Finance Bill

Baroness Lawlor Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 19th March 2025 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, I welcome the noble Baroness, Lady Caine of Kentish Town, to the Benches and look forward to her many contributions in this House. I am grateful to the Minister for setting out the Government’s aims in the Bill and would like to comment on the overall direction of travel, which we see before us, in terms of the Government’s aim of achieving economic growth.

This aim of growth is indeed laudable but the measures anticipated in this Finance Bill, along with measures proposed elsewhere, are not the way to promote it. Rather, the evidence is that raising tax, higher borrowing and increased public spending as a proportion of GDP hinder rather than help growth. Here, we have all three. Higher tax of almost £40 billion each year in this Parliament will take money out of the productive entrepreneurial economy. The increase in capital gains tax, both its higher and lower rates, in the energy profits levy for oil and gas firms—up to 38%—in stamp duty on second homes, and in changes to non-doms come on top of the payroll taxes in the employers’ NICs Bill: £25 billion per annum is levied on businesses by lowering the threshold at which employers start paying NICs and increasing the level to 15%.

The consequences have already been felt. Unemployment went up in the last quarter of 2024 by 213,000 people to reach 4.4%, up from 3.9% the previous year. Entrepreneurs and businesspeople are fleeing the UK with their assets; my noble friends Lady Neville-Rolfe and Lord Leigh of Hurley have both referred to this. I echo his question about the taxes forgone and the costs. Have any revisions been made to what this is supposed to yield?

The impact of higher tax on business and individuals has its mirror in the charitable and educational sector, to which noble Lords on this side of the House have already referred. Under the Bill, VAT will be levied on independent schools, including those which educate children with special needs. Early reports have confirmed that they are cutting staff numbers. They are also reducing the number of bursaries and the range of subjects taught. Pay and pensions are being cut, as well as jobs, and I am afraid that school closures have already been announced—we have had nine announced so far this year.

Overall economic growth is now down on expectations. For 2025, we are looking at 0.9% and next year at 1.4%, instead of the rather dismal 1.5%. The state and the public sector are growing, in terms of cost and numbers. The increase in the size of the state has to be paid for by taxing the productive and innovative private sector, and higher borrowing is costing £32 billion a year. At the time of the Budget, the public sector had increased by 28,000 people between July and October. This is the only growth we see from the measures being taken by the Government.

There is another, more sinister side to what this Bill and its policies imply: that the Government have declared war on the private sector; that they want to impose penalties on those who succeed, while referring euphemistically to broad shoulders. The truth is that by penalising the private sector in this way, the Government are penalising the whole economy. Despite its apparent move to the right—I welcome the cuts to quangos such as NHS England—Labour still appears to see the world in terms of class division: employers versus employees and haves versus have-nots, but this is myopic.

The victims of this Bill are the whole of society: the jobless with no job on offer and none in the offing, the employee with pay frozen and the child whose school closes. To judge by this Bill, we are looking at a revolutionary Government. They threaten to devour not just Britain’s wealth but the freedoms of its people and the settled ways in which they have ordered their society, the fruit of their efforts over centuries, paid for by their work, shaped under the laws they have ordained, and for which people from all political sides have come together to enable a state which knew its place.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Lawlor Excerpts

Committee stage
Thursday 6th February 2025 Grand Committee

[Lord Altrincham (Con)]

My Lords, I rise to move Amendment 35 on behalf of my noble friend Lady Barran and to support Amendment 43 in the name of my noble friend Lady Neville-Rolfe. Amendment 35 would delay the commencement of Clause 2 until an impact assessment had been published to fully assess the impact that this tax will have on schools and universities. Amendment 43 increases the employment allowance to £20,000 for universities.

The Government have quite a lot going on in education, with changes to private schools, academies, standards, teacher recruitment and mental health services. This Bill introduces a tax on education, breaking with the long tradition of avoiding taxes on education where possible, which are to the detriment of children and society. This tax increase will be implemented in the middle of a school year, which will put the most vulnerable schools at risk, regardless of how they are funded later. The policy has clearly failed to consider the impact an immediate tax rise will have. The IFS recently published a study indicating that, in the 2025-26 academic year, costs will outweigh funding. Since staffing costs tend to take up a large proportion of a school’s budget, there can be no doubt that this jobs tax will play a role in this funding crisis.

