Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021

Baroness Kramer Excerpts

Tuesday 30th November 2021 Grand Committee

[Lord Naseby (Con)]

My Lords, I declare a possible interest as a trustee of the Parliamentary Contributory Pension Fund. I want to put this on the record, as we are getting wide briefings at the moment. I also have some experience of the friendly society movement as a former chairman of the Tunbridge Wells Equitable Friendly Society and two Invesco investment trusts.

I particularly draw attention to paragraph 7.8 of the Explanatory Memorandum, which is key. It says that

“the framework in its current form does not appropriately cater for the differences between credit institutions and investment firms and can be disproportionate”

and “burdensome”, et cetera. That seems crucial. It then goes on to mention the consultation that has been carried out. When my noble friend winds up, could he make it clear whether all parts of Part 9C rules have been produced and circulated to the interested parties, or not? Certainly, implementation on 1 January 2022 does not fill me with enthusiasm. It is after Christmas and less than a month away, so I hope he will say that they have been produced, and when.

I am sure that my noble friend and all noble Lords would feel that there are some deficiencies in UK-retained law. I seek reassurance that we are confident that those deficiencies have been removed.

The other dimension I raise relates to paragraph 12.3. It will not surprise my noble friends that, once again, I feel very strongly about impact assessments and statements from Her Majesty’s Treasury that it considers that the net impact will be less than £5 million and very limited. Paragraph 14.1 says that

“the number of small businesses in scope is low.”

They may be small businesses, but they are important businesses to whoever is running them—and we are talking about financial firms.

It is always helpful to have a review of any legislation, particularly legislation relating to our coming out of the EU. That may not be proportionate in the judgment of the Treasury, but I do not know how many firms we are talking about. If my noble friend has that information, that will be helpful. I suppose that if we are talking of only three or four, that may be right, but I do not believe that that is the number—from my experience in the City, from some of the presentations we have recently had and, indeed, from some of the publicity about what is happening in the financial sector at the moment.

Is my noble friend absolutely confident that those firms do not want the SI reviewed after a period? If they all say no—that they do not want a review and are comfortable—fine, but my judgment is that, in life, it is helpful to have a review at some point.

[Baroness Kramer (LD)]

My Lords, obviously I will not oppose this statutory instrument, but it raises a number of issues which need to be explored, and I shall look forward to the Minister’s response to our concerns. We raised these concerns during the passage of the Financial Services Act 2021, but they have not been alleviated.

The Act and this SI transfer significant power to set the UK rules on Basel III standards to the financial regulators accompanied by minimal parliamentary oversight. It is a crucial process and has a fundamental impact on financial stability, as it sets the capital and risk management requirements for banks and other financial institutions. The PRA and the FCA are expected to consult on their decisions, and parliamentarians can contribute to those consultations, but as no more than ordinary consultees, despite their responsibilities to the public, and can at best hope for a few comments on their points as part of the general response.

Committees of Parliament can question the PRA and FCA and undertake reports but, in practice, on only a handful of issues each year, so they are likely to be visited exceedingly rarely and probably only at a time of crisis, which is rather too late. Even the SIs offer no meaningful accountability, because they cannot be amended. This SI, with the powers it gives the regulators, will mean that the issues of Basel III, so crucial to our financial structure, will probably never again come before either this House or the other place, except through that committee arrangement, which is, as I said, pretty minimal. Perhaps the Minister will confirm that.

When we were members of the EU—I know mentioning that is not popular with the Government—basic Basel standards were implemented through EU law, where the process was open and accountable and as different as day from night from our current circumstance. Before the EU Commission proposed draft legislation, it held many conferences and public meetings involving parliamentarians; parliamentarians were engaged in briefings, expert evidence sessions and discussions with a wide range of relevant regulators and supervisory authorities; and the Economic and Monetary Affairs Committee would be involved in scrutinising the main directive and regulations by way of co-decision. With Brexit, the power has transferred from the EU, but the Government have chosen to do it in a way that essentially removes any meaningful democratic accountability. I should like to hear for the record why the Minister has chosen such a route.

Money Laundering

Baroness Kramer Excerpts

Wednesday 24th November 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, we are certainly committed to that. I am afraid I cannot give a date yet. As the noble Lord will know, we are trying to put a huge amount of legislation through both Houses, but we recognise that it is a priority. In February this year the economic crime plan was set out. It listed seven priorities, and dealing with the issues he referred to is included there.

[Baroness Kramer (LD)]

My Lords, any money launderer worth his or her salt is no longer going through the banks. They are basically engaged in Web3 and using decentralised finance, known as DeFi for short. Does the Minister understand that this makes even more critical the kind of register the noble Lord, Lord Tunnicliffe, just described, but also a register of the beneficial owners of property in the UK, which is frequently the way in which criminals, dictators and others choose to wash out their money?

[Lord Agnew of Oulton (Con)]

My Lords, I refer again to OPBAS, whose role is to oversee all the regulators for supervision in this area, including those that the noble Baroness refers to. We will continue to be vigilant.

UK Cash Network

Baroness Kramer Excerpts

Monday 8th November 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My noble friend is right that access to cash can be more difficult for those less well off. However, as he will be aware, LINK has committed to protect free-to-use ATMs more than one kilometre away from the next nearest free ATM or post office and free access to cash on high streets. It remains a priority of this Government to ensure that cash is available.

[Baroness Kramer (LD)]

My Lords, I wonder if I can press the Government, because the Bank of England is looking closely at a central bank digital currency. Many have suggested that this will be the substitute for cash in the future, but its characteristics are quite different, in many ways, from cash. Can we have an assurance from the Government that they will keep in place a cash infrastructure running alongside—if they choose it—a digital sterling?

[Lord Agnew of Oulton (Con)]

My Lords, we are certainly looking at a digital system, but I reassure the noble Baroness that cash remains a key part of the ecosystem.

Budget Statement

Baroness Kramer Excerpts

Wednesday 3rd November 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, I start with a sad farewell to the right reverend Prelate the Bishop of Newcastle. I hope that her words today on the importance of investing in our children will be heard by all parties and all sides—not only by those sitting in this debate but by their colleagues. The work that she has done in this area has been important in driving the thinking within this House—again, on all Benches. So I say farewell and thank you from all of us.

On a very different note, I say to the Minister that I hope that the message has now been received that the Budget and the spending review are issues that should be debated in the main Chamber. I hope that we never see this decision to be in Grand Committee cited as a precedent for future debates on Budgets and spending reviews.

Many people who have spoken today have talked about the huge challenges facing our economy, whether they are recent through Covid or deeply embedded, and I want to capture a few of them as part of my winding summary. The OBR has confirmed that the economy is permanently severely scarred by 2% from Covid but, far more significantly, by 4% due to—as we heard in detail from the noble Lord, Lord Eatwell, and my noble friend Lord Razzall—a loss in tax receipts of £30 billion per year as a consequence just of the Brexit scarring. In fact, several noble Lords have stated that 4% is probably a rather conservative calculation of the level of permanent damage.

UK productivity continues its malaise, repeatedly growing at something in the area of only 1.3%. I completely agree with the noble Lord, Lord Londesborough, that this, in a sense, is the basis for the economic struggle that we face. Our rival economies have continued to do far better on productivity. We have to tackle that issue; it is a long-term deficiency, as the noble Lord, Lord Desai, essentially discussed.

I wanted to say, however—and I think that the noble Lord, Lord Londesborough, raised this question—that the Government talk about us being a high-wage economy. I know the noble Lord was afraid of the consequences if that is not driven by productivity, but may I refer him to the OBR? Its forecast shows that real wages will have grown just 2.4% between 2008 and 2024. That is not a high-wage economy, and is one of the fundamental problems that we have to address.

Business investment—mentioned by several people—continues to be weak; both foreign direct investment and domestic investment are at very low levels. According to the publication Credit Strategy,

“52% of businesses are now saddled with ‘toxic debt’”.

Of course, that is not even through all the various sectors, but many of our key sectors will be struggling with the debt burden for years to come, holding back their growth. UK corporate debt was up in 2020 from £1.9 trillion to £6.6 trillion. It is an eye-watering number.

To pick up the point from the noble Lord, Lord Razzall, exports to the EU are down sharply, but I say to others who have talked about new trade agreements, new opportunity and so on that, according to the forecasts, they are very far from being offset by new opportunities elsewhere. I am picking up on ONS figures. It has led to real concerns that the UK is losing overall competitiveness.

