Economy: Private Capital Investment

Baroness Kramer Excerpts

Tuesday 20th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, the enterprise zones are not limited to any particular sector.

[Baroness Kramer]

My Lords, the Minister will be aware that the banking industry is not serving this aspect of investment particularly well and that barriers to entry are limiting new banks. Is he therefore observing the growth of peer-to-peer lending and will he give us some assurance that those new lenders entering the market will be appropriately regulated but not to the point of being stifled?

[Lord Sassoon]

My Lords, we are very interested in anything that keeps credit flowing. However, although my noble friend is very good at reminding us of that issue, we are getting a bit far away from fiscal measures.

Public Service Pensions

Baroness Kramer Excerpts

Tuesday 20th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am happy to try to clear up any misunderstandings on this. As the DCLG has made clear this afternoon, it is in discussion with the unions to resolve any misunderstanding and reassure them that the intentions of the department and of the Government have not changed. It would seem that the unions have read more into the letter that was issued today than was intended by the DCLG. No new conditions are being imposed by the department. In order to iron out any ambiguity, the department will be issuing a new letter to make clear that there is no ambiguity, there is only one deal and there are no conditions. Therefore, I am confident that this can be resolved quickly, but as noble Lords will understand, there have been many deals with a lot of unions and several departments. We must clear up this ambiguity that has slipped in on one particular aspect.

[Baroness Kramer]

My Lords, the Government and the unions that have signed the heads of agreement deserve congratulations on having achieved this in this day and age, given the immediate financial pressures and the reality that we will all live much longer and therefore need pensions for a much longer period in our lives. They have achieved an agreement that retains defined benefit schemes—when the private sector has essentially abandoned that and gone on to defined contribution schemes—and have provided protection for those approaching retirement and for those on the lowest incomes. That is a real achievement by both sides and we ought to acknowledge it.

However, I wish to ask the Minister two questions. Can he clarify for us where the negotiations now stand with the PCS? The experience that has been described tonight demonstrates that negotiation has to be the way forward, not strikes. The Minister said that the PCS had walked away. The newspapers used the phrase, “not invited to future talks”. Can he clarify what he sees as the progress that can be made in that regard—preferably progress which does not inflict any more strikes on the long-suffering British public?

Secondly, can the Minister expand a little on an area I find most intriguing: namely, the position of staff transferring from the public service to the voluntary or private sectors or to social enterprises who will retain access to a public service pension? I cite the example of the NHS in that regard. Should we see that in narrow terms, or are we moving towards an arrangement which will allow a much more flexible structure for future public services as technology and demand change, creating the opportunity for movement in and out of different organisational arrangements? Is this the first building block of something larger, or is it just something to be seen narrowly within the terms of this negotiation?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for welcoming this deal. She rightly points out that it means that public sector workers have among the best pensions available in this country, including defined benefit schemes which are not now generally available to people entering private sector schemes. Therefore, I endorse entirely her comments in that respect.

The PCS has not agreed to put the final design of the Civil Service scheme to its executives. It is important to remember that the PCS represents fewer than 5 per cent of the members of the public service schemes and discussions will continue without it. We believe that the final deal—it is a final deal—is a good one and that the remaining unions will recommend it to their members. We are clear that what has been set out today is the Government’s final position.

My noble friend asked about the ability of members exiting a public sector employer to remain in the pension scheme under the “Fair Deal” provision. Implicit in her question was the notion that this may have wider implications. I certainly think that this opens up all sorts of possibilities, whether in relation to the mutualisation of services or the ability of people to come in and out of the public sector.

Economy: Deficit Reduction

Baroness Kramer Excerpts

Thursday 15th December 2011 Lords Chamber

[Lord Sassoon]

I certainly agree with my noble friend that we inherited the worst peacetime deficit situation that this Government have ever known, and that getting the budget back into balance is indeed the priority of this Government.

[Baroness Kramer]

My Lords, I am sure that the Minister will agree that access to bank credit for smaller microbusinesses will be essential for economic growth and elimination of the deficit. Will the Government therefore take a look at the extraordinary barriers to entry of new potential banks into exactly this field, the FSA having now become so utterly risk-averse that it has lost any sense of balance?

[Lord Sassoon]

My Lords, it is very important that credit flows to SMEs, which is why we announced a package of £21 billion at the autumn Statement, and it could go higher if the demand is there. I take my noble friend’s point about the importance of diversity and new entrants into our banking system. That is something that both the FSA and the Government keep under review.

