Financial Services and Markets Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Wednesday 8th July 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, Amendment 172A is in my name and that of my noble friend Lord Altrincham. It would require the Treasury to publish draft legislation to replace the Financial Ombudsman Service with a new financial adjudication service, and to create a dedicated financial services chamber within the First-tier Tribunal. This is a significant amendment but also a serious and necessary one. As noted earlier, it follows the policy announcement made by the leader of my party, Kemi Badenoch, at TheCityUK’s conference last month.

The amendment reflects a wider concern about the way in which the Financial Ombudsman has evolved, and about the need for a consumer redress system that is fast, expert, accessible and legally certain. A little bit of history: the Financial Ombudsman Service was created to provide a low-cost and informal alternative to the courts. That purpose remains important. Consumers and SMEs need an effective way of resolving disputes with financial firms. Going directly to court can be expensive, intimidating and slow. There must, of course, be a route to redress that is accessible and free to use.

However, the FOS has moved far beyond a simple dispute-resolution function. It now operates in many respects as a quasi-regulator. Its decisions can set expectations for firms, shape market behaviour and influence the way in which FCA rules are understood. Yet it does not receive the same scrutiny as regulators such as the FCA, nor does it produce binding legal precedent in the way that a court or tribunal would. That creates a serious problem of legal uncertainty.

At the heart of this issue is the “fair and reasonable” test. The ombudsman is required to decide complaints, not simply according to law, but according to what it considers fair and reasonable in all the circumstances. That gives the FOS a broad discretion. It means that firms can comply with the law, the FCA rulebook and their contractual obligations but still be found against on the basis that the ombudsman takes a different view of what is fair and reasonable. That is not a stable foundation for a predictable regulatory system and that has been recognised, I am glad to say, by the Government but they are not going far enough.

Courts have confirmed that the FOS must take account of the relevant law but is free to depart from it. Firms do not know whether compliance with the FCA’s rules will be enough. They do not know whether the FOS will go further than those rules or whether an individual determination will be treated as an indication of wider expectations. That uncertainly drives gold-plating and overcompliance.

One example that has been raised with us concerns packaged bank accounts and the consumer duty. The concern is that the FOS may take the view that providers should look at whether a customer has used any of the benefits of a packaged bank account in the previous year and, if not, prompt them that this might not be the right account for them. That goes far beyond current FCA guidance.

The wider point is that if the FCA believes that its rules need to change, it should amend them prospectively. If Parliament believes that the statutory framework needs to change, it should legislate. We should not have a system in which major changes in practical standards emerge through a redress body applying a broad fairness jurisdiction.

There is also a serious performance issue, which we have touched on before. The FOS is under significant strain. The backlog has become very large and timeliness targets have been missed. The FOS is now being used as an instrument of mass redress when it was not designed to operate as a quasi-court, a quasi-regulator and a quasi-mass claims mechanism.

Our proposal is to reform the architecture. The financial adjudication service would retain the benefits of a specialist and accessible adjudication system. It would be designed to provide speed, expertise and high settlement rates. Consumers and SMEs would continue to have a route to redress without the cost and complexity of ordinary litigation. The key difference is that decisions would be made according to law. The “fair and reasonable” test would be removed. The new service would apply statute, FCA rules, contractual obligations and legal principles. Where the law is unclear, that uncertainty should be resolved through proper legal determination, not discretionary case-by-case judgment.

Where a dispute required appeal or authoritative determination, it would go to a dedicated financial services chamber of the First-tier Tribunal. That would create binding precedent. It would fill the gap that currently exists between the FOS and the courts, where the only meaningful challenge to an FOS decision is judicial review. Judicial review is not a proper merits appeal. It requires firms to show that the decision was not merely wrong but unlawful or irrational. In practice, this means that FOS decisions are rarely challenged.

A tribunal system would be different. It would allow principles to be determined clearly, openly and according to law. Over time, that would create a body of precedent that would help firms, consumers, advisers and regulators to understand what the rules mean in practice.

That is the point of our amendment. It is not about removing redress but about making redress clearer, faster, more expert and more legally certain. Nor is it about weakening consumer protection. Consumers benefit from certainty too. They benefit when firms understand their obligations, when decisions are consistent, when disputes are resolved quickly and when similar cases are treated in similar ways. This amendment therefore asks the Government to publish draft legislation for a new model. It would not require every operational detail to be settled in the Bill today. It asks the Treasury to come forward with the legislative architecture needed to move from an ombudsman model based on broad discretion to an adjudication and tribunal model based on law.

The purpose of the amendment is to begin a serious conversation about the future architecture of financial redress. We need a system that is accessible for consumers, fair to SMEs, predictable for firms and capable of generating clarity over time. The current model sadly no longer does that. It is too uncertain and discretionary. A financial adjudication service, backed by a dedicated financial services chamber of the First-tier Tribunal, would preserve access to redress while restoring legal certainty. That is the balance that we should seek to strike. I beg to move.

[Baroness Kramer (LD)]

I have one question for the noble Baroness, as my noble friend Lord Sharkey will speak for us on this. What will the cost be to the individual of going to the tribunal system? I am conscious that an individual needs to raise between £40,000 and £50,000 to get to preliminary hearing at the employment tribunal. Is that the kind of number that she has in mind?

Financial Services and Markets Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Monday 6th July 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Mackinlay, makes so much sense to me on this issue. Having gone through the struggles of probate, I think that anything that will make it easier and more straightforward is good. I have worried since the announcement of the change that came with the last Budget, which brought pension pots into inheritance tax, that all kinds of consequences would significantly follow because most people who thought that they had a fairly straightforward settlement upon death will now find that they have handed a very complex picture on to their executors.

I want to put in a plea from personal experience: where there are people who have more than one nationality, or tax residency in one country and nationality in another, the nightmare becomes even more acute. I am not an adviser but I will give this advice: if one is aware that someone close is likely to die, it has almost become necessary to create a separate savings account to deal with all the relevant tax payments because it is so long before probate can be completed, particularly if that is in more than one jurisdiction. I felt at one point that I virtually lived at Kingston Crown Court because I was so often having to get new and updated copies of the death certificate to satisfy some new requirement from someone somewhere else. That is a painful and difficult time, but what the noble Lord, Lord Mackinlay, suggests seems straightforward and effective. Even if it deals with only one small piece, that is something.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to my noble friend Lord Mackinlay of Richborough for tabling Amendment 142B. I am especially sorry to hear of the difficulties that he faced with his father’s estate. That is typical. When people die, their loved ones and executors often have a difficult time, and one of those difficulties is the delay that they often encounter with probate, as I know from family experience, and as we have heard from the noble Baroness, Lady Kramer.

There is both an emotional toll and a worry as to how to pay any IHT within the six-month window. Hopes that this might be extended by the Chancellor to 12 months have now been dashed, so this is a timely amendment. As I understand it, the issue is that, when someone dies, their bank, building society or investment accounts are frozen. Executors may then need to pay inheritance tax before probate can be granted, but they may need probate in order to access the funds from which that tax would be paid. The IHT423 direct payment scheme is designed to address that problem by allowing inheritance tax to be paid directly from the deceased’s bank, building society or investment account to HMRC before probate is granted. The difficulty, as we have heard, is that participation in that scheme is not consistent across all relevant financial institutions. That situation may mean that people have to find funds elsewhere, use personal savings, as we have heard, arrange borrowing or enter into more complicated interim arrangements.

The amendment rightly seeks consistency. It would require the FCA to make rules ensuring that the relevant regulated financial institutions facilitated the payment of inheritance tax through the IHT423 direct payment scheme. There may of course be operational legal issues that the Government will want to consider, but the basic principle seems right: if inheritance tax must be paid before probate, it would be in the interest of all if this inconsistency could be sorted out as a matter of urgency.

We should bear in mind that the interest mounts up at a punitive rate—4% above base rate, so that is 7.75% at present—and that it affects thousands of households every year. The Minister will know that more generally it will be a difficult year for those paying IHT, with IHT payable on pension pots from April 2027. That is all the more reason to show flexibility and sort out this issue, and to use the Bill to do so if that is necessary. I look forward to hearing what the Minister has to say.

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[Baroness Kramer (LD)]

My Lords, I cannot improve on the three speeches that have been made. I rise simply to make clear that on these Benches, we think that this amendment is really important.

We can see in Committee that it is purely random that we have the capacity to raise many of the issues. The noble Baroness, Lady Noakes, and my noble friend Lady Bowles have a deep understanding of the market, as does the noble Lord, Lord Vaux, but it is purely random that they happen to be in the Lords. If we did not have the noble Lord, Lord Holmes, we would struggle to deal with many of the issues around digital assets and the revolution that is taking place. We have no system of ensuring that, in any part of the parliamentary process, there is the capacity to get to the relevant pieces of information, understand the underlying issues and play the role that Parliament should be playing—whether at committee level, with a Special Standing Committee, or as associated with the passage of a piece of legislation. None of that can be done without genuine, adequate and well thought-through information.

Looking at other Parliaments around the globe, in the US, the Senate and Congress have vast numbers of staff available to make sure that those who represent the voice of the people are truly informed in great detail with proper understanding of the articles that are before them and the regulations that they seek to uphold or overturn. We lack this here. We are still an amateur body, which is not appropriate for a modern society. This is a very significant change, but it must be a change in the right direction. From these Benches, we very much support it.

[Baroness Neville-Rolfe (Con)]

My Lords, we support the principle behind this amendment. It follows the same broad logic as the amendment tabled by my noble friend Lord Bridges. If the financial regulators are to exercise very significant powers, there must be a proper mechanism through which they can be evaluated and held to account.

This amendment seeks to require the FCA, the Bank of England and the PRA to establish offices for regulatory evaluation. Those offices would review the regulators’ actions, including rule-making, supervision, monitoring and enforcement. Only the changes to rules are currently considered by the cost-benefit analysis panels. The offices would be led by directors with a degree of independence from the boards and executive structures of the regulators themselves. They would report regularly to the Treasury and to relevant parliamentary committees. My noble friend Lady Noakes quotes an interesting precedent of such arrangements at the World Bank, the IMF and the European Investment Bank—all long-standing pillars of the international economic community.

It is good to welcome the noble Lord, Lord Vaux of Harrowden, to the debate, but this amendment raises very much the same issues as those that we discussed last Wednesday—at col. 501GC in Hansard, for those who were not present—with regard to the amendments from my noble friend Lord Bridges and the noble Baroness, Lady Bowles. I was pleased to hear that the Minister has agreed to reflect further on the issues raised and to meet, with the Economic Secretary, the Financial Services Regulation Committee later this week. I look forward to the results but, in the interests of time, will not repeat what I have already said on the subject.

All these amendments raise a fundamental point. We are placing great trust in the regulators. That trust must be matched by transparency, evidence and accountability. Today’s cross-party amendment provides another route for the Minister to consider.

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[Baroness Neville-Rolfe (Con)]

My Lords, Amendment 146, in my name and that of my noble friend Lord Altrincham, is a modest and probing amendment. It follows the discussion we had last week on speeding up the senior management and certification regime. It does not seek to change the regime immediately. It would require the Treasury to carry out a review and publish a report within 12 months on whether the new notification framework for senior manager appointments could be used where an individual had already been approved for the same or a similar function, including within the same corporate group.

The amendment echoes my noble friend Lord Howard of Rising’s amendment on a fast-track authorisation process for applicants who have been authorised before, but it would look at how that was working in practice a year after the Act came into effect. The Minister gave a hint that he was sympathetic to my noble friend Lord Howard and would be talking to the FCA about this, so I am hoping we can make some progress on this amendment.

We have heard from the industry that there are several problems with the SMCR regime. One concern is that the regime was originally intended to apply to a relatively limited number of senior people within a firm. Over time, however, roles have become more complicated, responsibilities have overlapped and some organisations have ended up needing a much larger number of people to receive SMCR approval. Regulation should not make legitimate business harder to do and should not slow down sensible appointments where there is no obvious additional risk, yet that is too often the practical effect of the regime as it stands.

The specific issue is what has sometimes been described as SMCR passporting. Where an individual has already been approved, has a strong regulatory track record and is moving into a genuinely comparable role, it seems sensible to explore whether a streamlined notification process could be used. That would have several advantages: it would reduce duplication, it could speed up appointments, it could reduce costs to firms, it could make it easier for groups to move experienced people into appropriate roles and it could allow regulators to focus their resources on genuinely new, higher-risk or more complex appointments. That is the point of the amendment. It does not prescribe the answer. It asks the Treasury to review the position, consult the FCA and the PRA and other relevant parties and report back to Parliament.

If we want the UK to have a regulatory system that supports growth and competitiveness, we need an approval process that is rigorous but also efficient. We should not require firms to repeat the same process unnecessarily where the regulator has already assessed the individual and where the new role is substantially comparable. I would therefore be grateful if the Minister could give us some reassurance on this important matter and agree that an ex post review could be a helpful way of ensuring the direction of travel that I know we both want. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am always in favour of trying to provide streamlining, and this amendment offers a common-sense approach to that. However, an issue that I want to take up with the noble Baroness, Lady Neville-Rolfe, is that the focus of the FCA should always be on new hires, not previous ones. The ongoing fit and proper process is crucial, particularly if we are going to have lighter-touch regulation as people move from one position to another, but that ongoing process is critical. Perhaps the Minister could expand on that because I am not quite clear about how all the various changes in FCA rules change what has been an annual review process but now gives more flexibility in what that means.

I shall give some examples. I am not sure that when Sir Fred Goodwin—he was not “Sir” then, obviously—was appointed as chief executive of RBS anyone recognised that he was going to get caught up in what I think most people would describe as an addiction to completely irrational acquisitions, which eventually led to the collapse of a major bank. I am not sure that when Jes Staley was hired to be CEO of Barclays people were aware of the significance of his extensive involvement with Epstein. I am not sure that when the Reverend Paul Flowers was approved as chairman of the Co-operative Bank people were conscious that he was potentially someone who would become seriously addicted to and affected by a number of drugs, notably crystal meth. In other words, there is an ongoing process that is critical; it should not be only a one-time process. I hope that will be absorbed into the thinking if this amendment moves forward. The ongoing process is vital. Fit and proper is not a one-time-only process.

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[Baroness Kramer (LD)]

My Lords, I will speak briefly. As the Committee will know, I have expressed before my concern about heading towards a lowest common denominator. The constraints on the engagement of the regulator and Parliament in a process of recognition of overseas regimes is crucial. It provides transparency and challenge, both of which are constantly necessary. So these are well-drafted amendments from the noble Baroness, Lady Noakes.

I want to go a little further. The noble Lord, Lord Holmes of Richmond, is not in his place, but he has tabled Amendment 164D, which would go further in seeking to instruct the Secretary of State to establish memoranda of understanding with a whole series of regulatory authorities. I have significant concerns about that, without the same set of constraints. We must be aware that, at the moment, there is fragmentation in the world in which we are living. International agreements are often treated as “pick and mix”. I object when we do that in the UK, but it is certainly a behaviour that we are watching in the United States at all times. We can see it with the development of AI and the various steps that the White House is taking. It is hard to work out whether or not it will go for AI licensing. A memorandum of understanding that passively accepted whatever the United States decided was the appropriate standard would trouble me hugely.

This is a very good set of amendments. Although the noble Baroness, Lady Noakes, and I often take very different positions on regulation and the primacy of financial stability, in this instance, she is absolutely right. There is nothing more troubling than reading all three objectives be put on a par. That has been my great fear. Anyone looking back on what happened in the 2008 crash will see that a focus on competition and growth without any focus on financial stability led to a crisis that I suspect nobody in this Room wishes to see again.

[Baroness Neville-Rolfe (Con)]

My Lords, as this is the last group, I too wish the Minister a very happy birthday. He will be glad to know that, on this side, we think this is an important part of the Bill. The overseas recognition regime, which would replace the arrangements put in place as we left the EU, could provide a valuable mechanism for recognising overseas regulatory regimes and allowing certain firms, services or market infrastructure from other jurisdictions to access the UK market without having to duplicate regulatory requirements unnecessarily.

Financial Services and Markets Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Wednesday 1st July 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, I am sure everyone has reread the Hansard transcript and is fully on top of the debate that took place on Monday, so I will attempt to keep my remarks brief.

I am tempted to engage with the challenge from the noble Lord, Lord Bridges, on this group of amendments, to discuss in depth the issue of international rules on the one hand versus growth and competition objectives on the other. However, I say to the noble Lord, Lord Wilson, as the Whip, that I recognise that we are in Grand Committee and so will limit the comments that I make.

Looking at this group of amendments, it is important to say that my party believes in “better together” rather than “beggar thy neighbour”. International rules provide trust, confidence and certainty, which are key to long-term and sustainable growth. This country plays a key role in shaping international rules in sectors that we care about, including finance. The Bank of England is incredibly highly respected, as are our other regulators. There is extensive participation in key bodies, such as the Financial Stability Board, the Basel Committee on Banking Supervision and others. Indeed, the noble Baroness, Lady Noakes, gave a long list of the various committees in which regulators are engaged. I think she thought it might make them go native, but I consider that it is an important opportunity and area of their influence. We remain a player in making those rules, despite Brexit.

International rules need to provide flexibility, but they mean absolutely nothing if we pick only what suits us in the moment. The world is not thriving in the beggar-thy-neighbour world of Trump in the United States, of Russia and of China. The Committee will not be surprised that I am not sympathetic to Amendment 99, which would reduce international standards to a “have regard”.

As for the other amendments on this sector, I have no problem with the reporting amendments, but I am cautious of Amendments 102 and 104A, because they could easily be read as an instruction to waver on the Bank of England’s primary objective of financial stability. We must be careful not to abandon that focus on financial stability. Some people find volatility attractive—it is certainly a way in which the financial sector has frequently made much of its money. But the cost to ordinary people of both boom and bust and continuous volatility has been exceedingly high. The cost to businesses that need a significant measure of certainty is extremely high. Therefore, we will not be supporting these amendments, though, as I say, the reporting amendments make some sense to me.

[Baroness Neville-Rolfe (Con)]

My Lords, for me, the group speaks to the essential balance which underpins the purpose and function of effective financial regulation. Of course regulation must promote safety, stability and confidence in the system, but regulation must also support growth, competitiveness and innovation. It must help ensure that the United Kingdom remains one of the world’s leading financial centres.

We have often spoken about the contribution that financial institutions and financial services firms make to the UK economy; they provide employment, tax revenue, investment, lending, infrastructure and global influence. This group is about making sure that we put our money where our mouth is. If we say that competitiveness and growth matter then those principles must be reflected in the way regulators act, report and make their decisions.

That is why Amendment 99, to which I have added my name, is important. It would shift the requirement from “aligning with” international standards to considering international standards. That is an important distinction. International standards matter, and in many cases the UK will rightly wish to follow them, but we should not place ourselves in a position where we become passive rule-takers when it is not in our national interest to do so. We can see some rules, such as the unbundling of research in MiFID II, having totally the wrong effect—in this instance, regulating research so heavily that less research is produced, particularly for smaller firms. I know this from relatives who work in analysis; I do not think that is an interest to declare, but it is evidence. Another example is the EU’s sustainable finance disclosure regulation, which is now under review because it is too complex and burdensome.

The whole point of having an independent post-Brexit regulatory framework is that the UK should be able to design rules that work for our markets, our firms and our economy. The UK’s position in financial services is not secured by right. Other jurisdictions are moving quickly. We know the compliance costs are generally higher in the UK, so unless we offer a regulatory environment that is clearer, more cohesive, more predictable and more conducive to growth, it is likely that firms, capital and innovation will go overseas, the opposite of what we and the Government want. We are already seeing this risk in areas such as digital finance. Firms in digital assets, payments and new financial infrastructure need clarity and confidence. Where they do not find it in the UK, they look elsewhere. The Employment Rights Act is also having a chilling effect.

Amendments 100 and 101 are important because they would strengthen accountability around the competitiveness and growth objective. It is not enough for regulators simply to say that they have considered competitiveness. Parliament needs to see how that objective has been applied, what evidence has been used, what impacts have been assessed—for example, on SMEs, which are a key feature of my noble friend Lord Hunt of Wirral’s amendment—and how regulatory decisions have affected firms and markets over time.

Amendment 102, which I have also supported, would extend the secondary competitiveness and growth objective to the Bank of England’s financial market infrastructure functions. The same should apply to Amendment 104A on payment systems. If we want a dynamic payments ecosystem, competitiveness must be considered across the whole regulatory architecture.