Again, as many have said, we have a rapidly ageing and increasingly dependent population. I was looking at the dependency ratio, which rose in 2020 to 57.6%, up from 51.7% in 2010; that comes from World Bank figures. The issue that lies behind this is that it is pretty much unsustainable, particularly when that dependency is coming from an older population and not a group of youngsters who will be future workers.

Taxes are the highest since the 1950s and on a path to exceed 36% of national income. However, I want to pick up the issue that my noble friend Lord Shipley raised, which is the tax burden of local councils and is not included in those tax numbers that are quoted by the OBR. There is a 5% increase in council taxes, which will be a burden distributed most unfairly under a regressive system. The noble Lord, Lord Turnbull, talked about completely reforming the council tax system and, again, my noble friend Lord Shipley raised the same issue. This is an area that must be fundamentally addressed because of the damage it does to many of the least well-off in our society at a critical time.

Public service net debt is forecast by the OBR to reach 98.2% of GDP and not to start falling until the end of the three-year period. It will just squeak through the Chancellor’s new rule, if the OBR numbers are right. The number that I think frightens most of us is that CPI is forecast to exceed 4%—many are now saying 5% or perhaps even higher. Because it seems to be based very much on essential purchases such as food and energy, its impact will be on the poorest in our society.

Facing all that, I hope—and I join the noble Lord, Lord Hain, in this—that the Government will now accept the amendment from the noble Baroness, Lady Altmann, which was passed yesterday. It would reshape the definition of the triple lock for this year in such a way that it does not leave pensioners utterly impoverished.

If all that were not enough, we have two of the greatest existential challenges of any age: the scourge of climate change and the challenge, which has hardly been spoken about, of the digital revolution. To me, that says one thing—that we needed a transformational Budget—and what we got was simply underwhelming. There was a sort of scattering of seed as if across the bird table. There were quite a number of good things in it, and quite a number of attractive things, but nothing that could sustain an economy in the long term, just as the feed on the bird table cannot sustain birds through the entire winter.

If anyone doubts the fundamental weakness of the Budget they just need to look at the OBR forecast. This was addressed by my noble friends Lord Fox and Lord Razzall, the noble Lord, Lord Lamont, and the noble Baroness, Lady Noakes. It forecast growth of GDP of 1.3% in 2024 and 1.6% in 2025. I know that the noble Baroness, Lady Noakes, is optimistic that those numbers are fundamentally wrong, but, my goodness, that is a long shot. These are the best numbers we have to work with, and we are scared. I mentioned a list of challenges: if we had just a few of them, they would be tough to deal with in that kind of limp economic growth, but when we look at the full list—and I suspect people will add others—we are looking at a serious risk to our standard of living and, frankly, not all the hot air of boosterism will change any of that.

I shall refer to a few particular policies because I think I must. I realise that I cannot go on too long. I join others in not understanding the cruelty to the 3.5 million people on universal credit who are unable to work or able to work only part-time. They are being pushed into penury by removal of the £20 universal credit uplift, which is made worse by the pressure of inflation. All the talk about optimism will not stop people being hungry, and I pick up the point made by the noble Baroness, Lady McIntosh of Pickering, that every one of them has the right to a warm home. These issues were addressed by the noble Lords, Lord Turnbull, Lord Horam and Lord Desai. That does not mean that I do not welcome the taper in the UC rate, which will help people in work full-time, and the boost to the national living wage, but I pick up the point made by the noble Lord, Lord Desai, that it still leaves those people facing effectively a 55% marginal tax rate, which is simply unsustainable and outrageous. I also pick up the issue recognised by the noble Lord, Lord Sikka, which is that national insurance starting at a much lower threshold is an additional pressure on those individuals. I quote the IFS:

“the working age benefit system is overall substantially less generous than it was in 2015.”

I am also very worried that the increases in spending for most government departments are a sort of unannouncement of previously announced budget cuts—perhaps the Minister can confirm this—and that most of the money that is being restored is for capital spend, when we desperately need day-to-day spend.

I shall finish by focusing on what I think is the key issue of the day, which is climate change. Our Government call themselves a global leader in tackling climate change. If that is their ambition, why is this not a proper net-zero Budget? It contains announcements of modest, scattergun green investments, which are all welcome, but they are insubstantial compared with our economic rivals. I shall give a direct comparison: £620 million over the next three years to encourage us to use electric vehicles and to walk and cycle. In Germany for the equivalent period there is €5.5 billion just for electric vehicle charging infrastructure. It is dramatic and transformational in Germany and in the margins in the UK.

Businesses are critical to net zero. They have told the CBI and anyone who will listen that they need a long-term fiscal plan of incentives and disincentives to reach net zero, including disincentives to support fossil fuels. Long-term fiscal certainty is the only way in which they will maximise their investment. There was no plan in the net-zero strategy. I think all of us thought it would be in the Budget but it is not.

The Chancellor’s proposals today are to use disclosure and embarrassment to get companies to push hard to net zero, but most of us in this Room are not naïve. To get businesses and the financial world to focus on delivering net zero to the timetable needs that combination of rewards and costs. It should have been in this, so we need to hear from the Government why there has been no such plan.

I would love to talk about other issues, such as reforming interest rates. I feel strongly about education. Many noble Lords said that spending per student is only just returning to 2010 levels. There is one suggestion I want to make to the Government on that: if they delayed that cut in the banker’s levy by one year, they could use that money to provide catch-up for all the kids who are struggling as a consequence of two years of inadequate education because of Covid. If they do not catch up, they will lose permanently. We have proposed that as a party and here is an opportunity to do it.

Just about everybody was displeased with this Budget in one way or another. For a brief second, I thought that the noble Lord, Lord Naseby, would be fully supportive, but then he talked about the dreadful track and trace system, which wasted something close to £37 billion. The noble Baroness, Lady Foster of Oxton, said she was glad that she was not the Chancellor, but it is the job of Chancellors, in times like this, to make the transformational change, to step up to the struggle the country faces and make those big shifts. That was what was required from this Budget, but it was not what was delivered.

Critical Benchmarks (References and Administrators’ Liability) Bill [HL]

Baroness Kramer Excerpts

2nd reading
Wednesday 13th October 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I begin by welcoming the noble Lord, Lord Altrincham, to the House. I think that is a maiden speech that we are all going to remember. We particularly look forward to hearing him speak on Treasury issues but also very much on mental health issues. If one had to pick two issues pertinent to our time, I would say that those must be the two. I very much welcome him but have to warn him that to go from being a banker to being a politician is to go from one much-despised profession to another. I hope he recognises that he is unlikely to have any better reception in public today than he did as his former self. We recognise his capacities and honestly and sincerely welcome him.

I join others in thanking the Minister and the Economic Secretary to the Treasury for the briefings that they provided to us and particularly for the meeting that many of us were able to participate in yesterday with the relevant officials from the Treasury and the FCA. I know that I felt a much greater peace of mind at the end of that meeting. It was extremely helpful to have that level of expertise and people who have been so engaged in the process brought into that meeting with Peers.

We have always supported the essential tenets of this Bill—immunity for the administrator, synthetic Libor and provision of legal certainty that legacy contracts will remain valid. We in no way wish to challenge that. However, I am very much with my noble friend Lord Sharkey on the questions that he raised—I am not going to repeat them as this House and the Minister will now be fully aware of them—and on the questions raised by the noble Baroness, Lady Noakes, and the noble Lord, Lord Blackwell. We have to have some constructive responses to those.

I want to pick up on two questions that have particularly exercised me, although that is not to say that they are more important than the other questions. In a sense, both questions come down to the mechanism that the FCA has selected to determine synthetic Libor—how it determines the spread above the risk-free rate. As I say, I took a great deal of comfort from the conversation yesterday with the FCA but I think there must be some mechanism whereby this House should be able to scrutinise the process that leads to a mechanism of such significance. Again, it underscores the gap we have in making a regulator accountable to Parliament. I hope that the Minister will take that back. It is not a criticism of the regulator but points out the absence of an appropriate mechanism. We need to have that put in place.

My second concern has always been that cliff edge. On 31 December we will have a Libor rate created through the historic process and by the mechanism people expected to be used when they signed their various agreements. Then four days later synthetic Libor is likely to deliver a difference of something in the range of 10 basis points. I find that rather extraordinary. I hope it does not lead to the kinds of legal disputes that the noble Baroness, Lady Noakes, has indicated would be possible. I think it could. It also somewhat disturbs me that we have not found a better way to smooth that transition. Like others who have been bankers in this House, I suspect, I have fought hours through the night for one or two basis points; 10 basis points is such a significant differential. I am delighted if the financial services industry finds this entirely acceptable but I just wonder whether it will not be rather surprised when it actually sees the number.