Autumn Budget Forecast

Baroness Kramer Excerpts

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, I can only refer again to the numbers in the OBR’s document. I do not want to detain the House by repeating them all, but they show the cumulative effect of all these measures, including the infrastructure measures. I am grateful to the noble Lord for drawing attention to those measures because they are now more central. The economic infrastructure in particular has become central to the Government’s thinking and planning in a way that it has never been under previous Governments.

[Baroness Kramer]

My Lords, there are some key measures in the Statement on which I congratulate the Government and which completely change the framework for both businesses and infrastructure to access financing. Over the long term, they will create the capacity for accelerated growth that we should all have seen more than a decade ago.

I have two questions for the Minister. First, micro-business is obviously the beginning of the business pipeline. The national loan guarantee scheme works through the banks, which pay no regard to micro-businesses. That does not seem to be a scheme that particularly helps them. They also seem to be too small for the business finance partnership. Will there be, or are there, mechanisms within credit easing to address that particular group of essential businesses?

Secondly, the Minister will guess that I am absolutely delighted that the Northern line will be financed against the community infrastructure levy and that similar powers may be given to various city mayors through tax increment financing mechanisms. Will he look at applying this far more widely, because many small infrastructure projects could come very quickly out of the pipeline, be well managed by local authorities working in co-ordination with each other and give us a much wider distribution of infrastructure as a spur to growth?

[Lord Sassoon]

My Lords, on the first of the questions which my noble friend raises, money will indeed flow through the banks as a result of the guarantee scheme to micro-businesses, although I appreciate that it will always be tougher for them. It is worth noting that there will be banks coming into the credit easing framework that were not there previously—some of the new entrants into the market—so we are maximising the footprint through the banks. I draw attention to one of the other schemes that will be directly relevant to micro-businesses. The seed enterprise investment scheme and the related one-year CGT holiday are to encourage investment in new, early-stage companies. That will commence from April 2012, with a kick-starter of offering a CGT holiday.

On my noble friend’s second question, I well take the point about the importance of locally driven infrastructure schemes, which is why my right honourable friend the Chief Secretary announced the initial £500 million fund specifically for that purpose earlier in the autumn. Beyond that, the use of the CIL is being considered, but I would just caution that we need to think about the fiscal impact of widening that scheme.

Al-Qaida (Asset-Freezing) Regulations 2011

Baroness Kramer Excerpts

Wednesday 9th November 2011 Grand Committee

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, asset freezing is a vital and necessary global response to the threat from al-Qaeda. It is a tool to disrupt the flow of funds to al-Qaeda, helping to prevent them executing attacks and supporting their networks.

As a permanent member of the UN Security Council, we are committed to meeting our obligations under the UN charter, and we support the UN’s al-Qaeda asset-freezing regime. The regulations before the Committee today will ensure that we continue to meet our international obligations and prevent funds from reaching persons associated with al-Qaeda. In particular, they reflect UN Security Council Resolutions 1988 and 1999, which were agreed in June this year.

I will provide further detail on these changes. First, it is important to clarify that the regulations we are debating today do not apply to the terrorist asset-freezing regime mandated by Resolution 1373. That resolution is implemented in the UK under the Terrorist Asset-Freezing etc. Act 2010 passed last December. The regulations under debate apply only to the UN al-Qaeda asset-freezing regime established under UN Security Council Resolution 1267 and amended by Resolution 1333 and subsequent resolutions. That regime, established in 1999, initially applied an asset freeze only against the Taliban. It was subsequently extended by successor resolutions to apply an asset freeze against Osama bin Laden and individuals associated with al-Qaeda or the Taliban.

The changes we are debating today stem from the latest periodic renewal of the mandate of the United Nations Security Council in June 2011 when it unanimously adopted Resolutions 1988 and 1989. These resolutions split the Resolution 1267 al-Qaeda and Taliban asset-freezing regime into two separate regimes, one in relation to Afghanistan and one in relation to al-Qaeda.

Resolution 1989 provides for the al-Qaeda regime, with which we are concerned today. It maintains sanctions on those individuals and entities associated with al-Qaeda who were designated under the Resolution 1267 asset-freezing regime and strengthens existing due process procedures. The improvements include the introduction of triggered sunset clauses. They will make it easier and more transparent to delist individuals who no longer meet the listing criteria and who are no longer considered to be associated with al-Qaeda. Delisting recommendations by the ombudsperson or requests by the state that made the original designation request will trigger the sunset clause. At that point the person will be delisted after 60 days unless the sanctions committee decides unanimously to maintain them on the list. Resolution 1989 also strengthens the role of the ombudsperson. The resolution recommends increased capacity for the ombudsperson’s office and greater provision by member states of information for case reviews, and encourages individuals to submit delisting petitions to the ombudsperson. The Government believe that these changes represent a very good and very necessary outcome that the UK, together with our Security Council partners, worked extremely hard to achieve.

