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.

Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024

Baroness Kramer Excerpts

Monday 2nd December 2024 Grand Committee

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

My Lords, these regulations will add four pieces of legislation, known as “enactments”, to the list set out in Section 17(3) of the Financial Services and Markets Act 2023, so that those enactments can be temporarily modified as part of the financial market infrastructure sandboxes.

A financial market infrastructure sandbox is designed to provide a regulatory environment in which existing legislation and regulation are temporarily removed or modified. Firms that participate in a financial market infrastructure sandbox are able to test new and developing technologies and practices that would otherwise be inhibited by existing legislation. If an activity in a financial market infrastructure sandbox is successful, the Treasury can make permanent changes to legislation—only after laying a report before Parliament.

The Treasury was granted the power to make provision for financial market infrastructure sandboxes by Section 13 of the Financial Services and Markets Act 2023, and the list of enactments that the Treasury can temporarily modify is set out in Section 17(3). The Treasury also has the power to add further enactments to this list, set out in Section 17(6) of the Financial Services and Markets Act 2023. This is because the testing of new technology and practices, by its nature, evolves over time, and the list of legislation in scope would likely need to be added to. The ability to add further enactments to the list is therefore a way of ensuring that the financial market infrastructure sandbox regime can be used to its full potential, ensuring that the testing of new technologies and practices can continue to take place as new legislative changes are identified.

This statutory instrument exercises the power set out in Section 17(6) of the Financial Services and Markets Act 2023 so that new enactments can be added to support two financial market infrastructure sandboxes; namely, the existing digital securities sandbox and the future private intermittent securities and capital exchange system—known as PISCES—sandbox. The digital securities sandbox will enable firms to test new and innovative technology across financial market infrastructure activities, while the PISCES sandbox will allow private companies to have their shares traded on an intermittent basis on a new type of stock market.

This statutory instrument will bring the following legislation into the scope of the power to make temporary modifications in future financial market infrastructure sandboxes: the Stock Transfer (Gilt Edged Securities) (CGO Service) Regulations 1985, which I will refer to as STRs; the Government Stock Regulations 2004, which I will refer to as GSRs; the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which I will refer to as MLRs; and Regulation (EU) 2017/1129 of the European Parliament and of the Council, also known as the prospectus regulation, which we inherited from the EU.

Temporarily modifying the STRs and GSRs will enable us to support a digital gilt issuance through the digital securities sandbox. The MLRs will be modified to facilitate an exemption from the MLRs crypto asset regime for digital securities sandbox participants; this is on the basis that digital securities sandbox activity will involve regulated securities and conventional anti-money laundering legislation will be applied. The new UK prospectus regulation will be modified as part of the PISCES sandbox so that prospectus requirements can be disapplied in favour of bespoke disclosure requirements in the PISCES sandbox.

I should note at this point that this statutory instrument does not make any temporary changes to the enactments themselves. Under the procedure stipulated by Financial Services and Markets Act 2023, this will be done as part of further negative SIs to be laid before Parliament, which will provide all the relevant explanatory information for the changes being made to each enactment. For example, the Government published a draft of the instrument that will set up the PISCES sandbox in November for public comment. Similarly, the digital securities sandbox has already been established by a statutory instrument laid last December, although changes to the MLRs will require a further statutory instrument.

In closing, this statutory instrument will make changes consistent with the powers established by the Financial Services and Markets Act 2023 and will support the continued development of the digital securities sandbox and future financial market infrastructure sandboxes, such as the PISCES sandbox. The Government believe that this will help support innovation through each of these financial market infrastructure sandboxes. I hope that noble Lords will  feel able to support these  regulations and their objectives. I beg to move.

[Baroness Kramer (LD)]

My Lords, the more times I read this statutory instrument—even after writing myself a cheat sheet on its alphabet soup of acronyms—the more I realise that I lack the expertise in the digital financial services and crypto space to really understand what is happening, the context and the implications. However, I have always supported the sandbox approach as a creative way for the regulator to understand innovations in financial services and how to appropriately regulate them.

