Crown Estate Bill [HL]

Baroness Kramer Excerpts

Committee stage
Monday 14th October 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, my noble friend Lady Humphreys spoke not just for the Welsh Liberal Democrats but for all of us on these Benches. At Second Reading I, among others, raised the significance of devolution to Wales and asked that this should come as rapidly as possible, for a variety of reasons which have been discussed today. I do not want to repeat arguments but there are a couple of points I will pick up.

First, I say to the noble Lord, Lord Macpherson, that this nonsense that the money for the monarchy is then translated into a percentage of the profits that come from the Crown Estate is idiosyncratic and should stop right now. These are two entirely different sets of decisions, and we should separate them. I hope the Government will at some point in the process of the Bill deal with that particular nonsense—if not, if they could deal with it in the Budget that would be extremely helpful.

Secondly, the Crown Estate of the past is not the Crown Estate of the future. In the past we have had a body that has been focused on property management, very gradually getting into economic growth, levelling up and sustainability; now, the borrowing powers envisaged make for a complete step-change in that area. Not having the proper authority resting with the Welsh Government that devolution would provide therefore becomes far more egregious than it has been historically. The time has definitely come to recognise that, with this Bill, we are changing in many ways the character of the Crown Estate and its level of activity. It is time, therefore, to make the appropriate step and ensure that Wales and the Welsh voice are properly reflected through the Welsh Government’s control of the Crown Estate in Wales.

Thirdly, my last point is one that was reflected in the speech of the noble Lord, Lord Hain, and somewhat in the speech of the noble and learned Lord, Lord Thomas. The argument has always been put that, if we split off the Crown Estate in Wales, we are building in an inefficiency, particularly within the energy sector: we would have another player; it would be more complicated; and the management would be somewhat split.

It made me interested to take a look at the Crown Estate in Scotland. The Committee will be aware from various speeches that the assets controlled by the Crown Estate in both England and Wales are in the arena of £15 billion—it is a huge asset bloc. In Scotland, the bloc is far smaller. I looked at the last annual report and found that it is about £650 million in assets. I would guess that Wales is not that much smaller. In other words, we know that Scotland is functioning well—I hear no complaints from voices in Scotland about the way that the Crown Estate is working under the auspices of the Scottish Government—and so I see no reason why there would be necessary inefficiencies by splitting off a similarly sized set of assets to be governed by the Welsh Government.

Building collaboration is obviously the answer. To pick up the point the noble and learned Lord, Lord Thomas, made, collaboration and co-operation is the language that this Government are continually using and the approach that my party supports. It underpins a sense of democracy and fair dealing, which is very important in modern-day politics. I hope that the Government will look again at this and, if they cannot make changes in this specific Bill, promise that those changes are coming, and coming soon.

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[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend and agree with many of his comments, and to give more than a nod to the amendments in the name of my noble friend Baroness Vere of Norbiton.

I rise to speak to Amendment 20 in my name. The Crown Estate has a unique position in our society, our economy, across many of our communities and right around our shoreline. This position will only be increased and enhanced through many of the measures set out in this Bill, not least the yet to be discovered tie-up with GB Energy. To this end, my Amendment 20 seeks to put in statute the principle of additionality for all spending decisions of the Crown Estate. It seems sound that, given the potential not least of offshore wind, the activities of the Crown Estate cannot at any point be seen to be crowding out other private funds. An additionality principle which seeks to apply measures on crowding out and ensure crowding in, and a report to that effect, would be not just a principle of additionality but a good addition to this Bill. I look forward to the Minister’s comments.

[Baroness Kramer (LD)]

My Lords, I want to pick up the point made by the noble Lord, Lord Holmes. That would be an attractive proposition if we were dealing with a “have regard”, but asking the Crown Estate to go through an extensive exercise to find out what every competitor wants to invest in would be far too challenging. However, as an underlying principle, through a “have regard”, that might be a workable way to address that issue.

I want to come back to the body of the amendments. I was fairly hopeful that we would not have to come forward with these amendments because we would have seen the language, or at least the essence of the language, that was going to be in the new framework agreement. The Minister fully accepts that the existing framework agreement completely misses the point and is unfit for purpose when it comes to adding new borrowing powers. For those who have not made the effort to look the current framework, it says that the Crown Estate may not borrow money “on security or otherwise”. There are some small exceptions for day-to-day running and working capital-type things, but that is about it. Then, the framework says that the Crown Estate’s exposure to indirect borrowing through joint ventures—this is the way the Crown Estate, in effect, has borrowed: by creating joint ventures that then go out into the market—will be no more than 40% in one vehicle, and in aggregate should not exceed 10% of the Crown Estate’s net asset value. Something along those lines strikes me as extremely appropriate and would, I think, seem appropriate to most of this House.

I raised ahead of Second Reading, and on Second Reading with the Minister, that we have never seen a business case that argues why additional borrowing or additional funds are necessary. This is an entity that is sitting on some £2 billion in cash—why is this necessary? I do not think we are opposed to this, but if we are going to approve it, it makes sense to see the thought process behind it. The Minister was quite hopeful: he said that he was happy now to commit to publishing a version of the business plan, approved by the last Government, which removes any commercially sensitive information. That was a really satisfactory step, but we have not seen it. I suppose I am slightly surprised that it is been so difficult to just black out the commercially sensitive bits, and I wonder when we are going to see it.

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[Lord Livermore (Lab)]

My Lords, I am grateful for the contributions from all noble Lords on this group of amendments. I recognise that the issue of controls on borrowing is an important consideration, and I hope to offer some reassurance. I agree with very many of the points raised during this debate, in particular that controls on borrowing by the Crown Estate must be in place. I assure noble Lords that such controls will be set out in the memorandum of understanding that will be in place between the Crown Estate and the Treasury, and will be set at a loan to value ratio not to exceed 25%.

[Baroness Kramer (LD)]

Is the Minister saying that it will be an MoU rather than a framework agreement, or are they the same thing by another name?

[Lord Livermore (Lab)]

They are the same thing by another name.

By way of background, as the noble Baroness, Lady Vere of Norbiton, said, the Bill we are considering was conceived under the previous Government, and it was continued by this Government as we share the same objective to increase the Crown Estate’s ability to compete and to invest. The default starting position I inherited was that the memorandum of understanding between the Crown Estate and the Treasury could contain commercially sensitive information and would therefore not be published.

I listened carefully to views expressed by many noble Lords at Second Reading that it should in fact be published. The noble Baroness, Lady Kramer, spoke particularly persuasively on this issue, and I gave her the commitment at Second Reading that it would be published in draft before November. I can confirm to noble Lords that it will, as a result, definitely be published before Report. In hindsight, though, I recognise that I could have reversed the position I inherited sooner and that this would have been more helpful to noble Lords considering this group of amendments. I am also grateful for the conversation I had last week with the noble Lord, Lord Howard, which I found informative and persuasive. I thank him for his time. I believe the question is not whether such controls on borrowing should exist but what those controls are and whether they should be set out in statute or in the memorandum of understanding.