As your Lordships are aware, the UN al-Qaeda asset-freezing regime is global in its application. All listing and delisting decisions are made by a committee of the UN Security Council, and once individuals or entities are listed, their assets must be frozen by all states as a matter of international law. Throughout the European Union, the al-Qaeda asset-freezing regime is implemented by Council Regulation (EC) No 881/2002, as subsequently amended, and is directly applicable in national law.

To implement and enforce the al-Qaeda asset-freezing regime fully in the UK, domestic regulations are needed to put in place penalties, and licensing and enforcement mechanisms. The key features of the regulations are that they define: the designated persons covered under the al-Qaeda regime; the prohibitions which apply in respect of designated persons; and the criminal penalties which apply to UK persons who breach the prohibitions. There are also provisions for the granting of licences exempting activities from the prohibitions, for the gathering and sharing of information and for allowing closed material to be employed in proceedings that challenge decisions made under the regulations.

These regulations revoke and replace the Al-Qaida and Taliban (Asset-Freezing) Regulations 2010, but I can assure your Lordships that there is no gap in the powers or penalties required to enforce the al-Qaeda asset-freezing regime in the UK. The 2010 regulations continue to have effect until the 2011 regulations come into force.

I know your Lordships understand the importance of the UK meeting its obligations to enforce the UN al-Qaeda asset-freezing regime. The regulations before the Committee are vital to meeting that obligation. Asset freezing is a critical element of the global response to the threat from al-Qaeda, and the UK fully supports the UN’s al-Qaeda asset-freezing regime. At the same time, UN Security Council Resolution 1989 strengthens existing due process procedures, which the UK has been arguing for at the Security Council.

In the Government’s view, the regulations before the Committee today represent an effective, fair and proportionate way of giving full effect to the EC regulation that meets the obligations of the Security Council resolution within the UK. I therefore commend these regulations to the Committee.

[Baroness Kramer]

My Lords, I have no objection to the regulations and I will take only a few moments of the Committee's time to seek clarification on a couple of points. From the perspective of my colleagues, it is clearly necessary to tackle not only terror but the funding of terror. This legislation is part of that overall approach. We are pleased to see the strengthening of due process and the sunset clauses that are part of the regulations.

I will ask a couple of very small questions. Will the Minister clarify that no practical implications of any significance will follow from separating the al-Qaeda regulations from those applying to the Taliban? Is this just a measure to fall into line with EU and UN resolutions? In moving from the umbrella of one set of regulations to the umbrella of another, will the process be seamless? Is there any possibility of a slip between the two? Obviously, we would not wish to see such an opportunity exploited.

My second question is perhaps of more interest to the wider community. Will the Minister give us some reassurance that these regulations will not put an additional burden on ordinary people? He will be very aware that the combination of anti-money laundering and anti-terror legislation has put a significant burden of cost on both individuals and businesses, not least when it comes to the long delays in fund transfers that the banks explain by saying that it is necessary for them to go through security procedures and checks, during which time the banks seem to hold on to the money and benefit from the interest rather than either party to the transaction. One must live with measures such as that, but we would all find it unfortunate to see any increase in the burden. I would appreciate reassurance on those points, but we support the regulations.

[Lord Myners]

My Lords, like the noble Baroness, Lady Kramer, I have no issues of principle with this legislation. However, I would like the Minister's help on a couple of issues. The Explanatory Memorandum states that policy in the area of sanctions needs to be effective, proportionate and dissuasive. I would like the Minister to address Regulation 14(1)(a) and (b) and say whether the levels at which the penalties are set can truly be described as “dissuasive”. Given the consequences of terrorist action, the proposed penalties appear to be quite modest. I would also like the Minister to explain the level 5 standard referred to in Regulation 14(2).

I would also like to know—this is a very important issue—why a proposed breach of Regulation 8(3) by a financial institution does not incur a criminal penalty. Why are financial institutions exempted from criminal penalties while individuals are subject to them?

I turn to Regulation 9(4)(b). Can the Minister explain the criteria employed by HMT in determining an appropriate publicity strategy, and how the licences will be publicised under the regulations—specifically, where and when?

