Global Minimum Corporate Tax Rate

Baroness Kramer Excerpts

Wednesday 14th April 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

As I answered to an earlier question, we are not yet in a position to announce whether we support that specific rate. Our policy has always been to put the emphasis on pillar one, which is the allocation of profits in the countries in which they are generated. To go back to my earlier point, if a company is going to use the infrastructure of a country in terms of its affluent, well-educated population, and take profits from it, it must contribute to it, too.

[Baroness Kramer (LD)]

My Lords, do the Government understand, having listened to the international response to the Biden Administration and Janet Yellen’s proposals, that pillars one and two hang together and that there is no serious prospect of getting a solution to the right of countries to tax multinationals appropriately for the activities in their country unless there is also a common agreement on a minimum global corporate tax? Do the British Government accept that underlying principle, even if they dispute the rate?

[Lord Agnew of Oulton (Con)]

The overriding position is that we welcome the American Government’s re-engagement in this process. As realists, we accept it will not happen without full American support. We agree with the noble Baroness that these things hang together, and it will be a cohesive result that will work.

Budget Statement

Baroness Kramer Excerpts

Friday 12th March 2021 Lords Chamber

[Baroness Kramer (LD)]

First, I join in the very warm welcome to our five maiden speakers today. I also join in the reassurances that a two-minute speech is not our normal operating procedure. I hope they will not be discouraged from active participation in this House, because we need their voices and their views.

The first role of this Budget was to provide ongoing support to the economy through to the end of lockdown. It has done that to a significant degree, but with some key and rather cruel exceptions, which I shall discuss in a moment. However, this Budget also needed to deal with the consequences of both Brexit and Covid and set in place the framework and strategy for long-term economic recovery. In that it has very largely failed.

In the short term, the Chancellor used the Budget to extend key programmes to support businesses hurt by Covid, and that is welcome. However, I still do not understand why most of the 3.8 million freelancers and contractors—hairdressers, builders, workers in the creative industries, to which many of your Lordships referred—have been excluded from any help so far, and remain excluded. Only 600,000 have been brought into SEISS; the rest remained completely abandoned. The Federation of Small Businesses has come up with sound schemes that would allow the Government to help the 1 million or so directors of limited companies, who are in effect tiny sole traders. The Chancellor refuses to include them. Frankly, that seems petty and vicious to me and confirms that the Treasury has a vendetta against that group.

The extension until October of the £20 uplift in universal credit is needed and welcome, but I do not understand why this stops when we will have so many people out of work as redundancies mount. This last year has demonstrated that universal credit needs that uplift to be permanent to be humane. Only one legacy benefit—working tax credit—gets an uplift. There is nothing, as many of your Lordships have pointed out, for disabled people and carers on legacy benefits. These people are really suffering. As I understand the Government, they are willing to give short-term help to people who are likely to return to the workforce, but for others their standard is very close to destitution.

The Chancellor said that he would come clean on the bad news. He talked about taxes—though he ducked the impact of the 5% increases in council tax—but he did not talk about cutting public spending plans. Only after the Budget did most people see that the day-to-day spend on public services will be £16 billion less than planned pre-Covid. This is despite long NHS waiting lists, the crisis in social care, children being in need of catch-up education and local authorities being under huge pressure. Disgracefully, the Government have now called for a below-inflation wage increase for NHS staff. I hope they will note the voices all over this House calling for a very different approach and proper compensation.

Even the plans to support economic growth are pallid. I have talked before about the huge shortfall in investment in the green economy and the digital economy, especially when compared to our economic rivals. Much of the investment by the new infrastructure bank will not be green—the Green Investment Bank was sold off by the Conservatives. The breakthrough fund is tiny, at £375 million, as is £500 million for e-cars and batteries—Germany has allocated €7 billion just for green hydrogen and €2.5 billion for batteries and charging infrastructure; France has allocated €7 billion just for electric vehicles. We do not have a proper plan to grow the economy and get to net zero.

Why is the “super-deduction” tax scheme to get businesses to invest limited to plant and machinery? It is an analogue proposal in a digital age. It should not exclude intangible investments, which are the backbone of the digital age. Even the reskilling and upskilling schemes reannounced by the Chancellor are inadequate to the task, when we have a generation of young people thrown off course by Covid

Eye-catching is not a substitute for meaningful. The Government reannounced their plans for freeports. The primary impact of freeports—and I have heard this from all sides of the House—is to displace jobs from one area to another. I suppose that is meaningful if the Government’s primary plan is to boost their votes in particular seats at the expense of other areas, but it is not a growth policy. As for Brexit, this Budget ignores it. When a close working relationship with the EU is needed to assure the future of financial services and the role of UK businesses in EU supply chains, we get little more than confrontation.

Small businesses are the backbone of our economy and no recovery is possible unless they recover. They account for six in 10 private sector jobs and many are very fragile. The Budget gives them too little too late. The recovery loan fund provides help for some, but many small firms need a mechanism to get out of debt. My party has called for a revenue loss scheme that would cover the fixed expenses of small businesses during the period when they have been forced to close. With that in hand, recovery and growth become possible.

I recognise that the Government face a tough fiscal position, but every part of our economy needs a genuine industrial and growth strategy. That is not delivered by this Budget.

Financial Services Bill

Baroness Kramer Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

Finally, I have listened carefully to the rationale for Amendments 81 and 82. I am doubtful about adding a new corporate offence of a failure to prevent an economic criminal offence. As a serial non-executive director of small and larger companies, I cannot see how I would guarantee compliance with what is proposed—in the UK or overseas. Many more cautious folk will feel the same, so corporate Britain would find it harder to find challenging and careful directors for its companies. That is the opposite of what I thought we wanted and is likely to lead to yet further loss of financial services firms to overseas. I hope the Law Commission will address this angle, and I would be happy to talk to it if that is appropriate. I also hope that it will talk to my noble friend Lord Hodgson, who has taken a different view today. Preventing economic crime is the job of the regulators and their enforcement and prosecuting arms backed by suitable public and moral support. That will improve the confidence that my noble friend Lady Altmann rightly seeks.

[Baroness Kramer (LD)]

My Lords, this is such a fascinating group of amendments. I think I have rarely seen a group that includes such powerful and important amendments one after the other ranging from the relatively narrow, such as Amendment 136, tabled by the right reverend Prelate the Bishop of St Albans, which would be a valuable extension of the senior managers certification regime, to the fundamental, in the form of the “failure to prevent” amendments in the names of the noble and learned Lord, Lord Garnier, and my noble friend Lady Bowles. Those amendments cover similar territory, and I notice that by splitting the amendments they have succeeded in garnering a wide range of signatures, thereby demonstrating that this is not a party-political issue but has extraordinary breadth across many political views in this House, so they have done that rather well.

I find these changes absolutely fundamental and, frankly, fail to understand why the Government resist them. I would argue that they are particularly important in the absence of a duty of care because of the way in which they change the locus of responsibility, if you like, or enhance it as it falls on a company in dealing with its customers and its products. I am cautious when an issue is sent to the Law Commission. I hold it in very high regard, but I notice that it is at its best when an issue is considered very narrow and limited. I am afraid that the Government may view “failure to prevent” as a narrow and limited concerned, whereas in fact it deals with the fundamental culture and sense of responsibility of major financial institutions for the behaviour of their staff and their various departments, and for the outcome for or impact on their customers.

I also support the various reviews sought by the noble Lords, Lord Tunnicliffe and Lord Eatwell. I smile at Amendment 50 in the name of the noble Lord, Lord Eatwell; he has had to craft it very carefully to make it fit into this Bill. Of course, he is absolutely right: we have a public register of beneficial ownership of companies in the UK, but it is not verified. I know how that rankles with the noble Lord, as we have discussed it in the past and I have a great deal of sympathy for his position. We rely on transparency to keep the register clean, but it is an imperfect system. Frankly, I would say to anybody that no one should rely fully on the information in the register; it is only a starting point. Making it verifiable would be a huge improvement. One of the things that bothers me the most is that many people who look at the register do not understand that it is unverified. That creates false impressions and leads people, particularly those who are less sophisticated, into making decisions that put them in financial danger.