I will briefly recap the purpose of this legislation. The Crown Estate is a commercial business, independent from government, that operates for profit and competes in the marketplace for investment opportunities, but to compete effectively, and to invest in order to maximise its returns to the Exchequer, it needs the ability to borrow, as its competitors currently can. That is the purpose of this legislation, and we should consider the controls we wish to place on its ability to borrow in the context of not undermining that objective. It is important to note that any borrowing by the Crown Estate will be for investment in activities that will drive increases in revenues, therefore increasing the returns it provides to the Government.

The Government’s strong intention is for the Crown Estate to borrow at levels that are proportionate to the nature of the business. I must emphasise that the powers proposed by the Bill are both targeted and measured. The Crown Estate will not be permitted to borrow without the consent of the Treasury. This is a strong safeguard and ensures that borrowing by the Crown Estate will not be uncontrolled. Furthermore, as I set out at the beginning of my comments, the memorandum of understanding will set a loan-to-value ratio not to exceed 25%. It will also set out other operating parameters in regard to the Crown Estate’s borrowing ability.

I turn to Amendments 2, 3, 4 and 8 tabled by the noble Baroness, Lady Vere of Norbiton, the noble Lord, Lord Howard, and the noble Earl, Lord Russell. These amendments each seek to cap the level of borrowing out of the National Loans Fund by the Crown Estate in specific ways. Amendment 3 tabled by the noble Baroness, Lady Vere, would restrict borrowing out of the National Loans Fund to no more than 2% of the value of total assets of the Crown Estate. Measuring 2% against Crown Estate assets would currently equate to £354 million. Amendment 2 from the noble Earl, Lord Russell, would limit Crown Estate borrowing out of the National Loans Fund to no more than £150 million, while similarly Amendment 8 tabled by the noble Lord, Lord Howard, would restrict borrowing out of the National Loans Fund to no more than 10% of capital and reserves, which on current figures equates to approximately £1.5 billion. So there is a wide range of views on the specific size of the limit. Based on current asset values, the proposed 25% loan-to-value parameter would equate to approximately £3 billion.

The principal issue here is whether a specific cap should be set out in the Bill. The Government’s considered view is that such a limit should not exist in statute. The purpose of the Bill is to afford the Crown Estate greater flexibility so that it can continue to deliver on its success, support wider national policy objectives and generate maximum returns for the Exchequer. As such, the measures proposed in the Bill are intended to endure without further amendment for many decades to come. For this reason, the Government’s view is that controls on borrowing are best set outside primary legislation, as is the case for some other public bodies with borrowing powers.

The controls on borrowing for the Crown Estate will instead be set out in the underpinning memorandum of understanding agreed with the Treasury, which I have referred to previously. I remind noble Lords that the fundamental duties of the Crown Estate commissioners, and their general duty, will remain to maintain and enhance the value of the estate and the return obtained from it, with due regard to the requirements of good management. Excessive borrowing would not be consistent with this duty.

We should also be mindful of what an appropriate maximum level of debt for an organisation such as the Crown Estate may be. It has an asset base in excess of £15 billion, overwhelmingly in the form of land and property. Included in the Crown Estate’s original business case, which I have also committed to publish before Report, is information on the loan-to-value ratio of the Crown Estate’s peers in the UK real estate sector. At the most conservative end of this scale is the Duchy of Cornwall, with a loan-to-value ratio of 14%. By contrast, a £150 million limit on Crown Estate borrowing would equate to a loan-to-value ratio of less than 1%.

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[Baroness Humphreys (LD)]

I shall make a short contribution in agreement with Amendment 22 in the name of the noble Baroness, Lady Smith of Llanfaes, and Amendment 24 in the name of the noble Lord, Lord Wigley.

When I was preparing for this debate, I looked at some figures, but they are very difficult to find. On the first group in Committee, I referred to the fact that we know that the Crown Estate has land worth more than £600 million in Wales, that it owns 65% of the coast and that it has 300,000 acres of land in Wales, but we do not know exactly how much money that raises in Wales. We know that, across England, Wales and Northern Ireland, profits have more than doubled in the past year, growing from £443 million in 2022-23 to £1.1 billion in 2023-24, but there is very little clarity about the contribution of each individual nation to the total. In the interests of transparency, I certainly support Amendment 24. On Amendment 22, I cannot understand why none of the Parliaments of the UK sends a representative to sit on the board of the commission. I support those two amendments.

[Baroness Kramer (LD)]

My Lords, I very much endorse the comments of my noble friend Lady Humphreys. I too believe that this is another opportunity to make sure that there is a far stronger voice for Wales, so let us seize it and use that as a template for how the Crown Estate goes forward.

I wanted to focus more on a couple of other issues. In a sense, I see a linkage between the comments made by my noble friend Lord Russell suggesting that, by forgoing receiving lease income and instead taking an ownership tranche in a whole series of new energy projects, the long-term income to the Crown Estate and to England and Wales would be significantly larger than the much shallower and shorter-term benefit of charging lease rent. That relates to the same kind of issue raised by the noble Lord, Lord Young of Cookham. Please could the Minister sort that problem out? This really is an unfair situation, and it will just take a Minister to absolutely slap his hand on the table and get it done.

In both cases there is a tendency, which I noticed at Second Reading, for Members of this House to think of the Crown Estate as some sort of cuddly organisation. It may be very generous, and if you read its annual report you can see that it does wonderful things for local communities and talks incredibly sympathetically about disadvantaged people, but when it operates as a commercial entity, my goodness, it is one of the most aggressive commercial entities that anyone could run into—and when you say that within the property sector, you are really saying something. It is infected by the same position adopted by many other property companies, which is to go for very short-term profit and to forget about the long term.

Everything that we hear from the Government is about patient capital—and, if you are going to look for the long term, surely you follow the pattern proposed by my noble friend Lord Russell, which says that, over the long term, you will do much better if you take some serious equity positions and perhaps make an in-kind contribution to a project, rather than charging rent over a relatively short-term period. If it acts in the same way as a commercial entity, surely in its commercial activities the Crown Estate should be treated as a commercial entity and therefore have to live up to the law that applies to other commercial entities operating in that same sector, and not to have an out because of its peculiar status, sitting somewhere between public and private. If that were done, the noble Lord, Lord Young, would not be asking why on earth it was not living up to the terms of the law for other commercial entities in dealing with leaseholders and freehold. It has to be recognised for what it is, and there are changes, consequently, that the Government may wish to make—first to create long-term thinking but also to make sure that, when it operates on a commercial basis, it is subject to the same regulations and requirements as other similar commercial properties.

I want to address very briefly the issues raised by the noble Baroness, Lady Vere. It is wonderful the change that comes when a body moves into opposition —the road to Damascus. The number of times I have asked a Conservative Government: when we have appointments, could we please have pre-appointment scrutiny by a committee of this House? In fact, I may even have requested them of the noble Baroness, Lady Vere, concerning various appointments at the Treasury—I cannot quite remember, there have been so many over the years. I am so glad of this Damascene conversion. We now have a Conservative party that is also supporting pre-appointment scrutiny. I do believe that pre-appointment scrutiny was often the Labour Party position. The noble Lord, Lord Livermore, is shaking his head but I think I may have a longer memory. I have certainly heard it from other Members, both on the Treasury Select Committee when I was in the other House, and on the Economic Affairs Committee. Pre-appointment scrutiny does make sense as a general underlying principle, and it would seem to make sense for the four new commissioners that are to be added to the existing eight.

