UK-US Trade and Tariffs

Baroness Gustafsson Excerpts

Thursday 3rd April 2025 Lords Chamber

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, with the leave of the House, I shall repeat a Statement made earlier in the other place by my right honourable friend the Secretary of State for Business and Trade. The Statement is as follows:

“The UK has a strong and balanced trading relationship with the US worth £315 billion, which supports 2.5 million jobs across both countries. This is second only to the EU, where our trading relationship is worth £791 billion. Yesterday evening, the United States announced a 10% reciprocal tariff on UK exports, and it has today imposed a 25% global tariff on cars. That follows the application of tariffs of 25% on US imports of steel, aluminium and derivative products announced on 12 March.

No country was able to secure an exemption from those announcements, but the UK did receive the lowest reciprocal tariff rate globally. Although that vindicates the pragmatic approach that the Government have taken, we know that while these tariffs are still being levied, the job is far from over for us. We are, of course, disappointed by the increase in tariffs on the UK and on other countries around the world. The impact will be felt among all trading nations. However, I would like to update the House on how the UK can navigate these turbulent times, acting in our national interest and for the benefit of all our industries.

I would also like to take this opportunity to thank my American counterparts, Secretary of Commerce Howard Lutnick, US Trade Representative Jamieson Greer and Special Envoy Mark Burnett for their engagement over the past few months. While any imposition of tariffs is deeply regrettable, from the beginning they promised to make themselves available and they have been true to their word. I look forward to our continued engagement over the days ahead.

As Members will know, since the new US Administration took office, my colleagues and I have been engaged in intensive discussions on an economic deal between the US and the UK, one that would not just avoid the imposition of significant tariffs but deepen our economic relationship. On everything from defence, economic security, financial services, machinery, tech and regulation, there are clear synergies between the US and UK markets. That is reflected in the fair and balanced trading relationship that already exists between our two countries.

I can confirm to the House that those talks are ongoing and will remain so. It is the Government’s view that a deal is not just possible but favourable to both countries, and that this course of action serves Britain’s interests as an open-facing trading nation. I have been in contact with many businesses, across a broad range of sectors, including those most affected, who have very much welcomed this approach. It is clear to me that industry itself wants to grasp the opportunity that a deal can offer and welcomes the Government’s cool-headed approach.

In increasingly insecure times, I have heard some Members cling to the security of simple answers and loud voices. I understand the compulsion, but I caution Members of this House to keep calm and remain clear-eyed on what is in our national interest, not simply to proclaim that we follow the actions of other countries. The British people rightly expect the Government to keep our country secure at home and strong abroad. An unnecessary, escalating trade war would serve neither purpose.

True strength comes in making the right choices at the right time. Thanks to the actions of our Prime Minister, who has restored Britain’s place on the world stage, the UK is in a unique position to do a deal where we can, and to respond when we must. It remains our belief that the best route to economic stability for working people is a negotiated deal with the US that builds on our shared strengths. However, we do reserve the right to take any action that we deem necessary if a deal is not secured.

To enable the UK to have every option open to us in the future, I am today launching a request for input on the implications for British businesses of possible retaliatory action. This is a formal step, and it is necessary for us to keep all options on the table. We will seek the views of UK stakeholders over four weeks, until 1 May 2025, on products that could potentially be included in any UK tariff response. This exercise will also give businesses the chance to have their say and influence the design of any possible UK response. If we are in a position to agree an economic deal with the US that lifts the tariffs that have been placed on our industries, this request for input will be paused and any measures flowing from it will be lifted. Further information on the request for input will be published on great.gov.uk later today, alongside an indicative list of potential products that the Government consider most appropriate for inclusion.

I know that this will be an anxious time for all businesses, not just those with direct trade links to America. Let me say very clearly that we stand ready to support businesses through this. That starts by making sure they have reliable information; any businesses that are concerned about what these changes mean for them can find clear guidance and support on great.gov.uk, where there is now a bespoke web page.

This Government were elected to bring security back to working people’s lives. At a time of volatility, businesses and workers alike are looking to this Government to keep our heads, act in the national interest and navigate Britain through this period. While some may urge escalation, I simply will not play politics with people’s jobs. This Government will strive for a deal that supports our industries and the well-paid jobs that come with them, while preparing our trade defences and keeping all options on the table. This is the right approach to defend the UK’s domestic industries from the direct and indirect impacts of US tariffs in a way that is both measured and proportionate, while respecting the rules-based international trading system.

As the world continues to change around us, British workers and businesses can be assured of one constant: this is a Government who will not be set off course in choppy waters. The final part of our approach will be to turbo-boost the work this Government are doing to make our economy stronger and more secure, including our new industrial strategy. We will strike trade deals with our partners and work closely with our allies for our shared prosperity. We have a clear destination to deliver economic security for working people. We are progressing a deal that can do that, laying the foundations to move quickly should it not, and ensuring that British businesses have a clear voice in what happens next. I commend this Statement to the House”.

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[Lord Purvis of Tweed (LD)]

My Lords, this is my first opportunity to ask the Minister questions. I give her my belated welcome to the portfolio. She is in a new world when it comes to the unjustified and aggressive trade war that the United States has been launching. My party was forged out of a campaign for free trade. We broke with others when they introduced protectionism. Our principled position on Brexit was based on a rejection of new barriers, new costs and more bureaucracy for businesses and uncertainty for consumers. These same principles apply to our revulsion at the unwarranted and unjustified applications of the new tariffs.

They are, of course, on top of the pre-announced automotive, steel and aluminium tariffs. We should also recall the existing tariffs on UK exports to the United States. It means that, to take one example that is very close to my heart as I represented a textile-producing constituency in Scotland, the cashmere industry, the highest-quality sustainable product in the world now has a 35% tax tariff on exporting to the United States. What support are the Government intending to provide to some of our key exporting sectors now, rather than waiting until after a consultation? These Benches believe that we should have been consulting in advance of the announcement, as Canada did, not after it, so that we had a prepared proposal for a clear statement of intent, rather than a hope for the best in any agreement.

Part of the Statement today that surprised and disappointed me was the news that only if we have not secured an economic agreement with the US will we propose corrective measures. This means that the timetable of UK actions is in the hands of the Trump Administration, not in the hands of our Government, and that surely is not acceptable. It is our duty to represent the interests of British industry and consumers, not the United States.

Can I also ask for clear language? It now seems that we are simply seeking an economic agreement rather than a free trade agreement. What are we seeking from the Trump Administration? There is a world of difference between a comprehensive free trade agreement and cobbling together a number of bilateral agreements on services and goods simply to make a show of reaching some form of agreement. If the Minister could be clear in the language, I would be grateful.

Furthermore, I sincerely believe that we have showed too much of our market offer to the United States, so it can see clearly the areas where we are willing to cede decision-making: closing tax avoidance for UK companies with profits over €20 billion that are not paying their fair share of tax within the United Kingdom; aligning our AI and data regulations to what the Trump Administration want rather than what this Parliament has legislated for; and reducing agricultural and food standards. Every other country with which we may seek an FTA now knows the areas where this Government are open to ceding ground. That, surely, is regrettable.

Two responses today require more scrutiny: one from the Government and one from the Conservatives. The Statement says that the wholly unjustified tariff rate “vindicates” the Government’s “pragmatic approach”, but we know that, as far as the Trump Administration are concerned, the United Kingdom is in the same category as El Salvador, Guatemala and Uruguay—none of which even flourished a cringeworthy letter from a King in the Oval Office. The worst element of the Trump Administration applying the 10% tariffs is that we are now in the same category as Russia, for goodness’ sake. How is it a vindication of our pragmatic approach if Trump sees trading with the United Kingdom as the same as trading with Russia?

The second argument we have heard today, including a bit that we got from the noble Lord, is that we may have fared better because we are out of the EU rather than in it—but that is only if we are starting from a higher base than what the reality is, with the biggest barriers that we have erected for our near trading neighbours. But the critical point is that the United Kingdom, for goods in particular but for services too, is one of the most interconnected trading economies in the world. Nearly 70% of our exports to the EU are intermediate input to the production of other goods and services, and the majority of UK goods manufactured in the UK are intermediate. Therefore, the majority of the goods that we make source parts and components from the EU, so we are impacted by the 20%. Will the Government’s assessment of the impact be not just a sectoral analysis but a full trade analysis, including all the impacts of what will be applied to our biggest trading market?

Even the former Conservative Trade Minister Greg Hands said today that, as a result of Brexit, we now have a more complex means by which we are steering a path in the US-EU trade war. It is even harder, because the more concessions we give to the United States, the further we move away from the TCA. What is the Government’s assessment of trying to triangulate between the EU and the US? We on these Benches believe that the response has to be deeper co-ordination with the European Union.

Before I close, an element that has not been mentioned today, which is particularly close to my heart, having co-chaired the All-Party Parliamentary Group on Trade out of Poverty for so long, is that this Parliament has debated long and hard about our relationship with developing economies, many of which are being hit very hard by the Trump Administration, and the response of this Government is to cut official development assistance and technical support for trade facilitation for developing economies. Our response is to be silent to the Trump Administration but to cut trade facilitation for emerging economies. This cannot be right for the United Kingdom as a free-trading nation.

As I close, my appeal to the Minister is that we need urgent full co-ordination with Canada and the European Union, not necessarily just on the potential corrective mechanisms that may well be necessary and we believe will be justified, but to ensure that there are fully co-ordinated anti-coercion measures. These are not trade measures being introduced by the Trump Administration; they are economic coercion measures, and it was a tragedy that the previous Government dropped the anti-coercion instrument that we could have continued as a result of Brexit. We need urgent clarification on that.

Finally, we need a European Union-UK-Canada co-ordinated response—I will call it Eureka. In response to the Trump Administration, we need a Eureka moment, not just a wait-and-see approach.

[Baroness Gustafsson (Lab)]

I thank the noble Lords, Lord Hunt and Lord Purvis, for their contributions. I feel that what I hear is a genuine, shared passion for supporting our businesses here in the UK, but also a sadness at barriers to the open trade that so many of us have valued for so long.

There is a shared desire to avoid escalating retaliatory tariffs. The UK and the US have shared a fair and balanced relationship, one that has benefited both sides for many decades. We will both benefit as we strengthen this relationship further. Of course, we are disappointed by the US announcement last night of the 10% reciprocal tariff on UK exports and by the 25% global tariff on cars that has been imposed today. This follows tariffs of 25% on US imports of steel, aluminium and derivative products that were announced on 12 March.

I understand the desire for clarity and urgency, and for a simple answer that can allay the many fears that are rightly troubling businesses at the moment, but this is a complicated environment and a complicated problem. Unfortunately, complicated problems rarely have simple answers. The reality is that it is going to be a co-ordinated effort, where we work out, together with our businesses and industries, a solution that is thoughtful, pragmatic and calm, informed by the data and not by the emotions that many of us may be feeling.

The Secretary of State has been clear that we will always act in the best interests of UK businesses and consumers. As your Lordships know, throughout the last few weeks the Government have been fully focused on discussions on an economic deal with the US. We remain committed to doing this deal, which we hope will mitigate some of the impact that has been announced. I hope that, as the noble Lord, Lord Hunt, referred to, the House is not reading that there is cause for celebration in any of the news that we have announced. I hear the temptation to turn to the other names on the list of tariffs and draw comparisons, but that temptation is to turn inwards and point fingers. I urge all of us to avoid that temptation and instead think about how we work together with that wider community to support all our domestic economies.

We reserve the right to take action if a deal is ultimately not secured. That is a key part of why we are today launching a request for input on the implications for British businesses of possible retaliatory action. This is a formal step, necessary for us to keep all options on the table, but also to form our understanding of how those key areas will be influenced. This exercise will also give businesses the chance to have their say and influence the design of any possible UK response. After all, we are acting on behalf of those UK businesses. I hear the call by the noble Lord, Lord Hunt, that the ball is now in our court. The Government’s preference is to resolve these tariffs through a mutually beneficial deal. They have also been clear that they will always stand up for that national interest. This is why that request for input is so important: to inform the Government’s preparation of their options.

We know that it is a concerning time for both businesses and consumers, but it is important to note that this Government have made plenty of decisions which will have a positive impact on the economy in the weeks and months ahead. We are putting more pounds in people’s pockets by freezing fuel duty; boosting the minimum wage by up to £1,400 a year; and protecting working people, with no rise in their national insurance, income tax or VAT. Living standards are growing at their fastest rate in two years and the Spring Statement showed that each person will be £500 better off by the end of the Parliament. The OBR has said that the economy will grow every year from 2026 and that our planning reforms will lead to a 0.2% increase of GDP, worth £6.8 billion.

The UK remains an open, outward-looking nation and one of the world’s leading advocates for free trade. We have also joined the CPTPP trading bloc, and we continue to pursue export-boosting trade deals with the Gulf Co-operation Council and industrial giants such as India. Our number one priority is growing the UK economy. A positive trading relationship with all our trading partners, including the US, the EU and all these others, will help us deliver that. I hear the call for a full trade analysis and understanding of when future export opportunities will be available to us.

As we think about the impact on the automotive industry, we think about our key industries in the UK. We have used our industrial strategy to strengthen the UK’s automotive competitiveness. The Budget committed over £2 billion of capital and R&D funding to 2030 for zero-emission vehicle manufacturing and its supply chains. This long-term commitment is a vote of confidence in our automotive industry, supporting investment in its transformation as we accelerate to zero-emission vehicles. There was also over £300 million announced in the Budget to drive uptake of electric vehicles.

Our industrial strategy will continue to be unreservedly pro-business, engaging on complex issues that are barriers to investment, such as energy prices and access to finance and skills—all through the lens of promoting investment. Getting the transition right and supporting the growth of the electric vehicle market in the UK could unlock a multibillion-pound industry and deliver high-paid jobs for decades to come.

How will this impact our neighbours? I am thinking about the Windsor Framework in particular, and the opportunities for businesses to protect themselves through the Windsor Framework duty reimbursement scheme that has been referred to. This scheme is there to support businesses, ensuring that they can use it to mitigate any costs that may come from possible tariffs. Businesses should be able to contact HMRC for any information about the scheme. It will of course be a formative part of the advice to businesses we are giving through the great.gov website.

