on this issue, and we hope that those will be dealt with by the upcoming changes to the regulations and the accompanying guidance.

[Baroness Penn (Con)]

My Lords, I reiterate what the noble Baroness, Lady Chapman, has just said: our approach in this area has always been guided by ensuring that the rules in place in the UK maintain the international standards that are set in this area. That has been the guiding principle in looking at resolving this issue. Nevertheless, we felt that it was right that action be taken. Examples such as that from the noble Baroness, Lady Kramer, demonstrate clearly that the approach taken by institutions is not always proportionate, and we need to address that.

I have heard from noble Lords, including my noble friends Lord Forsyth and Lord Moylan, questions about the timescale for the two pieces of work that are committed to in the amendments. I understand that feeling, but we have engaged closely with the FCA on the review that it is committed to undertaking through the government amendment, and it is clear that if there is to be a thorough assessment of the treatment of domestic PEPs at a systemic level—we have already raised individual issues or individual institutions in response to previous debates—then it must be given adequate time to be conducted.

The 12-month timeframe will allow the review to benefit from fuller engagement with industry and with affected PEPs, and it will ensure that the FCA is able to develop a full understanding of the scale and extent of this issue. I think it gives the FCA time to address issues such as those raised by the noble Baroness, Lady Kramer. Included in that timeframe is the fact that, if it deems it necessary to update its guidance, it will produce the draft within that timeframe.

The Government have 12 months to amend the money laundering regulations. As I said, the distinction between domestic and foreign PEPs does not currently exist in law, and we want to make sure that we get the drafting right to ensure that it achieves the intended outcomes without unintended consequences. That will require us to consult with industry to ensure that the language in the amendment has the desired outcome of altering firms’ behaviour in how they treat low-risk domestic PEPs. These points relate to the questions posed by the noble Lord, Lord Sharkey, because this definition will come in part through the amendment of the regulations but in part from looking at the FCA’s guidance, and what needs to be set out more fully there when it has done its review.

Acknowledging the interest from parliamentarians—perhaps we should all have declared our interest as we stood up to speak, in respect of PEPs—we have committed to updates on progress both from the FCA and the Government in delivering on these amendments.

My noble friend Lord Moylan and the noble Earl, Lord Erroll, raised the interaction with tipping-off requirements and communication to customers. We have asked the FCA to consider this as part of its review. The noble Baroness, Lady Hayter, and others, mentioned the impact on family members. Again, we have asked the FCA to consider this in its review.

My noble friend Lord Moylan also asked if we need to wait for 12 months for action. The FCA remains committed to taking action where it identifies non-compliance with its current guidance on PEPs and will do so throughout the course of the review. I encourage noble Lords to use the contacts provided in my letter on this issue in November, if they encounter difficulties while the Government amendments are being implemented. I am sure that those in the FCA responsible for this area will look at this debate carefully.

The noble Lord, Lord Eatwell, raised a question on Crown dependencies, and my noble friend Lord Naseby asked about overseas territories. I will write to noble Lords on that. If it is right or appropriate that this should extend that far, there is nothing in the amendments to prevent the Government doing that, but I would want to double-check the right interaction and the right locus for addressing those concerns. With that, I beg to move.

Amendment 96 agreed.

Amendment 97

--- Later in debate ---

Moved by

[Baroness Chapman of Darlington]

104: After Clause 71, insert the following new Clause—
“Defined contribution and defined benefit pension funds investment review
(1) The Treasury must publish a review of how to incentivise defined contribution (DC) and defined benefit (DB) pension funds to invest in high-growth firms and a diverse range of long-term assets in the United Kingdom, which must include green infrastructure.(2) The review must consider how best to do this while protecting the safeness and soundness of pension funds.(3) In carrying out the review, the Treasury must consult—(a) the Department for Work and Pensions,(b) the Department for Business and Trade,(c) the Pensions Regulator,(d) the FCA,(e) the PRA,(f) the Pension Protection Fund,(g) pension trustees, and(h) relevant financial services stakeholders.(4) The review must consider the merits of—(a) amending the definition of “specified scheme” within the meaning of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (S.I. 1996/1715) so as to increase the threshold of such DC schemes in respect of which trustees and managers are required to produce a value for members assessment under regulation 25 of those Regulations;(b) adjusting the terms of reference for DB Local Government Pension Schemes (LGPS) funds to consider regional development as an investment factor;(c) establishing frameworks to enable DB pension funds to invest in firms and infrastructure alongside the British Business Bank.(5) The Treasury must prepare a report on the outcome of the review, and lay it before Parliament within one year of the passing of this Act.”Member’s explanatory statement
This amendment would compel the Treasury to publish a review within a year of Royal Assent on how to incentivise pension fund schemes to invest in high-growth firms and green infrastructure. The review would have to consider requiring DC schemes to assess the merits of: consolidation, establishing frameworks for British Business Bank investments (so that DB pension schemes will be able to invest alongside them), and adjusting the terms of reference for Local Government Pension Schemes (so they consider regional development as an investment factor).