I turn to universities. As the noble Lord, Lord Sharkey, has mentioned previously, this tax increase will cost universities an estimated £372 million a year, as calculated by Universities UK. This is quite a vulnerable sector, as we know. For example, Coventry University has shared that the increase in fees will provide £1.5 million to £2 million in additional income, but the increase in national insurance that it faces will cost £3 million. The Government have given with one hand and taken with the other, as universities expected this fee increase to support their finances. Instead, it will be more than wiped out by the tax increase, when universities across the country already face financial difficulties.

Ultimately, our students will be forced to pay the price for these decisions, whether through further increased fees or a reduction in teaching staff for universities to sustain themselves. It is disheartening that the Government are not supporting our young people to pursue higher education. I am concerned that this group is already quite vulnerable in society, with youth unemployment sitting at around 14% in the final quarter of 2024, compared with the national unemployment rate of 4.4%. We talked about this and the problem of NEETs earlier in Committee. The rate of unemployment for our young people is already three times higher than the national average. To increase costs on education will leave the more highly educated people in this group who cannot find a job in more debt than before. In the 2022-23 academic year, there were 2.9 million students across our universities and nearly 400,000 staff. This Bill will have a negative consequence on all of them.

I urge the Government to think carefully about the choices they are making and the impacts this will have across society. We ask them to pause and consider the impact on schools and universities, just to be sure that it does not affect performance, given the vulnerability of young people at the moment and the Government’s objective to increase the number of teachers in the system. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support the amendments in this group: Amendment 35 from my noble friend Lady Barran, which asks for the new employer rates to begin after the tax year in which an impact assessment is published in respect of schools and universities, and Amendment 43 from my noble friend Lady Neville-Rolfe, to which my noble friend Lord Altrincham has added his support and which asks for a higher education allowance. I do so not only because the education of children is an obligation for their parents, who must ensure that children of compulsory school age are receiving an education—most do this in schools—but because, in this country, with its tradition of support for freedom of conscience as an enabling state, not a domineering one, Governments have gone hand in glove with the right of parents to decide what sort of education is best for their children. In these matters, the state has enabled parents to choose, rather than forcing them into state institutions through financial penalties or totalitarian laws.

That view has been part of the political arrangements for education when, irrespective of who is in power, the tradition has been that, where the law requires, the state enables. Barring the often political and ideological debates over education, it has done so through, among other ways, funding. Initially, it was a grant in the mid-19th century. That was followed in the 1870s by Gladstone’s Liberal Party introducing the obligation on parents of elementary education, but he refused the demands of what he called the “Prussian element” in his own party, who wanted to supersede the voluntary schools and replace them with a comprehensive, uniform state system. Thus, he allowed to survive, and indeed encouraged, what we now call voluntary schools: independent schools and Church schools which have educated children in this country for centuries. He expressly supported the right of parents to choose the best education for their children. Voluntary schools would be supported and supplemented by the new board or state schools.

That principle continued to inform education law in this country throughout the 20th century. Indeed, Britain’s history is a proud one. The education of children and young adults was often at the public’s expense, supported by those who could or would pay—be that the monarch, the guilds, the city corporations, the ratepayers or, later, in our own centuries, the taxpayer. In fact, until relatively recently, this country was an exemplar in educating its people irrespective of their parents’ means.

Under Elizabeth I, that tradition was recognised in law at the very start of the 17th century, when education was designated in law as a charity. Under the Tudors, some of the most famous schools had been just that: public schools. Winchester and then Eton were founded by the monarchs of the day to educate, as I recall, 70 poor boys so that their school education would equip them to go on to one of the universities of the day and be employed, I think, mainly as professional clerks in the Church, at the monarch’s service—a precursor to the Civil Service.

Anyway, many of those schools—Anglican, Catholic and dissenter—continue to flourish today, as Gladstone would have wanted. Not only were these schools regarded as the foundation of the education system, they were supported and encouraged in law through public funds. However, even if the funding systems changed, they were never penalised by discriminatory tax, as will happen under what this Government propose, not only in the extension of VAT but in the discriminatory penalty of the new NIC rates.

Despite stiff competition, they continue to be popular with parents, educating hundreds and thousands of children across the whole country. An impact assessment would reveal the true cost to children’s education and allow for a pause before this unthinking rush to destroy what works well and, as we have heard many times in this Room, continues to supplement what the state does and what the general taxpayer can afford.