I understand that working closely with businesses to make sure they have all the information they need is really important. The request for input has been opened and that information is already becoming available. It came online today, and we have already seen a significant number of requests and input coming through that process.

This Government were elected to bring security back to working people’s lives. Businesses and workers alike are looking to this Government to act in the national interest and navigate Britain through this period. We will continue to progress on securing a deal that secures our industries while keeping all our options on the table.

[Lord Howell of Guildford (Con)]

My Lords, the Minister’s Statement and her answers seem to have completely lacked the time dimension, and I wonder why this is so. President Trump is embarking, in theory, on a huge programme of import substitution, major planning and investment for years ahead. There are some areas in which import substitution will not be possible, and others where it will take three or four years, by which time President Trump will be gone—unless he manages to wangle a third term.

Should it not be our priority to analyse and to navigate our industries through all the complexities of this? We should point out that, in some areas, the attempt to have an import substitution, if it does not succeed, may lead to an improvement in our markets and profitability. Why do we not have a proper analysis, with positive elements put forward to reassure and explain where we are going?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for the question. Engagement with business has to be at the forefront of this. Often, we interpret this through our own lens—our own understanding and feelings about being on the receiving end of those tariffs. But for some industries, as the noble Lord rightly points out, there could be an opportunity. It is not for us to reflect our perception of these tariffs on to an industry; it is up to us to operate within industry and hear from them about the impacts on their organisations, their employees and their future strategies.

That is exactly why today’s request for input from industry is so important. There has been an ongoing engagement with industry for weeks and months in the run-up to this. We have been talking about the implications of this for business, but it has been on a hypothetical basis. We are now turning that into a far more tactical conversation. What is the consequence of what is happening? How can we, as your government, support you to navigate through this?

[Viscount Stansgate (Lab)]

My Lords, I do not think that any Member in this Chamber envies the position of the British Prime Minister at such a time, with our relationship with the United States coming under such sudden strain on so many fronts in so short a time, whether diplomatically, militarily or indeed now economically. I think yesterday will be long remembered, sadly, as a day that might prove extremely damaging for world trade. I hope that my noble friend the Minister will agree, however difficult it is, that the sheer uncertainty of all this could in itself have an adverse impact on businesses in this country. But, in the face of all this, I support the Government’s measured approach. If I may use the words of the noble Lord speaking from the Opposition Front Bench, we must keep a cool head.

I understand that my noble friend’s colleague, the Secretary of State for Business and Trade in another place, has asked businesses for further information. I take it—perhaps the Minister could confirm—that this will need to be done quite quickly. As I understand it, although there may be no firm date, 1 May is sometimes referred to as a day by which it might be possible for the United States and the UK to reach an agreement. It will be difficult, and I hope very much that we will remember the principle that Parliament and the Government decide what tax is levied on whom and for what.

Finally, I hope my noble friend will use her good offices with the Government to enable this House to have a debate on these matters before things reach a critical juncture. If it ever came to the point where the United Kingdom decided to take firm action, it would be much better for the Government to know that they have the support of the House.

[Baroness Gustafsson (Lab)]

I thank my noble friend for that comment, and I agree that the best decisions are often made with cool heads. Sometimes it can be challenging to maintain that cool head, but I think that as a Government we have done well to make sure we navigate that on a calm and pragmatic basis. There is so much uncertainty, and I can feel the desire for clarity in this uncertain world. I feel that the request for input from business is a good way of crystallising some of that clarity, as we understand the impact and possible opportunities for next steps.

But have no fear: although the deadline for that conversation or dialogue is 1 May regarding the request for input, there is continuous and ongoing engagement with our US counterparts about how we draw together an agreement. If such an agreement were to come into place, we have not put any artificial deadline on when that should or should not happen—and nor should we, because it would put the negotiations under undue strain. I am pleased and encouraged that the conversation and dialogue are happening regularly, that they are well received on both sides and that access is able to happen.

So I agree—I hear the need for an informed decision about such responses. A debate on any response, as and when that comes to a position where it is more formed, is absolutely where we can provide some real value, and that would be a worthy place.

[Lord Bilimoria (CB)]

I congratulate the Minister on her appointment. This is our first interaction. We served on the GREAT campaign advisory council for many years until her ministerial appointment. I am reassured to hear that the Government want to be cool, calm and collected. I am also reassured that the Government are doing their best to try to get a deal with the United States of America. Donald Trump likes deals, so let us try to get one with President Trump.

However, although the United States has £300 billion-plus of trade with the UK, we have £126 billion in services exports to the US—a huge services surplus that nobody talks about—which is not applicable for these tariffs. We should make the most of that strength. Even in goods, we have a small surplus. But the United States is only 13% of the world’s trade. Surely we should work with the other 87% of countries around the world to make sure that we continue with the rules-based multilateral trading system.

Secondly, the Minister mentioned growth, and I will raise one of the best ways to generate growth. I am chair of the International Chamber of Commerce here, ICC UK. The ICC is the largest business organisation in the world, with 45 million members. Before these tariffs were announced, we laid out a plan for growth that could unlock £25 billion in trade growth. By digitising trade, we can take what takes three months on a paper-based trade down to one hour. Why do we not, as leaders, champion digital trade around the world and take a leadership role in these turbulent times?

[Lord in Waiting/Government Whip (Lord Leong) (Lab)]

Before my noble friend answers the noble Lord’s question, I urge all noble Lords to keep their remarks brief and put questions to the Minister rather than making this Statement an occasion for wider debate. This will allow all noble Lords who wish to receive answers to their questions to do so.

[Baroness Gustafsson (Lab)]

My Lords, it is a joy to be here with the noble Lord again, and I thank him for his question. Why do we not work with all sides and not just the US? My role is Minister for Investment, and I love trade and investment—and I do not see that this is a matter of decisions. I want to have a strong and vibrant trading relationship with the US, I want to have a strong and vibrant relationship with Europe, and I want to have a strong and vibrant trading relationship with many of the emerging economies. This is something that we can navigate; it is not a situation where we need to pick one at the cost of the other, and I am really excited about seeing how we build and develop on all those trading relationships all around the world.

On growth, I share the noble Lord’s passion. I believe that the digital trade that we have is a huge opportunity. Already there is a lot that we do in the services piece that is worthy of celebration. Stitching that together alongside the digital surely has to be the future of the growth-driving economies that we see coming out of the UK. If I can promise noble Lords one thing, it is that I will be an advocate and ambassador as we champion the growth that we can drive through digital trade.

[The Lord Bishop of Southwark]

My Lords, I am grateful to the Secretary of State for his cautionary words in the other place, repeated here, about eschewing simplistic solutions and “loud voices”, following the imposition of these arbitrary and unwarranted tariffs, and to the shadow Secretary of State for advocating cool heads. That is vital.

Does the Minister agree that, if the impact of this very regrettable development is to depress economic activity—which is all too likely, sadly—there needs to be a priority assigned to protect the most vulnerable in this country from its effects? Will she further comment on any co-ordinated action with other countries to mitigate the effects on those territories, particularly in the Commonwealth, whose economic resilience is far less than our own?

[Baroness Gustafsson (Lab)]

I share the right reverend Prelate’s passion for making sure that we are supporting not just businesses and consumers but communities and people—the people who live in the communities that are affected. A fulsome response is one that is felt by all. At this point, we are still hypothesising; we are still understanding what the implication could be, whether a trade agreement could be arranged and whether reciprocal tariffs could be made. We are still at a point where we need to understand and turn that theory into understanding the real impact on our economy, what it may look like and who would be the hardest hit. But absolutely—if this is something where we are going to see communities damaged, we will be looking to think about how we can support them through that.

[Viscount Younger of Leckie (Con)]

My Lords, of course, it is absolutely right that we should look at what cards we might have in terms of any response that the UK might wish to give. Perhaps, being English, rather than “Keep calm”, it should be “Keep calm, carry on and drink tea”.

I have two quick questions. One is to follow up on what was said by the noble Lord, Lord Bilimoria. He is absolutely right about trumpeting our great strength in financial services but also in business services. First, to what extent are the Government really prioritising that sector? Secondly, on priority in terms of the deal that we are trying to secure, we saw the chart on the BBC of all the different tariffs and percentages in all the different countries. Surely there is already a massive rush of people wanting to speak to US officials. Where does the Minister think we are in the pecking order?

[Baroness Gustafsson (Lab)]

I thank the noble Viscount for the questions—they are challenging to answer. I shall start with the second question first. Where are we in that pecking order? Unfortunately, we can see only our side of that conversation. I see that there is engagement. This is a dialogue where the phone is being picked up on the other side. Questions are being listened to. I heard the Secretary of State say this morning that he had already today been in dialogue. An ongoing conversation is happening, and I take some reassurance from that that our voice is being heard in that narrative. The noble Viscount is right that a lot of conversations will be happening, a lot of negotiations will be occurring, and I take reassurance that that is being listened to.

On the extent to which we are championing particular sectors, there are examples where we champion sectors regardless of the outcome. We see that in the industrial strategy that we launched, where we have identified those key growth strategies and sectors that will support our future growth. However, as we understand particular sectors that may be impacted, that is one of the driving forces of the request for input that we have had—as we understand where those key risk areas are within our economy but also where the key opportunities are that perhaps we should be championing a little more.

[Viscount Chandos (Lab)]

My Lords, I recognise that the Government’s priority must be to achieve the best possible outcome in relation to tariffs between the UK and the US. I am cautiously optimistic that this Government will do a great deal better than the Conservative Government did over many years, despite the litany of excuses put forward by the noble Lord, Lord Hunt.

Does my noble friend the Minister agree, however, that we should also throw our weight behind improving the deal for other countries that are, in many cases, facing much higher tariffs than the UK: first, in the interest of the global trading system; secondly, to save low-income countries, as other noble Lords have highlighted, from devastating economic damage—a multiple of the hit that the UK may suffer—and, thirdly, in the interests of the many UK companies whose businesses are based on supply chains between those other countries and the US?

[Baroness Gustafsson (Lab)]

On my noble friend’s question about the impact not just within the UK but outside, if we think about our supply chains, we see that so many are interconnected and have a fierce reliance not just on the UK, the US or Europe but on so many other countries that pass through those supply chains—especially when we think about things such as digital services that we are championing. Making sure that we support those industries, not just to support their economies and those that could be most in need but to support our supply chains, is something that would ultimately benefit both sides of that equation.

I come back to the fact that, today, I am just speculating, because I still do not understand fully how those tariffs will affect our supply chains and some of the sectors within those other countries. Yes, we need to make sure that we have strong and robust supply chains and are supporting those nations that benefit most from the value of that international trade, but I cannot comment further on exactly what the specifics look like at this point in the absence of more detail.

[Baroness Bennett of Manor Castle (GP)]

My Lords, the Minister spoke about strengthening the US-UK relationship further and about a positive trading relationship with the US. This tone reflects the Pollyanna approach that seems to bear no relationship to the reality of we saw last night of the great game show-like display in Washington—an attempt to divide and rule.

The noble Lords, Lord Purvis and Lord Bilimoria, spoke about working with the majority of the world’s trading countries—those countries that want to follow the rule of law and an orderly system—yet what we are hearing from the Government is again and again talk of leaving our long-term economic future in the hands of whether or not we are, from one day to the next, in President Trump’s favour. Surely, we must hear more about defending that rules-based order and working together, as the noble Viscount just said?

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[Baroness Gustafsson (Lab)]

We need to think about what those defence options are for particular sectors and how we protect particular industries, such as the steel sector. There are remedies to make sure that we protect some of those key, leading industries that we need to think about. However, I strongly believe that there is an opportunity to expand our trading relationships with nations such as the US off the back of this. A firm commitment to doing our best to secure a trade deal with the US is still the safest and most secure economic way of navigating this challenging path.

[The Earl of Effingham (Con)]

The Statement says:

“The final part of our approach will be to turbo-boost the work this Government are doing to make our economy stronger”.


Does the Minister agree that, with all due respect, 0.1% of GDP growth in the UK economy since July 2024 is not achieving that goal? What will her priority be to fix it?

[Baroness Gustafsson (Lab)]

My Lords, 0.1% GDP growth is not enough. This Government have made no apology for putting growth as their number one priority. I think all sides of this House agree that driving up growth can only benefit the UK and the people operating within it. We take it incredibly seriously, which is why conversations such as this feel so at odds with trying to create an industry that thrives in and benefits from an open and free trade environment. It is why many of us feel sad as we think about tariffs, or reciprocal tariffs as a headwind to them.

But we can secure an agreement with the US that allows us to navigate through this. There will come a time when we look back on this in the rear-view mirror and we are able to establish and support a lot of those sectors that we rely on to support growth. We will hold dear a lot of the principles that we have already written down and they will steer us through that, whether it is things such as the industrial strategy or going through and identifying those core sectors that the Government will wrap their arms around and support to make sure that our growth numbers are not 0.1% or 0.2% but 1%, 2% and then beyond as we really try to support it.

But I know that it is not a quick fix. I understand that we cannot just go to the growth cupboard in the corner and take growth out of it. A decision to turn to growth does not drive growth—multiple small cumulative decisions help turn the ship towards something that supports businesses and communities to grow. For example, it is about thinking about how in some instances regulation is acting as a headwind against growth and enabling things such as planning to make it easier for businesses to build factories and data centres in their communities to help drive that growth. We are seeing a lot of those initiatives to try to shape and encourage growth. However, I share the sadness that sometimes, it feels as though, when we are in a world talking about tariffs, that works against some of that growth agenda.

[Lord Young of Norwood Green (Lab)]

I congratulate the Minister on her appointment. She brings a great deal of business experience to the House. The UK is still a great place to invest in. We have one of the greatest creative economies in the world; we should be pushing that and making it clear. It is not a case for gloom.

