Financial Services Reform

Baroness Kramer Excerpts

Wednesday 23rd July 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I spent two years on the Parliamentary Commission on Banking Standards following the 2008 crash. We were all aware that the financial sector and the City would, over time, work hard to erode the protections that we recommended to prevent a repeat of financial instability, casino-type risk-taking and consumer abuse. The financial sector plays a long game. Inch by inch the erosion is well under way, while the Government are seen as eager for nominal growth and too eager to resist that erosion.

Let me give a short list on the erosion: the competitiveness and growth objective for regulators; the changing to matching adjustment in Solvency UK, increasing the illiquidity of the insurance sector; the removal of the cap on bankers’ bonuses; the permanent permission for pension funds to transact derivatives without using central counterparties and holding margin collateral; the watering down of the senior managers regime, which is key to accountability; the weakening of the Financial Ombudsman; the pressure on pension funds to invest in high-risk and illiquid assets; and the weakening of bank ring-fencing, which was absolutely at the heart of the commission’s recommendations, removing that incentive to take free deposits and roll them in the casino. That list is just what springs immediately to mind. It is far from complete.

Regulation cannot be written in stone, and adjustment and streamlining are always necessary, but will the Government now issue a compendium of all the changes, along with a proper assessment of the cumulative shift in risk? I mean changes by not just the Government but the various regulators. Parliament will then be in a position to make a proper judgment.

The financial sector has approved this move back towards what it sees as a return to the light-touch regime, a regime that made it very rich. But remember that when the inevitable crash came, leading financiers were pretty much untouched. Ordinary people bore the brunt. It is crucial that this is not repeated.

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

My Lords, I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their questions and comments. I will do my best to address all the points they raised.

The noble Baroness, Lady Neville-Rolfe, spoke about the economy in general. She will be aware that we have had to take very difficult decisions on the economy to generate the stability that we all want to see—not least to restore stability to the public finances in the Budget last October. The stability that we have restored is already delivering. We have seen four cuts in interest rates by the Bank of England since the general election, reducing the cost of mortgages and business lending. Real wages have risen more in the first 10 months of this Labour Government than in the first 10 years of the previous Conservative Government. Investment is returning to our economy. At the spending review, the Chancellor set out £120 billion of additional public investment. The IMF has long identified the insufficient amount of investment in our public sector as a barrier to growth. The UK has attracted £120 billion of private sector investment in just the last 12 months.

The noble Baroness mentioned recent growth figures. Those growth figures were disappointing, but we are determined to go ever further and faster to deliver on our growth promise. That is why we are doing all the reforms that we have embarked on—not least the spending review and increased investment. We have increased investment in better city region transport, have committed record funding for affordable homes and are backing major infrastructure projects such as Sizewell C. We are investing in the parts of the economy that genuinely will be growth generative.

The noble Baroness also talked about the importance of financial services to the economy. The financial services sector is critical to our growth ambitions for our country. It is one of the largest and most productive sectors in the UK, worth around 9% of total economic output, as she said, employing 1.2 million people in clusters right across the UK. London is the financial centre of the world, home to the deepest equity capital market in Europe and the third-biggest venture capital market globally. It is right that we support the sector as we have in the strategy that we have set out, to see the growth that we want to see and for that growth to feed through to the real economy.

I am grateful to the noble Baroness, Lady Neville-Rolfe, for welcoming what we have said about the rebalancing between risk, growth and competitiveness. The noble Baroness, Lady Kramer, struck a very different tone. I know that she has huge expertise in this. I do not for a second intend to in any way doubt her expertise. I know that she played a huge role post financial crisis in putting together much of the architecture that is in place. I disagree, though, with the way in which she characterised our reforms. She asked for a compendium of those reforms. The financial services growth and competitive strategy is the compendium of those reforms. I think that what have been called the Leeds reforms are the totality of the reforms that she identified.

We are not removing the regulatory architecture that was put in place and that she played a major role in after the global financial crisis. As the Chancellor has specifically said:

“The protections that were put in place … were the right thing to do, with better protections for consumers and more accountability injected into the system”.


The core elements of that—adherence to international standards, ensuring robust MREL, remaining committed to ring-fencing, which we do despite what the noble Baroness said, and the structure to the regulatory system—all remain in place. But we believe that the pendulum swung too far in the opposite direction. The balance of regulation has gone too far towards regulating for risk and not enough towards regulating for growth. Clearly, this is a highly competitive sector, and no other globally competitive financial services hub imposes such bureaucracy on its businesses. Neither should we if we want to be competitive.

So, absolutely, we are recalibrating. We are rebalancing the approach to risk so that it is more proportionate and so that, in the right places, consumers and industry can take informed risk and create the space for the innovation and growth in the sector that we want to see.

The noble Baroness, Lady Neville-Rolfe, mentioned the Financial Services Regulation Committee of this House and the fact that it identified many of the issues that have been addressed in this strategy. Obviously, I pay tribute to that committee and the work it has done. I look forward to debating its report in due course. That points to a degree of cross-party consensus in some of the challenges we face and want to address. She specifically mentioned financial education, for example, which was one of the key recommendations made in that report. I hope we can find consensus on the importance of that, if nothing else.

As the noble Baroness said, we need to build confidence for retail investment among the general public on a platform of greater education. As part of the Leeds reforms, we are looking to take forward a series of measures to give consumers the confidence to invest, so that they can grow their savings and access the long-term benefits that investing can bring.

