National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Howard of Rising (Con)]

I just say, in relation to that and to the noble Lord’s arguments, that what he completely forgets is that manufacturing companies faced with this will simply move their production abroad. That is what he forgets.

[Baroness Kramer (LD)]

Maybe I can be helpful by using the Library note on this occasion and a quote that it has from the OBR. The paragraph is headed “Labour supply”:

“The OBR expects workers and firms, respectively, may reduce labour supply and demand in response to lower wages and higher employer costs.”


That is a reference to these changes, including the NICs.

“It anticipates the measures in the bill may reduce labour supply by around 0.2%, or a little over 50,000 on an average-hours equivalent … basis, by 2029/30”.


Perhaps that quote about the OBR is helpful in the context of the conversation going on at the moment.

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Moved by

[Baroness Kramer]

3: Clause 1, page 1, line 1, at end insert—
“(A1) The Social Security Contributions and Benefits Act 1992 is amended as follows.(A2) In section 9(1A), after paragraph (aa) insert—“(ab) if section 9AA applies to the earnings, the part-time worker secondary percentage;”(A3) After section 9A insert— “9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab), the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.””Member’s explanatory statement
This amendment sets a new National Insurance Contributions rate for part-time workers.

[Baroness Kramer (LD)]

My Lords, all the amendments in this group are in my name. They break, essentially, into two parts. Amendments 3 and 12 relate to national insurance contribution rates for part-time workers. They are not a request for an exemption from the change but would establish a new rate for part-time workers of 7.5%, so this is a far more aggressive pair of amendments than those we discussed in previous groupings. Amendments 58, 59 and 60 are all about reviews. If I may, I will discuss part-time work first and then look at the reviews, to try to provide some clarity.

Why have we taken a more aggressive position as we look at the situation of part-time workers? It is because we think that we now need to focus on the most disadvantaged, who are finding work difficult to obtain and finding it hardest to earn in a reasonable way to promote their standard of living. We think that part-time workers need to be viewed through a different lens. Traditionally, they have been an add-on side group, and I think that in some people’s minds there is still the idea that people who work part-time either work for pin money or are extremely well paid and need to work only a limited number of hours. That is not the character of part-time work as it is today, and we want this special category to be identified and recognised.

Under the changes to the thresholds in the Bill, in many cases part-time work will be brought into employer NICs for the first time. Currently, a person could typically work 14 hours a week without incurring employer NICs, but that will be reduced to approximately eight hours. It is a dramatic difference. Very few people will be working fewer than eight hours in any meaningful way.

The number of people who engage in part-time work has grown significantly. Today, there are about 8.5 million people. That set of people is overwhelmingly made up of those who carry with them some recognised disadvantage: people with health issues, be they mental or physical; people with caring responsibilities who are trying to improve the family income, as well as get out of the house to some degree; and people recovering from periods of unemployment and trying to rebuild their confidence and work credentials.

For many young people, part-time work is the entry point. Some of them are students who could not remain in education if they did not have part-time work to go along with it, but it is also increasingly becoming a route to the first job and to getting some sort of credentials that will give you the ability to go on and develop a career in full-time work. With this growing sector, we are changing as a society and using part-time work far more.

The Government will be very aware that, as they look at their growth agenda, one of their primary goals is to get older people who have become economically inactive—typically, those aged over 50—back to work. I suggest that part-time work is by far the most likely route for those individuals, so making that attractive, and making them attractive to employers, who may not have thought of employing somebody older who will therefore retire in a certain number of years, may well be a very important part of that strategy.

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[Baroness Kramer (LD)]

My Lords, I just want to say a quick word to the noble Lord, Lord Macpherson—in a sense, the voice of the Treasury. This notion of part-time workers as very wealthy people who work only a few hours a week is totally dated. The collegiate group of part-time workers, if you like, is now hugely more varied and much more heavily represented by people in disadvantaged positions. We might have known that had we had a more effective impact assessment.

I have to say that I have some sympathy with the Minister, because I have been complaining for years—this involves the previous Government as well—about the inadequacy of impact assessments. As a former banker, if I had been presented with that document as a piece of analysis by somebody on a project that I was working on, that would have been the end of them working. We need to move to a world where we get proper information in an impact assessment. I do not think it would be to the Government’s disadvantage; it would lead to far better discussion because we would all be on much more secure ground.

With all that said, I am very pleased with the degree of discussion that we have had on an issue that is often overlooked. I beg leave to withdraw my amendment.

Amendment 3 withdrawn.

