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.

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”.

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.

Finance (No. 2) Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Friday 24th May 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I welcome the noble Baroness, Lady Hazarika—talk about getting in under the wire in this Parliament. It was a brilliant maiden speech, in both tone and content, and it seemed to me that it reflected someone intending to challenge, but with respect, and that surely is the very best of this House. I very much look forward to hearing her in the next Session. One of the great joys for all of us here is that we know we will be back.

I will also use this opportunity to pay my respects to the Minister, the noble Baroness, Lady Vere. She has served with real vigour in her role and mastered an incredibly complex portfolio. If anyone doubts that, they should listen to today’s speech from the noble Lord, Lord Davies of Brixton. She has always treated all of us on our Benches with courtesy, even in the rough and tumble of politics. We do not know what will happen in the coming election, but I thought it was important to mark our appreciation of the service that she has given on this portfolio.

I will turn to the topic of the day. This is definitely a No. 2 Finance Bill, and it is mostly a tidying up exercise. I am so glad that I do not have to pursue the point raised by the noble Lord, Lord Davies—I leave that to the Minister to cope with—but, knowing the noble Lord, it is a significant point, and it is worth a follow-up.

I am particularly pleased with the support in the Bill for the creative industries. Most of the measures that are being dealt with in a wash-up process are relatively minor. We dealt with the key elements of the last Budget in numerous debates on many pieces of previous legislation and Statements, so I have decided that my comments will be fairly brief because we have behind us a whole queue of legislation, and people will be anxious to move forward.

The Government keep using phrases, as they talk about the economy, such as “turning the corner” and “returning to normal”. If the Government think that the economy has returned to normal, they really have absolutely no understanding of normal people’s lives. People are facing relentless cost of living pressures and, when I am on the doorstep, I find there is a general horror at the collapse of so many public services. I will not detail those, but I say to the Minister: if this is the new normal, my sense on the doorstep is that people do not want it.

The freezing of tax thresholds has squeezed people on low and modest incomes in some of the harshest times, while oil companies really got away with it thanks to loopholes in the windfall levy; and today in this Bill, they were handed some additional goodies. Again, when I am out on that doorstep, the anxiety about the state of the NHS and social care is dominating so many people’s minds, and we have come to a terrible pass when the police are told not to arrest criminals because we cannot provide prison places. We heard today about the new energy cap—that is, obviously, good news. But people will still pay on average £400 more for their energy in a year than they did before the pandemic—and, frankly, any benefits on that side look as though they will be stripped away by the behaviour of the water companies. I looked at the applications that they made to Ofwat; it looks like my personal bill will go up by something like £350 a year. Today, I read the assessment of bonuses going to senior managers within the water companies—they amount to £54 billion for this year. The Government are completely hapless in trying to deal with these issues, and I hope that we will get some real change following the election.

In the corporate sphere, which underpins our economy, we have low and stagnant business investment and productivity. We face worker shortages and a shortage of skills. Trade has diminished significantly. We have ongoing trade weakness—for a country that lives or dies by trade. The emergency summit this week on the Stock Exchange is just one example of the worsening scarring of Brexit. We hear that our problems are caused by the pandemic and Ukraine—that is true—but the biggest and most persistent scarring is coming from Brexit and that is worsening, not easing.

My party will fight for a fair tax strategy, a proper industrial strategy and an apprenticeship scheme that actually works. We will rebuild exports, including to our former markets in Europe. I say to the Minister that, as we come to the end of this Session, there is hope for our economy. We are right to try to take an optimistic and positive line, but we cannot rebuild our economy until her party leaves office.

Defence Funding

Baroness Kramer Excerpts

Thursday 16th May 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble and gallant Lord for his intervention, but the Government have committed to increase NATO-qualifying defence spending to 2.5% of GDP. That will make us the biggest defence power in Europe, and second only to the US in NATO. If all other NATO members were to increase their spending to the same levels, that would mean an additional £140 billion to be spent by allied nations.

[Baroness Kramer (LD)]

My Lords, the UK’s green gilts have been justified as necessary to promote London as a global centre for green finance, and they have been successful, but defence bonds would bring no such advantage and surely should be funded from core taxation. What would be the impact of defence gilts on general gilts issuances, on the national debt, on our annual interest payments and on funds for other public services?

