Financial Services: Mansion House Speech

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 21st November 2024 Lords Chamber

[Baroness Neville-Rolfe (Con)]

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

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

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

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

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

[Baroness Kramer (LD)]

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

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

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

Collective Investment Schemes (Temporary Recognition) and Central Counterparties (Transitional Provision) (Amendment) Regulations 2024

Debate between Baroness Kramer and Baroness Neville-Rolfe

Monday 18th November 2024 Grand Committee

[Baroness Kramer (LD)]

My Lords, I will be relatively brief because these are highly technical instruments, but there are some comments that I would like to make.

I shall start with the collective investment schemes and central counterparties order and begin with collective investments schemes. I ran this one by my noble friend Lady Bowles of Berkhamsted, who is the ultimate guru in our party on collective investments schemes and, I suspect, one of the experts on them within the House, and her report was “It’s absolutely fine, let it go”, so I will happily take that position on the necessary tidy-up of the changes in the language for collective investment schemes.

However, the second part of that order is far more interesting and raises some questions, about not the language but the broader issue of central counterparties and the hint that this regulation may contain. Everyone in this Room understands that central counterparties became an instrument for countering the fallout of the 2008 financial crash when liquidity seized up across the financial services sector because, within that huge area of derivatives—I think derivatives outstanding typically exceed something like $60 trillion at any one time—the outside world did not know who owed what to whom and therefore who was at risk from which failure and whether there would be domino effect. Indeed, liquidity then seized up and we went from a contained financial crisis into a wholesale financial crisis. Now, vanilla transactions and derivative arrangements that go beyond the vanilla pass through central counterparties so that there is a middleman, if you like, that can hold the risk so that if one party fails, the counterparty takes the risk, not the person who holds the mirror transaction on the opposite side.

I think everyone has always recognised—I could quote Andy Haldane, but I have done it too often before—that, in a sense, the central counterparty is an accumulation of risk. One could almost think of it as an unexploded bomb. Serious levels of risk are contained with the central counterparty and, if anything goes awry, the shock to the financial system would be global. The Committee will know that many of the counterparties share common ownership. They may look like completely separate organisations, but they feed back and the same parties, in a sense, make up their various memberships and ownerships. Cross-contamination is always a huge risk when dealing with central counterparties.

It is obviously sensible now that, sadly, we have left the EU, that regulation which tied into EU directives should drop away, but I am concerned that this does not become an excuse for playing the game of regulatory arbitrage. We hear constantly about the significance of growth. I do not deny that, but I am concerned about the gradual understating of risk that sits alongside loosening and changing regulation to create the animal spirits that will create growth.

The potential to play a regulatory arbitrage game around central counterparties must be raised in this context. When we required recognition by more than one regulator—ESMA as well as its UK equivalent—we had the constraint of two sets of significant eyes looking at a particular situation. Now there is one set of eyes only. While we always acclaim the importance and, as I often hear, the great superiority of the British regulators in this area, I would very much like some assurances that there is at least some degree of oversight and monitoring in recognising the potential of trying to loosen up regulation around the central counterparties.

Both prior to our exit from the EU and today, the dominant European clearing house—one might say the dominant global one—was LCH. It is no longer called the London Clearing House and its party in Paris is now known as LCH Paris. It is still dependent for about a third of its clientele on recognition from ESMA. ESMA has given it temporary equivalence, but that could be adjusted or changed in future and there could be limitations on European institutions from doing more than a certain percentage of their clearing through LCH or other UK clearing houses. Can the Minister update us on that issue? Is there any sense that the steps we are taking could trigger a more adverse decision from ESMA in reference to UK-based CCPs?

I will very briefly deal with the insurance distribution regulations. Some in this Committee will know that I hate the concept of a regulatory perimeter whereby we regulate activities on one side but not on the other. I gather from the Explanatory Memorandum that some companies which were outside the regulatory perimeter will now be drawn inside it. That can be only a good thing, but there has always been a tendency for companies in the UK to game the regulatory perimeter. They grow to a size that puts them just outside sight of the regulation. Will a significant number of companies be affected by this adjustment in denominating the assets from euros to sterling? Will we see a cluster around the regulatory perimeter and have any concerns been triggered in looking at this set of changes?