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[Baroness Kramer (LD)]

My Lords, I shall be extremely brief on this. I and my colleagues take the position that from this collection of amendments in the name of the noble Baroness, Lady Bowles, and the noble Lord, Lord Bridges, the Government could craft something really effective and create the information base and the capacity for Parliament to have very appropriate oversight of the regulator. The point I particularly want to add is that this is not hostility to the regulator. Part of the regulator’s problem is that it is trying to communicate to so many different parts of the political framework, with very different levels of understanding.

We have all seen that five-year strategy from the FCA. Let us admit that it is a completely vacuous document, but I can understand that those who crafted it thought that they were dealing with people who had almost no grasp at all of how the finance sector works, operates and is directed or regulated. We have given it the absolutely impossible task of not knowing whom they talk to, in what level of detail, and what information to provide. I would say that, from a regulator’s perspective, having an educated oversight body would remove a huge burden and create a proper and constructive conversation, in the end benefiting both sides. I hope the Minister will take away that this is not some hostility to the regulator; this is a process that will make sure that Parliament can do its job but also that the regulator is far better positioned to be able to do its job and communicate and understand.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to noble Lords who have brought our attention to past debates on these knotty issues from a position of great expertise. All the amendments raise fundamental questions about how we hold our financial regulators to account. We fully support the principle that sits behind these amendments: that Parliament must have proper oversight over the way in which the regulators work. That includes their internal operations, their rule-making and their engagement with firms and consumers, the quality of their impact assessments, their effect on competition and competitiveness, and the burden they pose on the wider economy.

This point has been underscored by many noble Lords throughout our debates on the Bill. If the FCA and the PRA are to be given greater powers and a wider remit, as proposed, that must be matched by greater transparency and stronger accountability. Greater delegated power cannot simply mean more decisions being taken further away from Parliament, with fewer mechanisms for scrutiny. The Minister has written to noble Lords setting out existing mechanisms. That letter refers, among other things, to the ability of noble Lords to ask Parliamentary Questions and to the work of our excellent Financial Services Regulation Committee. Parliamentary Questions have their place, but they are not a systematic mechanism for reviewing the performance, effectiveness or proportionality of regulators. Committees do valuable work, but they cannot be expected to provide continuous expert institutional scrutiny of the FCA’s and PRA’s operations. What is needed is a mechanism through which the regulators can be reviewed, tested and held to account.

The problem is that we have an accountability gap. My noble friend Lady Noakes, from her unique position as chair of the committee, has highlighted the scale of the task that it now faces, so we need an independent source of analysis and expertise. The amendments in this group provide a number of serious and compelling proposals for how that might be done.

The amendment in the name of the noble Baroness, Lady Bowles, would provide for periodic independent reviews of the regulators. A recurring independent health check of the FCA, the PRA and the relevant Bank of England functions could help Parliament understand whether the regulatory system is working as intended, whether burdens are proportionate, whether the regulators are engaging properly, and whether firms and consumers are being treated fairly. I thought we had a good example of the problem in the earlier discussion on Sections 165 and 166.

The amendments in the name of my noble friend Lord Bridges propose a more permanent structure: an office for financial regulatory accountability. This is a valuable suggestion. As I understand it, the office would assess the FCA’s and PRA’s overall performance against their statutory objectives and regulatory principles. It would also analyse impact assessments for specific pieces of financial regulation in order to determine how those regulations contribute to the regulators’ objectives. As my noble friend Lady Lawlor suggested, their reports could include individual precedents and examples to bring problems to light. That is the sort of scrutiny we need.

The two parliamentary committees would have an important locus in scrutinising the reports from the office, improving overall parliamentary accountability while not getting in the regulators’ hair in a way that they are not set up to do. The proposed arrangements would also allow Parliament to see not only what concerns have been identified, but how the regulators intend to respond to them. Significantly, the office would be required to prioritise the analysis of regulations which restrict domestic competition, reduce the United Kingdom’s international competitiveness in financial services, create new compliance costs or have a significant impact on business and individuals in the UK economy —an excellent objective. As we heard from my noble friend Lord Bridges, it would not interfere with operational independence.

The regulators have become powerful institutions. They make rules, issue guidance, set expectations, supervise firms, authorise market entry, influence conduct and shape the competitiveness of one of the most important parts of the UK economy. As we heard from my noble friend Lady Noakes’s committee, they suffer from a culture of risk aversion, fuelled by the current system. It is no longer enough simply to say that the existing accountability mechanisms are adequate. There is clearly a deficit in oversight and that deficit becomes more serious as more power is transferred from Parliament and primary legislation to regulators and rulebooks.

If the Government are asking Parliament to accept that shift, they must accept the need for stronger accountability. Essential parliamentary scrutiny has to trump deregulation. The challenge is set for the Minister and I hope he will provide the clarity that we really need—a request that was echoed by the noble Baroness, Lady Donaghy, who, in another bit of history, I served under very happily on the EU Services Sub-Committee.

Financial Services and Markets Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Monday 29th June 2026 Grand Committee

[Baroness Kramer (LD)]

I very much support the two amendments of my noble friend Lady Bowles. There is often an assumption that those of us who feel that regulation plays an important role have no instinct or desire to see proportionality in place, which could not be more untrue. My history is as a commercial banker, back in the days when we used to participate intensively in writing the loan documents and creating the covenants associated with our lending, whether to small companies or to some of the largest on the globe. Frankly, covenants that were off the shelf were completely inappropriate for providing the protection we needed in many cases. They were just useless exercises in paperwork for the companies involved. We used to reshape the loan agreements on that basis and, frankly, it worked exceedingly well.

When I look at the amendments, I am glad that proportionality is being recovered from the scrapheap that would result from Clause 17. That is important, and the way that my noble friend Lady Bowles, framed it is particularly significant. Both for the PRA and the SRA, the focus is proportionate to the benefits expected to result from the imposition of the burden or restriction, recognising the difference in size, nature and objectives. I agree with her that this really needs to be considered through the lens of genuinely sustainable—as in durable as well as environmental—growth. That is a very important addition to the discussion.

I am disturbed by Amendment 81. I am not disturbed by most of it, but when I read

“proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness”,

I begin to get somewhat queasy, because the lowest common denominator is not where we should be headed. We need to genuinely assess risk—the cost of dealing with and understanding it—in a very direct way. I have always thought that a distortion was introduced by the competitiveness objective, and I am afraid that it is reflected in Amendment 81, in my reading at least.

I hope that the Minister understands that proportionality is not something for five-year strategies. It is central to the work, culture and behaviour of a regulator; as such, it clearly belongs in principles that sit on the face of the Bill.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to my noble friend Lord Holmes and other noble Lords for bringing forward their amendments in this group.

I was glad to hear that the Minister will meet the Financial Services Regulation Committee to discuss this part of the Bill. I am sure he will be as disturbed as I was to hear about the widespread fear of regulated businesses in expressing any criticism of the regulators—the most important regulators in the land, to quote my noble friend Lady Noakes. We certainly rely on financial services and good regulators for growth in this country.

The central theme of this group is the proportionality of regulation. That is an absolutely fundamental requirement for all regulation; it is particularly so when we are talking about small and medium-sized enterprises, which are less able to afford the costs of regulation—in terms of diversion of time, regulatory fees and legal fees—and are the most held back by excess regulation.

There were 5.6 million small businesses in the UK at the start of 2025. They account for three-fifths of employment and around half of turnover in the UK private sector. Total employment in SMEs was 16.9 million—60% of the total—with turnover estimated at £2.8 trillion, or 51% of the total. Having financial services that operate with proportionality and common sense is important to them; indeed, almost every single one of these firms will access and use financial services through the course of their operations. It is even more important to the thousands of SMEs that operate in financial services, whose remit is of course being extended by the Bill, and the thousands more SMEs in the legal and professional firms that advise on financial services.

In practice, regulation often falls most heavily on precisely those smaller firms least able to absorb it. The reasons are obvious: SMEs do not have large compliance departments or in-house legal teams; and they do not have armies of advisers whose job is to interpret regulatory requirements. In many smaller firms, people wear many hats, as I know well. This means that a regulatory requirement that may be manageable for a large institution can be a serious burden for a smaller firm. Above all, regulation should be designed in such a way that it protects consumers and supports market integrity without imposing unnecessary burdens.

Amendments 83 and 84 in the name of my noble friend Lady Noakes, to which I have added my name, go to this underlying point by seeking to elevate proportionality in the FCA and PRA frameworks; it is pleasing to have the support of my noble friend Lord Ashcombe and the Liberal Democrat Front Bench in this. Proportionality should not be a box that regulators tick after the main decisions have already been made; it should be central to how they think about regulation from the outset.

The amendments in the name of the noble Baroness, Lady Bowles, raise an important point about tailoring regulation to the size, nature and objectives of different firms. The regulatory framework should recognise that a mutual does not have the same objectives as a major bank, and that different business models can present very different risks; the noble Baroness explained all that eloquently.

I would also like to comment on Amendment 86 in the name of my noble friend Lady Noakes. As she said, the Legislative and Regulatory Reform Act 2006 requires regulators to act in a way that is transparent, accountable, proportionate, consistent and targeted, ensuring that regulation is effective without being unnecessarily burdensome. Those are fundamental points and likewise need to be protected as guiding principles.

In closing, I would be grateful if the Minister could assure us: first, that proportionality will be genuinely embedded in regulatory decision-making, ideally by amending the Bill on the lines of Amendment 83. We hope he will look at this issue very seriously. Secondly, can he assure us that the FCA and PRA will in future be expected to take account of the particular position of SMEs, mutuals and smaller firms when designing and applying rules? A proportionality duty would go a long way to fixing the problem and would seem to fit in well with government policy to support small business promoted by his other department, the DBT.

Financial Services and Markets Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Wednesday 24th June 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, I will make a few comments on amendments in this group and speak particularly to my Amendments 54 and 57. I say very gently that I agree with the other amendments in this group. My noble friend Lady Bowles is looking for consistency in the consultation period. Unless someone has been on the other side of a consultation period—not setting it but trying to respond to it—they may not know that the real-life difficulties of the inconsistency, frankly, are often a barrier, not just an annoyance. Amendment 47A is in the name of the noble Lord, Lord Holmes, and yes, it makes sense to have a payment systems panel on an issue such as this: we need to make sure that a full range of views and experience is taking a look at such a crucial piece of the financial plumbing.

On Amendment 55, I could not understand why ease of use should have been removed from the competition objective. That made no sense if we are thinking about people and consumers. I do not know whether the Government could explain that. I very much support the noble Lord, Lord Vaux. It had struck me but I did not do anything about it and I should have. His Amendment 49 deals with this capacity to exclude digital payment assets from definitions in payment systems, which just seems fundamentally wrong. We are moving in the direction of digital, these are coherent parts of the payment system and it is going to be relevant to the two amendments that I am about to discuss.

My Amendment 54 recognises that we are in a fast-changing world. We are increasingly in a time in which the payment system is made up of many more entities than just the conventional players. New schemes, platforms, exchanges and all kinds of services are coming on stream; these are key and many are digital. Amendment 54 emphasises that the FCA must, in its service-user objective, focus on “consumers”, a much clearer term than “users”. We have seen in the past that consumers get lost in this overall definition of users. It would require the FCA to look at the issues of inclusion, redress, access to cash, choice and interoperability from the perspective of the consumer in this increasingly complex world. As we move forward, many consumers will simply be bemused.

A simple example arose for me when, very recently, I spoke to an American firm planning to offer payroll services in the UK using 100% stablecoin. The firm is very confident that this will be in place shortly after the regulations are approved by the FCA. How does an employee receiving 100% of their salary in stablecoin turn that into cash at an ATM? Obviously, there are huge issues of access to cash, interoperability and who will pay for the necessary software and hardware changes.

Amendment 57 carries on with this theme and picks up an earlier group, addressing the need for all participants in the payment system, including tech companies, to pay their fair share. That is why the definition of “payment system” really matters and should not exclude digital assets. As the payments world changes so significantly, financial inclusion will be a far more complex issue, and it is untenable for the costs of this to fall just on the banks. My amendment makes it clear that every participant across all recognised payment systems must step up: we need a level playing field.

The intent of these really quite simple amendments is to help overcome the incredibly fragmented and confusing payments landscape in the UK, particularly when we look at it from the perspective of the consumer. It is an obstacle course and, frankly, general confusion and fragmentation let overseas entities take advantage of us. I am very troubled that the National Payments Vision of the Bank of England does not have digital assets in scope. The Bank issued its policy announcement on systemic stablecoin on Monday, and it says that its work will be in parallel with the National Payments Vision, but I am still trying to work out why the two are not properly linked together and coherent. There are new players in this field, and some are asserting that we need a single sovereign payments system to respond to core consumer needs and to join up the dots with consumers at its heart. I met the Canadian company Interac, and that is exactly what happens in Canada, so there are international examples, which do not seem to be under consideration in any of the material that I have been looking at.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to noble Lords for bringing forward this group of amendments, which raises several important questions around the future shape of payments regulation once the Payment Systems Regulator is brought within the FCA. I am particularly grateful to my noble friend Lord Holmes for introducing Amendments 47A and 101A with simplicity and clarity; I note the support from the noble Lord, Lord Vaux, and the noble Baroness, Lady Kramer.

Despite the arguments of the noble Baroness, Lady Kramer, I do not favour extending the FCA’s service user objective to include consumer redress or access to cash; indeed, I am against a levy for such purposes. In any event, payment system operators do not deal with customers. That is done by financial services firms.

I am more receptive to the amendment from the noble Lord, Lord Vaux, on applying the secondary growth and competitiveness objective to the regulation of payment systems. Does the Minister intend to do this? If so, can it be done by the proposed regulations or does it need to go into the Bill? I should add that, as with so much in the Bill, the framework is broad while the substance is left to later regulations. That is a real concern, as it leaves a lacuna in parliamentary accountability.

We have been through the arguments on consumer credit and in-person banking, but I log them again for good order. I want also to address two central themes running through this group: first, the need for proper industry engagement and accountability in regulation-making; and, secondly, the question of whether the new regime is sufficiently clear and future-proofed.

On the first point, we welcome the amendments that seek to strengthen the consultation requirements and ensure adequate time for meaningful industry engagement, as the noble Baroness, Lady Bowles, set out in her Amendment 48. That would have a dual effect. First, it would increase transparency and accountability for regulators. If regulators are required to consult properly, explain their reasoning, engage with those affected and publish clear strategies, we have a better chance of understanding not only what they are doing but why they are doing it. One point that is clearly of concern to other noble Lords is the extent of the discretion afforded to the Treasury in designating and de-designating payment systems.

The second effect is that this would ensure that those affected by regulation have a meaningful opportunity to have some input in our deliberations on the Bill and our discussions with industry. It has become clear that the regulatory environment seems to be planned and developed at some distance from the firms that are expected to comply. New regulations, handbooks and guidance may make sense to the people sitting in the FCA or the PRA, but they do not always make sense to those at the coalface: firms, compliance teams, payment providers and market participants. They have to interpret them to implement them and live with the operational consequences.

In this case, those with an interest go way beyond the regulators’ normal clients. For example, concerns have been expressed by retailers, which are usually quick to spot practical problems. I remember well that, when I was at Tesco, we were introducing the euro into our businesses in Ireland and elsewhere. Because of inadequate consultation, the timing was wrong, with training and IT changes needed during the busy Christmas period—a recipe for cost and chaos.

This is a real problem. If regulation is developed in a silo, away from the experience of market participants, even well-intentioned regulation can become impractical, disproportionate or poorly targeted. We end up with the regulator and the regulated working from different understandings of how the market actually functions. That is why I hope that the Minister will look constructively at the amendments that seek to strengthen consultation, transparency and meaningful engagement both with professional bodies and with market participants. Without proper planning, there will be a risk to growth—and, indeed, to the UK’s reputation on payment systems, which has generally been good.

The second major issue is the question of what exactly is covered by the regime. Is the Bill regulating the market as it exists today or preparing the UK for the market as it will exist in a few years? We will speak about digital finance and digital assets in later groups, but the point is highly relevant here, as the noble Baroness, Lady Kramer, mentioned. If the Bill is to modernise and improve regulation, why does it feel in places as though it is being designed for a market that may already be out of date? We have the legal system, the financial services expertise, the markets, the professional services ecosystem and the technology capability to be a world leader, but leadership requires clarity and confidence from the Government and I do not think we are yet seeing enough of either in this Bill.

That brings me to the wider point about accountability and scope, which was raised on Monday. If the PSR’s functions are to be absorbed into the FCA, how will this new regime be properly held to account? How will the Government ensure that payments regulation does not become simply one more area lost within the wider FCA structure? I would be grateful if, in addition to my initial questions about growth, competitiveness and the level of delegation, the Minister could address three points.

First, how will the Government ensure that industry and professional bodies are brought into the regulation-making process early enough for their input to make a meaningful difference? Secondly, how will the Government ensure that the new regime is sufficiently clear and future-proofed to capture new forms of payments and digital finance, rather than regulating for the market of the past? Thirdly, how will the new payments regime be held to account once it sits within the FCA and what mechanisms will exist to ensure that Parliament, industry and consumers can properly scrutinise its operations? A lot of clarity is needed on this part of the Bill, which we of course support in principle. I very much look forward to the Minister’s reply.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will make some comments on the amendments that have been discussed and then speak to the amendments in my name. I have some sympathy with the issues raised by the noble and learned Lord, Lord Hope, and I very much hope that the Minister can clear up this issue of professional privilege and client confidentiality, because it seems to me that it is not in any way interpretable from the legislation or the Explanatory Notes, and it is key.

I also see that the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, have tabled Amendment 69A to require a report on the transfer process, which seems very sensible. The noble and learned Lord, Lord Hope, has an amendment calling for a review of anti-money laundering and counter- terrorism financing supervision within three years. All those make some sense to me.

I will look particularly at Amendment 64A from the noble Lord, Lord Holmes of Richmond, because it hits part of the problem on the head. It seeks to require more effective intelligence sharing between supervisory authorities. It is that failure of intelligence sharing that many people consider to be the fundamental underlying cause of many of the problems we have today. It is not very clear that the proposals the Government are bringing forward are the easiest way to remedy that. I will say more on that later.

For my amendments in this group, I thank the Chartered Institute of Taxation and the Association of Taxation Technicians for both clarifying issues and proposing legal language. Despite all the steps we have taken over recent years, London remains the global centre of choice for laundering dirty money, whether from crime, sanctions busting or political corruption. Estimates suggest that 40% of all laundered money globally goes through the City of London or the Crown dependencies—up to £325 billion a year. The primacy of the London money laundromat is not an accolade we wish to retain.

Part of the problem has been the fragmentation of oversight by 25 separate public and professional bodies, supervising not just financial institutions but the many enablers, ranging from accountants to solicitors, property agents and service companies. In 2018, the Government set up within the FCA what they hoped would be the answer: the Office for Professional Body Anti-Money Laundering Supervision, which the noble Lord, Lord Mackinlay, described as the OPBAS—I thought it was an acronym, not an initialism. It was put in place to oversee the 22 professional body supervisors, not the public ones. We need to acknowledge that it has had some real successes, but it has not been as effective as we had hoped. That goes back to the issue raised by the noble Lord, Lord Holmes, who is no longer in his place: the primary reason for this, in most people’s opinion, seems to be relatively poor communication and co-operation between OPBAS and the law enforcement agencies. Frankly, I cannot find anything in this Bill that begins to deal with that.

One approach to remedying this situation would have been to have given OPBAS proper resources and more teeth. Instead, the Government have decided that the FCA should take on directly all supervisory responsibility for anti-money laundering and counter- terrorism financing. Many in the professional bodies are very correctly worried that the FCA lacks the expertise and capacity to carry out the role it is being given, which is much more complex than just enforcement.

Many of the firms that the FCA will supervise on these AML issues are small to tiny. The FCA has no significant history of supervising small and tiny firms, and no understanding of the different operations and pressures of these entities or their specialist activities. The firms—this has been one of the strengths of the professional bodies—need compliance support, education, expert helplines, hand-holding and guidance from a supervisor that knows their business model.

My Amendments 65 to 69 should be seen as part of a whole. They are collectively intended to try to tackle that problem, and to clarify and ensure a workable transition process. Amendment 65 addresses education guidance and compliance support. Amendment 66 requires a proper transition timetable. Amendment 67 requires the FCA to have the necessary expertise and experience in tax, accounting, legal services, trust and company service provision—it does not have that at the moment. Amendment 68 requires transparency on supervisory costs and the fees that the FCA will levy. Amendment 69 requires a report in six months on how effective the new anti-money laundering system is.