[Baroness Vere of Norbiton (Con)]

Of course, I do not have the answer to those questions because the Government are not intending to issue defence bonds. However, the noble Baroness mentioned one of the rationales for issuing green gilts—ensuring that the City of London is a global financial centre—and she is absolutely right. Indeed, we are the No. 1 financial centre for green finance.

Building Societies Act 1986 (Amendment) Bill

Baroness Kramer Excerpts

2nd reading
Friday 10th May 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, we on these Benches support the Bill. The main, important provision here is to exclude MRELs, minimum requirements for own funds and eligible liabilities, from the wholesale funding limit for building societies. I had rather hoped that the noble Lord, Lord Kennedy, would explain in opening what MREL was; he wisely avoided that task, so I will just explain it in one line for those who do not spend their time in financial services debates. In effect, it is a layer of debt that automatically converts to capital in case of a failure of the institution, with the notion that that would then protect the taxpayer. I hope that is an adequate summary.

This Bill carefully does not challenge the principle of having that layer of protection but stops the double-counting that goes on when the current rules are applied to building societies, in contrast to banks. I and other members of my party have been calling for years for the unique characteristics of building societies to be accommodated when the UK regulator sets the MREL rules. All of that is permitted under the Basel III regime from which MREL emanates—the regime that came into play after the financial crisis of 2008 to try to find ways of protecting global economies from failures within the financial services sector.

I am also very conscious that raising the non-preferred or subordinate debt, which is the typical constituent and primary instrument of the MREL layer, is very difficult for building societies to do at a reasonable price. It is a very limited market, so having double-counting in the building society system was, frankly, reasonably unforgivable. I take the view that the regulator could have sorted this all out without primary legislation; I am told that the Treasury for a while thought the same but has decided that primary legislation is necessary. So be it. If it is necessary, I am glad that we have it in front of us today.

Like others, we on these Benches are convinced that a revitalised building society sector can fill the geographic and demographic gaps in our financial services provision. The sector and mutuals generally play a crucial role in bringing financial services, including mortgages, to a broader section of our population, especially first-time home buyers.

However, in the context of what some would call an argument for weakening a resolution regime, I should say that I am not going soft. I remain deeply concerned at the steps taken by this Government and the financial regulators to water down the protections brought in after 2008 to prevent a repeat of that kind of financial crisis. Elements of Solvency UK, parts of the proposed Edinburgh reforms, the breaching of the ring-fence in HSBC’s purchase of Silicon Valley Bank UK and the lifting of the cap on bankers’ bonuses are all examples of key shifts that have begun to undermine the protections that were put in place. When these issues are raised, the Government typically say—I wonder whether they will do so again today—that we can afford to encourage much more risk in the financial sector because we now have a powerful resolution regime in place, of which MREL is a key part.

This is not the day to go into detail, but I hope that parliamentarians are aware that, in the two instances when we have had bank failures in the global banking sector following the creation of the resolution regimes, Governments have chosen not to use the regimes, because the collateral damage from enforcing the bank failure and the consequent almost wiping out of those who are holding the preferred debt that is part of MREL, as well as the shareholders, has been assessed as being so great that, in effect, the taxpayer has become the means of resolving the problem. The two examples are the failures of Silicon Valley Bank in the UK, including its UK operations, and of Credit Suisse. The US, UK and Swiss Governments all looked in the face of that resolution regime and decided not to exercise it. This stresses the importance of not having a crisis in the first place—which takes us back to making sure that those initial protections remain strong and powerful.

The other features of this Bill make sense to me, so I will not elaborate. I do want to say quickly that I am conscious that some noble Lords—I have had letters about this—wish to use this Bill to challenge some aspects of the Nationwide purchase of Virgin Money. It is important to say that amending this Bill will simply kill it, as it is a Private Member’s Bill, which would achieve nothing for anyone. So I hope others will support the Bill and I wish it swift passage.

Bank of England (Economic Affairs Committee Report)

Baroness Kramer Excerpts

Thursday 2nd May 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I congratulate the noble Lord, Lord Moynihan of Chelsea, on his maiden speech. He speaks with great expertise. I suspect that occasionally we will agree, but frequently we will disagree, but that is the purpose of the House.