I can see where the noble Lord, Lord Sikka, is going with Amendment 51A, but I am in the same camp as other noble Lords; I pick up the comments made by the noble Baroness, Lady Neville-Rolfe, which were also made by the noble Lord, Lord Eatwell, and others. We have absolutely inadequate resources for enforcement in the whole area of financial crime; that applies to the regulators and the Serious Fraud Office. Just a couple of weeks ago, I spoke to a former police commissioner and asked why, in a particular instance, he had not turned to the National Crime Agency’s Financial Intelligence Unit. The reply was, “It’s one man and a dog.” It is hideously underresourced. Also, our local police forces, which so often end up bearing the brunt of enforcement, are not resourced to deal with crime of this specialist nature and reach; neither are they sufficiently resourced when they come across companies with vast resources. The inequality of arms is exceedingly questionable.

On other days, we have spoken extensively of the HBOS Reading fraud—to the point where I think everyone is now familiar with it—but I wonder whether people realise that the case was pursued by Thames Valley Police only after the regulators, the Serious Fraud Office and two other police forces refused to pursue it. They did so not because they thought that there was insufficient evidence but because they did not have the resources to do it: it cost Thames Valley Police £7 million to prosecute. The fraud itself amounted to some £800 million, of which only £250 million was placed in evidence in court because that was sufficient to get the necessary convictions. It quickly became evident that this was a very serious fraud case. Many of us are concerned that similar fraud cases are simply ignored by police forces that cannot step up to the plate. I note that the entire financial penalty paid by HBOS was commuted for good behaviour so it was only £45 million, but every penny went to the Treasury and nothing went back into enforcement. We must tackle this issue, which will only get worse as we move into the era of cryptocurrencies and more digital financial transactions; for example, FATF identified crypto-thefts, hacks and frauds totalling $1.3 billion in the first five months of 2020.

I will focus most of my remarks on my amendment, which proposes to create an office of the financial services whistleblower. It is a probing amendment; noble Lords will understand why in a moment. Very many of the people who speak out to expose wrongdoing find that they become the target of retaliation and lose their livelihoods and careers. They are most often employees—that is not always true; they can be clients as well—and this is very much true in financial services.

When I was an MP and therefore a prescribed person, I assisted colleagues with two whistleblower cases. Both individuals had their lives shattered by retaliation from the financial institution that had misbehaved, despite their passing absolutely critical information to the financial regulators. Confidentiality was on paper only because, being good employees in one case and a good client in the other, they had raised the issues inside the organisation first. Their information also made it pretty obvious who had spoken out. I am no longer a prescribed person, but I work with the APPG for Whistleblowing and I have heard from numerous MPs about today’s cases, not cases that predate changes in rules, legislation and regulation. I have talked to regulators and civil society groups and they have all confirmed that there has been relatively little effective, real-world change.

If whistleblowers are employees they are typically fired—not for whistleblowing of course; there is always another coincidental reason—so they spend their savings in the long process of going to an employment tribunal, which can take years. Three years is nothing to go through an employment tribunal, given appeal processes. In the employment tribunal, the regulators to which they provided information refuse to give evidence in their support. My noble friend Lady Bowles raised this issue; it is a shocker and most people do not realise it. The regulator says that the tribunal is not about whistleblowing, so there is no reason for them to give evidence that the person happened coincidentally to be involved in these various cases. Frankly, I find it shocking that they do not believe that their responsibility to a whistleblower extends to that role.

Whistleblowers often face expert counsel paid by the employer. They know that if they lose the case they will have to pick up that legal counsel’s fees. That is a huge inequality of arms. In the end, most accept a modest settlement out of sheer fear and exhaustion. Whistleblowers desperately want wrongdoing stopped and put right. Where neither the regulator nor the law enforcement agency decides to act on their evidence they cannot turn to the public or the press because the settlement agreements invariably include draconian non-disclosure clauses.

The existing legislation, the Public Interest Disclosure Act 1998, was once ground-breaking. Now it is inadequate and out of date. Even the EU, which has never been a leader in this field, is about to overtake it with much more effective directives.

I am, among others, campaigning for an office of the whistleblower. One reason why I will not press the amendment is that we actually need an overarching office covering all sectors, public and private. Whistleblowers need one place to go to find out where they stand, get support and advice, source the financial means to fight retaliation and, if necessary, get appropriate compensation for their damaged careers—for most whistleblowers, whistleblowing is career ending. The amendment covers a wide range of needs. I also see an office as one that can work with regulators to design a much better system that means that whistleblowers come forward and are taken seriously, stopping bad behaviour in its tracks.

The US is extraordinarily effective in this area, and it aggressively protects and rewards whistleblowers because they both expose and deter abuse and crime. Since the Dodd-Frank Act—the key whistleblowing legislation—was passed in 2010 and set up their own Office of the Whistleblower inside the Securities and Exchange Commission, that commission has collected $2.7 billion in fines and penalties on wrongdoers in financial services whose conviction depended on whistleblowers. One federal prosecutor I spoke to just a couple of weeks ago described whistleblowers as “a citizens’ army” with a deterrent effect without which the regulators and law enforcement could not succeed. The United States takes this so seriously that the first conversation with a financial whistleblower or their legal representative is with an experienced investigator of at least five years standing versed in financial practice and law.

--- Later in debate ---

I ask Peers to join me in supporting Amendment 136F, but this will have to be on Report. I hope the Minister will respond to Amendment 136F at the end of the group beginning with Amendment 79, where it is currently, wrongly, grouped. I beg to move.

[Baroness Kramer (LD)]

My Lords, I spoke at length on the previous group, so I am going to pay penance and try to be much briefer on this one, even though this is an issue that I also care about passionately. I do not think I can start without acknowledging all the incredible work done by the noble Lord, Lord Stevenson, in this arena. He has genuinely moved the issue on by sheer determination, a baton now picked up by the noble Baroness, Lady Coussins.

The statutory debt repayment plan element of the debt respite scheme needs to come into effect as soon as possible. I suspect that we all acknowledge that, but the impact of Covid makes it more important than ever. When we talk about a timetable—I am thinking of the speeches by the noble Baronesses, Lady Morgan and Lady Ritchie—we know that a group of people who will probably never have experienced financial difficulties will now be drawn into a system where they are overwhelmed by their debts. One can see that this is an opportunity for the less scrupulous to take advantage. Even those who regard themselves as perfectly professional and ethical will look for weaknesses in the system in order to get paid. There is pressure on both sides. I have therefore added my name to Amendments 52 and 67.

The noble Lord, Lord Lucas, raised a number of interesting issues but he can probably take comfort in the fact that there is a sort of Scottish template, if you like, in that experience in Scotland will help to make sure that the programmes in England—I assume this covers Wales as well—will benefit and learn any necessary lessons. That should remove a lot of the anxiety and some of the teething problems.

The amendment in the name of the noble Baroness, Lady Meacher, is completely new to me. It seems entirely logical that we should have a proper framework of oversight for bailiff enforcement.

I also strongly support Amendment 111, in the name of the noble Lord, Lord Holmes, to bring lead generators for debt advice and debt solution services under FCA regulation. I have worked on many financial services Bills over the years, particularly on the consumer side, and it is almost breathtaking how many people and groups are totally unscrupulous and use any opportunity to gouge people when they are anxious and worried. One can just see the exploitation that could happen here. I ask that the issue be taken more broadly, that the FCA go on the front foot and anticipate where unscrupulous individuals might try to exploit the situation, and that we see if we can to some extent head it off at the pass. We are quite good at doing something when thousands of people are complaining that they have been taken advantage of; it might be very useful if we turn that around and try to anticipate where trouble could come from and see whether we can deal with it.

The issues have been so well laid out by others that I will not repeat them, but I join in asking the Government to respond to these amendments, particularly those on the timetable, with some very strong assurances at the very least.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we have spent an hour and a quarter debating a clause that is two thirds of a page long in a 182-page Bill. This, at first sight, might seem unreasonable, but when you look at the clause from the point of the view of the individual citizen, it is probably one of the most important in the Bill, so it is right that we have done so. There are an amazing 19 amendments to this clause, which would normally imply concerted opposition. In fact, that has not been the mood of the debate at all.