Under Regulation 20(1), how many licences are currently issued under Regulation 7 of the Al-Qaida and Taliban (Asset-Freezing) Regulations 2010, and how many have been issued under the 2010 regulations since they were passed by Parliament?

Finally, it would be helpful if the Minister would confirm that legal aid will be made available to individuals who are subject to freezing orders. The consequences of these freezing orders are draconian and chilling. It is incumbent upon us to ensure that anyone threatened with the consequences of having their assets frozen has access to appropriate legal advice. Will the Minister confirm that that will continue to qualify for legal aid?

Euro

Baroness Kramer Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

My Lords, it really is not helpful for the party opposite to try to paint this completely false picture of a two-speed Europe. As I have already explained, the euro-out countries are integral to the single market—the eurozone understands that—and we will be part of the centrality of what needs to be done to drive forward structural reform of the single market, and so on. The other thing that is completely wrong is to paint Europe now as two-speed. There is a variable geometry EU, as we have it. Remember that other important areas such as justice and home affairs, as the noble Lord, Lord Liddle, recognises, also run in different ways. Therefore the idea that there will be some fundamentally changed, two-speed Europe is again ridiculously simplistic.

[Baroness Kramer]

My Lords—

[Lord Hannay of Chiswick]

My Lords—

--- Later in debate ---

[Lord Sassoon]

No, my Lords, that is not the situation. Forty per cent of our trade goes to the eurozone, 50 per cent goes to the EU, and we have to work to preserve the structure.

[Baroness Kramer]

My Lords—

[Lord Davies of Stamford]

My Lords—

Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011

Baroness Kramer Excerpts

Thursday 20th October 2011 Lords Chamber

[Lord Kennedy of Southwark]

My Lords, today is International Credit Union Day and the theme for the celebrations is “Credit Unions Build a Better World”. It celebrates the important economic and social contributions credit unions make to their communities worldwide. I am vice-chair of the All-Party Parliamentary Group on Credit Unions and it is wonderful that we are debating and approving this statutory instrument today of all days.

As the noble Lord said, credit unions are financial co-operatives owned and controlled by their members. Credit unions in the UK manage over £600 million on behalf of over 900,000 people. The order before us today makes some very welcome changes. It was originally laid in similar form by the last Labour Government, as the noble Lord said, and I was delighted when the present Government sought to carry forward these much needed reforms. The order makes a number of sensible changes, such as allowing credit unions to pay interest on savings rather than a dividend. It allows them to provide services to community groups, attract investments and extend the services that they offer. That is all very welcome. I congratulate the Government on what they have done.

However, this is only one of a number of steps that the Government should be taking. Although the credit union sector in the UK is growing, it is still relatively small. With the right support, the potential for major expansion is all too evident. That expansion and growth would be of benefit to communities up and down the country. We must also remember that it is a sad fact that some of the most financially excluded citizens have to pay the highest price for credit, which we should all regret and want to work to eliminate. We have seen organisations on the high street that are little more than legal loan sharks which charge people 2,000, 3,000 and 4,000 per cent interest to borrow money. Expansion of the credit union sector gives people who are financially excluded the opportunity to become financially included and to pay a fair price for the credit that they need.

The big society seems to have disappeared a bit from the vocabulary of the Government in recent months, but initiatives like this, which enable people to help themselves, are what I understand by the big society and are very welcome.

[Baroness Kramer]

My Lords, let me join others in welcoming this order laid before us. Like others, I think that the only regret is that we had not seen it perhaps a little sooner, but I am delighted that it has come now. I am also delighted to be able to look at it in the context of the Government’s commitment to credit unions. A project is now under way between the Post Office and ABCUL—a sort of industry spokesperson for credit unions more broadly—to find ways for the Post Office to be the front-door platform for many people to access their accounts through the Post Office structure. That would have been inadequate were these other steps not being taken to expand the capacity of credit unions.

I am particularly delighted that we now have a new definition of the common bond, which will take a real constraint away from credit unions and their capacity to build membership and to serve the community. The United States has long had much greater flexibility. Whereas in the UK the figures from ABCUL suggest that the current amount of assets under credit union management is £790 million, in the United States—even allowing for the difference in population size—some $900 billion of total assets come within the credit union structure. We are looking at a completely different dimension, which I hope the UK will be able to move towards. As the noble Lord, Lord Kennedy, has said, many people who are financially excluded can see a route into financial inclusion through credit unions that they would not find in the high street banks.