There are three specific measures for that. The first is a new targeted support framework, enabling people to access the help they need to make the right financial decisions. The second is a cross-industry initiative to reframe how firms talk about investing, so that they talk about the growth benefits and not just the risk and warning people off. The third is an industry-led, multiyear advertising campaign to showcase some of the benefits of investing for the general public.

As the noble Baroness, Lady Neville-Rolfe, said, that of course has to come on the basis of greater financial education. We discussed this previously and I have looked into it. Financial education does form part of the school curriculum in all UK nations. In England, financial education forms a compulsory part of the curriculum for mathematics at key stages 1 to 4, and citizenship at key stages 3 and 4. Together, they cover personal budgeting, saving for the future, financial risk, managing credit and debt, and calculating interest. But the noble Baroness is quite right that of course we should go further. The Government have established an independent curriculum and assessment review covering ages five to 18 in England. The review is considering whether the curriculum provides sufficient coverage of key knowledge and skills, including financial education, to prepare young people for future life and to thrive in a fast-changing world. The review’s final report and recommendations will be published in the autumn with the Government’s response.

On that note, the noble Baroness also asked about the timescale for a lot of what we have announced. Many of the reviews we have announced as part of these reforms will report in the autumn. At that point, we will see a lot of the things she spoke about coming to fruition.

The noble Baroness asked about ISAs. The Government will continue to talk to industry and others about the options for ISA reform. We recognise the potential for ISA reform to improve returns for savers and access to capital for UK businesses. Although there are differing views out there among stakeholders, we are all united in wanting better outcomes for savers and the UK economy.

Finally, the noble Baroness, Lady Neville-Rolfe, asked about pensions and quite rightly paid tribute to my noble friend Lady Drake, as I do too. I cannot think of anyone better equipped to take part in that review. Many of the questions she asked will be answered in phase 2 of the pensions review, so I shall wait until that is in place before commenting on the points she raised.

Taxes

Baroness Kramer Excerpts

Tuesday 15th July 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question, and I should start by wishing him a very happy birthday. I have said what I have said on tax. I am not going to give a running commentary on the fiscal forecast, nor am I going to speculate on tax rises now. As I said, we will do things in the usual way. The Chancellor will ask the OBR to produce a new forecast in the autumn for the annual Budget and will take decisions on that based on that forecast.

[Baroness Kramer (LD)]

My Lords, we understand that today at the Mansion House, the Chancellor will avoid the word “tax” and instead focus on pumping risk-taking into financial services as the mechanism for growth. The financial crash of 2008 was entirely generated by risk-taking, all of it legal, allowed by the regulation of the time, widely admired and never called to account. I can understand some streamlining of regulation, but since on every front, safeguards are being taken away slice by slice, will the Government now issue a summary of all the safeguards that both the Government and the regulators have discarded, so that we can assess whether or not we are repeating the past?

[Lord Livermore (Lab)]

The noble Baroness is speculating on a speech that has not been delivered yet, so perhaps we should wait for the Mansion House speech this evening to see what my right honourable friend the Chancellor of Exchequer says in it. Absolutely, though, the Chancellor wants to see a greater rebalancing from risk to growth. I think that is absolutely right, but of course, we must make sure that we continue to regulate to avoid risk while we also maintain growth.

Tax on Imports under £135

Baroness Kramer Excerpts

Monday 14th July 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will row in behind the noble Lord, Lord Leigh, on this issue. Could we get a slightly more satisfactory answer on why it is taking so long to find a solution so that the UK can collect the VAT that is due on small items? Will the Minister remember not just that we need the money for tax revenue but that the lack of a level playing field disadvantages British companies in this arena, which find that their goods are displaced by imports because they are not paying VAT?

[Lord Livermore (Lab)]

We fully recognise all the issues that the noble Baroness has set out, which is exactly why we established a review in April. That review will look at the online marketplace rules to establish whether they can be amended to remove opportunities for businesses to avoid their VAT obligations. All available options will be considered, and it will proceed in the way that we set out.

Tax Increases

Baroness Kramer Excerpts

Thursday 10th July 2025 Lords Chamber

[Lord Livermore (Lab)]

The noble Lord is absolutely correct that there are financial consequences to the decisions that have been taken, but he will not be surprised to know that I will not speculate on the next Budget now. We will do things in the usual way. The Chancellor will ask the OBR to produce a new forecast in the autumn before the annual Budget and will take decisions based on that forecast. We will set out our fiscal plans at the Budget in the usual way.

[Baroness Kramer (LD)]

My Lords, in all our discussions of tax and spend, we very rarely address the third pillar—the state of the gilts market. Was the Minister as taken aback as I was to read in the OBR report that, at the end of June, the UK tenure bond yield had the third-highest borrowing cost of any advanced economy except for New Zealand and Iceland? With the withdrawal of pension funds from demanding treasuries as we come to the end of defined benefit plans, there seems to be no plan in place to expand the investor base. The United States is using stablecoin to increase the appetite to take up US treasuries. This is essential, so are the UK Government pursuing any such strategies?

Government Performance against Fiscal Rules

Baroness Kramer Excerpts

Tuesday 8th July 2025 Lords Chamber

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

The noble Baroness mentions many things. She mentions debt. Of course, the last Government doubled the national debt. There is one reason why we are where we are. It is because of the last Government losing control of the economy—something that this Government will not do. We will meet our fiscal rules at all times. I am not going to give a running commentary on those fiscal rules. Following the usual process, the Chancellor will ask the OBR to produce a new forecast in the autumn for the annual Budget, which will include an updated assessment of the Government’s performance against the fiscal rules. At that time, we will set out our fiscal plans in the usual way.