To sum the clause up, it has dealt well with one of the concepts, but we have too little detail. My noble friend Lord Stevenson of Balmacara seems in many ways to have been the father of this concept, and I congratulate him. We have adjacent desks, and I have seen him busily dealing with issues such as this. His two amendments seek to flesh out how the clause would bring in proper regulation, a degree of reasonableness and recognition of the role of bodies related to national and local government; they also address the importance of protection from bailiffs, and funding.

The noble Baroness, Lady Coussins, brought in the idea that we must have a hard deadline, and the noble Lord, Lord Holmes of Richmond, introduced the concept that we need advice for individuals. A timetable of December 2024 was gazumped by the noble Baroness, who suggested instead May 2024. It is important that the funding issues be addressed, especially if this fine concept is improved, because it could always go wrong if they are not faced up to. Again, this brings home the importance of regulation.

Finally, we have the 11 amendments from the noble Lord, Lord Lucas. I hope he will not mind me saying that they are very “Lord Lucas-like”, with each small detail adding value to this legislation. I say that in order to illustrate that most of the amendments are complementary.

I ask the Minister to recognise the degree of clear, cross-party consensus on this important clause. Many people have urged him to make concessions. My experience is that Ministers making concessions on the hoof is considered rather dangerous; hence, this is unlikely. But I do strongly urge him not to reject too many of these ideas. His brief probably says that the wording will not work. Wording never works when it is from the Back Benches, but the ideas work, and these ideas are powerful and need to be taken account of. I hope there will be a further round of conversations before Report, and that the Government will come back with a composite proposal that improves this important clause. I fear that if that does not happen, we will spend a lot of time on Report, and there will be a more muscular approach from those who tabled and who support these amendments.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, that was a very interesting intervention from the noble Baroness, Lady Noakes, which enhances her reputation as a banker of some repute. I am sure her figures are absolutely right; I was still writing them down as she finished. She has made the case that you need to be able to do these sorts of sums and mathematics if you are dealing with the sorts of debts we have been talking about for most of the afternoon.

I put my name down to speak on this debate, but not because I have a particular view on the merits of the amendment, which I thought was extremely well argued by the noble Baroness, Lady Bennett of Manor Castle. She raised issues on the wider context of how debts are managed in society, which I think the Committee will be very grateful for having on its mind as we focus on the issues. She gave us a tour d’horizon of the various ways in which those who run into unmanageable debt have to deal with the process of repaying, absent a debt respite scheme and absent a scheme under which statutory repayments are organised. They are extremely tough and, to go through an IVA, a debt relief order or full bankruptcy is not something that one would recommend to people if there was another way of doing it.

Indeed, part of the debates we have been having are about how wide we should take this discussion. As my noble friend Lord Davies of Brixton mentioned, the way debt impacts on society is something that is worthy of wider consideration in a more general sense rather than in relation to the particularity of the processes that we are involved in.

That said, it is good that we are having this debate about the wider context within which debt operates in society. It is not a debate that you hear very often, and it is an area of policy that could be afforded a lot more consideration. As such, I will join with the noble Baroness, Lady Noakes, in suggesting that the amendment should not progress at this stage, but for completely different reasons. I think there is a better way of dealing with this relating to the way debts are sold.

The argument that the noble Baroness, Lady Noakes, made, which is that this is how financial institutions obtain the liquidity necessary to maintain the cycle of lending on which we all depend, means that we need to have a better understanding of what happens when debts go wrong and when big institutions of the type that she talked about have to deal with the consequences. I do not mean to go through that in any real detail, but perhaps when the Minister responds he could take into account some of the thinking on this for when we look in detail at the regulations that he has promised us sight of on the statutory debt management plan, and in relation to what I think will be necessary at some point in the not-too-distant future: a reconsideration of the role of the debt relief order and the IVA’s structure, which is part and parcel of the process of dealing with this.

The essential point here is about how, and on what basis, those who have decisions to make about debt make them about individuals who have repayments to make. My understanding, picked up over the time that I was at StepChange, was that, by and large, we are not dealing with a very large proportion of society who are feckless about incurring debts. What tended to come across to me from looking at StepChange’s clients, listening in to the calls that were made to it and observing some of the emails and discussions around electronic systems was that most people—the huge majority—were appalled to be in unmanageable debt situations and were desperate to make a repayment. However, they did not have the financial knowledge and understanding of the system and the world in which they were operating to deal with it themselves. They needed help, which led to the debt advice and the subsequent process of repayment that we have been talking about.

However, at the heart of this is the same calculation that the noble Baroness, Lady Noakes, made: if someone in a credit card organisation or bank is lending money to someone and learns that that debt is going wrong, then there is an immediate calculation of the likely return from it. While we in this country stick to the idea that the creditor must always be repaid in full—or as close to it as possible—the reality is, as the noble Baroness, Lady Noakes, explained it, that a decision has to be reached about what proportion of that debt will be repaid and over what timescale.

My impression is that we are talking about a very large difference in perception. I return to the noble Baroness’s example of a £100 debt that goes bad—she says that one in five will not repay. In a sense, that is the start of the conversation that the person who made the loan has to have with their boss to assess what rate of recovery the loan will have. I believe that we need to have further understanding—not necessarily today or on this Bill—about how that process needs to work better for society. I agree with my noble friend Lord Davies of Brixton: a social issue needs to be addressed at some point, not necessarily today.

If it is true that a loan of £100 has a default rate of at least one in five—I suspect it is higher than that—then we should not be thinking in terms of trying to get a 100% return; we should set in our minds a figure that society could accept and which would be more reasonable in relation to the overall quantum of debt, better afforded by those who need to make repayments and more acceptable to those who do the lending. We are not yet there, and I do not have a solution to this; we are probably too early in the process of discussion and debate. I look forward to the Minister’s comments. This is a conversation that we should have more generally, away from a Bill, on a broader understanding of debt in society.

[Baroness Kramer (LD)]

My Lords, the noble Baroness, Lady Noakes, and I very rarely seem to agree on the types of issues covered in this amendment, but on this one we are totally of one mind. I am very grateful because I tried to write an explanation of how this process would work and it was so inferior. The noble Baroness, Lady Noakes, not only explained it very clearly, step by step, but included numbers, which makes it much more evident.

I think there must be some misunderstanding. As the noble Baroness, Lady Noakes, explained, it is perfectly normal for an originating company to sell off the loans it has, sometimes because it can sell them to someone who has a different funding profile or a different tolerance for the average duration of the book of loans being sold, or because somebody may take a different view on how many of the loans will pay in full, pay in part or default. It is a perfectly standard process and provides liquidity to the market. As the noble Baroness, Lady Noakes, said, if an organisation had to keep all the loans it generated on its books and could not sell them off, it would find very quickly that it was constrained in doing any new business. That would be hugely damaging to many of the people who go out and borrow. It tends to be a completely different business that will buy loans in the secondary market.

The question that underpins this is: is the Statutory Debt Repayment Plan right and fair when it is put in place? If that is true, it should not matter if the money is paid to the originating company or to the secondary buyer. Within the portfolio, there will be some people who can and do meet the full obligations of the Statutory Debt Repayment Plan, and surely that is appropriate. There will be others who fail and end up in bankruptcy, and whoever is holding the loan will lose out.

My question is whether there is any read-over from the kind of issues we have had with mortgage prisoners. It is important that where there are expectations about how the original lender will behave, they are carried over to the secondary lender. For example, if the original lender is quite likely to offer an alternative loan or new terms and conditions or whatever else, you would expect to see that reflected in the secondary lender. I would not want a situation where the secondary lender was able to levy additional charges or put additional costs on the borrower that would not have been expected by the original lender but perhaps are not covered in the minutiae of the contract.

Otherwise, the honest truth is that I just do not understand this amendment. I am absolutely certain that it completely seizes up any possibility of having a secondary market, and the people who will pay the greatest consequence for that are those who need to go out and borrow from time to time and are at the margins of being appropriate borrowers.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I think this debate brings out the fact that we do not fully understand this area. There is obviously a case for a great debate. We are, sadly, going to see many more people in heavy, chronic debt and we will see people—to use a colloquial term—fall apart. When people have debt and cannot see how they are going to cope, they lose their equity in society.