One of my concerns has always been that that kind of gap as a result of two different approaches to creating a Libor benchmark also indicates the potential for various financial institutions to arbitrage and game in various ways because of the difference and the change. I have taken some reassurance from the FCA trying to explain that it does not think that small individuals will be the victims of any such gaming and arbitrage. I have concerns because loans to small businesses are not regulated and therefore the FCA’s ability to monitor them is very different from its ability to monitor loans to consumers. If it is the big boys all playing games with each other, I must admit my concerns are rather fewer, but I have concerns around that area.

I am going to close because so much of what has needed to be said has been said, but I want to pick up on the issue raised by the noble Lord, Lord Moylan. I, too, feel an incredible sadness in saying farewell to Libor. Back when I was in the United States, I spent more than 10 years structuring loans and a variety of transactions—some of the earliest swaps—around Libor, and I took great pride in a benchmark that was set in London not just for sterling but for every meaningful currency across the globe and all time zones. I confess the shock that I experienced, never having worked in the City of London, only in the United States in direct lending and structuring, to find that Libor had been manipulated, and so blatantly, by major financial institutions and that it was apparently well known to their chief executives.

I was on the Parliamentary Commission on Banking Standards. Those masters of the universe were very well aware of the manipulation that was going on and, frankly, the regulator was too weak or too deferential to intervene. It was a stain on London and on financial services in the UK and I am sad that that stain still overhangs this ending of Libor. I agree with the noble Lord, Lord Moylan, that there are consequences because of the loss of prestige and international standing that is attached to the disappearance of the role that London played in virtually every lending transaction across the globe. It is with sadness, and perhaps with a little bit of shame, that I stand here and speak to this Bill. We will support the Government, but we would like to see our questions answered, and we may press some of them when we get to Committee.

Net-zero Emissions Target

Baroness Kramer Excerpts

Monday 11th October 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, as I mentioned in an earlier answer, we need to do this transition in an orderly way. We need to ensure that our net-zero energy generation is sustainable. We are moving very quickly. We have seen, for example, the cost of offshore wind drop dramatically over the last five years, from over £100 per kilowatt hour to around £45, but we need to keep moving that along before we remove any more support to the traditional sources of energy.

[Baroness Kramer (LD)]

My Lords, according to the CBI, the obstacle that most frequently holds back business from taking action towards net zero is uncertainty, especially about the Government’s fiscal policy on the environment. Can the Minister assure the House that the Budget on 27 October will provide a clear net-zero fiscal strategy and road map, with a consistent environmental tax policy outlined, including principles and goals that business can rely on for the long term?

[Lord Agnew of Oulton (Con)]

My Lords, I cannot speak to the detail of the Budget in a few weeks’ time, but we have a strong message, which we have been consistent with over the last few years. We have made clear, for example, the recently announced emissions trading scheme, which provides a clear road map for heavy users of carbon. We are about to introduce the plastic packaging tax, which again is clear, for industry to get behind. We will continue to send those messages, but I think they are pretty clear. Indeed, we are seeing dramatic change by business. For example, coming up to COP 26, three huge companies have made very strong commitments: GSK, Hitachi and Microsoft have all committed to get to net zero in the next few years.

Health and Social Care Levy Bill

Baroness Kramer Excerpts

2nd reading & Order of Commitment discharged & 3rd reading
Monday 11th October 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am the first of the winding speakers. I have listened to many debates in this House, but it is very rare to hear speech after speech of the quality that we have had today. Frankly, it makes it even more galling that the other place dealt with this Bill so quickly, when there was so much that needed to be said and changed. It is galling that we cannot in any way directly impact the shape of the Bill, other than by hoping that we have persuaded the Government to reconsider an issue here or there, but that is the world in which we function. At least we can make sure that we are heard. I hope the Government will read today’s speeches because they have been quite extraordinary.

I come from a party that has been talking about a hypothecated tax to increase the funding of health and social care for years. We always assumed that that would be based essentially on income tax, as the broadest-based tax and the most progressive of the taxes available. Lots of other ideas have come from the Floor today, including a much more regular re-rating of property. There are many ideas to consider, but the essential principle that the increased funding for the NHS and social care should be funded by a very broadly based, progressive tax is to me fundamental and sensible.

One of the reasons we as a party have gone in the direction of a hypothecated tax is to keep the Treasury’s sticky fingers off the additional money. It will be important to hear an answer from the Minister on the question that the noble Lord, Lord Eatwell, raised about how long this levy will be hypothecated. We need some assurance and a fuller understanding of that issue.

When I first heard that the Government were going to consider a levy, never in my wildest dreams did I consider that it would be put on national insurance. It would be hard to find a more unsuitable basis for raising this kind of funding. Many people have made the fundamental point that the threshold for paying national insurance is much lower than that for income tax, so this falls on the poorest in our society. The levy has a rate step-down for people earning higher incomes and of course it does not touch unearned income. We understand that there will be some sort of dividend tax but, as others have said, unearned income, whether on property, pensions or savings, is not captured. The Government talk constantly about levelling up, but they plan to put a tax on those with the lowest incomes, while excluding the sources of income of many of those with the highest incomes. How on earth does this contribute to levelling up?

It is normal for us to see a distributional analysis—this was raised by the noble Lord, Lord Eatwell, and others—to show where the costs fall. I would be very interested to see an analysis which separates out where the costs and the benefits fall. That information will be critical. As many have pointed out, those who will be able to benefit from the cap will be some of the biggest winners in all this, rather than people who are currently struggling because the social care on offer to them is completely inadequate and needs to be better funded. We need that distributional analysis, broken out in an appropriate way.

Context matters when we consider increasing something such as national insurance. Context always matters. The context in this case is a rapidly rising cost of living. I read today that inflation is now anticipated to reach 6% by the spring and to fall back only to about 3% for the remaining decade. That will be an incredible hit for individuals, and much of that inflation will be embedded in essentials such as food and energy. Bitterest of all for almost everybody on low incomes is the £20-a-week cut in universal credit, coming as part of this overall package. It is described by the Resolution Foundation as a “toxic” combination, and that is perhaps the most accurate phrase.

If we look back at the work done by the House of Commons Library just to give people a sense of exactly how that works, we see that a typical NHS worker is on something like £19,330 a year, and many such workers rely on universal credit. They are about to see their income fall by almost £80 a month at this time of rising prices. That is despite the 3% pay increase that they have been awarded, because the increase in national insurance and the cut in universal credit are dwarfing the pay increase. The Government must have known that when they agreed to the 3% pay increase, and frankly, it makes me absolutely furious that we did not have full honesty, transparency and openness at that time.

I have a particular question to ask the Minister because I would like some clarity on this. The Government intend to reimburse government departments for the increase in national insurance contributions for those whom they employ directly. But many departments, and far more especially local government, contract out services, and indeed, the Conservative Government have pressured them to keep contracting out services for a long period. What happens when that increase in national insurance hits the cost of outsourced services? Will the Government pick up that added bill? As many others have said, we now see local authorities considering a 5% increase in council tax just to cover the underfunded cost of social care, and I do not think that includes the additional impact of the national insurance contribution on the cost of outsourced services. We absolutely have to get some sense of an answer.

We all know—we have heard again today from speaker after speaker—that this levy is far from adequate to solve the problem, not just of social care but even of the NHS, especially with its post-Covid backlog. Social care is again pushed into the Cinderella role. We know also that over the next three years, of the £36 billion raised, it is anticipated that at best only £5.4 billion will go to social care. That is a drop in the ocean in many ways, particularly listening to the numbers that the noble Lord, Lord Forsyth, quoted on the need for an £8 billion-a-year increase; others updated those figures to something closer to between £9 billion and £14 billion. Like many others, I am absolutely convinced that we will not see the NHS claim this money just for a short two or three-year period. When I talk to people in the NHS, they are very clear that they will need to claim the lion’s share of all that money for more than a decade to be able to bring the National Health Service to the level that will enable it to deal with its current and anticipated burdens.

