Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) (No. 2) Order 2023

Debate between Baroness Kramer and Lord Davies of Brixton

Thursday 15th June 2023 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I support the order, but it raises some issues that bear significant further thought. The exemption from the ring-fencing requirement is clearly an issue, so it was discussed in the Chamber earlier in the week. The Government have said that ring-fencing is a key part of their package of banking reforms designed to increase the stability of the UK financial system and prevent the costs of failing banks falling on taxpayers—this was following the financial crisis. Clearly, it is important, and any decision to have some exemption needs careful consideration. I shall not deal with the issue in detail; I heard what the noble Baroness, Lady Kramer, said about it in the Chamber earlier in the week, so I can say in anticipation that I very much agree with her remarks.

I want to say something about the resolution process and what we learned about it during this episode. The Bank of England is responsible for taking action to manage the failure of financial institutions—the process known as resolution. The Bank said that the financial system needs an effective resolution framework, and that was one of the key lessons from the global financial crisis of 2008. Resolution reduces the risk to depositors, the financial system as a whole and the public finances which could arise following the failure of a bank. The object of resolution is to reduce the risk of bank failure as well as to limit its impact when it occurs. To be effective, a resolution authority needs powers that ensure that any losses will fall on a failed bank’s investors but without risk to financial stability or to the broader economy.

To achieve those objectives, the Bank has powers that affect the contractual rights of counterparties and investors in the failed firm, so there have to be statutory safeguards for creditors and counterparties. The requirement in general is that shareholders and creditors must absorb losses before public funds can be used. The Bank has a range of powers to enforce insolvency, which was the initial expectation in this case, or to transfer all or part of a firm’s business either to a private sector purchaser or to a temporary bridge bank established by the Bank pending a sale or transfer.

At the point of failure, Silicon Valley Bank UK had a total balance sheet size of about £8.8 billion and a deposit base of approximately £6.7 billion—that is, assets greater than liabilities to depositors. In that sense, it was solvent. However, the scale of the deterioration of liquidity and confidence meant that the Bank and the Prudential Regulatory Authority—PRA—concluded that the position was not recoverable. It is what the Governor of the Bank of England has described as “banking 101”.

Having consulted the Treasury, the PRA and the Financial Conduct Authority—the FCA—the Bank of England decided ultimately to use its resolution powers to transfer the bank to a private purchaser. My question for the Minister is: what lessons have the Government learned from this episode about the resolution process? The process is relatively new and untested, which means that each example must be explored in detail. The idea of testing the resolution regime is of course problematic; you would not want to test your home insurance by burning down your house, so we have to learn where we can.

Now, getting to the crux of what I am talking about, the example was discussed at the meeting that the House’s Economic Affairs Select Committee had with the Governor of the Bank of England on Tuesday, which I attended. Unfortunately, we do not yet have the official transcript, so I cannot quote what the governor said, but I can give the Committee my impressions of what issues need to be explored based on what was said at the meeting.

The first issue is whether the resolution regime worked. Was there a clear and predictable set of rules upon which depositors could rely or was it, in practice, totally ad hoc? It may be that what worked was the right approach in the circumstances, but we need to be clear about that. The governor appeared simply to rule out certain approaches—for example, a bridge bank—largely, it would seem, because of the impact on the public purse. Manifestly, the wish to avoid splitting the assets and liabilities led to the decision to break the ring-fence.

Another thing that was clear is that resolution is inevitably an intensely political process. When the bank said it consulted HMT, it certainly was not just officials. Certainly, the Chancellor but also the Prime Minister were involved in what in banking terms does not really count as a large institution but that on the face of it had wider financial implications. I do not want to downplay the significance of the event. It appeared that at one stage of the process it was suggested that a failure to resolve the matter satisfactorily would “really set back curing disease”—so no pressure.

Finally, the underlying question is whether we are heading in the direction that means that it will, in practice, never be acceptable to impose losses on uninsured deposits. We must remember that in this case the deposits were generally commercial, not personal, deposits. These issues are being discussed, and there is ongoing discussion about a digital currency, but it would be best if they were discussed clearly, openly and together.

[Baroness Kramer (LD)]

My Lords, I am delighted to follow the noble Lord, Lord Davies of Brixton. I am very glad that he has had an expanded discussion of resolution. I will refer to that very briefly in what I have to say.