I also am encouraged by the expansion of the groups which a credit union can serve to include corporate bodies, partnerships and unincorporated associations. We have many small businesses which once again cannot find a satisfactory financial relationship through existing high street banks. They need other sources and mechanisms. Again, if we look at the United States, it is interesting that the ability to serve small business has long been part of the credit union framework. In 2011 alone, the Obama Administration are using that credit union network to push $300 million in additional credit directly to small and very small business in a way in which we have no capacity to do here in the UK. For the kind of activity that we are seeing through credit easing—obviously, that is a much broader programme—in the United States that is able to happen far more easily and fluidly through mechanisms such as the credit union and the much wider world of community development banks. We can now begin to move towards having that potential here in the UK.

With the new classes of shares and the ability to deepen investment, we are coming now to the point where there is a recognition that more diversity and provision that focuses on people who are financially excluded, and on businesses that are micro and small, is all to the positive for the growth that we need in our economy.

I join others in welcoming this order laid before us by the Government today. I express apologies from my noble friend Lord Newby, who had expected to be standing here but, because of the time, unfortunately could not cancel another commitment. I welcome this move by the Government.

[Lord Davies of Oldham]

My Lords, the Minister greeted my arrival at the Front Bench with a slightly wintry smile earlier. Whether he thought I was late, though I assure him I was descending from the rarefied atmosphere of the Back Benches, which is why I was slightly delayed, or whether he anticipated that this debate had some hidden horrors, I am not sure. He will, however, by now have appreciated the fact, from the contributions both of my noble friend Lord Kennedy and of the noble Baroness, Lady Kramer, that this measure is most welcome and Her Majesty’s Opposition are delighted to see it being presented today.

As noble Lords have already spoken about the virtues and possibilities of the credit union and the Minister himself paid due tribute to their work, it would be otiose of me to expand on that matter and, as I am given to brevity, noble Lords will appreciate that I will take as read the reason why this order should commend itself to the House. However, I have some questions to ask, which I hope the Minister will be able to respond to. What does he expect the removal of the limit on non-withdrawal shares to be? Will this result in dominant members of a society emerging? What steps will the FSA be taking to ensure that societies do not become subject to such dominance whereby a small number of individuals might establish a very considerable influence with regard to these non-withdrawable share holdings?

On credit unions, could I ask about the removal of the common bond, which is the whole point of a credit union, because it provides the self-regulatory strength of mutual knowledge and understanding? What does this mean as far as the future of the credit union is concerned? Does it mean that credit unions will be just another form of financial organisation rather than the distinctive sort of organisation which is being commended in the speeches made so far today in this short debate?

Finally, what does the Minister expect to be the impact of bodies corporate joining credit unions? Will this not lead to small commercial enterprises exploiting the financial strength of the credit union to further the interests of their own businesses? In other words, would credit unions become tied to businesses instead of being independent? After all, one business which might supply 10 per cent of the assets of the credit union will undoubtedly be a powerful force within it.

We welcome this legislation, but I would be grateful if the Minister could give me some assurance on those limited anxieties.

Independent Commission on Banking

Baroness Kramer Excerpts

Monday 12th September 2011 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Baroness for pointing out the good sense with which the commission addressed the question of the ring-fence. Clearly it has thought about the arguments that have been put over recent months. In respect of the failure of regulation, on which I completely agree with her, the overhaul of the regulatory structure, which is coming forward in the financial services Bill, is very significant. It puts the primary responsibility for looking at the risk in the entire system where it ought to be: that is, with the central bank. That is a fundamental change. The new Financial Policy Committee of the Bank of England is up in effective shadow mode, ahead of the legislation going through. It is able to address—and is addressing—risk issues as we speak, and I am sure that it will take note of whether there is anything further in the report that it ought to pick up on.

[Baroness Kramer]

My Lords, I join others in welcoming the Government’s enthusiastic acceptance of the report, and particularly of ring-fencing, which is much harder to erode than changes in regulation. However, I am sure that the Minister will agree that those who have suffered the most from the failure of the banks and the depth of the economic crisis that followed have been among the most vulnerable and disadvantaged, along with the smallest businesses. Would he be willing, as he looks to introduce a new bank that will provide more high street competition, to encourage banking services that will address the micro and the very small business, and which will reach out to the economically disadvantaged, who currently get a basic bank account offered with ill grace and very few services?