[Baroness Neville-Rolfe (Con)]

My Lords, I take great pleasure in returning to the Front Bench to debate Treasury matters, albeit now in a shadow capacity. Although I do not have current interests to declare, I hope that my past experience as Commercial Secretary to the Treasury and as a member of the EU Financial Affairs Sub-Committee will stand me in good stead. Until 2022 I served as a non-executive director of a challenger bank and, of course, I have served in business more generally. I thank the Minister for her clear explanation of these two instruments and their obvious complexities. I am glad of the opportunity to work with her across the House and I look forward to hearing the answers to the observations made by the noble Baroness, Lady Kramer, especially about risk.

Our investment schemes and central counterparties are without question the backbone of the United Kingdom’s financial services industry. They enable our country to attract global capital, support pensions and, ultimately, benefit people and businesses up and down the country. As the Minister said, it is important that the rules and regulations are not needlessly bureaucratic. The removal of EU recognition is welcome. We now have domestic arrangements for oversight and I believe we should not be double-banking, so I am in a slightly different place to the noble Baroness, Lady Kramer, on that.

I wish to make two wider points. I am particularly grateful to the Minister for including a de minimis impact assessment with the first SI. I note that it has also been through the better regulation unit. I have always been a huge supporter of impact assessment and wider cost-benefit analysis of all legislation, but I have two questions. Can the Minister confirm that it is the policy of the new Government to require de minimis assessments of this kind on all SIs—unless the impact is negligible, as with the insurance distribution SI? She can perhaps answer for the Treasury today. I note from GOV.UK that her ministerial role also relates to business regulation more widely. Although she may need to write, I would appreciate a wider answer, as such a requirement would help deliver value for money across government and limit the negative effect on growth of new regulation.

My other concern is the glacial pace at which we are leaving the EU financial services regime behind. The collective investment SI provides for a year’s extension of a temporary regime. Although this may be well and good for the reasons the Minister has clearly explained, I have no idea when the UK will have completed the task of replacing EU financial services law with our own. I was trying to advance this process in 2017 when I was at the Treasury so that we would be ready when Brexit day arrived; as it happened, it did not arrive until January 2020. I believe the transition was well debated during the passage of the Financial Services and Markets Act 2023, but I have two other related questions. Do the Government, with the help of the regulators, have a plan for completing it and taking advantage of any new freedoms and simplifications that are now possible? Will the Minister agree to send me a list of the missing regulations and a timetable?

Although it is a demand, I mean that as a constructive question. Our financial services sector is so important to UK growth, and we need to make sure that these changes are completed, take effect and help our financial services sector, which has so much to contribute to UK growth, productivity and prosperity. Having said that, I am very happy to support the two sets of regulations.

Financial Services Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Wednesday 10th March 2021 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I thank my noble friends Lord Holmes of Richmond and Lady McIntosh of Pickering for tabling these amendments and I very much agree with my noble friend Lord Holmes on the scale of the transformation that will be driven by fintech. It is more important to the sector, in my view, than Brexit, and my noble friend Lady McIntosh’s question is therefore a good one.

I rise to speak on Amendment 115 on digital identification. I have taken a substantial interest in facilitating the provision of digital ID for several years. It is the sort of thing where the UK, with its early digital adoption and its skill in matters of security, should be ahead of the curve. Some good systems exist and have been rolled out in other European countries, but not here. This is probably because we have been waiting for the banking sector to make a decisive move.

I tabled amendments on digital identification during the passage of the Covid legislation, with support from some noble Lords here today. I did not press the matter because I was promised progress, and I had good meetings with my noble friend Lady Williams and the Digital Minister, Matt Warman MP, who published proposals for the UK digital identity and attributes trust framework on 11 February, with comments on it due from us all by tomorrow.

I thought that I would get another chance to press my case when our Covid laws were renewed but there is no sign of any such opportunity. I noted, however, that on 4 March my noble friend Lord Bethell, the Health Minister, told us that digital certificates, not physical ones, are being used for vaccines to avoid fraud, underlining the need to make progress in the financial area. The fraudulent attempt to trick my noble friend Lord Holmes in relation to his driving licence underlines exactly the scale of fraud in everyday life, an issue that is calling for digital ID.