I have a lot of questions for the Minister on this area. She will not be surprised by them because I and others had questions in March when we debated the SI that provided the temporary exclusion of HSBC from the ring-fencing provisions. This time we are looking at a permanent exclusion.

First, let us look at this permanent exclusion. A few moments ago, the Minister said that there are constraints and conditions. Indeed, when we discussed the first SI she led us to believe, I do not think with any ill intent, that when we saw the SI including the permanent exclusion we would find constraints and conditions on either the activities of Silicon Valley Bank UK or the ability of HSBC to transfer unlimited funds to it, in a way that would give us reassurance that this was a very limited busting of the ring-fence, not something with fundamental implications.

I am struggling to understand that because the Minister made it clear just now that Silicon Valley Bank UK could not expand into being a major retail bank. None of us ever thought that HSBC, as a major retail player, would be setting up Silicon Valley Bank UK to be a major retail bank. So long as Silicon Valley Bank UK does not become a retail bank, I cannot see how the PRA is in any way able to limit its activities. Presumably it would limit those activities under Section 55M of FiSMA—“Imposition of requirements by PRA”—and those would not apply if it was not engaged in regulated activities. I am struggling to understand quite how the role of the PRA would work to limit the range of activities carried out by Silicon Valley Bank UK.

Secondly, let us look at those activities. If anybody wants to know what they are, I suggest that they take a look at the Silicon Valley Bank UK website; they will see that it is heavily engaged in supporting both venture capital and private equity. That takes us into that investment banking, high-risk activity that has, since the changes post the crisis in 2007, been separated out from retail banking. We also know, just from discussions, that it is heavily involved in a range of derivatives.

Financial Services and Markets Bill

Debate between Baroness Kramer and Lord Davies of Brixton

Committee stage
Monday 6th February 2023 Grand Committee

[Baroness Kramer (LD)]

My Lords, I am speaking a little earlier than I usually do on my amendments in case others want to join in on the Equitable Life issue. I thank the noble Baroness, Lady Altmann, for signing my first amendment; it is hard to tell what happened with the second. I hope she signed both of them. Yes? Fantastic.

I want quickly to follow up on the comments from my noble friend Lord Sharkey. Perhaps the Minister can clarify this for me. She will remember that the PPI scandal was widely spread across the industry. It was not unique to one or two companies, therefore no company that invested in that mis-selling was behaving as an outlier. Again, when interest rate caps were inappropriately sold to small businesses, it was not the action of one or two particular banks. It was industry-wide, therefore nobody was the outlier. Can she explain to me what this new consumer duty will contribute to enabling the FCA to act on these kinds of abuses? She will note that the FCA did not act until there was a major scandal and a huge amount of public pressure and pressure in Parliament because, when it looked at it, it could see no basis for action. Perhaps she might tell us how the consumer duty would have worked in those two key cases. I am sure that the Government must have tested those cases in coming to their decision to support the consumer duty, so I think she will be able to give us clarification on that.

Both of the amendments in my name arise out of the Equitable Life policyholder cases. I thank the Equitable Members Action Group, which has been frankly magnificent in support of the victims of the collapse of Equitable Life. It has fought for them in the past and continues to fight for justice.

Amendment 225 is a direct plea for compensation. When Equitable Life collapsed, 1 million people lost a significant part of their retirement savings. In 2008, the Parliamentary Ombudsman concluded that the victims’ losses were directly attributable to a decade of serious, serial regulatory maladministration.

The ombudsman made 10 determinations of maladmin-istration: one against the DTI; four against the Government Actuary’s Department; and five against the FSA, which

“resulted in the true financial position of the Society being concealed and misrepresented”.

I cannot think it extraordinary that, in a situation such as that, one would have expected the loss to the victims to have been remedied in full. In recommending redress, the ombudsman said that she would

“normally expect that, where appropriate, such a loss should be remedied in full”

and she called for the Government to

“fund a compensation scheme to put those people who have suffered a relative loss back into the position that they would have been in had maladministration not occurred.”

The Government later accepted that the amount of compensation to achieve that would have amounted to £4.5 billion but only £1.5 billion in compensation was announced by George Osborne. Some 37,000 with-profits annuitants were fully compensated but a further 10,000 received only £5,000—or £10,000 if they were on pension credit—because they took their annuities before September 1992. The vast majority of the victims—895,000 people who were not with-profits annuitants—received only 22.4% of their acknowledged losses. My amendment would carry out the recommendation of the Parliamentary Ombudsman and put everyone back into the position that they would have been in had maladministration not occurred.