[Baroness Kramer (LD)]

My Lords, the Government have constantly asserted that meeting the fiscal rules is non-negotiable. Will the Minister now reassure the House that protecting the NHS and social care is also non-negotiable, and rule out any cuts to those services as the Government try to balance the books? Will he also accept that raising employers’ NICs, especially on small businesses, is actually holding back growth? Will he look instead at what we recommended—raising taxes on the broadest shoulders of the social media giants, the gambling companies and the big banks—to consider some proper relief and support for those small businesses?

[Lord Livermore (Lab)]

I normally try to agree with the noble Baroness, but that is one of the most extraordinary questions I have heard in these debates. She says that we should protect the NHS and then says that we should not have the main measure that is funding the NHS. If she wants the investment in the NHS, she has to stand up for the taxes that fund the NHS.

Unpaid Tax

Baroness Kramer Excerpts

Monday 7th July 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. I know that he has been in touch with my colleague the Exchequer Secretary to the Treasury and has discussed having a meeting. I am sure that he will be in touch in due course.

[Baroness Kramer (LD)]

My Lords, this is Whistleblowing Awareness Week. The Minister will know that HMRC, in its attempts to claw back large amounts of tax fraud, has announced a new scheme of rewards and incentives to bring whistleblowers into discussion with HMRC and to pursue fraudsters. However, there has been very little information about the structure around this, the mechanisms in place and the portals. Can he update us on what is meant to be the central pillar of the new attack on fraud?

[Lord Livermore (Lab)]

No. I am grateful to the noble Baroness for making me aware of the awareness week. She says that this is the central pillar of our strategy; it is one of them. Most importantly, we are recruiting an additional 5,500 compliance officers, which is the central piece in what we are seeking to achieve. On updates, if there is anything further to say, I will be happy to write to her.

UK Infrastructure: 10-year Strategy

Baroness Kramer Excerpts

Tuesday 24th June 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, it is widely accepted that one of the problems that besets the UK economy is the low rate of capital investment in both the public and private sectors. It must be a good thing if the Government assess what will be needed in the way of capital investment and attract resources accordingly. I accept that, for many years, policies on all sides have been less than satisfactory, and I am not in a party-political mode today.

I am in favour of having a planned programme over a planned period, such as a five-year timeframe for capital spending. I welcome the new maintenance fund. My experience in business is that it is essential to provide for maintenance in respect of all capital investments. Having said all that, we are some way from having a coherent and detailed programme for future infrastructure, with the incentives that we need for success. Against that background, which is broadly supportive, I have a number of questions for the Minister.

There remain areas of uncertainty around governance, delivery, capacity and funding. It would be helpful if the Minister could explain how and when these vital details will be revealed in future. It is really important to be clear, at a time when we are often reminded by the Government of the fiscal challenges they face, where the money is coming from.

It appears from the strategy that the Government hope that a substantial portion of this investment will come from off-balance-sheet public/private partnerships. Does the Minister recognise that this is an assumption from the Treasury rather than a hard pledge of cash? If sufficient private investment is not secured, does the noble Lord plan to use public money to fill the gap, or will the Treasury consider legislation to compel private funds to invest in government programmes—an approach that will deter investors in the UK?

Incorporating private finance into the new strategy is a welcome ambition, and I am glad to see the readiness to learn from the past. However, we must ask what changes the Treasury will make to how it engages in PPPs, given the failings around HS2, Metronet and Norfolk and Norwich hospital, to make sure we do not encounter these problems again.

Furthermore, the question that my honourable friend Richard Fuller raised in the other place was not properly answered. What proportion of the £725 billion is newly committed, as against previously announced money? As noble Lords will be aware, investment on this scale and across these timeframes must come with assurances of continuity and origin. I hope that the Minister can address these questions in his response.

The focus in the strategy is, rightly, centred on delivery. One important area in the strategy is housing. The Government have signalled their ambitious intention over the next five years to contribute 1.5 million new homes to the national stock. But the strategy actually funds 580,000 homes over 10 years through Homes England, an average of some 50,000 homes a year. Even on the lowest net migration forecast—350,000 a year—this is far below what is required each year just for migration-driven growth in housing demand. This is not the whole housing picture. However, our concern is that this offers so little net gain for current households waiting for a home. We will explore this further during the passage of the planning Bill, but I would welcome any clarification that the Minister can offer today.

Another area is aviation. The strategy and recent government announcements around aviation are welcome, both on infrastructure and on things such as aerospace redesign. However, as a recent debate in this place highlighted, limitations in the Government’s broader strategy around things such as the European geostationary navigation overlay service, EGNOS—known as the GPS on steroids—mean that these changes will have only a limited impact. Airports such as Exeter, Shoreham and Inverness previously relied on EGNOS to avoid costly infrastructure upgrades but will incur greater costs because they are no longer party to this service.

Does the Minister agree that we need to make sure that, alongside the new spending, we are pursuing non-fiscal policies that enable it to be effective? A key area is skills, which barely get a mention in the 10-year strategy. Yet I know from my time as chair of the Built Environment Committee and as a developer at Tesco that skills in construction, planning and environmental and community engagement matter a great deal. We have become increasingly short of the skills we need to build the hospitals, roads, railways, nuclear facilities, housing, prisons and water and flood defences that we need for a successful country and a successful strategy. I know from the Cabinet Office that, despite the very welcome advances in IT and AI, there is just not enough capacity in terms of skills or supply chains to build all we need. Is this something that concerns the Minister, and what plans does he have to solve the problem?