[Baroness Gustafsson (Lab)]

I am shamelessly championing and promoting the UK and all its wonderful benefits wherever I can, and will continue to do so. I am a natural optimist by heart and, even today, I am still incredibly optimistic and excited about the opportunity that the UK presents.

House adjourned at 7.08 pm.

Digital Markets, Competition and Consumers Act 2024 (Consequential Amendments) Regulations 2025

Baroness Gustafsson Excerpts

Tuesday 18th March 2025 Lords Chamber

Moved by

[Baroness Gustafsson]

That the draft Regulations laid before the House on 18 December 2024 and 4 February be approved.

Considered in Grand Committee on 17 March.

Motions agreed.

Digital Markets, Competition and Consumers Act 2024 (Consequential Amendments) Regulations 2025

Baroness Gustafsson Excerpts

Monday 17th March 2025 Grand Committee

Moved by

[Baroness Gustafsson]

That the Grand Committee do consider the Digital Markets, Competition and Consumers Act 2024 (Consequential Amendments) Regulations 2025.

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, this instrument was laid before the House on 18 December 2024 and relates to the Digital Markets, Competition and Consumers Act 2024—the DMCC Act—which received Royal Assent in May 2024. The instrument makes amendments to legislation in consequence of Parts 3 and 4, and Chapter 2 of Part 5, of the Act.

Part 3 updates and strengthens enforcement of consumer protection law. Part 4 updates the legislative framework of consumer protections against unfair trading, introduces substantive new consumer rights in relation to subscriptions contracts and consumer savings schemes, and introduces reforms to alternative dispute resolution. Chapter 2 of Part 5 allows UK regulators to provide investigative assistance to overseas regulators in relation to competition, consumer protection and digital markets.

Many noble Lords contributed to this legislation through their scrutiny of it during its parliamentary passage, but I particularly thank the noble Lord, Lord Tyrie, who made the recommendations that led to the granting of the CMA’s new enforcement powers, and the noble Lord, Lord Offord of Garvel, who took the Bill, as it was then, through this House.

To ensure the provisions of the Act take effect as Parliament intended, it is necessary to make consequential amendments to the enactments listed in the Schedule to the regulations. These are relatively minor changes that do not materially alter policy but are needed to ensure the seamless functioning of consumer protection law and enforcement.

The amendments within the instrument fall into three broad categories. The first extends the application of legislative provisions that permit public authorities to share certain information with consumer enforcers. At present, persons or bodies that gather information using powers under certain statutes may share that information to facilitate consumer enforcement, consumer protection or overseas investigatory assistance, in certain circumstances.

This sharing is permitted by sections of the relevant statutes, which I will refer to as information gateways. These information gateways list the consumer protection legislation in relation to which information may be shared. For example, where Ofcom gathers information using powers in the Telecommunications Act 1984, the information gateway in Section 101 of that Act permits it to share that information with the Competition and Markets Authority for the purpose of enforcement of, among other things, the Consumer Protection from Unfair Trading Regulations 2008.

As I have already said, the DMCC Act introduces a new consumer enforcement framework, new and updated consumer protections, and new provisions on investigative assistance to overseas regulators. It is therefore necessary to add references to these provisions to the information gateways in various statutes. Were these provisions not to be updated, the current approach, whereby public authorities may share information gathered under statutory powers to facilitate consumer enforcement, consumer protection or overseas investigatory assistance, would be unavailable. This would compromise consumer protection, which could lead to consumer harm.

The second group of amendments is to Schedule 5 to the Consumer Rights Act 2015. These amendments ensure the CMA can use relevant investigatory powers in respect of its new direct enforcement powers. This will enable the CMA to monitor compliance with its direct enforcement notices as it currently can in relation to court enforcement orders. For example, at present, the CMA can require a person to provide information for the purposes of ascertaining whether a person is complying with a court enforcement order against them. This enables the CMA to ensure the enforcement orders are being complied with, and therefore that enforcement proceedings are having the desired effect. Under the DMCC Act, the CMA will also be able to use investigatory powers to monitor compliance with certain of its direct enforcement functions.

The DMCC Act introduces a new power for the CMA to give final enforcement notices for failing to respond to an information notice alongside its other direct enforcement powers. The amendments in these regulations are necessary to ensure that the CMA is empowered to monitor compliance with this new power in the same way as in relation to the rest of the court-based and direct enforcement regime.

Finally, this instrument updates references to consumer laws that have been repealed and replaced by the Act with references to the relevant new provisions introduced. These amendments do not materially change the policy or effect of the underlying law; they simply keep the statute book up to date in the usual way. As I hope is clear from my remarks, the intention of these regulations is to update and maintain the frameworks that underpin consumer law and its enforcement to ensure that the DMCC’s consumer reforms can be introduced seamlessly, with no inadvertent detriment to consumers.

I invite noble Lords to support the passage of this instrument. I commend these regulations to the Committee.

[Lord Fox (LD)]

My Lords, the shocking thing is that it was only in May of last year that we were working on the then DMCC Bill. It feels, frankly, a great deal longer ago; an awful lot has happened and a lot has changed. Some of the substantive aspects of what I will ask the Minister include getting some sense of how the tone has changed in our relationship with digital issues; and a question to get some sense of how the Government see things now, rather than how the previous Government saw things when we initially debated some of these issues.

As the Minister ably and clearly set out, this statutory instrument deals with three areas: consumer protection and law enforcement; unfair commercial practice and consumer rights; and international co-operation. On the latter, the measures facilitate Chapter 2 of Part 5 of the Act, which allows UK regulators to assist overseas regulators in matters related to competition, consumer protection and digital markets. This involves updating information gateways to permit the sharing of relevant information for investigative purposes.

That is really important when we look both to the west and to the east—that is, to the United States and to the European Union—because that bridge between our three data regimes is vital to the commercial future of this country. Although, when we were discussing the then Bill, there was relative harmony between the European Union and the United States in establishing their own data bridge, which underpins many of the issues that this part of the statutory instrument could change, I would suggest that that relationship is at best taut, if not snapped. We have yet to see the consequences of that snapping but, at some point, it will happen. Our relationship is almost literally sitting in the middle: we have an equivalence relationship with the European Union, and our data relationship with the United States rides on the back of the European Union’s data bridge. So a huge political issue is welling up here. I would like the Minister to tell your Lordships that the department is aware of it and is doing work; there is as much diplomatic work as data protection work to be done here because, in the end, it will be crucial to our service industries that we get this right, and calling it is going to be no easy measure. That is my first point.

Secondly, the Minister will be aware that there have been discussions about the Act’s scope—or, indeed, the lack of it. Some issues, such as secondary ticketing and greenwashing, have not been addressed by the Act; that is still seen as a limitation by stakeholders. As the Minister knows, a secondary ticketing review is going on. It would be useful if she could update your Lordships on where we are with that and when we might see some resolution. Also, how might any recommendations of that review find their way into statute, given that the Bill has already passed?

There is a general issue I would like to address before I address a specific one. We have heard a lot in the last week or two about bonfires of quangos. We have also seen a regime change in the CMA. I think it would be helpful for the Minister to set out that we will not see a stepping back by the CMA in doing its job, which is enabled through this Act. In her speech, she made clear the central role of the CMA, but it has to have the support of the Government to go after these sorts of things. We need to know that the Government still support the CMA in these kinds of activities.

One further point is that the noble Baroness, Lady Stowell of Beeston, asked His Majesty’s Government

“when they plan to make regulations under Schedule 7 to the Digital Markets, Competition and Consumers Act 2024 to provide limited exemptions for permissible investment funds associated with foreign powers”,

such as sovereign wealth or public sector pension funds, to invest in UK newspapers and news magazines. This was an important point, which has been debated at length. Section 130 of the DMCC Act introduced Schedule 7, which makes provisions for the purposes of preventing foreign powers from gaining control or influence over newspaper enterprises. There is more that I will not go into, but there is also a debate around particular exemptions that might or might not exist—a state-owned investor exemption and a diversified business exemption.

All of these are still in the wash. The UK Government announced plans to commence parts of the Act, including those related to competition reforms, in December 2024 or January 2025. A technical consultation, which included draft secondary legislation that also debated the threshold points I just mentioned, was launched in mid-2024 to gather feedback before the implementation of these additional statutory instruments. These are expected to be laid before Parliament for scrutiny before entering into force. However, the Library tells us that this has not yet happened, nor has DCMS published a formal response to that consultation. It is high time that we knew where we are on this and that these statutory instruments see the light of day.

There is an ominous feeling around this. Look at the Answer that the noble Baroness, Lady Twycross, gave to an Oral Question.

“On the SI to which the noble Baroness referred”—


this is the one that the noble Baroness, Lady Stowell, raised—

“there has been a general election in the interim since the legislation was passed by the previous Government. Ministers recognise the high importance of foreign states not being allowed to influence the policy of UK newspapers, but there should be a balance to encourage investment into the press sector. Therefore, we are carefully considering a response to the consultation. We hope to publish a response very soon”.—[Official Report, 5/3/25; col. 251.]

That is an ominous response given the debate that we had in May last year. I would like the Minister to put it into context.

--- Later in debate ---

[Baroness Gustafsson (Lab)]

I thank the noble Lord and the noble Viscount for their thoughtful contributions in this debate. I will try to address each of the points raised in turn.

First, the noble Lord, Lord Fox, talked about how much has changed since May 2024 and I really see that, whether it is in terms of innovation and the types of technology that we are using and need to protect consumers from, or global international relations and all the conversations that are happening on that side. If anything, I feel that international co-operation is going to be more important than ever, given these times, in terms both of co-operation on policy and communication about what has worked. I can assure the Committee that the Government will continue to work to ensure that there is effective collaboration with all their international partners in this regard.

The noble Lord also mentioned secondary ticketing and asked whether there has been any progress. I can confirm that on 10 January 2025, the consultation process commenced on the resale of live events tickets, alongside a call for evidence on pricing practices in the live events sector. Coming just off the back of what was a very exciting football event—my husband was particularly excited to see its outcome—we have a really thriving entertainment and sports sector, so making sure that we are protecting consumers in this space is an issue which is close to many of us. The consultation and call for evidence close on 4 April and the Government will consider all responses carefully before setting out their position.

With regard to any changes with the CMA, I can confirm that the Government are fully committed to the CMA and its independence. The reform agenda is really about ensuring that our regulators are delivering a stable and predictable environment that can support growth. We know that independent regulation is at the heart of providing that competition, but a market that our consumers believe and trust in will also support the economy and the growth that the Government are so aligned to. As Sarah Cardell, the CEO of the CMA, highlighted in her recent speech, there is no conflict between going for growth and driving competition. The reform programme will be all about complementing this approach.

The noble Lord, Lord Fox, raised the question of foreign ownership of state media. The Government are of course making sure that we can protect freedom of speech and a free press that is not subject to foreign state interference. I am as not deeply familiar with the consultation that the noble Lord referred to, so we will write to him to find further details and clarification, where we are able to do so, with regard to the Government’s position.

Turning to the questions raised by the noble Viscount, Lord Camrose, he talked about the overview of the protection afforded for information sharing. Protecting that data is a topic that is also close to my heart, so I commend any questions on it. Public authorities are and will continue to be subject to data protection law and other legal protections around confidentiality. Each regulator will have its own processes in place. For example, in the CMA’s recently published rules and guidance governing its new consumer enforcement powers, it sets out how confidential information provided by traders subject to enforcement will be protected.

With regard to subscription traps, another area that has been reviewed as part of this legislation, further detail on the operations of the subscriptions regime will be set out later this year in the regulations. They will be consulted on to ensure a balance between consumer protection and business freedom. There will also be a familiarisation period for businesses, once the regulations are finalised, to make sure that they have time to properly transition to the new framework, as well as any technology systems that will be needed to provide it.

The successful passage of these regulations will help to ensure the smooth commencement of Part 3, and Chapter 1 of Part 4, on 6 April 2025. I am hugely grateful for the support across the Committee on the Digital Markets, Competition and Consumers Act 2024 (Consequential Amendments) Regulations 2025. I commend these regulations to the Committee.

Motion agreed.

National Minimum Wage (Amendment) Regulations 2025

Baroness Gustafsson Excerpts

Monday 17th March 2025 Grand Committee

Moved by

[Baroness Gustafsson]

That the Grand Committee do consider the National Minimum Wage (Amendment) Regulations 2025.

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, the purpose of these regulations, which were laid before the House on 4 February, is to enact the annual increases to the national living wage and national minimum wage rates. After the parliamentary passage of these regulations, minimum wage rates will go up on Tuesday 1 April 2025. The headline national living wage will increase by 6.7%, from £11.44 to £12.21 an hour, a real-terms pay rise that will benefit and protect millions of workers. This year, the national minimum wage rate for those aged 18 to 20 will increase by £1.40 from £8.60 an hour to £10.00. This is a record increase, worth 16.3% on an hourly basis, and it is also a significant step towards achieving the Government’s ambition to extend the top rate, currently mandatory for those aged 21 and over, to all adults.

We look forward to hearing additional detail on this point from the Low Pay Commission once it has completed its consultation on the trajectory and pace of this equalisation. In the meantime, we will also deliver substantial increases to the statutory minimum wage rates for younger workers and apprentices. The hourly minimum wage rate for workers aged above school-leaving age but under 18 will increase from £6.40 to £7.55, an increase mirrored for the apprentice rate, which is payable to apprentices aged under 19 or others in the first year of their apprenticeship. Finally, we will also increase the daily accommodation offset rate from £9.99 to £10.66.

At this point, I want to extend my thanks to the Low Pay Commission. The new rates are based on the recommendations made by the LPC, which has demonstrated, as ever, its diligence, thoroughness and adaptability. On behalf of the Government, I thank the noble Baroness, Lady Stroud, and her fellow commissioners, as well as all the officials involved at the commission for their continued hard work, particularly in a year where they responded to an updated remit after this Government took office. The Government are also grateful to the bodies that promote and enforce the minimum wage across the UK. In addition to ACAS, which ensures employment disputes are resolved as promptly as possible, enforcement and compliance officials at HMRC ensure that the rates we are enacting today will have a real-world effect, educating workers and employers, upholding the law and ensuring that any money due is repaid to the workers who have earned it. Indeed, since the minimum wage was introduced, HMRC and its predecessor bodies have overseen the repayment of more than £186 million to 1.5 million workers and the issuing of more than £100 million in financial penalties.