Like others, I am really curious to know: going from eight to 12, they say, is good practice, but why? What will they do? Where will they come from? I can perfectly well see that this is a great opportunity for regional representation, and the noble Lord, Lord Holmes, touched on a very important point: we now look at most boards and want to see clearly that they understand that the ethics and attitudes of today require inclusivity; that it is not just some token item somewhere in an ethics statement by the company, but that someone is actually taking responsibility, based on knowledge, at a very senior level within the decision-making structure, and implementing that role. Here is an opportunity to seize that, and I hope very much that the Government will do so.

[Lord Livermore (Lab)]

My Lords, I thank the noble Baronesses, Lady Vere and Lady Smith, the noble Lords, Lord Young, Lord Holmes and Lord Wigley, and the noble Earl, Lord Russell, for raising these very important issues concerning the governance and management of the Crown Estate. I should emphasise again that the intention of the Bill is to afford the Crown Estate greater flexibility to ensure that it can successfully compete in commercial markets to deliver maximum benefits for the nation.

The noble Baronesses, Lady Vere, Lady Smith and Lady Kramer, asked about the number of commissioners. This change reflects the growing diversity of the Crown Estate’s business and will ensure that the Crown Estate can meet best practice standards for modern corporate governance. This will help to broaden the diversity of the board and provide more breadth of expertise and capacity to enable the commissioners to operate more effectively in the constantly evolving business environment. The Bill provides for a maximum number of 12 commissioners, up from eight at present. However, within this limit, the exact number of commissioners serving at any one time will be in the light of advice from the Crown Estate’s board on where it considers additional board-level expertise would be beneficial to the business.

I will start by addressing the issue of the appointment of commissioners to the Crown Estate’s board, reflecting on Amendments 12 and 22, tabled by the noble Baronesses, Lady Vere and Lady Smith. Amendment 12, tabled by the noble Baroness, Lady Vere, would require scrutiny by the Treasury Select Committee or any successor committee of all future proposed commissioner appointments, including the chair, before any appointment can be made. Let me first emphasise that all Crown Estate commissioner appointments are governed by the Governance Code on Public Appointments. The code is clear that commissioners must be selected based on expertise and experience.

As I have previously set out, the Crown Estate operates independently of the King and of government. Affording Parliament the opportunity to scrutinise potential appointments before they are made would significantly alter the appointments process, in a way that would change the relationship between the Crown Estate, government and Parliament. The Cabinet Office’s existing guidance on pre-appointment scrutiny is clear that it should apply only where posts play a key role in the regulation of actions by the Government, protecting and safeguarding the public’s rights and interests in relation to decisions and actions of the Government, or roles where organisations have a direct major impact on public life. It is the Government’s view, as it was of the previous Government, that the Crown Estate’s commissioner posts do not fit these criteria and that it would therefore be inappropriate to require pre-appointment scrutiny.

It should also be noted that pre-appointment scrutiny of roles elsewhere in public life is limited largely to the role of chairs. Therefore, even if the Cabinet Office’s criteria were satisfied, it would be disproportionate and unusual for all commissioner appointments to be subject to such scrutiny. In addition, requiring pre-appointment scrutiny for non-executive commissioner posts, which are not high profile or public facing, may deter some candidates from applying. As I have set out, this would be inconsistent with existing pre-scrutiny arrangements, which are generally restricted to chair positions. Consequently, this might put at risk securing candidates of the necessary quality and calibre to the board and present a more fundamental risk to the overall management of the Crown Estate.

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[Earl Russell (LD)]

My Lords, I rise to speak to my Amendments 29 and 30 in this group. I thank the noble Lord, Lord Teverson, for the powerful points he has made, particularly around our 2030 commitment, and I have co-signed his Amendment 28. I also thank the noble Baronesses, Lady Hayman and Lady Young of Old Scone; I very much support Amendment 25 and nearly all the amendments in this group. Adding environmental protections to the Bill is a key element of our work.

My Amendment 29 would require the commissioners to carry out their duties under subsection (3) with regard to sustainable development, economic development, regeneration, social well-being and environmental well-being. We welcome the plans to update the borrowing and investment powers of the Crown Estate, but we strongly feel that new and greater roles should come with updated responsibilities. The Crown Estate sits in a unique space and position. The land assets are owned by the Crown and managed by the Crown Estate and its commissioners, and they are mandated by Parliament to deliver a profit for the Treasury. The Crown Estate, in effect, floats in a unique position: it manages its land holding and assets, which really belong to the nation, but it is managed as a sub-department of the Treasury, away from much parliamentary scrutiny.

The year 1961 was a long time ago; we lived in a very different world then, as has been said. Our understanding of the environment and the need for nature protection was far less developed, as was any sense of facing an acute environmental and nature crisis. The Bill, as the Government have drafted it, is far too narrow; that is why all these amendments have been tabled. I understand the need for expediency and for the Government to put in the two clauses to amend the borrowing powers so that we can get on with GB Energy. That is all fine, but you cannot revisit a 1961 Act and expect to solely put in two clauses without updating all the other aspects of life and the world that have developed since.

My Amendment 29 shamelessly and purposely copies the text from the Scottish Crown Estate Act 2019, as I believe that these provisions are a useful precedent in our deliberation of these matters here today. When the Scottish Parliament considered many of the exact same matters that we are looking at, its conclusion was that these updated powers were useful, necessary and a helpful update to the powers contained in the original Crown Estate Act 1961. Further, they were agreed and enacted by that Parliament, and have been in force for over five years now. Unless the Minister wants to contradict me, my understanding is that, since they were passed, these new powers have not had any undue impacts on the ability of the Scottish Crown Estate to conduct its business free of undue regulation or burden. The devolution question has already been discussed, but my thinking in tabling this amendment was that I felt, in updating responsibilities, that there was value in seeking to ensure the same duties and responsibilities applied to all the devolved aspects of the Crown Estate’s land in Great Britain, and I felt that this was useful for the Crown Estate’s ability to operate and not be burdensome.

My Amendment 30 places a nature recovery duty on the Crown Estate. The amendment defines a nature recovery duty as including

“taking steps to … embed nature into spatial planning and seabed leasing … allocate space for nature recovery in all projects, and … invest in clean energy projects”.

I thank the Wildlife and Countryside Link for its briefing on the Bill, and its recommendation that this amendment should be included. I recognise and support the critical role that the Crown Estate has in the delivery of offshore wind generation and the role that the Bill has to enhance this going forward, but we really need to decarbonise our power generation, fight climate change and protect nature. However, in updating the 1961 Act, the Bill represents a missed opportunity to ensure that the Crown Estate also has a requirement to support the Government’s obligations towards achieving the nature targets under the Environment Act 2021.