This leads to my second amendment, Amendment 226, which would establish in law a requirement that, when the ombudsman finds maladministration by the regulators or government departments, all consumers affected

“are put back into the position they would have been in had that maladministration not occurred.”

Just imagine how we would react if a bank decided that, instead of paying the full compensation it owed, it would pay just a portion of it. I cannot see why the Government should be treated differently from an entity such as a bank. We would expect compensation to be paid in full.

How can we ask people to turn with confidence to the Parliamentary Ombudsman when recommendations are watered down after the fact? How we ask people to save when a rogue society—I think that describes Equitable Life quite well—cheats them? The Government make appalling mistakes to the level of maladministration —that is a very high bar; it is not a low bar—and then will not make it right. Many of the victims are now in their eighties and nineties so time is running out for justice; indeed, many have died without justice. That is the reason behind my two amendments. I very much hope that there is support for that perspective; indeed, I hope that we will finally see support from government.

In making a brief comment on the amendment proposed by my noble friend Lord Sharkey, on a return to a proper duty of care—it is one of the most important amendments that we are considering today —I want to stress, in this context, the private right of action. It seems to me that, without a proper duty of care or private right of action, we can never make banking institutions or other regulated financial services sector institutions live up to their full responsibilities to consumers.

[Lord Davies of Brixton (Lab)]

My Lords, I support all the amendments in this group. I dipped down the order a little because I wanted to hear what the noble Baroness, Lady Kramer, would say on Equitable Life. I have nothing to add. I was an Equitable Life policyholder twice over and no one came out of that whole sorry saga well. I do not think that all the necessary lessons have been learned, but that is perhaps for another debate.

I will address my Amendment 77. I am sure all noble Lords accept the principle that financial regulation should pay regard to the particular problems faced by people who have problems with their mental health. The issue is not about the principle but about whether it requires or deserves a place in Section 1C of the Financial Services and Markets Act 2000. I think it does, which is why I start by re-emphasising something. Many noble Lords might have heard this part of this speech before, because it has arisen in debates on the Online Safety Bill and on the last group—although the personnel attending this part of the Committee has changed somewhat, so I am not that embarrassed at repeating myself.

There are strong links between having a mental health problem and experiencing worse financial outcomes. Either a financial problem leads to poor mental health or pre-existing poor mental health leads to financial problems. Either way, mental health difficulties all too frequently make it harder to earn money, manage spending and get a fair deal on products and services. Life is likely to cost more precisely when we have less money available to spend.

Facing financial difficulties should not result in needing mental health treatment, but too often these things come hand in hand. Financial difficulties do not just cause stress and anxiety; this is often made worse by the follow-up actions—collections activity and having to go without essentials. It is not just an occasional problem. Here I must pay tribute again to the work of the Money and Mental Health Policy Institute, which in a series of reports has amply illustrated the scale of the problem and the relationship between good mental health and well-regulated financial markets.

Common symptoms of mental health problems, such as low motivation, unreliable memory, limited concentration and reduced planning and problem-solving abilities, are just the things that make managing money significantly harder. These symptoms can also make it more difficult to interact with financial services firms. For example, people with mental health problems are three and a half times more likely to be in problem debt than those without. Just under half of adults in problem debt also have a mental health problem. In nationally representative polling from November last year, the institute found that around half of those who were behind on multiple bills have had suicidal thoughts as a result of the increasing cost of living. More than 100,000 people in England attempt suicide while in problem debt.

A problem we face is that communicating with financial services providers can be particularly challenging for people with mental health problems. Three-quarters of people with mental health problems found at least one communication channel difficult to navigate, with four in 10 saying they found it difficult or distressing to make phone calls, for example. This has to be taken into account in FCA guidance. Part of the problem is that providers simply do not have the information about their customers to enable them to make better decisions. That is a crucial issue that will have to be addressed.

UK Infrastructure Bank Bill [HL]

Debate between Baroness Kramer and Lord Davies of Brixton

Committee stage & Lords Hansard - Part 2
Tuesday 14th June 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I hope the Committee will bear with me; I have taken an interest in the Bill. My interest is narrow: what bearing the Bill has on pension funds. Members of the Committee may not be surprised.