I am disappointed about the pace of change on digital ID and although I support Amendment 115, it needs to be stronger. Waiting yet another six months for a plan is too slow. Why can we not get a grip of this important area, as we have done in the much greater challenge of vaccines? Give the job to Matt Warman with a remit to bring in digital ID for those who need it by 1 September. That would be novel provision but we need to accelerate this change.

[Baroness Kramer (LD)]

My Lords, after all those excellent speeches, I shall try to be brief but I need to declare my interests in the register because they apply to this group of amendments.

Fintech is an extraordinary success story in the UK. In 2011, shortly after having the privilege of being appointed to this House, I sought out and invited the chief executive of every fintech in the UK that I could find to come to a meeting. We needed only a small conference room over in Millbank House. Today, the QEII Centre would not be adequate. That alone speaks to the extraordinary success of the industry, much helped by an enlightened view from the Financial Conduct Authority, which had to be dragged kicking and screaming into looking benevolently upon the industry and understanding that it required appropriate regulation to grow. However, once it got there, the FCA has been incredibly positive and powerful.

I want to plead against complacency, which is a rather British weakness. In the days before Brexit, many of our fintechs chose to expand into continental Europe, using passporting and the e-commerce directive. They also attempted to go into the United States but few have been successful, partly because of the competition there and the difference in structure. The European market is incredibly important for expansion. We also know that it has been important for recruitment, which raises many issues around visas. A single person is perhaps not so hard to attract but someone whose wife or husband is unable to work may not be so cheered in taking up a visa to come to the UK. That is an underlying problem that we face for entrepreneurs and skills.

Many issues have been raised in this debate, including AI and fintech: the two merge over some significant territory. The issues raised by the noble Lord, Lord Holmes, are important and will, I hope, be a prod to make sure that we continue to deal with them at pace and to understand that there is no easy time. Berlin has, frankly, become a centre for tech within Europe and it would not be so very difficult to swivel that around and begin to absorb fintech. We do not want to put ourselves into that situation.

I wanted quickly to make two other points, picking up on points raised by the noble Lord, Lord Holmes. Digital fiat currency is now the issue of the moment. We have a relatively small window in which to decide whether we want to play in that area in such a way as to make us a significant player. One could say that sterling is not a natural global currency and we therefore need to be first mover. Picking up on the noble Lord’s point, I hope that we will look more at that area.

AI obviously brings with it extraordinary complexities and question marks but they are issues that can all be worked through if we focus on them. They will not become easier over time; they are just as difficult now as in the future, so one might as well deal with them as is. The issues raised by the noble Lord, Lord Holmes, deserve a proper debate on the Floor of the House and I am sure will draw in many more people than those who focus on financial services issues alone. I very much look forward to that opportunity as well as listening to the Minister’s response.

Financial Services Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Monday 8th March 2021 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I am delighted to follow my noble friend Lady Noakes. Like her, I was struck by the comments of the Governor of the Bank of England, and I feel she has given us a welcome dose of reality this evening.

I speak as a member of the EU Committee and its Services Sub-Committee. We have wrestled long and hard on the vexed question of the granting of equivalence by the EU, including the important issue of reciprocity, highlighted by the noble Baroness, Lady Bowles. I want to make three points and ask one question.

First, once one has decided to leave the EU, it makes little sense to be tied to its rules and regulations—in effect, as the Governor of the Bank of England has said recently, thereby becoming a rule taker without being able to make any input to the new rules. So we will have to plough our own furrow on financial services. But that does not stop us agreeing equivalence arrangements in areas where there is strong mutual interest such as central counterparties, known as CCPs, already temporarily approved, and perhaps insurance. We have granted equivalence to European banks and other bodies, as has been said, and the prospect of maintaining that equivalence gives us some leverage.

Secondly, I do not see why we should necessarily refuse equivalence to third countries which do not have similar legal and supervisory standards. Flexibility is important if we are to welcome investors here, and they may have different yet adequate regimes, bringing in innovation and diversity of offer, which could be valuable in the UK. Trade in services is absolutely vital to the future of this country.

