Pension Investments

Baroness Kramer Excerpts

Tuesday 23rd January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I should be delighted to meet with my noble friend to discuss these matters further. The UK has a world-leading investment trust sector representing over £250 billion of assets and is highly aligned with the Government’s priority to promote long-term productive investment. She will know that at the Autumn Statement, the Government published draft legislation to replace the packaged retail and insurance-based investment products, or PRIIPs, regulations. We also announced that we will bring forward the repeal of the relevant provisions of the Markets in Financial Instruments Directive. This will enable the FCA to put in place more proportionate cost disclosures.

[Baroness Kramer (LD)]

My Lords, I am keen to see increased domestic investment in the UK economy, but is it appropriate to put pension money from small pots—people who cannot afford to lose part of that pot —into liquid, high-risk start-up investments, as the Mansion House compact seems to contemplate?

NatWest: Account Terminations and Branch Closures

Baroness Kramer Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

The Government do recognise that banks hold a key position in our society. We need to ensure that our banking system meets the needs of that society. Certain banks, as I am sure the noble Lord is aware, pride themselves on keeping their bricks and mortar on the high street. If customers require that sort of service, they should be able to vote with their feet.

[Baroness Kramer (LD)]

My Lords, I think we have something like 20 banking hubs—the Minister will correct me if I am wrong, but it is a piffling number. Will she assure me that, in the statutory instrument that is coming, the banks will be required to participate in banking hubs where their area meets the criteria standard? Everything I have heard up to now still leaves the banks with the ability to refuse to participate even where the standard is met.

[Baroness Vere of Norbiton (Con)]

The noble Baroness is absolutely right. That is why we are putting this voluntary provision on a statutory footing. The Treasury has the power to designate not only banks but the operators of the cash access co-ordination services—Cash Access UK—to do the banking hubs, so they must then follow the requirements set out in the legislation.

HMRC: Tax Returns

Baroness Kramer Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

HMRC is an office-based organisation. However, officials can work from home for two days a week, if they can be fully effective in their roles. On average, advisers answer the same number of calls per day and work the same number of hours, whether they are in the office or at home.

[Baroness Kramer (LD)]

My Lords, I wonder whether the Minister is aware that so many people have become so intimidated and discouraged by the process of trying to claim a tax repayment that an industry has grown up. Tax repayment agents and companies are now stepping in as middlemen to provide that service to people, but there is no professional standard or certification, and there is no regulation of any of these bodies—so the potential for people to be abused and scammed is very great. Are the Government going to take action to deal with this, either by improving the service so that these people are not needed or else by regulating them if they are?

[Baroness Vere of Norbiton (Con)]

The noble Baroness may be aware that the HMRC made a very targeted intervention on overpayments over the summer, to enable a backlog that had arisen to be repaid. That is now cleared, and the self-assessment helpline prioritises queries relating to returns, repayments and other complex matters.

Financial Stability: Private Equity Firms

Baroness Kramer Excerpts

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My noble friend is absolutely right. We need the right flexible employment laws to ensure that private equity can continue to steward companies that employ millions of people. Indeed, the British Private Equity & Venture Capital Association estimates that private equity-related companies employ 2.2 million workers.

[Baroness Kramer (LD)]

My Lords, the Minister should take the Question from the noble Baroness, Lady Bennett, very seriously. A very large part of the private equity market is heavily overleveraged, although that is often disguised through complex financial engineering; it is not just Thames Water. At the same time, there are serious questions about the condition of the public debt market, with gilt rates so dependent on volatile foreign buyers for their gilt sales. Has the Treasury looked again at the stress tests being used by the Bank of England to see if they encompass potential issues in these two markets? There is a real risk that not just one but both could have serious problems at the same time, with systemic consequences.

[Baroness Vere of Norbiton (Con)]

I reassure the noble Baroness that the Treasury works with the Bank of England and other regulators to monitor the system.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Kramer Excerpts

2nd reading
Tuesday 12th December 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I start by thanking the noble Baroness, Lady Primarolo, because the point she raised is one I think we did not raise in our discussion of the Autumn Statement and perhaps did not have the front of our minds as this Bill went through. The link between national insurance contributions and funding of the NHS is critical. In thinking about it, I am astonished that an impact statement did not discuss those consequences, and I do not remember them being raised by the OBR or in other discussion papers. The issue the noble Baroness has raised is critical, and I thank her very much for asking that we all share in the Minister’s reply. Again, I have sympathy for the Minister: I doubt very much whether she has these numbers at her fingertips.