Demographics are moving against us as well. Many people talked about the fact that half of those using social care presently are adults with various forms of disability. They will be moving into old age. The demographics mean that we will see an ever-increasing social care burden, so we need a comprehensive plan, as many said—a proper framework to be able to deliver social care. I would love to know what is in that famous White Paper which was apparently in the Prime Minister’s back pocket, but we have not even seen that at this time. I also agree with so many of those who say that when you look at this package, it is clear that not only does it not fund the social care reforms that we need to deal with the desperate staffing shortages—now well over 120,000 people—but those who think that their costs will be covered will find that they are not covered for “hotel costs”. May I say what an appalling term that is? These are costs of living, not costs of luxury holidays. They are not hotel costs in the sense that anybody would ever anticipate. In addition, that the cap will be tied to costs defined by local authorities’ assessment of cost rather than the real cost puts us in an absolutely extraordinary situation.

I know that I should finish very quickly. From all the voices that I have heard today, I have taken that there is a huge amount of common ground across parties, Benches and ideologies. We are not all absolutely in agreement on every single point. However, it is clear that it is possible to pull all parties together and establish an underlying policy and principle that everyone can sign up to and that then guarantees that both the schemes and the funding do not become political footballs in ensuing elections. It also means that we can have in place the kind of long-term planning that is fundamental to the answers that we are searching for. Could the Minister take back or even give us confirmation today that he will be genuinely pulling together all the various voices to both establish the framework and think through the funding? We all completely admired the statement made by the noble Lord, Lord Forsyth of Drumlean, right at the beginning. We are being asked in the Bill to pay a bill but have no idea what on earth is on the menu and what services will be provided. If we do not do this on an all-party basis, we will be doing something that, frankly, has very little future.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

Yes, sorry. I lost my thread. There will be no changes to existing procedures.

Noble Lords asked about support for unpaid carers. Of course, they play a vital role in the care system. I suspect that there is hardly anyone here in the Chamber who has not been involved in the care of their parents at the end of their lives on an unpaid basis. I certainly had to—but luckily I am one of seven siblings and we all live in the same county. None the less, it is a considerable burden.

The Care Act encourages local authorities to support unpaid carers and to provide preventive care to stop people’s early care needs escalating. A new cap on care costs will offer greater certainty to unpaid carers and support informed decision-making and planning for the overall costs of care.

The Government will take steps to ensure that the 5.4 million unpaid carers have the support, advice and respite they need, fulfilling the goals of the Care Act. We will work with the sector, including unpaid carers, to co-develop more detail in our plans and will publish further detail in the White Paper for reform later this year—and on the matter of the White Paper, I say to noble Lords that it is not long now. It is only a couple of months; it has been promised before the end of the year, and I am perhaps a little more optimistic than some Members of the House.

[Baroness Kramer (LD)]

Before the Minister leaves this area of exploration, does he have an answer to my question on whether the Government will pick up the costs of the additional national insurance to be paid by those to whom local government outsources services? I believe it is a yes or no answer.

[Lord Agnew of Oulton (Con)]

I cannot give the noble Baroness a clear answer on that now. More detail will be available in the Budget and the spending review. If it does not transpire in those documents in the next couple of weeks, the noble Baroness can write to me and I will investigate further.

On the adult social care workforce, our investment is at least £500 million across the three years to deliver new qualifications, progression pathways and mental health support. This workforce package is unprecedented investment: it is something like a fivefold increase in public spending on skills and training for this sector.

The noble Lord, Lord Griffiths, asked about vaccines for NHS staff. He is correct that at the moment there is no requirement for NHS staff to be vaccinated. However, we have a consultation under way to try to find the best way through on that sensitive issue.

I have probably answered the noble Baroness, Lady Kramer, as much as I can on the compensating of NICs. Just to confirm, I say that the Government will compensate public sector bodies such as the NHS for the increased cost of employer NICs. If they did not, they would simply reduce the amount available. The Chancellor will set out more details in his spending review.

My noble friend Lord Bethell asked about NHSX funding. We remain absolutely committed to all aspects of technological improvement. Again, I am more optimistic over the long term because I believe we will find new ways of treating this sector more efficiently, and NHSX will play a part in that.

My noble friend Lord Naseby made a point about the structure of GPs’ surgeries. We will have to see some dramatic changes in that area. In my view, we cannot sustain surgeries in which five-sixths of the doctors are working only part-time, but again I think this will throw up opportunities. The two sectors will have to work much more closely together—

Finance Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 8th June 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I pick up the point made earlier by the noble Lord, Lord Leigh, that there has been a relatively small number of speakers in this debate but my goodness they have been powerful speeches, and across a very wide range of issues. I hope the Government will take notice of the quality of this debate and the range of points made.

I start with a couple of general comments. I want to pick up the point made just now by the noble Baroness, Lady Bennett, that this Finance Bill is a very modest Bill. I think that we all know that, but it leads into the issue raised by the noble Lord, Lord Forsyth, the noble Baroness, Lady Neville-Rolfe, and others that we are in a very precarious economic period. I suspect that perhaps the noble Lord, Lord Forsyth, or the noble Baroness, Lady Neville-Rolfe, in fact many people, including the noble Baroness, Lady Bennett, would not agree on the same solutions to the problem, but we can at least agree that there really is a problem and bottom out the extent of it and look for the Government to come forward with a strategy. Can I impress upon the Minister the importance of a government strategy that is realistic and faces up to the grim realities—to use the phrase from the noble Baroness, Lady Neville-Rolfe? We have to have that to be able to go forward effectively and successfully. I do not think that we should pretend that that role is picked up in this Bill. Please can the Minister make sure that it is picked up—and soon, quite frankly?

I want also to pick up the issue raised by the noble Lord, Lord Butler, on the G7 and the global tax and to echo something that the noble Lord, Lord Forsyth, said. I am glad to see that the G7 is coming together to tackle this issue. To me, it is a real illustration of the might of the United States and the flexing of its muscles. Almost every country will take some benefit from the changes in the way that a global corporate tax will be raised as a consequence but, in fact, it will be quite modest for most countries. The United States Treasury is the very big winner, and it is a reminder that when you delve into the world of economics and power politics you have to recognise size and power. I continue to be worried that for the UK this means being essentially a stone that is grated between big regional economies and power bases. If ever it needed to be illustrated, I think it has been the quick acceptance of the US proposals by the British Government because, frankly, they absolutely had no choice.

We have discussed a lot of the Bill in various Budget speeches so I am not going to labour those points, but I have some real pleas to put before the Minister. I am very concerned that the VAT relief rate should not rise to 12.5% in September. When we look at the hospitality industry and the pressures that it is facing, we now recognise that there may even be delays to full opening on 21 June. We know that new variants can come through. Keeping this at 5% to the end of the fiscal year surely would be sensible and would reassure the industry at this moment in time.

The noble Lord, Lord Forsyth, raised the issue of individuals facing rent arrears, which will now come tumbling in on them. So many of our small business, again probably especially in the hospitality industry, are facing in excess of £3 billion in unsettled rent levies. I think the Government are going to have to step in on this and I hope they will look at providing some support specifically on rent issues. Small businesses and self-employed people are very far from being out of the woods. Again, that argues for flexibility on the furlough scheme. The noble Lord, Lord Empey, talked about it in the context of aerospace but, really, so many industries are going to need some ongoing support, or they will end up in a dire crisis. Looking at continuing furlough into the future, for at least some period, may be essential.

According to the Federation of Small Businesses, about 40% of small businesses are finding their debt levels completely unmanageable. We do not have a mechanism at the moment to convert that into a capital base. We need to be able to enable them and support them in converting debt. I think the noble Lord, Lord Bilimoria, has talked in previous speeches about a sort of variation on 3i, but there has to be some mechanism or else many of our small businesses are never going to be in a position to begin to grow; they will be overwhelmed by a debt burden that continues to drain them for a series of years to come.

I make one final plea again on behalf of the 3 million excluded, mainly contractors and freelancers. The Government could, at this very last minute, step in to support that group, and I ask them once again to do so. The noble Lords, Lord Bridges and Lord Forsyth, talked about wrapping this in with following through on the recommendations of the Taylor report. The environment for those businesses—and they are our future—has to be shaped by recognising the risks they face, looking at the rights and the benefits that they do without, and helping to structure the tax environment that they sit in within that overall context. The Taylor report should not be left on the shelf any longer.

I agree with the noble Lord, Lord Sikka, that we have a problem with freezes on income tax thresholds. It really is a mechanism to raise income tax, which is slightly ironic when the Government have basically decided not to raise capital gains tax. Some of the poorest people will now be stepping in to fill that gap. It is also ironic given that the increases in corporation tax are delayed to 2023, so income tax rises will, in effect, hit first.