I was privileged to be on the Economic Affairs Committee when it developed the report and so this is my opportunity to thank our chair, the noble Lord, Lord Bridges of Headley, for his outstanding leadership on this and other issues. I miss participating in the EAC.

I will speak later about accountability and the lessons that we have to learn that are embedded in this report and the Bernanke report. But to my surprise, I think it is very important that I first state clearly and unwaveringly the support of my party for an operationally independent Bank of England. It seems to me that in the debate today that has been called into question—along a spectrum, perhaps with the noble Lords, Lord Frost and Lord Blackwell, at the more extreme end—but it is crucial if we are to have credibility in domestic and international public markets and with the public at large. If there is one body that the public mistrusts more than the Bank of England, it is certainly politicians. I thank the noble Lord, Lord King, for giving us in great detail examples of how it is just impossible for anyone at a senior level in politics not to seek to manipulate issues such as interest rates and inflation when there is electoral and political victory at stake.

As I said, the report contains many recommendations that I hope will be taken up. The one that captures me the most, and this was picked up by virtually every speaker, is the issue of groupthink. The noble Earl, Lord Effingham, quoted Ben Bernanke, whose observation that the Bank’s

“deficiencies were characteristic of the central banking community in general rather than the Bank alone”

speaks to the broad groupthink that affected the whole central banking community globally.

I fully endorse the recommendations in our report for more diversity of thought at the Bank and the proposal that the Court of the Bank should play a stronger oversight role. Back in 2016 I opposed the Government’s decision to reduce the number of non-executives on the court and abolish its oversight committee. It is now vital that challenge be brought back into the system, at both court and monetary policy level. I will talk about accountability later, but the element of challenge is vital. It is just improbable that people of sufficient calibre and expertise, across a variety of thought, cannot be recruited into the various and appropriate bodies within the committees of the Bank.

I turn to the Bernanke report. Like the noble Baroness, Lady Liddell—and the noble Lord, Lord Lamont, may have said the same thing—I was shocked to realise just how out of date the tools are that underpin economic forecasting at the Bank. For those who have not read the report, the phrases include:

“Some key software is out of date and lacks functionality … insufficient resources … makeshift fixes … unwieldy system”.


That is really quite damning. How we got here I do not know, but I suspect that everyone in the House would agree that it needs to be changed quickly, and the noble Baroness, Lady Lane-Fox, is certainly someone I would turn to for advice in this arena.

Once we got a grip on the fact that the forecasting is inadequate at present, I began to have some understanding of why neither the Bank nor the Treasury seems to capture and understand the risks of continuous quantitative easing, including the fiscal implications of, in effect, swapping nearly half the public debt overnight from long-term fixed rates to volatile rates, halving duration and aggravating asset inflation. We have to recognise that quantitative easing was a vital tool in dealing with liquidity problems, certainly after the 2008 crash and in the early days of Covid, but it is not an elixir to drive forward economic growth. That issue should have been caught if we had had much better forecasting and ranges of scenarios as well as diversity of thinking.

We now face quantitative tightening at a time when the Treasury is also issuing high levels of public debt and one of the major purchasers of gilts, the DB pension funds, have far less appetite for those instruments. We are in a difficult place, and it is going to take some time to unwind all this. I go back to the argument that these issues need to be resolved by the Bank objectively looking at the economy, not by political interference.

As well as fixing the system at the Bank, we have to ensure that the Treasury and the Bank can at least communicate properly with each other, without compromising the Bank’s independence, to ensure that fiscal policy and monetary policy are made with an understanding of what is happening in each arena. As our report says, that co-ordination responsibility falls primarily with the Government; they set the inflation target for the Bank and control fiscal policy. However, as we took evidence, I could not see any clear lines of responsibility or clear communication mechanisms. It seems to me that the issue is handled largely informally, and I think we would all ask for more clarity. I strongly endorse the report’s recommendation that the Bank and the Debt Management Office of HM Treasury should publish an MoU on the interaction between monetary policy and debt management. Like the many others who have said this, I simply do not understand why the Treasury does not publish the deed of indemnity—that is completely beyond me.