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Once again, I congratulate the Liberal Democrats on tabling these amendments. They are flawed, for the reasons I have indicated, but perfectly capable of amendment—to broaden the scope from universities, for example. The amendments point to real needs and real hardships that have been created by a Government who have not thought through the consequences of their policies in this and in other taxation.

[Baroness Kramer (LD)]

My Lords, I am standing in what would usually be a winding position, but I think Amendments 4 and 5 have been so thoroughly discussed and I am very much in support of most of the comments.

I say to the noble Viscount, Lord Chandos, that I think it is very dangerous to always worship at the altar of simplification. As the noble Lord, Lord Forsyth, said, if it was the precise phrase, you end up with so many hard cases as a consequence of that. The noble Earl, Lord Kinnoull, talked about a specific charity that is delivering warm spaces—and on a day like today, when we have had to bring additional heaters into this Room, boy, something like that comes home. It is now facing additional costs that it could not possibly have planned for, without the time to put any kind of scheme in place that would give it the breathing space to be able to deal with that kind of challenge. I just find it extraordinary.

However, I wanted primarily to speak to Amendment 8, which has been less discussed today. I thank the National Association of Local Councils for a briefing. Like many others, I was very shocked when the Government confirmed that the upper tier of local authorities would qualify for financial support to offset the increased cost of employer NICs, but parish and town councils were to be excluded because they do not receive funding through the local government finance scheme. Parish and town councils raise their funding via precept. Therefore, these councils will undoubtedly have to increase local taxes in order to cover the additional costs. They have nowhere else to go.

I am sure that that was not in Labour’s manifesto and that this is something Labour did not intend, but there really is no other route they can go down other than to increase council tax. Its calculation is that the NICs increase will cost English parish and town councils approximately £10 million each year, requiring an increase of something between 1.5% and 3% to cover the additional cost—that is £10 million each year, and £50 million over the life of a Parliament. It really is a rounding error. I just cannot understand why town and parish councils were excluded from the provision for upper tier councils.

Part of the argument is around fairness, but there is also an argument around democracy. Many people can relate to their town and parish councils, as others have said, in a way that they do not relate to higher tiers. It is at the parish and town level that money goes to projects that are specifically designed around the needs of a local community. They really are very different in the services that they provide. I am concerned, on a broader scale, about the centralisation of local government that we have been seeing: in essence, we are looking at unitary authorities with something like half a million people in them as the decision-making, strategic and implementation element of local government.

I very much fear that the difficulties that parish and town councils will face will turn them much more into agencies of that upper tier, rather than something at the level of local government with the capacity to respond to local needs and to underpin the character and nature of each individual community. The amount of money is so trifling that, in putting these councils on an equal basis with upper tier ones, there must be some other agenda at work here. I do not know what it is; perhaps the Minister could enlighten us.

This amendment is in my name, as are Amendments 4 and 5. I very much hope that the Government are listening because these are issues of significance.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Kramer. I will be brief; I want specifically to speak in favour of Amendment 8, given that I raised this issue at Second Reading. I should declare my position as vice-president of the National Association of Local Councils.

I agree with everything that the noble Baroness, Lady Kramer, said. I have just one point to add. As the noble Baroness was speaking, I was thinking about a recent visit to Shropshire. A whole lot of town and parish council leaders and councillors were gathered in a room and talking about all the projects that their councils were running. One of the things I thought about were the photos and slides that were being shown, and how much volunteer effort was involved in the projects being displayed. The money is spent by town and parish councils because they are close to, and there in, the community. Often, it is a community effort to install the bug hotel in the allotments or to put up swift boxes around towns—all sorts of things that many people get involved in on a voluntary level. In taking money away from that, the multiplier effect is much greater. As the noble Baroness, Lady Kramer, said, we are talking about a tiny sum of money in central government terms but something that is hugely consequential in communities up and down the land.

I spoke at some length on charities earlier but there are two specific points that I want to make. I mentioned earlier—the Minister did not respond to me on this—the idea of having a one-year delay for charities so that they have time to work out both the budget and ways to deal with the rise in national insurance; this was something that both the noble Earl, Lord Kinnoull, and the noble Lord, Lord Randall, raised. It would be interesting to hear from the Minister about that point regarding a delay specifically for charities.

I wish to pick up the point from the noble Viscount, Lord Chandos, about complexity. An organisation either is or is not a charity. That would be a really simple way to see this, involving low paperwork. Complexity would be easy to introduce; for a small or medium-sized enterprise or something, it might be more complicated. I do not think, I am afraid, that anyone can compete with the Green Party on our views on simplification because we want to roll together income tax, national insurance and capital gains tax. If that were the case, the Green Minister would not be over there: we would be going through this in one day in the House—provided it was still constituted as it is now when we got to that stage.