While I tend not to spend a lot of my time thinking about the best paid, can I get some assurance from the Minister on the freezing of the pensions lifetime allowance? Last time, this created a real crisis for us in the NHS, with consultants realising that one hour of additional work meant that they would get a tax bill that was larger than the associated income. In fact, they could not even ask not to be paid and do the work voluntarily because of the way the system works. A large number of our senior military just got up and left because they were caught in the same conundrum—people who did additional hours on the battlefield were whacked then by the tax system. Can the Minister give me assurances that the way this is designed now will not repeat that particular set of problems? Again, with the super-deduction, I have never understood why it is analogue and not digital. Surely we want people to be investing in the technologies of the future and not just in plant and machinery. That one is completely beyond me.

I was privileged to be a member of the Finance Bill Sub-Committee, chaired brilliantly by the noble Lord, Lord Bridges, and with the noble Lord, Lord Forsyth, also there. I am quite humble when I speak about this report, because it was driven by people of extraordinary capability—it was a very powerful sub-committee. I just want to make some quick remarks, and I will try not to be repetitive, on the three key sections that the report addressed.

I am very worried that powers are being extended before a proper evaluation of how HMRC uses its existing powers. The noble Lord, Lord Bridges, made most of the comments that are relevant in this area, but it struck me—and I am making a personal comment here—that when we heard the Treasury, whether it was officials or the Minister, talk about the review of powers, it seemed more about identifying where powers could be increased and not about looking at how existing powers could be used far more effectively. We seem to have complete miscommunication around that issue.

As I remember it, that recommendation was embedded in real concerns about the loan charge and IR35—others have mentioned this—particularly because of the focus on the little people who got caught up in all kinds of schemes that they were completely unaware of and suffered very significantly as a consequence. Like others, I am delighted if HMRC is now determined to use powers, and extended powers are fine, to deal with promoters. But I am very frustrated that the retro-effective philosophy which is being used against individuals caught up in the loan charge, going back as far as 2010, is not being applied to the promoters who have accumulated huge profits in giving advice which, frankly, was from day one exceedingly questionable.

I join others in being worried about HMRC’s increasing instinct to outsource its compliance responsibilities. We are not talking about IR35 today, but the extension of the use of private companies to make the call on whether contractors they hire are caught by IR35 or not struck me as an overreach. We know that those companies, anxious not to have a fight with the tax authorities, are using quasi blanket determinations. Although an individual company can challenge a determination, it knows that at that point it gets labelled as a troublemaker and probably blacklisted for any future business. These are real problems we have with outsourcing, and they carry on into the issue of licensing taxi drivers and scrap metal dealers. At the moment, it is just an information exchange, but we can all be concerned that it is potentially the thin end of the wedge.

I join the noble Baroness, Lady Neville-Rolfe, in being very afraid—I think the noble Lord, Lord Forsyth, said the same thing—that individuals will simply disappear from the system altogether. That could mean unsafe vehicles on the road because we have lost people from the licensing system, or real abuse of scrap metal arrangements, which can descend into the criminal underworld. I do not want to put a bad label on scrap metal merchants, who are decent, honourable people, but we can see where the pressures will come. I am desperately concerned about the issue raised by the noble Lord, Lord Bridges, on the use of digital platforms as essentially HMRC’s information-gathering mechanism, because it takes us even further into that area, which is one we absolutely must examine.

I shall make just one last remark—I realise the time is going fast and I should stop, but this is something we should draw to the attention of the House. The third area of concern that the report raises is the oversight and scrutiny of HMRC and the powers to circumvent the safeguards of the tax tribunal. The noble Lord, Lord Bridges, discussed that in some detail. The House may not recognise how necessary it is always to have such outside scrutiny.

Many of us received a copy of an email that the Loan Charge Action Group accessed through a freedom of information request. It dates to 31 January 2019, and is from Jim Harra, who is chief executive of HMRC, to a staff member. It follows a witness evidence session to a Treasury Select Committee, and refers to those to the House of Lords. It is about the loan charge. One must understand that the treatment of loan contractors depends entirely on a case brought before the tax tribunal called the Rangers case, which concerns Rangers Football Club. A decision came in 2017 which, I think, everybody who read it thought would be the weapon to use to go after companies that hire contractors and use disguised remuneration, but nobody was under the impression this could be used as the legal basis to go after individual contractors. The chief executive of HMRC wrote:

“In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim”—


that is, the claim that there is a legal basis for going after individual contractors—“with very little success.”

I challenge anyone to show me where, in any of its evidence given to the Treasury Select Committee or the Finance Bill Sub-Committee, HMRC reflected that level of uncertainty. It demonstrates that the temptation to be parsimonious with the truth, to press on to achieve the target of maximum revenue-gathering, means that HMRC, like every other organisation, needs outside scrutiny. The importance of tax tribunals is paramount, and we must stop the constant whittling away of that power.

Kalifa Review of UK Fintech

Baroness Kramer Excerpts

Tuesday 27th April 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

The noble Lord is right: we do not want to see citizens excluded from the digital world into which we are heading, and that matter is under continual consideration. It is also worth stressing that, as a country, we are very much innovators and our consumers are keen for the sort of products that are coming out. For example, 2.5 million UK consumers and businesses now use open banking-enabled products; indeed, we were the first country to develop open banking standards, in 2018.

[Baroness Kramer (LD) [V]]

Scale-up for our fintech sector requires access to international markets. The Government overlooked this in Brexit negotiations and equivalence from the EU now looks unattainable. Fintech is problematic in trade negotiations with the US because the UK industry risks being swamped. How will this Government deliver access for fintech to major and key international markets?

[Lord Agnew of Oulton (Con)]

My Lords, the Department for International Trade has just announced two initiatives which I hope will help to address the noble Baroness’s concerns: a new fintech cohort within the DIT Export Academy initiative to provide bespoke one-to-one advice to eligible UK fintechs that are ready to scale into key markets, and a DIT-led fintech champions scheme to promote UK fintech overseas and support UK fintechs to grow internationally through mentoring and peer-to-peer learning.

Financial Services Bill

Baroness Kramer Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

Secondly, we know that the Post Office is increasing its profile in this area. That is greatly to be welcomed, but usually around the corner from the post office, or quite often adjacent to it, are ATMs. These were an absolute godsend to most people who were not carrying out major financial transactions and who wanted cash, but now we hear complaints from those faced with financing the ATMs. That suggests that it will not be long before the banking profession says that it cannot possibly finance them and that it is making a great loss. I say to my noble friend of the Front Bench that this needs addressing, because ATMs are vital to society as we know it, whether in distant rural areas or for people who in one way or another cannot use a bank. Having said all that, I very much second my noble friend Lord Holmes’s amendment and hope that it will find favour with Her Majesty’s Government.

[Baroness Kramer (LD)]

My Lords, the two amendments in this group are significantly different from each other, so I am afraid that I will have to address each one separately, starting with government Amendment 14. We obviously support this step, but some comments need to be made. First, the very fact that legislation has to be passed for these financial transactions to be captured by the regulator demonstrates some of the flaws in the whole approach of using a regulatory perimeter as the mechanism for deciding which activities are regulated or not.

The buy now, pay later industry has been growing at an astonishing rate over the last several years. The largest player is Klarna, which I think was valued in its last funding round at $31 billion—three times its value six months earlier. That gives noble Lords the idea of the pace. Anybody who wants to look up buy now, pay later on the internet will find company after company. This issue has galloped away without the regulator becoming involved. It suggests to the Government that some real rethinking needs to happen, given the pace of innovation that we now see generally in finance.

Secondly, I was concerned by some of the language the Minister used when talking about this as a relatively low risk and rather benign form of financing. There is no free lunch. There is no such thing as a delayed payment that does not have an interest cost embedded in it. I understand that with buy now, pay later, it is the retailer that pays fees to the intermediary providing the advance payment. Those costs then fall on everybody buying products from that particular company. We get to the point where you are a fool if you pay up front, because within the cost of the product is embedded an element of financing that is falling on you. If you are a bit like me, you see the price and you pay it, but I know that I am paying more than I should because I am picking up the cost of financing that has been given to other people using the buy now, pay later product. There certainly is cost embedded in all of this; it is not a free lunch.

Martin Lewis gave evidence to MPs in December, pointing out that this is a product very much targeted at the under-30s, although I know that Klarna disputes this. It is having the impact of getting them into debt. Again, I looked to a quote from Jane Clack, a money adviser at the debt advice firm PayPlan. She was talking about what had happened over the two-year period. She said:

“This form of introduction to credit … supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.”