Perhaps I am being unfair, but I see a conflict here between people—human beings—and loan books and technocrats. That is not a very useful comment. I cannot argue that this particular amendment should be pressed, but the debate about it brings out that we almost certainly do not have all the mechanisms, and the understanding of the human beings involved, to face the many more people who will be in chronic debt when we, who are not in that situation, are talking about the Covid crisis being over. Those people need society’s help, and for them to have that, we need a much better understanding of the impacts on those people and how we can make sure that the excesses of the people who hold the books are restrained.

Financial Services Bill

Baroness Kramer Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Baroness Kramer (LD) [V]]

My Lords, I declare my interests as set out in the register. I join in the very warm welcome extended to the noble Lord, Lord Hammond of Runnymede, and the noble Baroness, Lady Shafik, who introduced themselves so powerfully in their maiden speeches.

This Bill may look technical, but it deals with a number of crucial issues, including the stability of our financial institutions. The Bill incorporates Basel III by using skeleton clauses that lay out policy at a very high and general level. It then eliminates secondary legislation and hands to the PRA the power to develop policy through its use of rules. It gives the regulators almost unlimited rein to craft rules that could be at the weak end of international standards, or the strong end, without parliamentary interference. The PRA faces no meaningful accountability, only delayed and minimal transparency, and an occasional review by a Select Committee.

The Financial Conduct Authority expects to follow the same template for the activities it regulates, as it makes clear in the financial regulatory framework review now in consultation. I join others in being shocked that this Bill does not wait for that consultation to be completed, but I think it indicates that the Government have already made up their mind. The PRA will later this year expand the scope of this template to cover its remaining activities. This is not delegated powers; it is the permanent removal of Parliament’s powers in the area of financial regulation. It is not just temporary; it is permanent. Let me quote from the framework review, which states that

“this approach will result in greater policy responsibility and discretion for UK regulators than has existed at any time since the early operation of FSMA following its introduction 20 years ago.”

FSMA 2000 is the regime that underpinned the culture—the noble Lord, Lord Hodgson of Astley Abbotts, reminded us of the importance of culture—and the naive regulation that led to the 2008 collapse, failed us over Libor and failed us for years over PPI. I could go on with other examples, but quite a few noble Lords have already done so very usefully. I hope that the Minister will look back and examine their speeches.

I am shocked on three grounds. The first is the general contempt for Parliament. We so often today see the pattern of skeleton Bills with policy then enacted through statutory instruments. However, this is even more cynical: a skeleton Bill with policy then set by the regulator in its rulebook. There is not even a semblance of accountability. This is not designed for flexibility, because we have plenty of fast-track procedures; it is deliberately designed to ensure that no effective oversight or challenge can be made by Parliament.

Secondly, we are at a critical time following Brexit, as my noble friend Lord Bruce of Bennachie and others reminded us. There is no way that the EU is going to grant anything but limited and temporary equivalence to financial services if they are only governed by rules in a regulator’s rulebook and can be changed without any parliamentary process. Indeed, I suspect the United States—I am thinking particularly of Janet Yellen—will be nervous of any equivalence rulings in the absence of any significant legislative underpinning. My noble friend Lady Bowles and the noble Baroness, Lady Altmann, raised real issues that remain unanswered and I hope that the Minister will address them.

Lastly, I am shocked because although I respect the integrity and intelligence of our regulators and recognise that they have more substantive powers than in 2008, I am still certain that this is not enough to discipline a sector where arrogance and greed have such a history of motivating bad behaviour. I sat on the Parliamentary Commission on Banking Standards for nearly two years. Senior managers who are respected figures, many with gongs and widely recognised, had rushed for short-term, false profits to boost their huge bonuses, and boards of directors were intimidated into silence over reckless behaviour. The regulators failed to speak out, obsessed with regulatory perimeters and constrained by a deep deference to the big institutions. That deference remains, and today the noble Lords, Lord Sikka, Lord Northbrook and Lord Desai, have given us some very powerful examples, which again I hope the Minister will examine.

The regulators also lack the resources to take on the industry, and I think it was the noble Lord, Lord Sharpe of Epsom, who took us through some examples of that. The reports from the Parliamentary Commission on Banking Standards and the legislation that followed changed the landscape, but many of us on the commission feared that the powerful financial institutions would bide patiently and, as memories of the 2008 crash faded, would carefully—we guessed in our conversations that it would take 10 years—persuade the Government to unwind the constraints that prevented the high-risk gambling and the crafting of loopholes to increase both power and bonuses. This Bill tells us that we guessed that timing pretty right, and I would remind the noble Lord, Lord Blackwell, who advised after-the-event oversight but not before-the-event oversight, that that approach pretty nearly destroyed the economy of this country.

It is an irony that the Bill deals with the final end of Libor and the other IBORs, abused in one of the biggest stains on the reputation of the UK’s financial services sector and its regulators. If we want an example of deference in the Treasury and in the regulators, we should listen to these words in the Explanatory Notes to this Bill. The reason that the notes give for ending Libor and similar benchmarks is:

“in response to cases of attempted manipulation of IBORs”.

Attempted? Fake submissions were made by the major banks in London every day for at least a decade, and probably two, in order to get a Libor benchmark that would boost the bonuses of traders and senior managers. Every day for those one or two decades, more than $400 trillion in outstanding loans across the globe were corruptly priced. The knowledge among regulators was evident, partly because the banks in their arrogance made no attempt to hide it, but also because the Bank of England got in on the act, asking banks to manipulate their Libor submissions for the more public-spirited purpose of hiding the depth of the 2008 crash. The scale of the corruption was so large and pervasive that it cannot be unravelled.

I have two other quick comments on the contents of the Bill. Many in the financial services industry have pressed for an international competitiveness requirement for the regulators, and there is in the Bill a “have regard” for both the PRA and the FCA, at least for certain sectors. We heard about that again today from the noble Lords, Lord Hunt of Kings Heath and Lord Bridges of Headley, and others. The industry says constantly that it does not seek a reduction or dilution in regulatory standards, but I—and, I suspect, many others—am going to take some convincing that this competitiveness provision is not doing just that, and driving standards down.

Secondly, the clauses on statutory debt repayment plans and the debt respite scheme are good, but they fail to include a clear implementation timetable. I support those actions, but please may we have the timetable? With Covid, it is now exceedingly urgent.

The Bill is also noteworthy for everything that it does not include. This House will need to remedy that. I have quite a long list, but today the hour is late, and I shall mention only two. The first is a duty of care by financial institutions to all customers. My noble friend Lord Sharkey, the right reverend Prelate the Bishop of St Albans, the noble Baronesses, Lady Bennett of Manor Castle and Lady McIntosh of Pickering, and others, highlighted that need.

The second—although it is not second in terms of priority—is action to motivate and incentivise the financial services sector to support our goals on climate change. My noble friends Lord Oates and Lady Sheehan and the noble Baronesses, Lady Hayman and Lady Bennett of Manor Castle, all spoke about that, and so did many others. It is crucial that those additions be made to the Bill. There are also other priorities, such as financial inclusion, but I will not go through that list now.

If there has been one message in this debate, which the Minister must now address, I can cite what was said by the noble Baroness, Lady Noakes. She and I do not often see eye to eye on an issue, but she talked about the accountability deficit. If regulators are to be given such untrammelled powers as the Bill anticipates, will the Minister tell us now how they are to be held accountable to Parliament? He has heard the words of so many in this House, from all Benches and all political persuasions, who have made it clear that accountability is required.

Economic Update

Baroness Kramer Excerpts

Tuesday 12th January 2021 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, as ever I am grateful to the Minister for putting this Statement on the record and leading our scrutiny of it. The picture painted by the Chancellor yesterday was a bleak one. Given that his personal brand centres on optimism, it is clear why he has resisted appearing before the Commons until now. Before turning to yesterday’s Statement, I gently say to the Minister that announcing £4.6 billion of expenditure via a Written Ministerial Statement last week was wrong. I hope he will assure us that both Houses will receive verbal updates in future.