I have raised the issue on a couple of occasions: at the useful meeting we had with the noble Lord the Minister and the noble Baroness, and at Second Reading. On neither occasion did I receive a reply. My question is: how does this organisation fit with the declared intention, expressed by the Prime Minister and the Chancellor of the Exchequer, to see pension funds investing more in infrastructure? Obviously, infrastructure is a good thing, and there is a tendency to feel that the Bill is about infrastructure so it must be a good thing—but in truth the Bill is an empty vessel. We do not know what is in it or where it is going. It is a structure whose purpose and objectives will be revealed in time.

How does this relate to pension funds and the Government’s apparent intention—we are still waiting for them to make clear what they are proposing—to coerce or cajole pension funds to invest in infrastructure? As I say, I raised this at the meeting with the Ministers and at Second Reading. On neither occasion was there any response from the Minister. It just so happens that the day after Second Reading, the chief executive officer of this bank stood up at a meeting of the Pensions and Lifetime Savings Association and expressed what an important initiative this was for pension funds. All I want is a straight answer: what plans do the Government have for the relationship between this bank and their objective to see pension funds investing more in infrastructure? Personally, I am not interested in taking investment advice from the Prime Minister or the Chancellor of the Exchequer, but I think we should be told.

[Baroness Kramer (LD)]

My Lords, at this stage—I know we are about to take a short break—I just want to summarise where we might be on these constitutional issues, now that this group of amendments has been debated. I think it will be relevant for the Minister to reply on that.

As we learn from this group of amendments, in the Bill the bank is given activities and objectives in primary legislation—but that primary legislation can be changed wholly by statutory instruments. That is the point of a Henry VIII power: primary legislation is overturned by secondary legislation. As my noble friend Lord Sharkey made clear, this can include issues as fundamental as the bank’s activities and even the meaning of infrastructure. It is hard to get more fundamental than that when you are talking about a UK Infrastructure Bank. That is the first point.

Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2022

Debate between Baroness Kramer and Lord Davies of Brixton

Wednesday 23rd February 2022 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I thank the Minister for her clear introduction of the measures in these regulations. I intend to speak solely to the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022. What really interests me about these regulations is that they come with the report from the Government Actuary which we should have had when we discussed the Government’s Bill to drop the triple lock. It would have been so much more informative to have those discussions with the figures before us, rather than discussing them in the abstract. This might be a minority taste, but I am particularly looking forward to later in the year when we will have the quinquennial review of the National Insurance Fund.

What disappoints me is that, in accordance with the regulations, these reports are laid before the House, which provides only limited scrutiny. I could ask questions now, but, with all due respect to the Minister, it would be unfair to ask her to answer detailed questions. It would be useful in some way to provide a forum where we could have a more detailed discussion of what is in the Government Actuary’s report. I do not know whether this has been the practice of the House, but speaking for myself, I could enter into a very detailed discussion about the Government Actuary’s report and what it tells us about the financing of the national insurance scheme.

Chart 1.2 on page 8 of the Government Actuary’s report shows how the balance in the fund is going to increase. It is projected to increase year by year over the next six years by amounts varying between £2.1 billion and £10 billion. These are massive sums being paid into the National Insurance Fund. At least it raises the issue of the use of that fund in order to provide benefits to which people have contributed.

According to the draft timetable, we will get the social security uprating order before us on 9 March. Since we now have available the Government Actuary’s report, it would be helpful to have the opportunity to ask more detailed questions about the relationship between the increases in the order and the information presented to us by the Government Actuary.

I will highlight just one aspect, and this is truly a Treasury point rather than a Department of Work and Pensions point. It is a bit odd, because the regulations are really more of a social benefit issue than a Treasury issue. I am not complaining about that, but the oddity is that the Government Actuary’s report reveals to us that, because the upper earnings limit has been frozen to keep it in line with the upper-rate tax threshold, the take of national insurance contributions is actually going to decline at a greater rate because everyone’s earnings are increasing. This is actually a regressive move. The freezing of the upper-earnings threshold for income tax purposes is a progressive move. It makes higher earners pay that little bit more, but the freezing of it for national insurance purposes is actually a regressive move, because it puts proportionately more of the burden of paying those contributions on lower earners.

I am sure that is not a specific government objective, but it is an oddity of the way the system is being operated. It reflects the fact that higher earners do not pay national insurance contributions. Maybe they could pay a bit more in order to support the taxation system. The fact that they stop paying most national insurance contributions at the upper earnings threshold is perhaps something we should bear in mind in the thorough rejigging of the tax system that I would favour.