There are 2,600 independent schools in the UK, mostly catering for the early years and primary stages of school. They educate more than 620,000 children, nearly 7% of UK school pupils and half of the parents who were at maintained schools: 25% in Edinburgh, 13% in London and 20% of all sixth-formers in the UK. They teach well. I will not go through the Ofsted reports on each of these schools but, on the whole, they do very well—better than maintained schools do on the whole, I am afraid, although some excellent maintained schools have done wonders recently; I take my hat off to them. They provide a school education to the highest potential of each individual student—just as the principles of the 1944 Act put it—which their parents judged was right for them.

I understand that one policy of this Government is an ambitious concentration on growing the public sector, with large pay increases—an aim of this Government that may go counter to the priority of economic growth for the whole economy. Perhaps the Minister would like to say, now or in writing, how many of the 28,000 new public sector appointments between July’s and October’s Budgets included new teachers and new doctors. Without good-enough teachers in our schools, maintained or independent, children at every stage of their education—early years and compulsory—will suffer.

Unless the Government listen and think again on these modest amendments, children’s education at this vital early and compulsory stage will suffer, as some independent and voluntary schools will be forced to lay off staff and will probably try to raise their fee income to make ends meet. They are the target of penal taxation, with the imposition of VAT and the new employer NIC hike. They are discriminated against because maintained schools will have these rises funded.

These amendments do not seek to run a coach and four through the measure. They are not demanding the outright abolition of the employer’s new NICs or the employment allowance, but they seek to improve the legislation. Wherever they are educated, we see the fruits of an education suited to the individual child. It is an essential stepping stone to adult life in which the recipient flourishes, and so the whole of society benefits. Education is not only a private good for a child; it is a public good for all of us and all who live in our country.

These are modest amendments designed to assess and ameliorate the impact on the independent sector—not to deny the Government their measure, but to do due diligence and mitigate the damage of an otherwise flawed measure. I hope that the Minister and the Government, in the spirit of the historic Labour Party, will be at one with the tradition of responsibility for the education of the young, in whatever institutions of the country they inherit, and will stop short of a new tax levy that will penalise those institutions and the education of our children. I hope that they will assess fairly the impact of the proposed measure on independent schools and will think again.

[Lord Sharkey (LD)]

My Lords, I will speak briefly to Amendment 35. I declare an interest as a member of council at UCL.

On the first day of Committee, I spoke in support of my noble friend Lord Storey’s amendment on education, including universities, as the noble Lord, Lord Altrincham, mentioned. That amendment would have excluded specified groups, including universities, from the rise in the employer’s contribution. We prefer exclusion to the delays promoted by Amendment 35. We prefer exclusion because of the disastrous damage that this Bill will quickly inflict on, among other things, our higher education system. We are uncertain whether similar damage will be inflicted on our further education system. Some additional money appears to be promised to FE, but it is not clear how it is going to be allocated. There is talk, for example, of it being used to fund a pay rise.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Lawlor Excerpts

Wednesday 8th January 2025 Lords Chamber

[Lord Geddes (Con)]

Perhaps I might comment on the remarks of the noble Lord opposite just now. I have for 25 years had the privilege of being a Deputy Speaker—I forget what the earlier term was—and I can assure him that it is quite clear that Divisions in Grand Committee are not permitted.

[Baroness Lawlor (Con)]

My Lords, I do not like to disagree with the Minister, but I cannot help thinking that describing this Bill as a technical Bill is rather far-fetched. If you compare the Bills that we have seen in Grand Committee, such as the Financial Services and Markets Bill, which was a very large and technical Bill, or indeed the Product Regulation and Metrology Bill, which went through last time round, you see that these are indeed very technical Bills—of a short and long nature. But this Bill is one of the tiniest Bills I have seen. It is very short. It proposes two simple measures. One is to lower the threshold at which employers will pay national insurance, the consequences of which were pointed out on Monday. The second is to raise the percentage of national insurance paid by employers on every salary, notwithstanding the raising of a certain employment allowance. I therefore cannot help but think that this is a very simple proposition for this country and a very serious one, and to describe it as a technical Bill is a slight exaggeration—perhaps the noble Lord will agree.

[Lord Livermore (Lab)]

I am very grateful to all noble Lords for their contributions to this debate. This Bill is significant and should of course be subject to thorough scrutiny by your Lordships’ House. As I said, the Government believe that the Ground Committee provides the best forum for that scrutiny. It was notable in the comments of the noble Baroness, Lady Williams of Trafford, that she sought to revisit all the arguments that were debated thoroughly during Second Reading of the Bill on Monday and did not address a single question of precedent.