The Liberal Democrat Benches are obviously not opposing the Bill, but I would like to set a bit of context. I shall refer to the work of the Resolution Foundation, quoted extensively by the noble Lord, Lord Sikka, which last week published the third and final phase of its report Ending Stagnation and provided us with updated numbers that graphically expose the price that UK households are paying for that economic stagnation. If real pay growth had continued to follow the trend from before the 2008 financial crisis, the average British worker would be £10,700 a year better off—a really significant figure. There are almost 9 million younger Brits who have never worked in an economy that has sustained rising wages. As a consequence of that impact on wages, the UK is now Europe’s most unequal large economy. That used not to be true. Our poorer families are now a staggering 27% worse off than their French and German counterparts. That is a measure we rarely look at, but it is critical. Obviously, when ordinary families are trying to cope with stagnant wages and a cost of living crisis, it is particularly unacceptable for a Government to dress up a rise in taxes as tax cutting.

By 2028-29, the freezing of the national income tax thresholds adds £45 billion a year—not over that time, but a year—to taxpayers’ annual tax bills, offset by the rate cuts we are discussing today only to the tune of £10 billion annually. If this Government were a private company, I suspect that trading standards would have a very dim view of an entity that presented an annual increase in charges of £35 billion as a cut. The public will be none too impressed when they find out the hard way, as I said in the Autumn Statement debate, that a typical earner will pay £400 more next year in tax and NICs after these measures, and a middle-income earner will pay £1,200 more. Like the noble Lord, Lord Sikka, I used that debate to point out the inequality of the distribution of the rate cut, with five times as much going to the top fifth of earners, compared with the bottom fifth. That distribution is a choice. Interestingly, the noble Lord, Lord Dobbs—who is not in his place today, perfectly understandably—described himself in that debate as a struggling self-employed person. When the Government decided that they needed to look most closely at and give most support to the top fifth of earners, perhaps they had the noble Lord in mind.

I note that the NIC rate cuts offer some relief to self-employed workers. This is a group that particularly lost out during Covid. The sector is, frankly, also suffering from HMRC’s harsh and shambolic loan charge regime, which is doing little to stop promoters mis-selling tax products, but is continuing to drive to breakdown and even suicide individuals who got caught up in the loan charge because they followed advice in good faith. To date, as the Minister will know, HMRC has referred 10 suicides to the IOPC, and three more are contested.

We have to change the way we deal with the self-employed sector. I very much hope that the Government will—as they often promise but never actually do—follow through on the 2017 Taylor review, which called for and fashioned principles for the update of working relationships, taking them from the past into today’s world of business. In that, there is new opportunity for the self-employed.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I am enormously grateful to all noble Lords who have taken part in this relatively short debate. As your Lordships might expect, I did not agree with all the points, statistics and bits of data that were shared, and I will obviously have my own, but I will try to stick within my wheelhouse and stay within the realms of national insurance today.

However, I want to comment on the general thrust from the noble Lords, Lord Sikka and Lord Livermore, and the noble Baroness, Lady Kramer. It was just extraordinary. I feel really pleased that everybody has now come round to the Conservatives’ way of thinking that taxes are too high, and we need to think about reducing them and we must do so responsibly. I am grateful for that vindication of the Conservatives’ policy when it comes to personal taxes. We agree that they are too high, but of course many of the tax rises that are forecast to come into place—I absolutely accept that taxes will go up, although this national insurance cut reduces them—are already announced and baked into the figures.

I did not hear many noble Lords recognising the reasons why we needed to put taxes up—

[Baroness Kramer (LD)]

I was very tactful not to point out that the Minister, as with all Conservatives— I think they have probably signed an oath somewhere—did not mention Brexit and the economic damage it has done, which is a fundamental part of all this. In giving the history of the things that have gone wrong, it is best not to lecture the House when the Government are deliberately leaving out one of the key culprits.

[Baroness Vere of Norbiton (Con)]

My Lords, I definitely was not lecturing the House—far be it from me to do so. However, it would obviously not be a debate without a Liberal Democrat mentioning Brexit.