All of this speaks to the wider question of how we make sure that this money is spent intelligently to deliver value for money, and in a way that grows our economy and promotes productivity. A fundamental question is what our projected return on investment for this strategy actually is: £725 billion, albeit over a long period, is a great deal of money, so our net benefit must also be substantial in order to justify it. I hope the Minister can clear that point up for us.

A related question is: what sort of assessments went into choosing the areas to spend on? Transport spending is welcome, but is the Minister directing investment into the forms of transport that local communities benefit from the most, or does he risk further white elephants? How have the choices been made? Ensuring that we spend infrastructure money wisely, strategically and with an eye to the future is essential if we are to see the sorts of improvements in growth that the Chancellor and the whole country want. In doing so, we must target spending, combine it with wider enabling policy changes and ensure that we do not allow reforms to the Green Book and to local investment to lead to funding for white elephants.

We support the ambition behind this strategy. Long-term investment in infrastructure is a vital step if we are to address the real challenges facing our economy, our services and our communities, but this cannot be an exercise in headline figures or lofty announcements. If this plan is to succeed, the Government must show how the money will be secured, how it will be spent wisely and how it will deliver, for each project, tangible long-term benefits across the whole country—not just for now but for a changing economy and for future generations. How this policy fits in with yesterday’s industrial strategy will also be a vital consideration that we will examine carefully.

[Baroness Kramer (LD)]

My Lords, like my colleagues in the other place I welcome this strategy, which if well managed can significantly improve the UK’s potential for growth. My colleague, the MP Sarah Olney, who responded to this Statement in the other place, focused very much on the absence of a serious discussion of skills in the paper. She did not get a very satisfactory answer. I hope that we will hear something more from the Minister today, because that is the Achilles heel of a great deal of this Statement. However, I am going to focus not on the specific projects or on the issues that were covered in the other place but on some critical aspects of the financing.

As the noble Baroness, Lady Neville-Rolfe, indicated, the strategy proposes an updated version of public/private partnerships. I was recently privileged to chair a round table. Under Chatham House rules, I cannot tell you who was there by name, but there were leading developers, contractors and, basically, the money. To my amazement, and completely in contrast to most public statements, everyone started out by arguing against such a flawed model. Through an hour’s discussion, we identified some conditions under which a PPP could work. I will happily share that report, when it is prepared, with the Minister. The most significant condition was that the public sector has to field an educated buyer team with world-class negotiating skills, with world-class engineering, legal and financial knowledge in support. According to the people we talked to, such teams have not been in evidence.

The second most significant condition was that the projects must be specified in very fine detail, far more so than for a conventional financing and, especially if outcomes-based, allowing only for minimal variances. This condition, which many people will agree is essential for successful PPPs, seriously limits the eligible projects. I would like to hear from the Minister how much of a gap this might mean if these issues are pursued, as I hope they will be.

My second finance issue is specific to London, which will not receive government funding for much new infrastructure, even though it drives the national economy. If that is to be the case, London needs to be able to go directly to the financial markets at scale, to raise money against future value added, to build projects—and without the constraints associated with the current tax increment financing schemes, which are heavily laden with Treasury control. Once refined, this could extend to other parts of the country. I stress the urgency of dealing with this issue. London is the UK’s golden goose.

My last issue is to warn the Government again against abusing the regulated asset base as a mechanism to finance small modular nuclear reactors. In the Conservative era, the estimate that we were given on the Economic Affairs Committee for the then Government’s plans was an £80 increase to annual energy bills for ordinary people—£10 for each of eight SMRs. It was clearly an underestimate then and would be even more so now.

Does the Minister agree that the ordinary bill payer must not be treated as the stuffee—believe it or not, that is the common-parlance term—who must carry the risks and costs while others take both the immediate and future profits?

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

I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions, and for their broad support and welcome for this strategy.

The noble Baroness, Lady Neville-Rolfe, began in her non-partisan mode, which I will try to replicate if I can. She talked first about the low rate of investment, and she is absolutely right. When we came into power, we saw the lowest rate of private sector investment as a share of GDP in the G7; we clearly have to turn that around. We saw public sector investment repeatedly cut, which is one of the reasons why we changed the fiscal rules in the way that we did, to incentivise capital investment and try to protect it from being cut to subsidise day-to-day spending. I am very grateful to the noble Baroness for her support for that investment and for the plan that is in front of us.

I am grateful to her for welcoming the maintenance fund. As we speak, there is a £46 billion backlog in the public sector maintenance of our schools, hospitals, prisons and courts. As part of this plan, we are putting £5 billion into the maintenance backlog for the NHS, £3 billion into our schools by 2030, and £600 million into courts and prisons. That is really important, so I am pleased that there is cross-party support for it.

The noble Baroness, Lady Neville-Rolfe, talked about governance and delivery capacity. I completely agree with her on the point about delivering value for money. Obviously, the strategy is not just about giving long-term certainty of investment, in terms of the numbers—she is quite right to say that—but what sits beneath them. The strategy is about trying to do things differently and to make sure that we get the strategic planning behind the investment that we are making.

That is the insight that sits behind the creation of NISTA, the National Infrastructure and Service Transformation Authority. It brings together under one roof infrastructure expertise combined with the policy and strategy insight of the National Infrastructure Commission and the delivery specialism of the Infrastructure and Projects Authority. Every two years, it will do a report into the delivery of this strategy. It will give Ministers real-time advice and expertise on specific projects. I hope that that goes a long way to solving some of the issues that the noble Baroness talked about.