This is a mechanism that is getting a lot of young people into overpurchasing and consequently into debt. Indeed, the advertising on websites directed at retailers, encouraging them to sign up to buy now, pay later firms, tells them that the average spend will go up by 20% if they sign up to a buy now, pay later scheme because individuals feel, “My goodness, if that’s all it costs I can spend even more.” Noble Lords can see the pattern that is developing. Frankly, there is a lot of risk associated with all this, and I hope it is with that perspective that the whole consultation will go forward and regulation will be structured.

I say this because we went through the same process in this House of saying “it is largely benign” when we looked at payday lending. That was the argument made by the regulator. If this House remembers, the regulator had the power to take action in a serious way against abusive payday lenders. It showed a light touch because it saw payday lending as relatively benign. It was only when this House forced the regulator’s hand by passing regulation that required it to start using interest rate caps that that industry was brought under control. Indeed, most of the players instantly disappeared, because without the abusive part of their activities the other part could not be sustained. This issue should be taken very seriously by the regulator, which should not get caught up in the idea that this is low risk or in some way benign. I am always troubled when I hear that something is interest free. No, it is not; the interest is differently packaged.

On Amendment 35, I continue with apologies from my noble friend Lady Tyler, who is the former chair of the Lords Select Committee on Financial Exclusion. As the Deputy Speaker said, she is speaking in Grand Committee and has had to scratch here. She very much appreciates the spirit of the amendment of the noble Lord, Lord Holmes, but I will quote a sentence from the speech she wrote that I think captures the fundamental issue: “What is still missing is an overarching strategy and responsibility across government, regulators and industry proactively to promote financial inclusion.” In a way, that is the issue that the noble Lord, Lord Holmes, is picking up and addressing and that I hear echoed in the words my noble friend would have used.

The noble Baroness, Lady Noakes, made the case that the Bank of England is really not the place to have a basic bank account, and I want to pick up on this important issue. The current high street banks that provide basic bank accounts do so, as the noble Baroness said, reluctantly. It does not make any sense in the context of their business plan, their overheads or the clientele that they want to build.

There is an important strategy that could be addressed, certainly by the PRA, along the lines of, “As a condition of your banking licence, perhaps you don’t have to provide a basic bank account, but you do need to support the civil society groups that can service this excluded community”—because that is a community that often needs a detailed helping hand. That is one of the reasons why opening a basic bank account at the Bank of England would not get people in that community very far. Typically, they are people who need particular services and particular kinds of support to become financially included, and to get the advantages that come with being financially included in our modern society.

That takes me to the issue raised by the noble Baroness, Lady Neville-Rolfe; it is a canard that needs to be captured very quickly. The Community Reinvestment Act in the United States, to which she referred, was passed in 1977. It was not a play into the sub-prime mortgage crisis. I lived in Chicago in those years, so I know that it came about as a civil rights Act, because disadvantaged communities—primarily black ethnic communities—had been literally red-lined by all the major banking players, which would take deposits from them but would never lend back to support mortgages or businesses. It was a crucial Act that completely changed the nature of financial inclusion in the United States, and it was probably one of the most important pieces of legislation there. I have always regretted that we have not picked up its themes and extended them here, because it created a layer of community banks and credit unions that serviced this community, and did so very well throughout the years of recession.

The sub-prime crisis was, on the one hand, sheer fraud—as I think the noble Baroness, Lady Neville-Rolfe, knows—and, on the other, the packaging up of fraudulent loans into portfolios against which securities were then issued on the grounds that diversification within the portfolio removed the risk. This was not a case of lending into communities in the responsible way driven forward by the Community Reinvestment Act. I hope that we will pick up the lessons of that Act, because in the United States people are not unbanked and excluded to the extent and breadth that they are here in the UK.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the Government’s response to the Woolard Review was swift and positive. As doubts remained over exactly when and how Ministers’ promises on buy now, pay later products would be delivered, this Bill appeared to us to be the perfect vehicle—although, sadly, the Treasury initially disagreed with that view. In Grand Committee the Minister stressed the complexity of the issue, and the need to work with the industry to get the scope of future regulation right.

Of course we agreed on the necessity for the Treasury and the FCA to get this correct, and we are realistic about the difficulty of striking the right balance. As I have said before, we would not wish forthcoming regulatory changes to impact on the availability of certain short-term payment agreements, such as for gym membership or sports season tickets, which have proved to be relatively low risk. We also recognise that there is a growing market for buy now, pay later, and that many of the people using such services experience no problems with them. Indeed, we are grateful to the providers that have engaged with us in recent weeks and shared their ideas on next steps.

In March the boss of Klarna expressed disappointment about the concerns voiced about buy now, pay later products. He said he was “emotionally upset” by comparisons with the former payday lender Wonga. I am sure that this was not aimed at your Lordships’ House, but let me be clear that we recognise the differences. However, just because two business models vary, that does not mean that we cannot and should not learn lessons from past regulatory failure. These products may not have interest charges attached to them, but that does not mean they are risk free. That was recognised by Chris Woolard in his review when he warned that there was significant risk of consumer detriment if the market continued to grow at pace without the implementation of appropriate consumer protections.

In his recent comments, Klarna’s boss acknowledged that his firm had made mistakes, particularly in relation to how it had advertised its products in the past. Such self-reflection is hugely important, and I am sure that advertising is one of the areas that will feature in the future regulatory framework.

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[The Deputy Speaker (Baroness Fookes) (Con)]

I understand that the noble Lord, Lord Stevenson of Balmacara, has withdrawn, so I call the noble Baroness, Lady Kramer.

[Baroness Kramer (LD)]

My Lords, we do not oppose this amendment, particularly as we have the safeguard of the GDPR in place. However, I want to make one comment. One of our major frustrations with the regulator is how slow it has been to pick up on issues—how much information seems to have come its way that there is wrongdoing, yet all its actions seem to be delayed. We went through example after example of that in Grand Committee, Blackmore and London Capital being just two of the latest examples, and I think I have even missed two more scandals that have occurred in the last couple of weeks. I hope there are some other ways in which we can put pressure on the regulator to act and to do so in a more timely manner, and that it will not see this extension as an opportunity to relax and allow more time to pass before it begins to take action when it is needed.

[Lord Eatwell (Lab)]

My Lords, this seems to be an entirely sensible modification of an overly restrictive time limit on prosecutions for market abuse, and the Minister has certainly made a strong case.

I have one question associated with the Government’s note that accompanied the amendment. The Government stated that they had not found any clear rationale for the five-year limit applying in EU law and could see no reason for maintaining it in UK law. They said they understood that it had also been raised as an issue by EU regulators and they were considering a change to their law. Given that the EU is also considering a change, why have the UK Government not co-ordinated the change in our law with theirs? Is it not the Government’s “go it alone” approach that has been so damaging in the quest for equivalence? Could the Minister outline how the Government’s current stance on this change fits with the Memoranda of Understanding on trade in financial services with the EU?

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will be very brief. In Grand Committee I gave a precis of some of the experiences of would-be students who had been deterred from going on to higher education or who had done so but then had to limit their life and activities as students because every single penny was hard to come by. As a consequence, they really did not benefit from so much of what is on offer in higher education.

I do not think that I can add anything to the incredibly powerful words of my colleagues, my noble friends Lord Sharkey and Lady Sheehan. I completely support the action that they contemplate but do so in the great hope that the Government will now make a statement that will make it unnecessary for the House to divide.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Sharkey, for moving this amendment, with support from my noble friends. As I noted in Grand Committee, the Labour Party has long supported facilitating access to sharia-compliant financial services, and we therefore backed previous powers for the Government to act on the provision of appropriate forms of student finance.

As outlined both in Grand Committee and again today, the wait for the introduction of sharia-compliant finance products has been lengthy. I will not repeat the timeline cited by others but will say that we were unconvinced by the Minister’s response to the earlier amendments of the noble Lord, Lord Sharkey. Of course, we accept that there is complexity involved, but, in my experience, such challenges can be overcome when there is genuine ambition to find a solution.

The Minister previously said that the Department for Education is faced with designing a system in which students

“do not receive any advantage nor suffer any disadvantage through applying for alternative student finance.”—[Official Report, 8/3/21; col. 558GC.]

That is indeed a challenge, but it is one that I am sure can be met.