Frankly, all of that should have been in the Bill, and none of it should be controversial. Once again, we have a situation where the Government seek to pass primary legislation that gives Ministers and regulators a blank sheet of paper to fill in as they wish with secondary legislation. At this point, as far as I can understand— I looked but could not find it—we do not even have a promise to publish the regulations for consultation.

[Baroness Neville-Rolfe (Con)]

My Lords, I will speak to the stand part notice on Clause 14 and Amendment 69A in my name and that of my noble friend Lord Altrincham. I am also grateful to my noble friend Lord Holmes, to the noble and learned Lord, Lord Hope of Craighead—whom it is a particular pleasure to welcome to the Committee on this Bill—and to the noble Baroness, Lady Kramer, for bringing forward a number of useful amendments in this group. My noble friend Lord Mackinlay of Richborough is right to summarise the concerns about and nonsenses of the money laundering regulations in general, which we should try to address as part of reform. We certainly support that.

The question we have to ask is whether the Government’s chosen mechanism is sufficiently clear, proportionate and workable. At present, I am concerned that it is not. Clause 14 represents a major structural change, moving front-line AML supervision for professional services from the existing professional body supervisors to the FCA. The Bill will allow FCA supervision of money laundering to be extended to several new areas—to 22 bodies in all, as we have heard, including solicitors, law firms, accountants, trust and company service providers and, in practice, estate agents. Yet, as with so much in this Bill, the framework is broad while the substance is left to later regulations. That is a real concern.

My Amendment 69A seeks to address that in part by requiring the Treasury to report to Parliament on the process for transferring responsibilities under Clause 14. That report would force the Government to set out how the transfer will work in practice, what steps will be taken to manage the transition, how costs will be assessed, how duplication will be avoided and how the FCA will acquire and maintain the necessary sector expertise—all points that have been raised in the debate.

We have heard serious concerns from industry and professional bodies about spiralling costs, duplication and regulatory uncertainty. The Law Society described the proposal as

“a seismic shakeup to how law firms and their AML … obligations are regulated”.

It warned that the change risks diverting

“attention, resources and time from supporting clients and growing their businesses”

towards adapting to a new and uncertain compliance regime. That concern should be taken seriously. The Government and the FCA should be seeking to simplify requirements, reduce duplication and minimise the compliance burden, while maintaining strong safeguards against economic crime.

The risk of duplication is particularly important. Solicitors are already subject to a distinct regulatory framework. They have professional obligations, ethical duties, responsibilities to the court, duties under the rule of law and obligations around client confidentiality and legal professional privilege. If the FCA is now to be added to that landscape as a supervisor, the Government must explain precisely how the new system will avoid overlapping or conflicting expectations.

Like the noble Baroness, Lady Kramer, I am particularly concerned about sector expertise: if the FCA is to take on these responsibilities, it must have people within it who understand the professions and bodies that they will be supervising. It must understand how law firms operate, how client accounts work, how professional privilege functions and how smaller or high street firms differ from large practices.

Costs are another major concern. I emphasise that small and high street firms are worried that a move to FCA supervision may result in higher fees and new compliance costs. Many of these firms are already under pressure. They serve individuals, families and small businesses in communities across the country. If the effect of this reform is to impose disproportionate new costs on them, it could have real consequences for access to legal services. The FCA does not understand how to deal with thousands and thousands of such firms.

We also need to understand how regional capacity will be maintained. Professional services are not confined to London; it is one of their charms. AML risks and compliance responsibilities exist across the whole country. The existing professional body model has the advantage of sector-specific and, in many cases, locally embedded knowledge.

There is also a specific territorial issue here, as we heard from the noble and learned Lord, Lord Hope. The Law Society of Scotland has opposed the change and raised concerns about the compatibility of FCA supervision with the regulation of legal services in Scotland. The Government need to explain how these reforms will interact with devolved and existing statutory frameworks, as well as how they will avoid creating a two-track or conflicting regulatory regime. The noble and learned Lord also emphasised the SME issue, which seems to be a particular difficulty in Scotland.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I am going to be exceedingly brief. I support the amendments in this group.

My noble friend Lady Bowles has hit on the fundamental reason for my strong opposition, which is the constitutional issue. By chance, I happened to speak to a senior regulator in the financial services sector—I am not going to use their name because it would not be fair to do so—shortly after the Bill came out. We started looking at its clauses, and that person said to me, “Ah, but, in the long-term strategy, we will be able to explain to people in detail why we are doing what we choose to do”. To me, that absolutely summed up the issue as a whole. There was no concept at all that there would be parliamentary insight, parliamentary oversight or engagement; it was simply going to be a much better vehicle to explain to people why certain things that had been identified as necessary were necessary and were going to happen. There was no sense of challenge anywhere at all. That is a really dangerous way for us to move our legislation.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to all who have taken part in this short debate. We are sympathetic to the broad purpose of requiring regulators to think strategically, but, if the regulatory strategies are to be meaningful, they must not simply become static documents published every few years then left on the shelf. As my noble friend Lady Noakes said, that is not the way we do it in business. Common practice is for five-year strategies, reviewed annually, and annual plans.

The amendment tabled by my noble friend Lord Ashcombe would reduce the strategy period from five years to three years. He is right that markets can change very quickly, as we keep hearing. A five-year strategy risks being set in stone for too long, unless the Minister is able to clarify that the plans will be updated regularly. If not, a shorter period, such as three years, would have real benefits. Perhaps the Minister can explain why the period of five years has been chosen and how he believes the strategies will remain agile and flexible.

I am delighted that the Minister said that he was prepared to accept Amendment 70 on competitiveness and growth. As I have said several times, the growth of the UK financial services sector is key to growth more generally. Regulation should say how the Government—or the regulator—understand that objective, how they are giving effect to it and how their regulatory approach is supporting growth in the market, because the UK has a large and dynamic financial services sector. My noble friend Lady Lawlor emphasised that point, which we should not forget, and we cannot assume that its international position is guaranteed. Regulation has a direct effect on investment, innovation, listings, lending and market depth, as well as on the attractiveness of the UK as a place to do business, so, if regulators are not required to think explicitly about this, the growth objective risks being honoured in theory but neglected in practice.

Amendments 71 and 74 on consultation are very welcome. As we have said in our debates on previous groups, bringing experts into the room in a timely way is a vital part of the regulatory process.

In my view, the boards of regulators have a part to play in the strategic plans, but my recollection is that those engaged in regulated companies were excluded from the non-executive roles on the PRA and the FCA. Is this still the case? My own board experience is that conflicts of interest can be managed. I believe that regulators will benefit from current knowledge from the industry, particularly given these new statutory strategies, the digital changes to which we keep referring and the expansion of the scope of the FCA. I would like to hear from the Minister what the current rules are—perhaps in a letter, as I have not raised this point with him before.

I also support the principle behind Amendments 72 and 75 in the name of the noble Baroness, Lady Bowles. They would require the FCA and the PRA to review their rulebooks and explain how they will simplify or remove rules that are outdated, unnecessary or duplicative. Regulation, as has been said, tends to accumulate. New rules and duties are added, but old rules are not always removed. Guidance, expectations and supervisory practice develop over time. A long-term strategy is not only about what new initiative the regulators want to pursue; it should also be about what the regulator can simplify. If a regular rulebook review is done with a view to making regulation less burdensome, cheaper to operate and supportive of growth, that will be a very positive step.

The amendments on Treasury recommendations also raise a serious question around accountability and regulator independence. There is, of course, a balance to be struck. We do not want day-to-day political interference in regulatory decisions but nor should independent regulators operate without clear strategic accountability to Parliament and the Government of the day, as my noble friend Lord Massey and the noble Baroness, Lady Kramer, explained better than I can. The Government should explain why the Treasury’s recommendation-making power is framed as it is, why it is limited in the way proposed and how Ministers expect it to operate in practice.

Finally, on the Clause 16 stand part notice, I understand the concerns raised in the debate. The value of that clause will depend entirely on whether the strategies produced are meaningful, responsive and capable of being scrutinised. If they become generic documents with broad statements of aspiration, they will add little. If they provide clear commitments, measurable priorities, proper engagement with growth and competitiveness, and a disciplined approach to reviewing the rulebook, they will be useful.

I very much look forward to a full response from the Minister to the points that have been made.

[Lord Stockwood (Lab)]

My Lords, I begin by explaining the Government’s purpose behind Clause 16 and why it should stand part of the Bill.

The Government have often heard feedback calling for the regulatory system to have an overall long-term strategy with clear goals, where the regulators consider the cumulative impacts of their policies and the interaction between supervision and rule-making. The reforms introduced by Clause 16 are intended to address this feedback and will improve transparency around the regulators’ long-term direction and focus, which the Government consider will support effective oversight and scrutiny of the regulators.

Clause 16 requires the FCA and the PRA each to prepare and publish long-term strategies so that stake- holders, including regulated firms, can better understand the regulators’ approach to the sector, and so that the Government and Parliament fully understand the regulators’ priorities and can more effectively hold them to account on how they are translating their objectives into actions and results. When the Government consulted on this proposal, it received strong support: 83% of respondents supported it and agreed that the regulators taking a more strategic and cohesive approach would benefit the sector by helping firms know what to expect.

I have listened carefully to the concerns raised by noble Lords. However, the Government remain firmly of the view that Clause 16 will support scrutiny. By requiring a clear long-term strategic overview, Clause 16 will help the sector understand and plan more effectively for regulatory initiatives and will help interested parties engage with the regulators at a strategic level. Without Clause 16, there would be no requirement for the regulators to set out, in one place, their long-term priorities and approach in advancing their objectives. The aim of the strategies is to make it easier, not harder, for Parliament and stakeholders to scrutinise whether the regulators’ actions are coherent and aligned with the framework that Parliament has set.

On Amendment 70, the Government agree with the noble Baroness, Lady Noakes, that the FCA’s secondary international competitiveness and growth objective should be central to the formulation of its long-term strategy. Growth is the number one priority for this Government and the financial services sector, as many have noted, is key to delivering this. The Government always intended the FCA’s long-term strategy to set out its priorities for advancing our international competitiveness and growth objective. We are looking into this point to determine if this is fully clear within the drafting of the clause, and we are open to tabling an amendment on Report should we determine that it is needed. I thank the noble Baroness for bringing this to my attention and commit to keeping her and other noble Lords informed as this consideration progresses.

I turn to Amendments 69B and 73A. The noble Lord, Lord Ashcombe, and the noble Baroness, Lady Neville-Rolfe, asked me to explain the Government’s thinking behind the time periods here. The Government have set the length of this strategy as five years because, as has been noted, it is the standard time period for organisational strategies and is very common in the business world, as many noble Lords will appreciate. It also aligns with standard parliamentary terms and therefore the requirement for the Treasury to issue recommendations to the regulators at least once per Parliament. However, the Government recognise that financial services markets can evolve quickly and it is important that the regulators’ strategic documents remain current and useful.

The noble Baroness, Lady Noakes, asked me how the strategies would be kept under review. The Bill provides flexibility for the regulators to revise or publish a new strategy within the five-year period if circumstances require it, or to publish a strategy for a shorter period of time than five years. If they do the latter, it will need to be with an explanation about why this is appropriate. Five years is therefore a maximum interval, not a requirement to wait five years before making a change. For example, the Bill requires the regulators to consider whether they need to update their strategy or issue a new one whenever new Treasury recommendations are issued. The Government’s view is that this strikes the right balance between providing a long-term, stable framework and allowing regulators to respond when market, economic or regulatory conditions change.

On Amendments 73 and 76, the Government’s approach here is deliberate. The need for the regulators to take account of Treasury recommendations at a strategic level, rather than at the level of general functions, has been carefully considered. Under the new framework, the Treasury’s recommendations to the regulators regarding its economic priorities will inform the development of their strategic priorities. This is aligned with the change to the way that the regulatory principles will be applied, and I hope it demonstrates the Government’s confidence that influencing the regulators’ strategies is an effective mechanism for ensuring that they have an appropriate focus and are performing well.

Further to this, the framework has been carefully designed to ensure that Treasury recommendations are taken fully into account. As I mentioned earlier, regulators must consider updating or producing a new strategy whenever the Treasury sends a new recommendation letter. The regulators will continue to be obliged to respond annually to the Treasury on their actions in response to the recommendations separately from the strategy document. This will support continued transparency and accountability regarding how the regulators are taking government recommendations into account.

Financial Services and Markets Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Monday 22nd June 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, there seem to have been two themes in today’s discussion; I will address both because I agree with them both.

The first is on whether we value banking hubs. There have been so many voices that say that we value them, but they are calling for a much-improved framework, including the noble Baronesses, Lady Tyler and Lady Bennett, the noble Lord, Lord Davies, and the right reverend Prelate the Bishop of Manchester. I suspect that there is a universal consensus that we need to think through this issue, which is exactly why the Richard Lloyd review is now anticipated. I think that most people who see the value of banking hubs in their community—most MPs have been asking for banking hubs in their constituencies—very much appreciate the direction of the Lloyd review. On the background and evidence for the need for banking hubs, I will address some of those issues much more when I discuss community development financial institutions in a later group, so I will not repeat all that.

That does not take away from the fact that we have a constitutional issue here. According to its report, the Delegated Powers and Regulatory Reform Committee is very concerned that the problem has not been clearly identified and that a power as extensive as the one provided for here in the Bill severely compromises effective parliamentary scrutiny. The Select Committee asks for the power to be removed from the Bill. I say to the Government that it is important that there will be some real clarity before this hits the Commons—otherwise, this clause will be very much in trouble.

I support banking hubs. I suspect that I will be very pleased when I read the Lloyd review. What is sauce for the goose is sauce for the gander. I cannot just say to Parliament that, if it is something that I like, we do not need oversight, scrutiny and a proper process and that we do not need to consider the role of the regulator versus the democratic decision-making that should be happening in Parliament. This is a very good instance where I suspect that I would be very much in favour of the Lloyd review, but I would be very sad if that is not brought before Parliament for discussion, scrutiny and proper oversight. It is unfortunate that the Bill follows a procedure and process that seems to be completely unnecessary and that does not allow for that oversight. Oversight is valid, whether or not you think you will like what the regulator will do.

[Baroness Neville-Rolfe (Con)]

My Lords, Amendment 21, in my name and that of my noble friend Lady Noakes, would ensure that any government intervention in the provision of in-person banking services is evidence-based, proportionate and properly balanced. It would require Ministers to consider not only the needs of consumers but the legitimate commercial reasons why firms may reduce their physical banking provision.

More widely, Clause 3 raises two distinct but closely related concerns. Our amendment speaks to the first: banks do not close branches simply on a whim. Consumer behaviour has changed profoundly, more banking is conducted digitally, and maintaining a physical network carries substantial costs. The Government may decide that wider social considerations justify intervention, but they cannot responsibly make that decision while ignoring the commercial realities facing the firms they intend to regulate.

Middle East: Economic Response

Debate between Baroness Kramer and Baroness Neville-Rolfe

Monday 1st June 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, it is a pleasure to return to the House after such a sunny break and to be able to review calmly the Chancellor’s Statement of 21 May.

It was not a major package. It was a collection of small measures, welcomed by some people as far as it went. As far as I know, the Chancellor did not announce the total cost, but except for the short delay in the increase of 5p on petrol, we are told that it will be covered by the changes to corporation tax on overseas investment and the foreign branch exemption. I would be grateful if the Minister could tell us how much that corporation tax change will cost British businesses and in which tax years.

What investment allowances will be made? As someone who made major investments overseas at Tesco and built up some fine businesses in Korea, Thailand and eastern Europe, I can tell your Lordships that we would not have taken the successful risks we did if early losses had not been allowed against profits at home. How is the Treasury going to avoid this change chilling overseas investment—a beacon of British wealth creation, reputation and strength for centuries?

I read the new list of food, drink, fertiliser and fuel items that will attract zero tariffs until December 2028. I note that they are rightly out for consultation. I have two questions here. First, have the Government had regard to the impact on our aspirations for new trade deals, where the granting of tariff-free access is a major bargaining chip? We know that the new Canada deal seems stuck because it has indicated that there is not much extra we can offer it.

Secondly, while government has tried to avoid lifting tariffs in areas where there is significant UK production in the agricultural sector, many of the items—nuts, fruit and tuna, for example—are substitutes for UK-grown foods and will displace demand for them. Moreover, we have a vibrant and important food manufacturing industry now facing stronger competition in areas such as confectionery, biscuits and processed foods. What is the Government’s estimate of the impact on them and the vital jobs that they support? Is this a further nail in the coffin of our manufacturing industries?

This brings me neatly to the third area of concern, which also affects food manufacturing—the high energy costs in the UK. They have been made worse by the Middle East war, but the main reason for them is the Miliband obsession with a drive to net zero. This obsession is doing very little for climate change, as the UK is responsible for less than 1% of global emissions. The Official Opposition have repeatedly made clear, sometimes with some welcome support from the Minister, that we must make full use of the North Sea—not only with tie-backs but with an early go-ahead for Jackdaw and Rosebank. This becomes more urgent by the day, given that there seems little chance of an early opening of the Strait of Hormuz. When can we expect an announcement on these two licences?

Our high electricity prices are also a cause of wider de-industrialisation. I welcome the support for the ceramics industry. Stoke-on-Trent’s five towns were the Silicon Valley of Britain in their day, and I am an avid collector of Staffordshire pottery. However, something more fundamental is needed on energy to preserve our shrinking industrial base.

Given that the Statement was about the impact of war in the Middle East, I was surprised that it was so light on defence. I ask the Minister again: when will the defence investment plan be published? He used to say “in due course” but in the King’s Speech debate he said “shortly”, which offered more hope.

That brings me on to my final area of concern: the gravity of the wider picture of inadequate and crumbling defence forces because of lack of proper funding or a proper defence investment plan; the country’s finances in a mess; troubling social policies and divisions; and anaemic growth—the lack of that magic which makes governing so much easier. This is not surprising given the avalanche of taxes and business costs that we have experienced—national insurance, minimum wage hikes, the Employment Rights Act, a new visitors’ levy on our hotels, packaging taxes and vicious rates revaluations that, according to the weekend’s papers, risk closing down yet more of our country’s pubs. Further, only today I see that it is proposed to reduce checks on those claiming disability benefits. This would be going in precisely the wrong direction. Is the report correct?

To understand the damage that these policies have caused, we need only look back at the OBR’s March 2024 forecast for 2026. At that point, shortly before we left office, having navigated enormous challenges—not least the unprecedented inflation following the outbreak of the war in Ukraine—the OBR forecast UK GDP growth of 2%, unemployment at 4.2% and inflation at 1.6%. After Labour’s tax rises and spending spree, the OBR now forecasts UK growth at 1.1% in 2026, unemployment at 5.3%—and tragically much more among the young—and inflation of 2.3% for 2026. This is all in the wrong direction over those Labour years.

We face many serious problems in this country, and we on these Benches believe that we need a greater sense of urgency and a much better plan from the Government, especially on growth and productivity, defence, energy and debt reduction. Sadly, the latest package is another bit of unexciting incrementalism, mostly focused on lesser issues and badly managed, as we saw from the outcry of all experts on the proposal to fix supermarket prices. We can do better.

[Baroness Kramer (LD)]

My Lords, till sales at UK supermarkets slowed to growth of just 0.2% in the three weeks to mid-May. Families do not know how they will cope with higher fuel costs, higher council tax and expected inflation. I am sure the Minister will tell us that the Government have tried to ease costs on the most vulnerable, and I support those actions. But with no relief in sight from the consequences of Trump’s Iran war, will the Government look seriously at the emergency £2 billion transport relief package proposed by my colleagues, to be funded by the Treasury’s unforecast boost in tax receipts: a cut in fuel duty by 10%, a slash in bus fares to £1, a slash in rail fares by 10% and a cut on VAT on public EV charging to 5%?

Does he also recognise that this is not a short-term crisis? The Government will have to find ways to reverse or offset the national insurance increase to small employers, especially in hospitality and leisure. They must break the link between electricity prices and the oil price, intensify the move to contracts for difference to spur on renewables, provide an effective programme for individuals and small businesses to install energy saving, and overhaul business rates at least to exclude all new business investment in energy saving from business rate consequences. Can he take this series of actions, which would make a significant difference?

Middle East: Economic Update

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 28th April 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the International Monetary Fund, in its latest World Economic Outlook, has warned that the energy shock stemming from the Iran war will hit the United Kingdom harder than any other advanced economy, notably in terms of growth and inflation. It is also the case that UK borrowing costs are higher than those in other comparable OECD countries. In short, the prospects are depressing in the extreme. What, we ask ourselves, are the Government proposing to do about it?