As outlined in the Statement, economic performance in 2020 was understandably poor by conventional standards. The Minister will doubtless disagree with me, but this was arguably exacerbated by the stop-start nature of the Government’s response to the pandemic. The outlook for the economy this year and beyond is equally worrying. Even with nifty accountancy tricks, the projections fall far short of where we would like to be. I have commented previously about the speed at which the OBR predicts annual economic growth will flatten out at an unremarkable 2%. I have regrettably seen and heard nothing from the Government which resembles a plan for addressing that concern. We recognise, as we have at all stages of the Covid-19 crisis, the colossal scale of state intervention over recent months. It has been unprecedented, but there is no doubt that challenging times call for such measures.

The Minister will know that we are fast approaching a calendar year since the first national lockdown and the launch of various economic measures that accompanied it. Despite the passage of so much time, current support still falls far short of the Chancellor’s pledge to do “whatever it takes” to help the nation through these tough times. The Government say that not every job can be saved, but more could have been rescued had Mr Sunak provided greater certainty on employment support last year rather than trying to extricate himself from it at the earliest opportunity—in the face of all available evidence. As sure as night follows day, the U-turn came, but the harm had already been done. It is ironic that he now appears to champion the furlough scheme as one of his greatest achievements.

We needed swifter intervention in the creative industries, to support hospitality firms and supply chains, and to support the aviation sector. Despite their worth to our economy, many unanswered questions remain about the future of these sectors. Ministers have shamefully refused to address well-documented shortcomings of the Self-employment Income Support Scheme, where arbitrary criteria have left millions relying on universal credit, which is already insufficiently generous and at risk of a significant cut from April. We would have accepted a declaration of intent in the event of full details not being ready; as it happens, we did not get even an acknowledgement of the problem.

The Chancellor could and should have used yesterday’s Statement to outline his plans for addressing these issues and many more, including backing local authorities rather than forcing them to raise council tax. Compliance with guidance on self-isolation is believed to be heavily influenced by an individual’s financial circumstances. The Chancellor knows this yet failed to announce new incentives to help people do the right thing. His Statement was also a missed opportunity to provide much-needed additional help for the homeless, who have, tragically and literally, been left out in the cold. Can the Minister shed any light on why these issues were not directly addressed in the Statement? Can we expect them to be addressed soon, or will the Government continue to hide behind flimsy and unsubstantiated claims?

We are trying our best to support the Government as they tackle this pandemic, and will continue to do so. However, to rebuild public confidence in their response, we need greater honesty, accountability and consistency. The arrival of multiple vaccines against this coronavirus is crucial in our fight to overcome it, but we are still getting different messages and timeframes depending on which member of the Cabinet we hear from. Whether it is in respect of the number of Covid-19 infections and deaths, the state of our economy, the struggle to end inequality or even Brexit disruption to supply chains at border crossings, Ministers warn almost daily, apparently without contrition, that things are likely to get worse before they get better.

We understand that the new strain required changes to plans over Christmas, but, as with the furlough U-turn, clarification came much too late. Despite that experience, the Government have set themselves the target of schools returning after the February half-term and life beginning to look more normal by Easter. Does the Minister stand by these dates? If it transpires that they will be missed and children will remain at home, will the Government look for additional help for teachers and a legal right for parents to request paid, flexible furlough? Can the Chancellor announce future financial support at the earliest opportunity, to give businesses and workers maximum certainty?

[Baroness Kramer (LD) [V]]

The Chancellor has once again responded to a long-term economic crisis with only very short-term measures. The evidence from the Resolution Foundation of sharply growing inequalities is scary, frankly, as low-income families have to spend more to survive the pandemic. Will the Government at least make permanent the £20 uplift in universal credit?

Economic recovery cannot take hold before the summer even with a successful vaccine rollout, so will the Government now extend furlough, SEISS, the loan and various other support schemes at least to July, if not beyond?

Why have the Government continued to exclude 3 million of the self-employed from help, especially now that the Federation of Small Businesses has devised a scheme that avoids the risk of fraud? The FSB has also pointed to the recapitalisation crunch that could destroy businesses in 2021. Where is the long-term economic plan for recovery that businesses need to enable them to hang in, protect jobs, invest and grow again?

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con) [V]]

My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his comments. I shall to try to address some of his points.

It is clear that the UK, along with the rest of the world, continues to face economic disruption in the wake of the Covid pandemic. No major economy has avoided a dramatic fall in its GDP in the past year. In the face of the significant and far-reaching impact of Covid, the Government’s priority has been to protect lives and livelihoods with a flexible and adaptable response. This response is one of the largest and most comprehensive in the world, totalling more than £280 billion since March. The IMF judges the UK’s initial response as being aggressive, effective and an excellent example of well-co-ordinated action.

While we should expect the economy to get worse before it gets better, as my right honourable friend the Chancellor said yesterday, there are reasons to be cautiously optimistic for the future. The peak of the unemployment rate is expected to be significantly lower than that estimated earlier in the crisis. The OBR has revised down its central scenario from 12% in July’s estimate to 7.5% in November’s estimate. The household savings ratio has reached its highest level since records began in 1963. The corporate sector cash buffers have improved, with large businesses making large net repayments every month since May. The furlough scheme has seen some 1.2 million employers and almost 10 million employees supported and has been extended until April to provide certainty during these difficult times. We have provided significant support to the creative industries through the £1.5 billion Culture Recovery Fund and to the hospitality industry, which I recognise has been severely impacted by the restrictions. It has also been supported by cash grants, loans, VAT reductions and deferrals, and business rate holidays.

The support for the self-employed has been unprecedented and among the most generous of schemes in the world. It has so far supported almost 3 million people at a cost of nearly £20 billion. As the Chancellor has said, sadly we are not able to save every job and business and, in recognition of this, have boosted the welfare system by £7.4 billion in 2021.

I thank the noble Lord for mentioning the vaccine, which represents a significant sign of hope and a path out of the coronavirus. Vaccine rollout is our most important economic lever and we have made available more than £6 billion to facilitate that. We have now administered more than 2.4 million vaccine doses across the UK. By 15 February, we aim to have offered a first vaccine dose to everyone in the top four priority groups identified by the Joint Committee on Vaccination and Immunisation.

The road ahead remains tough, with significant uncertainties. The Chancellor and this Government will continue to work to support individuals, businesses and public services during this time. As the Chancellor said yesterday, he will provide an update on the next stage of our economic response to coronavirus and the economic outlook for the rest of the country in the Budget on 3 March.

On retaining the uplift in universal credit, referred to by the noble Baroness, Lady Kramer, as with all responses so far in the crisis, we have tried to adapt to changing circumstances and this matter will be kept under continual review. In the same vein, we have extended furlough until April, it already having been extended from an earlier time, and we will continue to be alert to the state of the economy.

On the noble Baroness’s point about the self-employed and the Federation of Small Businesses, my right honourable friend the Chancellor said yesterday that he was considering the ideas put forward by the FSB.

European Union (Future Relationship) Bill

Baroness Kramer Excerpts

3rd reading & 2nd reading & Committee negatived & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Wednesday 30th December 2020 Lords Chamber

[Baroness Kramer (LD) [V]]

My Lords, Martin Wolf writing in the FT last week accurately described the EU and the UK as “equally sovereign” but “not equally powerful”. This deal not only locks in that imbalance but leaves the UK in a position of dependency that I find quite shocking. As someone who opposed Brexit, I always regarded this deal as damage limitation, but I never expected any British Government to give up so much for so little.

Because of time, I will limit my remarks to financial services, a key pillar of the UK economy—perhaps its most important one—that provides nearly 2 million jobs and over £75 billion a year in tax revenue. With the signature on this deal, our negotiating leverage to protect key parts of this industry has disappeared. We have already seen more than £1.2 billion in assets shift to the EU. How could any responsible Government put the UK economy in this position?

Of course we keep domestic financial services, but our global role depends on our ability to be the overwhelmingly major player in the euro-denominated financial markets. The US has been repatriating dollar activity to New York; China has no intention of outsourcing any significant portion of its financial services; and India is equally committed to growing its own capacity. We are entering a period of regional blocs and rivalries. We are Europe’s hub or no one’s hub.