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[Lord Lucas (Con) [V]]

My Lords, I shall speak to Amendment 16 and I thoroughly support its intent. I have been chair of the Enforcement Law Reform Group for more years than I care to remember, and for all that time I have been aware that every side of the industry wants statutory regulation. It is not a suitable case for voluntary regulation. You need the powers that go with being set up by statute to deal with all the difficulties and conflicts that are inherent in the business of getting money out of people who do not want to give it to you.

I fully understand the Government’s caution about the drafting of the amendment, but I very much hope that everyone involved in it will hold their feet to the fire to get a suitable alternative through as soon as possible. I have one piece of advice for the Government on the amendment as drafted. It is important that whatever we create can bite on creditors. A lot of the problems in this industry have their roots in the delinquency and bad behaviour of creditors and in the disorganisation of the systems that they operate. The privilege of being able to use a bailiff should be granted only to creditors who are well set up, who have done their preparatory work, who know who is vulnerable, who have found out the right addresses, who have properly offered payment holidays or plans before involving the very expensive, onerous and sometimes distressing option of a bailiff.

When we come to have this in statute, we need some way in which a local authority, for instance, which is trying to recover debt due on council tax must demonstrate that it has done what it should in order to be allowed to use the bailiff system. There may be some other way of doing it—but not to have that connection through to creditors and think that you can regulate just by putting pressure on bailiffs would be a considerable mistake and would, in the end, result in the system not working.

[Baroness Kramer (LD)]

My Lords, I think my noble friend Lord Addington put his finger exactly on the problem here. These are a series of amendments, all of them good and strong, that tackle really significant issues that seem to affect a particular selection of our population who find themselves constantly recognised but pushed into the long grass, so that we do not get regulation of the underlying problem. I hope that today we can collectively as a House ginger up the Government to say that this really must be dealt with—not just given to working groups or consulted on yet again but put on a track to get resolution quickly.

On Amendment 16 in Grand Committee we discussed bailiffs and the need to improve their behaviour and get it within the right statutory context, so I will not add more, other than to say that with Covid and the consequences for so many people who will find themselves out of work or in debt, this becomes more urgent than ever. The noble Baroness, Lady Meacher, should know that, if she finds an appropriate vehicle, we would be very willing to support on this. It must be dealt with. It would be lovely if it were in the form of a government amendment, but somebody will have to move on this very quickly or a lot of people will be paying a sad price.

On Amendment 26, in the name of the noble Lord, Lord Leigh, sometimes a personal experience leads to identifying a real problem, and he has put his finger on another problem. If I were a regulator, I must say that anyone who could get my attention and show me that we are getting abuse and misbehaviour within the financial services sector ought to be welcomed. If the definition of eligible customers makes it difficult or impossible to use as broadly as it should be, a look at that definition is urgent. If I were the ombudsman or the FCA, I would certainly want to know that someone was out there attempting to scam the public. I can assure the Government that the scammers know all the loopholes and weaknesses in the definitions, so plugging them as rapidly as possible makes obvious sense.

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[Baroness Kramer (LD)]

My Lords, I shall be extremely brief. It is absolutely clear that bills of sale legislation is fraught with problems both legally and practically, including allowing goods to be repossessed on a single default, and giving no protection to purchasers who unwittingly buy goods subject to bills of default. The Government promised us reform, and they had a draft Bill from the Law Commission in 2017, but then they changed their mind and decided not to legislate. If they can change their mind once they can change it twice, so I hope they will now change their mind again, and take action.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I shall be brief in responding to the amendment, which was ably introduced by my noble friend Lord Stevenson of Balmacara. We are grateful to the Minister and officials for their time discussing this and other consumer issues during the passage of the Bill. Those meetings have been useful, particularly for better understanding the numbers of people affected by financial agreements enabled by the antiquated bills of sale Acts referenced in the amendment. We understand that the Government cannot simply accept the amendment, because of the complexity of the issue and the scope for unintended consequences. Normally we would roll our eyes on hearing that phrase, but, as my noble friend noted, this amendment was tabled as a means of starting a conversation. We hope the Minister can give a strong commitment from the Dispatch Box that the Treasury will undertake a proper review of this part of the credit market, and will have regard to the earlier Law Commission recommendations when deciding on a policy response.

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[Baroness Shafik (CB) [V]]

My Lords, it is a great pleasure to follow the noble Baroness, Lady McIntosh, and all the previous speakers, who have added a great deal of expertise and judgment to the debate so far. I am grateful for the opportunity to speak on this important group of amendments, which would make sure that there is sufficient parliamentary scrutiny of the regulators, who are the ultimate referees in determining whether financial markets are fair, effective and serve the public interest.

The key question is how to make sure the referees are doing a good job, and there were many excellent proposals put forward today on how to enhance scrutiny, including Amendments 18, 19 and 20 from the noble Baronesses, Lady Bowles and Lady Kramer, Amendment 37A from the noble Lord, Lord Blackwell, and Amendments 45 and 48 from the noble Baronesses, Lady Bowles, Lady Noakes and Lady McIntosh, and the noble Lord, Lord Eatwell. Those amendments all focus on putting in place reporting requirements to Parliament. I want to focus on who is best placed to receive this reporting, given its highly specialised nature.

I realise that this is an issue not of legislation but of how Parliament chooses to organise its affairs. But what we put in legislation also depends on the institutional structures that are in place, and meaningful scrutiny needs to be adequately supported. I support the recommendations of the All-Party Group on Financial Markets and Services, which argues that to enable effective scrutiny of regulators there needs to be a new Joint Committee of parliamentarians from both Houses with a specific remit for financial services, supported by expert advice—something to which the noble Lords, Lord Blackwell and Lord Bruce, have also referred, as well as the noble Baroness, Lady McIntosh.

I know from my time as Deputy Governor of the Bank of England how technical some of these regulatory issues are. A dedicated joint committee would be able to draw on independent advice and respond flexibly to issues that arise to ensure the public interest is well served. Such an institutional structure would be in the spirit of a principles-based regulatory regime, rather than relying on more detailed legislative approaches. It would also be consistent with the welcome letter sent today by the Economic Secretary to the Treasury to the chief executives of both the FCA and the PRA seeking to have proper parliamentary oversight of financial services regulation in future.

One area where potential parliamentary scrutiny of the FCA and the PRA could be useful is around how their work supports UK competitiveness. I know this is an issue that has already been covered at some length and with great expertise by this House, and I know that many have argued for strengthening the competitiveness objectives for the FCA and the PRA.

I would prefer to stick to the current language for four reasons. First, in my many years of doing surveys of investors at the World Bank, I have never seen easier regulatory standards featuring as a factor that makes a country more competitive. Instead, macroeconomic and financial stability, a skilled workforce and good infrastructure were what mattered most across the world. Secondly, just as you do not want a weak referee in order to have a good game, markets operate best when they are fair to all players. Thirdly, we have been able to support innovation in areas such as fintech through the use of things such as regulatory sandboxes, which allow experimentation while containing risk. Finally, there are many others who do a very good job of promoting financial services in the UK, including Her Majesty’s Treasury, the lord mayor and the many industry associations.

I also suggest that, for the moment, climate change is an area where parliamentary scrutiny, rather than legislation, might be useful. Central banks and regulators around the world are moving quickly to address climate risks. We are in a moment of great innovation, with climate stress testing, improved disclosure requirements, scenario planning, looking at climate exposures on both sides of the balance sheet and enhancing accountability for senior managers. All of this is wonderful, and I especially welcome the move to setting regulatory requirements for all market participants based on agreed definitions and rules, rather than relying on voluntary approaches and inconsistent criteria.

For now, I am comfortable with requiring regulators to have regard to climate issues—the recent remit letters are a good example of this—with appropriate parliamentary scrutiny of how that is happening. However, we should definitely return to this issue as part of the future financial framework once we have more evidence and experience from current innovations, so that we can codify in legislation the best possible approaches to addressing climate risks. Here as well, having a Joint Committee with access to relevant expertise would only enhance the quality of scrutiny around issues of climate change.

In conclusion, I very much hope that the Minister will be able to further reassure the House of how expert parliamentary scrutiny will enable Parliament to play a key role in future oversight of the regulators.

[Baroness Kramer (LD)]

My Lords, I will pick up some of the comments that have been made during the course of this absolutely outstanding debate on this series of amendments.