All public bodies in the UK are presently not required to consider the environmental costs and benefits of their decisions and investments, as there is no statutory requirement for them to do so. I support the Private Member’s Bill from the noble Lord, Lord Krebs, and will speak when we debate it on Friday; if it is passed, we will not have to amend every Bill one at a time as there will be a cross-cutting duty, so I encourage the Government to look at that Private Member’s Bill and support it.

This duty is particularly important to the Crown Estate due to the very large area of its land and sea holdings and the fact that many of its sites are extremely ecologically sensitive. It is worth reiterating that the Crown Estate has 200,000 acres of land, 12,000 kilometres of coastline and a total seabed area bigger than the combined landmass of England, Wales and Northern Ireland. The Crown Estate owns more land than the entire landmass of Luxembourg and is the third-largest landowner in the UK. The land under the Crown Estate is vast, diverse and of high ecological importance.

The marine land, and the seabed in particular, are important as blue carbon stores, as we heard from the noble Lord, Lord Teverson. Equally important are the foreshore, coastline and many other precious ecological sites. I want to publicly recognise that the Crown Estate has existing governance structures and strong policy objectives in place to try to ensure that environmental impacts are a central consideration in its investment decisions. I also note that the Crown Estate has recently committed to embed nature throughout its policy-making process. It has begun consultation on the specific nature recovery strategy, but I understand that this final document is yet to be released. My amendment is not a criticism of its stewardship role; it is an attempt to support the existing duty but place it on a statutory footing. My amendment supports and builds on the work that the Crown Estate is already doing, which proves to me that the preparatory work is already being done to ensure that this amendment would work in practice.

I feel it is essential that this work is given a statutory basis, and that is exactly what my amendment seeks to do. It is essential that the Crown Estate makes an active contribution to meeting environmental nature recovery targets and contributes to climate mitigation and adaption targets. For this to happen, my belief is that a binding target is required.

[Baroness Kramer (LD)]

My Lords, I will just make two very quick comments. First, there has been a clear message to the Minister that, in one way or another, this Committee feels strongly that we should have in statute an expression of the climate change, environmental and nature issues. That should not be seen as a criticism of the Crown Estate as it is today but simply says that this is so important that the Crown Estate should not be given the freedom to change its mind on those issues without the intervention of Parliament.

I do not want to put the Minister on the spot, but my second brief issue concerns a previous answer, when there may have been some confusion between the memorandum of understanding and the framework agreement. I do not ask him to do this now, but could he go back and look at those two rather different things, as we need to approach them both differently? That would be exceedingly helpful, but I do not want to put him on the spot at this moment.

[Baroness Vere of Norbiton (Con)]

My Lords, I will speak briefly to this group on the objectives and duties of the Crown Estate. Many of the amendments relate to climate change and nature, and many noble Lords have spoken who are much more knowledgeable about these topics than I am, so I do not propose to add further to those points. As set out in today’s list, one must follow the rules, but I look forward to hearing the thoughts of the Minister on that.

My Amendments 37A to 37C look at another important aspect of potential disruption caused by investments by the Crown Estate, which is to local economies and national economies when it comes to shipping. I am looking to the Minister to reassure me and your Lordships’ House that very important local and national economic activities are considered appropriately by the Crown Estate, and that it does not look at what it does in a narrow and short-term way but thinks about making the cake bigger for everybody over the longer term.

The noble Lord, Lord Berkeley, made several points about the impact on commercial fishing: it should be quantified, consulted on and mitigated where possible, and I say the same for commercial shipping. Some 90% of our goods arrive by sea, and ports are often quite specialised in the goods they handle. Sadly, you cannot move a port, so you have to be quite careful not to obstruct well-established shipping lanes and ensure that the proximity of offshore developments does not cause excessive risk to vessels, particular larger vessels, were they ever to get into trouble. Comments on that would be greatly appreciated.

I did not put down an amendment on this, but it is strongly related. Where ports want to expand and they are surrounded by Crown Estate land, the balance of power is sometimes a little one sided. I would like some reassurance that the Crown Estate will act not only in its self-interest for short-term gain but will think about the longer term and growing the pie for the whole economy and the Crown Estate within that. I do not propose to add anything further at this point, and I look forward to hearing the views of the Minister.

UK Economy: Capital Gains Tax

Baroness Kramer Excerpts

Wednesday 9th October 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for reminding the House of that fact. Members of the party opposite appear to have forgotten who was in power for the past 14 years. They appear to have forgotten who created the mess that this Government now need to clear up. They appear to have forgotten who created the £22 billion black hole in the public finances in the first place. They appear to have forgotten about the £6 billion overspend on the asylum system, the £3 billion of uncosted commitments on road and rail projects, and the fact that they overspent the reserve three times over just three months into the financial year.

[Baroness Kramer (LD)]

My Lords, during the Conservative years, capital gains tax was held in the mid range of developed economies, but having an attractive rate, frankly, did nothing to stimulate either business investment or productivity growth. Could the Minister assure us that any increase in capital gains tax will be in the context of a credible and powerful strategy for economic growth, including both an industrial strategy and an ambitious plan for infrastructure?

[Lord Livermore (Lab)]

Obviously, I am happy to confirm that growth is our number one priority. That is exactly what the forthcoming Budget will be about: fixing the foundations of our economy so we can deliver on our mandate for better public services and higher living standards. Investment is absolutely crucial to that, which is why we are committed to removing the barriers to private investment and also to measures such as the industrial strategy that the noble Baroness mentions.

Budget Responsibility Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am pleased to welcome the Bill. My colleagues in 2010 were very closely involved in the creation of the OBR in order to provide an independent analysis of the UK economy free from party politics. The noble Lord, Lord Macpherson, talked about the importance of the absence of political bias, and I think the noble Lord, Lord Murphy of Torfaen, echoed that same set of thoughts. We on these Benches believe that the OBR serves Parliament and the nation well.

A report from the OBR is not an examination judgment such as a “Good”, “Outstanding” or “Failing” from Ofsted. It is an analysis with which one can agree or disagree, but it enables policy and decisions to be made with deeper insight and challenged with greater insight. Obviously, forecasts must be part of that or the analysis is near meaningless.

Many noble Lords speaking today have suggested that there need to be further reforms, whether it is of fiscal rules, accounting rules or methodologies, and all that is worth looking at. We heard from the noble Lords, Lord Eatwell, Lord Altrincham, Lord Sikka and Lord Liddle, and the noble Baronesses, Lady Noakes, Lady Wheatcroft and Lady Lawlor. I have to say that I have a particular sympathy with the noble Lord, Lord Liddle, but it was also suggested by someone else—the name has escaped me—who challenged the current arrangement whereby the Treasury lays down the future spending plans that will be part of the OBR’s forecast. I would see much more scope for challenge there.