[Baroness Chapman of Darlington (Lab)]

My Lords, we are pleased to bring back Amendment 104. I am grateful to the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for signing the amendment.

Since Committee, and following the suggestion from the noble Lady Bowles, we have incorporated an additional consultee in the form of the Pension Protection Fund. If we are looking at different and better ways to utilise pension funds, it is only right that that body be formally involved in the process. It is important to note that the amendment would not directly lead to changes in how defined contribution and defined benefit pension funds are invested; it merely seeks consideration via a formal review of a number of potential ways forward.

I draw colleagues’ attention to subsection (2) of the proposed new clause in the amendment, which puts

“the safeness and soundness of pension funds”

front and centre. While no investment fund is risk-free, this is about identifying how funds could be used to support high-growth firms and long-term assets, including green infrastructure.

In 2019, the British Business Bank and Oliver Wyman published research which found that the UK’s defined contribution firms are not investing in fast-growing and innovating companies. It is a problem because the UK is home to incredible tech start-ups and life science companies. They are Great British success stories, but their growth potential is sometimes limited by a lack of access to finance. The research found that retirement savings could be increased by a significant amount with just a modest investment in these firms. For example, a 22 year-old whose defined contribution scheme made 5% of investments in the UK’s fastest-growing companies could see an increase in their retirement pot of 7% to 12%.

Having amended the Bill to include a nature target, we must also consider how pension funds can do their bit to help the environment. This review would look at investments to the types of green infrastructure which will fuel our future economic growth and help deliver the transition to a net-zero economy. The Government recently included nature-based solutions as part of the definition of infrastructure in the UK Infrastructure Bank Act. If investment in nature is a suitable purpose for a Government-backed investment bank, we should harness the power of pension funds as well. This review would be timely, with the recent collapse of Silicon Valley Bank and its UK subsidiary and the demise of Credit Suisse sparking panic in the financial markets and hitting the value of pension funds.

The world is changing. More people shop online and work from home, meaning that investment in things like shopping centres and office blocks no longer produces the returns it did in the past. If done properly, small changes to how pensions are invested could have a significant impact on UK economic growth and, more importantly, a significant impact for the scheme members themselves. I beg to move.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, the Government welcome the further discussions that this debate has given us the opportunity to have on the issue of unlocking pensions capital for long-term, productive investment where it is in the best interests of pension scheme members. Indeed, as I set out in Committee, the Government have a wide range of work under way to deliver the objectives set out by this review. While I was a little disappointed not to hear those initiatives referenced in this debate—apart from, perhaps, by my noble friend Lady Altmann—I will give it another go and set out for the House the work that is already under way in this area.

As previously set out, high-growth sectors developing cutting-edge technologies need access to finance to start, scale and stay in the UK. The Government are clear that unlocking pension fund investment into the UK’s most innovative firms will help develop the next generation of globally competitive companies in the UK.

The Chancellor set out a number of initial measures in the Budget to signal a clear ambition in this area. These included: increasing support for the UK’s most innovative companies by extending the British Patient Capital programme by a further 10 years until 2033-34 and increasing its focus on R&D-intensive industries, providing at least £3 billion in investment in the UK’s key high-growth sectors, including life sciences, green industries and deep tech; spurring the creation of new vehicles for investment into science and tech companies, tailored to the needs of UK defined contribution pension schemes, by inviting industry to provide feedback on the design of a new long-term investment for technology and science initiative—noble Lords may have seen that the Government launched the LIFTS call for evidence on 26 May; and leading by example by pursuing accelerated transfer of the £364 billion Local Government Pension Scheme assets into pools to support increased investment in innovative companies and other productive assets. The Government will come forward shortly with a consultation on this issue that will challenge the Local Government Pension Scheme in England and Wales to move further and faster on consolidating assets.