The noble Baroness, Lady McIntosh, said that she had never heard of Ministers not attending or coming before committees. I was on the Finance Bill Sub-Committee of the Economic Affairs Committee when we dealt with the loan charge, and, on several occasions, the Economic Secretary, Mel Stride, refused point blank to come and speak to the committee. We were then informed that committees have absolutely no power to summon Ministers; they come only at their own discretion. Mel Stride’s successor, John Glen, took a very different view and came before a combined committee of the Economic Affairs Committee and the Finance Bill Sub-Committee. I make it clear that there certainly are Ministers who very strongly take the view that they can be asked to come before the House but are not required in any way to say yes.

I also pick up a concern that the noble Baroness raised about whether we have to make an absolute decision today. If she looks at the Marshalled List, she may notice Amendment 37F, in my name and that of my noble friend Lady Bowles, which will come up on Monday. In fact, it is deliberately placed to give us the opportunity to listen in full to the Minister and consider this issue but still have an opportunity to make a decision on it if we decide that the Minister’s contribution does not meet the needs of the House. As such, there is an opportunity, should we decide to do so; some may wish to act today, and others may decide that they are satisfied by what the Minister says.

I also pick up the comments of the noble Lord, Lord Blackwell, and the noble Viscount, Lord Trenchard, on the advance parliamentary scrutiny of rules. I very much challenge what they said because, for many years, in the European Parliament and the European Council, parliamentarians had the opportunity to scrutinise both directives and the rules that would flow from them in a very thorough and extensive manner and with the support of a great deal of specialised expertise in the form of specialised and experienced staff.

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[Lord Lucas (Con) [V]]

My Lords, it is clearly acknowledged that there is a problem. It is evident to me that this is exactly the sort of problem that the Government ought to sort out because, as my noble friend Lady Noakes said, we have no business landing this on the lending community. It is our responsibility. The Bill is an opportunity to make sure that something is done, and I very much hope that we take it.

[Baroness Kramer (LD)]

My Lords, I think the case has been extremely well made. I usually really respect the opinions that the noble Baroness, Lady Noakes, puts forward, but it seems to me that she completely fails to understand the circumstances that led these people into being mortgage prisoners. They took out loans under credit checks and it was entirely appropriate, but the banks from whom they borrowed the money crashed in the 2008 financial crisis, largely through poor regulation, which lies at the Government’s door, not the door of those who took out mortgages. People with absolutely identical credit profiles who took out their mortgages with a bank which did not crash have had many opportunities to refinance, which is normal in the life of the mortgage. A standard, typical bank knows that it will vary the characteristics of its mortgage over the life if that option is sought by the mortgagee.

The group of people who took out their mortgages with banks that crashed in many cases found that those mortgages were stripped out as part of the asset rescue process that the Government went through, and the Government then sold those mortgages to completely inappropriate buyers under inappropriate terms in order to get the maximum return. I understand their motivation—maximum return for taxpayers—but they removed all of the normal relationships and embedded rights in those relationships that a mortgagee has when they take out a mortgage with a viable financial institution.

The noble Baroness treats many of those mortgage prisoners as people who are now of poor credit. These are people who have aged—we all do that. The mortgage that we take out at the age of 30 is not the same one that we would be able to take out at the age of 55, because we have got older and our career profile is different. Some of them have become ill, and therefore had reduced earning capacity. Any standard bank dealing with a mortgagee in those circumstances makes adjustments. Mortgage prisoners are not able to seek such adjustments and they have been left in dire circumstances.

The fault lay with the Government when they sold mortgages under inappropriate terms to inappropriate buyers to manage them. It treated them as though they were abstract assets, rather than a special category which has a lot of convention embedded in it, in order to maximise their sale. I very much hope that the Government will realise that they have a responsibility. They took those additional revenues, they took the benefit of selling off those mortgages under terms and conditions that they should never have permitted, and they now need to offset that by stepping forward and making sure that those mortgage prisoners can have the same access to flexibility that would have been theirs had they taken that loan out with a financial institution that did not collapse in 2007-08.

[Lord Tunnicliffe (Lab) [V]]

My Lords, this is an emotive issue for a lot of people. Although we recognise that the Government have taken steps to help a proportion of so-called mortgage prisoners to access alternative products, so far, we have not been satisfied with either public or private assurances received on this matter. We are familiar with the Government’s view of the importance of market freedoms and the need to keep interventions to a minimum. However, despite the initiatives that we will hear about from the Minister shortly, the fact is that the market is failing a substantial number of people.

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[Baroness Noakes (Con)]

My Lords, at this late stage of the evening I shall not try to emulate the previous speaker’s length of contribution—indeed, I shall deliver a slightly shorter version of what I had originally intended to say. I speak in favour of Amendment 24, in the name of my noble friend Lady Neville-Rolfe.

Amendment 24 focuses on ex post analysis of the impact of changes introduced by the regulators or the Government. It therefore gives us a different lens on the impact that interventions have had in practice. My noble friend normally focuses on impact statements, which are ex ante evaluations and often suffer from highly questionable assumptions and confirmation bias. When we deal with ex post analysis, however, we can rely on outcomes and facts. That kind of analysis is really important when helping to shape policy going forward or correcting any mistakes in policy already introduced, so I support this amendment. I personally would not have gone for an annual report, because the ability to see the cumulative impact of changes is quite important but difficult to track in an annual report. However, a report is an extremely good idea.

The noble Lord, Lord Sharkey, has tried to add a consumer focus to the report that my noble friend Lady Neville-Rolfe has proposed. I think it is better focused on small business, innovation and competitiveness; to add consumer matters would dilute the focus of that report. I am not against a report on consumer protection but it would not help to stick it in the middle of something focusing on issues such as competitiveness.

The noble Baroness, Lady Bennett of Manor Castle, will not expect me to support her Amendment 37. The analysis we got from her and the noble Lord, Lord Sikka, seemed to be of a world I do not really recognise. I believe the financial services sector is a great success story for this country and makes a big contribution to our economy. A number of the things that noble Lords cited seemed to be clinging to an outdated bricks-and-mortar vision of what banking is really about; frankly, that is not the world we live in today. Just as we have seen that bricks-and-mortar retail is not the way forward, it will not be for banking either. We must not keep tying ourselves to the way things were in the past.

[Baroness Kramer (LD)]

My Lords, given the hour I shall also be very brief, but I have to say I rather like the amendments in this group. I like Amendment 24, as amended by Amendment 25—I do not care if it is a separate chapter. But it is quite dangerous to get tangled into issues around competitiveness without making sure there is a lens on consumer protection at the same time. Many small businesses fall into the consumer category in reality, certainly the micro end of small businesses.

What I like about this amendment is: what you measure, you manage. We are so constantly focused on change, new regulation and new rules, without ever going back and looking at the consequences of what we have done and trying to identify what worked, what did not and where the gaps are. It seems that this proposal goes absolutely in the right direction.

There is something interesting in Amendment 37 because one of the big questions that has never been answered is: how does our financial services industry impact on the real economy, in contrast to something much more circular within the financial services economy? I do not think that one is good and the other bad but they are very significant questions, particularly in a country where we have such a dominant investment banking culture, which does not necessarily provide a wide range of relevant services to a great deal of our economic base—particularly our small business base. There is a very interesting question wrapped up in all of that. The approach of saying “We need to look at this in a serious and consistent way, perhaps regularly” strikes me as important when feeding the strategy which then informs the way in which the regulator, the Treasury and the Government behave.

[Lord Eatwell (Lab)]

My Lords, Amendments 24 and 25 develop the notion of an information system—the information that will be provided by the FCA, PRA and the Government to feed into an assessment of the performance and impact of the financial services sector and the regulators. Amendment 37 goes much wider, as one might have gathered from its presentation, seeking to make, or ask for, a general economic assessment of the role of financial services generally within the UK, particularly the impact of the various regulators and the Treasury.

One of the themes particularly around the discussion of Amendment 37 was that this is not done. There are shelves of academic books that do this, and there are libraries of this material, but what has not happened is that it has not been brought together and assessed in a decision-making environment on a regular basis. The problem with Amendment 37 is that it asks the FCA and the PRA to—to use a phrase that has become popular today—mark their own homework. They are not really the right people to assess themselves; there are plenty of research institutes around this country that do a first-class job of assessing exactly these issues. However, we have not brought them together very well. What is so valuable about Amendments 24 and 25 is that they are targeted on that bringing together—bringing information into what I have called the “New Scrutiny”.

I would be interested to hear the Minister reflect, when he sums up, on the information role that is represented by the amendment of the noble Baroness, Lady Neville-Rolfe, and the role that that sort of information system will play in our regulatory future.