Sterling: Rise in Yields on 30-year Gilts

Baroness Kramer Excerpts

Tuesday 14th January 2025 Lords Chamber

[Lord Livermore (Lab)]

As the noble Baroness knows, financial markets are always evolving so it is a long-standing convention that the Government do not comment on specific financial market movements. She will also know that the Chancellor has commissioned the Office for Budget Responsibility to carry out an updated economic and fiscal forecast for 26 March, which will incorporate the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy, and I will not pre-empt it. However, there should be absolutely no doubt of our commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.

[Baroness Kramer (LD)]

My Lords, the issue is one of confidence in the British economy. Today, Shevaun Haviland, director-general of the British Chambers of Commerce, called again for quick action to speed up the business rates review, green-light infrastructure projects and build trade, especially with the EU. Do the Government recognise that that kind of leadership and tangible near-term action, rather than long-grass proposals, will give confidence back to the UK economy? Will they take up that challenge for near-term action?

[Lord Livermore (Lab)]

We absolutely will. I completely agree with the noble Baroness. I met Shevaun Haviland last Thursday and we had a very constructive conversation about the measures that the British Chambers of Commerce wants to see to grow the UK economy, which are exactly the same measures that we want to see. The noble Baroness is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around, which is why we are going further and faster. We are reforming planning, pensions and skills, all of which will significantly boost growth in the UK economy.

UK-China Economic and Financial Dialogue

Baroness Kramer Excerpts

Tuesday 14th January 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for repeating the Statement. Instead of focusing only on the economic difficulties, I thought I would start by welcoming the improvement in the terms of our exports to China, which helps, in a small way, to redress the huge imbalance in trade that we have with China. The Chancellor has announced £600 million-worth of opportunities secured in Beijing. She states that barriers that restrict our exports to China in the agricultural sector—that would be pork and poultry, vaccines and fertilisers—will be lifted in an attempt to boost trade. I recall exporting chickens’ feet to China when I worked in the food industry. Will the Minister explain what exactly the real change is here?

Similarly, on financial services, can the Minister explain the improvements apparently being made? The green bond is welcome—I remember helping to launch other green bonds at the Stock Exchange—but can we have more chapter and verse on the other financial services gains? I mean gains to UK plc as opposed just to China—concrete changes that are not just warm words from bankers and legal firms, who obviously find the market difficult. We need to know more about the tangible benefits that the Minister outlined.

More broadly, of course, we are very concerned about the deterioration in the economic position back here at home in terms of debt, interest, rates of inflation and economic growth. In the Chancellor’s absence, the value of the pound plummeted and government borrowing costs rose to a 27-year high.

Let us consider growth. The Government inherited the fastest-growing economy in the G7, yet growth is now non-existent, and that means less money for public services. The Government are rightly exploring some obvious opportunities for growth: planning reform, the use of AI and improvement in skills. However, the fact is that businesses are vital to growth, and they have been dealt a triple whammy of costs.

The recent Budget broke election promises, introduced significant tax hikes and has been detrimental to British businesses and business confidence more broadly. Frankly, confidence is tanking, as many surveys and announcements show. This, combined with an increase in borrowing by an extra £30 billion a year, has inevitably caused international markets to question the future of the UK economy.

Instead of looking forward, there is much talk on the Benches opposite about the mythical black hole, but much of this is of the Government’s own making: over £8 billion on a public energy company, over £7 billion on a National Wealth Fund and nearly £10 billion of taxpayers’ money on public sector pay settlements without—this is so important—any requirement for a productivity return, at the very moment when it is right to extract one.

While many on the Government Benches may point to an international trend of rising borrowing costs, it should be noted that the gap between our bond yields and those of similar economies is growing. We now find ourselves in a position in which the UK’s long-term borrowing costs have risen to the highest level in nearly 30 years, and the pound has been at a 14-month low.

Can the Minister tell the House how the Government intend to address and restore stability in international markets? The increase in our borrowing costs is believed to have added roughly £12 billion to the UK’s annual spending in debt interest; that is 100 times what the Chancellor claims she accrued from her trip to Beijing. This £12 billion could have covered the costs of the winter fuel payment cut for eight and a half years or funded 300,000 nurses. According to the OBR forecast, two-thirds of the money raised from the Government’s jobs tax will have to be used to finance additional debt interest. As a consequence of the Chancellor’s policies, borrowing by the final year of the forecast will be doubled.

I repeat the question I posed to the Minister earlier today and encourage him to be more forthcoming. Will the Government do a U-turn on the spending increases that the Chancellor promised in the Budget? Will they borrow more or will they increase taxes further? One of these will have to give if the OBR’s update in March determines that the Chancellor is in breach of her own fiscal rules.