We read one apparent answer in today’s newspapers: freeze rents; in other words, adopt a policy which has always failed everywhere that it has been tried. Can the Minister tell us when we will be told the details of this latest whizz idea, or will he be willing to rule out the ridiculous idea definitively from the Dispatch Box, given the adverse effect on the share prices of some property companies today?

I turn a much more serious subject: defence. The world situation is becoming more worrying by the day, which makes the much-delayed defence investment plan even more important and the funding shortfall of £28 billion ever more disturbing. A responsible Government would act with vigour to progress matters. Experts are unanimous in the view that our capabilities are woefully short of what is necessary. What have the Government done about this unhappy situation? The answer is: very little, unless delay constitutes action. Can the Minister tell us when the defence investment plan will finally be published?

I turn to North Sea oil and gas, where there are possibilities that would help our economic situation by increasing output, increasing well-paid jobs and improving our balance of payments. But the Jackdaw and Rosebank decisions do not seem to have moved from the desk of the Secretary of State. His ideological prejudices are well known, though difficult to understand in the circumstances that now face us. When we last debated the Middle East, the Minister seemed warmer to North Sea exploitation than I had expected. But, in short, we are still seeing more delay.

We know that the Government face very difficult circumstances, many of which are exogenous and they can do little about, but what action they have taken has tended to make matters worse, and what they have left undone is significant. Will the Minister urge his ministerial colleagues to get serious, to avoid economically damaging ideas such as freezing rents, and to take those decisions which need to be taken as a matter of urgency?

The truth is that the Government’s position on energy is woeful, as we heard during today’s PNQ. Let us take the Jackdaw gas field: it is ready, the infrastructure is in place, the operators are prepared; it could supply enough gas to heat 1.4 million homes by the autumn, and more cleanly than much of the gas we currently import; and it would strengthen our energy resilience by 6%. So why, in the face of rising global instability, with energy security more critical than ever, are the Government not bringing the Jackdaw field online? Equally importantly, why is the industry so fearful that the Government will not approve the Rosebank field? Is it right?

From an energy perspective, Britain could scarcely be entering this crisis in a weaker position. We face the highest industrial energy costs in the developed world, crippling our manufacturing industries and making life very difficult for our SMEs—and consumer prices are not far behind. This is a dangerous position to be in, and I gently say to the Minister that the public will not thank the Government for ideological gestures. They will expect, and they deserve, practical action to secure our energy future.

What unites each of these issues is the absence of domestic resilience. The war in the Middle East has exposed that weakness, but it did not create it. So the question for the Government is a simple one: will they now act to strengthen the resilience of this country, restore credibility to their economic and energy strategy, and provide the certainty that our Armed Forces, our businesses and our households all need—or will they continue to rely on hope when what is required is action? The time for hope has passed, and the time for decision is now.

[Baroness Kramer (LD)]

My Lords, the impact of the Iran war has made previous economic forecasts pretty much redundant. We talked last week about warnings from the IMF and the OECD, repeated today by the noble Baroness, Lady Neville-Rolfe, which essentially assess that the UK would suffer more than any other G7 economy. This conclusion is being reinforced by recent inflation and unemployment numbers. The Government’s response has been limited and very much a “wait and see”. Uncertainty is a reason for resilient action, not a reason for inaction. We need to see action now from the Government.

Each day, as an ironic consequence of the war, the Treasury is taking in some £20 million more in taxes, including VAT and the electricity generation levy, so why are the Government not using this money proactively to help people with spiralling living costs? That money could be reducing petrol prices at the pump through a temporary cut in fuel duty. It could be used to cut rail and bus fares or to reduce the price of home EV charging. Families need help now—they need early reassurance on the energy price cap after June and a cancellation of the 5p duty rise due in September.

We strongly support reform of the energy pricing system. Our manifesto made a clear commitment to break the link between gas prices and electricity prices—ours was the only manifesto that had that in black and white—so we are glad that the Government have taken up that approach and that they are moving to a contracts for difference model. But we are still concerned about energy costs for individual households; for small businesses, including hospitality; and for the food and agricultural sector, which has such an impact on the cost of living.

So will the Government now work with the banks to introduce a scheme of low-interest loans for householders who want to adopt energy-saving measures but need a way to finance the upfront cost? Will the Government press Ofgem to investigate the broken energy market, which is in effect blocking small businesses and hospitality from accessing good energy deals? My colleague in the other place, Daisy Cooper, met last week with Ofgem, and it is absolutely clear that there is a case for the energy retail market to answer here in dealing with small businesses and specifically with hospitality. Will the Government recognise the particular need to act on costs in the food and agribusiness sectors, which are being so impacted by this war? That impacts clearly and directly on the cost of living for ordinary people.

Middle East: Economic Update

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 26th March 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, for the third time in as many weeks, the Chancellor came before the other place on Tuesday and once again delivered a Statement remarkable only for its lack of substance.

I welcome the confirmation respecting nuclear power, including the implementation of the Fingleton review, which should help to accelerate construction. The references to relations with the EU are less convincing. What price will we be expected to pay for these supposed benefits? The Government’s history of giving in unnecessarily to the EU does not give confidence. We are also suspicious of claims about the need for new powers regarding alleged price-gouging. This smacks of playing to a not very well-informed gallery, but what exactly do the Government intend here?

The Chancellor has praised countries such as Norway and Canada for increasing oil and gas production and for playing their part in securing energy supplies during a time of conflict. Yet here at home the Government refuse to do the same. The Energy Secretary continues to block increased production in the North Sea, so the Government applaud others for strengthening their energy security while wilfully weakening our own. That is pure masochism.

We could scarcely be entering this crisis in a weaker position. We face the highest industrial energy costs in the developed world, with consumer prices not far behind. Just today, the OECD has said that the war in the Middle East will hit UK growth hardest of all, with inflation set to accelerate. The Government speak of reducing dependence on energy imports, yet their own actions are driving us in precisely the opposite direction. That is a self-inflicted vulnerability.

This is a dangerous position to be in. I gently say to the Minister that the public will not thank the Government for ideological gestures; they will expect practical action to secure our energy future. It ought not to be beyond the wit of government to expand green energy supplies while also sustaining supply through oil and gas—which we will simply import more of if we do not produce it at home.

I will also briefly mention the defence investment plan. It was very unedifying to see the Prime Minister discomforted when he was asked about it at the most recent Liaison Committee meeting. On Tuesday, the Defence Select Committee heard from industry leaders that without the defence investment plan—which is now well overdue—some defence manufacturers are going bust, while others have been left in “paralysis” and “bleeding cash”. The plan was originally expected last autumn, but it has been repeatedly postponed, despite repeated warnings that our Armed Forces face a £28 billion funding gap. When will we see the plan?

The Chancellor said that her response to the crisis in the Middle East would be “responsive” and “responsible”. What on earth is responsible about this: a refusal to agree a defence funding plan when the MoD faces a £28 billion black hole, British defence firms going under—and all at a moment of acute global instability, when our sovereign territory has been attacked and our citizens are being threatened at home?

Our economic and defence situation is perilous. Gilt yields are at levels not seen since the 2008 financial crisis. Inflation and employment are disturbingly high. Our defences are in a mess. Taxes, borrowing and spending are at record levels and interest rates are going the wrong way. No wonder a respected commentator said this week that he had never been so concerned that the person nominally in charge of the economy—the Chancellor—was manifestly out of their depth. We need better than this.

[Baroness Kramer (LD)]

My Lords, if this war with Iran continues, and especially if the Strait of Hormuz remains closed as we approach autumn, the global economy will be in serious trouble and the crisis will impact severely—directly on energy prices and, more broadly, on the cost of living. There was far too little in the Chancellor’s speech to give ordinary folk, never mind the markets, real reassurance. People are not naive. Simply to repeat the steps that the Government planned for the economy anyway in the pre-Iran war world is not sufficient.

The Chancellor indicated that any support beyond changes that are already in the system would be targeted at those who are most in need. What does that mean? Is it limited to the 6 million people who claim welfare or pension credit? Is it correct that the Treasury lacks the capacity to identify and assist those who do not qualify for those benefits but are still very low earners? What should the earnings threshold be for support? Will the Chancellor act immediately to, at the very least, zero-rate VAT on heating oil and liquefied petroleum gas? Will she introduce a proper price-cap mechanism for off-grid fuels? Will the Government also reverse their senseless cuts to home insulation programmes, which will be important to a wide range of people?

In her speech, the Chancellor failed to recognise the dire position of small businesses. Inflation in January pre-war was at 3%. We have found today that UK business activity is growing at its slowest pace since September, with a huge jump in manufacturing input prices. At such a time, tax, NICs and other blows from the Budget will fall on small businesses in April—a few days away. This Government seem cavalier about loading small businesses with additional costs, even though they are the backbone of our economy and jobs, and sustain our local communities.

The Government know that small businesses face a broken energy market that leaves most of them paying inflated energy prices. Will they now instruct the Competition and Markets Authority to investigate suppliers that are blocking small business access to the best energy deals? Will they now change the business rate system so that small businesses can improve their energy efficiency without facing business rate penalties? Will they adopt the idea of an energy security bank to provide low-cost loans for households and small businesses to invest in energy efficiency?

When the country is anxious, it needs a speech from the Chancellor that recognises and responds to the changed reality. Will someone from the Government please give that speech before anxiety becomes a self-fulfilling prophecy?

National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

3rd reading
Thursday 12th March 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, as we said at Second Reading, in Committee and again on Report, this is a poorly conceived Bill, because it prioritises the hope of short-term tax gain over the far more important task of sustaining a system that encourages and rewards responsible pension saving. Throughout the Bill’s passage, we have sought to examine it line by line to see what the Government’s policy will actually mean in practice, and what has become clear is deeply troubling.

This measure risks deterring pension savings. It will hit those on lower and middle incomes, including some earning under £30,000 a year. It will impose yet more compliance, payroll and administrative burdens on business, particularly on small businesses and charities that are already under considerable strain. It will particularly penalise those who are repaying student loans.

Against that background, I am proud of the scrutiny that the House has brought to the Bill. Your Lordships have approached it with care, expertise and determination to improve it where we can. As a result, with unusual speed, good order and good humour, the House agreed five amendments last week which seek to limit some of the Bill’s most damaging consequences.

First, our Conservative amendments ensure that basic rate taxpayers, those on the lowest incomes, are protected from the NICs charge. If the Government insist that this policy is directed at higher earners, not those on modest incomes trying to save for their retirement, this should be explicit in the Bill.

Secondly, we proposed an exemption for small and medium-sized enterprises and small charities. These organisations are the backbone of our economy and our communities, and they should not be burdened with yet more payroll, compliance and administrative costs as a result of this policy. We have all seen the impact on them of last year’s £25 billion hit.

Thirdly, we proposed that most of the regulations under the Bill should be subject to the affirmative procedure. Given the uncertainty that surrounds how these provisions will apply, it is only right that Parliament has the opportunity to scrutinise those regulations properly.

Fourthly, my noble friend Lord Leigh of Hurley successfully secured an amendment to limit the impact of the Bill on those repaying student loans, who would be hardest hit by the measure.

Finally, the amendment by the noble Baroness, Lady Kramer, raised the cap to £5,000, helping to mitigate some of the worst impacts of the Bill on those least able to bear them.

In recognition of the seriousness of the issues raised by the Bill and the progress made here, I shall take a moment to thank a number of noble Lords for the diligence with which they have scrutinised it. I am particularly grateful to my noble friends Lord Leigh of Hurley, Lord Fuller, Lord Ashcombe and Lord Mackinlay of Richborough, and the noble Baroness, Lady Altmann. They have worked tirelessly, both with me and my noble friend Lord Altrincham, and their amendments have prompted important debates. I am also grateful to our Whips’ Office team, especially my adviser Oliver Bramley, for their unstinting and effective support, and I thank the noble Baroness, Lady Kramer, for the constructive way in which she has engaged with us during the course of the Bill. Hers has been a powerful voice in holding the Government to account.

More broadly, I thank other noble Lords across the House, including the noble Lords, Lord de Clifford, Lord Londesborough and Lord Freyberg, for their thoughtful contributions in scrutinising the legislation. Finally, it would be remiss of me not to thank the Minister for the way in which he has engaged with the House during the passage of the Bill. I am particularly grateful to him and his officials for their response to the letter I sent following Committee. It addressed a number of the questions raised during our debates and was both timely and informative.

I hope that, as the Bill proceeds, the Government will reflect carefully on the points raised and show a willingness to move on the issues that have united so many across this House.

[Baroness Kramer (LD)]

My Lords, this was a very short Bill but, frankly, I do not know how it got through the House of Commons and came to this House without clarity on the fundamental issue of whether we were talking about a cap that was per employee or per employment. I thank the noble Lord, Lord Livermore, for seeking the answers to that and making sure we were informed on Report. We were looking at two different Bills, not knowing which one we were working on, until we reached that point in the conversation, so I thank him.

I also join in saying that this was a collaborative effort, not in opposition to the Government but because we were of common mind across the Conservative Benches, my Benches and the Cross Benches—the noble Lords, Lord Londesborough, Lord de Clifford and Lord Freyberg, as the noble Baroness, Lady Neville-Rolfe, mentioned, all played a crucial role in this. I particularly congratulate my Benches on taking a vow of omertà not to speak on many occasions on the Bill so that we moved it rapidly through the House. I think the whole House was grateful that, on Thursday, when we finally came to vote, we were done in less than two hours rather than delaying everyone from departing on a Thursday. I thank my team very much for their discipline. I also thank Ulysse Abbate in our Whips’ office, who is new to this kind of work, but my goodness is he good at content and co-ordination.

This was a good example of people, having realised they are taking the same position, working together to make sure that it is effective. I very much hope that the Commons will appreciate the significance of the amendments passed to the Bill. Of all the Bills I have ever seen, this contains so many unintended consequences that, even if you believed in the fundamentals behind it, you would need to make substantial change for it to be in any way workable and not ending up targeting unintended groups, such as those on basic incomes. It would be devastating for people repaying student loans, which has to be fixed, and very difficult for SMEs. We chose different routes to try to make those changes and ended up with a very solid group of amendments. I thank the House for co-operating on this issue.

National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Report stage
Thursday 5th March 2026 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will slightly anticipate the noble Baroness, Lady Rolfe, moving Amendments 9, 10, 24 and 25, which would require affirmative resolution for key elements of the Bill. Frankly, I do not think I have ever seen a Bill for which affirmative action was more required. In the other amendments, which have been brought forward so eloquently from across this House, we have some flavour of the extraordinary complexity.

I suspect that decision-makers at the top of the Government thought that this was something really simple, and that they were just going to put a cap on, with the rest being relatively easy to manage. However, the actual management of this is a complete nightmare. I cannot believe that a Bill that has been through the House of Commons already is on Report in the House of Lords, and yet we still do not know if the cap is going to apply to each employee or to each employment—which, to my mind, is two different Bills.

I completely agree with the noble Lord, Lord Leigh. I can see the nightmare of people wondering, “If I say this sentence, will I be caught by operational remuneration? Do I have to pretend, wink, or make sure I do not put anything down in an email?” We should not be putting people into situations where they have to try to work out how they handle this whole range of arrangements. The noble Lord, Lord Freyberg, knowing the creative industry so well, has thrown further complication into this. I very much suspect that the Government had absolutely no idea of the mare’s nest they were getting themselves involved with. I wish these issues had been teased out before this point.

The response brought forward by the noble Baroness, Lady Neville-Rolfe, of at least having affirmative resolution gives us some possibility of trying to scrutinise what has happened. This is an extraordinary situation. We do not know the core character of this Bill, so we will be dependent on those working through the affirmative resolutions to decide how on earth they will deal with what will turn out to be the form that eventually comes before us.

[Baroness Neville-Rolfe (Con)]

My Lords, I begin by thanking noble Lords with amendments in this group—my noble friends Lord Fuller, Lord Mackinlay and Lord Leigh and the noble Baroness, Lady Altmann—for their proposals, and for their forensic questions on the detail of the schemes and on any guidance that the Government might issue to minimise errors and problems.

There are numerous shortcomings in the Bill around operational detail and how everything will apply in practice. The reality is that we have very little clarity on how the Bill will work. It is designed to apply to a very narrow and limited set of employment and remunerative circumstances, and anyone who falls outside that definition has to wait for regulations, which will not be subject to the affirmative procedure.

We have no clarity on how the policy will apply to people working in numerous jobs. Is the cap per employment or per person? If it is per person, it will be very difficult to administer. We also need to know where responsibility for enforcement lies. There is no clarity about people with fluctuating remuneration: will they be penalised for saving during higher income periods because they hit the cap in some years and have no income to pay into pensions in others? What about anyone who has an unconventional pattern of remuneration for their job or jobs? How will it work for them? We have heard already that the arrangements for student loans are unclear, even after recent discussion, and we heard from my noble friend Lord Mackinlay about GDPR and from the noble Lord, Lord Freyberg, about the off-payroll rules. That is quite a lot of detail that has to be worked out.

My amendments in this group would help to deal with that by ensuring that all regulations would be subject to the affirmative resolution procedure, aside from those designed to increase the cap—that would be positive if it goes up, and you would not need to have an affirmative resolution because it would be beneficial. I am very grateful to the noble Baroness, Lady Kramer, and my noble friend Lord Ashcombe for their understanding and their vocal support for having this extra scrutiny.

When the regulations are developed, they will apply the cap to thousands of people and businesses who will be drawn into complications for the first time. My proposals would not impose a cost on the Exchequer or undermine what the Government are trying to do; they would simply ensure that, when the Treasury comes up with an answer to the questions that have been raised today, we will get a meaningful chance to debate and scrutinise the answers, as we are doing with the Bill at the moment. The Government really should have put the detail in the Bill but, in the absence of that, my amendments would ensure that we retain as much oversight as possible as the detail comes through. I can think of no reason why the Minister would not adopt the affirmative resolution if he cares about oversight, due process and the scrutiny of a policy which will affects millions of people. There are 7.7 million people using salary sacrifice and Amendment 9 should be an obvious amendment to support.

National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Tuesday 24th February 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, my amendment in this group seeks to make the commencement of this Act conditional upon the publication of an independent review of its impact on employers.

The Government’s decision to cap national insurance relief on salary sacrifice pension contributions at £2,000 per year has been presented as a measure targeted at higher earners, but the reality, as those of us who have spoken to businesses up and down the country know, is rather more complicated than that. This is not simply a matter of adjusting the tax affairs of a few well-paid executives. This measure hits employers directly and in ways that Ministers have not thus far adequately costed or explained. For small and medium-sized enterprises in particular, the costs are not trivial. Many have structured their entire remuneration and pensions offerings around salary sacrifice arrangements. They have done so because it is administratively straightforward, it benefits their staff, and it has had the backing of the previous Government as a sensible way to encourage workplace pension saving. Those businesses now face not only higher employer national insurance costs but also the compliance burden of unpicking arrangements that may have been in place for years.

Let us be plain about what this means for a small business. We are talking about firms with perhaps 20 or 30 staff, businesses that do not have large HR departments or in-house tax teams. They will need to review every employment contract, revisit their payroll systems and, in many cases, seek professional advice to understand their new obligations. What is particularly troubling is that we have not seen from the Government anything approaching a comprehensive assessment of these impacts. We know that HMRC consulted last year, but it got a dusty answer. The OBR has produced some high-level revenue estimates, which do not reassure us, and we know from the Treasury note that it expects this measure to raise several billion pounds by the end of the Parliament. But what we have not seen, and what employers and employees alike are entitled to expect, is a proper independent analysis of what this means in practice, especially for SMEs and middle-income employees.

There has been no serious attempt to model the indirect costs, the effect on employer pension contributions, the likelihood that firms will scale back their own contributions to compensate for higher tax costs, or the impact on workforce retention where salary sacrifice has been used as a recruitment and benefits tool. The OBR itself has acknowledged significant uncertainty in its projections, noting that revenue yields are highly sensitive to behavioural change—a very important point—and yet the Government press ahead without the evidence base one would expect for a measure of this scale.

My concern—which is shared by a range of voices in the pensions industry and in business groups and among those who have looked carefully at the measure— is that, in restricting salary sacrifice without proper analysis, the Government risk undermining the very pension-saving behaviours they claim in other contexts to support. As the ABI has put it, savers and the pension system need stability. What we should not be doing is swapping pension stability for short-term revenue raisers.