Thirdly, I can see the value of some form of reporting to Parliament, as proposed by the noble Lord, Lord Tunnicliffe, in Amendment 100 and my noble friend Lord Hodgson in Amendment 105—although in different ways. Even on the EU Committee, we have had the greatest difficulty extracting information on the progress of negotiations on financial services, partly because this is in the hands of the Treasury and its officials, while the main spokesman has been my noble friend Lord Frost, who has led our negotiations across the board with such tenacity.

My question is this. How does my noble friend the Deputy Leader feel about the balance between UK-owned banks and financial service operators and their EU competitors now that we have granted equivalence and the EU, in the main, has not? Am I right in thinking that a German bank such as Deutsche Bank, a Dutch bank such as Rabobank or a French asset management firm such as Amundi is regulated in its own country and less subject to UK regulator bureaucracy and aggressive enforcement of something like MiFID than its UK counterparts? Is there any sense in which it is privileged, and is this true also of smaller operators? Does this matter to UK plc?

[Baroness Kramer (LD)]

My Lords, I shall begin by addressing Amendments 100 and 105, which would require reports that would be both useful and interesting. However, I want to pick up the point that was made by the noble Baroness, Lady Noakes, who essentially took the position—I understand its logic—“Why bother to seek equivalence from the EU?” I think she said, “They wish us ill and see a competitive advantage in not offering equivalence.” However, I do not think she listened carefully to my noble friend Lady Bowles, who comes with a great deal of experience from the EU. The point my noble friend made is that in the EU, which is a rules-based organisation —that is its absolutely core fundamental structure—it is quite hard to offer equivalence to a financial centre where those who are regulating it make it very clear that they want great flexibility to be able to make change very easily and with very little process. That is what we are doing with this Bill.

Essentially, we are removing the normal parliamentary processes that would have been engaged in the process of changing regulation and leaving it in the hands of the regulator, with, as we have all discussed, virtually no accountability to Parliament. It seems from what we read that a 12-week consultation would be about all that is required for a regulator to change the rules, compared with the process in the EU, which people may regard as cumbersome but which has with it extensive consultation, engagement and oversight, and which flushes out exactly what is associated with, what is involved with and what the consequences are of that rule change. We will now have light-touch rule change—that would be an accurate way to describe it. In an atmosphere where there is very little trust—the language certainly has not been that which would develop and promote trust—I can certainly see why the EU would be uncomfortable with the idea of offering equivalence in those circumstances. Therefore, it is not a determination to do us ill but, to a significant degree, some shock that change will happen so often that it will have very little idea of the rule base that applies in the UK and certainly will not understand its various ramifications.

However, in a sense it really does not matter. I find it quite shattering that we have a Government—the noble Baroness, Lady Noakes, seems to be aligned with them—who say, “We are really not interested in being able to sell our services into the second-largest economy on the globe”—whether measured by population or in terms of GDP. That is a huge and significant market. We have never been successful at selling financial services into the United States, partly because it has its own, very stalwart financial services sector. I suggest that selling financial services into China will be exceedingly difficult over many years. China will wish to develop its own financial centre; it has Hong Kong. We begin then to look at countries across Asia and in South America. However, I think we will find very shortly that they intend to develop their own financial centres. When I have talked to people in India, they would be willing to do some work here with people in the UK but they want to develop Mumbai. We are seeing a regionalisation of economic blocs, which will lead to a rise of significant financial centres in other locations across the globe. There is a real danger in dismissing with a wave of the hand the customers who sit on our doorstep, who have traditionally been our core customers, and saying, in essence, “It really doesn’t matter whether we are able to sell them services. Let’s look elsewhere.” I am not sure that “elsewhere” looks quite so promising.

What I found most interesting in this whole debate was a very different set of questions raised by my noble friend Lady Bowles. To me they were, if you like, the financial services equivalent of the chlorinated chicken question. As we go out and seek to sell our financial services more broadly, presumably, many of those locations will turn to us and say, “You can sell to us provided we can sell to you. We’re developing our financial sector and we would like to have access to your markets.” My noble friend was asking: what standards will we be using to determine that reciprocity? As I say, it is the chlorinated chicken question. We have not heard much—or anything, frankly—from the Government about what standards we will apply under those circumstances.