I am going to move on from that general observation that I am pleased that there is this political groundswell now back behind the Conservatives for lower taxes, which is excellent—

[Baroness Vere of Norbiton (Con)]

The Minister is definitely not looking to expand the debate but is trying to make progress. I hear what the noble Lord says, and if he has read the Autumn Statement, which I am sure he has, he will have seen the announcements made in it about tax avoidance.

Moving on to comments made by noble Lords, I think it is probably not worth rehearsing and rehashing the elements around fiscal drag. Again, I want to put some numbers on record, because there is an opportunity to do so. Thanks to the cut in employee national insurance contributions announced at the Autumn Statement and to above-average increases to starting thresholds since 2010, an average worker in 2024-25 will pay more than £1,000 less in personal taxes than they would otherwise have done. That statement has attracted some interest, and I reassure noble Lords that the calculations underlying this statistic are based on public information, including a published estimate of average earnings. They are robust and could be replicated by an external analyst. This goes back to what I was trying to say about data. Lots of people will do calculations on different bases, but at the end of the day, from the Government’s perspective, we want taxes to come down—this is a start—but of course we will do it only in a responsible manner. However, personal taxes for somebody on an average salary of £35,400 have come down since 2010.

The noble Lord, Lord Sikka, asked about distribution analysis, and the national insurance cuts will of course benefit everybody who pays national insurance. That includes 2.4 million people in Scotland, 1.2 million in Wales, 800,000 in Northern Ireland, et cetera. The latest published HMRC data for 2021 shows that the largest proportion of income tax payers reside in the south-east, followed by London. It will be the case when one has a tax cut that those who pay the largest amount, and the numbers of people who pay tax if they are located in certain areas, are therefore going to see the largest reductions.

However, we have also looked at the impact on women—again, an issue raised by the noble Lord, Lord Sikka. NIC charges apply regardless of personal circumstances or protected characteristics. The equalities impact will reflect the composition of the NIC-paying population. Of course, that feeds into whether we would like women to be paid more. Of course we would. That is why rewarding work will see 28,000 people come into jobs—and I very much hope that they will be well- paid jobs and will be taken up by women.

The noble Lord, Lord Sikka, talked about better-off households. Distribution analysis published at the Autumn Statement shows that a typical household at any income level will see a net benefit in 2023-24 and 2024-25, following government decisions made from the Autumn Statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25. I know that the noble Lord feels that we do not focus on those on the lowest incomes, but he is not correct in that regard.

[Baroness Kramer (LD)]

You cannot eat a percentage of income. Going out and buying a loaf of bread costs you just the same whether you are a high earner or a low earner. So, using the percentage of income comparator to understand the cost of living pressures that people are living under and who is getting the most benefit is not the appropriate measure. If you use the cash number, you realise how much purchasing power arrives for people at the bottom end and how much more purchasing power arrives for people at the top end. That is the appropriate benchmark.

[Baroness Vere of Norbiton (Con)]

I absolutely accept that the noble Baroness is right to say that you can look at it in a different fashion but, in terms of whether what the Government are doing is progressive, it is fair to say that people on lower incomes are benefiting, as a proportion, to a greater degree. Of course, the Government have intervened when it comes to cost of living. That has been cash and that is not about percentage of income. It is all around our energy price guarantee, increases to the national living wage and looking at the uprating of benefits, which will rise by much more than inflation is forecast to be next year. So there are lots of different factors to take into account and sometimes one can be quite blunt when dealing with a tax cut that is, frankly, going to benefit 29 million people.

The noble Lord, Lord Sikka, asked why national insurance contributions do not apply on unearned income. National insurance contributions are part of the UK social security system, which is based on a long-standing contributory principle centred on paid employment and self-employment. ‘Twas ever thus. Of course, a future Government may make substantial changes to that which would again increase the tax burden—but this Government are content that we will maintain the contributory principle.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Kramer Excerpts

3rd reading
Tuesday 12th December 2023 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I am grateful to all noble Lords who have participated in the passage of the Bill. It delivers on the Government’s long-term plan to grow the economy and reform the tax system. It achieves this by cutting taxes for 29 million workers through three measures: a reduction in the main rate of employee class 1 national insurance contributions, or NICs, from 6 January 2024; a reduction in the main rate of self-employed class 4 NICs, from 6 April 2024; and the removal of the requirement to pay self-employed class 2 NICs, also from April 2024. Those who choose to pay class 2 voluntarily will still be able to do so. This simplifies the system for self-employed taxpayers, so that it is more closely aligned with the treatment of employees. The Government intend to fully abolish class 2 NICs, and further details about this reform will be set out next year.