This is a high-level SI that will, as the Minister said, be followed by detailed—although negative—SIs to address specific cases. I am a bit concerned that we will need to spot these cases in order to question them, but I have no intention of opposing the regulations before us today. PISCES is a slightly different issue but, frankly, without seeing the new prospectus regime, I have absolutely no idea how to comment on the changes contained in this SI.

I do, as always, have a few questions. First, I want to understand how this SI and what lies behind it ties in with the competition and growth objective. Are the Government taking the view that future growth in financial services is largely linked to digital business models, including blockchain infrastructure and crypto assets, and that shaping the FCA to be a benign regulator will make the UK a leading player in designing, holding, trading and marketing new instruments? Or are the Government concerned that digital and crypto create a new potential for market manipulation, mis-selling and money laundering, such that the FCA needs to find ways to counter, with different approaches to monitoring supervision enforcement? In other words, are the Government playing offence or defence? I would like to hear the Minister’s view.

Secondly, and related to that, with this instrument and the related activities, are we ahead of the curve, with the curve or behind the curve compared with other international regulators? I am afraid I do not have the global reach to understand, and it would be helpful if the Minister could tell us.

My lack of knowledge in this area led me to contact a friend in the industry to seek advice, and I was stunned by the response. In summary, I was told that the innovators who bring new and innovative models to the regulator’s sandbox are the smartest people in the room, but the regulator views the sandbox as a means to decide on monitoring procedures, compliance algorithms and approaches to enforcement. The innovators, by contrast, use the sandbox to identify the regulator’s points of weakness and then build them into their models to escape regulatory control. Innovators in the sandbox explore the regulatory perimeter, for example, to design products that will fall just outside; the mini-bonds are an example. They identify transaction sizes that will slip under the radar and coding approaches that will prevent multiple transactions that are essentially identical to be linked together and therefore escape both supervision and action. Those are just examples, but, increasingly, the industry seems to regard observing the intent of the regulator as purely voluntary. Does the Minister have any concerns that the regulator is outmanoeuvred, underpowered and underresourced?

I will end on my hobby-horse, which applies very much in these circumstances. Does the Minister recognise that, in this very fast-changing world, when so much is global and so much is digital, an effective whistleblowing system is absolutely vital, and our current system is a serious weakness?

[Lord Altrincham (Con)]

My Lords, it is a privilege to address the Committee on the Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024. These regulations serve to bring various legislation under the remit of the financial market infrastructure—FMI—sandbox. The sandbox regime is an important part of the Financial Services and Markets Act, giving expression both to good prudential regulation and economic growth by supporting innovation.

As we heard, the regulations being transferred to the FMI sandbox are: the STRs, or stock transfer gilt-edged securities regulations 1985—the digital gilt area that is likely to be an enormous focus of the government team in the coming months; the GSRs, or Government Stock Regulations 2004; the MLRs, or Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; and the UK prospectus regulation, Regulation (EU) 2017/1129 of the European Parliament and of the Council.

Since our departure from the European Union, the British Government have pursued an ambitious programme of reform to establish a regulatory framework that is better tailored to the strengths and opportunities in UK financial services. These regulations further enhance our ability to adapt and thrive in a competitive global financial environment. The instrument is more than a technical adjustment; it is a demonstration of our commitment to dynamic regulation in financial services and support for innovation. The instrument ensures that our laws continue to reflect the highest standards of probity and innovation while giving the financial services sector clarity and confidence.

As Conservatives, we believe in the power of free markets, tempered by fair rules and effective oversight. These regulations are a testament to that philosophy, and they ensure that the UK remains the jurisdiction of choice for global financial institutions and investors, which in turn helps the country secure tax revenues needed to fund public services. By updating and expanding the scope of the Act, we are aligning our regulations with emerging opportunities including advances in financial technology, green finance and digital assets—areas in which Britain has already established itself as a global pioneer.

The FMI sandbox scheme commenced under the previous Conservative Government and was a success, with the digital securities sandbox—the DSS—proving useful to business. Three of the pieces of legislation being brought into scope would facilitate activity in the first FMI sandbox, known as the DSS: the STRs, the GSRs and the MLRs. Bringing the GSRs and the STRs into the scope of the FMI sandbox powers under the Financial Services and Markets Act 2023 would facilitate the possibility of sovereign debt issuance, using distributed ledger technology, under the DSS.