It seems to me that, when we assert that we can find markets all over the globe that will take the place of the EU—and that this can be done rapidly and very easily—we have to answer that question. Are we going to have to pay the price of providing reciprocity to financial centres whose standards do not meet our own? What are the consequences of that if those entities are then freely able to enter the UK market? We have a long history of concern about money laundering and market abuse. There are very serious questions associated with that; I would like to begin to hear some answers.

Trade Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 29th September 2020 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, this is the first time I have spoken in the brave new world of Grand Committee. We have lost Moses, and instead we have something that looks like the translation booths that I remember from my time as the UK Minister at the European Council in Brussels—the numbers were about the same, given the number of EU languages, although of course everyone spoke English informally.

As my noble friend knows well, I welcome the Bill and the Government’s global ambitions. Again, I declare my interest as chairman of the UK-ASEAN Business Council. Today, it is with particular pleasure that I support the noble Lord, Lord Berkeley, and the noble Lord, Lord Bradshaw, for whom I think the noble Baroness, Lady Kramer, will speak. Although we sit on opposite sides of the House, the noble Lord, Lord Berkeley, and I share a practical bent when it comes to infrastructure, and especially to railways. Our Amendments 8 and 19 would make it easier for the private sector to finance trade in railway rolling stock, as he explained, and would allow the UK to implement the Luxembourg rail protocol to the Cape Town convention, bringing rail into line with aviation, which is important in the current climate. That would help to build a more dynamic rail sector, harking back to our heritage as a pioneer of rail technology. As someone descended from an engineer who helped Stephenson build the “Rocket”, I find this extremely attractive.

As the noble Lord, Lord Berkeley, has indicated, another way forward that would achieve these aims may have been found. If so, I welcome that. I thank my noble friend Lord Grimstone for his assurances and work on this issue, and I associate myself with the comments of the noble Lord, Lord Berkeley, on the way ahead.

[Baroness Kramer (LD) [V]]

My Lords, I thank the noble Lord, Lord Berkeley, and the noble Baroness, Lady Neville-Rolfe, and bow to their expertise. I am stepping in in the place of my noble friend Lord Bradshaw, who is, unfortunately, not able to speak today. I know that the three of them have had sufficient conversation to enable me to be sure that I can support everything that has been said up to this point.

Many of us are utterly frustrated that, in this era when we are so concerned with climate change, the advancement of rail is frequently constrained by the concerns of rail equipment companies about the security of their rolling stock. This protocol addresses that issue. It provides a public registry for rolling stock, which would hugely facilitate cross-border operations of freight and passenger trains, and the certainty that a registry offers. It would free up financing for rail stock, because it provides mechanisms for repossession of collateral in cases of insolvency.

Stimulating private investment in this arena is absolutely critical. This is not a burden that most countries around the world can carry at government level, so ensuring private participation is crucial. We move now into an era where our concern about climate change means that rail options, in contrast to aviation or road options, are increasingly attractive because of the environmental benefits, and very often it is far more cost-effective for exporters and importers.

As the noble Baroness, Lady Neville-Rolfe, said, the UK has increasingly become a player once again in the manufacture of rail equipment and it needs international markets. It would of course be of benefit if those markets had much greater certainty and confidence in those who are selling.

I am somewhat concerned because, when I last looked—and perhaps the Minister might correct me—only Luxembourg had actually ratified this treaty, although many countries have signed it, as the UK did in 2016. We really want to make sure that there is no obstacle to UK ratification, which would undoubtedly give others the confidence to go ahead and ratify, lifting the whole platform of rail as part of the ongoing future, so that it has much more significant international consequences than even domestic consequences.

I hope very much that we can use this opportunity to bring the issue once again to the Government’s attention. I am very comforted: it sounds as though the Government have found a route for ratification to be achieved. I do not think any of us particularly care what the route is, provided that it is secure and effective. I look forward to hearing the Minister’s comments on this issue.

Economic Environment: Growth and Jobs

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 11th July 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I begin by picking up the issues raised by the noble Viscount, Lord Chandos, who made it clear that we cannot talk about anything to do with the economy without a real awareness of Brexit. It sets the framework; I know we do not want to focus on it today, but it is worth a comment or two here. Many people are acting as though uncertainty is something that exists until we decide to leave, and at that point uncertainty ends. As the noble Viscount said, we are then locked into five to seven years of future uncertainty. It becomes the fundamental of the British economy, and all we can be sure of in leaving is that British businesses will have less access to EU markets; the complex supply networks that are the foundation of the British economy will gradually erode, because that is the logic of the disengagement and separation; and British businesses will have to build their future from economies of scale in a domestic market of 65 million people, not 500 million. I could go on, but that is the context.