Although this is a relatively small Bill, it has a big impact. It is an integral part of the Government’s long- term plan to grow the economy and reform the tax system but, most importantly, it is fair and it is right, because it stands by working people.

I would especially like to take the opportunity to thank all the Treasury officials for their enormous hard work in bringing the Bill to your Lordships’ House so quickly, such that it will deliver the benefit to workers from January 2024. I beg to move.

[Baroness Kramer (LD)]

My Lords, it is customary at this point to thank all those who have helped us with the Bill. The arduous task of taking it through has perhaps been one of the lighter moments of our parliamentary lives, but there was still a lot of hard work by the Bill team to prepare it. I would thank my staff, except that none of them worked on it. This is just to say a formal thank you to everyone who contributed to this process. We appreciate it.

Bill passed.

Banking Hubs

Baroness Kramer Excerpts

Monday 11th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I think what the noble Lord has just set out is exactly what the Government are doing. The FCA consultation goes into an awful lot of detail on the criteria that will need to be met for banking services to continue. We accept that, while the use of cash has declined over time, it has possibly reached a plateau. But I reassure noble Lords that, for example, 97% of the urban population is within 1 mile of a free-to-use cash access point.

[Baroness Kramer (LD)]

My Lords, surely the Minister has hit the nail on the head: the weakness of the current banking hub system is its voluntary character. That could be corrected with a relatively simple statutory instrument so that, when a local community applies to Link and is shown to meet the criteria, a banking hub is guaranteed and it does not suffer what happens today—delay or refusal by the banks.

Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023

Baroness Kramer Excerpts

Wednesday 6th December 2023 Grand Committee

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these draft regulations will expand the application of the existing insolvency arrangements for electronic money and payment institutions so that they apply to firms in Northern Ireland and Scottish limited liability partnerships as they already do in England and Wales, as well as for companies in Scotland.

The payment and e-money sectors have expanded rapidly over the last decade, with payment and e-money institutions now holding more than £17 billion of funds belonging to UK consumers. As the sectors have grown, the Government became concerned that the application of standard insolvency procedures to the failure of these firms was leading to negative outcomes for customers. In particular, administration cases involving these types of firms were taking years to resolve, with customers left without access to their money for prolonged periods and receiving reduced money as a result of high distribution costs.

To manage these risks, the Government legislated in 2021 for a special administration regime to provide for the prompt return of client assets should such a firm fail. This regime was delivered through the Payment and Electronic Money Institution Insolvency Regulations 2021 and the accompanying rules. These regulations established the special administration regime in England and Wales, and for companies in Scotland. This regime created special administration objectives that an administrator will have to follow when conducting an administration of a payment or electronic money institution.

The key provisions of this regime include: first, bespoke objectives for an administrator to ensure the return of customer funds as soon as reasonably practicable, to engage with the relevant authorities and to either rescue or wind up the institution in the best interests of creditors; secondly, continuity of supply provisions that will allow an administrator to keep the firm’s key functions operational for customers; thirdly, provisions to ease the transfer of business processes such that a new firm can take on the incumbent’s business and provide continuity for customers; and, finally, bar date provisions to allow the administrator to set a deadline for consumers to claim and thus enable an earlier distribution of customer funds.

The Government originally consulted on the special administration regime from December 2020 to January 2021. This included not only public consultation but pre and post-consultation meetings with industry groups, including the Banking Liaison Panel, as well as extensive work with the FCA. During the consultation process, most respondents expressed support for the proposals and many provided detailed and useful comments which enabled the refinement of policy. For example, the Government introduced additional steps within the special administration regime rules to require administrators to provide a reasonable notice period before a bar date comes into effect. This will allow time for administrators to communicate bar dates to customers and for customers to make claims.

In responding to the original consultation, the Government confirmed their intention eventually to extend the regime to Northern Ireland and to limited liability partnerships in Scotland, but that this would be to a different timetable, reflecting further work that was needed given differences in insolvency law. The Government therefore subsequently consulted extensively with the Scottish and Northern Irish devolved Administrations to produce the regulations being debated here today.