The Government are committed to building on this and bolstering the enforcement of employment rights through the creation of the fair work agency, which will include, among other areas, enforcement of the national minimum wage. The new body will provide better support for employers to comply with the law, but it will also have powers to take tough action against the minority who deliberately flout it.

In the meantime, the Government will continue to fund minimum wage enforcement through HMRC, and we will also publish a new naming list in due course of those businesses that have failed to pay their workers the minimum wage, showing that there are consequences for employers who flout the law.

This year’s uplift to the national living wage will deliver a gross pay rise of £1,400 for a full-time worker on the rate, while a full-time worker aged between 18 and 20 will see a gross rise of £2,500. It is worth emphasising that the 2025 national living wage is expected to have the highest real value in the history of the UK’s minimum wage, 78% higher than the main adult rate when the national minimum wage was first introduced in 1999. The national minimum wage rate for 18 to 20 year-olds will be equal to 82% of the national living wage in 2025, similar to the relative value when the national minimum wage was first introduced in 1999, and compared to 75% in 2024. In all, we estimate that more than 3 million workers will benefit directly from the increases, with the potential for millions more to receive an indirect pay rise as employers preserve pay differentials.

This year’s uprating is a crucial step towards delivering our manifesto commitment to a genuine living wage for all adult workers. This is a Government who are ambitious in their agenda for working people and serious about taking the necessary steps to deliver on it. We are delivering this through a direct, real-terms pay increase for millions of workers. We have also brought forward our landmark Employment Rights Bill, and we continue to work across the board alongside trade unions, employers and other stakeholders both to deliver on the plan to make work pay and to realise the biggest upgrade of workers’ rights in a generation.

Accordingly, the Government will issue in the coming weeks a new remit to the Low Pay Commission, asking it to recommend minimum wage rates to apply from April 2026. I commend this instrument to the Committee.

[Lord Sikka (Lab)]

My Lords, I welcome the increase in the national minimum wage, although most of its real value has already been eroded by hikes in the price of energy, water, housing, transport, internet, food, council tax and much more. I shall speak to two particular concerns.

First, I am concerned about the denial of the headline minimum wage rate to workers below the age of 21. The under-21s do not pay lower rates of income tax and national insurance, nor do they pay a lower price for housing, food, shoes, clothes, transport, medicines, internet, and other goods and services. However, they are condemned by law to receive a lower wage. The under-21s are paid a lower wage rate but the product of their labour does not sell at a lower price. This enables many an employer to profiteer. The denial of the full minimum wage has relegalised exploitation.

Over the years, the typical government response has been that low wages preserve employment opportunities for young workers, yet I meet young people who are working longer hours and holding down multiple jobs simply to collect a decent wage and to make ends meet. This cannot be good for their health; indeed, it will create pressures somewhere else. Young people on low wages are trapped in low-paid jobs. I have met many who would like to undertake part-time education in order to further their opportunities but cannot because they simply do not have the resources. I therefore urge the Government to abolish the lower rates of the minimum wage and to alleviate poverty.

Secondly, I am concerned about the enforcement of the statutory minimum wage. The annual reports published by HMRC show a steady parade of companies that fail to pay the required wage. Last year, 524 employers were named for failing to pay £16 million in wages to 172,000 workers. Over the years, the culprits have included companies such as Argos, easyJet, Estée Lauder, Greggs, Marks & Spencer, Moss Bros, WHSmith and many others. None of these offenders ever forgets to pay the agreed wage rate to their executives but, somehow, they always forget to pay their workers a statutory minimum wage.

Although the recovery of unpaid wages is highly commendable, the persistence of non-payment suggests that there are systemic problems and that the penalties are not high enough. The International Labour Organization’s Convention No. 81, signed by the UK, recommends at least one inspector per 10,000 workers to monitor compliance with workers’ rights. The UK has less than 0.4% of the benchmark requirement, and employers can expect an inspection once every 500 years. Can the Minister explain why the Government are not meeting the ILO requirements? There are potential fines of up to 200% of the underpayment of the minimum wage, and a maximum of £20,000 per worker, but I could not find anyone who has actually faced this maximum penalty. Can the Minister say when the maximum penalty was last levied?

The persistence of offences suggests that penalties are simply not effective. I urge the Minister to consider a minimum penalty, which should be equivalent to the remuneration of the entire board of directors, and at least 50% of it must be paid by directors personally. This would deal with the business scale problem and incentivise directors to pay the minimum wage. It would also improve their memory.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all previous speakers in this shortish but interesting debate. I will not go through the whole preamble; I note that the National Minimum Wage (Amendment) Regulations 2025 will result in an increase in the national living wage and the national minimum wage, as the Minister has outlined comprehensively. I was also going to heap praise on the impact assessment, which is an exemplar. I am slightly ashamed that I never managed to produce one like that, but I will learn my lesson for the future.

I will develop the themes mentioned by the noble Lord, Lord Fox. We obviously welcome these changes, but we approach them with a degree of caution and have several concerns, most of which are centred on the effect that they are likely to have on small and medium-sized enterprises. As usual, it looks to us as if they will bear the brunt of the increased labour costs. Indeed, it does not look that way just to us; according to the Government’s impact assessment, SMEs will account for 56% of the total monetised increase in labour costs, despite representing only 37% of the employment share. This is a disproportionate impact on SMEs and could have significant consequences, particularly, as the noble Lord, Lord Fox, has noted, given that many such businesses are already struggling with a number of combined pressures.

These are challenging business conditions, as the impact assessment specifically notes:

“Meanwhile, there is some evidence of challenging business conditions for SMEs specifically. Around 42.7% and 36.8% of micro and small businesses, respectively reported having less than three months of cash reserves in September 2024 (compared to 19.2% for large businesses)”.


That is a concerning picture of their cash. As the noble Lord noted, they will also have to wear increasing costs of employment because of national insurance contributions, and two to three times under the non-domestic rates Bill—particularly the hospitality industry, which is suffering disproportionately from some recent employment legislation.

I also concur with many of the things that the noble Lord, Lord Fox, said about the forthcoming Employment Rights Bill. As far as I can recall, the Government’s impact assessment for that Bill, which I think was published last week, said that UK businesses will pay an additional £5 billion as a consequence of that Bill but that it “could have” a potential “positive impact on growth”. That is not exactly a ringing endorsement from the Government’s own impact assessment when it comes to that legislation, which I am sure we will all scrutinise.

The CBI has raised concerns about the ability of businesses to absorb all these increases without affecting their bottom line. As it points out, while the national living wage has been effective in supporting low-income workers, it also adds pressures to businesses at a time when productivity growth is stagnant. This pressure, it argues, makes it difficult for firms to invest in the technology and innovation needed to improve productivity and deliver sustainable wage rises in the longer term.

The British Chambers of Commerce has warned that these changes could lead to price hikes, cuts in workplace training and difficulties with recruitment. Given the challenging economic backdrop, it is also vital that we carefully consider how these wage increases will affect SMEs and the economy as a whole.

Wage compression—I think the Minister called it pay differentials—must also be taken into account. As wages at the lower end of the spectrum rise, the gap between these wages and those of higher skilled workers may narrow. That would obviously create distortions in the labour market, which could reduce the incentive to pursue skilled professions or university degrees.

We have to ask whether the Government have considered the full economic impact of all these increases on businesses. How will they continue to support businesses in absorbing increased labour costs without jeopardising their ability to grow, invest and create jobs—and, of course, grow the economy?

The noble Lord, Lord Jones, touched on an extremely interesting point about apprentices. It is not necessarily directly connected to this, but have the Government investigated the effective price increase in employing them, which I think was announced in the Budget, to see what effect that has had on the numbers of people being offered and taking apprenticeships?

We recognise that these regulations are a welcome step towards improving the living standards of low-paid workers. His Majesty’s Official Opposition remain cautious, however, about their potential economic impact, particularly combined with all the other issues that we have highlighted. We support the principle of fair pay for workers but are concerned that the disproportionate burden placed on SMEs and larger businesses in sectors that are already struggling to make ends meet will have unintended consequences. I appreciate that these are general questions, but it would be good to hear some answers as to how the Government are planning to support businesses through these transitions. Much like the noble Lord, Lord Fox, I would also be interested to hear some more details on the fair work agency, if the noble Baroness is able to share them.

[Baroness Gustafsson (Lab)]

My Lords, I am grateful for the support across the Committee for these regulations and thank noble Lords for their valuable contributions to this debate. I will highlight some of the points raised. My noble friend Lord Sikka asked, rightly, given that these are times when our everyday costs are increasing, whether the real value of a lot of these wage rises has already been eroded.

--- Later in debate ---

[Baroness Gustafsson (Lab)]

My noble friend Lord Sikka asked about the real value of the minimum wage already being eroded. The 2025 national living wage is expected to have the highest real-terms value in the history of the UK’s minimum wage. In real terms, the national living wage in 2025 is expected to be about 4% higher than the 2024 rate and 78% higher than the main adult rate when the national minimum wage was introduced in 1999. I hope that goes some way to relieving some of those cost of living pressures.

On 18 to 20 year-olds being denied the full rate but still having the same living costs, we recognise that people in that band are more vulnerable to unemployment and that any impacts on employment costs or incentives to remain in training or education must be monitored very carefully as we proceed. We have asked the LPC to make progress on extending the national living wage to more adults than ever before by continuing to narrow the gap between the 18 to 20 minimum wage rate and the national living wage on a year-by-year path towards achieving a single adult rate, and we are delivering on that pledge.

There was a question around enforcement and the naming and shaming of those that do not comply with the minimum wage. The current system of employment rights is fragmented and ineffective and can be confusing for workers and employers alike, which can deliver bad outcomes for workers and the majority of businesses which want to do right by their staff. We are establishing the fair work agency to deliver a much-needed upgrade to the enforcement of workers’ rights. This is about bringing together the existing state enforcement functions in a single place which individuals and businesses can go to for help. Bringing together currently separate state enforcement functions will mean less duplication and better use of public money.

My noble friend’s last question was about penalties and enforcement. HMRC investigates breaches of the national minimum wage legislation. If it finds a breach, it orders the employer to repay the workers and also pay a penalty to the Government of up to 200% of the arrears owed to the workers. My noble friend asked about the last time and the circumstances in which that level of penalty was enforced. I confess I do not know the answer, but I will write to follow up with that information.

My noble friend Lord Jones raised questions around the complexity of regulations. Regulations can often be complex. They are by necessity complicated because they often deal with complicated issues that require balance on both sides. We have extensive guidance on them. Simplification can tend to make regulations easier to read but less precise and more open to avoidance, so it is a delicate balancing act that we are trying to navigate here. As mentioned earlier, we are grateful to ACAS for its work and encourage any employer or worker to contact it directly for guidance and assistance, which is often available.

My noble friend Lord Jones also asked a question about the number of workers on the national minimum wage and the number of apprentices in Wales. Roughly 150,000 workers in Wales are on the national minimum wage; for completeness, it is about 200,000 workers in Scotland and 160,000 workers in Northern Ireland. We remain committed to ensuring that apprentice wages support the attraction of talented individuals to apprenticeships and remain fair for employers. High-quality apprenticeships are often key to unlocking a more skilled and productive economy. On the apprenticeships statistics that were requested, I am happy to write to follow up on some of those specifics.

I turn now to the question from the noble Lord, Lord Fox, around the differences in the FWA as compared to previous enforcement agencies. The fair work agency will be a strong, recognisable single brand so that individuals know where to head to for help. It will have a more ambitious remit that goes further than the previous single enforcement body proposal. It will be about taking on and enforcing domestic agency rules, the national minimum wage, licensing standards for gangmasters and certain aspects of the Modern Slavery Act 2015. It will also take on additional rights, such as holiday pay and statutory sick pay, and there will be flexibility to bring in additional legislation as new challenges emerge,

[The Deputy Chairman of Committees (Lord Ashton of Hyde) (Non-Afl)]

My Lords, there is a Division in the House. We will adjourn for 10 minutes.

--- Later in debate ---

[Baroness Gustafsson (Lab)]

Before the Division, I was about to turn to the observations of the noble Lord, Lord Sharpe, the first of which was about the impact on SMEs and businesses. I remind noble Lords that we have accepted in full the recommendations of the Low Pay Commission. We are confident that these increases will help millions of families across the country without placing excessive burdens on businesses. The remit of the LPC asks it to take into account the impact on businesses, including SMEs, competitiveness, the labour market and the wider economy. The LPC draws on extensive labour market and pay analysis and stakeholder evidence when recommending rates.

Regarding support for businesses as they adjust to these new rates, the 2025 national minimum wage and NLW rates were announced in the Autumn Budget 2024, more than five months before the rates came into effect. These timelines are consistent with previous years, providing businesses with the maximum adjustment time. Similar to previous years, the Government will undertake an extensive communications campaign to increase awareness and understanding of the changes to the rates coming into effect from 1 April 2025 and to ensure that businesses and workers are prepared. The communication campaign is expected to include targeted activities specifically to support SMEs. The Government also publish extensive guidance online to support businesses in understanding the legislation and the steps required to comply.

This Government are proud to be delivering the biggest upgrade to the rights of working people in decades. An ambitious minimum wage, backed by robust enforcement, will always be a cornerstone of a Labour Government’s employment rights framework, and we are grateful for cross-party support on this vital measure. As noted, the Government’s impact assessment, which was published alongside this legislation, estimates a direct pay rise for more than 3 million people, covering all the nations and regions of the UK and every sector of employment. It is worth repeating that a full-time worker on the national living wage will receive a gross annual pay rise on 1 April of £1,400, while an 18 to 20 year-old working full time on the national minimum wage will benefit to the tune of £2,500 a year.