With those few remarks, I support these regulations.

[Baroness Kramer (LD)]

My Lords, I will start by addressing the social security regulations. Struggling through the alphabet soup that characterises these SIs brought home to me how hard hit so many low-wage people will be by the Government’s additional national insurance contributions levies. With inflation running at 7%—now some are expecting 8%—energy prices up by as much as £700 a year and most wages barely rising, this is not the time to hit low-income people with a 1.25% increase in NICs.

Using NICs rather than income tax to raise government revenue was always cruel because it drags in workers on wages below the income tax threshold and excludes a raft of high-income people. But the SIs reveal further subtle changes which I had not appreciated. The Government have been clear that income tax thresholds will be frozen to drag more low earners into income tax and more modest earners into higher-rate tax. But I—and, I suspect, others—did not anticipate a read-across into national insurance contributions. The upper earnings limit, the upper secondary threshold, the apprentice upper secondary threshold and the upper profits limit are all frozen, if I understand the SIs correctly, instead of increasing with CPI. They will pull more people into higher NICs payments, including many young people and apprentices. I would like to hear from the Minister how many people are impacted by the decision not to increase these thresholds by CPI and how much additional money is being raised by the Treasury as a consequence.

On the other side of the coin, CPI is being used to raise the lower earnings limit above which an earner gains access to certain state benefits; in other words, it will reduce the number of people eligible. What will the impact be on benefit recipients, how many will lose benefits, and how many will get reduced benefits and by how much? Why was there no consultation on issues that, frankly, are so significant? These are presented to us as though they are “routine changes” but they are not routine changes to people’s lives, as the Explanatory Memorandum tries to claim.

We then come to changes in the state pension. Pensioners are now being driven into poverty, certainly fuel poverty. How can the Government justify excluding the earnings component from the triple-lock calculation, and increasing pensions by only 3.1%, particularly with inflation galloping away? As I say, it is now expected to hit something between 7% and 8% over the year. I suppose that if next year inflation continues to be high, the Government will exclude CPI from their calculation, arguing that this year set a precedent for manipulating the formula while paying it lip service.

I notice that the notes suggest that raising the state pension by 8.3% this year, which would happen if it was based on average earnings, would increase the pension base and, over time, compromise the National Insurance Fund. If one is concerned about the health of the fund, why are the Government deliberately depleting it by offering employers NICs at zero rate in freeports? I think I have described this before as a fundamental problem. Freeports attract money laundering and other forms of crime because of their lack of transparency and now there is the possibility of an attractive tax package as a further incentive and, indeed, a depletion of the National Insurance Fund as a consequence, which presumably justifies many of the increases that we have seen in these SIs. Will the Minister finally tell us the cost of that giveaway of national insurance contributions at zero rate in freeports? I have been struggling to find the number; it may well be available, but I have struggled to find it.

My last comment is on the other statutory instrument, the tax credits SI, which raises by CPI the annual rates of working tax credit and child tax credit, and weekly rates of child benefit and guardian’s allowance. Although this meets the formula, today’s experience for people on low incomes is one of very high inflation, especially on the basics of life, including heat and food. Many would say that we are facing a crisis now, but that the economic pressures on families will get far more acute as the year moves on.

I have here a very brief note from the Child Poverty Action Group. It points out that

“benefits are due to increase by 3.1%, just as inflation is predicted to peak at 7.25%.”

I think that may be understated; people are now talking about a higher rate of inflation. The note continues:

“Energy bills are due to increase by 54% in April, and these families are set to spend three times the share of their income on energy, compared to better-off families … The council tax rebate scheme will mitigate around 40% of that cost through spring and summer, leaving families in poverty to cover around £35 in additional energy bill each month.”


I come from a part of London where house prices are extremely high, and many fundamental homes are above band D, but the people living in them are on very low incomes. They, of course, will get none of that council tax rebate benefit. The note goes on to say that

“180,000 families subject to the benefit cap will see no increase in their benefits come April. The cap hasn’t increased since 2016, while the cost of living has increased by around 16% in that time.”