International Banking: Payments

Baroness Kramer Excerpts

Thursday 28th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. On the potential move by the forthcoming Trump Administration, the UK will continue to work closely with the US on a range of security issues, including sanctions, to advance our shared priorities. I do not think it would be appropriate for me to comment on the Trump Administration’s future policies. In terms of actions by the BRICS, we obviously respect each country’s right to choose its own path and partners, but we will continue to collaborate with our international colleagues around the globe, including BRICS members, in forums such as the UN and G20, to build an open, stable and prosperous world.

[Baroness Kramer (LD)]

My Lords, because of my complex family, I need to transfer funds across international borders several times a year. The system assumes I am a terrorist, the banks have rip-off charges and exchange rates and obstructive technology. Even the new online apps, for which I had high hopes, have very severe limitations. Do western Governments, including ours, understand that if they fail to remedy this absolutely hapless international payments system, and the BRICS devise any international payment that is even halfway efficient and reasonably priced, users will simply flock to the BRICS system out of sheer frustration?

[Lord Livermore (Lab)]

I share some of the noble Baroness’ frustrations in this regard. I am always happy to vouch for her that she is not a terrorist; I am very certain of that fact. The noble Baroness is obviously making a very serious point. Clearly, fragmentation along the lines that she describes would be very damaging to the global economy—we must ensure that this does not proceed. The evidence of the extent to which fragmentation has occurred is mixed, and we should keep an eye on the data. I very much bear in mind the points she makes.

Financial Services: Mansion House Speech

Baroness Kramer Excerpts

Thursday 21st November 2024 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the Chancellor’s speech at the Mansion House covered a wide range of very important topics which we will need to discuss over the coming months. I can touch on only a few of them today. However, perhaps first we should note that very recent developments include an unexpected reduction in the rate of economic growth and an increase in the rate of inflation; and, today, an increase in monthly borrowing to £17.4 billion—the highest level ever outside the pandemic.

The reduction in the growth rate in the fourth quarter was brought about in part by the unwise and inaccurate remarks on the state of the British economy that have been made frequently by both the Prime Minister and the Chancellor since taking office. Taken alongside the problems of the Budget, it has not been an auspicious beginning for the Government. Some of the effects on hard-working citizens, small businesses and farmers were brought to our attention outside this very building only this week. Furthermore, the UK gilt market has taken a hit, meaning that the cost of servicing our debt has risen. The last time yields on 10-year gilts were this high, Labour promised it would ensure that it never happened again; and, of course, higher bond yields mean higher debt-servicing costs. How do the Government intend to square this particular circle?

One major sector covered by the Chancellor’s very comprehensive speech was pensions, which are important for almost everyone. We share the Chancellor’s aims of securing greater returns for pension savers while at the same time enabling pension funds to contribute to funding increased infrastructure spending here in the UK. These objectives are not necessarily incompatible, but it will be difficult to bring about both. We on these Benches will take a keen interest in how this initiative is taken forward in the forthcoming pensions Bill and elsewhere. When can we expect more details?

We are also keen to know more about how, precisely, the proposed pension megafunds will work and, in particular, what rules they will need to follow as regards UK and foreign investments. We all know about the massive investment that Australian and Canadian funds have made in UK infrastructure. Will the proposed UK funds be able to invest in a similar fashion overseas? The Government have proposed consolidating 86 local authority pension funds into eight. When will this occur and on what criteria? How will the interests of those in well-run funds be protected from the ravages of the less successful ones?

Lastly, I return to the Government’s stated first aim of improving the rate of economic growth. We want them to succeed; really, we do. Per capita growth is the right measure of success. All economic policies should have growth as one of their aims, so I note with particular satisfaction that the Chancellor has recently impressed on several economic regulators that this should be their objective also. Otherwise, unfortunately, the Government have made a poor start on achieving growth and managing inflation. When we left government, we had the fastest-growing economy in the G7. Now that has greatly diminished. Let us hope, for the sake of our citizens, that the Government will do better in future.