I am afraid that it is working people who will pay the price of the unfortunate decisions made by this Government in their Budget.

[Baroness Kramer (LD)]

My Lords, we must not allow anxiety about America under Trump and Musk, particularly on tariffs and climate change, to drive us into an unhealthy economic relationship with China. China is, of course, an economic powerhouse and our fourth-biggest trading partner, and there is more trade to be had, especially in financial services, to benefit both parties—but China is a very mixed blessing. It remains a cyber threat. Without greater transparency and safeguards, it is a potential threat to the integrity of our national security. It does not challenge the Russian invasion of Ukraine. It does not share our commitment to human rights and to democracy in Taiwan and Hong Kong. The imprisonment of Jimmy Lai is both a tragedy and a warning that our values are not respected. We on these Benches wish that the Chancellor had held firm and refused to go to China unless Jimmy Lai is released. China is a country that exploits weakness.

In light of these concerns, will the Government strengthen foreign direct investment screening and cyber defences, including increased data transparency requirements? Will they cease research co-operation on technology with China, its companies and researchers if adequate reciprocity and transparency cannot be achieved? Will they enact Magnitsky legislation to hold Hong Kong and Chinese officials responsible following gross breaches of human rights in Hong Kong and Xinjiang province? Given the recent discovery of Chinese spying across several senior levels of the British establishment, do the Government agree that China should be placed in the enhanced tier for the foreign influence registration scheme?

Public Finances: Borrowing Costs

Baroness Kramer Excerpts

Thursday 9th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. She is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around. She is also correct to say that there should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is absolutely non-negotiable. I am not going to pre-empt future fiscal events or spending reviews now, but the Chancellor has been absolutely clear that she would not repeat the likes of the October Budget and is focused on growing the economy so that people in every corner of the UK see an improvement in living standards. We have set very tough fiscal rules, tougher than those of the previous Government, which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to. That will involve tough choices on spending, but they are choices we are prepared to make, and our reform agenda will be central to improving services going forward.

[Baroness Kramer (LD)]

My Lords, the Minister used the phrase “meeting the fiscal rules is non-negotiable”. A few minutes ago in the other place, my colleague the honourable Member for Wokingham asked for a similar reassurance that promised investment in the NHS and care is also non-negotiable. The reply, I hope inadvertently, was somewhat soft and went no stronger than commitment. Can the Minister use the term “non-negotiable”, because we need reassurance that there will be no scaling back of the committed investment in the NHS and care?

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

Wednesday 8th January 2025 Lords Chamber

Finally, it is important to note that the last two national insurance Bills that went through this House had all their stages on the Floor of the House. Both those Conservative Bills actually cut taxes for working people. Surely, we should subject a tax increase to more scrutiny than those Bills received here on the Floor of the House. The hundreds and thousands of businesses, charities, nurseries and hospices who are hurting expect it of us. I beg to move.

[Baroness Kramer (LD)]

My Lords, we on these Benches are focused on the substance of this important Bill, which we demonstrated with our regret amendment on Monday. Disputing where Committee stage is debated is very much a second-order issue, especially when, to make progress on the substance, we will have to try to find some common ground. During the years of the Conservative Government, significant mixed Bills of equal impact on people were debated in Grand Committee at Committee stage. We did not seek to vote against that then. I do not see the change of Government as a reason to vote against that now, and we will support from these Benches the Government this afternoon.

[Lord Forsyth of Drumlean (Con)]

My Lords, forgive me for pointing out that on the Liberal Democrat Benches, the turnout in support of their regret amendment on Monday was less than half their complement. They moved a moved a regret amendment; they made fine speeches about how damaging this Bill will be to charities, hospices and other organisations; and then they also, at the end of the debate, made it clear that they would not give the whole House an opportunity to consider this on the Floor of the House. I do not know what is going on between the Liberal Benches and the Labour Party, but what is clearly going on is some kind of deal—a deal that is against the interests of the people of this country, including many charities, hospices and other organisations.

It is completely wrong to argue that in the Grand Committee this Bill can be subject to similar scrutiny. If it is on the Floor of the House, we can vote on some of the measures that we agreed with the Liberal Democrats need to be considered. We can have proper scrutiny. This is simply an attempt by the Government to hide their embarrassment at the atrocious consequences of this unprecedented national insurance Bill.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Kramer Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

Moved by

[Baroness Kramer]

At end insert “but that, while recognising the need to rebuild public services and finances, this House regrets that the Bill risks worsening pressures in the NHS and social care by placing costs on GPs and dentists, social care providers and hospices; increases burdens on small businesses, early years providers, universities and charities; and penalises part-time work, and puts jobs and economic growth at risk”.