As noted, this statutory instrument is required to ensure that the regime can effectively apply to Scottish limited liability partnerships and to firms in Northern Ireland, ensuring that the regime applies effectively across the whole of the United Kingdom. For example, these regulations ensure that the relevant provisions of the Insolvency (Northern Ireland) Order 1989 apply to the payment and electronic money special administration regime, as they would to any other insolvency proceedings for Northern Irish firms. This mirrors equivalent provisions which ensure that the relevant provisions in the Insolvency Act 1986 apply in England and Wales. This includes provisions around the duties of officers and the powers of the liquidator.

These regulations do not apply the insolvency procedure to Scottish partnerships, as they are sequestrated under the Bankruptcy (Scotland) Act, which is a devolved matter for the Scottish Government. In addition, Scottish partnerships, apart from limited liability partnerships formed in Scotland, do not currently enter administration and would not be within the scope of the regime.

In conclusion, by expanding the application of these regulations to the relevant firms in Northern Ireland and to Scottish limited liability partnerships, these regulations will ensure that we have robust arrangements to manage the potential insolvency of payments and electronic money firms throughout the UK. I beg to move.

[Baroness Kramer (LD)]

My Lords, this instrument seems to make good sense and we certainly have no intention of opposing it. I have just three questions. First, I understand that it was always anticipated that this regulation would stretch over Northern Ireland and Scotland as well as England and Wales, so it seems very strange that the consultations for Scotland and Northern Ireland were not done in parallel with the consultations for England so that, when the legislation came in, the relevant instruments could all flow immediately, rather than creating a two-year hiatus. Is there any particular reason why that procedure was not followed? It would seem to be the more obvious route.

Secondly, the Explanatory Memorandum makes it clear that there was extensive discussion with the relevant bodies in Northern Ireland and Scotland, and the Minister basically said the same. Was there expected to be any formal approval by the devolved Governments, or was that not relevant in this instance? Can the Minister clarify the position of the devolved authorities in this? From the way she described it, it sounds as though there has been no tension or opposition, but it would be helpful to know whether I have misread that.

My last question is a more fundamental one to do with the hard bar. It is obviously critical to have an efficient and effective insolvency process, and I fully accept that the Government are working to frame that. When I was involved with the transition out of Libor, or dealing with dormant assents, it rapidly became evident that it is very hard to identify anything close to 100% of the relevant claimants. Organisations change their names, they are acquired or sold, there are inheritances—all kinds of actions cloud and obscure relevant ownership and, therefore, relevant claims.

In the two instances that I cited, Libor and dormant assets, a provision was made to ensure that people who appear past the point where the process has fundamentally changed do not lose out because they were ignorant. Some will say that most people were overwhelmingly in support of this in the consultation, but the kind of people who do not know that they have a claim are also probably the kind of people who do not reply to a consultation. The experience with dormant assets and Libor has shown that there is a substantial body of people and, usually, small companies who have a genuine legal claim of some sort. I am interested to know whether any thought was given to making provision for that particular group, which could be excluded by the establishment of a hard bar. I have no idea what the legal responsibilities of the administrators are if a claim is made after a hard bar has been established—whether the claimant loses no matter the basis of their claim. I would like to understand that a bit better.

Autumn Statement 2023

Baroness Kramer Excerpts

Wednesday 29th November 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I welcome the noble Baroness, Lady Vere, to the Government’s Treasury Front Bench. Last week we debated a statutory instrument and I failed, until very late in the day, to congratulate her on her new role. I remain mortified by my absence of mind, so I repeat the welcome today. I also compliment her on tackling two of the most difficult topics in the portfolio: central counterparties last week and the Autumn Statement this week. I assure the noble Baroness, Lady Goldie, that no matter what the excellent qualities of her successor, in her portfolio she will be very much missed.

The headline message of the OBR is that, even after the Autumn Statement, and taking into account every government policy and promise, the forecast growth rate for the economy is essentially—and let me quote the noble Baroness, Lady Noakes—“uninspiring” and, to use my own word, stagnating. Only this Government would applaud and congratulate themselves on a Statement with that characteristic.

Living standards for ordinary people have fallen by £2,000 per household. Inflation and high interest are now expected to continue for longer. Indeed, the overhang of inflation will hold back people’s spending power for years. The cost of housing has now become a persistent crisis for many people, especially young people. On my Benches, my noble friend Lady Thornhill took us through the real-life experience, which is dire for so many people who are dependent on housing from housing associations. Typical households will soon be paying over £5,000 a year to service debt, driven largely by mortgage costs, and household saving rates have fallen sharply.