I reiterate the Government’s thanks to the noble Baroness, Lady Stroud, and the Low Pay Commission. Once a new remit is issued to the LPC, we will look forward to hearing its next recommendations later this year as we continue our path towards a genuine living wage for all adults. I commend these regulations to the Committee.

[Lord Fox (LD)]

May I just take the Minister back to before the Division, when we were starting to talk about the fair work agency? Either she has nothing more to tell us or it somehow got lost in the wash. Her response was somewhat thematic but really short on process. It is not clear to me how the fair work agency will be juxtaposed with other enforcement activities. In her answer to the noble Lord, Lord Sikka, the Minister talked about the role of HMRC. Will HMRC no longer have that role? If not, will the fair work agency have access to the data that HMRC has in order to make its prosecutions? That is just one of the outstanding queries about how this new agency will operate in the context of enforcing this important change.

[Baroness Gustafsson (Lab)]

I thank the noble Lord. I talked about the additional rights and enforcing the wider roles and rules of the domestic agency, but on how that will be impacted operationally, as well as the interface with HMRC, I will write to the noble Lord, Lord Fox, with some details on exactly how that will be undertaken.

[Lord Sikka (Lab)]

My Lords, perhaps I, too, could have one more bite. I referred to the penalty situation. The one we have at the moment enables directors to gain because the chances of all companies being inspected are very low. If they get away with it, they are quids in because the bottom line means that they will get a higher bonus and remuneration. If they are caught, there will be a penalty on the company, and they do not bear any personal penalties. Will the Government change that and make sure that directors personally pay at least half the penalty, as I suggested?

[Baroness Gustafsson (Lab)]

There is a lot of conversation about enforcement. We talked about the 200%. There is currently no legislation about directors’ personal accountability, but I am more than happy to follow up with the noble Lord on the specifics of what that would look like.

Motion agreed.

US Steel Import Tariffs

Baroness Gustafsson Excerpts

Thursday 13th February 2025 Lords Chamber

[Lord Hunt of Wirral (Con)]

My Lords, can the Minister confirm what conversations Ministers have had with their counterparts in the US about steel tariffs? How many times have Ministers spoken with US trade representatives since last Sunday, for instance? In particular, can she confirm that the first 500,000 tonnes of steel to the US will be tariff-free as they were under President Trump’s previous Administration? And finally, can she bring us up to date on the Government’s efforts to obtain a free trade agreement with the United States?

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

I thank the noble Lord for his question. I think we all agree that the US is an indispensable ally in many areas. As he may have seen, President Trump has said he has had a couple of good, constructive calls with Keir Starmer and the two enjoy a good relationship. The Prime Minister has said that he would like to work with the US to develop a trade deal, and we are keen to work with the Trump Administration to capitalise on opportunities and deepen and strengthen our relationship.

With regard to the specifics around what will happen within the steel sector, there is a lot of hypothesis and noise at the moment, but there are currently no established facts about what that will look like. The Government will make any key decisions in light of those key facts as and when they emerge, and we will not be drawn into a hypothetical conversation.

With regard to a free trade agreement, we have talked about the fact that the US is such a valuable ally, and we would love to be able to deepen those trading relationships. That said, 18% of our trade today already happens with the US. Any free trade agreement set in place would need to best represent UK interests.

[Baroness Kramer (LD)]

My Lords, being emollient has never worked with President Trump. Will the Government heed my leader Ed Davey’s calls to work with like-minded allies, including Canada and the EU, to respond to both steel tariffs and potential dumping, including plans for retaliatory tariffs on targeted American exports such as Tesla vehicles? Have Ministers convened a meeting with the leaders of our four UK nations to work together to protect our steel industry? The Canadians have called all their Premiers together. Are the Government working not just with our steel companies but with the unions to protect steel jobs? This country would never start a trade war, but it cannot weakly acquiesce in being the victim of one.

[Baroness Gustafsson (Lab)]

I thank the noble Baroness for her question. I agree that the UK steel industry is something that we hugely value and look to support in any way that we are able. To that end, we have a steel strategy being published this spring which will outline how we intend to make the industry as sustainable as possible. A steel council is already in existence, and I can confirm that it includes representatives from the union. The Secretary of State for the Department for Business and Trade is in a regular and open dialogue with the industry, and we will consider all the tools in our toolkit to make sure that we are able to support the industry. I note as well that £2.5 billion of investment has been set aside to support the UK steel industry.

[Lord Dodds of Duncairn (DUP)]

What assessment has the Minister made about the impact on Northern Ireland of EU tariffs in retaliation, given that we in Northern Ireland under the Windsor Framework would be subject to the EU regime in that regard? Has the Minister spoken with the Northern Ireland Executive about the damage that would be done as a result for Northern Ireland?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for the question. Again, it is very difficult to comment on the specifics of what the tariffs will look like when we are at a point when there are few facts and a lot more conversation and speculation. Northern Ireland is a part of the United Kingdom customs territory and internal market. For goods moving into Northern Ireland that do not subsequently enter the EU, the duty reimbursement scheme enables traders to reclaim or remit applicable EU duties in full. However, the implications for Northern Ireland of the substance of any arrangements will be a key aspect of the considerations and the ongoing consultation with our partners, both within the UK and within the steel sector at large.

[Baroness Foster of Aghadrumsee (Non-Afl)]

My Lords, on Tuesday in the other place, the Minister’s colleague, the Minister for Trade Policy and Economic Security, said that

“a clear-headed sense of the … national interest”.—[Official Report, Commons, 11/2/25; col. 182.]

was required in reset talks with the EU. Given that that is the case, and following on from the question from the noble Lord, Lord Dodds, can she tell us what His Majesty’s Government are doing proactively with the EU to deal with the complexities and constraints of the Windsor Framework if tariffs come to the EU—I accept her point about hypotheticals—so that it does not impact on Northern Ireland?

[Baroness Gustafsson (Lab)]

Forgive me. I cannot comment further on the specifics of the Windsor arrangement in absence of the facts, but on the relationship with the EU, this Government were elected with a strong mandate to reset that and make sure that we build on the relationship we have, both with Europe and the US—I do not think this is necessarily a binary choice between the two. I suspect that when we think about the strategy particular to the steel industry, understanding what those relationships look like with the EU but also with the US, and the specifics of any tariff arrangements in place, will be a key factor of those considerations and the strategy at large. We will not be afraid to make sure that we are representing UK industries in supporting the steel industry to the best of our ability.

[Lord Howell of Guildford (Con)]

My Lords, the steel industry is paying much the highest electricity costs in the world, and unless we can get around that problem, we are not going to be selling steel anywhere. The Minister did not mention that. Could she say what is being done to address that part of the problem, which would not solve all the difficulties but would certainly make things less difficult than they are now?

[Baroness Gustafsson (Lab)]

I acknowledge that electricity and power costs within the UK are higher. In my role, as I think about investment, that is something that we need to make sure we understand and grapple with as we support stronger investment in the UK overall. With regard to the steel industry specifically, there are initiatives and schemes for high-intensity energy consumers within the UK that are valuable assets, such as the steel industry, to support them with those energy costs. However, while I acknowledge that that support is specific to the steel industry, wider UK industry as a whole really needs to understand what we can do to grapple with energy costs. On that, significant investment is under way to increase the supply of energy within the UK and the transition into cleaner energy environments. A lot of work and investment have gone into that as part of the green energy transition.

[Lord West of Spithead (Lab)]

My Lords, the steel industry is a strategic asset for the country. The Minister stressed the importance of our link with America, but it is important that the Americans understand that if they are saying that Europe is going to be responsible for its own defence without much American support then the strategic and sovereign capabilities in a number of areas such as steel become even more important. That message needs to be put across.

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[Baroness Gustafsson (Lab)]

I wholeheartedly agree with my noble friend that the steel industry is a vital asset within the UK. As I think about emerging markets and emerging technologies—for example, the electrification of cars, or building infrastructure to support AI investment around data centres—steel is always going to be an essential component of building up our own expertise, not just within the industry itself but within those other emerging industries. That is why building on our sector expertise and working with that market is going to be key to delivering on the Government’s ambitions on growth. I come back to the point that having a steel strategy—which will be coming out in spring—working with the industry through the steel council and having regular and open dialogue are all essential, and indicative of the value that we place on the industry.

Post Office Horizon Scandal: Compensation Payments

Baroness Gustafsson Excerpts

Tuesday 11th February 2025 Lords Chamber

[Lord Sahota]

To ask His Majesty’s Government what progress has been made in paying compensation to victims of the Post Office Horizon scandal.

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, the Government have made significant progress in delivering redress to victims of the Horizon scandal. As of 31 January, approximately £663 million was paid to over 4,300 claimants, an increase of £69 million on the previous month. Delivering swift redress remains a priority and we are grateful to the noble Lords, Lord Arbuthnot and Lord Beamish, for their support as part of the Horizon Compensation Advisory Board.

[Lord Sahota (Lab)]

I thank the Minister for the Answer and the Government for allocating £1.8 billion to settle the Post Office claims. As we all know, the police are investigating the conduct of Post Office managers in this whole sordid affair. Some of them could be charged with corporate manslaughter and perjury, so why are they still involved in administrating the Post Office compensation scheme? Also, why do the claimants not have free legal advice paid for by the scheme administrator? I am sure some find navigating through the whole legal system extremely difficult, especially some Asian sub-postmasters.

[Baroness Gustafsson (Lab)]

I thank my noble friend for the question. He is right: of the four schemes that are available, two of them are administered directly by the Post Office, while the other two are administered by the Department for Business and Trade. This is a matter that is currently being reviewed by the Department for Business and Trade, and there is consideration being given to whether that administration should be brought within the department. However, as part of that consideration, we cannot inadvertently create some environmental factors that may accidentally slow down the process of those claims. We are looking into this and trying to make sure that we deal with these expeditiously, while ensuring we do not inadvertently create unintended consequences by bringing those within the department.

With regard to the legal claims that are in process and whether those legal fees are addressable, there is significant legal support available for each of the claimants, and those legal fees are being reimbursed. But I understand that the process is a complex one, that people have suffered a great deal already and that the process can be quite cumbersome. Whilst this cannot always be avoided in all cases, the Government have worked hard to try to alleviate some of this by making some fixed-sum offers available, which go some way to making the process a lot simpler for claimants.

[Lord Arbuthnot of Edrom (Con)]

My Lords, the Minister has declared my interest as a member of the Horizon Compensation Advisory Board. Attention has rightly focused on the contribution to be made by Fujitsu to the compensation payable, and I hope it is very substantial, but the auditors of the Post Office, Ernst & Young, should also bear their share of the blame. I asked the chair of the inquiry to include in his inquiry what the auditors knew and did not know, and he decided that that would lengthen the inquiry disproportionately. That means that the auditors who certified that the Post Office accounts presented a true and fair view of the Post Office finances, and yet somehow missed a liability of £1.87 billion, will not be held to account. What can we do about that?

[Baroness Gustafsson (Lab)]

I thank the noble Lord not only for his question but for his significant contribution to the role, and I pay tribute to him for his long-standing commitment to resolving the Horizon scandal and his work within the advisory board. He is right that Sir Wyn Williams’ inquiry chose not to look at the issues concerning the audit of the Post Office. I know colleagues on the advisory board have aired these matters with the Financial Reporting Council, which is the right thing to do, and I look forward to ultimately hearing the outcome from the FRC.

[Lord Wigley (PC)]

My Lords, the Minister referred to 4,500 cases having been settled, if I heard her correctly. Can she tell the House how many more cases are awaiting, and by what stage would she expect to reach, say, 90% payment? These people have been waiting for so long, and justice delayed is justice denied.

[Baroness Gustafsson (Lab)]

I thank the noble Lord. The volumes coming through each of the schemes are very differing. If I take the HSS, for example, which is the scheme with the most volume, a significant volume is going through that: 3,400 offers have been accepted and 3,350 claims have been paid in full. However, there are 7,082 claims out there that are still being looked at, and making sure we address them quickly is a priority of the Government. A lot of activity has been taken in that regard—for example, giving fixed-claim sums to claimants—with the goal of speeding up the process.

The noble Lord referred to the 90% target that the department applies to the schemes that are operated by the Department for Business and Trade. I note that, in particular, the GLO scheme is operating at 89%, against the target of 90%. That 90% is about claims being reviewed within 40 days of receipt. There are some ideas that we could perhaps up that target—why would it not be 100%?—but there is a balance to be struck there, because the claimants need to make sure that they are getting appropriate time to review and understand the offer being made to them. We do not want to inadvertently apply some pressure or duress for them to review those claims in a process that suits our timelines but perhaps not theirs, so, at this point, that 90% target is appropriate.

[Baroness Brinton (LD)]

My Lords, last week the National Audit Office reported that, under the last Government, inadequate data from government had held back the 2023-24 audit of the Post Office Horizon compensation schemes, and there was also a breach in spending limits, which undermines rules of control over public spending. What are the Government doing to ensure that this never happens again?

[Baroness Gustafsson (Lab)]

If I may refer specifically to the Horizon scandal and how we are making sure that a scandal of this level never happens again, there is a significant undertaking with the Sir Wyn Williams review looking at exactly this matter of understanding how a scandal of this scale was allowed to come about, the accountability that operates there and that the right people are held accountable, and of ultimately making sure that something to this extent can never happen again.

[Lord Sharpe of Epsom (Con)]

My Lords, in December we had a very similar Question. I asked then whether the Minister could

“tell us what safeguards are being put in place to ensure that no authority, public or private, can act with unchecked power similar to that exercised by the Post Office during the Horizon case”.—[Official Report, 12/12/24; col. 1874.]

The Minister said she would have more information on this in the future. I was wondering if she could therefore provide an update to the House on progress.

[Baroness Gustafsson (Lab)]

The purpose of the Sir Wyn Williams review is specifically to look at how this was able to occur within the Post Office, and make sure that those lessons have been learned. We are expecting the outcome of that review to be within some months, but I would anticipate before the end of this calendar year.