The noble Baroness also talked about where the money is coming from. The announcements, as part of the spending review envelope, were fully funded and fully costed as part of that process and are within the current fiscal envelope. Beyond that, we have said that we will guarantee that investment spending will grow by at least inflation for the period beyond the spending view for a total of 10 years, which gives people certainty about the level of infrastructure investment that we are making.

The noble Baroness, Lady Neville-Rolfe, talked about PPPs, and the noble Baroness, Lady Kramer, also talked extensively about this. I agree with a lot of what she said and respect her great expertise on this matter. She talked about the criteria for success, and lessons clearly need to be learned from our previous experience of PFIs and PPPs. The Government are absolutely committed to that. There are several reports now available to us; the NAO’s lessons learned report, for example, provides vital information on what we can do differently and can do better.

The noble Baroness, Lady Kramer, said that, once you apply those criteria, it severely limits the number of projects for which you can use PPPs. To answer the question from the noble Baroness, Lady Neville-Rolfe, I do not think that this is about huge, widespread use. We clearly want a widespread degree of private sector capital coming in and financing infrastructure, and we want to continue to invest alongside the private sector and the private sector to step up and fund things.

We see a role for PPPs but in a very limited way and where their role will clearly be appropriate. We have said specifically that we will explore the feasibility of using new PPPs—learning lessons and applying the right criteria—for taxpayer-funded projects in very limited circumstances where they could represent value for money. We have given two specific examples where we think they could do that. One good example is Euston—the HS2 station—where we will investigate the use of PPP models for user-funded infrastructure. The other is the Lower Thames Crossing, where, again, we think there is the potential for the criteria that the noble Baroness mentioned to apply. There are a limited number of examples but those are two where there is a clear case to be made.

On housing, I completely agree that 1.5 million new homes is a stretching target. It absolutely remains our commitment and we think we are on course towards achieving it. We put a record amount of funding—the greatest for several generations—into social housing. The noble Baroness is clearly right that the potential occupiers want that housing now, which is why that funding has gone in. She wanted reassurance, and I can say that we firmly believe that we are on course towards that housing target.

Both noble Baronesses talked about skills, and I completely agree. It is good that we are in the spirit of consensus and cross-party thinking here. Obviously, with these commitments, it is absolutely right that we need people to build the things that we want built. Clearly, we can always do more, but we have made a strong start. We have made a record commitment to invest in skills—£1.2 billion of additional investment per year by 2028-29 to support current and future workforce needs.

I know that we are in a cross-party mood, but I have to reflect the fact that the degree of underfunding that we inherited was substantial. We had to put in significant amounts of money—billions of pounds—just to stand still and just to plug the gap that existed between needed provision and the funding that was there. Having to plug that gap limits the extent to which we can move forward.

However, we have provided funding to support over 1.3 million 16 to 19 year-olds to access high-quality training—some 65,000 additional learners per year by 2029. The spending review has delivered £625 million to train up to 60,000 construction workers. In the industrial strategy yesterday, we announced that we will introduce new short courses for priority skills as part of the growth and skills levy, continue to roll out foundation apprenticeships and deliver a targeted package for engineering skills. We have specific packages for engineering and construction, both of which are priority occupations in the infrastructure strategy and the industrial strategy.

How do we choose the investment? We always talk about growth, and I think noble Lords can see that much of this investment is targeted towards the sectors that will, I hope, really drive our growth agenda—transport, energy and housing just to name three.

On the questions about London from the noble Baroness, Lady Kramer, I cannot give any commitments today on the future financing model, but I completely share her support for London and her reflection of it as the golden goose. Future investment in London will be central to driving the economy.

Spending Review 2025

Baroness Kramer Excerpts

Thursday 12th June 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the spending review Statement, delivered by the Chancellor in the other place yesterday, made it clear, in no uncertain terms, that the Treasury has lost authority in determining how the Government spend taxpayers’ money. How else can the Treasury explain a spending review in which the Government will add another £140 billion to the national bill in extra borrowing, forecast over the period set out by the Chancellor? How else can the Treasury explain a cost burden so substantially increased that the Government are unable to rule out tax rises in the autumn? How else can the Treasury explain why it is subsidising tax reductions in Mauritius, but making decisions which will limit domestic economic growth?

Ministers are lauding a spending review which does not address the fundamental issues which we have raised in your Lordships’ House many times. Only a few weeks ago, we had an excellent debate on the crisis we face in light of the scale of our national debt. This situation has been made worse as a direct consequence of the spending review. Ensuring value for money in public expenditure—another issue we have raised time and again—has been virtually ignored.

However, I thank the Minister for the long overdue investment in nuclear at Sizewell C, on small modular reactors with Rolls-Royce and on the nuclear fusion prototype in Nottinghamshire. I just hope these will not take too long. They are essential to an energy balance, so we avoid the sort of problems we have seen in Spain.

Following on from our discussions last week on the transport package, I also welcome the extension of the £3 cap on bus fares, albeit only until 2027. London-based politicians do not understand how important buses are to so many of the less well-off in this country, especially in rural areas which are bearing the brunt of this Government’s policies in other ways. The introduction of a five-year planning cycle for capital is also positive.

However, I am very concerned at the way the Chancellor has hit police spending and defence to find yet more money for the NHS. Police chiefs are very anxious, and there is still no plan to reach the 3% we need on defence. The NHS is one of the major winners from the spending review, claiming over £29 billion per year in additional funding. But unlike our Conservative record, this new money from the Labour Government has come with no productivity conditions and no demands that services be improved or patient outcomes bettered. This is a major problem. In recent years, we have seen record levels of spending poured into the health service, yet productivity has not kept pace. According to the Office for National Statistics, NHS productivity still remains below pre-pandemic levels. We have an inverse ratio: the more money the Government give the NHS, the worse it functions.