Our report—this is where I probably differ from some others on the committee—focuses quite strongly on the remit of the Bank, which has of course expanded significantly in recent years, and recommends far more transparency and debate around that remit, especially in Parliament. I agree with that process of debate and transparency, but I think this issue is getting seriously overplayed. Staff and resource the Bank properly and, it seems to me, it can cope with more than a single remit. In terms of shaping our economy to tackle climate change, I would be very worried to see the Bank of England step out of that arena in the crisis that we face.

Let me close on the issue of the accountability of a body as central as the Bank is to the functioning of our economy. Independence is not in conflict with accountability; for that reason, I believe that aspects of the work of the Bank should be looked at by our new Financial Services Regulation Committee. That committee is a significant step forward, but the Bank could make that work, and parliamentary scrutiny, easier if it effectively ensured a flow of information to us. Information seems to come out in unquestioned bites or has to be extracted through very brief committee evidence sessions. I would like to see a much more open and constant flow of information. For example, in the case of quantitative easing, it could have helped Parliament greatly had we had a detailed discussion of the economic risks from significantly expanding the Bank’s balance sheet. To do that, we have to have a committee that is properly resourced and powerful.

I very much agree with the noble Lord, Lord Bridges, that Parliament has a responsibility, as a whole, to step up its level of oversight. I hope we will seize on that. I hope indeed that the Government, and all sides of this House, will provide support to the proposal from the noble Lord, Lord Bridges, and the committee that we have a detailed five-year review, so that this discussion is regularly in front of us. Also, there should be no no-go areas. Why should we not discuss issues such as the inflation target? Discussion and challenge are very different from political interference and taking over control. Because we know that there has been a failure to provide diversity in appointments, it also seems to me that somehow bringing Parliament into some element of a confirmation process makes a great deal of sense.

I believe that there is a lot we can do and lessons that we can learn. I very much endorse the support of the committee and I am pleased we have got the Bernanke report. I wish it was all being taken a bit more seriously by both the Bank and the Government. Again, I thank the committee for the privilege of allowing me to have been one of its members.

HMRC Self-assessment Helpline

Baroness Kramer Excerpts

Tuesday 26th March 2024 Lords Chamber

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

My Lords, I do not have the details of who was told at what stage, but even though HMRC is a non-ministerial department and has a close relationship with the Ministers with oversight of HMRC, operational decisions are taken by HMRC’s management. The decision on the helpline followed two trials last year, the evaluations for which were published, showing that closing access to those helplines for certain people had no adverse effects at all. A commitment has been made that the helplines will remain open over the year ahead, but we are focused on listening to feedback and ensuring that as many people as possible can make the transition to online services, which have a far higher customer satisfaction rate than the phone lines.

[Baroness Kramer (LD)]

My Lords, it is not just this particular shambles: HMRC’s own surveys, which you can read in its annual reports, show that customer service has pretty much collapsed within that departmental agency. Its leadership has failed to recognise that the huge shift to self-employment, contract work and gig work has pushed swathes of ordinary people into a tax minefield. I ask that the Government provide HMRC with more resources to deal with this issue, but will they also tackle the culture at HMRC, which, at the top, remains focused on compliance through aggressive enforcement rather than through proper customer service and support? Most people want to pay the right tax; they just do not know what it is or how to do it.

[Baroness Vere of Norbiton (Con)]

I do not fully recognise the picture that the noble Baroness paints. Over the course of this Parliament, the amount of funding provided to HMRC has increased from £4.3 billion in 2019-20 to £5.2 billion in 2024-25, and the overall customer satisfaction across phone, web chat and online is 79.2% versus a target of 80%. However, I recognise that there are certain elements within the HMRC offer where taxpayers need to get a better service. That includes answering correspondence for some of the more complex and hard-to-reach people: the vulnerable and the digitally excluded. That is exactly why, quite frankly, we need to move resources from taxpayers who can and should use online and ensure that those resources can be targeted at those areas where customer service is not as good as it should be. That is what we intend to do.