[Lord Sassoon]

I am grateful to my noble friend Lady Kramer for bringing us back to one of the constituencies most affected by the state of our banking system. That is why I welcome the discussion in the report about issues concerning the ability of individuals to switch accounts. There are important recommendations about the Lloyds Bank disposals, which make the point that this is not just a numbers game, of counting the branches that must be disposed of, but about creating another competitor out there. Therefore the report addresses critical aspects of the challenges that she poses, but in addition—whether it is looking at mutual models, credit unions or all the other aspects of a rich and varied banking system—there are significant other channels which the Government continue to address.

Global Economy

Baroness Kramer Excerpts

Thursday 11th August 2011 Lords Chamber

[Lord Sewel]

My Lords, the Minister has rightly drawn attention to the weaknesses, indeed the failures, of the European political institutions in responding to the crisis. Would he care to reflect on the contribution of the political institutions of the United States to the present crisis? Could it possibly have something to do with the fact that they have a political structure based on two elected Chambers, one in which the Executive have a majority and one in which they do not? We have heard that somewhere before.

[Baroness Kramer]

My Lords, these dark glasses are not for glamour but to prevent me sharing an eye infection. I very much agree with the Minister that the Government, and individuals, have no choice but to deleverage. Many of our large companies are not anxious at this time to invest or borrow significantly because they are doubtful about both the domestic and international economy. Surely, however, one sector has significant capacity to absorb new investment in the form of equity and debt: that of the micro-businesses and very small businesses, because they have been in large part neglected by our banking sector and our financial institutions for years. Would the Minister be willing to look at a programme that specifically targets those kinds of businesses which, culturally, our current institutions usually fail to serve, perhaps building off some of the schemes which are being looked at now to revitalise the high streets which were so badly damaged earlier this week?

[Lord Harrison]

My Lords, I am sorry that the Minister has had to break off his holiday reading of your Lordships’ European Union Select Committee’s Sovereign Credit Ratings report. I hope that he will return and study it when he is next on the beach, and reflect on some of the words from the noble Lord, Lord Oakeshott. These institutions exist but a healthier degree of scepticism might inform the City and, indeed, elsewhere to ensure that they are taken for what they are—an educated guess as to the future debt of sovereign nations.

Secondly, would the Minister consult his colleague on the business section about the regional growth fund, which I raised some months ago? I discovered and reported to your Lordships that it was unsuccessful at the moment, especially because of the £1 million bar required for small businesses to make application to that fund. My third point relates to the points made by the noble Baroness, Lady O’Cathain, in the European Sub-Committee B’s report on the single, internal market. Why do we not put greater effort into ensuring that the market comes to fruition, which would surely benefit UK companies perhaps more than any others within the 27 countries of the European Union?

Finance: Off-exchange Trading Venues

Baroness Kramer Excerpts

Monday 18th July 2011 Lords Chamber

Asked By

[Baroness Kramer]

To ask Her Majesty’s Government what assessment they have made of the risk to financial markets of off-exchange trading venues commonly known as “dark pools”.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Government strongly support ongoing initiatives at the European and international levels to improve transparency in financial markets. The International Organisation of Securities Commissions, IOSCO, has recently agreed a set of principles for regulating dark pools that will help inform the European Commission’s ongoing review of the markets in financial instruments directive, MiFID.

[Baroness Kramer]

I thank the Minister for that Answer. He will be aware that Andrew Haldane of the Bank of England, in a speech a week ago, pointed out the dominance of dark pools and their high-frequency trading in many financial markets. Does the Minister agree that the lack of transparency, the price differential suffered by small investors, the implications for corporate governance of nanosecond share ownership and, above all, Andrew Haldane’s concern that liquidity could disappear rapidly in times of stress all point to a serious risk to financial stability? Will he continue to follow the issue and look at more action by the British Government, not just at the European level?

[Lord Sassoon]

My Lords, we should distinguish—as I am sure my noble friend Lady Kramer does—between the two issues of dark pools and high-frequency trading, both of which I am sure noble Lords are very familiar with. Dark pools are akin to what used to be called “upstairs trading”—off the floor of the Stock Exchange. We need to make sure that the benefits of being able to trade in such an environment, such as competition and choice for investors, do not impinge in any way on the transparency and the price-discovery ability of markets. The FSA has done work on that and is content that the price-discovery mechanism is not being damaged.

High-frequency trading is a very new and slightly separate area, although I agree that it is related, and it is one on which the Government are doing considerable work. A research project led by the Government Office for Science is looking at the possible evolution of computer-generated trading and its implications, and will produce up to 20 papers on the subject during 2011.