At Budget, the Chancellor committed the Government to undertaking further work with industry and regulators to bring forward an ambitious package of measures in the autumn. I reassure the noble Baroness opposite that this package aims to incentivise pension funds to invest in high-growth firms, and the Government will, of course, seek to ensure that the safety and soundness of pension funds are protected in taking this work forward, as in proposed new subsection (2). Savers’ interests will be central to any future government measures, as they have been to past ones. The Government want to see higher returns for pension holders in the context of strong regulatory safeguards.

In addition, the Government are already working with a wide range of interested stakeholders, including the DWP, the DBT, the Pensions Regulator, the FCA, the PRA and the Pension Protection Fund, as well as pension trustees and relevant financial services stake- holders. Proposed new subsection (3) in the amendment seeks to set out this list in legislation. I reassure the House that this is not necessary as the Treasury is actively engaging with them already, as appropriate. The Government would also be happy to engage with other interested stakeholders, as raised by my noble friend Lord Naseby and the noble Lord, Lord Davies of Brixton.

I note the specific areas of review outlined in subsection (4) of the proposed new clause, and I reassure noble Lords that the Government are considering all these issues as part of their work. In particular, proposed new subsection (4)(a) references the existing value-for-money framework. As I set out in Grand Committee, one area of focus for the Government’s work in this area is consolidation. To accelerate this, the Government have been working with the Financial Conduct Authority and the Pensions Regulator on a proposed new value-for-money framework setting required metrics and standards in key areas such as investment performance, costs and charges, and the quality of service that schemes must meet.

As part of this new framework, if these metrics and standards were not met, the Department for Work and Pensions has proposed giving the Pensions Regulator powers to take direct action to wind up consistently underperforming schemes. A consultation took place earlier this year, and the Government plan to set out next steps before the summer.

Turning to proposed new subsection (4)(b), I have already set out the forthcoming consultation to support increased investment in innovative companies and other productive assets by the Local Government Pension Scheme. Noble Lords may also be aware that the levelling up White Paper in 2022 included a commitment to invest 5% in levelling up. This consultation will go into more detail on how that will be implemented.

I turn to proposed new subsection (4)(c). The Government are committed to delivering high-quality infrastructure to boost growth across the country. We heard references in the debate to the UK Infrastructure Bank, which we will work with. The Treasury has provided it with £22 billion of capital. Since its establishment in 2021, it has done 15 deals, invested £1.4 billion and unlocked more than £6 billion in private capital. Furthermore, we have published our green finance strategy and Powering Up Britain, setting out the mechanisms by which the Government are mobilising private investment in the UK green economy and green infrastructure.

The Government wholeheartedly share the ambition of the amendment to see more pension schemes investing effectively in the UK’s high-growth companies for the benefit of the economy and pension savers. We agree with noble Lords on the importance of this issue. Where we disagree with noble Lords is on how crucial this amendment is to delivering it. Indeed, the Government are currently developing policies to meet these objectives, so legislating a review would pre-empt the outcome and might delay the speed at which the Government can make the changes necessary to incentivise investment in high-growth companies. Therefore, given all the work under way, I hope the noble Baroness feels able to withdraw her amendment.

[Baroness Chapman of Darlington (Lab)]

My Lords, I am grateful to everyone who has taken part in this debate. The Minister’s response was not awful. It was encouraging to hear some of the things that she had to say, and we recognise the work the Government are leading on this issue. However, the benefit of taking the approach outlined in the amendment, notwithstanding some of the comments that have been made about it, is that it would give focus and prominence to this issue and would bring together some of the threads that the Minister referred to. It is an important piece of work that, given everything the Minister said, ought to be not too onerous and is something that the Government ought to be a little more enthusiastic about starting—because it needs to start. This is something we would like to see proceed quickly. I think there has been sufficient support for the amendment from all sides of the House, and I wish to test the opinion of the House.