This is now entirely in the EU’s hands. It has the luxury of building capacity in the 27 at its own pace and then, like the python, gradually squeezing to require a shift out of the UK. In asset management, where, frankly, the Government always thought the sector would just “brass plate” in the EU, the industry has been adding jobs in the 27 at a pace unimaginable before Brexit. Now the EU is consulting on tightening its rules on outsourcing to push the trend further. In commercial insurance, the Herculean task of transferring contracts from the UK to the EU is close to complete, and Lloyds of London is now Lloyds of London and Brussels. Derivatives clearing, a global, trillion-dollar industry which underpins London’s global role and keeps a huge range of related activities in the UK, has been given temporary equivalence by the EU for 18 months with guidance to EU companies to use that time to shift their business to the 27. Even growth in fintech depends on an agreement on data exchange, which is not in this deal. An MoU by March will set a framework for regulatory co-operation—if we promise to be good.

We face a slow erosion, only because the EU is happy for it to be a slow erosion, but the pace and the proportion will be at the EU’s choice. That is the effect of this very botched deal.

Taxation (Post-transition Period) Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Wednesday 16th December 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, it is astonishing when the most important comment to make about a Bill is that the British Government have changed their mind and do not intend to use it to break international law and subvert agreements in existing treaties. I really do not understand what sort of hubris led the Government to attempt to take such a position in this Bill and the internal market Bill, but they have done real damage to Britain’s international reputation.

As for the Bill itself, it is troubling that, once again, the Government seek to diminish Parliament’s role by doing so much through negative SIs. The Northern Ireland protocol deals with a complex situation with many sensitive political ramifications—the supply chains alone are far from straightforward. A no-deal result to the UK-EU trade negotiations would make matters seriously worse. In those circumstances, Parliament should be fully engaged. Cutting Parliament out is not the way the Government should have moved within the Bill.

Much of the cross-border trade between Ireland and Northern Ireland involves small businesses. The Government’s answer to new problems for small businesses, which will be legion, seems to be trusted trader status. I sit on the EU Goods Sub-Committee. Small businesses have told us that the trusted trader scheme is simply not fit for purpose. It is complicated, expensive and disproportionate. It must be reformed, but so far the Government seem deeply resistant and certainly seem not to have addressed such issues in their trade negotiations. Therefore, no change is reflected in this Bill. It is an instrument that most will simply not be able to use.

The Bill also allows for new trade rules to be introduced gradually for supermarket supplies and medicines, and that makes sense. But it would have made more sense if it had been extended far more widely. I and my colleagues have called for a six-month adjustment period for all goods and small businesses that form our trade with the EU. Frankly, in the time of Covid intensifying—I suspect that when the Bill was conceived there was an expectation that it would be meandering away at this point—it is even more imperative to apply a much broader breathing space. I hope the Government will rethink that in these last few days.

Lastly, I will touch on VAT. HMRC has said that, in so far as possible, VAT will be accounted for by businesses and individuals as it is today as goods cross the Northern Ireland border. I attended a virtual webinar held just a few days ago on VAT, including the Northern Ireland border issues. I will admit that I could not follow large chunks of it, but it was easy to draw two conclusions. The first is that this is a real Bermuda triangle, with intense complexity embedded in it. Any business will be taking a real risk if it does not get expert advice to be able to cope, and that will be really challenging, especially for smaller and medium-sized businesses. The other conclusion one came to, which was a happy thought for those involved in the webinar, was that VAT experts had been given job security for life with the complexities that will arise.

We in this House have no say in the future of this Bill, but it is one that touches on serious issues that will shape the future of Northern Ireland and of our union. Despite that limitation, I hope that we will continue to follow these issues. We need to continue to hold the Government to account.

Spending Review 2020

Baroness Kramer Excerpts

Thursday 3rd December 2020 Grand Committee

[Baroness Kramer (LD) [V]]

My Lords, the OBR’s central scenario anticipates a contraction in the economy this year of 11.3% due to Covid, leading to a permanent economic scarring of 3%. Public sector net borrowing will reach 105% of GDP this year. However, it is the employment numbers, expected to peak at 7.5% next year, that will really shock the British public. Sadly, we have had a foretaste with the collapse of Arcadia and Debenhams, putting 25,000 jobs at risk and closing retailers that have underpinned town centres. Other retailers will follow, especially when the rent holiday ends.

We are in a transition. It is a time of dislocation, and the Government need to provide a soft landing. The noble Baroness, Lady Warsi, raised critical questions about mitigating the immediate impact of job losses. At the very least, furlough and related programmes need to be extended; other countries have promised support through 2021.

My colleagues and I have supported the Chancellor’s actions to pump money into the economy. Indeed, we cannot understand why 3 million self-employed people have been excluded from any kind of support. The noble Lord, Lord Haskel, made the point powerfully: it is a travesty that this spending review does nothing for the excluded.

My colleagues and I are shocked that the additional £20 a week in universal credit has not been locked into this spending review and the uplift has not been extended to legacy benefits, as was discussed by the right reverend Prelate the Bishop of Portsmouth. As others have said, the most economically fragile people do not know whether, overnight in March, they will lose 20% of their weekly income.

I also join my colleagues in calling for urgent action to support unpaid carers. I am really tired of hearing them praised but seeing them left to struggle. Many full-time carers rely on the carer’s allowance, which is only £67.25 a week. At the very least, they need a £20 uplift to match the uplift in universal credit.

This pattern of saying praise phrases but then actually doing harm applies to this Government’s behaviour to a large body of public sector workers, whose income is not just frozen but will actually shrink with inflation. As the Institute for Fiscal Studies has pointed out, the freeze saves the Government between £1 billion and £2 billion, which is pocket money compared to the £400 billion spent on the epidemic. The freeze reduces consumer spending, as pointed out by the noble Lord, Lord Goddard. It has to be pure politics—a deliberate kicking of public sector workers to please the Tory right.

Of course, the kicking is extended to local government. Many local authorities are close to breaking point with the added burdens of Covid, but the additional money offered to them in the spending review is largely a lift in the ceiling for local tax increases of 5%, as illustrated by the noble Lord, Lord Shipley, the noble Baroness, Lady Pinnock, and, indeed, the noble Baroness, Lady Eaton. The tax rises that the Government are avoiding they now start to dump on local authorities. Dumping the blame is the real story, especially as no true devolution goes with it.

As the IFS said, and as the noble Baroness, Lady Bennett, quoted, it was a pretty austere spending review—cutting spending plans by more than £10 billion next year and in subsequent years, with the pain falling largely on the unprotected departments. There will be no Covid-related spending after next year, nothing to deal with the demands of an ageing population on the NHS and social care, as discussed by the noble Lord, Lord Hunt, and little to match the retraining needs of a digital age.

What about the actual spending announcements? The big winner is defence. How much of that is for space projects and for OneWeb, the failed internet company purchased by the Government in their hope of rivalling Elon Musk and Jeff Bezos? It certainly does not raise this Government’s standing in the world, especially as it comes with their betrayal of their promise on overseas aid—a point powerfully made by the noble Baronesses, Lady Sheehan, Lady Warsi, Lady Uddin, Lady Ritchie and Lady Hayman, and the noble Lord, Lord Reid, Lord Hain, Lord Bhatia and Lord Sheikh, but perhaps most powerfully by my noble friend Lord Oates. Overseas aid is already reduced because our GDP is reduced, as the noble Lord, Lord Bourne, pointed out. This action removes another £3 billion just as developing countries are in need of more resources than ever to counter Covid. Like so many others, I truly respect the noble Baroness, Lady Sugg, and her decision to resign. She was a terrific Minister and she will be missed.

This spending review was hailed as a new dawn for green and infrastructure projects, but nearly every penny of capital spend is a reannouncement. I accept that public sector net investment will average twice that of recent years, but it has a lot of catching up to do. The green schemes funding especially, at £12 billion in total, is dwarfed by the equivalent commitments in Germany of £42 billion and France of £35 billion. It fails to meet our national ambitions, as pointed out by the noble Baronesses, Lady Hayman, Lady Randerson and Lady Boycott. I am shocked that the levelling-up fund requires money to be spent by the next election, and I hope that it will be free of the political interference of the towns fund. We need the best projects, not political bungs. I appreciate the points made by the noble Lords, Lord Liddle and Lord Bourne, on the need for devolution to use such funds effectively.