Are the Government prepared to rethink? This is an exceptional year of inflation, so choosing the figure of 3.1% has a great artificiality to it; it would not in most years, but it does in this one. Will they simply restore the weekly £20 uplift in universal credit, which would make a substantial difference to the families who will be hit? Will they reconsider the national insurance contribution increases and shift instead to a money-raising mechanism that looks at income tax and higher earners? Will they unfreeze the tax thresholds, which is a way of increasing income tax without obviously saying that one is going to do it? Frankly, one way to pay for all of this would be a windfall tax on the fossil fuel companies whose profits have soared because of world conditions, not because of their own efforts.

I am not going to oppose this SI, but I hope that the Government will not be complacent and think that the changes have gone through with their consequences unrecognised.

National Insurance Contributions Bill

Debate between Baroness Kramer and Lord Davies of Brixton

Tuesday 22nd February 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I have participated in the progress of this Bill and I have always appreciated the stated objectives. I know that I have disappointed the Minister with my pessimism about its likely effects, but I thank him for his unfailing courtesy during the Bill’s progress.

[Baroness Kramer (LD)]

My Lords, it is very nice to have an opportunity to say thank you, and I really want to say thank you to the Minister and his office. Not only were his staff always courteous, but their willingness to meet us, to answer questions and provide a great deal of detail, was very helpful—certainly for me, but also for anyone not sitting on the Government Benches. We really appreciated that flow of information.

For my part I thank Sarah Pughe and Katherine Ginty, who gave me a great deal of support—and were sitting alone on my Benches for most of this Bill. It is always excellent, too, to work with the noble Lord, Lord Tunnicliffe. We found a good way, I think, to pursue the primary interest of the Official Opposition while also giving space to the views coming from these Benches, and often to find common ground.

I particularly appreciated the amendments that the Minister brought forward which reflected the concerns of the Delegated Powers Committee. From a constitutional perspective, it is important that he took those on board and made change that is exceedingly sensible and constructive. I thank him very much for that.

The two gentle amendments—as the noble Lord, Lord Tunnicliffe, described them—are actually rather important. One was on veterans. I hope that it will be well received when it heads back to the Commons. Our amendment, on a public—rather than non-public—register of beneficial ownership of businesses in the free ports, could hardly be more pertinent today, as we look to bring in economic sanctions against henchmen of Putin. Once again, the Prime Minister has talked very publicly about the importance of the public nature of registers, so it would have been sad not to ensure that this register started life in that way. So I hope that that amendment, too, will be very warmly received by the Commons.

It often feels as if there is an inner circle of three from across our three Benches on some of the less dramatic finance and economy-related Bills, and it has been very good to work with everyone again. I thank also the staff of the House, who are always so supportive.

Dormant Assets Bill [HL]

Debate between Baroness Kramer and Lord Davies of Brixton

Committee stage
Monday 21st June 2021 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I was going to crave the indulgence of the Grand Committee in trying to hang on to my fast-disappearing status as a new, inexperienced Member: I wanted to provide an opportunity for a debate on Clause 1, on the overview of the scheme, and I was going to do that by stand part or by putting down an amendment—but I got the timetable wrong and I failed to do so. However, other people have come to my aid, in that there will be sufficient opportunities later in the Bill’s progress to raise the issues that I would have raised here had I got my act together.

I will mention the main issues that I have in mind. Of course, I mentioned them at Second Reading, but the ability to repeat points seems to be one of the great assets of this process that we go through. The first issue that I will come back to at an appropriate time is the whole structure that leads to this situation. We can have a lot of discussion about the process of the dormant assets scheme, but we need to address the question of why dormant assets appear in the first place. It would be wrong to have a full debate on the scheme without at least reflecting, to some extent, on that issue.

In the government consultation and in preceding debates that led to the Bill there has been a lot of discussion by various people about what the financial institutions are doing to make sure that this issue does not arise. In general terms, there has been a lot of discussion of that issue—well, perhaps not a lot—but I am not sure that it really gets anywhere. Everyone expresses intentions, but how detailed the planning is to avoid it happening is a separate issue.

However, I think there is a stage before that. Why do we have a structure that leads to this sort of end result? The fact that this can happen is something that bears investigation—not just because it has happened but what we can do about it—as does the extent to which the financial institutions seem, in one way or another, to try to shift the blame to individuals. There are questions about what we can we do so that it does not happen in the first place, and I will come back to that at a later stage, possibly this afternoon—and I will try not to repeat myself too much.

The other issue is additionality. There has not been nearly enough discussion of what exactly is meant by additionality; there is no clear structure as to how it is defined. I will take the opportunity at a later stage to raise and discuss that issue as well. So I am really just putting these issues on the table and saying that, at the appropriate time, I will raise them at a later stage of the process.