[Baroness Kramer (LD)]

My Lords, before I begin, I say to the House that on these Benches, we will make sure that the words of appreciation and expressions of friendship for Baroness Randerson will be passed back to her family. I am sure that they will mean a great deal to them. I suspect that on many Benches, as on our Benches, noble Lords are somewhat in shock. We have lost not just a colleague and highly respected politician but a very real friend. We give our thanks to this House for its shared respect and friendship.

We on these Benches recognise the difficult state of the public finances and the desperate need for investment in public services and infrastructure to drive growth and tackle climate change. We can see that the responsibility for the current condition rests with the Conservatives. However, in our general election manifesto we did not duck the issue of new funding. We took the approach that we must find the broadest shoulders to raise additional tax revenue—from the gambling industry to share buybacks, from big banks to big tech. We have tabled this amendment to the Motion today to make it very clear that we believe that the Government have taken the wrong approach in hiking employers’ national insurance contributions as their way to fill the funding gap, and we fear that the present plans will undermine national recovery. We ask the Government to think again.

Our amendment addresses a wide range of sectors that will be particularly badly injured by the NICs increases. Look at whom the changes impact: small businesses—bigger than micro, which get some protection, but small businesses still. These businesses, especially in hospitality, underpin the resilience of our communities. They need to be investing in growth and productivity, not struggling for survival. The changes impact many businesses that offer part-time work, which in turn is often the route out of disadvantage since much part-time work will now be subject to NICs for the first time. Almost every childcare provider will have to hike fees or cut places, forcing some parents to give up work. Universities, many already facing dire funding pressures, are struggling to cope and will face a much more difficult situation. The hikes impact charities of all kinds and housing associations, which should be focused on building new affordable and social homes.

In the course of today, colleagues will address many of these issues, as well as the impact on devolved authorities, town and parish councils and veterans. We will follow with amendments to the Bill in its next stages. However, our deepest concern, and where we will focus our efforts, is the impact on community care and social care, with significant consequences for the NHS. The Conservatives drove this sector into the ground. The Government are setting up the Casey commission, to report in 2026 and 2028, but this sector is in crisis now. We cannot understand how the Government cannot see the harm that NICs increases will do to this vital sector.

Our research has revealed that the NICs hike will cost GP surgeries some £125.5 million a year, which is equivalent to funding 2 million appointments. Hospices, which face a £30 million bill, have warned that they may have to withdraw beds. Research from the Nuffield Trust shows that the cost to adult social care alone will exceed £900 million next year. I point out to the Minister that this is more than the extra funds that the Government allocated to the sector in the last Budget. It in effect wipes it out, and then some. We risk losing many small care providers and seeing large ones cut capacity. Pharmacists and dentists will not receive compensation in full. Surely the Government must recognise that the knock-on effects will undermine their ambitions to revive the NHS; this in turn will undermine jobs and economic recovery. My colleagues will expand much further.

The last Government failed the economy, failed our public services—including the NHS and social care—and, I fully accept, pursued a scorched-earth policy with the public finances. However, this Bill is not the way forward. We ask that this House press the Government to step back and reconsider. I beg to move.

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[Baroness Kramer (LD)]

My Lords, this has been a very impressive Second Reading on a very important Bill. I hope that in Committee we can have a really constructive discourse in which we can hopefully find some common ground and make some progress. However, as I look at the Bill as it stands today, I am afraid that I continue to regret. Under those circumstances, I beg to test the opinion of the House.

National Insurance: GDP

Baroness Kramer Excerpts

Thursday 19th December 2024 Lords Chamber

[Lord Livermore (Lab)]

I wish the noble Lord a merry Christmas and a happy New Year in return. As I said, we did have to clear up the mess that we inherited, and that did mean taking some very difficult decisions. I of course understand and respect the legitimate concerns that have been raised, and we have consistently acknowledged that there will be wider impacts as a result of the decisions that we have taken. But I do genuinely say that not to act and not to repair the public finances and restore economic stability was simply not an option. As I have said, let us be clear: following the Budget, the OBR, the Bank of England and the OECD have all revised up their growth forecasts.

[Baroness Kramer (LD)]

My Lords, a report in 2021 by Skills for Care calculated that adult social care alone contributed some £70 billion to the economy and that:

“Sustained growth in adult social care will boost local economies via the induced and indirect effects”—


and this was especially in northern and Midland regions. Does the Minister understand that the ongoing lack of investment in social care, combined with new burdens—notably the increase in employers’ NICs—could put this growth into reverse? Will the Minister make to his Government the economic case for exempting the care sector from increased employer NICs?