Electronic Payment Devices

Baroness Kramer Excerpts

Tuesday 19th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My noble friend raises a wide suite of issues. Underpinning all the work the financial services industry is doing is the Financial Conduct Authority, which is responsible for regulating the sector. Principle 6 of its principles for business says that the sector must take particular care in the treatment of vulnerable customers. The FCA is reviewing the needs of vulnerable customers and may update its guidance shortly.

[Baroness Kramer (LD)]

My Lords, the Minister and other noble Lords have mentioned the FCA, and I would like to continue that conversation. When we left the EU, the credit card companies seized the opportunity of the loss of regulation to increase credit card interchange fees in the UK fivefold—a Brexit dividend for the card companies of some £200 million a year, the cost of which effectively falls on the consumer. Why have neither the Government nor the FCA as regulator acted to reverse what could be called the Brexit penalty?

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble Baroness for her question. Unfortunately, it goes slightly beyond my briefing today, but I will write.

Spring Budget 2024

Baroness Kramer Excerpts

Monday 18th March 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding-up speakers, I start with three very quick comments. To the noble Lord, Lord Kempsell, who is racing to get back into his place, I say: what an excellent maiden speech. But I suggest that his taste for the nitty-gritty in evaluation and analysis means that he is in the right House and the right portfolio. We look forward to his engagement in the future.

I say to my colleague, the noble Lord, Lord Lee, that his proposal that some of the NatWest shares currently in public hands should be shared with secondary schools as part of inspiring financial education and creating a new way of looking for so many of our young children is a brilliant idea, and I hope that the Government will take that up.

I say to the noble Lord, Lord Bird, who made those comments on social housing—in effect, that it should be a launchpad and not a trap—that that was an important piece of discussion in this debate.

Perhaps I should say sorry to the noble Lord, Lord Sherbourne, because of his most recent comments, but most normal people have already forgotten what is in this Budget. The Chancellor’s headline measure —a reduction in the rate of national insurance contributions—has been dismissed, as people realise that it is just a reduction in a relentless tax rise driven by the freezing of thresholds. Indeed, I quote the OBR:

“Tax as a share of GDP is forecast to rise to 37.1 per cent of GDP in 2028-29, 4.0 per cent of GDP higher than the pre-pandemic level”.


Meanwhile, public borrowing will increase by

“an average of £8 billion a year”.

Frankly, it leaves us in a fiscal vice.

The IFS—the Institute for Fiscal Studies—describes living standards as remaining “dismal”. I pick up on the excellent discussion of the noble Lord, Lord Horam, which others have mentioned, about GDP per capita by comparison with other countries. It is a woeful position to be in at this moment in time. Looking at a narrower group, pensioners, the Resolution Foundation forecasts that they will, on average, be £1,000 worse off per year by 2027-28.

My party will not oppose the national insurance rate cut, given the ongoing struggle of so many people with the cost of living. But the focus for the Liberal Democrats remains the dire state of the NHS and the missed opportunity in this Budget to provide it with the resources needed; closing loopholes in the oil and gas windfall tax, which noble Lords may remember was extended but the investment loophole through which everybody storms had been left wide open; attacks on share buybacks, as most of us wish to see investment not share buybacks, which have become increasingly popular; and restoring the levy on banks, which, frankly, have been raking it in thanks to high interest rates, and not passing it on to savers. All those kinds of sources could have helped us make a real difference on resources for the NHS.

However, we had two debates around most of those issues in February and I do not want to rehash all the things I said then—I am sure most people are tired of them. I want to look forward, and I do so with a certain real anxiety for what the UK faces. I want to understand what this Conservative Government plan for public services and for local government, recognising the dire state that most are in. We have a few pieces of information. The Government have instructed the OBR that real departmental spending on public services will fall by 1% of GDP over the next five years. According to the IFS, this means a fall in public capital and infrastructure spending of £18 billion a year in real terms, and a fall in day-to-day departmental spending for the unprotected departments, again in real terms, by £20 billion a year. That number is absolutely huge. I pick up the concerns of the noble Baroness, Lady Lister, about local authority cuts.