Since I am here and speaking, I will ask something. The Bill was published effectively only a few days ago, yet we end up with this extensive raft of minor technical amendments, which makes the job of understanding what the Bill is doing extremely difficult—twice or three times as difficult. The grid that we have been supplied with for today’s session is extremely useful, but getting it only an hour before the meeting reduces its value. If I had been quick, I would have ticked off which amendments fall into which of the groups that the Minister has identified. It would have been helpful if we had had it earlier and the different groups had been identified on that list. Perhaps we could have that in arrears, as it were.

[Baroness Kramer (LD)]

My Lords, I will be exceedingly brief. As the Minister has said, these are highly technical amendments. Like the noble Lord, Lord Davies, I am frustrated by so many amendments of a highly technical nature and confess that I have been unable to spend the time to get on top of the impact of those changes. I am therefore wholly reliant on the Government’s definition of them. Even my noble friend Lady Bowles was floored by this number coming at this point. I hope for assurance from the Minister that we are done with these technical changes. This truly is an unusual number for a Bill that everyone has been aware is coming for some time. On additionality, which the noble Lord, Lord Davies, referred to, and which I agree is exceedingly important, I have an amendment tabled for Wednesday which tackles that issue. I hope that he will have some input.

I wish to talk about the various amendments to Clause 3 relating to lifetime ISAs, which, in effect, can go into the scheme only if their transfer to a reclaim fund does not trigger a charge payable to HMRC. I am slightly taken aback. HMRC would not be getting its tax payments until the point of reclaim under normal circumstances, so by allowing the assets to go into the dormant assets scheme it loses nothing, not even the timing of the payment of tax charges, because without the reclaim there would be no tax due, as far as I can tell. That strikes me as extraordinary. Why on earth can these assets not be put into the dormant assets scheme? The tax relationship would probably need amending but that is surely not beyond HMRC’s scope. Surely we could ensure that the taxable event happened only at the point of reclaim, as it does right now, meaning there was a bigger pool available for very good causes. Can the Minister give us an idea of what kind of money we are talking about? How much is being denied to the fund because of this constraint that an event which is taxable under today’s legislation is not being amended to make it clear that it is taxable on reclaim, not on transfer to the fund?

I am getting a bit fed up with HMRC. Time and again we get its very narrow focus on tax revenue generation and very little interest in some of the consequences and external impacts of its actions. We have seen it on things such as the loan change, although this is an entirely different issue. Surely it has some responsibility to ensure that the dormant asset programme is as effective and generous as it can possibly be, and therefore making the effort to sit down and draft the various clauses that would in no way deteriorate its current or its proposed tax position, but would allow those assets to be transferred, is a reasonable expectation. I simply do not understand it.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

My Lords, I thank the noble Baroness for the amendment, which I support in principle. I am not saying this in jest, but I am always gravely suspicious of lists which involve alliteration, because you are left wondering whether the wish to have all the words starting with the letter E—economy, efficiency and effectiveness—overcomes the need to comprehensively describe what the audit should be doing. Where does “economy, efficiency and effectiveness” come from? Maybe it is a standard phrase which is well established and understood to be comprehensive, but reassurance on that would be helpful.

[Baroness Kramer (LD)]

My Lords, I very much support everything that has been said so far, and I hope that we will get some clarity. Value for money is critical when we are dealing with these kinds of organisations.

I decided I would take a quick look at the financials of Reclaim Fund Ltd—which does not take very long as they are not hugely detailed—and the number that knocked me over and made me very concerned that value for money was definitely on the agenda was the remuneration of the chief executive. They may be an absolutely stellar individual and I would not wish in any way to criticise the individual personally but, according to the numbers I was looking at, there are 12 employees of Reclaim Fund Ltd, one of whom is the chief executive himself, and the chair. The median CEO salary in 2019 at the largest 100 charities was £155,000 a year, but in 2020 the chief executive of Reclaim Fund Ltd earned £217,000, if I add up simply salary and performance-related pay and leave out the pensions stuff. It struck me as prima facie rather out of line. Making sure that there is an audit that takes value for money into account would certainly give us all much more confidence that these issues were being handled appropriately. I fully understand that, as the asset base expands, there will be more complexity, so maybe there is a changing situation. But the 2019 pay packet was similar and I want to make sure that the appropriate body is focused properly on these issues and that value for money sits right at the front of the audit responsibility.