--- Later in debate ---

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly, having spoken on this issue both in Committee and back in the last financial services Bill, just to put a human face on this. In doing that, I remind the Minister of the representatives of the mortgage prisoners whom we heard from at the meeting in the Treasury a couple of months ago.

The face I have chosen to put on is that of 63 year- old Jacqueline Burns, who spoke to the I newspaper in April about what her life is like now that she is a mortgage prisoner. She said:

“I am cutting back on food because I can’t afford to eat … I am so stressed out right now, I am at the end of my tether”.


The story, as Ms Burns told the I, was that she bought her home in Cambridgeshire for £69,000 in 2006 from SPML, which was an arm of Lehman Brothers. Ms Burns remembers that the broker “was really nice” and “pushed me … towards SPML”. We can all probably imagine why that was. The situation in which Ms Burns now finds herself is that she is on the standard variable rate and owes £109,000; remember that she paid £69,000 for the house. Because of the rise in interest rates, her mortgage payments have gone up from £333 a month to nearly £700 a month. She simply cannot pay.

She is in this situation because of a failure of government regulation, and because of arrangements made by the Government that made a significant profit. There is a huge moral responsibility. If we think about the costs that must be being imposed on the NHS by people who eventually become homeless and need council homes et cetera, it is clear that the Government should look not just at their moral responsibility; they also need to ensure that people get a fair deal and do not end up—even if the Government are not thinking of anything else—costing the taxpayer a great deal.

[Baroness Chapman of Darlington (Lab)]

My Lords, we are grateful to the noble Lord, Lord Sharkey, for bringing back this amendment and for his persistence on this issue over many years. We are also grateful for the work of the APPG, particularly to Rachel Neale, who herself is a mortgage prisoner and has become a champion for those people who have been affected by this problem. I also want to mention my colleague in the Commons, Seema Malhotra, who is doing a lot of work on this issue.

We are hugely sympathetic towards mortgage prisoners, who have endured difficulties over so many years now, and wish that the Government had acted earlier to ease the burden on them. We were pleased to back this amendment during the passage of the Financial Services Bill in early 2021, when it passed by 273 votes to 235. However, we are mindful that at that point the House of Commons rejected that amendment, and did so at a time when a much larger proportion of the population was experiencing issues with mortgage affordability. In recent weeks, however, we have seen hundreds of mortgage products pulled and rates hiked on those that remain available. A number of major banks have even temporarily withdrawn offers for new customers, putting the brakes on the aspirations of many first-time buyers.

Of course, mortgage prisoners are in a different position, in that they have been facing problems for many years and are just not able to simply switch products in the way that others can. As the Minister will no doubt outline, while this amendment did not make it into the Financial Services Act 2021, it did prompt some new and welcome actions from the Treasury, regulators and banks. New advice was available and a number of lenders relaxed their criteria in certain cases. We know that the elected House has already rejected this proposal and, realistically, it is unlikely to reconsider in the current context, but more does need to be done. Can the Minister let us know whether the Government intend to respond to the recommendations that were made by the LSE in its report? If they are, when will that response be forthcoming? The Government urgently need to get a grip on the issues facing the mortgage market generally and, once that situation has calmed, we hope they will be able to do what they can to ease the difficulties faced by mortgage prisoners.

[Baroness Penn (Con)]

My Lords, I thank all noble Lords who have spoken in this debate, and in particular the noble Lord, Lord Sharkey, for tabling this amendment. I start by emphasising that the Government take this issue extremely seriously. We have a great deal of sympathy for affected mortgage borrowers and understand the stress they may be facing as a result of being unable to switch their mortgage. That is precisely why we, and the FCA, alongside the industry, have shown that we are willing to act, and have carried out so much work and analysis in this area, partly in response to prior interest from this House, as alluded to by the noble Baroness, Lady Chapman. This has included regulatory changes to enable customers who otherwise may have been unable to switch to access new products.

The Government remain committed to this issue and welcome the further input of stakeholders. For this reason, during Committee, the Government confirmed that they were carefully considering the proposals put forward in the latest report from the London School of Economics. Since then, as noted in the debate, I have met with the noble Lord and further members of the APPG and representatives of the Mortgage Prisoners Action Group to discuss the findings of the report and the issue of mortgage prisoners more widely.