Budget Responsibility Bill

Baroness Lawlor Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, I am grateful to the Minister for his exposition of the Bill. I declare a special interest, having worked on and published a number of independent analyses of the fiscal, monetary and regulatory problems of the UK economy as director of Politeia, the think tank at which I am now research director.

No one with the public finances at heart can fail to support a measure that strengthens transparency and a rules-based approach to the UK’s public finances. I am a devotee of fiscal stability and the need for rules, written or, as in previous times, understood. As the German economist Ludger Schuknecht has explained, many serious problems arise not because of bad rules, but because of the failure to implement the rules by using tools such as medium-term budgetary frameworks, spending reviews, financial risk analysis and independent fiscal councils to help achieve these aims.

But are the Bill and the structures—including the OBR, which it relies on—the way to ensure sustainable public finances and tighter fiscal discipline? I am unsure, and I have the following questions. First, is the Bill requiring an OBR assessment for financially significant measures or empowering the OBR to offer such an analysis, should it deem a measure such, enough to control unsustainable public spending and public debt? Is there any obligation on the Government to change their spending or debt policy if an OBR analysis predicts potentially dire consequences for the economy? If not, there is no fiscal lock, contrary to the Government’s suggestion, but simply fiscal advice. If so, that raises constitutional questions about unelected bodies and the power they exercise.

Secondly, the Government want to allow a higher ceiling for debt as a proportion of GDP by the fifth year of the cycle, from 1% to 1.2% of GDP, made public in advance of the Budget. Should we expect a further relaxation of the three previous rules for fiscal discipline and, if so, which will be relaxed, which will be changed and which will become less transparent? Will further changes be assessed by those who, like me, are sceptical of lax fiscal discipline?

Thirdly, no single forecasting institution can, or should be expected to, take the burden of advising a Government on tax and spending alone. We have heard today of some of the problems with the OBR which it has the modesty to recognise. Will the Government be open and invite other forecasters and assessments, equally independent of the Treasury and the OBR, to be sure to have other views?

Fourthly, what public spending will count as fiscally significant? I know the 1% of GDP measure has been provided, but here are two sorts of public spending that may be open-ended and not fall within the threshold, although they will eventually. The first is public sector pay rises. Rises of 5% or 6% for the 3.5 million public sector workers have been announced, adding to the potential for pay inflation, with other rises reported to be in the offing, including 22% mooted for doctors. Will the Minister agree that such pay rises should prompt an OBR report, particularly if they will likely continue to increase and reach the high threshold?

The second is the costs of immigration. According to Home Office figures, quite apart from legal migration—which is nearer to 1 million this year, net migration being lower—illegal migration via channel crossings amounted to 9,000 illegal immigrants crossing to the UK in July, August and the first week of September. Since no scheme in place is likely to deter these crossings, will the Minister confirm whether the additional management, administrative and legal costs—these have been itemised by previous Governments—for processing individual cases and providing public services, including housing and subsistence, will be averaged in an annual figure and considered as significant in order for an assessment by the OBR?

Spring Budget 2024

Baroness Lawlor Excerpts

Monday 18th March 2024 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, I am glad to follow the noble Lord, Lord Davies of Brixton, and to hear his analysis and comments on NICs. I have a long interest in the contributory system and how it developed in the interwar and post-war years, but I will not speak on NICs today. I also welcome the noble Lord, Lord Kempsell, whose maiden speech brings a flavour of the thoughtful approach to improving government policy that he has deployed in his different roles, most recently in the Prime Minister’s Office; I look forward to his fresh insights in your Lordships’ debates, as he shares his knowledge and experience, including that of the conduct of the country’s affairs at one of the great moments of recent history.

I am grateful to my noble friend the Minister for her helpful discussion of the Budget. I set my comments in the context that was outlined by the noble Lord, Lord Lamont: the modest economic improvements we have seen are to be welcomed and UK growth, although not terrifically high, is better than in many European countries, and our tax burden, although still too high, is less burdensome and onerous than the tax burdens of many of our fellow citizens in Europe. That is the context in which I put my questions to my noble friend.

UK GDP growth has not been very high. By 2028, it is projected to be 1.7%, against an inflation figure of 2%. The ONS estimates that GDP per capita decreased by 0.7% in 2023. The OBR suggests, as highlighted in the Library Note by the Lords research team, for which I am very grateful, that the fall is because of the increase in population. Our population is now over 67 million people. In 1950, it was 50 million people, and it is projected to be 70 million in 2026. Given that the 2023 figures indicate net migration of 672,000 people for this year, can the Minister elaborate on the link between rising population and a decrease in GDP per head and how the Government see projections for GDP per capita and for immigration?