[Lord Livermore (Lab)]

I have the greatest respect for the noble Baroness’s consistent focus on the importance of social care. The answer to her last question is no, but the Government are providing at least £600 million of new grant funding for social care in 2025-26, as part of the broader estimated real-terms uplift to core local government spending power of approximately 3.2%.

Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Baroness Kramer Excerpts

Tuesday 17th December 2024 Grand Committee

I have to say, on my favourite subject of consumer collective investments, that there was a substantial response to that consultation, which the Government not only ignored and said very little about but then did precisely the opposite of what was said. There is an interesting contrast between the way in which that was dealt with—I know that the noble Lord was not necessarily the Minister at that time—and the more sympathetic way in which the consumers were dealt with. That is all I have to say at the moment.

[Baroness Kramer (LD)]

My Lords, I shall speak to these three statutory instruments in the order in which they appear on the Order Paper. I know the Minister spoke to them in a different order—three, one, two—but I am much more simple-minded, I am afraid, so will go with one, two, three. I am also speaking without the professional experience of my colleague and others who are present in this debate, even if not participating, so there is an element of “man-on-the-street reaction” to some of the questions I have around these various statutory instruments.

I will start with the designated activities regulations. I would like to understand much better the circumstances under which this first of the three SIs allows the FCA to exempt businesses or persons from being an authorised person when they are carrying out activities such as short selling and credit default swaps. Indeed, the language is quite loose, so it may well include other complex financial structuring and sales.

The reason that I would like to understand those circumstances is that I remain very exercised by the 2008 financial crash. It is an experience from which we all have to learn, and which we must be careful not to forget, but it was, to a significant extent, triggered by the ignorance and negligence of businesses and people who were carrying out structured finance. Indeed, credit default swaps in particular were at the heart of much of the crisis. Short selling, which is wrapped into this SI, particularly uncovered short selling, is definitely a risky activity. Why should these risky activities be carried out by people who have not been through an authorisation—in effect, an approval process?

I understand that the industry often says that this is an onerous process but, having been on the committee that first recommended that process, the heart of the authorisation process is to verify that the person carrying out the activity meets the test of being fit and proper. Indeed, the core of the process is a criminal records check and a process to verify that the expertise and experience that has been claimed by the individual or the business is actually true. Neither of those can ever be taken for granted. People who have been involved in financial mis-selling over and over again turn out to be serial offenders whose history was never checked and who are shown to have been involved in previous mis-selling practices. We saw that extensively with the mini-bond scandal but it has a much wider history than that.

Firms have told me that, since they have had to go through the authorisation process, they have been shocked to find how many of their decision-makers were hired not on the basis of their expertise or CVs but because they were a friend of somebody who was important in the organisation who had highly recommended them. When they started checking the CVs, as the Minister may be aware, they discovered that many people had gravely exaggerated; the experience and expertise that they had claimed turned out not to have a whole lot of substance behind it.

In an industry where there is so much at stake and so much capacity to manoeuvre and do the wrong thing, why are we limiting the authorisation process? I want to understand better the circumstances in which the FCA will make the decision that the authorisation process need not apply. It is a pretty significant decision. I understand the industry push-back; all the organisations feel that they are virtuous, so why should anybody look over their shoulders?

On the whole I am comfortable with the second SI, which focuses on short selling, but I do not understand—here, I am in a different position from my colleague, my noble friend Lady Bowles—why individual firms will no longer be required to publish net short positions above 0.5% of issued capital. I should have thought that investors would like to have this information, but I understand that, from a systemic perspective, an aggregate number may be sufficient for the regulator. However, it concerns me that we are reducing transparency in this area and I should like to understand much more clearly why transparency has been such a problem that it has to be removed. It does not take a lot of activity for this information to be public, so it cannot be particularly onerous to publish it. What are the harms that the industry feels exist because of publication? Perhaps we could have some examples of where a firm has been harmed. Presumably, that evidence has been put before the FCA or we would not have the drafting of this SI.

Why can the Treasury arbitrarily change the threshold for reporting net positions to the FCA? To me, the Treasury does not need to be accountable to anybody for changing that threshold and I just do not understand why that is and what the circumstances are.