[Lord Stirrup (CB)]

My Lords, the noble Lord, Lord Arbuthnot, referred to Fujitsu. Can the Minister update the House on what financial contribution Fujitsu is expected to make to the cost of the compensation package for the victims of this appalling scandal? In how many government contracts does Fujitsu continue to be involved today?

[Baroness Gustafsson (Lab)]

Fujitsu has acknowledged a moral obligation to support the Government in respect of the financial redress that should rightly be made to the victims of this scandal. We are awaiting the outcome of the Sir Win Williams review, which will go a long way to understanding the scale to which this financial contribution should be made. Ultimately, this will be made in the light of that evidence.

Regarding the ongoing relationship with Fujitsu, Fujitsu has agreed not to make new bids for business within government. That being said, there are existing relationships within departments with Fujitsu, where perhaps they feel that the necessary skills or capability is something that is uniquely held by Fujitsu. In those cases, the contracts may continue to exist, but ultimately that is a decision within the department.

[Lord Beamish (Lab)]

My Lords, I declare an interest as a member of the Government’s Horizon Compensation Advisory Board. The Government put in £1.8 billion to compensate victims—money that was not put in by the previous Government—to compensate victims of the Horizon scandal. Picking up on the question from the noble and gallant Lord, Lord Stirrup, on Fujitsu’s responsibility, I have been campaigning on this for many years, and we all knew nearly 15 years ago that company’s role in it. The inquiry clearly highlighted that as well. The Minister said that it had accepted that it had a moral obligation to pay compensation, but what discussions have the Government had with Fujitsu to start paying money forward? She says that it is not bidding for new contracts, but it is making multi-billion-pound profits from extensions of contracts, so may I urge the Minister to get it to the table as quickly as possible?

[Baroness Gustafsson (Lab)]

I think that urging is heard and encouraged. Having said that £1.8 billion has been set aside, I remind the House that this is not a limit or target; it is just the best estimate. Ultimately, the Government will do what they can to fully compensate the victims of this scandal. Fujitsu has an important role of being financially responsible for some of this, and there are ongoing conversations within the department and with Fujitsu. Ultimately, the outcome and report of the inquiry by Sir Wyn Williams will be an important determinant of this.

Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025

Baroness Gustafsson Excerpts

Monday 3rd February 2025 Grand Committee

Moved by

[Baroness Gustafsson]

That the Grand Committee do consider the Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025.

Relevant document: 12th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, noble Lords will be aware that, since 2022, the UK has kept a beneficial ownership register of overseas entities owning property in the UK, which I will refer to as the ROE. The regulations that we are debating today will strengthen the transparency of trust information on the ROE, improving transparency around the control and ownership of land.

The Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as the 2022 Act, created the legislative basis for the ROE. The ROE requires overseas entities owning or buying property in the UK to give information about their beneficial owners and/or managing directors to Companies House. Currently, there is no public access to information on trusts related to overseas entities on the ROE, other than the name of the trustee. This approach protects the right to privacy for those who operate trust structures for a variety of legitimate reasons. However, the Government understand the concerns around the use of trusts to facilitate economic crime, partly because their anonymity makes assets easier to hide; that is why we have brought these measures forward for your Lordships’ consideration.

I will now set out the two measures contained in the regulations. First, they will enable anyone to apply to access trust information held on the ROE, through applications to Companies House. This marks a significant step forward in transparency, empowering the public and civil society to scrutinise trust beneficiaries on the ROE. Applicants must provide their personal information; the name of the trust related to the relevant protected trust; and the overseas entity’s name and ID.

Applicants seeking trust information related to minors or more than one overseas entity in a single application, also known as bulk access, must show a legitimate interest in the requested information. This safeguard protects personal information while providing that critical information is available to those with a valid need, such as investigative journalists. For an applicant to demonstrate that they have a legitimate interest, they must: show that they are investigating money laundering, tax evasion, terrorist financing or the breaching of sanctions; provide a statement that they are requesting the disclosure to further that investigation; and provide a statement of how they are planning to use the information disclosed to them. If no such interest can be demonstrated, the registrar of Companies House may withhold some or all information. The registrar will notify the applicant of the decision with reasons. If a legitimate interest can be demonstrated, the registrar will release any unprotected information.

As an additional safeguard, the registrar will have the discretion to impose conditions under which the trust information is disclosed, such as restricting its use or further disclosure. Failure to comply with these conditions will be a criminal offence. The registrar may also refuse an application where that disclosure may prejudice an ongoing criminal investigation or adversely affect national security, or where the trust is a pension scheme.

I turn to the second measure. This involves provisions for the protection of sensitive information, which will come into force before the disclosure provisions go live. We are expanding the category of individuals who can apply to Companies House to have their information protected. This ensures that those connected to a trust—settlors, trustees and beneficiaries—who are at risk of violence or harm can have their information protected. Those who are aged under 18 or lack capacity can also apply to have their information protected.

The protection measures will come into force on 28 February this year, while the disclosure provisions will come into force on 31 August. This will allow time for those who are eligible to apply to Companies House for protection. An application for protection does not exempt an overseas entity from full compliance with the requirements of the ROE in general, such as the update duty and filing with Companies House. The registrar will still be able to use their general information-sharing power to share protected information with law enforcement agencies and public authorities for purposes connected to the exercise of their functions.

These regulations further the Government’s mission to improve the transparency around beneficial ownership, driving confidence for investment in the UK and exposing bad actors who seek to take advantage of our open economy. I urge noble Lords to support these regulations and beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I welcome the noble Baroness to her post, as it is the first time I have been across the table from her. She was not here when we were debating the two economic crime Bills, but I am sure she is aware that the subject of the use of trusts to obscure the beneficial ownership of UK property on the ROE and obscure ownership of UK companies, which this instrument does not cover, was one of the major areas of our debates at the time.

These regulations are a small step to improve transparency around the use of trusts to own UK property. I understand the balance around the protection of minors and others at risk, so I welcome the regulations, but slightly question how much difference they will make in practice. At least the progress is in the right direction.

I will ask a couple of questions about some general, related areas, if I may. I could not resist this opportunity. First, the latest information that I could find indicates that the true identity of the beneficial owner of UK properties owned by overseas entities—there are 152,000-odd—is not published in about 70% of cases, at the moment. For about 35% of cases, the true beneficial ownership is not known even to law enforcement agencies. There may be a number of reasons for that, including simple non-compliance, which accounts for about 10% in the last numbers I saw; the use of opaque corporate structures, which claim no beneficial ownership, or the use of nominees; and the use of trusts, which is the biggest one, particularly in our overseas territories. Transparency International’s latest numbers identify about £6 billion worth of suspicious transactions in UK property coming through our overseas territories, using trusts.

Could the noble Baroness provide up-to-date statistics on both level of compliance with the rules and the number of properties where the ultimate beneficial ownership remains unknown, for whatever reason? I am happy for her to write, if necessary, if she does not have the numbers to hand. Is she happy with the level of identification of beneficial ownership as it stands? What impact does she think these regulations will have on that? What further steps are planned to make sure that we know who beneficially owns the properties? In particular, what plans does she have to make the information from our overseas territories more transparent? The British Virgin Islands, in particular, appear to be the jurisdiction of choice for obscuring beneficial ownership, at the moment.

Of those entities that have not complied—10% was the number that I saw, which is about 15,000 entities—how many have been fined? Of those, how many have paid those fines and gone on to comply subsequent to payment? How many charges have been taken against the properties in relation to non-payment of the fines? In other words, does Companies House have sufficient powers to deal with non-compliance, and is it using those powers effectively?

Secondly—and I hope that the noble Baroness will forgive me for going slightly off-piste—another way to hide beneficial ownership is through the use of nominee shareholders. I notice the noble Lord, Lord Fox, smiling; I hate to be predictable, but there we go. This is particularly true for UK companies, where the persons with significant control or PSC rules can be sidestepped by the use of nominees. An entire industry has built up around that. The previous Government accepted that there was an issue around the use of nominees for this purpose and agreed to include a power in the Economic Crime and Corporate Transparency Act 2023 to take further action against the use of nominee shareholders and the industry that supports them, if they felt it was necessary. This is now Section 790IA of the Companies Act 2006. I want to take this opportunity to ask what assessment this Government have made of the use of nominees in that respect and whether they intend to make use of the powers they have under the Companies Act to address it.

--- Later in debate ---

[Baroness Gustafsson (Lab)]

First, I thank noble Lords. It is a pleasure to hear from what was clearly the dream team, back when this was established, of the noble Lords, Lord Sharpe, Lord Vaux and Lord Fox. I am privileged to be in a Room where we all agree on the importance of balancing the transparency around and the privacy of the information being provided.

The noble Lord, Lord Fox, asked whether I saw myself, when I joined the House of Lords, standing here in front of noble Lords delivering a statutory instrument. I could not possibly have begun to comprehend what it involved, but I will now do my best to answer as many of noble Lords’ questions as I possibly can. I promise to follow up in writing for any that I miss.

The noble Lord, Lord Vaux, asked whether we have an update on some of the metrics. Since the register was launched, we have 31,827 entities as of 24 January 2025, which reflects a very good rate of compliance. Notably, non-compliant overseas entities can no longer easily sell, lease or raise finance over their land until they comply. Furthermore, with regard to those that are non-compliant and the extent to which we are following up by issuing fines, we have issued 4,800 penalty warnings since 26 June 2023, along with 440 penalty notices, worth £20 million, of which 70 have been redacted. I hope that this demonstrates that, although it is imperfect, we are making progress on establishing more transparency in the register and enforcing that transparency wherever we are available and able to do so.

On the question of whether further steps are necessary, particularly regarding the British Virgin Islands, this is a constantly evolving and moving landscape. I regret that, whatever structure is put in place, a lot of people with a lot of brain power will be there trying to find a way around it and get through the process. This measure will, therefore, be under constant review and constantly evolving. We will conduct a post-implementation review at a later stage to evaluate the overall impact of the register of overseas entities, including the specific effects of the regulations on trust transparency. We will also conduct ongoing engagement with stakeholders, whether it is lawyers and accountants, the registrars themselves or civil society who require this information. This will be an ongoing dialogue as we constantly battle out the balance between privacy and transparency.

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[Lord Fox (LD)]

I asked whether judicial review is applicable. If the Minister is able to write to me on that, that would be helpful.

[Baroness Gustafsson (Lab)]

I absolutely will write to the noble Lord to follow up on that.

I was asked whether Companies House is equipped to deal with this volume of applications and what the administrative burden will be of undertaking a lot of these reviews. It is important to note that most applications for disclosure are going to be fairly straightforward and will not require the demonstration of legitimate interest. This requirement is required only for specific types of requests, such as those involving minors or bulk data, which we talked about. In those cases, applicants must provide evidence that they are investigating money laundering, tax evasion, terrorist financing or sanctions, and must explain the intended use of the information.

Companies House will draw on mechanisms similar to those used by HMRC, where applicants demonstrate a legitimate interest in disclosures from HMRC’s trust registration service. The registrar may request additional information or evidence to determine an application or refer a question to another party who they consider may be able to assist in determining the application. With extensive experience in handling sensitive requests, Companies House is well prepared; it has contingency plans to manage any surge in applications promptly and efficiently. I note that a nominal fee will be required of applicants to make sure that this is cost-neutral with regard to the Government. I think that covers most of those questions, but do correct me if I am wrong.

I shall now move on to the questions asked by the noble Lord, Lord Sharpe, about what legitimate interest is, how it is pursued and followed up, and what the application process is. To apply for access to information about a specific trust, applicants must provide their personal information, the name of the trust related to the relevant protected trust information, and the overseas entity’s name and ID. Applicants seeking trust information related to minors or bulk access—that is, applying for information on more than one trust in a single attempt —must demonstrate a legitimate interest, such as investigating money laundering, tax evasion, terrorist financing or a breach of sanctions imposed by regulations under the Sanctions and Anti-Money Laundering Act 2018. They must provide a statement to Companies House that they are requesting the relevant protected trusts’ information to further their investigation and a statement of how they plan to use the information. Companies House is not obliged to disclose the information if it could prejudice an ongoing criminal investigation or adversely affect national security; if it involves a pension scheme; and where the individual has applied for protection.

With regard to how someone will show that they are investigating money laundering et cetera for the legitimate interest test, applicants are expected to provide comprehensive details of the investigation that they are undertaking, supported by evidence to demonstrate the legitimacy and seriousness of their request. This will help ensure that applications are valid and that the process is not misused.

[Lord Vaux of Harrowden (CB)]

Can I just follow up on that? It occurs to me that there is a potential issue here. What it does not say is who—so you do not have to be a journalist; you could be anyone looking at money laundering. For example, you could be a Russian person with a vendetta against another Russian person who owns a property, and you could simply say that you were looking at the money-laundering aspects of that. The noble Lord, Lord Sharpe, asked whether it had to be the Times of London or whether it could be some dodgy website—but it could go further than that. It could be another competing Russian oligarch, or something of that nature.

[Baroness Gustafsson (Lab)]

I think that you talk to the problem at hand, which is how you balance off disclosure from harm. There will often be legitimate reasons for wanting to access this information, but there are also legitimate reasons why you would not want someone to have that information. I do not think that this is a policy where you can describe a single selection, or parameters, that will defend both sides, which is the exact reason for this process, I believe.

The applicant who requires the information has to give full and detailed information as to their identity and why they would need the information, and the individual whose details are being disclosed has the opportunity to write and say that this is information that could cause them harm were it to be disclosed—and proactively make that statement, so that the registrar has the ability to protect those interests. Then it is the registrar’s role to take that information and ensure that they are getting that balance right. They have the information about the applicant, and they can make that judgment based on whether something is a legitimate interest and this is not a bulk access—someone trying to get the full list of all the trustees so that they can sell their local accountancy advice, or whatever that motivation is. On the other hand, they also have the register for people who believe that interest would be detrimental to their personal ability. Their role is to balance the two, providing that transparency but also protecting them from harm.