The noble Lord, Lord Popat, the noble Baroness, Lady O’Cathain, and others said that we are looking at a robust and healthy economy. Public services in this country are desperately underfunded. Many, particularly at local government level, are in crisis. This is repeated in almost every sector, including the police, prisons, schools, the health service and social care.

There are more than 14 million people still in poverty, with inequality at its widest since the 1980s. We talk about full employment, but real wages are still 3% below those in 2008. We have now normalised in-work poverty, a serious feature that we have to tackle. For many people, their employment feels precarious as they know that their employers are trying to work out what the future of their business will be.

Growth is geographically unbalanced. In recent years, foreign direct investment in the UK has plummeted. In 2018 it was one-third of what it was in 2016. When people talk about us receiving more foreign investment than any other area, I wonder whether they have looked at the value of the pound. Assets in the UK are at fire-sale value and, even with that, there is a decline in foreign investment.

I share the concerns of the noble Baroness, Lady Neville-Rolfe, about productivity. Our recent growth numbers are, frankly, awful. It is a not a situation in which we can be complacent because we risk being ineffective in driving the economy forward.

The issue raised by the noble Lord, Lord Haskel, goes to the heart of economic growth for the future. Times have changed. Big businesses, good businesses and the smaller entrepreneurial businesses no longer take a traditional view of their role in society. Many recognise that it is now time for a new social contract between business and society; that social justice matters; that their relationship with their customers, workforce and communities must be a positive and different one; and the necessity of tackling climate change. We are entering a different and new world, which has to be redefined and can no longer be classified in terms of profitability. This will lead to a different notion of what is a successful business and how it grows. Fairness becomes a fundamental and underlying principle. I use the word “fairness” because I am shall move on to address some of the issues raised.

Before I do so, however, I must step back and say that businesses also recognise both the opportunities and dangers of the fourth industrial revolution. The noble Lord, Lord St John of Bletso, referred to this. If we are to continue with research and development and science, and if we are to develop the skilled workforce we need, it will mean a revolution in how our businesses operate.

We have in place many of the right things to drive the economy forward, but we have them in miniature. I join others in praising the British Business Bank—it is perfect, but so small when compared with the challenge it is trying to deal with that it cannot make material change. It will take a change in thinking in this country to put into the British Business Bank the scale of resource and finance it will need for the future, especially as it will have to replace both the European Investment Bank and the European Investment Fund if we decide to leave.

Again, the industrial strategy has good policies, but in limited areas and on a limited scale. We are not undertaking the infrastructure challenge; we are not delivering the broadband we need; and we are not making the necessary changes in the rail and transport infrastructures. These are massive projects and will need substantial amounts of money behind them and a real drive to make them effective. It is the same with skills. Surely we all recognise now that life-long learning will be essential but comes with a heavy bill attached.

When I hear people talking about tax cutting as the key mechanism for driving the economy forward, I realise that we have to put a cross through virtually all the measures that we need to sustain and take forward our economy. I can think of nothing worse than tax cutting at this point in time. I ask those who think that cutting taxes will lead to a huge increase in the tax yield to go back and look in detail at the past few years. The rise in the tax yield has come because business has rebounded from a severe financial crash in 2007-08, not because taxes have been cut.

Unfortunately, part of the money has come in because business has been holding back on investment, as we have discussed. The work done by the IFS in looking at Jeremy Hunt’s proposal that we should cut corporation tax to 12.5% makes a nonsense of any suggestion that that kind of tax cut repays itself. If we are to repair public services and drive the economy forward, we certainly cannot afford to do any of that.

I have listened to many noble Lords who talk regularly to businesses. I do not find businesses asking for tax cuts. They ask for all kinds of long-term support, but I have never heard a request for tax cuts from any major business.

[Baroness Neville-Rolfe]

What about business rates?