The Economic Secretary to the Treasury has also written to the noble Lord, including to provide further clarity on the proceeds from the sale of UKAR assets. The LSE report recommends free comprehensive financial advice for all. That is why the Government have continued to maintain record levels of debt advice funding for the Money and Pensions Service, bringing its budget for free-to-client debt advice in England to £92.7 million this financial year.

The other proposals put forward by the London School of Economics are significant in scale and ambition. While the Treasury has been engaging with key stakeholders, including the LSE academics behind the report, for some time, including since Committee, we have concerns that these proposals may not be effective in addressing some of the major challenges that prevent mortgage prisoners being able to switch to an active lender. For example, the proposals would not assist those with an interest-only mortgage ultimately to pay off their balance at the end of their mortgage term.

We continue to examine the proposals against the criteria put forward originally by then Economic Secretary to the Treasury, John Glen, to establish whether there are further areas we can consider. I remind the House that those criteria are that any proposals must deliver value for money, be a fair use of taxpayer money and address any risk of moral hazard. This does not change the Government’s long-standing commitment to continue to examine this issue and what options there may be. However, it is important that we do not create false hope and that any further proposals deliver real benefit and are effective in enabling those affected to move to a new deal with an active lender, should they wish to.

I will not repeat the arguments against an SVR cap, as we discussed them at length previously in this House. An SVR cap would create an arbitrary division between different sets of consumers, and it would also have significant implications for the wider mortgage market that cannot be ignored. It is therefore not an appropriate solution, and I must be clear that there is no prospect of the Government changing this view in the near term. In the light of this, I ask the noble Lord to withdraw his amendment.

Financial Services and Markets Bill

Baroness Chapman of Darlington Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will speak very briefly. It will be evident to the House by now that, as was true in Committee, essentially every speaker takes one position, other than the Government. Maybe one or two support the Government’s position, but overwhelmingly there has been a common feeling across political ideologies and views. People from different perspectives, including those who are independent in this House, all share the same set of concerns.

We all particularly welcomed the amendment from the noble Lord, Lord Bridges, because it was a piece of completely new thinking—a way to break the conundrum very effectively by making sure that an office of financial regulatory accountability would change the game by providing Parliament and anyone else responsible for scrutiny and accountability with the analysis, information and data they need to do that effectively. I very much hope that the Government will take it away and consider it.

I join all other noble Lords in finding not only the amendments from the noble Lord, Lord Bridges, but those from the noble Lord, Lord Eatwell, and the others in this group extremely constructive. I vary slightly from the noble Lord, Lord Forsyth; I understand that the Government have moved a little in the amendments they have brought forward in this group but, my goodness, it is a baby step. This issue is far too big to be dealt with only by baby steps.

[Baroness Chapman of Darlington (Lab)]

My Lords, I start by acknowledging the government amendments in this group, which make a number of changes that we think are sensible to ensure that the cost/benefit analysis panels have representatives from industry, to allow the Treasury to direct statutory panels to make annual reports and to make it the Treasury’s job to appoint the complaints commissioner. These all represent steps in the right direction—even if, as the noble Baroness, Lady Kramer, has just said, they are not necessarily the giant leaps that some would hope to see.

We tabled Amendment 39 in this group, which would require the FCA consumer panel to produce annual reports on the regulator’s fulfilment of its statutory consumer protection duties, and my noble friend Lady Hayter explained why we were backing this so firmly and spoke about the work with the British Steel pensioners, led by Nick Smith. She saved my blushes because Nick is my husband. I know that is not a declarable interest, but in the interests of transparency, I should probably let people know. We are pleased to see Amendment 50 and will not be pressing our Amendment 39 to a vote because of it. We believe that the government amendments go a significant way to addressing our concerns, so will not press our amendment, but that does not mean that we are convinced that consumer issues are by any means resolved, and we may have to revisit this topic in future.

The noble Baroness, Lady Bowles, helpfully introduced the amendments tabled by the noble Lord, Lord Bridges, and presented his proposal for an independent office for financial regulatory accountability. This is an interesting proposal but, when considering the Government’s numerous concessions on scrutiny and accountability, at this point we would not be minded to support it at a Division, because the creation of such a body needs significant work and amounts to a fundamental change in how we regulate the sector. We do not want to pre-empt what the Minister has to say, but it was not a core focus of the future regulatory framework review, the outcomes of which the Bill seeks to implement.