I will move on to public debt and borrowing. I welcome the projected cut in public sector net borrowing as a share of GDP from 3.1% of GDP today to 1.2% in 2028-29. None the less, the figures for public sector net debt, excluding the Bank of England, are more disappointing. It is expected to rise to 93.2%, as a percentage of GDP, by 2027-28 and to fall slightly to 92.9% in 2028-29. Public spending, at 44.5%, is still too high, for the reasons the Minister gave, and because public spending, at these levels, and public debt, require high levels of tax to service both the public spending and debt interest. The Government announced tax cuts in the Budget, but rather than prioritising these, should we not be taking the scythe to the overall levels of public spending and public debt? I do not think this will have a terrific impact on the provision of public services, given that the UN Human Development Index reveals that countries with lower public spending as a proportion of GDP very often have a better output and better public services. Countries such as Switzerland, Canada and other European countries do far better, in health and education outcomes, with far lower levels of public spending as a proportion of GDP.

It is reassuring to hear that inflation is now on the downward trend, but I urge that never again must the Bank of England and its official advisers be permitted to turn a blind eye to the growth of money, and the quantity of money supply, each year; they must be obliged to take account of it. The Economic Affairs Committee of this House recommended in its November 2023 report that to address the errors made in the conduct of monetary policy by the wider central banking community, including the Bank of England, it had heard evidence from a number of witnesses, including those who pointed to the failure to take account of the money supply. The committee recommended:

“The Bank must do more to foster a diversity of views and strengthen a culture that encourages challenge”,


and, given the

“absence of any detailed discussions about money supply in the Bank’s published Monetary Policy Reports … that the Monetary Policy Reports should include discussion of the main monetary aggregates, accompanied by an analysis of their relevance to the Bank’s inflation outlook and the various scenarios the Monetary Policy Committee considers. This would ensure adequate transparency in how the Bank approaches its monetary policy decision-making”.

This advice echoed that of Tim Congdon, an author whom I published—I declare an interest as research director of Politeia. Professor Congdon proposed that whenever money growth is too high or too low, relative to the 2% inflation target, the Governor of the Bank of England be obliged to write a letter to the Chancellor of the Exchequer explaining why the deviant behaviour of the quantity of money will prove compatible with future inflation close to the 2% target that my noble friend the Minister is determined to meet. I conclude by asking my noble friend the Minister what steps have been taken, in light of the Economic Affairs Committee’s recommendations, and whether the Governor of the Bank’s open letter system might now include references to money and require an explanation about why rapid money growth or money contraction will not lead to inflation far beyond the permitted band.

UK Economy

Baroness Lawlor Excerpts

Wednesday 21st February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

As the noble Lord will be aware, the reason interest rates are particularly high is to control inflation. The Bank of England now expects inflation to get back to the target of around 2% in the early summer. If that can happen, then of course interest rates would be able to come down.

[Baroness Lawlor (Con)]

Will my noble friend consider a longer-term anti-inflationary policy such as ensuring that the Monetary Policy Committee of the Bank of England, and the governor, build into their forecasting model a measure to take account of the growth in money supply each year?

[Baroness Vere of Norbiton (Con)]

I will take that idea back to the Bank of England.

Autumn Statement 2023

Baroness Lawlor Excerpts

Wednesday 29th November 2023 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, it is a great pleasure to welcome the Minister to the Front Bench and I wish her every success. I am very glad to follow the noble Lord, Lord Lee of Trafford, with his very interesting suggestions on educating youngsters, particularly on investment and shares, and applaud his work over many years in that area.

I declare an interest as the founder and research director of Politeia, a think tank which has published a great deal on many of the matters raised by your Lordships today and in the Autumn Statement, particularly on levels of tax and public expenditure and their impact on the economy and inflation. Other noble Lords have commented on many aspects of tax and public spending. My noble friend Lady Lea spoke on the wider economic context. My noble friends Lady Noakes and Lord Frost considered the overall context and the impact of the size and power of the state on economic growth. We heard an interesting vignette from my noble friend Lord Dobbs earlier on what happened in the United States economy when we saw success moving from the sunshine state and the north-east and New York down to Texas. There are lessons for this country there.