What we are witnessing is a shortage not of funding but of effective reform. The NAO and other independent bodies have highlighted how much of this new funding has been absorbed by rising costs and staff pay.

I am grateful to the Government for allowing an extra 20 minutes for Back-Benchers to ask the many questions they will have on the detail of this Statement. To be honest, I would have preferred a full debate on this, as it sets the scene on expenditure choices for the rest of the Parliament.

Moreover, in the round, the Statement is a cause for concern. As the shadow Chancellor put it succinctly, “Spend now, tax later”. The fiscal rules have been loosened so the Government can borrow more and lay out a succession of goodies in a £190 billion spending spree.

There should have been much more focus on the nearly £100 billion of interest we are now paying on our national debt and on how to get that down—a debate on how we balance the nation’s books. Investment is separated out under the fiscal rules, but I am afraid it still has to be paid for. Is this investment being wisely invested?

To mention one angle, the promised new Green Book is not a new book but the findings of a review. It concludes—as I expected, given the changes that the Conservative Government made—that the current methodology is not biased towards certain regions. However, I was surprised to read that the existing Green Book puts too much emphasis on cost-benefit ratios and that a ratio of less than one might be fine. I am really worried about this as an encouragement to the approval of white elephants.

This, of course, is against a troubling economic background. Unemployment has hit a four-year high of 4.6%. A first estimate for May showed a 109,000 decline in jobs, which, if confirmed, would be the worst month since the height of the pandemic in April 2020. Since the Spring Statement, persistently higher gilt yields have blown a £5 billion hole in the Chancellor’s £9.9 billion buffer. Productivity was 0.2% lower in the first quarter of the year compared with the same period in 2024. The UK’s total rate of investment has been the worst in the G7, on average. On top of it all, the ONS today announced a 0.3% decline in GDP growth—partly, no doubt, because of the hikes in national insurance, which have hit businesses so hard. These are facts. The Chancellor should have taken corrective action in the spending review, but we can see that more taxes and higher council tax are coming.

Finally, I will come back to the Minister on a couple of points that he keeps making. He has alleged, often and aggressively, that when many new projects were announced by the Tories, no money was provided. That is, of course, because we rightly delayed the spending round until after the election. We, like the Government, would have allocated the money for what we had planned following a classic review.

This is linked to my other concern, about which I have been very patient with the Minister: that we had and have no plans for saving money to finance necessary spending. This is an inexactitude. Apart from the strong growth trajectory at the time of the election, undermined by Labour’s doom and gloom, we were on course to reduce the public sector. Instead, the civil service has risen in the past three months to over 516,000 full-time equivalent, the highest level since 2006—in contrast, according to Civil Service World, to the total of 384,000 FTE in September 2016, when I was serving in the Conservative Government.

This Government have chosen to give pay rises to the public sector costing £9 billion—and more, if you add on the future cost of their pensions—without the kind of link to productivity that any sensible managers insist on when a generous pay package is offered. Add to that the £30 billion for the Chagos Islands, which is funding reduced taxes in Mauritius not the UK, £8 billion on Great British Energy, and the abandonment of our ambitious plans for welfare reform and our attack on waste, of which, sadly, this week’s Blue Book is a pale imitation.

The truth is that the Government are busy creating their own black hole with all of this, and it has been topped up by the £1 billion reversal in the winter fuel allowance. We all understand why that was done, but it destroys confidence in the Chancellor’s determination not to raise taxes. My fear is that we will run into the autumn with anaemic growth, persistent inflation and a large new tax bill.

[Baroness Kramer (LD)]

My Lords, I recognise that the Chancellor faces real constraints, and this morning’s GDP figures for April underscore the problem. However, I am not going to use this opportunity to spend a lot of time talking about growth. It is such a big issue that we need some separate debate time set aside for it.

On these Benches, we are pleased with the significant allocations for the NHS and for housing in the spending review, though we are concerned that there are no targets for social housing, since we need at least 150,000 new social homes a year. I ask the Minister: given this additional money—which I know is only £3.9 million a year, but still, it is additional money—will we see that number of social homes come through annually? That really is the need that must be met.

However, nobody will be surprised that I was disappointed—almost to the point of devastation, quite frankly—to see adult social care overlooked, with no uplift until 2028, despite the reality that the situation is grim as we speak and that, without properly functioning adult social care, improvements to the NHS will be seriously undermined. If the Casey review is the hold-up, it should be and could be completed this year.

The Chancellor also suggested that she would back the fair pay agreement for adult social care workers sought by Care England. She absolutely should—care workers deserve every penny—but did I hear correctly that she will not fund it? The total package is £2 billion a year, and just the living wage and sick pay portion is £805 million a year. That kind of money puts in jeopardy not only many care providers but many local councils. If the Minister says that there was an uplift for councils, then not only does that rely on a 5% council tax increase in most councils but the additional money will be fully swallowed up by SEND, which is also in a dire situation. Will the Minister please explain what seems completely inexplicable: the overlooking of adult social care?