What the Government hate to confess is the role of Brexit in this whole bleak scenario. The economic scarring from Brexit—and that assumes a trade deal with the EU—is 4% permanent damage. No deal adds another 1.5% to 2% of permanent scarring, as the noble Lord, Lord Hain, made clear. In case the Minister mentions new trade deals, those are already built into the numbers. Brexit and Covid are a toxic combination, as the noble Lord, Lord Inglewood, described. Covid has crushed sectors such as hospitality, shop-based retail, leisure and transport. Brexit damages much of the rest of the economy, including financial services, manufacturing, life sciences, pharmaceuticals and agriculture—and, frankly, the creative industries are felled by both. If the Government do not pull their head out of the sand and understand the impact of economic Brexit, we will be in an appalling spiral.

Time is running out for this Government to get a grip. Interest rates are very low, largely thanks to £900 billion of QE by the Bank of England, but we have to remember that we are very susceptible to the slightest increase in interest rates. Productivity was at rock bottom even before Covid. New business investment fell sharply following the referendum and now has effectively disappeared. The severe depreciation in sterling since the Brexit referendum has given us wage and economic stagnation.

I will raise one very quick point at the behest of my noble friend Lord Sharkey. Medical research charities, which underpin so much research in this country, are in crisis due to Covid, with a shortfall of £310 million. Will they be allocated funds to cover the gap from the increase in research and innovation funding? If not, we will very likely lose not just the programmes but the scientists that make us a world leader in this field.

Other noble Lords have raised a range of critical issues, and done it brilliantly in two-minute speeches. The noble Baroness, Lady Humphreys, underscored the support crisis in Welsh farming; the noble Earl, Lord Clancarty, and my noble friend Lord McNally raised the challenges to the creative industries; and the noble Baroness, Lady Goudie, raised gender issues. Will the Minister at least write to answer those crucial questions and challenges if he cannot reply today?

Customs Safety, Security and Economic Operators Registration and Identification (Amendment etc.) (EU Exit) Regulations 2020

Baroness Kramer Excerpts

Thursday 19th November 2020 Lords Chamber

[Baroness Kramer (LD) [V]]

My Lords, my colleagues and I do not object to this SI. Given how little prepared this country is to cope with imports from the EU into the UK, the six-month delay in requiring ENS declarations is inevitable. How likely are the Government to hit the July target and the staging posts in between? On the continent, all countries’ customs organisations have completed their preparations, and they too have experienced Covid.

To what extent does the Government’s expectation that SNS declarations will not apply to goods transported from the GB to Northern Ireland rely on breaking international law? It would be helpful to understand.

I would also like the Minister to help me understand some rather more granular issues, in particular the impact of post-transition customs barriers on the flexibility or loss of flexibility for hauliers in determining their route when crossing the Channel. I particularly have in mind the accompanied roll-on, roll-off traffic which handles most of the perishable and critical just-in-time cargo. For example, car factories in the UK order parts in the morning from EU suppliers that are to be put into the production line in the UK that afternoon and vice versa. The Explanatory Memorandum accepts that it is the norm for drivers on the Continent to decide whether they will use the Calais-Dover ferry or Eurotunnel only as they approach the entrance at Coquelles or Calais. Does the requirement for declarations to be filed even just two hours pre arrival allow flexibility for such decision-making and a change of route to continue in the same way as now? It has been very important in managing issues around congestion through industrial action or, indeed, a change in destination delivery.

Reading the Government website for ro-ro traffic from the UK to the EU, I cannot work out how much flexibility will exist in that direction. Again, drivers decide between the Dover-Calais ferry or Eurotunnel only after leaving the M20. I can see from the website that the process of getting export clearance has multiple steps in which the exporter files details, including the vehicle registration number, often known only at loading, along with customs duty tariffs and presumably rules of origin, also often known only at loading. HMRC then notifies the exporter if more documentation is required or gives permission to progress to port. How flexible is this side of the regime? What happens if the haulier wishes to combine loads at the last minute? Is the entry paperwork different going into France, Belgium and Holland? I believe that it is. Also, have the EU states had time to adapt to the new UK systems? Given that some of them are still a work in progress, it seems quite tough to expect someone else to integrate with systems we have not completed.

Large companies have the resources to cope with these changes, expensive though they are, but the Minister will be aware that 150,000 exporters to the EU have never experienced a customs regime and many of them have been unable to prepare for the change, especially as they are dealing with Covid and because they do not know exactly what the systems are. The NAO notes that the Government’s latest reasonable worst-case planning assumption of September 2020 is that 40% to 70% of laden lorries may not be ready for border controls. It has also made clear that the customs intermediary market, which most small exporters rely on and will have to use, is inadequate, despite some recent investment by the Government.

Many of the Government’s new IT systems, while welcome, are either unfinished or are still being tested, leaving businesses with only a tiny window to understand what is needed to adapt to them and then to implement the adaptation. Will the Minister update us on the readiness status of NCTS, which is the new computerised transit system, GBS&S, the safety and security system, and GVMS—the Goods Vehicle Movement Service. Where are we on the migration from CHIEF, Customs Handling of Import and Export Freight, which at least is understood, to the Customs Declaration Service, which appears to be a major headache? Indeed, why has the CDS not been delayed, given the trouble it is causing? Further, while some ports are prepared, others are not. Can he comment on BBC reports that Felixstowe is already in chaos with unacceptable delays because of pre-Brexit stockpiling and Covid?

Lastly, I ask the Minister about the Economic Operator Identification and Registration System. As the amendments in this SI make clear, this scheme is a nightmare, and the SI appears to admit to another layer of complication. The Government have been frequently asked to devise and negotiate a proportionate version for small exporters. In the Explanatory Memorandum, the Government proudly declare that no specific action is proposed to minimise regulatory burdens on small businesses. Why have they chosen not to do this?

Future of Financial Services

Baroness Kramer Excerpts

Wednesday 11th November 2020 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the Minister for dealing with the second Treasury Statement in as many days. This Statement is billed as a prelude to the Financial Services Bill, which we will be able to scrutinise following its Commons stages. The process promises to be an interesting one, and I hope the Minister will avail himself of the expertise that exists across your Lordships’ House.

The Chancellor was correct to outline the importance to our economy of the financial services sector. It is a huge employer, generates a significant amount of economic activity and makes a large contribution to the Exchequer. It is vital that we harness the potential of financial services to grow our economy, particularly in terms of green growth.

It is a shame that this Statement has come only now. As it stands, we are weeks away from leaving the transition period without an agreement giving UK firms preferential access to the EU markets that are so important to their day-to-day operations. The Government have unilaterally published equivalence decisions for EU and European Economic Area member states, but the Minister will concede that that gets us only so far.

In his Statement, the Chancellor reiterated the Government’s position that an equivalence determination for UK firms should be simple and swift as we start from a point of regulatory alignment. If that were true, why were the Government not able to secure equivalence determinations by the deadline set out in the political declaration? The Chancellor has sought to blame the EU, but when the Government were asked to complete various questionnaires to aid that process they managed just four out of 28 by the June deadline.

While we may start at a point of alignment, decision-makers in the European Commission will no doubt be studying the Financial Services Bill in detail. Equivalence may not require total alignment, but it seems odd for the Government to amend UK regulations at the same time as demanding that our EU colleagues take a snapshot of them. Does the Minister believe that the contents of the Financial Services Bill are likely to have any bearing on the ongoing discussions? Is it possible that the EU will delay a ruling until that Bill is on the statute book? We will scrutinise the Bill closely, not only in the context of equivalence but to ensure that the reforms do not lead to a deregulatory race to the bottom that puts investors and financial stability at risk.