[Baroness Kramer (LD)]

My Lords, my party is determined to see growth in the UK economy and to use tools such as reform of the financial services sector to drive that growth, though we would put much more emphasis on a revival of community banking and financing for SMEs. High risk, however, is not for all. For people with small pensions, safety—not a jackpot—is the goal. Will the Minister assure this House that, in all the various changes, small pensions will in some way be backstopped from losses generated through higher risk, including illiquid investments? In Canada, which seems to be a template for the Government, public sector pension funds are, in effect, wholly backstopped by the state.

Members on these Benches remember the financial crisis of 2007, which destroyed growth for a generation. It was enabled by gullibility and naivety in dealing with the financial sector, both by Conservative and Labour Governments and by the regulators. The Bank of England is re-looking at the regulation of CCPs to allow greater derivates risk; the PRA now allows insurance companies to hold illiquid assets without relevant reserves; the bank ring-fence is being undermined, and the FCA plans to gut the clawback on bankers’ bonuses and downgrade the certification of senior managers. We are back to jobs for the boys.

Much more—if I understand the Chancellor correctly in the Mansion House speech—is to come. I sat for two years on the Parliamentary Commission on Banking Standards, listening to the pernicious incompetence of masters of the universe who were turning a deliberate blind eye to market manipulation, mis-selling and money laundering, with no acceptance of responsibility. Will the Minster read the reports of the PCBS before he proceeds with any further weakening of regulation? If this is not done with extraordinary care, we risk seeing the reseeding the next financial crisis.

[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 comments and questions. May I take this opportunity to welcome the noble Baroness, Lady Neville-Rolfe, to her place and say how much I look forward to working with her in the period ahead? I am very grateful to both noble Baronesses for the “cautious”—I think I should say—welcome that they gave to various aspects of these reforms.

The noble Baroness, Lady Neville-Rolfe, began by talking about growth and, of course, we all know that growth was one of the biggest failures of the previous Government. In her Budget last month, the Chancellor set out a number of important measures to fix the foundations of our economy, restore stability to our public finances and rebuild our public services. They included a new approach to public investment to help deliver high levels of economic growth.

As the Chancellor made clear at the time, however, the Budget was not the limit of our ambition. Increasing private investment and reforming our economy are also central to realising the UK’s growth potential. That is why, last Thursday at the Mansion House, the Chancellor placed the financial sector at the heart of the Government’s growth mission and set out a plan for investment and reform. The financial sector employs 1.2 million people and makes up 9% of GVA, and it is one of the largest and most successful in the world, but we cannot take the UK’s status as a global financial centre for granted. The Chancellor therefore set out a commitment to developing a comprehensive plan to grow that financial services sector.

In the spring, the Government will publish a financial services, growth and competitiveness strategy to give the financial services sector the confidence it needs to invest for the long term. It will be published alongside our modern industrial strategy and be clear-eyed about our strengths, proposing five priority growth opportunities: fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance markets, and capital markets.

In her Mansion House speech, the Chancellor also announced plans in the key area of pension funds, which the noble Baroness, Lady Neville-Rolfe, focused on. I am grateful for her supportive words about the objectives behind those reforms. As she knows, the UK has one of the largest funded pension markets in the world, but pension capital is often not used enough to drive investment and growth in our economy. Our system remains highly fragmented and pension funds cannot bring their full financial weight to bear due to limited investment in more productive assets. This holds back investment in infrastructure and for our most innovative companies.

For this reason, the Chancellor announced the publication of the interim report for the pensions investment review. The plan in the report will deliver a significant consolidation of the defined contribution market and the Local Government Pension Scheme in England and Wales, harnessing the collective size of our pension funds and creating larger funds and pools of capital. The noble Baroness asked about the timescale. A consultation on our pension reform changes opened last week and will run until 16 January. To give the market the necessary time to prepare, these changes will not apply in full until at least 2030. Local Government Pension Scheme changes are expected to be completed sooner, by March 2026, given the arrangements already in place.