I am also concerned that the financial services industry has been playing the growth mantra in order to move to a lighter-touch regulation environment. Whenever there is a debate on short selling on the Floor of the House, many people stand up and argue for uncovered short selling to be allowed far more extensively on the grounds that it will bring more players to invest in high-risk projects. The argument is made continuously that uncovered short selling will increase the liquidity in the market and offset any increased risk. I regard uncovered short selling as a risky activity, and I am not clear how this SI impacts on the FCA’s scope—without reference to Parliament, scope increases to allow a much greater range of uncovered short selling. As I was reading the language, I could certainly see that interpretation as possible.

--- Later in debate ---

She also asked about transparency. Public disclosure of short selling is important to provide investors with information and transparency on how it affects the price of shares. This, in turn, provides certainty and confidence to the market. Feedback to the call for evidence on the Short Selling Regulations highlighted significant issues with the current public disclosure regime. This new aggregated net short position disclosure regime will continue to provide transparency on short selling activity, while avoiding the potential distortive impacts of the current public disclosure regime. The Financial Conduct Authority will continue to have access to data on individual net short positions to monitor short selling activity effectively. I will also write to the noble Baroness on why the Treasury has control of the disclosure threshold.

[Baroness Kramer (LD)]

Can I ask the Minister for clarification? It would seem that, if individual entities are disclosing their net short position, it is possible for an investor to understand whether the price is being affected by one institution that is making a very big play or by a series of institutions that are making a similar play. That is important information, and I have no idea how you can get it once everything is aggregated —unless I have misunderstood all of this completely, which is perfectly possible.

[Lord Livermore (Lab)]

Since I am going to write to the noble Baroness on those other two points, it is probably best that I write to her on that one, so that we can be absolutely clear.

In the meantime, I move on to the questions on the ring-fence from the noble Baroness, Lady Kramer. She spoke about a return to casino banking, but she will understand that I disagree with her on that point. These are sensible, technical reforms on which the Treasury has undertaken detailed work with the PRA. The PRA is satisfied that they maintain the appropriate financial stability safeguards. The Treasury has considered the combined overall risk of reforms to the sector, alongside detailed cost-benefit analysis through an impact assessment. That impact assessment concluded that the reforms will improve outcomes for banks and their customers by making the ring-fencing regime more flexible and proportionate, while maintaining appropriate financial stability safeguards and minimising risks to public funds.

The noble Baronesses, Lady Kramer and Lady Neville- Rolfe, asked which specific banks will be removed from the ring-fence as a result of these measures. The reforms create significant new optionality for banks, with the eventual benefits depending on their commercial decisions. It is for the banks to announce how they will utilise the new flexibilities created in the regime and the Government do not comment on specific firms.

The noble Baroness, Lady Kramer, also asked about firms being taken out of the ring-fence as a result of the primary threshold. No firms will leave the regime as a result of increasing the core deposit threshold.

The noble Baroness, Lady Neville-Rolfe, in contrast to other noble Lords, spoke of these reforms being too slow and modest. She also asked what assessment the Government had done on the impact of these SIs. We published impact assessments alongside both the ring-fencing and short selling statutory instruments, which set out their estimated impacts on firms. Both these statutory instruments are estimated to result in a net cost saving for industry.

The noble Baroness also asked how these SIs will deliver growth. There are several measures in the ring-fencing SI that have an impact on growth. We are increasing the core deposit threshold at which banks become subject to the regime, allowing them to grow, as well as exempting retail-focused banks from the regime. We have also introduced new flexibilities for ring-fenced banks to invest in UK small and medium enterprises. The Short Selling Regulations introduce a streamlined short selling regime, which reduces costs for firms and improves UK competitiveness, while still effectively protecting against the risks of short selling.

The noble Baroness also asked about the powers that the supervision and enforcement statutory instrument provides. Those regulations extend the normal powers that the Financial Conduct Authority already has over designated activities. They will allow the Financial Conduct Authority to supervise designated activities even where those carrying on the activities are not authorised persons. They mean that it will be able to gather information on and launch investigations into persons carrying on designated activities, and to enforce its designated activity rules, by publicly censuring or imposing financial penalties on persons who breach them. The Financial Conduct Authority will also be able to restrict or prohibit persons from carrying on the activity if necessary. I will write to the noble Baroness, Lady Neville-Rolfe, on the broader FCA enforcement approach.

Silicon Valley Bank UK Limited Compensation Scheme Order 2024

Baroness Kramer Excerpts

Tuesday 17th December 2024 Grand Committee

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

My Lords, I beg to move that the Committee do consider this order, which is related to the 2023 resolution of Silicon Valley Bank UK Limited. This order confirms that the former shareholder of SVB UK is not entitled to compensation following the transfer of the bank’s shares to HSBC UK Bank plc.