The Government constantly tell us that they have a plan for public services. What I am now asking the Minister is: show us that plan. When I look for where these public spending cuts will be replaced with new public productivity, the only thing I can really see is some vague notion that artificial intelligence or other kinds of digital change will deliver this kind of extraordinary efficiency. I share the scepticism of the noble Lord, Lord Lamont, about productivity improvements coming so easily, and the noble Lord, Lord Macpherson, told us how he had seen many an efficiency plan come and go. I say to the Government: tell us the plan and tell us in detail so that we can judge how credible that crushing reduction in expenditure and investment in public services is going to look.

We also have a promise from the Chancellor that national insurance will be abolished. It is not in the Budget, but in effect it accompanied it. That step would remove £46 billion a year in revenue from the Exchequer. Will that mean huge new borrowing? Will it be 7p on the basic rate of income tax? Will it again mean a decimation of public services? If so, which and when? That amount is virtually the whole schools budget, or that for justice and defence put together. We need to understand where the money to replace that national insurance abolition will come from.

Once, innocently, I thought the Government’s freezing of tax thresholds was a temporary, emergency measure, but it is now becoming clear to all of us that using threshold freezing to bring the lowest earners into tax is actually a key part of the Conservative plan. I remember the days of coalition: lifting tax thresholds to remove tax from lower earners was a central Liberal Democrat policy, and many on the Conservative Benches—I see some here; you know who you are—were furious with the Liberal Democrats for forcing it on the coalition because they felt very strongly that tax cuts should go to top earners, not people down at the bottom. It now seems this is actually the Conservative plan: to return to a focus on low-income people as a major source of new tax revenue. Indeed, it is well under way: we have seen the freezing of the thresholds and it carries on now for further years. Perhaps the Minister will openly confirm the change of direction: lower earners to pay more and more tax.

I end by turning to the vital issue of economic growth. The OBR is more optimistic than other forecasters, but even it sees only the most anaemic growth—here I pick up the comments of the noble Baroness, Lady Moyo—of 0.8% this year rising to 2% in the middle of the decade, and that estimate depends on immigration higher than previously anticipated. UK businesses are desperate for skills. Where is there anywhere in this Budget or in policy a proper reform of the apprenticeship levy? The Government announced some useful steps today, but they are not the fundamental overhaul that is absolutely needed to drive up the quality of skills in this country. The post-Brexit fall in trade intensity was initially forecast at 15%. It now looks as though the actuality is significantly worse. Our trade in services is strong, but the UK’s growth in goods trade is well below expectations and well behind the rest of the G7. That in turn has a huge impact on productivity.

Where is the trade plan that means reviving our trade with Europe? Let us not pretend that the new trade deals, although they are much vaunted, are more than, frankly, a rounding adjustment with some modest potential. Where are the mechanisms to seriously raise investment in UK businesses and infrastructure? Many in this debate focused on that issue—the noble Baroness, Lady Moyo, perhaps most particularly—but in a sense it was the subject of the speech by my noble friend Lady Bowles, focusing on investment trusts, which are a key vehicle that is disappearing because of slow government action. Where are these mechanisms to help us increase that investment? The new British ISAs and the Edinburgh reforms are useful but let us be frank: neither is a game-changer. The Government seem to have made some useful changes on the definition of SMEs, but could the Minister please tell us what the scope is of that and what the implications are? She can write if she does not have that to hand.

Behind this scattering of limited changes, there is no long-term policy certainty and no meaningful commitment to priorities. Every policy is unstable. That includes tackling the major crisis that my noble friend Lady Sheehan focused on: climate change. The number one request from businesses, according to research by the Business Magazine is:

“A clear and concise industrial strategy”.


Will the Minister please tell us why we do not have one?

We have a workforce shortage made far worse by NHS waiting lists of 2.7 million people. Others have talked about the huge number—9 million—who are of working age but inactive. The economically inactive range across the young as well as the old. As the noble Lord, Lord Sherbourne, said, most of them, or a very good number of them—one-third—are inactive because of long-term sickness. Few measures would drive our economy forward more rapidly than fixing the NHS, which is the mechanism to get so much of our inactive population back to work.

Andy Haldane, the former chief economist of the Bank of England, described these Budget measures as “macroeconomic marginalia”. I thought that a brilliant description. I suspect most of your Lordships agree. I say to the Minister: this is not a Budget that meets the needs of our times.