The amendments from the noble Lord, Lord Bridges, raise important questions about the capacity of parliamentary committees to scrutinise the regulators’ output, and this is something we have consistently raised with the Minister during our private discussions. When I say “we”, that is very much the royal “we”—I obviously mean my noble friend Lord Tunnicliffe. I am sure that he is grateful to the Minister for the time she has given to him, to my noble friend Lord Livermore and to me in recent weeks. While we understand that it is for Parliament to make its own arrangements, both now and in future, we hope that the Government will acknowledge the substantial workload that committees will have and remain open-minded about whether and how the regulators can better facilitate Parliament’s work.

I am especially grateful to my noble friend Lord Eatwell for his amendments to the OFRA texts, but I suppose this highlights in part the difficulties with supporting the detail of the proposal at a Division at this point. We see that many people agree with the principle, but there is probably a great deal more work to be done on the detail.

[Baroness Penn (Con)]

My Lords, let me respond briefly to the points raised in the debate. I take first the amendments from my noble friend Lord Bridges, well introduced by the noble Baroness, Lady Bowles: Amendments 64 to 66 and 68 to 71, which would establish an office for financial regulatory accountability. As I said in my opening remarks, the Government agree that the provision of accurate and impartial information is extremely important for assisting Parliament in its important scrutiny role—and, indeed, others.

However, as the noble Baroness opposite acknowledged, creating a new body raises questions about how it would interact with the existing accountability structures and the balance of responsibilities between government, Parliament and independent regulators. As I noted in Grand Committee, the provisions for the establishment of the Office for Budget Responsibility referred to in this debate, on which OFRA is, at least in part, modelled, were brought forward in a stand-alone Bill after public consultation, where there was sufficient time to consider carefully its role and remit in advance. The Government therefore do not think that establishing such a body through amendment to this Bill is the right way forward at this time. We acknowledge the strength of feeling and degree of consensus from different parts of the House on this idea, and noble Lords can rest assured that my noble friend Lord Bridges has made it very clear to me that this is not the last that the Government will be hearing from him on this subject.

I turn to the series of amendments from my noble friend Lord Holmes. Amendments 42 and 45 seek to make specific provision for the regulators’ new CBA panels to be provided with the information required to perform their functions. The Government support the intention of these amendments but consider that the requirement in legislation to establish and maintain the panel already requires the regulator to ensure that the panel has the appropriate information and data to perform its functions.

My noble friend Lord Holmes asked how we could ensure high-quality cost-benefit analysis work. As he and the noble Lord, Lord Eatwell, noted, key to this is the composition of the panels. Panels with members who have diverse backgrounds, expertise and thought will be better placed to ensure that the FCA, the PRA and the PSR receive the most comprehensive appraisal of their policy. That is part of the reason why we have Clause 43, which requires the FCA and the PRA to set out a clear and transparent process for appointing members.

The FCA has also recognised the importance of improving diversity in the membership of its statutory panels and is undertaking a review to identify ways in which it can boost diversity so that the composition of panels appropriately reflects the range of practitioners and stakeholders in financial services. The Government welcome the work that is being done to move recruitment to the panels in this direction.

Amendments 41 and 45 seek to require the new CBA panels to make public their meeting materials and recommendations. The Government are not able to support this as it could undermine the confidentiality of the panels’ contributions, which is crucial to their role as a critical friend to the regulators. The panels and the regulator will already be able to make public their deliberations and materials when they consider it appropriate, without undermining that confidentiality. Through an amendment in this group, the Government are taking a power to oblige the panels to publish their annual reports on their work and lay them before Parliament; we think that this will deliver sufficiently.

If a panel feels that its work or conclusions are being ignored by the regulator, or where there are issues on which the regulator and the panel differ, the Government expect that these will generally be resolved in the course of regular engagement between the regulator and the panel. However, as I have said, panels are able to express their views publicly, including through their annual reports or by publishing responses to consultations. For example, as it currently operates, the FCA’s consumer panel regularly publishes its responses to the regulator’s consultations.