None of this is perfect, but to me it seems important that the OBR’s view does not dictate what policy or decisions will be. I say to the noble Viscount, Lord Trenchard, and the noble Lords, Lord Moylan and Lord Sikka, and the noble Baroness, Lady Bennett, who came at this issue from many different angles, that any politician or Chancellor with some backbone can accept or reject the conclusions that will come from the OBR, but presumably they will then have to explain in some detail why, and that process of challenge is crucially important.

A modern economy and a modern Government are so complex that, frankly, except for a small handful of institutions that have very extensive resources, it is extremely difficult to try to understand the primary elements of economic performance. It is really like trying to unravel a bowl of spaghetti if you come at it with the kind of tools, for example, that I would or many of my colleagues would have. But it is not just those outside of government that can use the OBR analysis; it is also data either to agree with or to challenge. I know from my very brief period inside government that the OBR view at least does something to check some of the groupthink that almost inevitably grows up inside government and which is a constant risk. Here is one of the opportunities to challenge that groupthink.

Frankly, I was stunned in 2022 when the then Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng suddenly announced a mini-Budget with the biggest tax cuts in 50 years and soaring borrowing with no OBR analysis or economic forecast attached. The Bank of England, which also had no advance warning, had to step in to prevent financial meltdown as the markets went into shock, both from the content of the mini-Budget but also from the manner of its doing. I will not dwell on the consequences, because, as I think the noble Lord, Lord Liddle, said, the country gave its verdict at the last election, except to say that to this day ordinary people are still hurting, and hurting badly, from the consequences of that Budget and the manner of its introduction.

Why did the Truss Government turn their back on the OBR? They could easily have requested a draft forecast, and indeed one was offered by the OBR. I think it was because we had a series of Tory Governments which found economic truth at best “inconvenient”, and especially the consequences of Brexit—I heard that in some of the speeches today—and the permanent scarring of the economy that followed. Ministers would talk about the 2008 financial crash, Covid and the energy crisis arising from the Russian invasion of Ukraine. However, from on high or through self-denying ordinance, the B-word was banned, despite being far more damaging and a far more permanent blow. We heard speech after speech, month after month and year after year, in which there was omertà on that particular set of issues. As far as I can see, the OBR has never hesitated to name both the problem and the causes of a problem and to lay out its rationale. It can be challenged, but it has not flinched.

I very much hope that this new Government would never behave in the same way as Liz Truss—or any other Government, quite frankly; I hope that lessons have been learned. But the problem is that the horse has bolted. Financial markets will always suspect that a British Government are capable of the arrogance, self-interest and ideology to produce sweeping fiscal policy without any kind of unbiased or objective analysis—I think the noble Viscount, Lord Chandos, made that point. That indeed is the value of this piece of legislation.

This is a money Bill, so I cannot propose amendments. Were it not so, it would indeed be nice to be able to go through a process of probing amendments at the very least to try to understand more about some of the terminology, to understand what a “fiscally significant” event is and more about the issues of “temporary” and “emergency”. The noble Lord, Lord Davies of Brixton, raised similar points on trying to get greater clarity on this issue. I join others—I think the noble Lord, Lord Liddle, was the last to mention this—on wanting to understand how change can happen through the Charter for Budget Responsibility. We are going to be notified 28 days in advance, but I would love to have seen, at least from a Minister, some commitment to bring such issues to the Floor of the House for debate, which is where they belong—and remember that the Charter for Budget Responsibility was set up under the umbrella of primary legislation that started in this House. However, we are where we are, and when it comes indeed to the heart of the issue, do we support the Bill or do we not? We do.

Crown Estate Bill [HL]

Baroness Kramer Excerpts

2nd reading
Monday 2nd September 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, that was an innovative speech at the end of a long day—so thank you to the noble Lord, Lord Rooker. I thank the Minister and officials for the engagement with me and others last week, which was exceedingly useful.

The Crown Estates, as we have heard very clearly today, are a unique animal sponsored by Treasury; they are completely operationally independent, sitting between the public and private realm, undertaking a vast range of activities in pursuit of a set of objectives which, as the noble Earl, Lord Devon, said, are essentially very benign. In that context, like the noble Lord, Lord Liddle, after my first brief glance at the Bill I thought that it was rather insignificant. It was only on a second look that I realised that this represents a very consequential expansion of the powers of the Crown Estate, first to run down its very extensive cash reserves and then to move into borrowing. In principle, we as a party have no objection to that expansion, given the stated beneficial objectives that the Crown Estate has, including sustainable growth, zero carbon, energy security and community development. But today we have heard a very wide range of issues raised, and those issues need to be addressed.

Much of the debate today focused on issues ranging across the environment and I thank my noble friends Lord Russell and Lord Teverson for speaking from my party’s perspective, which means that I do not have to repeat all that. But so many others spoke today, including the noble Baroness, Lady Hayman, speaking for Peers for the Planet, the noble Baronesses, Lady Young of Scone and Lady Bennett, the noble Lord, Lord Liddle, and the noble Baroness, Lady Ritchie. There was a whole series of speeches that underscored that, within this scope, there is a great deal of tension between the development of renewable energy and new opportunities for energy, the natural world and biodiversity and regional issues. There is a great deal of choice and issue based on the expanded role that the Crown Estates see themselves playing.

What I do not understand—and I speak now with more of a Treasury and business hat on—is why there is no business case to accompany this request for such a large expansion of power and investment capacity, as well as borrowing capacity. Should it go wrong, you can be quite sure that the borrowing will have consequences in restricting other activities that the Crown Estates actually carry out, or falling back on the public purse either directly or indirectly through the National Loans Fund. Why is no business case sitting behind this to provide us with detail, direction and explanation and tease out and answer some of those very obvious tensions? It is bad practice. I say that to the Minister because that message has to go back to the Crown Estates and sit in the back of the minds of government as they go forward over the next several years and bring issues like this forward to us.

As I say, when I looked at the Bill, I decided that the best thing to do was to focus on the nitty-gritty within it. My heart went out to the noble Lord, Lord Young of Cookham, in dealing with the issues of freehold negotiation with the Crown Estate—the noble Earl, Lord Devon, raised some of those issues in a very extended context. Frankly, this is an aggressive commercial organisation. Over the years, I have dealt with many people who have held leases from the Crown Estate as freeholders, and they are extremely difficult and complex negotiations. That there seems to be no accountability and that aspects of the law do not necessarily apply are among the issues that have to be addressed as we offer the Crown Estate a much more expanded role and much more expanded powers.

I want also to pick up the issue raised by the noble Lord, Lord Liddle—or maybe it was the noble Lord, Lord Berkeley—that with this expanded range of powers, adding four seats to the board creates a real opportunity to bring in some additional resource and expertise, but again, we do not have a discussion of that. What kind of expertise is it? What are they looking to use those additional roles for? What kind of additional capacity is it? Once again, I think this is bad practice and it should come before the House.

On the sovereign grant, raised initially by the noble Lord, Lord Turnbull, but picked up by others, I have to say that it is not an area of expertise of mine, but it certainly seems to be an opportunity to separate out a real idiosyncrasy and to recognise the Crown Estate in the new, modern role it is going to play rather than trying to run a sort of pretence that it is some sort of self-funding operation for the monarch.