The Minister has cited a number of statistics on the numbers whom HMT anticipates will be affected, but these fail to recognise that the Government have almost no idea of how employers and, therefore, employees would respond and be affected by those changes. As I have already mentioned, the OBR has said that there is a high level of uncertainty over the size of the behavioural response. If an employer stops offering a salary sacrifice because of the compliance costs and complexity, as many of them have warned they will, then every one of their employees will be affected. So how can the Minister say that 74% of basic rate taxpayers will be left unaffected when HMT has no idea how the organisations employing them will react to the Bill? Indeed, the detail is still unclear. The point many noble Lords have raised stands: the Bill brings a great deal of uncertainty, and the Treasury does not understand the wider effects of what it is proposing—thus my wish to delay commencement until we have a clearer view.

I welcome Amendment 32 in the name of the noble Baroness, Lady Kramer, which references the OBR’s supplementary forecasts. I do not want to steal her thunder, but the issues this forecast raises are numerous. Of particular concern are the behavioural changes that it anticipates. The OBR estimates that behaviour reduces the 2030-31 yield by around 48% compared with the static figure. Employers are assumed to redirect pay growth into employer contributions, employees are assumed to shift into relief at source or net pay arrangements, and there are additional pass-through effects into wages and profits. In other words, nearly half the static yield depends on assumptions about how employers and employees respond. The options open to employees and employers are numerous, and they have three years to think about it.

Another serious concern highlighted is that HMRC does not hold comprehensive data on salary sacrifice usage. As we understand it, the modelling used by the OBR relies heavily on ASHE survey data and historic APSS 107 returns to estimate bonus sacrifice behaviour. The OBR therefore assigns this measure a medium-high uncertainty rating with particular uncertainty around behavioural responses and the size of the bonus sacrifice base. This policy is uncertain. How will it affect savings, how will it affect behaviour and, significantly, how much will it raise and for how long?

I know others may have questions for the Minister, but the new arrangements come into operation in 2029-30 and, as we have all been saying, there is time for more questions to be asked and answered and for more work to be done. I hope the Minister will look at these various amendments positively. I thank the Deputy Chairman for his clarification on timing, and I beg to move.

[Baroness Kramer (LD)]

My Lords, the noble Baroness, Lady Neville-Rolfe, has relieved me of the burden of trying to explain the primary clause within my amendment, which would require a formal review and report on the OBR supplementary forecast information release. As she said, this came out on 5 February, I understand in response to an FoI request, which, frankly, is no way to provide information to Parliament. As she said, it concludes that behavioural response to the measure—and that is key to the impact that this Bill will have—is highly uncertain. The further detail that she provided is so similar to what I would have provided that I am not going to repeat it. I thank the noble Lord, Lord de Clifford, for also signing this.

The other part of the review would cover the operational remuneration arrangements and the impact on pension adequacy and salaries. I know the Minister thought he covered this issue, but I think he could tell that in the Room uncertainty continues. Further clarification is needed around this issue because employers are going to be looking for that. This is an opportunity to provide it.

I have to say that I do not think I have ever seen an OBR report that is so filled with the word “uncertainty”. Obviously, it stands behind what it has written, but it does not feel like a report that has been written with a great deal of confidence. That confidence needs to be in place for Parliament to act on legislation.

Business Rates

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 29th January 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, here we are again, discussing yet another U-turn when the Government conclude, after public outrage at an announcement that they have made and after some tardy reflection, that perhaps they did not get matters right first time. What is offered here is not merely tardy but inadequate. It fails to grapple with the pressures now bearing down on small businesses across the country, especially from business rates.

It is essential that we look beyond the Treasury’s abstractions and confront the real-world consequences of the changes announced in the Budget, which remain even after this U-turn. Tina McKenzie of the Federation of Small Businesses has warned, following this latest announcement, that it simply proves that

“the Government repeatedly fails to recognise the difficulty that these businesses are in”.

I could not echo that more strongly. Andrew Goodacre, the chief executive of the British Independent Retailers Association, went further, describing the change as a “half-baked U-turn” and warning that independent retail is being “flushed down the U-bend”. He added, tellingly, that he could not recall a worse policy decision, cautioning that this poor decision was based on poor reasoning that will inevitably lead to more shop closures—and so on.

The Minister has said that he wishes to work with businesses but, in the face of this negative and consistent feedback from businesses themselves, especially from SMEs, it seems he has been unsuccessful in that aim. It is abundantly clear that the Statement addresses only a small fraction of the economic damage inflicted on businesses since the Government took office.

The inadequacy is not merely one of scale. The relief announced is, by the Government’s own design, temporary, so it is a sticking plaster applied to a deep and structural wound. One of the most persistent economic misunderstandings that this Government have displayed since assuming office is a failure to grasp what businesses actually need: clarity, consistency and certainty. Businesses do not want U-turns, short-lived reliefs, or promises trailed in briefings only to be withdrawn or reannounced days later, as we all saw before the Budget. This announcement exemplifies that failure in its entirety.

Worse still, everyone in the sector is saying that it is inadequate. If the Minister will not listen to His Majesty’s Opposition, perhaps he might listen to Labour Back- Benchers. Jim McMahon and Stella Creasy made the point that I am making in the other place just this week. When Parliament, publicans, business leaders and his own Back-Benchers are urging a reconsideration, what more is the Minister waiting for?

This is ultimately a question of credibility. Businesses do not measure that by press releases or promises of future strategies; they measure it by whether they can plan, invest and survive. What has been announced does not provide that certainty. It is limited in scope and temporary by design, and arrived only after external pressure became unsustainable. That is not how stable tax policy is made or how confidence is restored.

The truth is that confidence in hospitality and retail is fragile. We heard only this morning from Charlie Nunn, CEO of Lloyds Bank, that the sectors in question were having a challenging time. What assessment has the Treasury made of the number of such businesses that have already cancelled investment, reduced staffing or decided to close since the Budget because the Government have failed to provide clarity about their intentions?

If the Government truly wish to work with businesses, they must move beyond reactive concessions and bring forward a coherent, durable approach that treats the whole high street fairly and gives enterprises the certainty they need in order to grow. Until that happens, I fear this week’s announcement will be seen not as a solution but as an admission of failure.

The modest action on pubs is, of course, welcome, and a promise has been made to look at hotels, but will the Minister agree to look at rates for the wider retail, hospitality and leisure sectors before the next Budget? Thousands of shops, cafés, hotels, nightclubs, cinemas and theatres are still facing huge increases. The combination of higher taxes and rates, extra regulation and energy prices for business—four times those in the United States—is crippling these very sectors, and I hope the Minister will be able to promise some relief.

[Baroness Kramer (LD)]

My Lords, I start with perhaps a modicum of welcome because the combined impact of the Budget and the business rates revaluation prior to this announcement, frankly, left the pub industry on the verge of a crisis, with up to 50% of pubs under the threat of closure. Some relief has now been offered for many pubs, and I am glad that this lifeline has been extended to live music venues, which are the birthing ground of our very important music industry.

Do the Government recognise that the relief that they have just announced amounts roughly to only £1,650 per pub, which will still leave many in a critical financial hole? Do they recognise that pubs with a rateable value of over £100,000 are, in effect, not eligible, and that restaurants, cafés and soft-play areas—so many of those hospitality and leisure operations that lie at the heart of our high streets and communities—will get no relief from these changes whatsoever?

The chaos that has surrounded the announcement of the review—the change and uncertainty that has gone with it and the impact on the sector—surely points to the fact that we need to stop trying to fix the business rates system at the fringes. We need to take a proper step back and review the whole way in which business rates are structured, which, I would say, should head in the direction of land value. There is so much to be done around this area. It is time that the Government see that, rather than get into continuous messes by attempting to ameliorate a system that, frankly, is broken.

Do the Government also accept that the chaotic process that we have seen deeply underscores the need to include hospitality in the industrial strategy? At the very least, one would hope that the effect of that would be to force the Treasury to align tax policy with the economic goal of strengthening our high streets and our hospitality and leisure sectors, and to determine that they are a source of growth, not of constant crisis and constraint. Does the Minister accept that, until the Treasury gets aligned with that agenda, we will have constant issues like that? Frankly, that is not the best way to go.

OBR Forecasts

Debate between Baroness Kramer and Baroness Neville-Rolfe

Monday 1st December 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I begin by noting the resignation of Richard Hughes from his position as chair of the OBR and thank him for his service in that role, which he has occupied since 2020. We in the Opposition will carefully study the contents of the report that has been issued today into the highly regrettable early release of the economic and fiscal outlook. We welcome the seriousness with which the OBR has treated this matter.

We expect those in positions of power to act with transparency, openness and integrity. The only person who has shown any integrity in this process has demonstrated it by resigning. Perhaps the Chancellor might want to follow his example.

We must not let today’s report be a convenient distraction from the matter we are discussing, namely the accusations that the Chancellor misled the Cabinet, the markets and the public in the run-up to the Budget. On 4 November, three weeks before the Budget, the Chancellor held an extraordinary press conference to warn that a downgrade in the public finances meant that taxes would have to rise. She pointed to a supposed collapse in productivity and said this had consequences for working people and for the public finances too. No one compelled her to make that announcement. She chose to do so. She signalled openly that she was preparing to break the Labour manifesto by raising the basic rate of income tax, presenting this as unavoidable.

Yet we know that the picture she painted was not the full truth. There was a sin of omission. What she did not tell the public, Parliament or even her own Cabinet was that the public finances had actually improved. Higher than expected tax receipts had offset most of the productivity downgrade. By 31 October, four days before her press conference, the OBR had informed her that she in fact had a £4.2 billion surplus against the main fiscal rule and not a black hole. The omission of material fiscal information during the most sensitive period of the economic calendar is extraordinarily serious. The OBR was so concerned by the misconceptions circulating before Budget day that its chair took the highly unusual step of writing publicly to the Treasury Select Committee to correct the record. He confirmed that the Chancellor had been informed as early as 17 September that improved tax revenues largely wiped out the productivity downgrade. Yet on 4 November she chose to speak only of gloom, and working families, savers and businesses all made decisions as a result. People judged their financial futures based on those statements. The markets reacted; journalists reported. Those words and the briefings and selective leaks that followed came from the Chancellor, her officials and her Government, and they were incomplete, confusing and misleading. They came on top of weeks of U-turns, backtracking, redrafting and contradictory briefings. I think I have recalled this chaos in earlier debates.

What makes the whole saga even more inexplicable is this: if the Chancellor genuinely wanted more fiscal headroom, if she wanted to raise taxes in the name of prudence, then why on earth did she not simply say so? Instead, we had misreporting, mixed messages and false presentations of the facts, and for what? There is no obvious strategy, no coherent political rationale and no fiscal logic. It simply looks like serious, consequential incompetence at the very top of the Treasury. Let us be clear: this would be unacceptable at any time, but in the run-up to a Budget, when the markets are watching with greater intensity than at any other point, when households and businesses make real decisions based on what they believe the Government are telling them, when the entire country waits to hear how their taxes will be collected and their money will be spent, this is unforgivable.

In the light of the chaos the Government have created around this Budget, can the Minister answer three simple questions? Can he confirm that the Chancellor was aware of a £4.2 billion surplus against the main fiscal rule on 31 October? Can he tell the House, if the Chancellor wanted to increase tax to improve headroom and fund extra spending on welfare, as he suggested, why she did not simply say so in her scene-setting speech? Finally, will the Government finally subject themselves to an investigation by the Financial Conduct Authority and the Permanent Secretary to the Treasury into possible market abuse by all those in No. 10 and at the Treasury who would have had access to relevant confidential information? If the Government have nothing to hide, they will have nothing to fear from such an investigation.

[Baroness Kramer (LD)]

My Lords, this really has been a bit of an omnishambles with announcements, scene-setting musings, U-turns, misstatements and leaks—speculation that, for a time at least, spooked the markets, raising interest rates on government debt and causing such uncertainty that businesses and individuals delayed or abandoned decisions. We in this House have felt for the Minister, who has tried to hold the line by refusing to speculate despite being inveigled by pretty much all of us to try to make him do so. Frankly, all around him, others were simply flying kites.

On the issue of the OBR, Richard Hughes has taken the honourable step of resigning. Like others, I agree that he is very much the embodiment of a dedicated civil servant and has contributed much to the economic welfare of this country. Can the Government tell us, now that they recognise the seriousness of the breach, whether it is possible that attempts to access this information actually rise to the level of criminality? Are we looking at a possible issue around that? Also, is the security review being extended to other entities at arm’s length from the Government that might also have significant information but not the security that is necessary?

On the Chancellor, we need to understand much better why statements about tax receipts were omitted from the discussion on 4 November. This sits within the context of the omnishambles that I described. I am very concerned, for the future, that this form of extreme kite-flying—not just on this Budget; we have certainly seen it on earlier Budgets—has become so normalised that it has, in effect, killed off purdah. I am not sure that that is good for either the economy or how the markets behave.

In that case, will the Government recognise that they need to overhaul the whole Budget process? In the Swedish example, the Parliament gets to debate the Government’s Budget before it is set in stone, to propose alternatives and to make amendments; that is then followed by a period of scrutiny and accountability. Will the Government now bring forward a new approach to this process—one that enhances accuracy and transparency and properly restores both public trust and the role of Parliament?

Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025

Debate between Baroness Kramer and Baroness Neville-Rolfe

Wednesday 3rd September 2025 Grand Committee

[Baroness Kramer (LD)]

My Lords, I recognise that these two statutory instruments deal with technical measures and in and of themselves have limited impact. They are essentially a tidy-up of the text to reflect broader changes made since Brexit to the financial regulatory system. The FSMA 2023 SI transfers to the PRA responsibility for setting the capital buffers that banks are required to hold in addition to minimum capital requirements. The PRA is a strong regulator, but it has taken a series of measures to move in the direction of lighter touch, motivated by its competitiveness and growth objective. I have spoken before about my concern that the PRA, for example, is increasingly willing to turn a blind eye to the illiquidity of assets. When powers are transferred to the PRA, as they are by this SI, a significant measure of transparency, accountability and parliamentary oversight disappears. Capital buffers are critical to the stability of the banking system, and I remain concerned when parliamentary oversight in this key area is significantly weakened, as it is by the measures that both surround and are then captured by this SI.

The second statutory instrument deals with the markets in financial instruments and again affects a transfer of power and responsibility, this time to both the FCA and the PRA. Once again, it is a move to a less transparent and less accountable system. The rules can now be changed, presumably in line with the smarter regulatory framework that the Government have put forward, and they both allow divergence from the EU and a lighter-touch approach. Divergence has its own risk, as it has implications for cross-border business, and Parliament will not have a voice any more than as a significant consultee. Frankly, experience suggests that the regulators look at Parliament’s views in these consultations and treat them as relatively irrelevant compared to the views of industry.

I note that the Minister described the regulators as expert, independent regulators. He would have used exactly that same phrasing before the 2007 crash, and we still live with the repercussions of that crash. Blind trust in the regulator is exceedingly inadvisable. I have tried in previous speeches to list some of the erosions of protections that were introduced after the crash. They include: the competitiveness and growth objective for regulators; the changing to matching adjustment; insolvency UK; significantly increasing the illiquidity of the insurance sector; the removal of the cap on bankers’ bonuses; the permanent permission for pension funds to transact derivatives without using central counterparties, thereby avoiding putting in place margin collateral, which puts them seriously at risk in any kind of financial volatility in unstable times; the watering down of the senior managers’ regime, which is key to accountability; the weakening of the financial ombudsman; the pressure on pension funds to invest in high-risk, illiquid assets; and the uncertainty that now exists around bank ring-fencing.

That is a partial list of the erosions that I have been able to pick up, and I am sure that, if the Government sat down and thought about it, they could come up with a far longer list and perhaps even suggest that this was a huge positive. But it is notable that Parliament will have no further say, now that these SIs have gone through, any more than just an ordinary consultee, in a further erosion of these various protections. Frankly, while Parliament will get reports that will allow it to look at the impact, that will be very much in retrospect, which I suggest is very late in the day.

I repeat a request that I have made before for the Government to publish a compendium of the changes that have been made that increase risk in the financial sector and a look at those risk implications. My view is that, without that degree of transparency, Parliament cannot do its proper job.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for his clear explanation of these statutory instruments and the noble Baroness, Lady Kramer, for her gloss on that.

Today we are considering the instrument on capital buffers as well as the Markets in Financial Instruments (Miscellaneous Amendments) Regulations. While each is described as largely technical, both help to shape the future of our financial regulatory framework. Obviously we on these Benches are happy to consider them together and to raise some questions about how they link to the Government’s wider ambitions for stability, innovation and growth.

We recognise that both instruments form part of the wider process of revoking retained EU law and restating and embedding that in the smarter regulatory framework under the Financial Services and Markets Act 2023. It is important that our regime is clear and coherent and reflects the institutional responsibilities of the regulators, whether the Prudential Regulation Authority, the Bank of England’s Financial Policy Committee or the Financial Conduct Authority.

For me, the most important current issue for the financial regulators is whether they are really adjusting their rules, their outlook and their culture to pursue growth and competitiveness, as they were recently required to do. Is the Minister in a position to assure us that the PRA and FCA have taken vigorous action to meet the Government’s requests and instructions on this vital point? I recall that the Chancellor wrote to them last autumn. What were the key demands, and what did they do in reply? What are the opportunities for growth, bearing in mind the current challenges outlined by the noble Baronesses, Lady Bennett and Lady Kramer? Although I do not agree with all that they said, I think it is important to debate that.

I have a few other questions. On capital buffers, while the instrument is described as technical, it involves substantive changes in transferring responsibility for buffers, such as the capital conservation buffer and the global systemically important institutions buffer, to the PRA. Can the Minister clarify how the Government will ensure sufficient parliamentary oversight of these crucial prudential tools, now that they will be set directly by the regulator? As the noble Baroness, Lady Kramer, said, it is now a less transparent system, so Parliament needs a strong voice in the post-EU world.

Of course, capital buffers are at the heart of keeping our financial system stable. We learned in painful ways during the financial crisis what happens when banks lack the resilience that they need in times of stress. The framework we have now is well established, but risks are evolving all the time. Can the Minister share the Government’s view on whether today’s capital requirements are still fit for purpose, particularly in the light of the growing challenges from shadow banking, digital assets and climate-related exposures?

We note that the second instrument retains certain key definitions from the MiFID organisational regulation, while paving the way, as the Minister said, for the revocation of firm-facing provisions. The intention is to allow the FCA and the PRA to take forward responsibility for detailed rules, tailoring them more closely to the needs of the UK market. The Minister has explained the rationale for that, but I ask him to expand on how these changes will not only safeguard market integrity and, I think he said, prevent the gaps that might arise—but encourage innovation and investment and growth, which I think we all agree that we need if the economy is to move forward positively.

What steps will the Treasury take to ensure that regulators’ rule-making in this area is aligned with the broader ambition of using financial services as a driver of economic prosperity, the point I addressed earlier?

UK Infrastructure: 10-year Strategy

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 24th June 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, it is widely accepted that one of the problems that besets the UK economy is the low rate of capital investment in both the public and private sectors. It must be a good thing if the Government assess what will be needed in the way of capital investment and attract resources accordingly. I accept that, for many years, policies on all sides have been less than satisfactory, and I am not in a party-political mode today.

I am in favour of having a planned programme over a planned period, such as a five-year timeframe for capital spending. I welcome the new maintenance fund. My experience in business is that it is essential to provide for maintenance in respect of all capital investments. Having said all that, we are some way from having a coherent and detailed programme for future infrastructure, with the incentives that we need for success. Against that background, which is broadly supportive, I have a number of questions for the Minister.

There remain areas of uncertainty around governance, delivery, capacity and funding. It would be helpful if the Minister could explain how and when these vital details will be revealed in future. It is really important to be clear, at a time when we are often reminded by the Government of the fiscal challenges they face, where the money is coming from.

It appears from the strategy that the Government hope that a substantial portion of this investment will come from off-balance-sheet public/private partnerships. Does the Minister recognise that this is an assumption from the Treasury rather than a hard pledge of cash? If sufficient private investment is not secured, does the noble Lord plan to use public money to fill the gap, or will the Treasury consider legislation to compel private funds to invest in government programmes—an approach that will deter investors in the UK?

Incorporating private finance into the new strategy is a welcome ambition, and I am glad to see the readiness to learn from the past. However, we must ask what changes the Treasury will make to how it engages in PPPs, given the failings around HS2, Metronet and Norfolk and Norwich hospital, to make sure we do not encounter these problems again.

Furthermore, the question that my honourable friend Richard Fuller raised in the other place was not properly answered. What proportion of the £725 billion is newly committed, as against previously announced money? As noble Lords will be aware, investment on this scale and across these timeframes must come with assurances of continuity and origin. I hope that the Minister can address these questions in his response.