I turn to Amendment 39 in the name of the noble Baroness, Lady Chapman. I am glad that she and the noble Baroness, Lady Hayter, feel that government Amendment 50 seeks the same outcome and should help to deliver that, although I note that, as the noble Baroness said, this is not the last word on consumer issues. However, at least when it comes to this particular focus, we have, I hope, delivered on that.

I know that not all noble Lords are satisfied with all of what the Government have put forward, but this is a step forward in the right direction. I expect to hear more from noble Lords in future on how the new system that we are establishing through this Bill is operating. For now, I commend the amendment.

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[Baroness Kramer (LD)]

My Lords, I will be exceedingly brief because we took, as we should have, a lot of time on this issue during Committee. We have also discussed financial exclusion already. Once again, I am channelling my noble friend Lady Tyler of Enfield, who wishes that she were not ill and could be here today. I will focus my remarks on Amendment 80 in the name of my noble friend Lady Tyler, and which is signed by me.

The numbers that have been provided to any parliamentarian of interest by LINK on the rate of bank branch closures are frankly scary. The number of bank branches is now below 5,000 across the country and is expected to fall to around 1,000 in the next few years. Amendment 80 gives the FCA power, where certain conditions are met, to direct the establishment of a banking hub. Banking hubs are the solution proposed by the banking industry, in association with LINK, to provide a physical banking facility which is essentially a collective of the relevant banks and the Post Office, in locations where bank branches have disappeared. I am very sympathetic to the idea that the noble Lord, Lord Holmes, proposed, where a branch in name but not in practice because its services are so limited would qualify as well.

LINK has recommended 100 of these shared hubs, but so far only six have opened. Quite often, that is because of the resistance of the banking institutions, which, in effect under the current scheme, have a veto on whether these hubs happen. The gap is yawning and the FCA needs to step in. Because this was raised in Committee, I say that anyone who thinks that online banking is a substitute for face-to-face banking can live only a very vanilla life. I found out the hard way that the systems online and the telephone constantly get it wrong. Often, the only way to resolve a complex issue is face to face. As others have said, including the noble Lord, Lord Holmes, the 5 million people who find digital difficult are even more disadvantaged.

I seriously hope that the Government will accept Amendment 80 because it is the missing mechanism to deliver the project—the Government themselves back the project—of banking hubs and shared banking. To get it delivered we need Amendment 80 to put powers into the hands of the FCA to make sure that it happens. This is a project, I repeat, that the Government themselves have sponsored, in a sense. We need the enablement and delivery to take place rapidly.

[Baroness Chapman of Darlington (Lab)]

My Lords, I congratulate the noble Lord, Lord Holmes, on tabling his amendments and his tenacity in raising these issues on a very regular basis. He is absolutely right to do so. We were pleased to table Amendment 81 in Committee, and we re-signed it when retabled by the noble Baroness, Lady Altmann, on Report.

We strongly welcome the Government finally bringing forward meaningful protections for cash access. Just in case the noble Lord, Lord Tunnicliffe, starts to doubt his powers of persuasion, we wonder if the Minister could explain why the noble Lord did not seem to have the magic touch when it came to getting him to accept it. The position seems to have changed somewhat now.

It is good that organisations such as Which? have welcomed this concession, noting that cash continues to be hugely important for many households, particularly those which need to keep track of their spending during the cost of living crisis. People should not have to pay fees to access their own money. While we welcomed the Government’s previous move to offer cashback at some retailers without a purchase, cashback services are not available anywhere near widely enough for that to be a substitute.

We welcome the progress made, but there is obviously a lot more to be done. An increasing number of people are finding themselves with little or no access to face-to-face banking services. While the banking hub initiative has promise, its coverage is too limited for it to be anything like a viable solution at this point. We welcome the fact that the noble Lord, Lord Holmes, has tabled several amendments on this. We hope that the Minister is able to go beyond previous assurances, and we look forward to her reply.

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[Baroness Kramer (LD)]

From these Benches, the amendment makes sense to us.

[Baroness Chapman of Darlington (Lab)]

Happily, it makes sense to us as well. Without wishing to delay anybody—remembering the exchanges we had before this debate started today—I wonder whether the Minister could indicate the level of fees. He said that consumers would be excluded, which is very important. Are the Government confident that this will not in any way suppress the use of this service? Do they have anything in mind to improve awareness of the service among consumers?