The Chancellor also set out plans for reform. We will upgrade our regulatory regime across our economy, including reviewing the guidance we give to the Competition and Markets Authority and other major regulators, to underline the importance of growth. The noble Baroness, Lady Kramer, talked about the global financial crisis; I am very happy to read the reports she recommends. While it was right that successive Governments made regulatory changes after the global financial crisis to ensure that regulation kept pace with the global economy, these changes resulted in a system which often sought to eliminate risk-taking and, in some cases, had unintended consequences that we must address. Regulation has costs as well as benefits; when spending large sums on compliance, firms are not using that money to innovate and grow. It can also have costs to consumers, such as by restricting access to financial advice that could help them plan for the future.

While maintaining important consumer protections and upholding international standards of regulation, we must rebalance our approach. I think this was cautiously welcomed by the noble Baroness, Lady Neville-Rolfe. Alongside her Mansion House speech, the Chancellor issued new growth-focused remit letters to the financial services regulators to make it clear that the Government expect them fully to support our ambitions on economic growth.

The noble Baroness, Lady Kramer, asked about risk-taking. Enabling more responsible and informed risk-taking will support innovation and investment to help drive growth. Our aim is to maintain a sound and stable financial system with appropriate consumer protections while allowing businesses and consumers to make informed choices about the level of risk they take on. Protecting consumers is central to these reforms; the remit letters are clear that the regulators must maintain high regulatory standards, including to adequately protect consumers, in the process of embedding their secondary growth and international competitiveness objectives.

--- Later in debate ---

[Lord Livermore (Lab)]

The noble Baroness raises a very important question and I am grateful for her support around the reforms of the Financial Ombudsman Service; she brings a great deal of expertise to it. Her point about the role of consumers is a good one, and I will write to her on that specific matter.

[Baroness Kramer (LD)]

My Lords, I pick up the issue of consumer protection that the Minister mentioned, as well as a number of other speakers. Does he recognise that the consumer duty, as it is currently fashioned by the FCA, definitely has cost for businesses—it is very box-ticking? But what it does, which very much pleases businesses, is to deny individuals who have been injured a right of private action. It is that right which allowed the sub-postmasters to challenge the abuse that they suffered. That is not available to people within the financial services sector, and quite deliberately so. Without it, essential consumer protection is, to my mind, very much undermined. Will the Minister take a look at that issue?

[Lord Livermore (Lab)]

I thank the noble Baroness for her question. She brings out quite eloquently the trade-offs that the regulator has to make across these different protections. I am happy to look at what she says, of course, but I do not believe there are any plans in that respect.

Exports to the European Union

Baroness Kramer Excerpts

Wednesday 20th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I agree with some of my noble friend’s sentiment; I am not entirely sure what the question is. However, it is important to recognise the significance of the EU to our trade. Four of our top five export markets are in the EU, and eight out of the top 10. The EU accounts for nearly 50% of our trade; total trade with EU is worth over £800 billion and 41% of total exports go to the EU.

[Baroness Kramer (LD)]

My Lords, will the Minister confirm that part of our loss of trade to the global world outside the EU has been because, since Brexit, we can no longer guarantee to meet European standards for products, and because going through European supply chains was usually our entry point to meet final clients for independent exports? Both those routes have now been damaged.

[Lord Livermore (Lab)]

As so often on this topic, I agree with the noble Baroness. According to the Resolution Foundation, the previous Government’s Brexit deal imposed new trade barriers on business equivalent to a 13% increase in tariffs for manufacturing and a 20% increase for services. Reducing those trade barriers is a key priority for our European reset.

Autumn Budget 2024

Baroness Kramer Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, let me begin by congratulating the noble Lord, Lord Booth-Smith, on his maiden speech in which I think he warned us to be alert for the unknown unknowns. We should take note of that, and I hope to pick it up later in my speech. I also have to apologise to the House: this has been a brilliant, incredibly varied debate, so this will be a very limited summation on my part.