[Baroness Kramer]

The noble Baroness, Lady Neville-Rolfe, is being kind to me in raising the issue of business rates because, as she knows, my party supports a policy of abolishing them—they are part of a Victorian past—and replacing them with a commercial landowner levy. I do not want to try the patience of the House in the time allocated by taking noble Lords through the details, but it is one of the crucial ways forward. It gives businesses every incentive to grow because the tax is on the underlying land value, not on the additional value that they create by future investment. It also helps the regional distribution of businesses. I suspect we have found another supporter for that policy in the noble Baroness, Lady Neville-Rolfe, and I appreciate that.

I agree with the noble Baroness that we have to tackle the issue of digital taxes. I am not sure whether I support the French proposal, announced today, of a 3% tax on digital revenues but it would be interesting to look at that issue because something has to be done, rather than just talking about it. I am concerned that the US is now considering that this would be an opportunity to retaliate against any European country that sought to tax digital companies more seriously. I hope any future Administration here would have the backbone to stand up to the Trumpian “America first”, which would make fair taxes impossible.

I believe in fiscal responsibility and investment. The old notion that you either support business or the ordinary people in the workforce is nonsensical. We are in a modern era where everyone must pull together. That is accentuated further by the fourth industrial revolution, and I hope we will begin to think about that new era rather than lock ourselves into the past.

Premium Bonds

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 23rd March 2017 Lords Chamber

[Baroness Neville-Rolfe]

I think we can agree on the excitement, but there is also a more serious point underlying this. When you are choosing how to save, you need to look at a number of options, which we have debated here in this House, including having a pension through the auto-enrolment system and taking advantage of other savings products such as ISAs and so on. I see premium bonds as a very important part of the savings market. And I am so glad that the noble Lord likes to have a flutter.

[Baroness Kramer (LD)]

My Lords, I exclude my noble friend Lord Lee from this but many people who purchase premium bonds also have an adverse amount of credit card debt or personal loans outstanding. They are attracted rather to the prize element of the premium bond. Would it be sensible to have on the website some advice to encourage people to think first about paying down their debts before they go for a low-interest savings product?

[Baroness Neville-Rolfe]

As I said, it is important that people have choice and look at a sensible way of saving. Having material on different websites is important but, in the round, we try to make sure that government advice gives people a sound sense of direction on savings, including what is good value for money. Again, I emphasise the point about pensions: investing in a pension is a very good form of saving.

Budget: Saving for Retirement

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 16th March 2017 Lords Chamber

[Baroness Neville-Rolfe]

As we have discussed before, living standards have been rising. Yesterday, it was announced that we had a record number in employment and a 40-year low in unemployment. Getting people into work makes a huge difference. We made a series of proposals in relation to both pensions—this step change with auto-enrolment—and savings products that help people to save. The most important thing is to have a plan to restore our finances—we inherited a considerable mess—for everyone in this country, and for our children and our children’s children.

[Baroness Kramer (LD)]

My Lords, most people, in their busy lives, just want a savings scheme that is trustworthy, has a reasonable rate of return and does not eat a large amount of their savings through fees. Instead, the Government—and previous Governments—constantly come back with competition, incredibly complex rival products and switching. Will the Government finally identify someone—I would almost say anyone—whether a government Minister or regulator, to make sure that a workable product that meets most people’s needs is actually delivered, rather than this endless tinkering, which only a sophisticated financial adviser can possibly unravel?

[Baroness Neville-Rolfe]

I certainly do not take such a gloomy view of the products. The NS&I investment bond, which we started on, gives a rate of 2.2% for three years. That is significantly higher than the market average of 1.38%. Savers know that they can trust products offered by NS&I. Obviously, rates of return on savings products have come down and that has to be reflected, but the £7 billion of additional government financing will be at a cost of £295 million compared to borrowing through gilts.

Living Standards: Inequality

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 7th March 2017 Lords Chamber

[Baroness Neville-Rolfe]

I think the ONS keeps us honest; it looks at these figures over time and very helpfully updates us. The OBR forecasts are also updated all the time so that we can see what is happening. I come back to the point that the Resolution Foundation is looking at a forecast, but if we look at what has happened, five years ago it was predicted by the IFS, I think, that there would be a rise in inequality. In fact, that has not happened. Actually, things have continued to progress and we have seen a recovery. That is what we need to continue by having the right policies, which this Government are pursuing under our new Prime Minister.