[Lord Harlech (Con)]

My Lords, I am grateful for the contributions in this short debate and thank both noble Baronesses for them.

On case fees, the amendment follows the existing approach under FSMA to allow the FOS to charge fees to respondents. Under this approach, the Government set out through legislation who the FOS is able to charge fees to and it will be for the FOS to set the detail of those case fee rules. This may include when firms should be charged; for example, from the first case or after a certain number of cases. Similarly, the amendment will not prescribe the specific approach the FOS will have to take in charging CMCs—it will be for the FOS to look at those fees. The FOS highlighted concerns from industry about this issue in its feedback statement following its recent consultation on its funding framework, and it acknowledged examples of poor behaviour by CMCs.

The Government agree that there are wider implications and it is critical that the bodies in the financial services regulatory framework, including the FCA and the FOS, co-operate effectively. That is why Clause 38 introduces a statutory duty for the FCA, the FOS and the Financial Services Compensation Scheme to co-operate on issues that have significant implications for each other or for the wider financial services market. Clause 38 also ensures that the FCA, the FOS and the FSCS put appropriate arrangements in place for stakeholders to provide representations on their compliance with this new duty to co-operate on matters with wider implications. These organisations already co-operate on a voluntary basis through the existing wider implications framework. Clause 38 will enhance that co-operation and ensure that these arrangements endure over time while retaining the operational independence of the bodies involved.

As I have set out, the Government are clear that all consumers should be able to access the FOS free of charge, without the need of any CMC support. Amendment 90 will enable this.

Financial Services and Markets Bill

Baroness Chapman of Darlington Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, my Amendment 14 proposes a new clause to the objectives, adding the principle of protecting the mental health of consumers. I set this out at some length in Committee, and I think it is worth repeating the point. I should perhaps say at the beginning that I support the other two amendments, although I prefer the one from my Front Bench. I would like to see an explicit statement that the concept of financial inclusion extends to people who have problems dealing with financial services because of problems with their mental health.

Financial services have to understand and recognise the nature and scale of the mental health problems faced by some people. They need to be placed under an explicit duty of care to their customers who suffer from these problems, and they should be required to take explicit additional steps to minimise the potential difficulties faced by those who have or are at risk of having mental health problems associated with their finances.

I am sure that all noble Lords accept the principle that financial regulation should pay regard to the problems faced by people who have problems with mental health. It goes almost without saying. The issue is not about the principle but about whether it should be referred to explicitly in this bit of the legislation. I think that it should, but I am willing to take small mercies if the Minister can make clear the explicit and implicit responsibilities on the regulators to undertake to provide this sort of support and explanation for people who have mental health problems.

The experience works both ways: financial problems lead to mental health problems, and people with mental health problems have difficulty in handling their finances. That is an established fact. I ask for general support for the principle and an indication that, one way or another, the legislation will provide these people with the support they require.

[Baroness Chapman of Darlington (Lab)]

My Lords, I thought it might be useful to speak at this point to introduce Amendment 18, the amendment in my name in this group. I have taken part in many discussions in this House on financial inclusion. It is to this House’s credit that such a keen interest is taken by Members on all sides on this topic. Financial exclusion is a priority concern for the Labour Party. It is often caused by the way that financial products are designed and marketed. Of course, poverty and the cost of living crisis plays a huge part in this: they mean that the poorest often pay more in fees for products, but there are even things like mobile phones not being available on a contract unless you have a bank account. We know that all these issues can make life more expensive for people who can least afford it.

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Moved by

[Baroness Chapman of Darlington]

18: After Clause 26, insert the following new Clause—
“FCA to have regard to financial inclusion within consumer protection objective
(1) FSMA 2000 is amended as follows.(2) In section 1C (the consumer protection objective), after subsection (2)(c) insert—“(ca) financial inclusion;”.”

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[Baroness Chapman of Darlington (Lab)]

My Lords, we are very disappointed with the Government’s response on this matter so far. They are wilfully not engaging with this topic in the way that we would like. Financial inclusion is relevant to the regulation of financial services. How products are designed, marketed and administered and how advice is provided are all of concern to the FCA and directly important to financial inclusion. There have been piecemeal interventions, which the Government say are welcome, but we would like to see more at this stage. I wish to test the will of the House.