I welcome the lower inflation figure of 4.6% and the forecast that inflation is due to fall to 2.8% by 2024 and to reach the 2% target in 2025. My noble friend Lord Northbrook commented on inflation and asked very pertinent questions about the role of the Bank of England and its governor. Perhaps I might reflect on questions prompted by the Bank’s remit of the inflation figure target of 2% of GDP. Given that inflation in the 28 years to 2020 was 2%—a rise of 2% in the CPI—what were the authorities in the Bank thinking when inflation went up five times that much over the next two years to reach 11% in October last year? Did they expect it? If not, why not? We might recall the question asked by Her Majesty the late Queen Elizabeth when visiting the LSE at the time of the financial crisis in 2008: “Why did nobody notice it?” It was a question to which economists were then just beginning to turn their attention. Indeed, one answer given in 2021 to our current problems and since was that the rise in inflation was due to external shocks: Covid, the Ukraine war, escalating fuel prices and so on.

The noble Lord, Lord Dobbs, has already referred to the House of Lords Economic Affairs Committee report Making an Independent Bank of England Work Better, and I too congratulate its chairman and committee. The report, published this week, noted the importance of an independent Bank in achieving price stability, but mentioned that public confidence had fallen in the Bank of England, given that inflation has remained above target. While the report referred to supply shocks, it also noted that the

“above-target inflation over this period also reflects errors in the conduct of monetary policy, including an over-reliance on inadequate forecasting models”.

Although not alone among central banks in failing to anticipate the high and persistent inflation, the report suggested that there may be

“a lack of diversity of view in the Bank of England and wider central bank community”,

and that

“Some witnesses … considered that the inflationary potential of elevated rates of money supply growth were given insufficient attention by the Bank”.


Here I agree with the noble Lord, Lord Dobbs, that perhaps Governments pay too much attention to the specialist advisers on whom they rely. The problem raised by the House of Lords Economic Affairs Committee highlights one of the significant changes in the measures and arrangements used by official bodies—that the money supply and the growth in money supply no longer tend to be used or considered to matter. Put less delicately, there may a tendency to groupthink.

The economist John Greenwood recently drew attention to the data available then and now on money supply growth, noting that each period of high inflation was preceded by a rapid growth in the money supply. This is a subject which the monetary economic and former Treasury adviser Professor Tim Congdon has considered over decades. Indeed, in April 2020 in the Wall Street Journal, Congdon predicted the return of inflation in the US with the highest annual rate of money growth since World War II. I welcome the Government’s commitment outlined in the Statement to lower inflation and their support for an independent Bank, but might it now be timely to include in the Bank’s letter a requirement, as Professor Congdon proposed, that the Governor of the Bank of England would write to the Chancellor when

“money growth is too high or too late relative to the 2 per cent inflation target”

and tell the Chancellor

“why the … quantity of money will prove compatible with future inflation close to the 2 per cent target”?

Such a requirement would be fully consistent with the operational independence of the Bank and, combined with other proposals from the House of Lords Economic Affairs Committee, would help the Bank as well as the Government, the Treasury and their economic advisers to take account of the diversity of data and view and ensure the right course is followed. No longer need a potential reluctance to take account of money supply growth be a factor in decisions which can have such a devastating effect on our economy and the lives and livelihoods of the people.

Financial Services and Markets Bill

Baroness Lawlor Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

I hope that, this time, I may receive a slightly more positive response from my noble friend. That would be taken by many in the industry as a sign that the Government really are now determined to do what we were promised: replace the cumbersome EU financial services regime with one more suited to our needs and that will ensure that the City holds, and builds further on, its position as the world’s most successful financial centre, ensuring the resumption of the growth in the economy that is so badly needed. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support my noble friend Lord Trenchard’s Amendment 120, to which I have added my name and which I spoke in favour of in Committee. He then spoke of the history of this legislation, which was unintended by one EU commissioner and then pushed through, for matters of politics, by his successor under José Manuel Barroso: Michel Barnier, who saw it as part of the plan for a banking and monetary union for the EU—a plan that the UK was and is not part of and has no intention of joining.

The whole UK financial sector accounts for 8% of our economy—the same proportion as in the US and Canada—whereas financial services account for only 4% of the two major economies of the EU. The ironic thing about this legislation is that 75% of alternative funds were in UK businesses then, and the funds account for that sort of proportion in our own sector today.