When I looked at the business case—and we are talking about an operation that has over £1 billion in revenues, £14 billion in property and £15 billion in total assets, so it has enormous capacity to do such things as develop a business case and look into the future—I could pick up almost nothing from the existing annual report. Nowhere in that annual report did there seem to be to be a sense of, “We wish to do this, but we can’t”, or “We need additional resource to achieve this, but it isn’t there”. We must have this additional information fed back.

As noble Lords will gather from looking at the Bill and the notes attached to it, the Crown Estate framework agreement between the Crown Estate and the Treasury sits outside the Bill but actually governs the capacity at present for the Crown Estate to raise funds and to spend. I think that even the Treasury would admit—in fact, I know it would—that the framework agreement as it sits today is not fit for purpose. It is written from the perspective that the Crown Estate is not permitted to borrow, so it provides it with a workaround that, in essence, lets it borrow indirectly by creating vehicles with various partners, typically in the private sector. Through those joint ventures it is, in effect, at present able to borrow, and the amount that it can borrow is limited, both by vehicle and in aggregate, under Clause 22. As we provide the additional powers, Clause 22 becomes completely irrelevant. My question to the Minister is: where is the revised framework agreement? If we are saying that it is urgent that these powers are passed, it is therefore surely urgent that we have the framework agreement in hand, and if not the finalised framework agreement, then surely at least a draft version of either the framework agreement or an MoU between the Crown Estate and the Treasury on what this will look like. As many people have said, we cannot allow this to be a body that has completely unlimited borrowing powers, unconstrained by shareholders or by other kinds of clauses or constraints, or unconstrained by bank agreements. We are going to have to have a framework agreement and I really will push the Treasury on this, because I think that, in principle, that kind of work needs to be done in time and brought to Parliament. Parliament should not be asked to sign off powers blind when information can and should be provided.

Almost finally, I want to comment on the Crown Estate in Wales. My party is a very strong believer in devolution of the Crown Estate in Wales to Wales, so that the proceeds are then used for Wales. I am very taken, I must say, by the proposal of my noble friend Lord Teverson for regional wealth funds to be a mechanism to make sure that in regional areas where the Crown Estate is at play in England those funds flow back into the local community, where the Crown Estate will increasingly operate.

We shall not oppose this legislation, but we can see areas where it is weak and where there is weak practice. I hope that the Government will address those issues. The underlying principle of using the Crown Estate and its assets effectively to achieve our goals in renewable energy and in the environment is obviously one that we support.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Kramer Excerpts

2nd reading
Tuesday 30th July 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding speakers, I can repeat all the good points. This has been an exceptionally strong debate. I have welcomed the Minister on previous occasions and I welcome him again to his role. I can very much support this piece of legislation, picking up on the points made by the noble Lord, Lord Macpherson. It seems to me to be one of the first sensible approaches to dealing with the failure of small banks and, I hope, minimising the exposure of the taxpayer. However, I very much pick up the points made by the noble Lord, Lord Eatwell. If this happens on a mass or systemic basis, essentially the taxpayer is always going to be the body in play, and we should not fool ourselves that, in a really mass crisis, the banking sector as a whole will be able to pick up the problems of a large part of banking in the UK. We have to be realistic on this issue.

In fact, I have always thought that it was pretty unrealistic that most small banks could be allowed to fail, with depositors protected only up to £85,000 by the Financial Services Compensation Scheme. Therein lies the potential for a sudden run on many other banks, with flight based on rumour and social media. I suspect that, if the Government or the regulators attempt to allow failure to be a significant part of the programme for dealing with problematic banks, they are going to find once again that they are facing the impossible. Sometimes, we have to be realistic. Often, schemes which look good on paper just do not work out in the practices of real life.

The Treasury and the regulator found this out the hard way when Silicon Valley Bank UK effectively failed thanks to the troubles of its US parent. As others, including the noble Lords, Lord Vaux and Lord Eatwell, have said, SVB had to be saved through its forced sale to HSBC for £1. Perhaps this new, more realistic process could be done with an individual bank. Is that unrealistic? Can the Minister elaborate on this? Could we not just be much more open and say that we are looking for resolution? Failure would then come only in the most extreme and rare of circumstances. Picking up on the point made by my noble friend Lady Bowles, resolution is the path to go down if we are to have a banking system in which the general public at large continue to have real trust.

I want also to pick up the point raised by the noble Lord, Lord Moylan. If there is to be trouble on a large scale and, as a consequence, the FSCS is turning to the banking system as a whole and asking for very large payments, does anybody within this chain have the ability to waive that and just say, “No, this demand is excessive. We are going to ask for a smaller portion from the banking system, or we are simply going to say, ‘This crisis is sufficiently large that we are going to turn to the taxpayer’”? To me, it is not realistic to suggest that, under every circumstance, the FSCS could turn to the banking system and be fully reimbursed. I would be grateful if the Minister enlarged on that. I am glad that he said that credit unions have been exempted from the levy. It would have been entirely improper to include them.

I have some related questions. The Minister knows that I was troubled by the sale of SVB UK. As the noble Lord, Lord Vaux, said, HSBC buying it for £1 was a real giveaway. HSBC played hardball, as it would, so the Government did not have a lot of choice. As the Minister knows—I have raised this before, and he referred to it in his speech—I still regard the terms of that sale as a mechanism which provided HSBC with a route to evading the ring-fencing rules that would normally apply to its retail banking, in order to separate it from investment banking activity.

When I raised this issue in Grand Committee, the Minister of the day was unable to give any kind of satisfactory answer. As far as I could tell, there was nothing to stop HSBC transferring those assets over to its Silicon Valley Bank entity, where it could engage in derivatives and securitisation on any scale it wished. If this final solution is now different, would he mind writing to me? It is probably impossible to answer that question now, but perhaps he would put a letter in the Library that makes it clear why busting the ring-fence was not a consequence of the way that sale was structured. That would be exceedingly helpful. As my noble friend Lady Bowles asked, could we get some assurances that, if the resolution pattern established for Silicon Valley Bank is going to be repeated, there will be measures in place to make sure that it does not become a backdoor to evading ring-fencing constraints? Following the 2008 crash, most of us—both in this House and in the other place—recognise that ring-fencing is a critical part of the defence against a repeat of the kind of crisis we saw back then.

As I say, I have long been sceptical of all schemes to resolve small banks, but, frankly, I am also somewhat sceptical of the plans to resolve large and medium-sized ones—those identified as systemic. As others and the Minister said, large and medium-sized banks are required to hold MREL—basically, bail-in bonds, to put it in English—to protect or provide a route to resolution. But, as the noble Lord, Lord Eatwell, said, when Credit Suisse collapsed in 2023, the Swiss regulators immediately realised that the consequences of implementing its resolution plan would lead to lasting damage to the Swiss economy. Swiss regulators are not fools or softies; they were facing the absolute reality that, with a failure of a bank of that size, they could not allow the backstop of wiping out shareholders or owners of convertible bonds. In effect, they organised a takeover of Credit Suisse by UBS. So does the Minister really expect that our regulators will implement the current bail-in resolution schemes, or will we also find that “too big to fail” still rules the day? It is time to be honest about this—with a new Government, perhaps it is time to look at this again much more directly.