I also ask for clarification on defence spending. The Chancellor said she would raise it to 2.6% by 2027—which is the right direction—but is it correct that when she spoke, she treated spending on the secret services and on the Ukraine war as defence spending? If we speak in the terms that we have all been using up to now then the 2027 spend is, in my estimate, below 2.4%. I hope the Minister will tell me I have simply misunderstood. Will he help explain what exactly is going on with this defence spending? To me, all this confusion is underscoring the importance of cross-party talks, which my party has proposed, so that we collectively find a way to reach the necessary 3% well ahead of 2034. Boy, would I appreciate some clarification on what on earth is happening within that budget.

I am pleased to see new funds for the British Business Bank, whose greatest weakness, frankly, is its tiny size. However, to which bit of its activity is the additional money to be directed? I am particularly concerned about small business lending, and it could make a serious difference if much of the new funds are directed into the BBB’s Community ENABLE fund and its growth guarantee scheme. Who will make that call, is it dedicated, and does it have a target? Could the Minister please tell us more?

I could raise a lot of other questions, but I am anxious to hear properly from the Minister. I came away from the spending review, the Blue Book and the speech asking endless questions to which I could not find answers. I thought that I was going rather brain-dead. Then, I heard Paul Johnson of the IFS talk about the documents being so opaque that he was asking questions and could not find answers. If he cannot, we need help. Could we have clarity in the future, but in the meantime could the Minister please serve as our clarity?

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

I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions on yesterday’s spending review Statement.

It would have been perfectly credible for the noble Baroness, Lady Neville-Rolfe, to say she cannot support any of this investment because she did not support any of the difficult decisions that we took to make this investment possible. It also would have been perfectly credible for her to come here today and say she has changed her mind, now supports the difficult decisions that we took and therefore will support the investment that those difficult decisions have permitted.

Unfortunately, the noble Baroness did neither of those things. We heard her support for the huge amounts of spending we announced yesterday for the nuclear programme—for example, £30 billion into nuclear. We heard her support the £3 bus fare cap, even though her party had refused to fund it any longer than last December. Yet she has opposed every difficult decision every time we have stood here for almost a year now. She has opposed every single difficult decision we have taken to repair the public finances and fund the public services. Even today, she was opposing the changes to the fiscal rules that enabled the additional investment spending we have made. She supported the nuclear spending, which is investment spending, but she opposed the fiscal rule change that enabled that spending. That simply is not credible.

The party opposite cannot support the investment in the spending review without supporting the money to pay for it. We all know exactly how we ended up with a £22 billion black hole in the public finances. That is exactly the approach that Liz Truss took in her mini-Budget, which crashed the economy and sent mortgage rates spiralling. We will not be repeating that mistake. The shadow Chancellor is distancing himself from the Liz Truss approach, and the noble Baroness should distance herself from that approach too. She talked about the money that is being allocated. I am not sure she understood the process of the spending review: the envelope was set by the Chancellor last spring. She cannot say in any way that we have lost control or are deviating from that envelope, because the Chancellor allocated every single penny of that envelope and not a single penny more. I fully understand what she is saying—that she understands that—but, in that case, I do not understand why she made the criticisms she did. The Chancellor was simply allocating the envelope that she set out in the spring.

The noble Baroness also said that the last Government delayed the spending review. We all know why the last Government delayed the spending review: because their sums did not add up. They had a £22 billion black hole at the heart of it, and they knew that the moment they did a spending review that black hole would be revealed. That is the reason why they delayed the spending review.

The noble Baroness talked about growth and the performance of the economy. In the first quarter of this year, the UK was the fastest-growing economy in the G7. Under the forecasts inherited from the previous Government, this year the UK would have been the slowest-growing economy in the G7. If she wants to compare growth stats, I am more than happy to do that with her all day. The figures out today show that April was a challenging month, given global headwinds. That was the month in which the tariffs were imposed by the US, and it was before we had agreed the trade agreement with the United States. If you dig into those growth figures, you can see that a lot of it is driven by a decline in exports because of that. It underlines the need to continue to deliver on our growth mission.

The noble Baroness talked about facts. The facts are that living standards are now forecast to grow four times faster than in the previous Parliament. Real wages have already grown by more in the first 10 months of this Labour Government than in the first 10 years of the previous Conservative Government. She often talks about productivity and GDP per capita, but GDP per capita fell in the last Parliament. It is now forecast to rise by 5.6% in this Parliament. On top of that, the IMF has upgraded our growth forecast, as did the OBR in the Spring Statement.

It is disappointing to me that the noble Baroness often says that she and I agree on growth, but she did not mention any of the growth-boosting measures included in this spending review. She did not mention that capital spending would increase growth by 1.4% in the long term. She did not mention the £39 billion affordable homes programme, which is vital for growth. She did not mention the record amounts of R&D funding rising to £22 billion a year. She did not mention any of the major rail projects to connect our towns and cities and make sure that growth is felt right throughout the United Kingdom. She did not mention the skills budget and the amount of money we are spending on skills. It is disappointing that she says she supports growth but then does not welcome or mention any of the investment that we are doing to get that growth.

The noble Baroness mentioned borrowing and the public finances. Average borrowing in this Parliament will be 2.8% of GDP, compared with 5.6% of GDP over the previous 14 years. She talked about the investment rule. Obviously, we have changed that fiscal rule—quite rightly—to enable the much-needed investment infrastructure to deliver stronger growth in the future. She opposes that change to that fiscal rule and yet somehow also claims to support the investment that the rule brings about.

The noble Baroness talked about tax. Yesterday’s spending review allocated the envelope set out by the Chancellor in the spring. These record settlements have been made possible only by the tough but necessary decisions we took in the Budget last October. On future decisions on tax and spending, I am not going to write four years’ worth of Budgets at this moment, even if that was in my power. The independent OBR will produce a new forecast in the autumn for the Budget. The Chancellor will take decisions at that point based on that forecast, and I will not prejudge those now.