I turn to the green components of the Statement. The Government would have us believe that their commitment to tackling climate change is second to none, but those of us who share an interest in recent legislation will be sceptical, to say the least. We are told that everything done by Ministers is with a net-zero future in mind, but time after time they oppose sensible climate amendments, most recently on the Agriculture Bill. While the various green finance initiatives announced in recent days represent a degree of progress, the Treasury has not gone as far as many would like. It is certainly not the comprehensive green agenda that is needed to make swift and decisive progress towards the 2050 net-zero target and our wider international obligations. As the shadow Chancellor observed in her response in the Commons,

“Over the last decade, the UK has pumped £6 billion into overseas fossil fuel projects via UK Export Finance”.—[Official Report, Commons, 9/11/20; col. 621.]


There is no indication that this behaviour will be banned, undermining any meaningful action taken in the UK.

The Financial Conduct Authority has signalled a change in approach to firms’ disclosure of climate-related information, which we support. However, mandatory reporting will not be implemented until 2025. Why are the Government not being more ambitious? Green gilts are another case in point. How can we be sure that the money will represent genuinely new investment? Why have the Government waited until 16 other countries have introduced their own schemes, rather than taking the lead on the issue of green financing?

I wish I could be more optimistic, but, sadly, I remember the story of the Green Investment Bank. The institution, proposed in the last Labour Government’s final Budget, should have been key to improving the UK’s environmental record. Instead, just years into its existence, it was sold off by the former Business Secretary Sajid Javid. Earlier this year, a government Minister suggested at a roundtable event that the “Green Investment Bank 2.0” could materialise in the future. Can the Minister confirm whether this is being looked at and, if so, when we can expect news?

[Baroness Kramer (LD) [V]]

My Lords, I declare my interests as listed in the register. I agree with the Chancellor that financial services are fundamental to Britain’s economic strength. However, I recommend that anyone looking to assess their future ignore the hype in the Chancellor’s statement—he seems to have drunk the moonshot Kool-Aid—and look at reality. Our failure to negotiate mutual recognition, or at least equivalence-plus, with the EU is a serious problem. If only the Government had taken as much interest in this area as they do in fishing or, as Catherine McGuinness of the City of London Corporation is quoted as saying in today’s Times, finance risks being

“the neglected child of an acrimonious divorce”.

Over £1 trillion in assets have already transferred from the UK to the EU. Last year, Ministers seemed to think that half the financial services business with EU clients, which is about 15% of total UK financial services, had left or was in the process of leaving, including swathes of insurance and asset management. Is 15% still the number, I ask the Minister? The size of these asset transfers suggests that the actuality is well above those expectations. Job transfers are unclear because of Covid, but we do know that, even in 2019, the recruitment of graduates who do not have EU passports had pretty much collapsed for anything except retail banking.

The EU, which I once thought had a 10-year strategy to remove, slice by slice, most EU and euro-related financial services back to the 27, seems to have accelerated that programme. For example, Mr Dombrovskis has cautioned EU businesses to shift a significant portion of their clearing activity out of the UK in the next 18 months. Without dominance in clearing euro-denominated derivatives, the UK’s global role is seriously at risk. Does the Minister agree?

On fintech, many firms have made it clear that they will have to move EU business if we cannot agree on the rules that govern data. Where are negotiations on this, because at the last look they were pretty dire, with the UK determined to please the United States by watering down data protection?

I am delighted that we are finally going to issue a green sovereign. We may be a leader in green finance now, but every single significant financial centre is committed to the green agenda. I note that the EU is expected to issue €200 billion in green bonds as part of its Covid recovery fund, none of which will be issued through London. But will the Government replace the Green Investment Bank? The noble Lord, Lord Tunnicliffe, mentioned it; it was sold off in part because, along with the British Business Bank, it was associated with Vince Cable, but that was also a deliberate act of environmental vandalism. Will it be replaced?

We are entering a period of regional economic blocs. The United States has actively repatriated a great deal of dollar financial services. China and Asia generally, contrary to the expectations of George Osborne, are using Hong Kong and Singapore rather than London, even with all the disruption in Hong Kong. India is developing Mumbai, so I caution the Government not to misread the potential of dialogue with India. We are now outside all the regional blocs. We have capacity and skills in financial services, but everyone else has the clients and issues the major currencies. You can move capacity and skills, but you cannot move the clients. London will remain a global centre but, I fear, one of gradually less significance. Will the Government give us a reality check on the future of this crucial industry and a proper assessment of the damage that their hard-line Brexit is delivering?

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

I thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer, for their thoughtful contributions. I will try to answer the questions as fully as I can.

Unlike the EU, the UK’s equivalence assessment of the EU’s regime was conducted on a proportionate basis, recognising that the UK and EU have the same rulebook. The EU sent us over 1,000 pages of questionnaires—not in a timely manner, with the last 248 pages arriving by 25 May, which is why we were not able to return them within a week, as I think the noble Lord, Lord Tunnicliffe, mentioned. We responded to the questions fully and comprehensively, with over 2,500 pages of response going back at the beginning of July. The EU has not come back with any questions on these responses.

In the absence of clarity from the EU, the Chancellor announced the package of decisions on Monday, which are in the UK’s interest and seek to support UK firms and ongoing cross-border activity with the EU. I assure both the noble Lord and the noble Baroness that we remain open and committed to a continuing dialogue with the EU about their intentions. The Government have taken all reasonable steps to co-operate in good faith with the EU throughout the equivalence process.

The noble Lord asks whether we feel that the EU is holding back, pending the progress of the Financial Services Bill. The measures in the Bill are consistent with a mutual equivalence outcome, and a number of cases actively support it. The UK played an instrumental role in the introduction of a lot of the EU’s regulation, particularly the investment firm regulation and directive, for example, so it is very supportive of the intended outcomes.

The noble Lord asked about TCFD. The UK is the first major country to go beyond comply or explain, or as far as able requirements, and our proposals contain a requisite level of prescription, supervision and enforcement mechanisms to mandate meaningful disclosure. The approach confirms the UK’s position as a global leader on robust climate-related financial disclosures that help investors to make informed decisions. We believe that the timelines set out in the road map provide the right balance between showing ambition and allowing businesses, investors and asset owners enough time to prepare to disclose meaningful information. Initial steps towards introducing TCFD-aligned disclosures have already been taken in respect of certain listed companies, banks and building societies. The FCA consulted in March on comply or explain rules for premium listed companies.

The noble Lord asked about green gilts. The UK’s sovereign green bond will identify specific government green projects that its proceeds will be used to finance, as per the International Capital Market Association green bond principles. These proceeds will then be tracked and reported in a regular and transparent manner to provide clarity to the public and investors.

The UK Government have always remained open to the introduction of new debt-financing instruments but needed to be satisfied that any new instrument would represent good value for money to the taxpayer. We have been regularly reviewing the case for introducing a sovereign green bond, as well as closely monitoring how the green and other ESG bond markets have developed over recent years. The noble Lord asked why we were slow. We have been watching the evolution of this market; indeed, Germany issued its first equivalent only in September this year.

The noble Lord and the noble Baroness asked about a Green Investment Bank mark 2. The Government are committed to ensuring that businesses and infrastructure projects continue to have access to the finance that they need. The UK has a number of existing tools available and we committed, in March last year, to an infrastructure finance review. We still intend to respond to that within the next few weeks.

The noble Baroness asked about asset transfers and the future role of the City. One of the advantages of leaving the EU’s regulation is that it gives us the opportunity to launch a number of initiatives. For example, we will review Solvency II. We will have a call for evidence on the overseas regime, some parts of which have not been reviewed since 1986. We are carrying out a task force on future listings given that there is, for example, quite a big discrepancy between the minimum size of a prospectus in this country and in the US. We are carrying out a consultation on the UK funds review to look at ways of making this country more attractive for international funds.

I remain more optimistic than the noble Baroness that there is a good future. She also asked about fintech and its role. We are a major player in the fintech market. We are developing an ecosystem that supports fintech firms to grow and reach scale. We are fostering partnerships between fintechs and incumbents to enable mainstream adoption of innovation. Being a large economy, we provide the opportunity for high levels of domestic demand; the British public tend to be early adopters of the opportunities that fintech throws up. We have the third-largest number of tech unicorns in the world, with 77 companies valued at over $1 billion. We are absolutely committed to supporting the growth of that market.