My main concern is that this diverse sector, which has flourished in the UK under UK law, remains under an opaque legislative system. EU regulation is unpredictable and the EU’s system, with the precautionary approach, seems to cover every eventuality but in practice it can fall short. It often favours big players over small and nimble entrepreneurs and the challengers. There is little certainty about transactions in advance, and little predictability as to how the regulators will judge.

We spoke about this in respect of the whole sector in Committee, but it is important for the alternative funds industry in particular. If we move, we need to move away from the way of thinking into which our regulators have crept. They have absorbed this precautionary approach to regulation from the EU—as well they might, after two decades.

I was glad my noble friend suggested that the hope —the intention—is that we will end EU law, but I stressed then, and would like to stress again, the importance of ending the thinking about precaution and hesitation in grasping the opportunities once we are out. That is very important for the regulators in this sector.

I shall just give a few examples. We have in English law an approach to business which, given the principle of contractual autonomy, means that the law honours contracts and contractual arrangements. It does not rely on the subjective principle of good faith, which creates uncertainty for practitioners about the expected moral and other standards of behaviour. In German civil code, parties must observe good faith in both negotiation and in performance of contracts but, without a definition of good faith in German contract law, things are uncertain.

The other aspect of UK law that I think is good for the sector is that it is flexible. This is a very flexible sector, and the judiciary’s ruling, interpreting and developing of law through its application to specific cases in different sectors moves with the times and adapts to innovation—the new structures and transactions of a fast-moving business. But that cannot happen under the rule books or their architects, the courts, or indeed in the thinking, because courts, by contrast, are not subject to the constraints of the legislative process and can react and achieve change more effectively, and this judiciary is recognised globally to be wise, deeply knowledgeable and authoritative.

I took heart from the Minister’s assurance in Committee, and again during the first day of Report, about the intention to revoke all EU laws and replace those that were considered necessary with—I use her words—an “appropriate replacement” before eliminating any aspect of the legacy. But perhaps I could ask her to think again about AIFMD. Waiting for an “appropriate replacement” sounds more like Whitehall-speak for regulation of the type that has been absorbed and reflected by our regulators under the Treasury in recent decades. Perhaps this piece of legislation could be used as a pilot for ending something that, as the noble Viscount said, was not wanted by the sector, and which the Committee warned could have dangerous repercussions for the UK’s role in global markets and in dealing with America. Because of that, there are very good reasons to let it go, because it is not a consumer-facing industry; it is for the sector itself. It can only be to the good if this sector is set free without any replacement, so that it can benefit under the benefits of UK law.

[Lord Moylan (Con)]

My Lords, I will speak only briefly in support of my noble friend Lord Trenchard. It was commonly known, and widely reported in the newspapers at the time, that following the financial crash of 2008, the EU, which has always had its doubts and scepticism—indeed, hostility—about what it referred to as Anglo-Saxon finance, withdrew the indulgence that it had previously shown towards the City of London as part of the European Union and started to enact legislation that was injurious to the City of London, and quite deliberately so, to the annoyance of the Chancellor of the Exchequer at the time, George Osborne, who was reasonably open about his opposition.

This instrument, the alternative funds directive, was the prime example of that, although there were others. It contributed significantly to the fact that there was much more support for Brexit in the City of London than people often wanted to admit at the time, or have admitted since, because they understood that that oppositional turn had taken place and the tide was now flowing against the City. So I agree with my noble friend that it is very difficult to see why, now that we have the opportunity to remove it, we continue not to do so year after year—and there are other examples of that.

I also support the remarks of my noble friend Lady Lawlor. There is a prevalent idea—and not just in financial legislation—that, as we get rid of European Union legislation that we no longer need, we need to replace it with legislation that almost replicates what the European Union was doing. A prime example of that outside the field of financial services is the Procurement Bill, a massively complicated piece of legislation replicating European Union legislation, almost in great detail. In fact, the procurement legislation of the European Union—which was obviously designed for 28 states, not simply for the United Kingdom—was there largely to deal with problems embedded in a history of municipal corruption, which were manifest in various European states but, I am glad to say, of which the United Kingdom has a long, proud history of being pretty free, with one or two exceptions. It was not necessary to replicate it in the detail in which it was done.

There are genuine concerns, certainly among those of us on this side of the House, that insufficient dispatch is being brought to getting rid of injurious legislation that we inherited from the European Union but can now get rid of, and that there is a mentality that the right way to get rid of something is, in effect, simply to re-enact something very similar after a period of consultation. I have great sympathy with what my two noble friends said, and I hope that the Minister, when she replies, will be able to give them some comfort.