The Government use tax-cutting rhetoric, but ordinary people face a tax-rising reality for at least the next five years, thanks to the freezing of thresholds—the noble Lords, Lord Sikka, Lord Northbrook and Lord Jackson of Peterborough, all referred to this in various ways. Despite the rate cut in national insurance, a typical earner will pay £400 more next year in tax and national insurance, and a middle-income earner will pay £1,200 more. It is instructive, in understanding Conservative priorities, that the highest one-fifth of earners will receive five times as much from the national insurance rate cut as the lowest one-fifth of earners—that is a measure referred to by the noble Baroness, Lady Meacher, who is not yet in her place.

In the same vein, the Chancellor confirmed the dire message from the Department of Work and Pensions for the mentally ill and mobility-impaired members of our community: work from home or lose nearly £5,000 a year in benefits. Mental health charities are sending out almost emergency briefings, warning that home working rarely allows for hands-on support and can add to isolation, and that the costs of heating and wifi, and other necessary supports, can be prohibitive. Over the weekend, I had a conversation with some disabled people; they are genuinely frightened, having fought for the benefits they have got, only to find that they will now begin to lose them if they do not agree to home working, for which they are in no way prepared and often not capable. I do not think this is the way to save £1.3 billion a year in a civilised society.

Public services—already badly degraded, as referred to by the noble Lord, Lord Eatwell, my noble friend Lord Thomas of Gresford, and the noble Viscount, Lord Hanworth—will face real cuts, with, as others have said, the blows falling hardest on unprotected services, such as local government, which support the most vulnerable people. This was referred to in detail by my noble friend Lady Pinnock, who also pointed out that the numbers mean a cut in the clean-up of sewage, which is really going to disturb the many communities who are disgusted by the state of our rivers.

Public borrowing will still be at 94% of GDP at the end of the forecast period, and then only if we assume that fuel duty rises every year with inflation—a point made by the noble Lord, Lord Howarth. Infrastructure spending also has to be curtailed, and the public will have to accept collapsing public services.

Among advanced countries, we are now a high-debt country, and that fits with the issue raised by the noble Lord, Lord Sherbourne. I am particularly concerned and alarmed at the condition of the gilts markets, given not just the Government’s expected gilt issuances of over £200 billion a year but the determination of both the Bank of England and the pension funds to sell off gilts. The OBR worryingly concludes that private sector holdings of gilts will need to be the highest level on record next year and, over the forecast period, the highest sustained level this century. We will depend heavily on foreign buyers, and foreign buyers are volatile.

The Government have offered a carrot to businesses, with full expensing of new investment. That refers to expensing in year one; we have always had expensing over the accounting lifetime of the investment. However, read the whole paragraph; I read it in the same way as the noble Lord, Lord Eatwell. The OBR expects this to be fully offset by the faster retirement of existing capital. Modernisation of equipment and software is surely a good thing, but it is not the dramatic industrial expansion this Government seem to promise as a consequence of this particular tax change. The noble Baroness, Lady Noakes, put it well, describing it as a costly way to achieve a modest increase in investment. Meanwhile, the Government have largely neglected small businesses, which are the backbone of our economy, and certainly failed to grasp the need to wholly reform business rates.

The OBR makes it clear that the economic damage of Brexit—some 4% to 5% economic scarring—remains, and the noble Lord, Lord Sikka, drew attention to this. In her listing of all the events that have shaken the economy, it was notable that the noble Baroness, Lady Goldie, did not mention it, and yet it is the deepest and most permanent scarring, compared to the other features she carefully named—interesting. The OBR also reports that neither this Statement nor other Government policies, nor trade deals, are forecast to reverse the Brexit-driven collapse in our terms of trade by 15%. According to surveys by the Federation of Small Businesses, much of the drop in trade is tied to SMEs ceasing to export. Many British SMEs have been dropped from European supply chains, have lost buyers around the world because they can no longer guarantee European standards, or find the post-Brexit regime too costly and cumbersome.

Productivity remains below the rate before the 2008 financial crisis; frankly, no developed economy can be prosperous with productivity at this persistent level. I like very much the idea suggested by the noble Lord, Lord Londesborough, of a productivity council, and others have proposed ways in which to try to tackle this issue.