The focus in the strategy is, rightly, centred on delivery. One important area in the strategy is housing. The Government have signalled their ambitious intention over the next five years to contribute 1.5 million new homes to the national stock. But the strategy actually funds 580,000 homes over 10 years through Homes England, an average of some 50,000 homes a year. Even on the lowest net migration forecast—350,000 a year—this is far below what is required each year just for migration-driven growth in housing demand. This is not the whole housing picture. However, our concern is that this offers so little net gain for current households waiting for a home. We will explore this further during the passage of the planning Bill, but I would welcome any clarification that the Minister can offer today.

Another area is aviation. The strategy and recent government announcements around aviation are welcome, both on infrastructure and on things such as aerospace redesign. However, as a recent debate in this place highlighted, limitations in the Government’s broader strategy around things such as the European geostationary navigation overlay service, EGNOS—known as the GPS on steroids—mean that these changes will have only a limited impact. Airports such as Exeter, Shoreham and Inverness previously relied on EGNOS to avoid costly infrastructure upgrades but will incur greater costs because they are no longer party to this service.

Does the Minister agree that we need to make sure that, alongside the new spending, we are pursuing non-fiscal policies that enable it to be effective? A key area is skills, which barely get a mention in the 10-year strategy. Yet I know from my time as chair of the Built Environment Committee and as a developer at Tesco that skills in construction, planning and environmental and community engagement matter a great deal. We have become increasingly short of the skills we need to build the hospitals, roads, railways, nuclear facilities, housing, prisons and water and flood defences that we need for a successful country and a successful strategy. I know from the Cabinet Office that, despite the very welcome advances in IT and AI, there is just not enough capacity in terms of skills or supply chains to build all we need. Is this something that concerns the Minister, and what plans does he have to solve the problem?

All of this speaks to the wider question of how we make sure that this money is spent intelligently to deliver value for money, and in a way that grows our economy and promotes productivity. A fundamental question is what our projected return on investment for this strategy actually is: £725 billion, albeit over a long period, is a great deal of money, so our net benefit must also be substantial in order to justify it. I hope the Minister can clear that point up for us.

A related question is: what sort of assessments went into choosing the areas to spend on? Transport spending is welcome, but is the Minister directing investment into the forms of transport that local communities benefit from the most, or does he risk further white elephants? How have the choices been made? Ensuring that we spend infrastructure money wisely, strategically and with an eye to the future is essential if we are to see the sorts of improvements in growth that the Chancellor and the whole country want. In doing so, we must target spending, combine it with wider enabling policy changes and ensure that we do not allow reforms to the Green Book and to local investment to lead to funding for white elephants.

We support the ambition behind this strategy. Long-term investment in infrastructure is a vital step if we are to address the real challenges facing our economy, our services and our communities, but this cannot be an exercise in headline figures or lofty announcements. If this plan is to succeed, the Government must show how the money will be secured, how it will be spent wisely and how it will deliver, for each project, tangible long-term benefits across the whole country—not just for now but for a changing economy and for future generations. How this policy fits in with yesterday’s industrial strategy will also be a vital consideration that we will examine carefully.

[Baroness Kramer (LD)]

My Lords, like my colleagues in the other place I welcome this strategy, which if well managed can significantly improve the UK’s potential for growth. My colleague, the MP Sarah Olney, who responded to this Statement in the other place, focused very much on the absence of a serious discussion of skills in the paper. She did not get a very satisfactory answer. I hope that we will hear something more from the Minister today, because that is the Achilles heel of a great deal of this Statement. However, I am going to focus not on the specific projects or on the issues that were covered in the other place but on some critical aspects of the financing.

As the noble Baroness, Lady Neville-Rolfe, indicated, the strategy proposes an updated version of public/private partnerships. I was recently privileged to chair a round table. Under Chatham House rules, I cannot tell you who was there by name, but there were leading developers, contractors and, basically, the money. To my amazement, and completely in contrast to most public statements, everyone started out by arguing against such a flawed model. Through an hour’s discussion, we identified some conditions under which a PPP could work. I will happily share that report, when it is prepared, with the Minister. The most significant condition was that the public sector has to field an educated buyer team with world-class negotiating skills, with world-class engineering, legal and financial knowledge in support. According to the people we talked to, such teams have not been in evidence.

The second most significant condition was that the projects must be specified in very fine detail, far more so than for a conventional financing and, especially if outcomes-based, allowing only for minimal variances. This condition, which many people will agree is essential for successful PPPs, seriously limits the eligible projects. I would like to hear from the Minister how much of a gap this might mean if these issues are pursued, as I hope they will be.

My second finance issue is specific to London, which will not receive government funding for much new infrastructure, even though it drives the national economy. If that is to be the case, London needs to be able to go directly to the financial markets at scale, to raise money against future value added, to build projects—and without the constraints associated with the current tax increment financing schemes, which are heavily laden with Treasury control. Once refined, this could extend to other parts of the country. I stress the urgency of dealing with this issue. London is the UK’s golden goose.

My last issue is to warn the Government again against abusing the regulated asset base as a mechanism to finance small modular nuclear reactors. In the Conservative era, the estimate that we were given on the Economic Affairs Committee for the then Government’s plans was an £80 increase to annual energy bills for ordinary people—£10 for each of eight SMRs. It was clearly an underestimate then and would be even more so now.

Does the Minister agree that the ordinary bill payer must not be treated as the stuffee—believe it or not, that is the common-parlance term—who must carry the risks and costs while others take both the immediate and future profits?

Spending Review 2025

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 12th June 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the spending review Statement, delivered by the Chancellor in the other place yesterday, made it clear, in no uncertain terms, that the Treasury has lost authority in determining how the Government spend taxpayers’ money. How else can the Treasury explain a spending review in which the Government will add another £140 billion to the national bill in extra borrowing, forecast over the period set out by the Chancellor? How else can the Treasury explain a cost burden so substantially increased that the Government are unable to rule out tax rises in the autumn? How else can the Treasury explain why it is subsidising tax reductions in Mauritius, but making decisions which will limit domestic economic growth?

Ministers are lauding a spending review which does not address the fundamental issues which we have raised in your Lordships’ House many times. Only a few weeks ago, we had an excellent debate on the crisis we face in light of the scale of our national debt. This situation has been made worse as a direct consequence of the spending review. Ensuring value for money in public expenditure—another issue we have raised time and again—has been virtually ignored.

However, I thank the Minister for the long overdue investment in nuclear at Sizewell C, on small modular reactors with Rolls-Royce and on the nuclear fusion prototype in Nottinghamshire. I just hope these will not take too long. They are essential to an energy balance, so we avoid the sort of problems we have seen in Spain.

Following on from our discussions last week on the transport package, I also welcome the extension of the £3 cap on bus fares, albeit only until 2027. London-based politicians do not understand how important buses are to so many of the less well-off in this country, especially in rural areas which are bearing the brunt of this Government’s policies in other ways. The introduction of a five-year planning cycle for capital is also positive.

However, I am very concerned at the way the Chancellor has hit police spending and defence to find yet more money for the NHS. Police chiefs are very anxious, and there is still no plan to reach the 3% we need on defence. The NHS is one of the major winners from the spending review, claiming over £29 billion per year in additional funding. But unlike our Conservative record, this new money from the Labour Government has come with no productivity conditions and no demands that services be improved or patient outcomes bettered. This is a major problem. In recent years, we have seen record levels of spending poured into the health service, yet productivity has not kept pace. According to the Office for National Statistics, NHS productivity still remains below pre-pandemic levels. We have an inverse ratio: the more money the Government give the NHS, the worse it functions.

What we are witnessing is a shortage not of funding but of effective reform. The NAO and other independent bodies have highlighted how much of this new funding has been absorbed by rising costs and staff pay.

I am grateful to the Government for allowing an extra 20 minutes for Back-Benchers to ask the many questions they will have on the detail of this Statement. To be honest, I would have preferred a full debate on this, as it sets the scene on expenditure choices for the rest of the Parliament.

Moreover, in the round, the Statement is a cause for concern. As the shadow Chancellor put it succinctly, “Spend now, tax later”. The fiscal rules have been loosened so the Government can borrow more and lay out a succession of goodies in a £190 billion spending spree.

There should have been much more focus on the nearly £100 billion of interest we are now paying on our national debt and on how to get that down—a debate on how we balance the nation’s books. Investment is separated out under the fiscal rules, but I am afraid it still has to be paid for. Is this investment being wisely invested?

To mention one angle, the promised new Green Book is not a new book but the findings of a review. It concludes—as I expected, given the changes that the Conservative Government made—that the current methodology is not biased towards certain regions. However, I was surprised to read that the existing Green Book puts too much emphasis on cost-benefit ratios and that a ratio of less than one might be fine. I am really worried about this as an encouragement to the approval of white elephants.

This, of course, is against a troubling economic background. Unemployment has hit a four-year high of 4.6%. A first estimate for May showed a 109,000 decline in jobs, which, if confirmed, would be the worst month since the height of the pandemic in April 2020. Since the Spring Statement, persistently higher gilt yields have blown a £5 billion hole in the Chancellor’s £9.9 billion buffer. Productivity was 0.2% lower in the first quarter of the year compared with the same period in 2024. The UK’s total rate of investment has been the worst in the G7, on average. On top of it all, the ONS today announced a 0.3% decline in GDP growth—partly, no doubt, because of the hikes in national insurance, which have hit businesses so hard. These are facts. The Chancellor should have taken corrective action in the spending review, but we can see that more taxes and higher council tax are coming.

Finally, I will come back to the Minister on a couple of points that he keeps making. He has alleged, often and aggressively, that when many new projects were announced by the Tories, no money was provided. That is, of course, because we rightly delayed the spending round until after the election. We, like the Government, would have allocated the money for what we had planned following a classic review.

This is linked to my other concern, about which I have been very patient with the Minister: that we had and have no plans for saving money to finance necessary spending. This is an inexactitude. Apart from the strong growth trajectory at the time of the election, undermined by Labour’s doom and gloom, we were on course to reduce the public sector. Instead, the civil service has risen in the past three months to over 516,000 full-time equivalent, the highest level since 2006—in contrast, according to Civil Service World, to the total of 384,000 FTE in September 2016, when I was serving in the Conservative Government.

This Government have chosen to give pay rises to the public sector costing £9 billion—and more, if you add on the future cost of their pensions—without the kind of link to productivity that any sensible managers insist on when a generous pay package is offered. Add to that the £30 billion for the Chagos Islands, which is funding reduced taxes in Mauritius not the UK, £8 billion on Great British Energy, and the abandonment of our ambitious plans for welfare reform and our attack on waste, of which, sadly, this week’s Blue Book is a pale imitation.

The truth is that the Government are busy creating their own black hole with all of this, and it has been topped up by the £1 billion reversal in the winter fuel allowance. We all understand why that was done, but it destroys confidence in the Chancellor’s determination not to raise taxes. My fear is that we will run into the autumn with anaemic growth, persistent inflation and a large new tax bill.

[Baroness Kramer (LD)]

My Lords, I recognise that the Chancellor faces real constraints, and this morning’s GDP figures for April underscore the problem. However, I am not going to use this opportunity to spend a lot of time talking about growth. It is such a big issue that we need some separate debate time set aside for it.

On these Benches, we are pleased with the significant allocations for the NHS and for housing in the spending review, though we are concerned that there are no targets for social housing, since we need at least 150,000 new social homes a year. I ask the Minister: given this additional money—which I know is only £3.9 million a year, but still, it is additional money—will we see that number of social homes come through annually? That really is the need that must be met.

However, nobody will be surprised that I was disappointed—almost to the point of devastation, quite frankly—to see adult social care overlooked, with no uplift until 2028, despite the reality that the situation is grim as we speak and that, without properly functioning adult social care, improvements to the NHS will be seriously undermined. If the Casey review is the hold-up, it should be and could be completed this year.

The Chancellor also suggested that she would back the fair pay agreement for adult social care workers sought by Care England. She absolutely should—care workers deserve every penny—but did I hear correctly that she will not fund it? The total package is £2 billion a year, and just the living wage and sick pay portion is £805 million a year. That kind of money puts in jeopardy not only many care providers but many local councils. If the Minister says that there was an uplift for councils, then not only does that rely on a 5% council tax increase in most councils but the additional money will be fully swallowed up by SEND, which is also in a dire situation. Will the Minister please explain what seems completely inexplicable: the overlooking of adult social care?

I also ask for clarification on defence spending. The Chancellor said she would raise it to 2.6% by 2027—which is the right direction—but is it correct that when she spoke, she treated spending on the secret services and on the Ukraine war as defence spending? If we speak in the terms that we have all been using up to now then the 2027 spend is, in my estimate, below 2.4%. I hope the Minister will tell me I have simply misunderstood. Will he help explain what exactly is going on with this defence spending? To me, all this confusion is underscoring the importance of cross-party talks, which my party has proposed, so that we collectively find a way to reach the necessary 3% well ahead of 2034. Boy, would I appreciate some clarification on what on earth is happening within that budget.

I am pleased to see new funds for the British Business Bank, whose greatest weakness, frankly, is its tiny size. However, to which bit of its activity is the additional money to be directed? I am particularly concerned about small business lending, and it could make a serious difference if much of the new funds are directed into the BBB’s Community ENABLE fund and its growth guarantee scheme. Who will make that call, is it dedicated, and does it have a target? Could the Minister please tell us more?

I could raise a lot of other questions, but I am anxious to hear properly from the Minister. I came away from the spending review, the Blue Book and the speech asking endless questions to which I could not find answers. I thought that I was going rather brain-dead. Then, I heard Paul Johnson of the IFS talk about the documents being so opaque that he was asking questions and could not find answers. If he cannot, we need help. Could we have clarity in the future, but in the meantime could the Minister please serve as our clarity?

Bank Resolution (Recapitalisation) Bill [HL]

Debate between Baroness Kramer and Baroness Neville-Rolfe

Consideration of Commons amendments and / or reasons
Monday 12th May 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I have to say that I appreciate the explanation that we have just had from the Minister, but I and others remain disturbed by the Government’s decision not to accept the amendment, which was not just rational but well crafted, introduced by your Lordships in this House. The underlying Bill was initially presented to the House as providing a mechanism to save significant small banks from failing by recapitalising them from the Financial Services Compensation Scheme, rather than having to turn to the taxpayer. Regulated banks, as this House will know, are then required to replenish the FSCS when it is depleted for any reason, but, because the thrust of the language was around small banks—that was the intent, and that was the discussion that is in all the notes—this House very much agreed to it, with just a few probing points engaged with.

Thank goodness that we have a lot of very good brains in this House. The combination of my noble friends Lady Bowles and Lord Fox and the noble Baronesses, Lady Noakes and Lady Vere, realised that there was a significant loophole in the language. We did not realise in the beginning that any of this could be applied to the larger banks; that became clear only as those pursuing the legislation became more aware of the implications of its content. Now we have a Bill that permits the regulator to use the FSCS as its mechanism to rescue large banks. Let us be frank: it completely changes the whole profile of both risks and consequences. The amendment would have effectively closed that loophole.

The larger banks, as the Minister has said, already have their own dedicated process to recapitalise in case of failure, a process that was introduced after the 2008 crisis. The Bank of England requires each large bank to hold a tranche of MREL—in plain English, bail-in bonds—which can be converted to capital by the regulator in case of failure, with the consequence that the bank is thereby rescued. We need to understand why that is not considered by the Government to be an adequate system. The Minister has just said—if I understood him—that the regulators will always require that bail-in bonds are used first, and the FSCS is a resource of last resort. But that is not in the legislation. The legislation allows the regulator to turn first to the FSCS and ignore bail-in altogether. He will be very conscious that the Swiss regulator, with the failure of Credit Suisse, completely ignored the bail-in capability and chose other routes to manage the rescue of Credit Suisse.

Those who hold bail-in bonds—the investors who buy them—are extremely well remunerated for carrying the risk associated with a bail-in bond. I am trying to work out why they can now look at this legislation and begin to assume that they will have the benefits of receiving a risk premium for holding those bonds but never actually find that those bonds are forced into use in case of a failure. How can we rely on just a code to continue to determine that bail-in will be the first resort and not a later resort or no resort at all? Are the Government basically saying that there are now many circumstances they have identified in which bail-in is neither usable nor adequate? I refer to the Swiss example. What are the consequences for financial sustainability if we are saying that bail-in is a slightly busted system? Have there been blandishments from the various investors who have purchased bail-in bonds, trying to pressure the Government into creating an alternate route? What are the consequences for our small- and medium-sized banks if the FSCS is depleted by big bank failure?

The Minister says that the regulators will not ask for an unaffordable contribution from the various banks to replenish the FSCS, but it is our mechanism that ensures small depositors’ accounts. Who is going to do the replenishment if the number is too great to ask the banks to commit to it? I am quite troubled by this change in responsibility for where risk lies that is embedded in the Bill. If the Minister is so sure that the items in the code should be giving us reassurance, why have they not been introduced in this Bill as part of the legislation?

[Baroness Neville-Rolfe (Con)]

My Lords, this is an important Bill, which provides the Bank of England with extra flexibility to manage bank failures, particularly those of smaller banks, in a way that strengthens protections for taxpayers. It reflects proposals by the last Government in the light of experience with the demise of Silicon Valley Bank. As such, it had cross-party support and, starting in the Lords, was a good example of expert scrutiny across the House.

Special thanks go to my noble friend and predecessor Lady Vere, my noble friends Lady Noakes and Lady Penn, the noble Lords, Lord Vaux of Harrowden and Lord Eatwell, the noble Baronesses, Lady Kramer and Lady Bowles, officials on all sides—of course, not forgetting the Whips—and, above all, the Financial Secretary to the Treasury, the noble Lord, Lord Livermore. I thank him both for the government amendments, notably that which was made to Clause 3 on the involvement of the Treasury Committee and the House of Lords Financial Services Regulation Committee, and for the timely publication of the draft code of practice, which helped us to overcome some substantial difficulties, as he has already mentioned.

Banking and financial services are very important to the success of the British economy. In 2022, the UK financial system held assets of around £27 trillion and in 2023 the financial insurance services sector contributed £208 billion to the UK economy. Legal regimes which govern how our banking and financial sectors operate need to promote growth and competitiveness and be easy to navigate and use. They must also balance ambition with prudence—an understandable driver of the Bill.

Noble Lords will recall the amendment we successfully added that was championed by my noble friend Lady Vere. This sought to prohibit the use of the funds from the Financial Services Compensation Scheme to recapitalise large financial institutions, defined as those which had reached an end-state MREL. The object was to reflect in law the Government’s stated objective of using the resolution framework in the event of a smaller bank requiring intervention, thus preventing the associated risk of contagion. The truth is that the Banking Act 2009 provides a robust framework for dealing with the large banks that have achieved end-state MREL status. They and the Bank of England should not be taking comfort from the fact that they could fall back on an ex-post levy of the banking sector through the FSCS in times of trouble. Resources should be focused on the SME banking sector, as the noble Baroness, Lady Kramer, reiterated.

In view of this, I am joined by noble Lords across the House in expressing disappointment that Members in the other place voted to remove this amendment from the Bill. We are confident that it would have improved the Bill in meeting its objective and helped to embed the balance I spoke of. However, we must accept that Treasury Ministers, with their battalions of support in the other place, wish to maintain flexibility; for example, as the Minister explained, to deal with a large, unexpected redress claim leaving the taxpayer exposed, although this is very much a backstop arrangement, with a £1.5 billion cap, as the Minister confirmed. So I do not propose to test the opinion of the House again.

It was also disappointing to see the rejection of other prudent proposals put forward by colleagues in the other place in good faith. Regardless, I hope the Government will consider these proposals seriously as we try together to create a system which is balanced and simple and promotes growth—an objective that the Minister and I share.

We support the thrust of the Bill, which continues the work that we did in government to support our banking sector, protect consumers and safeguard the public finances. However, there are still outstanding questions which I hope the Government can address today or in writing. They are even more important now that the Vere amendment has been rejected.

The Financial Conduct Authority and the Prudential Regulation Authority have proposed an FSCS operating budget for 2025-26 of £109 million. This budget covers the FSCS’s administrative expenses and does not represent the total funds available for compensation payouts. Over the three financial years from 2021 to 2024, the FSCS paid just £10 million in compensation relating to deposit claims, due primarily to the defaults of 11 credit unions and one small bank. Will the Minister kindly outline the steps the Government are taking to minimise the operating costs of the FSCS?

The FSCS is a quango, which is overseen by a quango, in conjunction with another quango. The fact that it uses an industry funding model does not change this. The money in its operating budget is money that is not being utilised in the banking sector, which employs millions of people and contributes billions to our economy and to growth. Does the Minister agree that the FSCS should focus on efficiency and on keeping as much money as possible available to banks for their use and not tied up unnecessarily in its operating budget and that, like other regulators, it should have regard to the Government’s overall objective of growth?