Financial Services Bill

Debate between Baroness Kramer and Lord Davies of Brixton

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

[Lord Davies of Brixton (Lab) [V]]

My Lords, I agree with much of what has been said and it is not necessary to repeat it. I support the objective of the amendments—in particular, I support my noble friend’s Amendment 4—and I look forward to the Minister’s reply. It is difficult to see how the principle of these amendments can be refused.

However, it is necessary to make an overarching point, which I base on my experience over 50 years as a close observer of the financial services industry. The truth is that the industry has a systemic tendency to malfeasance. This is not an attack on the great many good people who work within the industry, as the last contribution mentioned, in banks and insurance companies, who only wish to do a good day’s work. However, the unremitting succession of scandals involving finance is not just a series of unfortunate one-offs; it is built into its very nature. This is a big issue, but I emphasise two simple reasons. First, there is an inevitable asymmetry of information. As Amendment 4 highlights, there are

“a consumer’s vulnerability, behavioural biases or constrained choices”.

This situation is bound to create the sort of problem that we have seen. The second, even simpler, reason, using the classic but apocryphal words of Willie Sutton, is because it is “where the money is”. People seek to gain money from where there is lots of it and there is lots of it in the finance industry.

There is much to be done to solve this problem. It is systemic but it still needs to be addressed because people need help. However, what is in these amendments seems to me simply a minimum of what might be done to address the problems that the industry so clearly incorporates.

[Baroness Kramer (LD)]

My Lords, I simply do not understand the resistance we find from the Government and the FCA to the duty of care amendment moved by my noble friend Lord Sharkey, and supported by my noble friend Lady Bowles and the noble Baroness, Lady Bennett, and to the almost identical Amendment 4 proposed by the noble Lord, Lord Tunnicliffe, and supported by the noble Lord, Lord Eatwell, and again by my noble friend Lady Bowles. I am not going to repeat the saga of abuse that many noble Lords have described. That has been done incredibly well and is exceedingly powerful. I will say though that this issue keeps happening. I notice the headline in today’s Times:

“City regulator ‘slow to act’ against car leasing firm”.


Every time we think that we are perhaps past a period of abuse, another one comes along. To me, it is utterly unacceptable, as I hope it is to everyone in this House.

What makes me particularly angry is that the regulator has largely known, very early on thanks to whistleblowers, when the financial institutions that it regulates are treating customers badly. However, again and again, the regulator takes years to react, reacts minimally at first, initiates a lengthy review—often several—asks the organisation to review itself and then does too little, too late. I want to pick up one issue in illustration: the treatment of payday lenders.

Many people in this House will remember the experience of trying to pass legislation to get a cap on the interest rates that payday lenders could levy. I bring up this issue because it deals with the difference between treating customers fairly and a duty of care. The FCA took a very strong position that customers were being treated fairly so long as they knew the terms of the contract. There were, perhaps, some constraints such as a limited number of rollovers. The FCA did not look at the far deeper issue of the way that people were being abused by payday lenders and the extraordinary level of interest rates. That is why the duty of care is very much more powerful. As my noble friend Lord Sharkey said, treating customers fairly is undermined in the FiSMA legislation by the caveat emptor parts of the FCA’s rules.

I am not a bit surprised that the noble Lord, Lord Blackwell, objects to these duty of care amendments. When I sat for nearly two years on the Parliamentary Commission on Banking Standards, the industry objected to almost every measure that would have constrained the abuse which created the crisis in 2008, such as the Libor crisis and PPI. The saga was endless. I say to the noble Lord, Lord Blackwell, that in a later group of amendments I will be referring to the HBOS Reading case, another example of fraud perpetrated between 2003 and 2007. A number of bankers went to prison but today, in 2021, victims of that fraud still have not received fair compensation.

Dame Elizabeth Gloster’s damning report of last November on the FCA’s regulation of London Capital & Finance Plc said:

“The root causes of the FCA’s failure to regulate LCF appropriately were significant gaps and weaknesses in the policies and practices”.


That is simply true across the board. It is piecemeal, as my noble friend Lord Sharkey described.

Misbehaviour keeps happening and delayed redress is the normal pattern. To quote Einstein:

“The definition of insanity is doing the same thing over and over again and expecting different results.”


It is time to make a step change to protect consumers, and I hope very much that the Government do so in this Bill.