Demographics show that we are desperately short of a working-age population, given the size of our ageing population, and we are also short of skills. The situation is made far worse by the vast numbers on NHS waiting lists. My party would have reinstated the bank levy and strengthened the oil and gas windfall tax to tackle those waiting lists head-on, as key to reviving the economy—an issue referred to by my noble friend Lady Pinnock.

The Government’s Advanced Manufacturing Plan, published on 26 November, is positive news and I welcome it. The strategy is a bit scattergun, but it is definitely good news. However, it does not assure that the UK can build the industries of the future at sufficient scale. The plan itself exposes the problem, as referred to by the noble Lord, Lord Eatwell. The Government say:

“Other countries have embarked on large tax and spending sprees to claim a share of the global manufacturing market”.


The Government then claim the moral high ground in not following suit. The truth is that this Government have run this economy so badly that they cannot follow suit to compete with the US and the EU in support for the industries of the future. People might then start talking about Covid and oil prices, but they have hit all those countries as well. We have got to be in that competitive game. The noble Viscount, Lord Hanworth, talked about this in some detail, and I appreciated the advice we got from the noble Lord, Lord Harrington. I have not yet read his report, but I promise to do so immediately, because it sounds fascinating.

In this Autumn Statement, the Government found £27 billion of headroom, as referred to by the noble Lord, Lord O’Neill. But it was not the headroom that came from economic success, a point made by the noble Lords, Lord Londesborough and Lord Desai. The headroom came from two sources. The first is from the revenues that resulted from higher than forecast inflation, especially since the Government chose not to fund the hit to public services from such inflation. The second is from freezing the thresholds for income tax and national insurance. In the Autumn Statement, the Chancellor spent every penny of that headroom.

I do not claim that the Government faced an easy time in shaping the Autumn Statement—although one must admit that they have brought most of it on themselves. But where are the plans to recapture our access to European markets? Where is the investment in the NHS to rapidly cut waiting lists and allow people to return to work? Where is the capital budget to revive our faltering infrastructure? The noble Lords, Lord Macpherson and Lord Willetts, and others, talked about the importance of that public sector infrastructure investment.

I return to my earliest comments. Put the whole package together—the Statement, the promises, the policies—and the output, which surely is the measure, is economic stagnation for at least the next five years.

Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023

Baroness Kramer Excerpts

Monday 20th November 2023 Grand Committee

In summary, these regulations will help ensure that there is a robust resolution regime in place for CCPs, protecting public funds and the financial stability of the United Kingdom. I beg to move.

[Baroness Kramer (LD)]

My Lords, when the original legislation that sits behind all this was debated in the House—for many hours—I remember a conversation afterwards with one of the clerks, who had sat through nearly all of the proceedings. The clerk said to me, “I have sat in this House for years and have been through many debates of all kinds, but this is the first time I have sat through a debate and not understood a single word of the entire discussion”. I am feeling some brotherhood with that clerk at the moment. I remember the past, but I have to admit that I still find utterly daunting the complexity of CCPs and the various pieces of legislation.

I have been digging through my memory and am trying to understand whether these SIs are essentially tidying-up measures designed to give more flexibility to the Bank of England—in its role as the resolution authority—in somewhat changed circumstances, and measures to increase its efficiency. I ask the Minister: is there anything in here to which she would draw our attention as representing a more fundamental change? I admit that I cannot find it, but I thought I should ask the question, given the narrowness of my understanding of this complexity.

As I remember, the resolution of the insolvency of a CCP was structured using a waterfall of liability. First, equity and the CCP came into use, and, after that, if necessary, so did a default fund, to which the clearing members had contributed. My colleague, my noble friend Lord Sharkey, and I pushed on this question, because it seemed apparent to us that the combination of equity and a default fund could work if, say, one clearing member collapsed, or perhaps even two. But, if the collapse were systemic, very quickly only the taxpayer would have the resource to step in. The taxpayer would need to do so immediately to prevent chaos in the financial sector nationally and, probably, globally. The Minister will be aware that virtually all CCPs around the globe essentially have common ownership and, in many ways, need to be looked at almost as a network, rather than a series of individual operations—certainly when one thinks about resolution.