I end by saying that this is a broadly sensible proposal designed to safeguard public finances, ensure the security of our financial sector and limit public risk. We will support the Government in their ambition to achieve the objectives of the Bill, but I hope the Minister will seriously consider the points that have been raised today and will take the opportunity to clear up some of the questions that have been asked.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Consideration of Commons amendments and / or reasons
Monday 31st March 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I simply thank the Minister and, again, all who have been involved in the passage of this difficult Bill, especially those who have supported me and my noble friend Lord Altrincham. We have had seven days of debate in the House and nine successful votes, in collaboration with other Benches. That demonstrated the serious concerns about this Bill, right across the House.

There is a strong feeling, echoed externally in our hospices, in hospitality, on the high street and in many other places, that the Bill is not the best way to meet the challenges that the country faces, and that it will endanger the growth we need so badly. However, this is a House of scrutiny, and the other place has taken a different view. As a responsible Opposition, we will not seek to defeat this Bill, no matter how deeply we feel about it. His Majesty’s Government must be able to set their tax policy, and of course we respect that.

I should add that I am grateful to the Minister for his closing words, especially in relation to SEND transport, and for his undertaking to monitor—as I think he said—the impacts and effect of the Bill going forward. We will hold him to that. Moreover, he knows that I and one or two others will continue to encourage the Treasury to learn from all of this and experiment with fuller sectoral assessments in the future.

[Baroness Kramer (LD)]

My Lords, the amendments that underlie Motions A and B that came from the House of Lords were in the name of my colleague and noble friend Lord Scriven. On his behalf, and on behalf of my Benches, we recognise that we have come to end the of the road on this Bill and we will not press for any further amendments.

I will make a couple of comments. I have just come from a fairly extensive meeting with R3, the insolvency and restructuring professionals’ body. Those around the table were telling me of the cascade of small businesses that are already going into voluntary insolvency because of the increasing costs that they face this April. When the Minister says that he will look at evaluating the Bill and its impacts, I hope he will make sure that his view casts across that territory, because it is obviously fundamental to the agenda for growth. Within those discussions, of course, were many private social care providers. A number of the smaller ones—at least three of the practitioners around the table—were dealing with insolvencies triggered over the last few weeks.

From what the Minister said, I hope that he and his Government will recognise that they now need to use other means to step in and shore up the key sectors that are faced with costs they cannot sustain and are therefore closing services which we absolutely need. I hope very much that his commitment to ongoing evaluation will incorporate all of that and be granular—we were hopeful when we heard his words on SEND transport, because that is quite a granular issue—rather than the overarching kind that we have been dealing with in this House.

However, the Minister has always been gracious. I understand that this has been exceedingly difficult and that the Government face very difficult and strenuous times. We recognise that, at this point, we can take this Bill no farther. We thank everyone who has participated, from all Benches, and all the people in our back offices and Whips’ offices who have provided so much support.

Spring Statement

Debate between Baroness Kramer and Baroness Neville-Rolfe

Thursday 27th March 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

Let us start by standing back and considering this Statement—which is really an emergency budget—and the Government’s actions more generally against their stated economic objectives. The main one, emphasised by Ministers many times, is growth. Fine—we all want growth. One would expect, therefore, that the Government’s policies and actions would be consistent with that objective, but they are not. First, the Chancellor and other Ministers talked down the economy, ruining morale. Then she chose to put taxes up by £40 billion, depressing animal spirits further and taking tax in the UK to its highest level in the last 50 years. The most egregious announcements were the wholly unexpected jobs tax of £25 billion—devastating businesses and social enterprises such as hospices—and, out of the blue, the farms tax, which imposes IHT on family businesses and undermines confidence across the country.

The Government also gave large pay rises to their friends in the unions, without any productivity strings. Even today, they are proceeding with the Employment Rights Bill, which will undoubtedly have negative effects on the supply side and hence on growth. Interestingly, the OBR has said—ominously, for the Government—that it has yet to take a view on the Bill’s effect on growth, should it pass. If growth is the main objective, the Government’s economic policies are, quite simply, incoherent.

The Government are also in a mess about the position of the OBR. The OBR is given a status by the Government above anything warranted. UK fiscal policy now appears determined by the need to meet detailed targets derived from the Government’s rules and the OBR’s estimates. Instead, the Government need to take informed common-sense choices that promote growth and, crucially, confidence in our economy, using best estimates as a guide to sensible behaviour.

In short, the Chancellor appears, wrongly, to believe that openly fiddling with the numbers to please the OBR leads to positive economic outcomes. It does not. Paul Johnson, the director of the Institute for Fiscal Studies, concluded yesterday by saying that

“the Chancellor has all but guaranteed … another six months of damaging speculation and uncertainty over tax policy”.

It does not take an economist to see that these conditions are damaging for growth, business and people across the country. Our economy needs certainty and stability. The Chancellor’s Statement leaves our country vulnerable, and it will be British business and the British taxpayer who pick up the pieces when her plans come into contact with reality.

My first area of questioning is: how would the Treasury react to adverse events—if, for instance, the UK were to become the victim of tariffs, which seems all the more likely this morning? It has no reserve for a rainy day. The OBR’s model suggests that the introduction of tariffs could

“entirely eliminate the headroom against the fiscal mandate”.

Can the Minister say which taxes the Government would hike, or which services he would cut, to keep in line with the Chancellor’s recklessly tight limits?

We are not in a good place, as can be seen from the numbers published yesterday. Public spending is far too high as a share of GDP. It is forecast to rise to 45% in 2025-26 and will still be at 43.9% in 2029-30, according to the OBR. Moreover, debt interest is at an appalling £101.3 billion, rising to £105.9 billion in 2029-30. The prospects for improving the position are modest. The OBR has halved its forecast for growth from 2% to 1% this year, and growth thereafter remains relatively anaemic, despite some welcome policy changes that I will come on to.

As we have discussed on previous occasions, growth and productivity are intimately linked, and we desperately need productivity to grow, especially in the public sector. The measures announced so far will not go very far to improve it. If we want growth, we need a step change in the public sector and a bigger share of the economy in the more productive private sector.

Defence spending was a key element of the Statement, and we on these Benches support an increase in funding for our Armed Forces. However, the Chancellor has not been clear about how and where the money from overseas development aid is going. Can the Minister kindly clear this up?

We support reform of planning and more housebuilding, on which the growth forecasts depend. However, can this be realised quickly? The plan is to invest £2 billion in social and affordable housing in 2026-27, which is, I understand, lower than the average under the previous Government. I welcome the £625 million to train up to 60,000 more construction workers. However, with my experience of the sector, I have doubts as to whether the proposed changes will speed up planning sufficiently or provide the skills needed in the building and planning trades quickly enough to fill current gaps and fire up major expansion.

We also believe that welfare reform is necessary, but it must be done in the right way and the process in the run-up to this Statement was, frankly, shambolic. For a very complicated subject, this is no way to proceed.

Before I sum up, perhaps the Minister can clear up one puzzle. I cannot understand how the OBR can legitimately assume—see the table on page 10 of the Green Book—that employment is going to rise by 400,000 people this year when everything seems to be going in the opposite direction.

The Chancellor’s decision to leave herself with such little headroom means that the Government’s fiscal policy is not about making the right decisions to support our economy in the long run. It is now about fiscal fine-tuning, which leaves us inflexible, vulnerable to external events and liable to future tax rises—which the Chancellor failed to rule out. Since the Budget, our economy has been wallowing in the doldrums of stagflation. Unemployment is up, the gilt rate has remained sky-high, businesses are staring down the barrel of crippling national insurance hikes, and we face the punitive Employment Rights Bill.

When we discuss all these technical terms and percentages, we need to be clear that what the Chancellor announced yesterday will hit taxpayers in this country hard. They will notice the effects of this Statement in their everyday lives. That includes those who are affected by her welfare changes, those who will be made redundant as a result of her national insurance hikes, and those who may find themselves paying more tax come the Budget later this year. It is these factors which affect living standards. We need to build an economy that supports investment, rather than encourages some of our most talented entrepreneurs to move overseas; to see high levels of employment; to allocate money sensibly to efficient public services; and to show flexibility in the light of external events—thus directly improving the lives of people across our wonderful country.

I am afraid that the Statement delivered by the Chancellor yesterday did not meet these standards. We need a Treasury, and a Chancellor, willing to make the decisions needed to support business, promote growth and confidence, and make Britain productive again.

[Baroness Kramer (LD)]

My Lords, when I listened to the Chancellor yesterday, the only thought that kept chasing through my head was that this is someone who is completely out of touch with the real experience of people today. The whole Statement glossed over a halving of the growth forecast for this year to 1%, and the reality of benefit cuts. These and ongoing high inflation—an average of 3.2% forecast for this year—are pains that people will experience in their daily lives.

The average loss for an individual on PIP is £4,500 a year. According to the Resolution Foundation, a couple on universal credit, where one is disabled and the other is a full-time carer, could lose £10,300 a year.

We all agree that people need to work if they can, but this is not primarily a back-to-work programme; it is a cutting programme. It does not just hit vulnerable individuals; it hits their communities and will have a knock-on effect particularly in disadvantaged areas of the country. It looks to me as though the cuts are very much front-loaded and back-to-work support is back-loaded. Can the Minister tell me if that is correct?

As a result of the cuts, a quarter of a million people of working age will now fall into poverty, and worse, 50,000 children—I am using the Government’s own numbers. Was this really Labour’s goal? Should this not have been the time to revive the bank levy, raise tax on online gambling, close capital gains loopholes and increase the digital services tax? I will say more on that tax in a moment.

Even at the end of the forecast period, despite all the pain, borrowing is expected to be £3.5 billion higher than forecast in October, and the Chancellor will be faced with very little headroom—only £9.9 billion. Can the Minister tell us how much of that headroom disappeared just last night with Trump’s tariff announcements? The headroom also relies on very uncertain expectations of a major increase in productivity. In other words, uncertainty about tax rises and spending cuts will continue; they were not ended by this Statement. That uncertainty will further undermine any possible growth scenario.

Since the focus of this Statement was supposed to be growth, why was there nothing in it for small businesses, which face a crunch in just a few days as the rise in employer NICs kicks in? It is no wonder that the Federation of Small Businesses reports the lowest levels of confidence post-Covid. When the Chancellor spoke of cutting red tape, she could at the very least have focused on the endless Brexit red tape. If she had announced negotiations on rejoining the customs union and removing the current trade barriers, small businesses would be quickly planning a return to exporting and recovery of their roles in European supply chains.

And there was nothing in the Statement to shore up social care, GPs, dentists, hospices and all the services which are crucial to the NHS and to the return-to-work project, but which are making cuts now as higher employer NICs hit home.

I conclude by pressing the Government on the digital services tax. This exists not as some kind of windfall tax or as a special punishment for tech companies; it is a modest attempt to claw back a portion—some £800 million this year—of aggressive tax avoidance by the mega US tech companies. We have just voted into law with the Finance Act an undertaxed profits rule, which would let us claw back much more of that money lost to tax avoidance by this group, in the range of £2 billion to £3 billion a year. However, the Government are now hinting that the digital services tax will be cancelled and the undertaxed profits rule mothballed if they offend the Americans—I refer the Minister to a Treasury press release on 17 January.

The Chancellor spoke, as she should, of reducing tax avoidance by British people and companies, but why should American firms be exempted? Will the Minister give me an answer? Are the Government going to turn a deliberate blind eye to aggressive tax avoidance by the US mega tech companies in the faint hope of winning favour with President Trump, while at the same time they slash benefits to disabled people, burden social care and small businesses, eviscerate overseas aid and need to increase spending on defence?

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Consideration of Commons amendments and / or reasons
Monday 24th March 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, we on these Benches do not dispute that the Government were handed a dire fiscal situation; the question is what taxes they choose to raise to remedy it? We feel that they have made the wrong choice in this instance.

With these amendments in lieu—certainly those from my noble friend Lord Scriven and the noble Lord, Lord Londesborough, from the Cross Benches—we have proposed that, in key areas, power is provided to the Government and to the Treasury to reverse that decision in these narrow circumstances if they discover, as they see this event play out, that the choices they made were not those that they thought they had made. It is very unusual from these Benches for us to be willing to provide what is, in effect, a Henry VIII power to the Government, and that we do so reflects our deep anxiety. This is not political game playing; we are deeply anxious about what will happen with community health, social health, small businesses and the knock-on consequences of all that.

I want to thank the noble Baroness, Lady Noakes, because it was her thought in Committee that one way to at least find some common ground would be to pass powers over to the Secretary of State. That is the pattern that we have followed. I hope that the Government will see that they are not forced to act in any way by two of these amendments in lieu; they are being given the opportunity and the possibility, and we hope they will accept them in that spirit.

The noble Baroness, Lady Neville-Rolfe, has proposed an amendment in lieu which would require an impact evaluation. I have to say to the Minister that, when he spoke at the opening of this debate about how few businesses would be impacted by the increase in employer NICs, I began to think that he had not been given the central information that he should have been given. If he were to look, he would discover that that vast number of companies that are not affected are those with three employees or fewer, but that those small companies that we look to for scale-up and to drive growth are impacted.

Again, this underscores the fact that to roll it out effectively—and I fully accept that this is new and has not been the pattern of past Governments—we need to move to a time when we get much more detailed impact evaluation as we deal with these issues in this House. We on these Benches hope very much that the Government will accept the three amendments in lieu. If they do not, then we will support all three.

[Baroness Neville-Rolfe (Con)]

My Lords, we have worked together on these three modest, common-sense amendments, and we will also support them if it comes to a vote.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, the Government have rejected a number of amendments which call for the exemption of various sectors from the jobs tax, citing financial privilege. The amendments would have protected small business, providers of transport for students with special educational needs, small charities, providers of early years education and hospices, which we have already heard a lot about today, because of their desperate situation, from my noble friends Lord Leigh, Lord Ashcombe, Lady Monckton and Lady Noakes.

The Government’s refusal to acknowledge the damaging impacts that this tax on jobs will have is very concerning. The tax is in complete contrast to their insistence that they are the party of growth. Indeed, the most recent GDP statistics from the ONS indicate that the economy shrank by 0.1% in January. The way the Government are now taxing the more productive private sector to pay for a huge increase in less productive public projects and salaries means, I fear, that this trend will continue.

We have recast our review clause into a modest one, which we will be voting on shortly. We will not oppose the government amendments in this second group, but I give notice that we are planning to seek assistance for those providing SEND transport in the Bus Services (No. 2) Bill.

[Baroness Kramer (LD)]

My Lords, briefly, we regret very much that the other place rejected amendments that would have exempted key groups such as universities, nurseries and those providing SEND transport—essential services that provide key support will be under huge financial pressure. We have had to be selective. We have offered the Government opportunities to take powers in the areas where we think the greatest damage will be done most rapidly. Therefore, we will not press the Government on these amendments.

Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025

Debate between Baroness Kramer and Baroness Neville-Rolfe

Monday 3rd March 2025 Grand Committee

[Baroness Kramer (LD)]

My Lords, I will be brief, for two reasons. One is that I just do not think I could cope if this turned into yet another discussion of employers’ NICs, particularly as we have Third Reading tomorrow. As the Minister said, that is the broad context within which we discuss this. Also, when it comes to the very detailed details of various levels of NICs and thresholds, and making changes based on CPI, I lack the detailed knowledge to be able to add a whole lot to the value of the discussion.

I will make some comments on the National Insurance Fund. This is one of those days when I look around and think, “Where is Lord Davies of Brixton when you need him?”. He often talks to us about the integrity of the fund, and—although I do not want to put words into his mouth—regrets that it does not function in the role for which it was originally designed. I agree. Nominally it is a fund to pay social security benefits but, first, a portion of it—roughly 24% of the amount raised in NICs—is allocated to the NHS by formula. Secondly, if there is any surplus in the fund it can be lent to various departments under the auspices of the Treasury. Thirdly, it can be topped up by a grant from the Treasury if the amount is not sufficient for the payouts it needs to make. Indeed, that has been reinforced or extended in the context of the SI before us today.

Crucially, the level of the National Insurance Fund does not determine the amount that is spent on any form of social security, whether state pensions or other things. I agree with the Institute for Fiscal Studies that the idea that the National Insurance Fund is financially separated from other parts of government is illusory.

I think that a review of the status of the National Insurance Fund will begin in the fiscal year that starts in April 2025. This is the quinquennial review that is required for the fund. Given that UK demographics are such that they will drive up the cost of state pensions and a whole lot of other elder needs, which will take the concept behind the fund almost to breaking point, can the Minister say whether the next review will look again at the fundamentals, accepting that in many ways this has effectively become a variation on taxation, and see whether the system can be simplified and combined? It is unfortunate that people still feel that when they pay their national insurance contribution they are funding their state pension, which is not the reality, even if it sounds like that from some of the language.

Looking at the other content of the two SIs in front of us, it struck me that, although I fully understand child benefit and guardian’s allowance going up at CPI, the number is so tiny. This was brought home to me very much this past year when, for various reasons, I have had various grandchildren living with me. Does whoever designed these benefits have a clue how much a teenage boy can eat? There is a great argument for relooking at the whole benefit system and putting it into a much more realistic context. The Government have said that they will look again at benefits, but I wonder whether they will use that lens as they do so, because it is about time.

We support the extension of the 12-month NICs holiday for veterans, but I hope that our support for veterans will not stop there. With the change in approach we are now taking to defence, recognising that our military personnel need to be supported and treated in a very positive way rolls over into also taking care of our veterans, who form so much of the homeless population, for example. That is one of the reasons why—going back to the employers’ NICs Bill that we have been dealing with, which has its Third Reading tomorrow—we focus so much on things such as part-time, entry-level work and small businesses. It is, in part, to deal with the significant number of veterans who are not finding themselves a route back into a working and functional life once they return to civic society.

We will not oppose either of these SIs. I apologise for not being able to go through the nitty-gritty of many of the dimensions, but perhaps that will at least mean that the Committee can adjourn a little earlier.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for clearly outlining the essence of these two SIs, and the noble Baroness, Lady Kramer, for her comments. We had substantial discussions about national insurance in this House last week, on the national insurance contributions Bill, during which significant amendments were made. If carried through the whole legislative process, the changes agreed would result in significant changes to declared government policy. But from those political highs, we move to today’s debate, which is at a much more technical level and, as the Minister said, does not impinge directly on the proposed changes in the Bill.

I note in passing that I read with great interest the Government Actuary’s report, the existence of which I confess I was previously unaware. It provides first-rate briefing across the whole complex of social security benefits, and I thank the Government for it. Reflecting on the references to the National Insurance Fund, already mentioned by the noble Baroness, Lady Kramer —and, sadly, in the absence of the noble Lord, Lord Davies of Brixton—I ask the Minister whether the Government have any plans to put matters on a more realistic basis. The fund does not do what it says on the label.

In particular, the projections in the report indicate that the estimated 2025-26 end-year fund balance of £81.6 billion is only 53% of the estimated benefit expenditure of £152.9 billion. This is another factor in the case for reform of the welfare system, which we in the Conservative Party have called for to incentivise work, cut costs and fraud, and raise productivity. This is not least because of the significant long-term demographic changes which, as the last quinquennial review published in 2022 shows, are projected to exhaust the fund before 2085. There is a big challenge ahead.

Finally, on the measures in these two orders, the Minister will be glad to know that we are also broadly content. I welcome especially the rollover of support for Armed Forces veterans entering the civilian workforce, which we introduced in April 2021. The truth is that readjusting to civilian life is a major problem for many, and this measure is an imaginative incentive to employers to give them a chance and take advantage of their skills and experience, as the Minister pointed out in his opening remarks. Incidentally, the arrangement also shows that exemptions from the standard national insurance rules are possible.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Report stage
Tuesday 25th February 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I shall be very brief as the leader of the winding speeches. I just join the noble Lord, Lord Leigh, in saying to the noble Lords, Lord Hogan-Howe and Lord Macpherson, that Parliament has given us the responsibility under the national insurance contributions legislation, to come forward with amendments and press them. I am not going to walk away from that responsibility simply because it looks rather difficult.

I say to the noble Lord, Lord Eatwell, who talks about simplification, that it is very easy to have a high-level issue such as that, but I am not going to put simplification ahead of what will basically be the cancellation of something like 2 million GP appointments because of the additional costs on GPs. I am not going to sit by and watch dental practices cut back their services, so that we have much more of this DIY dental care that people are carrying out. I am shocked by the rise in dental sepsis alone. I am not going to sit here while pharmacies basically cut their hours and services. I am not going to sit here while adult social care—we have heard about so many cases—basically has to work out how it sets aside the most vulnerable in our society, because that is the implication.