[Lord Fox (LD)]

I am sorry to labour the point, but the way in which it is being depicted is as if people will accept the registrar’s ruling and say, “Oh, yeah, right, I understand why you’re not letting me do this”, or, “I understand why you’re letting this person look at my identity”. It seems to me that human nature will operate in exactly the opposite direction and that there will quickly be a huge backlog of people who do not agree with the registrar’s decision, one way or the other. There does not seem to be a defined appeal process. If it is all getting lumped into judicial review, we all know how long that takes and what it leads to—and if there is no system and it all ends at the registrar, there is huge pressure on the registrar to be right every time, which will be extraordinarily difficult. While I can understand how it is being described, my sense is that it will be a lot messier than that.

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[Baroness Gustafsson (Lab)]

To take the second question first, that is correct. The beneficial owner will not automatically receive notice that they have had this request around their information, or that their information has been disclosed, although that information would be available through a freedom of information request. The information is there, but there is no automatic process whereby they would be informed were someone to make that request. I understand why that would be the case, and that it would be something subject to an ongoing review—but, ultimately, I understand why that decision has been taken here.

With regard to the process, there is a judicial review in place for an appeals process. It is something that is going to have to be under this ongoing review about the volumes that are required and whether we are creating a backlog of requests that ultimately end up in that appeals process, which could be indicative that this is not a pragmatic balance that is sat in the middle between transparency and privacy. I still believe that this is a really strong step forward in providing the much-needed greater transparency that all noble Lords in this Room have been important and paramount in creating in the first place. We are just taking the next step in providing that transparency.

Motion agreed.

EU Law

Baroness Gustafsson Excerpts

Tuesday 28th January 2025 Lords Chamber

[Lord Howard of Rising]

To ask His Majesty’s Government whether they have further plans regarding the status of retained EU law.

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, the Retained EU Law (Revocation and Reform) Act 2023 largely removed the special status of REUL at the end of 31 December 2023, and REUL that had not yet been revoked became assimilated law. The third Assimilated Law Parliamentary Report was published on 23 January 2025. It sets out the plans for future use of the REUL Act powers within the context of the Government’s national missions and a commitment to reset relations with the EU.

[Lord Howard of Rising (Con)]

Does the Minister agree that, while there are arguments for and against being part of the EU, there is no case whatsoever for giving up any benefits of remaining without the benefits of leaving—in particular, freedom from the jurisdiction of the European Court of Justice?

[Baroness Gustafsson (Lab)]

We are resetting the relationship with our European friends to strengthen ties, secure a broad-based security pact and tackle barriers to trade. We are working with the EU to identify areas where we can strengthen co-operation for mutual benefit, such as the economy, energy security and resilience. There will be issues that are difficult to resolve as well as areas that we will stand firm on, and we have been clear that there will be no return to freedom of movement, to the customs union or to the single market. We will work together and with respect to international law and shared institutions.

[Lord Fox (LD)]

My Lords, I am glad the Minister mentioned the reset. Have the Government responded formally to the offer by the EU’s chief trade negotiator that the EU is interested in discussing with the UK the prospect of the UK joining the pan-Euro-Mediterranean convention?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for that question. That is something that we are willing to discuss.

[Lord Forsyth of Drumlean (Con)]

My Lords, given the welcome statement by the Chancellor on financial regulation, and given that the European regulations, which were subject to some democratic control before, are now being placed in the hands of the regulators, what plans do the Government have to give direction to the regulators as to how they might be made accountable for the implementation of these as part of the Government’s growth agenda?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for the question. The Government are committed to driving economic growth and working hand in hand with the regulators to make sure that that growth can be achieved in a sustainable way that is fair to all markets and ultimately beneficiary to consumers. The Government are committed to maintaining the independence of those regulators, but we work with them to provide an overall strategic steer on the directions and priorities they should be working towards so that they can work hand in hand with us and our priorities around growth.

[Baroness McIntosh of Pickering (Con)]

My Lords, I welcome the noble Baroness to her position. Have she and her department made an assessment of the cost to the UK chemical industry of having to match both a UK REACH programme and an EU REACH programme? Is this part of the reset that the Government will look at in our relations with the European Union?

[Baroness Gustafsson (Lab)]

I thank the noble Baroness for the warm welcome. With regard to REACH, we held a consultation on an alternative transitional registration model for the UK REACH chemicals regime to reduce the cost to industry while ensuring high levels of human health and environmental protection. We will publish a government response in 2025.

[Lord Bellingham (Con)]

My Lords, can the Minister explain the difference between retained EU law and assimilated EU law?

[Baroness Gustafsson (Lab)]

Yes, of course I can—

[Noble Lords]

Oh!

[Baroness Gustafsson (Lab)]

The retained EU law Act 2023 largely ended the special status of retained EU law. It did this by removing the majority of EU-derived interpretative effects. From 1 January 2024, retained EU law which had not been revoked became assimilated law.

[Baroness O'Grady of Upper Holloway (Lab)]

My Lords, does my noble friend the Minister agree that, when we were members of the EU, it only ever set minimum standards and the UK was always free to do better than those minimum standards? When it comes to labour law and the Employment Rights Bill, this will help reset the relationship with the EU because we will be trailblazing better employment rights and conditions for workers.

[Baroness Gustafsson (Lab)]

We will continue to co-operate with European partners on regulatory matters wherever possible and we have held constructive discussions with the EU areas of mutual benefit. But one of the Government’s priorities is supporting our own growth and our own ambitious goals and making sure we have the regulatory and legislative framework to support us. It is an opportunity that is within our direct control.

[Lord Sharpe of Epsom (Con)]

My Lords, following on from the question from my noble friend Lord Forsyth, at the Davos 2025 conference the head of Meta’s global business remarked that the overregulation within the EU is stifling business, making the region significantly less competitive on the global stage. Therefore, does the Minister agree that the UK should prioritise aligning our regulatory framework to the most competitive global standards and avoid aligning with the EU, particularly as part of any reset, if we are truly serious about economic growth?

[Baroness Gustafsson (Lab)]

The Government’s priorities are around driving economic growth within the UK, and I firmly believe that regulation has an important role to make sure that that growth is not short-term but long-term and sustainable. We have many trading opportunities within Europe, which is one of our largest trading partners, and there is an opportunity to make sure that we work to remove any barriers that get in the way of supporting that trade while making sure that we still support our own ambitions within the UK to drive that sustainable economic growth.

[Lord Watts (Lab)]

My Lords, I congratulate the Government on trying to reset the relationship between ourselves and Europe that was ruined by the previous Government. Can I urge the Minister to put growth and our trade relationship at the forefront of our policy and to take no notice of those people who live in the past and have no idea how to attain the growth that we need?

[Baroness Gustafsson (Lab)]

I thank my noble friend for that question. We completely agree that economic growth within the UK is our number one priority. A great way to achieve that is by freshening the relationships we have with our key trading partners both within Europe and beyond.

[Lord Newby (LD)]

My Lords, given that economic growth is the number one priority of His Majesty’s Government, does the noble Baroness agree that one way of promoting economic growth would be strengthening the labour force in the UK by reintroducing the youth mobility scheme with the EU?

--- Later in debate ---

[Baroness Gustafsson (Lab)]

I would stand by our position that economic growth is an important factor. Understanding the skills required to accomplish that growth is something this Government take very seriously. Making sure we are respecting the rights of our workers has come under a lot of scrutiny and review as part of the Employment Rights Bill, and that will continue to be a priority of this Government. We are making sure we have the right aspirations and ambitions regarding growth and the right skills and talent within the UK to support that growth.

[Lord Hannan of Kingsclere (Con)]

My Lords, can the Minister tell the House which aspects of the reset will impact directly on our pursuit of a free trade agreement with the United States—a goal to which the Government remain laudably committed?

[Baroness Gustafsson (Lab)]

I cannot comment on the specifics of the exact regulation that may or may not be coming. With regard to the trading relationship and making sure we have trade agreements in place, the Government are constantly and doggedly pursuing that to make sure we have a clear trade relationship that is free from barriers that get in the way and impede trade.

[Baroness Bennett of Manor Castle (GP)]

My Lords, before the previous general election, the Royal Society of Chemistry was calling for a national chemicals agency to overhaul our

“broken chemicals regulation and management system”.

Since Brexit, the EU has stepped ahead in addressing many chemicals that are a threat to public health and environmental health. We are now getting further and further behind almost every day. Are the Government going to follow the recommendation of the Royal Society of Chemistry?

[Baroness Gustafsson (Lab)]

On the possibility of a chemicals agreement, as we have said, we will work to improve the UK’s trade and investment relationship with the EU across a wide range of areas, including this one. But it is too early to discuss scope or specific areas in greater detail.

Competition and Markets Authority Chairman

Baroness Gustafsson Excerpts

Monday 27th January 2025 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, the Chartered Institute of Personnel and Development has called on the Government to conduct a meaningful consultation with businesses. Instead, the Government convened the regulators to seek advice on how to drive growth. Is the Minister aware that the union-authored Employment Rights Bill will create another raft of regulations which will further weaken an already damaged employment landscape? As a business founder and employer, does she believe that that Bill, which is due in your Lordships’ House soon, will really drive the growth agenda?

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson)]

My Lords, commenting to the regulators about supporting the Government on their number one ambition of growth is entirely appropriate. Effective regulation is essential to delivering growth. The Prime Minister has been clear that regulators have a vital role to play, and that includes the CMA. I do not believe that working on things like the workers’ rights Bill is at contradiction with the terms of both powering economic growth and making sure that our workers are protected.

[Lord Clement-Jones (LD)]

My Lords, I welcome the Minister to Questions. The Chancellor has said that every regulator, no matter in what sector, has a part to play by tearing down the regulatory barriers that hold back growth. Given the Minister’s background, she will understand the benefits of strong and healthy competition in the digital economy, particularly for SMEs. What assurance can she give the House that the sacking of the chair of the CMA and the appointment of Doug Gurr, a former country head of Amazon, which itself is subject to current and recent CMA investigations, will not lead to weaker competition and consumer protection enforcement? Are the Government still committed to the new digital markets regime that we have all taken several years to install? Are they now going soft on US big tech in a whole range of digital services—operating systems, app stores, browsers, search engines, digital advertising and cloud services—or are we meant now to include our UK SMEs among the so-called blockers?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for his question, which I have broken down into four points that I hope to address. First, I thank him for his welcome; it is very much appreciated, and it is a pleasure to be here answering questions in front of noble Lords. Secondly, I do not accept the characterisation of us sacking the chair of the CMA; Marcus Bokkerink resigned as chair and the Government are committed to the operational independence of the CMA. Thirdly, on whether the CMA is going soft, especially regarding digital markets, the CMA has new powers under the Digital Markets, Competition and Consumers Act and is already using them fervently for investigations into Google and Apple. The Government are committed to the independence of the CMA and making sure that we create an industry that is open to free and fair competition.

[Lord Lansley (Con)]

My Lords, the newspapers all seemed to think it was relevant to cite the decision of the CMA in relation to Microsoft and Activision in the Government encouraging the chairman to step down. Does the Minister agree that, in standing up to Microsoft over Activision and the cloud gaming market, the CMA was doing what it ought to do, which is promoting and maintaining effective competition in cloud gaming services?

[Baroness Gustafsson (Lab)]

I agree that the role of the CMA is to make sure that it is providing fair, open and transparent competition within all industries. While I will not comment on the specifics of any individual case, I think the CMA in that example is doing its best to represent that competition. The Government will continue to stand by that; supporting the CMA’s operational independence, so that it can carry on doing that role as effectively as it can, is something that this Government prioritise.

[Baroness Wheatcroft (CB)]

How does the Minister expect the CMA to balance the desperate search for short-term growth with the long-term needs of consumers? Is there not a risk of a repeat of what light-touch regulation in financial services produced, leading to the 2008 financial crash?

--- Later in debate ---

[Baroness Gustafsson (Lab)]

I do not think this is about short-term growth. This Government are committed to prioritising long-term sustainable growth, and I think that goal unifies us all. The regulators have a part to play in that, which is making sure that they are reviewing the regulations through the lens of growth and understanding whether they are still fit for purpose. This is not about tearing down regulation for regulation’s sake; it is about viewing it through the lens of our goal as a Government and making sure it is aligned to that.

[Lord Watts (Lab)]

My Lords, many of us think it is about time that we had accountability for regulators. The regulators appointed by the previous Government failed to protect the public or boost the economy. Do we not need proper regulation to be applied and to make sure that the regulators are on the side of the public?

[Baroness Gustafsson (Lab)]

I thank my noble friend for that question. He is right; regulation and growth need not be mutually exclusive. This is about creating sustainable long-term growth that protects not only consumers but businesses, so that they have a fair, competitive and open ground on which to compete.

[Lord Fox (LD)]

My Lords, whether you characterise the change in chairmanship of the CMA as a sacking or not, all the government statements are clearly designed to create a change in behaviour within the CMA. If this change of behaviour had been applied for the past two years, say, could the Minister tell us which decisions the CMA made would have been different? How much more growth would we have had over those two years, had the CMA been applying the Government’s new strictures?

[Baroness Gustafsson (Lab)]

I come back to a prior answer; this is not about how we look at independent tactical decisions on a case-by-case basis and reflect on what would or could have been. This is about no longer accepting dormant growth within the economy, viewing our regulators through the lens of how we create long-term sustainable growth and making sure that we are aligned with that. To that end, we are consulting on a new strategic steer regarding the CMA, which is expected soon.

[Baroness Stowell of Beeston (Con)]

My Lords, I welcome the CMA’s recent commitment to review its approach to mergers and acquisitions and would welcome any further moves in that direction. Can the Minister tell the House what, in the implementation of the digital markets and competition regime, she has asked the new chairman to prioritise in support of UK businesses and economic growth?

[Baroness Gustafsson (Lab)]

As has been referred to, the CMA has new powers under the Digital Markets, Competition and Consumers Act. There has been no change regarding that specific policy. We have a consultation open around the strategic steer for the CMA as a whole. That is something we are expecting soon, but is more around the ongoing direction of the CMA.