Will the Minister also pick up an issue raised by my noble friend Lady Bowles: MREL and medium-sized banks? As she said, the market for bail-in bonds for medium-sized banks is so small that it is almost non-existent, so the bonds are exceedingly expensive. The consequence is that UK banks are now choosing not to grow from small into big because they see no way to put in place the MREL layer that would be required under current PRA regulations. Even if they did, because of the price they would have to pay for those bail-in bonds, they would face a competitive disadvantage compared to the big banks, which access a much more liquid bail-in regime. Is now not the time to take another look at the medium-sized banks and see whether a better scheme could be devised for their resolution, rather than assuming that MREL will be an adequate way for them to put in place that kind of protection?

I draw the Minister’s attention to the other issues raised by my noble friend Lady Bowles and ask for a full response. We are supportive of the Bill. We will look at it in Committee to see whether any amendments could improve it, but, as I say, this is the first time I have looked at a piece of banking resolution legislation and thought, “Actually, that could work in practice, not just on paper”.

Public Spending: Inheritance

Baroness Kramer Excerpts

Tuesday 30th July 2024 Lords Chamber

[Baroness Penn (Con)]

My Lords, I take this opportunity to welcome the Minister to his role. I am sure he will bring the same intellect and consideration to the Government Benches as he did in opposition.

My right honourable friend the shadow Chancellor set out clearly yesterday why the Statement we are debating today is nothing more than a political ploy by the Government to lay the ground for tax rises that Labour was not honest about during the election. He asked the Chancellor several important questions and I listened very carefully to her failure to answer them. So it is welcome that the Minister is here today to give things another go.

First, will the Minister confirm to the House that, since January, in line with constitutional convention, the Chancellor had meetings with the Permanent Secretary to the Treasury? Will the Minister tell the House whether they discussed the public finances, including any of the pressures included in yesterday’s Statement? If so, why are we hearing about the response to those only after the election, during which the Government promised no new tax rises?

Secondly, we are just three months into the financial year. Can the Minister confirm that, at the start of the year, the Treasury had a reserve of £14 billion for unexpected revenue costs and £4 billion for unexpected capital costs? Can he explain why yesterday’s Statement did not account for the Treasury’s ability to manage down in-year pressures on the reserve by £9 billion last year alone? Why did it apparently not account for underspends typically of £12 billion a year?

Will the Minister further confirm whether the Government have abandoned the £12 billion of welfare savings planned by the last Government? That is apart from yesterday’s announcement of a cut to the winter fuel allowance. The Chancellor yesterday admitted she was well aware that take-up of pension credit was woefully low; therefore, can the Minister tell this House how many pensioners living in poverty will now have their winter fuel allowance taken away from them? Can the Minister also confirm whether the Chancellor has abandoned £20 billion of annual productivity savings planned by the last Government, and if not, why they were not in the numbers published yesterday?

Thirdly and importantly, just five days ago the Chancellor presented to Parliament the Government’s estimates for their spending plans this year. Yesterday, my right honourable friend the shadow Chancellor wrote to the Cabinet Secretary with questions on the difference between the figures the Chancellor asked MPs to approve last week and the document she presented yesterday. Perhaps the Minister can speed up the process by answering them today? Can the Minister confirm that senior civil servants signed off on the main estimates and that they were presented in good faith? Can he explain why is there a difference between the plans signed off by senior civil servants in estimates and plans presented yesterday by the Chancellor? If the estimates are wrong, will accounting officers be sanctioned for signing off departmental spending plans for this year which are based on a forecast of requirements that is incorrect?

The Government have also not been straight about their economic inheritance. When BBC Verify asked a professor at the London School of Economics about the claim that Labour had inherited,

“the worst set of economic circumstances”

since the Second World War, he responded:

“I struggle to find a metric that would make that statement correct”.


In fact, the metrics speak for themselves: inflation is 2% today—nearly half what it was in 2010; unemployment is nearly half what it was then, with more new jobs than nearly anywhere else in Europe. So far this year, we are the fastest-growing G7 economy, and over the next six years the IMF says we will grow faster than France, Italy, Germany and Japan. In addition, the forecast deficit today is 4.4%, compared to 10.3% when Labour was last in office.

Every Chancellor faces pressures on public finances, and after a pandemic and an energy crisis those pressures are particularly challenging. That is why, in autumn 2022, the previous Government took painful but necessary decisions on tax and spend. We knew that, if we continued to take difficult decisions on pay, productivity and welfare reform, we could live within our means and start to bring taxes down. On the other hand, Labour ran a campaign knowing that, in government, it would duck those difficult decisions. In just 24 days, the Government have announced £7.3 billion for GB Energy, £8.3 billion for the national wealth fund and around £10 billion for public sector pay awards. That is £24 billion in 24 days—£1 billion for every day the Chancellor has been in office—leaving taxpayers to pick up the tab.

Will the Minister confirm that around half of yesterday’s supposed black hole comes from discretionary public sector pay awards—in other words, not something that the Government have to do, but something on which they have a choice? In accepting those recommendations, was the Chancellor advised by officials to ask unions for productivity enhancements before accepting above-inflation pay awards to help to pay for those awards, as the last Government did? If she was advised to do that, why did she reject that advice? Can the Minister reassure the House on another promise the Chancellor made, on her fiscal rules? Can he confirm that, in order to pay for the Government’s public sector spending plans, the Chancellor will not change her fiscal rules to target a different debt measure so that she can increase borrowing and debt by the back door?

The difference between yesterday’s Statement and 2010 is that, when the Conservatives came to office, we were honest about our plans, saying straightforwardly that we would need to cut the deficit. The party opposite has just won an election promising over 50 times that it has no plans to raise taxes. Yesterday was simply a political exercise to lay the ground for breaking that promise.

[Baroness Kramer (LD)]

My Lords, in the debate on the economy following the King’s Speech, I particularly noticed the speeches made by the noble Baronesses, Lady Noakes and Lady Vere, and the noble Lord, Lord Bridges, in which they lauded the state of the economy that the Conservatives were handing over. I welcome the noble Baroness, Lady Penn, back to her place on the Conservative Front Bench, but I have just heard a repeat of exactly the same. I find myself thinking today, as I thought back then, how out of touch can the Conservative Party be? Ordinary folk are seriously struggling with the cost of living; businesses are short of workforce and facing costs and barriers to trade with Europe, our major market; productivity and business investment are both stagnant; public debt and taxes are at record highs; and public services are in as dire a crisis as I can ever remember.

My party recognises that the new Government face a huge challenge to deliver both fiscal stability and economic growth, but like my colleagues in the Commons, I ask the Government whether they will give significant priority to the NHS and social care. The two are totally intertwined. It is not just a case of humanity; thousands of people who are trapped in ill health or overwhelmed by caring responsibilities are the potential workforce who could change our economy. I was very sad to hear of a further delay in the introduction of the Dilnot cap, but, frankly, I never had any confidence that a Conservative Government, had they followed the election, would ever have implemented it. However, that nettle has got to be grasped, and I very much hope we will soon hear that there is at least going to be a royal commission to get some final answers to what is an absolutely fundamental ulcer in the health of our overall economy and civil society.