We have heard also from hospices. People are being told now that their jobs are at risk. This is not a hypothetical or some exaggerated claim; this is a process that is under way across the community healthcare and social care sectors to absolutely cut back in response to this increase in employers’ national insurance contributions. We are trying to stop a disaster. When they came forward with their proposals, the Government did not absorb the fact the National Health Service does not work in isolation. It is part of a much more holistic, complex landscape, and if you undermine the private elements of both social care and community healthcare, you undermine the NHS, and that surely is not what the Government want to be doing under these circumstances.

I could go on because there is so much to be said, but it has been brilliantly said by so many across this House. If the Government were to stand up and say that they accepted this amendment, I think there would be a hallelujah, quite frankly. Will they please understand the problems we are trying to deal with? This is not hypothetical or playing party-political games; this is dealing with a really difficult and serious problem that our society is facing. I do not know quite what I can do in a winding speech, but if I can move anything, I will.

[Baroness Neville-Rolfe (Con)]

My Lords, I echo much of what has been said by the noble Baronesses, Lady Barker and Lady Kramer, what my noble friend Lord Ahmad said about it being a pity that the Minister had not engaged more with all those affected, and the plea for fairness from the noble Lord, Lord Leigh. This Bill is the most important economic measure the Government have put forward since they took office and, as has become apparent from our debates, especially the detailed examination in Committee, it is a misguided measure with numerous defects. It will hit hardest those sectors that employ more labour, such as care homes and hospices, but there will also be flow-through to SMEs and bigger businesses as they seek to cut costs and staff. We have seen this in action with big names such as Sainsbury’s shedding staff and the Federation of Small Businesses and the Chartered Institute of Personnel and Development recording collapsing confidence and planned headcount cuts in the surveys.

During our debate today, the Opposition are proposing amendments to reduce some of the Bill’s most egregious effects. That is the answer to the noble Lord, Lord Eatwell. We have to find a way to limit the impact of this ill-thought-out jobs tax. The tax system is not simple and we are where we are because of the choices the Government have made. The changes are having real impacts on real people in their everyday lives: on charities, small businesses, nursery schools, special needs drivers, pubs, young people and—the specific subject of this amendment—care homes, pharmacies, dentists, GP surgeries and hospices. That is why we are supporting the amendment from the noble Baroness, Lady Barker, and will be voting in favour.

At every stage throughout the progress of this Bill, we have raised the plight of these sectors because of the decisions the Government made in the Budget. They are facing these changes in a very short timescale, as the noble Baroness, Lady Barker, has rightly said. At every stage, the Government have remained unmoved. The Minister has been stony-faced and utterly unreceptive to the genuine and deeply felt concerns of millions of businesses and charity trustees across the country.

We have heard from the noble Lord, Lord Hope, about the Cyrenians, from my noble friend Lady Stedman- Scott about the sheer scale of the impact on charities, and from my noble friend Lady Fraser about the loss of jobs and skills and the difficulties of deciding what to do. These organisations and others are facing a financial cliff edge in April and that is thanks to the Government, who have chosen to put them in this position while at the same time choosing to give a £9.5 billion pay rise to their friends in the public sector, to pledge £8.3 billion to the amorphous GB Energy project and to increase day-to-day spending by £23 billion this year.

These were all choices, and it is hospices, charities, healthcare providers, early years settings and small businesses that will pay the price. That is what my noble friend Lord Clarke of Nottingham was saying: he felt that it was the wrong choice.

In November last year, the Nuffield Trust predicted that the Government’s jobs tax would cost the independent sector’s social care employers in the region of £940 million in 2025-26, and that is on top of around £1.85 billion more that they need to meet the new minimum wage rates from April. These are all relevant to this amendment.

I am particularly concerned about the hospice sector, and that is why I have tabled my own amendment with the support of my noble friends Lord Leigh of Hurley and Lord Howard of Lympne. Both my noble friends spoke with great eloquence, as did the noble Baroness, Lady Kramer, so I will not repeat any of that, but I will say that Hospice UK has confirmed to us that the sector is headed for a £60 million deficit this year. The Health Secretary announced £100 million to make sure we are protecting our hospices, but last week the Prime Minister was forced to admit that that is capital funding and will not have a direct impact on the day-to-day costs. Further to that, I understand from boring into the detail that the £26 million that the Minister mentioned in Committee on day 3 represents almost no new money at all; so, we have a big problem.

Finally, it was reported that the National Pharmacy Association has taken the unprecedented step of voting for collective action in protest at a £250 million hike in business costs that pharmacists face under the Government. If the Minister will not listen to the Official Opposition, perhaps he will listen to the experts, the GPs, the hospices and the charities, which are all telling us that the Government must think again. We agree with the noble Baroness, Lady Barker: the Government must act urgently to protect our health and care providers, our GPs and our hospices before it is too late. Should the noble Baroness choose to test the opinion of the House, we will be with her in the Lobby.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Thursday 6th February 2025 Grand Committee

[Baroness Kramer (LD)]

My Lords, I realise that I am very much in danger of becoming repetitive, but this is the last grouping that we will deal with today. If I may, I always feel like cheering on the noble Lord, Lord Porter, every time I hear him speak, which may put him in jeopardy, but it is probably reflected by voices across the Committee.

The issues being raised are crucial. I will not repeat the discussion that we had last Monday and Wednesday, which covered this same area in great detail. However, the amendments put forward then, which would basically exclude adult and child social care, housing associations, charities and others from the changes in the employers’ NICs threshold, would answer very many of the problems that local authorities are going to face. While I understand that this amendment seeks an impact assessment, we go for exclusion of these various necessary services and on that, once again, we stand our ground.

I thought that there might be some mention of town and parish councils in this group, which will get no protection at all from the increases in employers’ national insurance that they will face. We put forward an amendment last week that would exclude them from this. Once again, I ask that town and parish councils not be overlooked in the process of understanding that the public sector will be protected. With the changes that the Government are mooting in going to strategic authorities, town and parish councils will be the only real local government layer left, quite frankly, where somebody within a community knows that community, speaks to the people in it and acts on their behalf. Because they are funded purely through tax rather than through some government grant, the Government have not given them the off-set for the additional costs that they will have to carry. They amount to so little—£10 million a year. The Government would not even notice it. Without that, because they have no other sources of income, they will absolutely be required to increase their taxes by between 1.5% and 3.5%.

These councils should not be overlooked. They might be very small, but they are vital. For many people in this era, they are the connection to politics in a world where there is so much cynicism over politics and people do not feel the reality of it any more. I hope very much that the Conservatives, having made such strong statements on the effect of all these changes, will consider coming into the Lobbies with us on Report.

[Baroness Neville-Rolfe (Con)]

My Lords, I support Amendment 70. I am delighted that my noble friend Lord Fuller has joined the Committee today and spoken with such passion and eloquence, and I support his proposal for an impact assessment of the costs involved with this Act on local authorities. It was also good to hear from my noble friend Lord Porter; as a former civil servant many years ago, I was amused by his comment about policies hanging around in a drawer. I particularly remember that when I used to go to the Council in Brussels; there were a lot of proposals that used to hang around for a long time.

I agree that the jobs tax is the wrong approach, and I agree with my noble friend Lord Jackson that there are some tricky issues in parts of local government. I have to say that I have often been an admirer of local government, particularly councils, over a long career.

This week the Government confirmed £502 million of funding to help local authorities to cover the increased costs of directly employed staff due to the changes in the national insurance contributions. Ministers have also allocated £13 million separately to mayoral combined authorities, with some allocations to follow in due course. As we have heard, local authorities will need additional support in the face of the jobs tax. I welcome the fact that Ministers have brought this support forward, but we have heard from my noble friend Lord Fuller that that the allocation is totally inadequate. He called it a £1.226 billion headache, while my noble friend Lord Jamieson, also very experienced in this area, explained that it is just not possible to absorb these sorts of costs, for example, by reducing prices to suppliers. Services will inevitably have to be cut.

I shall highlight some examples where we believe the allocations will fall short. Hampshire County Council is facing a £10 million increase in costs due to the increase in NICs but the allocation it has received from the Government is just £7 million, leaving a £3 million shortfall, which I suspect is quite typical. My noble friend Lord Jackson talked of the likely demise of the lido in Peterborough and of libraries that are closing, although I am glad to say that, so far, we have kept our libraries open in Wiltshire. We are also hearing reports from Kensington and Chelsea and Harlow councils that they are facing a shortfall following the announcement of the allocations.

Clearly the Government’s additional allocations need to cover every penny of the increased cost to local authorities, otherwise they are going to have to cut services. It would therefore be helpful if the Minister could commit to engaging with MHCLG to seek assurances about what is happening and how that could be improved.

Councils, as we have heard from my noble friend Lord Fuller, have been treated a lot worse than sectors like the police, the Civil Service and the National Health Service. This is a case in point for the argument we have been making throughout Committee where the Government have failed to produce thorough and comprehensive impact assessments. Mistakes like this can be made. The new refusal of the Treasury to provide essential information in debates like this, when such major changes are taking place, is extremely disappointing, as my noble friend Lady Noakes said, in her usually trenchant way. The Minister needs to listen to the Opposition when we call for a proper assessment of the impact of this policy on our local authorities. We want to know about other sectors too, but local authorities are this particular group’s concern and we will be returning to the charge.

The truth is that the Bill is very damaging. It will have perverse effects that will reduce the expected national insurance and tax take, as we have heard from the OBR, and it will have a negative effect on jobs, prices and growth. I hope the Minister will think further in the light of these four days of debate before Report.

I should say that I have enjoyed this Committee because of the insights it has given into many sectors and their challenges. It has been an extraordinary cross-cutting debate, and I look forward to Report on 25 February after our much-needed winter break.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Tuesday 4th February 2025 Grand Committee

[Baroness Neville-Rolfe (Con)]

That is the average salary bill, so the noble Lord is right that an increase in the employment allowance would not absorb all the extra costs.

[Baroness Kramer (LD)]

I think the term “rounding error” might apply.

[Baroness Neville-Rolfe (Con)]

Obviously, for smaller bodies, the employment allowance is, as the Minister has said on several occasions, helpful because it alleviates the cost of the changes. Therefore, looking at the employment allowance is another way of coming at the issue, which is one of the reasons why we have put it forward for discussion.

Despite the fact that many hospices provide functions that would otherwise need to be provided by the NHS or social care, the Government have failed to recognise their importance and are instead taxing the hospices that the country relies on. Although hospices do not charge for their services, they receive only one-third of their funding from the Government and rely on charitable donations for the remainder of their income. This will place unnecessary and costly additional pressures on their finances at a time when demand for hospice care is growing. The Government seem to be unaware of the great help hospices provide and the fact that they reduce pressure on the NHS by providing services in a more efficient and effective way. There is a saving there to offset any cost.

While I am aware that the Minister claims that the already published impact note is enough, I have not heard another noble Lord agree with that. Although I am sure he will respond in a similar manner, the current note is simply not sufficient and does not include any impact assessment on the very businesses it is being imposed on. That is very concerning for hospices which do so much work to support the NHS and could well be bankrupted by this Government’s decision to introduce the jobs charge. The charity for children’s hospices, Together for Short Lives, has estimated that this tax rate will cost an additional £133,966 for every children’s hospice. That is an extraordinarily high number for a sector that is not profit-orientated, and I am concerned about that impact. Although I welcome the £100 million in funding that the Government have announced for hospice improvements, that money will not help with the staffing costs that these hospices will now face.

As my noble friend Lady Monckton said, hospices are life affirming and give wide support beyond the patients in the hospices to the families in their grief. They are a vital part of the palliative care system, as I hope the Minister will agree. I think that the Government will be blamed if hospices go into a downward spiral as a result of these extra costs in April. They should look again at some way of helping them, whether it is an exemption, a delay, a change to the employment allowance or some form of compensation. It is an important matter that we should address in this Committee.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Kramer and Baroness Neville-Rolfe

Committee stage
Wednesday 29th January 2025 Grand Committee

[Baroness Kramer (LD)]

My Lords, I shall be extremely brief. It must be galling for the Minister to sit here and be lectured by the Conservative Benches because he and I so often tried to obtain information and were consistently denied it. The noble Baroness, Lady Noakes, asked why there was not a greater outcry. Everybody just got so used to being denied information.

I am sure that the Minister will also be able to cite many economic crises when information was not provided—I have to say, the silence on the Conservative Benches in not calling out for that information was very loud, if I can put it that way. I am sure that, if the Conservatives were back in government again, we would get the same absence of transparency and limitations on information. There are perhaps two honourable exceptions—the noble Baronesses, Lady Noakes and Lady Neville-Rolfe—who stood out against their party when every other voice was one that co-operated in that silence.

That silence was part of the reason why there was so much mistrust of the Conservative Government in the end; it was part of their undermining. As the Minister and his Government start to look at reform, which they are looking at more generally—particularly in dealing with the Civil Service—looking for opportunities for transparency would be a really positive move. With information, we stand on more secure ground. Will he consider that? I have asked him that before.

It is realistic to understand that we are unlikely to get impact assessments ahead of the actions that the Government contemplate doing in the next few weeks, or just in the next couple of months, but post reviews are at least a place to begin. They shed light, and they help both the Government and Parliament to understand where things have been effective and where they have not. If the Minister feels that he cannot accept these kinds of requests for immediate impact assessments, will he consider seriously the various requests made in other groupings for post-facto analysis and review?

[Baroness Neville-Rolfe (Con)]

My Lords, I shall just say this briefly: we need more transparency on such a major policy change, but we are not getting it. There is a large negative impact on business and charities, which is—I agree with my noble friend Lady Noakes, a fellow-in-crime in asking for impact assessments—unprecedented. As my noble friend Lord Blackwell said, we are seeing a shift in jobs from the private sector to the public sector, which we fear is bad for jobs, productivity and growth. That is why we need to find a way of getting better assessment and having a process for review.

UK-China Economic and Financial Dialogue

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 14th January 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for repeating the Statement. Instead of focusing only on the economic difficulties, I thought I would start by welcoming the improvement in the terms of our exports to China, which helps, in a small way, to redress the huge imbalance in trade that we have with China. The Chancellor has announced £600 million-worth of opportunities secured in Beijing. She states that barriers that restrict our exports to China in the agricultural sector—that would be pork and poultry, vaccines and fertilisers—will be lifted in an attempt to boost trade. I recall exporting chickens’ feet to China when I worked in the food industry. Will the Minister explain what exactly the real change is here?

Similarly, on financial services, can the Minister explain the improvements apparently being made? The green bond is welcome—I remember helping to launch other green bonds at the Stock Exchange—but can we have more chapter and verse on the other financial services gains? I mean gains to UK plc as opposed just to China—concrete changes that are not just warm words from bankers and legal firms, who obviously find the market difficult. We need to know more about the tangible benefits that the Minister outlined.

More broadly, of course, we are very concerned about the deterioration in the economic position back here at home in terms of debt, interest, rates of inflation and economic growth. In the Chancellor’s absence, the value of the pound plummeted and government borrowing costs rose to a 27-year high.

Let us consider growth. The Government inherited the fastest-growing economy in the G7, yet growth is now non-existent, and that means less money for public services. The Government are rightly exploring some obvious opportunities for growth: planning reform, the use of AI and improvement in skills. However, the fact is that businesses are vital to growth, and they have been dealt a triple whammy of costs.

The recent Budget broke election promises, introduced significant tax hikes and has been detrimental to British businesses and business confidence more broadly. Frankly, confidence is tanking, as many surveys and announcements show. This, combined with an increase in borrowing by an extra £30 billion a year, has inevitably caused international markets to question the future of the UK economy.

Instead of looking forward, there is much talk on the Benches opposite about the mythical black hole, but much of this is of the Government’s own making: over £8 billion on a public energy company, over £7 billion on a National Wealth Fund and nearly £10 billion of taxpayers’ money on public sector pay settlements without—this is so important—any requirement for a productivity return, at the very moment when it is right to extract one.

While many on the Government Benches may point to an international trend of rising borrowing costs, it should be noted that the gap between our bond yields and those of similar economies is growing. We now find ourselves in a position in which the UK’s long-term borrowing costs have risen to the highest level in nearly 30 years, and the pound has been at a 14-month low.

Can the Minister tell the House how the Government intend to address and restore stability in international markets? The increase in our borrowing costs is believed to have added roughly £12 billion to the UK’s annual spending in debt interest; that is 100 times what the Chancellor claims she accrued from her trip to Beijing. This £12 billion could have covered the costs of the winter fuel payment cut for eight and a half years or funded 300,000 nurses. According to the OBR forecast, two-thirds of the money raised from the Government’s jobs tax will have to be used to finance additional debt interest. As a consequence of the Chancellor’s policies, borrowing by the final year of the forecast will be doubled.

I repeat the question I posed to the Minister earlier today and encourage him to be more forthcoming. Will the Government do a U-turn on the spending increases that the Chancellor promised in the Budget? Will they borrow more or will they increase taxes further? One of these will have to give if the OBR’s update in March determines that the Chancellor is in breach of her own fiscal rules.

I am afraid that it is working people who will pay the price of the unfortunate decisions made by this Government in their Budget.

[Baroness Kramer (LD)]

My Lords, we must not allow anxiety about America under Trump and Musk, particularly on tariffs and climate change, to drive us into an unhealthy economic relationship with China. China is, of course, an economic powerhouse and our fourth-biggest trading partner, and there is more trade to be had, especially in financial services, to benefit both parties—but China is a very mixed blessing. It remains a cyber threat. Without greater transparency and safeguards, it is a potential threat to the integrity of our national security. It does not challenge the Russian invasion of Ukraine. It does not share our commitment to human rights and to democracy in Taiwan and Hong Kong. The imprisonment of Jimmy Lai is both a tragedy and a warning that our values are not respected. We on these Benches wish that the Chancellor had held firm and refused to go to China unless Jimmy Lai is released. China is a country that exploits weakness.

In light of these concerns, will the Government strengthen foreign direct investment screening and cyber defences, including increased data transparency requirements? Will they cease research co-operation on technology with China, its companies and researchers if adequate reciprocity and transparency cannot be achieved? Will they enact Magnitsky legislation to hold Hong Kong and Chinese officials responsible following gross breaches of human rights in Hong Kong and Xinjiang province? Given the recent discovery of Chinese spying across several senior levels of the British establishment, do the Government agree that China should be placed in the enhanced tier for the foreign influence registration scheme?

Silicon Valley Bank UK Limited Compensation Scheme Order 2024

Debate between Baroness Kramer and Baroness Neville-Rolfe

Tuesday 17th December 2024 Grand Committee

[Baroness Kramer (LD)]

My Lords, the Minister may be pleased to hear that I have very little to say on this SI. It makes sense to me. The Bank of England report on the transfer of Silicon Valley Bank UK to HSBC argues clearly and logically that, in any reasonable scenario, SVB’s UK tier 1 and tier 2 capital would have been wiped out, so there are no grounds to compensate the former US parent.

However, the fact that this SI is needed raises a question. The resolution of large banks that fail would require wiping out shareholders and calling in bail-in bonds under the MREL procedures without compensation. Would those processes all require a report and an SI to be laid in order for action by the Bank of England to be legal? If that is what the legislation currently says, is there a flaw in the resolution legislation? If there is a flaw, does it need to be rectified? In other words, it seems extraordinary that we need an SI under these circumstances at all.

[Baroness Neville-Rolfe (Con)]

I also welcome the draft Silicon Valley Bank UK Limited Compensation Scheme Order 2024. It rightly confirms in law that no compensation is due to shareholders of Silicon Valley Bank UK Ltd on the transfer of shares to HSBC UK Bank plc in March 2023, when, as the Minister explained, the former experienced rapid deposit outflows.

The swift action that the last Government took to facilitate the sale averted a potential catastrophe for tech start-ups and small businesses dependent on that bank—precisely the kind of enterprises that can help to drive Britain’s growth and innovation in the decades to come. The special resolution regime reinforced trust in the financial system while reminding us that stability is the foundation upon which innovation thrives.

Although I welcome this order, can the Minister clarify how the lessons learned from this well-handled crisis will inform future regulation of mid-sized banks? Further, can he elaborate on how the scheme aligns with our wider growth agenda? To my mind, the tech sector is critical to Britain’s global competitiveness, and maintaining its trust in the financial system is key to sustaining our position as a world-leading hub for innovation—an ambition that is under some challenge, as I mentioned earlier. But I am very happy with this order.

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.