I do not dispute the tough situation faced by the new Labour Government. Noble Lords heard that same tone and concern from these Benches, and it was very much picked up on the Labour Benches. I noted that the noble Lords, Lord Hannett and Lord Bach, and many others raised that issue. Public services are, frankly, in a dire state, both through the lack of funding and the lack of meaningful reform, as we heard from the noble Lord, Lord Murphy of Torfaen, and quite a variety of speakers on both sides of the House. We also heard discussion of an economy that has been, at best, stagnant for years. I too, like the noble Baroness, Lady Wheatcroft, commend the speech of the noble Baroness, Lady Moyo, who grasped a very difficult nettle and expressed it well for the House as a whole. There have been dismal levels of investment, persistently low productivity, as the noble Baroness, Lady Neville-Rolfe picked up and elaborated on, and workforce and skill shortages, as the noble Lords, Lord Fox, Lord Liddle, Lord Monks, and others addressed.

I noticed that, when speakers on the Conservative Benches talked about economic hard times, they were keen to focus on the impact of Covid and the consequences of the Russian invasion of Ukraine, but they were remarkably silent on the impact of Brexit—the hardest blow, the deepest scar and the most persistent to our economy. I say that to the noble Lord, Lord Johnson, and the noble Baroness, Lady Lea, who both addressed those issues and carefully ignored the B-word. This House will not be fooled by that omission.

I recognise that we have to move on from the past. My party recognised in its manifesto—I am picking up the words of my noble friend Lord Razzall—that taxes would have to be raised in the circumstances that we face, but we chose a different taxation approach to that chosen by the Government. I think the noble Lord, Lord Young, also proposed a different range of taxes. Let me repeat that we were looking at the oil and gas companies, the banks, social media companies, online banking companies, share buybacks and reform of capital gains. Let me suggest to the Government that they look very closely at the package that we proposed. It comes to some £7 billion to £10 billion per year. I suggest they might want to use it not to increase the overall tax take but to allow them to remove elements of the tax rises they have announced that, on reflection, they find are perverse or are hitting groups unable to cope. I will elaborate a little.

We have become, in many ways, the voice of the social care sector. I know others have long been engaged, but that is the way it is breaking today. We welcome in the Budget the increase in the earnings threshold for those on carer’s allowance, as did many others throughout the debate, but we, like many others, are utterly dismayed that the Budget had so little to offer—some £600 million—for social care services, some of which are very precarious. I join others—I think this was mentioned by the noble Lord, Lord Empey, by my noble friends Lord Fox, Lady Tyler and Lord Shipley, and on the Labour Benches by the noble Lord, Lord Whitty, and the noble Baroness, Lady Lister—who called for the Government at the very least to give this sector an exemption from the increase in employers’ NICs to remove the precarious situation in which it sits and to recognise that GPs need the same exemption just to meet the need for appointments. That group should be treated like the public part of the public sector of the NHS. We in this House widely recognise that without a major step change in social care and primary care, much of the money going into the NHS will simply be swallowed up.

My party has also found itself, in the most extraordinary way, becoming the voice of small business. Micro businesses receive some protection from tax increases through the higher employment allowance, but the increase in employers’ NICs and especially the lower starting threshold directly worsen one of the UK’s major economic problems: the failure of firms to scale up from micro. We are very good at starting businesses, but they fail to scale up to small and medium. This new tax burden is simply going to make that problem worse. Will the Government look again? Upscaling is vital to achieve growth.

I want to put in a particular plea for the 700,000 working people who are contractors working through umbrella companies and who pay their own employers’ NICs. Very few will be in a position to renegotiate their contracts to cover the increased cost. The noble Earl, Lord Clancarty, talked about the creative industries in this context. The noble Lords, Lord Bilimoria, Lord Londesborough and Lord Howell, addressed the issues of small firms, and we ask the Government to look again.

I think more people in this debate spoke on the future of family farms than on any other issue. We join in those deep concerns that many families will be forced to sell. Those families are the backbone of our rural communities and our agriculture industry. The noble Earl, Lord Devon, made a tour de force speech in describing the issue, and he was joined by many others including the noble Lords, Lord de Clifford, Lord Berkeley of Knighton, Lord Shinkwin and Lord Empey, the noble Duke, the Duke of Wellington, my noble friend Lady Humphreys, who spoke clearly from these Benches about the problem in Wales, and the right reverend Prelate the Bishop of Newcastle. They were the kind of speeches that we have to ask the Government to take notice of. Again, let us remember that our party has offered a different tax route that could enable the Government to have the flexibility to make a change.