So we asked the then Minister—I believe it was the noble Lord, Lord Sassoon—to clarify why members should not be forced to make bigger contributions in the case of insolvency, above and beyond equity and the default fund, because, obviously, sitting behind CCPs are huge banking institutions and, in other cases, oil companies. As I remember, we were told that, if faced with additional liability, those who operate or participate in the CCPs would choose to use exchanges outside, rather than inside, the UK. So, do these additional SIs empower the Bank of England to require members to make additional cash contributions? I am somewhat concerned that the negative SI—which we are not debating today but which sits with these, as the Minister rightly said—and its cash call powers might have that possibility. I am not saying that I am opposed to that, but I just wonder whether the Minister can do anything to help me understand it and whether there are therefore any implications for the attractiveness of the UK as a location for clearing.

The Minister kindly assured all of us that assets held in the CCPs as margin—collateral, in effect—are fully protected, and there are no implications for netting or off-set. I think I have understood that correctly. But, in a dynamic situation, there must be some adjustment to netting and off-set because, if there is an insolvency, changes in value take place on a moment-by-moment basis. Is there a way to encapsulate how that piece of it works? I am concerned about saying that there are absolutely no implications for netting and off-set, when it is very hard to see that there would not be in an insolvency situation.

I just want to confirm again with the Minister that the “no creditor worse off” safeguard is still fully robust and whether the SIs—the negative and the positive together—weaken it in any way. Is the taxpayer liability, as the ultimate backstop, changed at all by these SIs? Are there, therefore, any implications for public sector net debt? In other words, regarding this liability to act as the rescuer of last resort—it is implicit in CCPs because we are looking at a “too big to fail” situation if we have systemic insolvency—are there any accounting implications for the national debt? Is there any possibility that these changes would drive towards putting the liability on the books?

The notional value of outstanding over-the-counter derivates, which represent the largest body cleared through CCPs, exceeds $600 trillion at any point in time. What is now LCH—I still call it the London Clearing House—dominates that market. A third of that business reflects the clearance of euro-based derivatives under an equivalence granted by the European Commission for UK clearing houses. However, that will last only until June 2025. I know that the City and the Treasury are convinced that the EU will extend that equivalence grant out of necessity, but if it does not, the implications for the City of London will be huge. This is not a time for complacency. I ask again: are there any competitive issues to which we should be alerted in these SIs and which may have consequences for either the EU grant of equivalence or our dealing with the consequences if that grant is not given?

[Lord Livermore (Lab)]

My Lords, I begin by warmly welcoming the Minister to her new role. I very much look forward to working with her in the months ahead.

[Baroness Kramer (LD)]

May I offer my apologies for not having welcomed the Minister to her role? We talk to each other across the House so often that I hardly realised a change had happened; I apologise.

[Lord Livermore (Lab)]

As the Explanatory Memoranda accompanying these two SIs note, the current CCP regime was implemented around a decade ago, in part as a response to the global financial crisis. The Financial Services and Markets Act 2023 has introduced an expanded CCP resolution regime, with that Act giving the Bank of England, as the UK’s resolution authority, what the Government call

“an expanded toolkit to mitigate the risk and impact of a CCP failure and the subsequent risks to financial stability and public funds.”

Preserving market stability is of paramount importance. The UK’s financial services industry plays a vital role in boosting economic growth and delivering skilled jobs in every part of the UK. Almost 2.5 million people are employed in financial services, with two-thirds of those jobs based outside London, and the sector contributes more than £170 billion a year to GDP.

The City of London is one of only two global financial capitals and is at the very heart of the international monetary system. The UK’s reputation and success as a leading international financial centre depends on high standards of regulation as well as a stable and independent regulatory regime. Much of what is being implemented by these two SIs is a carryover between the old and new CCP regimes. Paragraph 3 of the impact assessment outlines that, if these steps were not taken, it

“would mean that there is no protection in place to ensure that the Bank’s powers do not disrupt normal market procedure.”

We therefore fully support both these SIs.

However, I want to ask the Minister a number of questions. First, an issue frequently raised with this type of SI is the sheer breadth of legislation that it tends to amend and the difficulty that those in the sector may face in familiarising themselves with all the changes once they have taken effect. The first of the SIs we are debating today makes a long list of changes to corporate law to ensure that the new Schedule 11 CCP regime will function effectively. The second SI somehow manages to be even more technical; it deals with partial property transfers and the writing down of liabilities, needed to ensure that they do not disrupt the new system’s operation. I ask the Minister, therefore, how interested parties will be, or have been, notified of the contents of these instruments, and when the guidance referenced in paragraph 11.1 of both Explanatory Memoranda will be laid. Will that guidance be laid before Parliament, or at least sent to the relevant parliamentary committees?