[Lord Bridges of Headley (Con)]

My Lords, last weekend at Davos, the Chancellor said that growth trumps net zero. If that is the case, will the Government review and revise regulators’ remits to reflect that?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for his question. As I reflect on my experience in driving investment, I do not think the two need to be mutually exclusive. When I reflect on our successes with driving investment, the green energy sector is a region in which we have seen considerable successes. This does not need to be a choice between one or the other. Executed correctly, there is an opportunity for us to drive growth while supporting sustainable energy initiatives.

[Lord Berkeley (Lab)]

My Lords, a large number of SMEs supplying Amazon have been complaining about its attitude, saying how very unfair it is and how anti-competitive some of Amazon’s policies are. Given that the new chair comes from Amazon, can the noble Baroness say that he will not bring those bad tendencies from Amazon into our wider competition environment?

[Baroness Gustafsson (Lab)]

I can hopefully provide some reassurance to my noble friend. There have already been instances where we are investigating Amazon regarding the supply of knives. There is no indication that we have any intention to go soft on these big technology companies. The new chairman’s role and experience within this industry, as well as other experiences such as the directorship of the Alan Turing Institute, will provide a wide raft of experience, which can only be advantageous and beneficial to the role.

Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024

Baroness Gustafsson Excerpts

Monday 13th January 2025 Grand Committee

Moved by

[Baroness Gustafsson]

That the Grand Committee do consider the Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024.

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, these regulations amend the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 to introduce requirements for in-scope businesses to publish certain information twice per financial year about their retention practices, policies and performance where retention clauses are included in construction contracts.

Tackling late payments is critical for the UK economy’s growth and productivity. Fifty-six million hours are wasted each year by businesses chasing late payments, imposing a considerable and unfair burden on small businesses. Long payment terms and late payments are a causal factor in an estimated 50,000 UK business closures each year.

This Government are committed to addressing the issue of late payments. In September, we announced a package of measures to improve payment practices and help small firms. This included the launch of a new Fair Payment Code and announcing our intention to bring forward legislation to make it a requirement for large businesses to include payment reporting in their annual reports. We will also be launching a public consultation which will consider additional legislative measures to hold large businesses to account on their payment performance and to support small businesses and the self-employed. We have also prioritised this statutory instrument, originally proposed by the previous Government, which was withdrawn due to the general election and which we have now reintroduced.

Prompt and fair payment has long been an issue in the construction sector, and particularly affects small businesses in the supply chain. This includes the practice of cash retentions, or firms deducting a percentage of the value of a payment being made to a supplier. Holding retention money is a long-established practice in construction contracts. While originally introduced as a form of insurance against contractor insolvency and defective work, it is controversial and can often lead to smaller contractors losing money. Construction contracts do not offer any protection against the loss of retention if the employer becomes insolvent. Furthermore, sums, which are often deducted at each tier of the supply chain, may be subject to late or partial return or even non-payment.

These regulations seek to increase transparency in relation to retention practices, payment and performance under construction contracts, thereby incentivising larger businesses to improve retention payment practices. This will provide small business suppliers with better information so that they can make informed decisions about who to trade with, negotiate fairer terms and challenge late retention payments.

Before I outline key elements of the statutory instrument, it may be helpful to explain the legal context. The Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were introduced to bring transparency around the payment practices of large businesses. These regulations require businesses above certain size, turnover and balance sheet thresholds to publish information twice yearly on certain statistics, including their average payment times and the percentage of payments not made within the payment period, and information on their standard payment terms. The increased transparency has helped small businesses to make informed decisions before entering contracts with their large suppliers, while the extra scrutiny has helped to reduce payment times.

Build UK, a representative organisation for the construction industry, has benchmarked construction businesses on their payment performance since 2018. For its tier 1 contractors, improvements show the average time to pay an invoice has reduced from 45 days to 30 days; invoices paid within agreed terms have increased from 63% to 85%; and invoices paid within 60 days have increased from 82% to 96%.

Last April, the 2017 regulations were extended for a further seven years to 6 April 2031. Two new reporting metrics on the value of the invoices paid during the reporting period and the percentage of disputed invoices were also introduced to provide even more clarity regarding the payment performance of large businesses. Specific reporting on retentions held under construction contracts is not currently required. These regulations intend to rectify this omission.

This measure has been developed following extensive consultation with firms at all tiers of the supply chain, as well as with construction clients. A clear majority of the firms which responded to the public consultation in 2023—around three-quarters of the 120 respondents—favoured the introduction of a reporting requirement on retentions. Firms within the supply chain have told us they face challenges in understanding policies on the withholding of retentions and what the mechanisms are to secure their release. Many feel that they cannot ask for this information, in case it jeopardises their commercial relationships. This measure will bring greater transparency to the retention policies, practices and performance of larger businesses that are party to construction contracts.

I will now outline the key elements of this statutory instrument. It amends the 2017 regulations and introduces requirements for in-scope businesses to publish certain information twice per financial year about their retention practices, policies and performance, where retention clauses are included in construction contracts. The measure will apply only to large companies and limited liability partnerships which already have a duty to report on their payment practices and performance and which use construction contracts.

In the first instance, reporting will require a statement on whether the company’s payment practices and policies include or do not include retention clauses. Where a company makes a statement that retention clauses are included in its construction contracts, further information must be submitted. Details will be required on: whether retention clauses are included in all its construction contracts; whether its standard payment terms include retention clauses or whether they are used only in specific circumstances, which it would need to describe; whether there is a contract value under which no retention clause is included, and that value; whether a standard rate of retentions is applied, and that rate; whether there is a practice of using retention clauses no more onerous than those which it is subject to; and a description of the process for the release of retentions withheld.

Two metrics will also be required: the percentage ratio of the amount of retention withheld from the company by its clients as against which the company holds on its suppliers; and the percentage ratio of the amount of retention the company withheld from gross payments made to suppliers as against the gross amount paid to suppliers during the reporting period. These metrics will help provide smaller firms with better information about a large business’s retention payment practices. It will help illustrate the company’s approach to fair payment and a sustainable supply chain and incentivise larger businesses to improve retention payment practices.

In conclusion, this measure both addresses a clear request made by the industry and has been developed in conjunction with the industry. It is robust and proportionate and will provide small firms in the construction supply chain with useful information that will enable them to take decisions about entering into contracts and to understand how to ensure that retentions owed to them are paid. It will also create a clear incentive for firms to improve their payment performance in relation to retentions. I hope the Committee can see the benefits that these regulations provide and agrees with the introduction of this affirmative statutory instrument. I beg to move.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

My Lords, I join other noble Lords in welcoming the Minister to her place. The construction sector in the UK is not only one of the largest but one of the most vital industries underpinning our economy, as both noble Lords noted. In 2022, the sector achieved a turnover of £487 billion and employed over 3 million individuals, representing about 8% of the UK workforce. Its contributions are therefore fundamental in driving economic growth, fostering innovation and advancing development throughout the nation.

However, the sector is also characterised by considerable fragmentation. There are over 444,000 businesses engaged in a broad spectrum of work, ranging from contracting and product supply to associated professional services. The fragmentation is compounded by complex, multi-tiered supply chains, as major projects often involve 50 or more firms working collaboratively.

This brings us to the topic of retention sums, which are a long-standing practice in the construction sector. Retention—as it is still called for now—sums serve as a financial safeguard and ensure that work meets the required standards. Typically, half of the retention is released upon project completion while the remaining portion is withheld until the expiration of the defect’s liability period, proving additional assurance that all specifications are met. That, at least, is the dictionary definition of retention.

Given the current practices within the sector, we need to focus on the amendment introduced by these regulations. They all come into force on 1 March 2025 and apply to the financial year starting on or after 1 April 2025. The changes impose specific reporting requirements for qualifying companies and limited liability partnerships operating within the sector. The amendment extends existing reporting regulations and requires qualifying companies to disclose detailed information about their payment practices, policies and performance in relation to retention clauses in construction contracts.

Companies will be required to report on whether retention clauses are included in their contracts, the percentage of retention withheld and the procedures followed for releasing these sums. Additionally, businesses will be asked to disclose the contract value thresholds under which no retention clause applies and outline the standard rate of retention typically applied in their agreements. By 1 March 2025, qualifying businesses will be obliged to publicly report on their payment practices, specifically concerning retention clauses in construction contracts.

It is important that this amendment acknowledges the significant challenges caused by fragmentation within the construction sector, which of course affects businesses of all sizes. We understand that the aim of these regulations, as the Minister noted, is to enhance transparency by requiring businesses to report not only the inclusion of retention clauses but whether their retention practices align with industry standards or are more onerous than typical practices. Furthermore, companies will be required to provide clear descriptions of the processes that they follow to release retention sums, which is intended to ensure greater clarity and fairness for all parties involved. However, there are several important points on which further clarification is needed.

These amendments are said to provide increased transparency, fairness and clarity within the construction sector, but can the Government explain the mechanisms by which the regulations themselves will be enforced? How will compliance be monitored and what penalties will be applied to businesses found to be in breach of the new requirements? Additionally, while the new regulations seek to promote fairer payment practices, can the Government elaborate on how they plan to ensure that large companies are not able to exploit their market position, despite the new transparency measures? Will there be any safeguards in place to prevent larger firms imposing even more burdensome retention clauses on SMEs?

The regulations are presented as a solution to the ongoing issue of delayed payments, which have long caused a financial strain on SMEs, yet how will the Government measure the effectiveness of these changes? What evidence is there to suggest that requiring businesses to disclose their retention practices will have a significant impact on the cash-flow issues faced by smaller companies? As an aside, the noble Lord, Lord Fox, has raised an important point about how we will judge these companies in future, based on these particular metrics. These are not, of course, the only things by which one should judge a company or its potential to complete a project successfully and efficiently, so will there be some way of measuring that as well? If that has not been considered, it is something that should be.

While these measures are presented as steps towards promoting better cash-flow management and financial security for smaller businesses, we would urge the Government to further clarify how the regulations will be implemented and monitored to ensure that they achieve their intended outcomes. Will there be a review process to assess whether these regulations are having the desired effect on industry practices and the broader economy?

[Baroness Gustafsson (Lab)]

My Lords, I am grateful for the support for these regulations from across the Committee. I thank the noble Lords and noble Baronesses present for their constructive comments on this measure. Allow me to try to address each of the questions that they asked in order.

First, we heard from the noble Lord, Lord Aberdare. He asked a number of questions, the first of which was: have the previous regulations come into effect yet? The answer is yes; they came into effect and required a report as of 1 January 2025.

The noble Lord’s second question was about how the regulations will be enforced and how the accuracy of the data will be monitored. For that, the Department for Business and Trade will implement a more visible compliance and enforcement approach with non-compliant businesses going forward. Businesses that do not take action to meet their reporting obligations will be prosecuted.

We had a question, supported by the noble Baroness, Lady Neville-Rolfe, about why we would not just abolish retention payments altogether—that is, why are we taking this measure forward and not abolishing it in its entirety? The Government are aware of the impact that retentions have on the supply chain. We are very committed to going further to tackle poor payment practices: in September 2024, we announced our plans to consult on new legislative measures. Now, as part of that consultation, we intend to consult on measures that will address poor payment practices.

Moving on, I refer to the questions asked by the noble Lord, Lord Fox: does defining retention create a potential loophole for companies? Will they suddenly be redefined as completion bonuses? This is one of the arguments in favour of taking this sort of measured, proportionate approach, because we will be able to identify any unintended consequences of some of this legislation, but a key aspect of addressing the naming convention is that it is very clearly defined in a schedule not by what it is called but by the behaviours that it exhibits. Of course, we will monitor this and make sure that, if it requires an update, we will do so accordingly.

The noble Lord, Lord Sharpe, asked what the penalties are for failure to comply. The penalty for a breach of the 2017 regulations is an unlimited fine where a company fails to report or makes a false report.

Lastly, the noble Lord, Lord Fox, asked about sanctions, whistleblowing and the imbalance of power in the supply chain. I say in response that the imbalance of power in the construction supply chain is an ongoing challenge; that is widely understood and acknowledged. However, through the introduction of payment reporting measures for retentions and the enforcement of them, we will be able to create an incentive for firms to improve their payment practices in relation to retentions, as has happened following the introduction of the payment reporting regulations. As I talked about in my introduction to this instrument, we have seen the number of businesses paying within 60 days improve from 82% to 96%, so we should be encouraged that we are supporting correct behaviours with regard to policy.

This Government are committed to making sure that we tackle late and long payments. We want the UK to be the best place in the world for both large and small businesses to thrive. This work on retention payments aligns closely with the department’s wider policy on late payments and will strengthen the existing payment reporting regulations. It will provide for enhanced transparency in relation to the practice of withholding retentions—a practice that, as we have heard, is all too often unfair to small businesses and can, of course, be subject to abuse. It will also provide information to small firms and the construction supply chain about the policies and performance of firms that they are considering working for, enabling them to make better-informed decisions and to secure the payment of moneys due.

[Lord Fox (LD)]

Before the Minister sits down, I asked a very specific question around public procurement. I ask it again: if I am a public procurer and two bidders are more or less the same—or exactly the same—in their bid, but one of them has late payment, am I legally allowed to use late payment as the reason for not accepting that bid? Secondly, developing that question, if the late payer has the cheapest bid, can I also use late payment and retention payments as a reason for not awarding to that bid?

[Baroness Gustafsson (Lab)]

I apologise for not addressing that specifically. My understanding is that this information will help support a party in a commercial negotiation and will, ultimately, form part of its decision-making. As regards the technicality of whether one could legally use that as a way in or out of a contract, I will make sure that we write to the noble Lord on the specifics of that.

[Lord Fox (LD)]

It is really important because we are seeing, not necessarily under the Procurement Act but under the NHS, major legal tussles over the misapplication of the assumed rules of contract awards—not least in clinical waste disposal, where another six or seven health authorities are being taken to court. This is expensive; it will cost the public and the Exchequer. So it is important that we and public procurers understand from the outset whether this is window dressing or material to the procurement process.

[Baroness Gustafsson (Lab)]

I acknowledge that. I agree wholeheartedly with the noble Lord about the importance of getting that clarification; we will be sure to write to him in that regard.

Motion agreed.