[Baroness Kramer (LD)]

My Lords, I am shocked that the Minister does not recognise that young working families are facing serious financial pressure and are struggling, and that it looks as though it is going to be worse with inflation. Does she agree that part of the reason is the very high rents that most of these families face? Will she be willing, in the Budget tomorrow, to permit local councils to go out and borrow the necessary amounts of money to drive forward development of affordable rental housing? She has often acknowledged that the housing market is broken but all the Government’s solutions are on the demand side, and supply does not increase, especially not in the affordable area.

[Baroness Neville-Rolfe]

I would not want to steal the Chancellor’s thunder today. There is certainly some provision for prudential borrowing by local councils, but I come back to the support that we give to working families. The national living wage has already been mentioned by my noble friend. That has provided the fastest pay rise in 20 years. We have raised the personal allowance to £12,500 by the end of this Parliament; nobody had done that before. We are introducing universal credit, which has the benefit of making work pay, so that if you go out and work you are not held back by benefit dilemmas. We are committed to making work pay, and we believe that that is the very best way forward for the people of this country and for hard-working families, which I agree are a priority.

Tax Avoidance

Debate between Baroness Kramer and Baroness Neville-Rolfe

Wednesday 18th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

I am always very interested to hear from my noble friend on such issues. This is a complex point which, as a new Treasury Minister, I look forward to talking to him about to understand the implications in this important area of evasion and avoidance. Since the coalition, there has been a lot of agreement on the need to move forward sensibly, whether by statute or the intervention of the courts.

[Baroness Kramer (LD)]

My Lords, many of us have been very confused as to why the Government put so little effort into persuading the UK’s overseas territories and Crown dependencies to lift the secrecy that covers tax avoidance. Are we now finding that the answer, as the Chancellor expressed to the German Government, is that he sees a tax haven as a potential economic model, even if by default, for the UK economy—in contravention, I suggest, with long-held British values and the basis of our economy?

[Baroness Neville-Rolfe]

I think I have already made clear the context of the Chancellor’s remarks. We are seeking to get a good agreed deal, but clearly, you cannot forecast that. The CDOTs have now all signed up to the common reporting standard and started exchange of information in September last year. This is a result of the sort of international discussion and agreement that we need on these abuse issues, where I believe this country has led the way and, if I might say so, the coalition did some ground-breaking work.

Economic Forecasts

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 17th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

I very much agree with my noble friend that we always need to look at the opportunities. As I have often said, I am glass half full, not glass half empty. Like the Prime Minister, I am determined that we should pursue a good Brexit and a bold and ambitious free trade agreement with the European Union, if I may pick up the comments that were made in relation to Mr Ricardo.

[Baroness Kramer (LD)]

My Lords, does the Minister understand some of the concerns at the kind of complacency that we have just heard expressed about a 20% devaluation of sterling, far higher than any recommended devaluation; soaring consumer debt, not quite yet at the crisis levels of 2008 but only a margin below; and inflation creeping into the system? I am sure that poor people will be glad to know that the noble Lord, Lord Lawson, celebrates the higher prices that they will be paying. Those have been recipes in the past for economic crisis. Should not the Government take more notice of what are not straws in the wind but major signals of problems ahead?

[Baroness Neville-Rolfe]

We have a system of carefully looking with the help of the independent OBR twice a year at where things are going and making the adjustments that we need. Indeed, I agree with the noble Baroness that there are long-term problems, and I am surprised that no one has mentioned the fiscal sustainability report that was published today—an independent and objective assessment, which looks ahead to the long term and will be an important catalyst for discussing some of the challenges we have in relation to the economy and how we fund the public services appropriately.

Industry: International Investment

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 2nd June 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this House will be aware that many small and medium-sized British companies depend on being the supply chain to foreign-owned companies located in the UK because of our membership of the EU. Is the Minister able to give me an assessment of their contribution to our GDP and how much would be at risk if we were to leave the EU?

[Baroness Neville-Rolfe]

The noble Baroness makes a very important point about the supply chain. The truth is that there are not a lot of data on these sorts of things, but I will take away the point that she makes and perhaps talk to her further about it.