As noble Lords know, in early March 2023, SVB UK experienced severe financial distress, resulting in rapid deposit outflows. This crisis, originating from its US parent entity, quickly spread to its UK subsidiary. By Friday 10 March, the Bank of England, acting as the resolution authority, declared its intention to place SVB UK into a bank insolvency procedure, absent any meaningful new information.

Over the subsequent weekend, a private sector purchaser was identified. On Monday 13 March, the Bank of England exercised its power under the Banking Act 2009 to transfer the shares of SVB UK to HSBC UK Bank plc. This action was taken following consultation, with the Prudential Regulation Authority, the Financial Conduct Authority, the Treasury and the Bank of England reaching the judgment that the resolution conditions set out in the Banking Act had been met.

The Banking Act requires the Treasury to make a compensation scheme order when the private sector purchaser power is exercised. This order is a mechanism to establish in law what compensation, if any, is due to former shareholders of the resolved firm. The Bank of England undertook a provisional valuation when placing SVB UK into resolution. That valuation found that SVB UK’s shareholder would not have made any recoveries had the firm been placed into a bank insolvency procedure, and therefore no compensation is due to SVB UK’s former shareholder. The Bank of England then commissioned an independent valuation of SVB UK, which confirmed that no compensation is due to the previous shareholder of SVB UK. The order before us today confirms in law the findings of these valuations: that the former shareholder of SVB UK is not due any compensation.

The compensation scheme order for SVB UK is a necessary step to formalise and conclude the resolution process and confirm that no compensation is due to the former shareholder. This decision is based on thorough valuations and adheres to the legal framework established by the Banking Act 2009. I beg to move.

[Baroness Kramer (LD)]

My Lords, the Minister may be pleased to hear that I have very little to say on this SI. It makes sense to me. The Bank of England report on the transfer of Silicon Valley Bank UK to HSBC argues clearly and logically that, in any reasonable scenario, SVB’s UK tier 1 and tier 2 capital would have been wiped out, so there are no grounds to compensate the former US parent.

However, the fact that this SI is needed raises a question. The resolution of large banks that fail would require wiping out shareholders and calling in bail-in bonds under the MREL procedures without compensation. Would those processes all require a report and an SI to be laid in order for action by the Bank of England to be legal? If that is what the legislation currently says, is there a flaw in the resolution legislation? If there is a flaw, does it need to be rectified? In other words, it seems extraordinary that we need an SI under these circumstances at all.

[Baroness Neville-Rolfe (Con)]

I also welcome the draft Silicon Valley Bank UK Limited Compensation Scheme Order 2024. It rightly confirms in law that no compensation is due to shareholders of Silicon Valley Bank UK Ltd on the transfer of shares to HSBC UK Bank plc in March 2023, when, as the Minister explained, the former experienced rapid deposit outflows.

The swift action that the last Government took to facilitate the sale averted a potential catastrophe for tech start-ups and small businesses dependent on that bank—precisely the kind of enterprises that can help to drive Britain’s growth and innovation in the decades to come. The special resolution regime reinforced trust in the financial system while reminding us that stability is the foundation upon which innovation thrives.

Although I welcome this order, can the Minister clarify how the lessons learned from this well-handled crisis will inform future regulation of mid-sized banks? Further, can he elaborate on how the scheme aligns with our wider growth agenda? To my mind, the tech sector is critical to Britain’s global competitiveness, and maintaining its trust in the financial system is key to sustaining our position as a world-leading hub for innovation—an ambition that is under some challenge, as I mentioned earlier. But I am very happy with this order.

Economic Productivity

Baroness Kramer Excerpts

Thursday 5th December 2024 Lords Chamber

[Lord Livermore (Lab)]

The right reverend Prelate is absolutely correct in what she says about the importance of the health service to productivity. A healthier workforce is a more productive workforce. We have a 10-year NHS health plan in the works. It will be published in the spring and will focus on delivering the reforms needed to ensure better value for money for taxpayers and sustainable productivity gains. Of course, good working relations with the workforce are essential to that.

[Baroness Kramer (LD)]

My Lords, big business in the United Kingdom is among the most productive in the world. It is small businesses, which as the Minister said are the backbone of our economy, that struggle to grow productivity. How will the Government even communicate with this sector—most of the conversation is about only tax issues—to encourage and support innovation? How will they change financial services, so that businesses that wish to innovate can realistically access finance?

[Lord Livermore (Lab)]

That is a very good question, which I am not sure I know the answer to. Obviously, the Department for Business and Trade has an ongoing programme of dialogue with small businesses, as the noble Baroness said, in terms of communication, and it will continue to do that. The recent Mansion House reforms outlined by the Chancellor will, I hope, address the noble Baroness’s points.