The noble Baroness asked me about funding of the winter fuel during Question Time earlier. As she knows, we will set that out in full at the time of the Budget.

The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, both asked about defence. As the Chancellor made clear yesterday, increasing defence spending is a strategic necessity, and that is why we will be spending 2.5% of GDP on defence by 2027. The noble Baroness, Lady Kramer, asked about the precise definitions: 2.5% will absolutely be the case by 2027. If she wants to include the intelligence agency spending and the other spending she mentioned, it is 2.6%, but it is 2.5% excluding those things—I can give her that absolute certainty. Our ambition is to reach 3% in the next Parliament when fiscal and economic conditions allow, but we will not be putting arbitrary dates on when we will meet that.

I have two final points: the noble Baroness, Lady Neville-Rolfe, asked about efficiency and productivity. This is the first zero-based review done into spending for 18 years. The previous Government had 14 years to do a zero-based review, if they really cared about efficiency in public spending, and they did not do one at all over the course of 14 years.

The noble Baroness did not mention any of the reforms we are doing in the NHS. In fact, she sounded quite sceptical of additional money going into the NHS, which is a great shame as we know it is the most treasured public service in this country. She did not mention digitisation, for example—putting £10 billion into the NHS app to make it far more efficient in its spending. We are doing a great deal more on efficiency savings. All departments have identified at least 5% savings and efficiencies by 2028-29.

Finally, the noble Baroness, Lady Kramer, spoke about social care. I am grateful to her for welcoming some of the other additional spending, particularly on the NHS and housing, for example. She talked about social housing: we have made the £39 billion investment into the affordable homes programme. That is crucial for growth, as she said.

I pay tribute to the noble Baroness, who has consistently campaigned on social care. The spending review provides an increase of over £4 billion available for adult social care in 2028-29, compared with 2025-26. That includes an increase to the NHS’s minimum contribution to adult social care via the better care fund, in line with the Department of Health’s spending review settlement. This will support the sector to improve adult social care, with further details to be set out shortly.

The noble Baroness asked about the fair pay agreement. As the Chancellor said yesterday, we remain committed to delivering a fair pay agreement in line with our manifesto commitment, and we will set out further details of that shortly. She also asked about the British Business Bank. There will be an increase to £25.5 billion, and it will set out further details as to how that will be allocated. In the industrial strategy in a few weeks’ time—access to finance is obviously a major issue for all those sectors—we will set out how the British Business Bank can help with those access to finance issues.

Economic Growth

Baroness Kramer Excerpts

Wednesday 11th June 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. He did indeed show his characteristic objectivity. I will simply say that, where GDP per capita fell in the last Parliament, GDP per capita is forecast to rise by 5.6% over the course of this Parliament.

[Baroness Kramer (LD)]

My Lords, I hope the Minister will agree that to achieve growth in the UK we need a liquid and effective investor market. Despite London Tech Week, Wise plans now to shift its listing from London to New York and on Monday Spectris, Alphawave and Oxford Ionics, all key creative tech companies, announced that they would be taken over by US investors. In 2024, UK equity funds suffered £9.6 billion in outflows when most other equity funds had huge inflows—a pattern that dates from Brexit. I understand that the Government plan to press the pension sector to invest in UK companies, but what other steps are they taking to restore those key investment flows that used to come from Europe into the UK and to counter the US’s use of tariffs to incentivise the takeover of British tech?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. She mentions the outflows. The outflows in 2024 were less than in any previous year over the last 14 years so, although they are not what we want to see, they are perhaps not as doom-laden as she might want to make out. The Chancellor set out extensive capital market reforms in her last Mansion House speech. She has another Mansion House speech due on 1 July, at which point we will also publish the financial services growth and competitiveness strategy. I hope that will help to answer some of the questions that the noble Baroness asks.

Mansion House Accord

Baroness Kramer Excerpts

Wednesday 14th May 2025 Lords Chamber

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

I am grateful to the noble Baroness for her questions. I am sorry that she started her remarks with the word “disappointing”, because this is a really important initiative by the industry and one that the Government very much welcome. Of course, it builds on the work that the previous Conservative Government did, which the previous Conservative Chancellor began, so I hope that there is cross-party support for these steps. This is very important to our growth mission, by increasing investment in infrastructure, and it supports better outcomes for savers. As the noble Baroness will know, this is an industry-led, voluntary accord. Pension funds are choosing to do this, because evidence shows that high-growth assets can boost returns over time. We are confident that schemes are moving in the right direction, and this accord shows what government and business can achieve together, when working in partnership. The pension schemes Bill will contain more details about how these developments will be monitored to make sure that change is delivered.

[Baroness Kramer (LD)]

My Lords, we all want to see more investment in the UK’s productive economy, but what protection is to be provided for people with small DC pension pots who cannot risk losses and see their pensions as a savings product, not as an investment, especially if that investment is high-risk and illiquid, as envisaged in the original Mansion House accords?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. This commitment is voluntary and led by the industry, because the industry knows and is choosing to do this—because the evidence shows that higher-growth assets can boost returns to savers over time, as the noble Baroness, Lady Neville-Rolfe, said, in line with international counterparts, such as in Canada and Australia. Their pension funds and the levels of private asset allocation in those schemes is far higher. Pension savers will benefit from this accord through diversified savings, with potentially higher returns.