During the election, my party pointed out that there are potential sources of funding: restoring the levy on the big banks, a windfall tax on oil and gas giants without huge loopholes and a fair tax on the online and tech giants are simple examples. There are ways to look at the broader shoulders in order to meet some of those funding gaps. Moreover, infrastructure cannot be neglected. I ask the Government, even if a particular transport or green project—I give those as examples—cannot lever in private funds directly, but on the other hand has the potential to release new opportunity that follows on from private investment, and which will drive economic renewal, will those projects be on the priority list as we move forward? Furthermore, a long-term, reliable industrial strategy is essential, and I very much welcome it. I also welcome and very much approve of plans for new transparency and accountability in the numbers and forecasts provided to give us a sense of the health and state of the public finances.

In closing, I repeat: will the NHS and social care be very high on the list of choices the Government will have to make? They are essential to the future of both the UK economy and the structures of civil society.

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

My Lords, I am grateful to the noble Baronesses, Lady Penn and Lady Kramer, for their comments and questions. I thank the noble Baroness, Lady Penn, for her kind words and I welcome her to her place.

The noble Baroness, Lady Penn, asked a number of questions about the decisions we have taken to deal with the public spending inheritance, and she spoke in positive terms about the economic inheritance this Government face. The fact is that the previous Government left the worst inheritance since the Second World War: public services at breaking point, sewage in our rivers, our schools literally crumbling, taxes at a 70-year high, national debt through the roof, and an economy barely out of recession. The British people know that to be true; that is why they voted for change, and it now falls to this Government to clean up the mess left behind. The scale of that mess inherited from the previous Government is serious. The Treasury’s detailed audit of the spending situation published yesterday uncovered a projected overspend of £22 billion this year.

The noble Baroness, Lady Penn, repeated the claim that all that information was known; let us be very clear that that is not true. In her Statement, the Chancellor set out very specific instances of budgets that were overspent and unfunded promises that were made that, crucially, the OBR was not aware of when producing its March forecast.

The director of the Institute for Fiscal Studies said of the previous Government’s spending commitments that they “genuinely appear” to have been unfunded. The noble Baroness, Lady Penn, is very experienced in these matters and fully knows the rules that govern access talks prior to an election. In a letter to the Treasury Select Committee, the chair of the Office for Budget Responsibility confirmed that the OBR was made aware of these spending pressures only last week. He also says that this overspend

“would constitute one of the largest … overspends … outside of the pandemic years”.

He has initiated a review into the information provided to the OBR ahead of the spring Budget.

However, one group of people did know the true scale of what has been uncovered: the previous Government, and they covered it up. The noble Baroness, Lady Penn, mentioned the reserve; the previous Government had exhausted that reserve and spent more than three times over, only three months into the financial year, and yet continued to make unfunded commitment after unfunded commitment, which they knew they could not afford, knowing that the money was not there—and they told no one.

The noble Baroness, Lady Penn, also criticised some of the decisions that we are now taking to clean up the mess that they left behind, including on pay, where the previous Government failed to give any guidance on affordability, to hold a spending review, or to deal with or account for the consequences. Her comments simply remind us that, when they were in Government, they repeatedly ducked the difficult decisions. This is why we have been left with an overspend of £22 billion this year. The scale of that overspend is not sustainable. Not to act is not an option. If left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so the Chancellor rightly set out immediate action to reduce pressure on public finances by £5.5 billion this year and by over £8 billion next year.

The noble Baroness, Lady Penn, also asked about the main estimates. Page 7 of the spending audit document that the Treasury published yesterday sets out the position clearly. It reads as follows:

“The government laid Main Estimates for 2024-25 before Parliament on 18 July, the earliest available opportunity after the General Election and considerably later than the usual timetable. These Estimates were prepared before the General Election, and the government was forced to lay them unchanged in order to allow them to be voted on before the summer recess. This was necessary to avoid departments experiencing cash shortages over the summer. The pressures set out in this document represent a more realistic assessment of DEL spending. As usual, departmental spending limits will be finalised at Supplementary Estimates”.


The noble Baroness, Lady Penn, raised the difficult decision that those not in receipt of pension credit will no longer receive the winter fuel payment from this year onwards. That was not an easy decision, but the difficult reality we must face is that the previous Government repeatedly, knowingly and deliberately made commitment after commitment, without ever knowing where the money would come from. The level of the resulting overspend is not sustainable. Left unchecked, it would be a risk to economic stability, so it falls to this Government to take the difficult decisions to make the necessary in-year savings. That means incredibly tough choices; these are not decisions that we want to take or expected to take but necessary and urgent decisions that we must take.

These difficult decisions are the beginning of a process, not the end. There will be a Budget on 30 October. That will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax. Because challenging trade-offs will remain, the Chancellor also announced a multiyear spending review, which will set out departmental budgets for the next three years. To answer the noble Baroness, Lady Kramer, that spending review will prioritise our manifesto commitments on public services, as well as investment for growth.

The inheritance from the previous Government is unforgivable. After the chaos of partygate, when they knew that trust in politics was at an all-time low, they gave false hope to Britain. When people are already being hurt by their cost of living crisis, they promised solutions that they knew could never be paid for. Then in the election—this is perhaps the most shocking part—they campaigned to do it all over again: more unfunded tax cuts and more spending pledges, all the time knowing that they had no ability to pay for them, no regard for the taxpayer and no respect for working people. This can never happen again. We will take the tough decisions to restore economic stability and to fix the foundations of our economy.

European Investment Bank

Baroness Kramer Excerpts

Wednesday 24th July 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question, and I agree with the premise behind it. We as a country need to get better at start- up and scale-up capital, and we need to increase the levels of investment in our economy. Our goal is absolutely to unlock billions of pounds of private sector investment into the infrastructure that our economy desperately needs. The noble Baroness will be aware that the Chancellor and the new Pensions Minister have launched a review to boost investment, increase pension pots and tackle waste in the pensions system. In order to boost investment in Britain, we want to see more pension schemes investing in fast-growing British firms. As she will know, just a 1% increase in the £800 billion of assets that DC schemes are set to manage by the end of this decade could raise £8 billion of investment into the UK economy. The sectors that she identifies are definitely ones that we should prioritise.

[Baroness Kramer (LD)]

I would not argue for a moment that we should not be turning to UK pension funds as a source of long-term patient capital in the British economy, but will the Minister take on board that for people with small pension pots, for whom risk is very dire, investing their funds in illiquid long-term assets could be a significant blow when they reach retirement and find that their pots have shrunk dramatically?

[Lord Livermore (Lab)]

I agree with the noble Baroness. That absolutely has to be one of the criteria or conditions that we establish as part of the pensions review. I am sure that, as more details are announced, that will be taken into account.