Only the noble Lord, Lord Oates, mentioned the 50% rise in the cap on bus fares for many young and minimum-wage workers. This could be extraordinary; it could cost them £500 a year. I will not have another discussion on the winter fuel allowance. It was a mistake; I have said it before and I will not go through it again. But my party also believes very strongly that independent schools should not face VAT; education is an investment in our future. I join the noble Lord, Lord Lexden, in the comments that he made.

Somebody talked extensively about business rate reform, but I forgot to note whom. It should have gone much further than just the sticking plasters in this Budget, and even the sticking plasters exclude many types of small businesses.

On our Benches, my noble friend Lord Fox expressed great support for the industrial strategy, except to say that the question is: how do you deliver it? We will be watching that.

Many people also addressed the change in the fiscal rules. I want to say something to the noble Lord, Lord Lamont. He is possibly one of the most literate in economics and finance in our House, but he did not seem to grasp that the new fiscal rule deals with net financial liabilities. A new hospital building, or a new school, does not fall into that set of definitions; it is investments that yield a financial return. I feel that I am coming to the rescue of the Government on this one. We seem to have extraordinary confusion.

I will say to the Government, as I have said it before, that it will be important to see how those guardrails work. There is an extraordinary capacity for additional borrowing that I suspect the Government will not take advantage of if they use their guardrails properly, but we will have to observe those guardrails and make sure. This is not an issue raised just by my party. It was raised also by the noble Lords, Lord Burns, Lord O’Neill, Lord Young, Lord Altrincham, Lord Monks and Lord Empey—my apologies, some of those remarks were on skills, but a whole range of people discussed that set of issues.

The Government have tied their colours to the mast and will be judged on improvements in public services, especially the NHS, and growing the economy. I want to finish by going back to the point raised by the noble Lord, Lord Booth-Smith, about the unknown unknowns. We are in very turbulent times, and global events matter. If we find ourselves facing a protectionist trade war, the shock will hit UK growth by more than 0.5% each year. If the US abandons Ukraine, leaving the Baltics and Poland exposed to Putin, or if Taiwan is seized by China, the consequences will more than reverberate here. They will affect everything in our lives, including the economy.

US disengagement from countering climate change would destabilise the world, not only immediately in the economy but in driving many new waves of migration. I join the noble Lord, Lord Razzall, and others in saying that this is the time to build alliances with those with whom we have common cause. That means getting closer to Europe far more rapidly than the Government have previously anticipated. We need to rebuild our economic ties to the EU and remove the trade barriers raised by the Tories; it is an obvious route. It was an issue raised by others, but I want to stress it from these Benches: this is an issue that has gone from a nice-to-have to urgent.

United Kingdom Declining Birth Rate

Baroness Kramer Excerpts

Wednesday 6th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am afraid I cannot agree with my noble friend on that, but I agree with him that alleviating poverty should be central to the Government’s objectives. Clearly, work is one of the best routes out of poverty. Equalising women’s participation rates in the economy with those of men would add 1.3 million economically active people into the workforce, which is why helping women back into work is central to the Government’s goals.

[Baroness Kramer (LD)]

My Lords, our demographic profile lies at the heart of this Question. I quote from the ONS, which said that

“the population is projected to age twice as quickly under zero migration than under a high migration scenario”.

Facing our dependency ratio, which is worsening by the year, should we not be resetting the conversation on immigration to recognise the role that it plays both in prosperity and in the provision of public services? Does the Minister share my fear that we are ceding this issue to a right wing that has decided that raising resentment and scapegoating is a glide path to power?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I agree with much of the sentiment that sits behind it. The Government recognise and value the contribution that legal migration makes to our country. We will continue to strike a balance between ensuring that we have access to the skills that we need while encouraging businesses to invest in the domestic workforce.