Financial Services and Markets Bill

Baroness Lawlor Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

I greatly regret the decision of SoftBank to list Arm only in New York rather than pursue a dual listing, which should have been the desired course for what is essentially a British company. We cannot afford to miss other similar opportunities for London. The number of companies listed in London has declined by 40% over the last 14 years. I doubt that putting the FCA in charge of listings will reverse that regrettable decline. I apologise for taking so much of your Lordships’ time, but all of this is very important. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support Amendment 3A of my noble friend Lord Trenchard. It is important to keep track of retained, revoked or modified EU law for this important sector. Businesses must know where they stand. Unlike the initial intention behind the REUL Bill to revoke all retained secondary legislation identified on the dashboard—some 4,000 or so laws before the Government changed course— financial regulation will be under the Treasury, and will not necessarily be revoked or retained. It may be modified; it may be revoked; it may be retained, but it will be for the Treasury and the regulators to decide.

I approach the amendment, as I did in Committee, in the hope that the Treasury will move rapidly to restore UK law for the sector, which has helped this very important sector to lead in the world over 200 years, rivalled only, as my noble friend Lord Trenchard said, by New York. But since leaving the EU, the UK has been burdened by the complications and costs of dealing with two different legal systems, something I have touched on in the REUL discussions. That is the code-based EU law and its precautionary approach, and common law which is, for want of a better word, an enabling law, under the jurisdiction of and tested by UK courts, and capable of being both precise and nimble to accommodate our entrepreneurs.

In Committee, there were amendments to encourage greater openness by the Treasury and the regulators. My concern is that Treasury thinking is in danger of slipping into the EU approach to legal thinking: that code-based precautionary approach, on which my noble friend Lord Trenchard has touched. Not only does that approach lack transparency, but it is not necessarily clear how it will be operated by the regulators. It is unequal to the fast-moving, innovative markets in the UK, and it is at odds with the competitiveness objective in this Bill. As a result, not only may businesses suffer from a lack of clarity about where they stand and how a regulation will be enforced, but they may feel it best to avoid an activity that could grow their business, increase trade and benefit consumers and indeed the wider economy.

Financial Services and Markets Bill

Baroness Lawlor Excerpts

Committee stage
Thursday 23rd March 2023 Grand Committee

The Government issued a call for input and have committed to explore options for the introduction of a new fund structure, the unauthorised contractual scheme, but I ask the Minister why we do not just go back to where we were before AIFMD and abolish it quickly. Only professional investors may invest in such funds anyway, and the consumer therefore needs no protection. It is not necessary to give the regulators time to consult on replacement rules, because there should not be any, and my amendment would ensure the immediate revocation of the directive and all its associated regulations. The Bill enables the Government and the regulators to do much, but I fear they will change little. It is therefore, in effect, largely an enabling Bill, and there are currently only a few clauses that bring about immediate changes. There is no time to lose; we need to start updating and simplifying the rulebook now. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support the noble Viscount’s amendment, to which I have added my name. My noble friend referred to the political background of the EU at the time of the AIFMD; he spoke about its impact on the industry, with great knowledge and experience, and about the opposition encountered at the time. I shall say a few words about each, beginning with the policy background, noting other differences between the UK sector and the EU sector, and other concerns raised by the House of Lords European Union Committee at the time.

Although businesses may have learned to live with the directive, as one person in the industry told me, it is not exactly something that helps competition or helps the sector to do as well as it might do—nor has it. At the time, the directive had a policy background. It was portrayed as a response to the financial crisis, but in fact it was already on the cards in the European Parliament in 2008. Discussions took place again in April 2009 at the G7. I see it, in terms of policy, as part of Michel Barnier’s commissionership for Internal Markets and Services between 2010 and 2014, when it was driven through as part of a raft of measures designed to promote EU monetary and banking union, including, for instance, the single supervisory mechanism. Monsieur Barnier’s overall approach was to have a centrally controlled and directed policy for the sector, reflecting the traditional approach of the French state to the economy and brought into the EU at its inception.

So, AIFMD should be considered in that context, rather than as suitable for the UK, which was outside the single currency and the economic union. Our financial model is based on markets, freedom and competition under UK law. Indeed, even in the context of the global direction of the sector leading to cross-border regulatory systems, it was seen from the European legal perspective as potentially having “undesirable effects”, with the need highlighted there to find the right balance between rules and freedom, according to the co-authors of a section in the Alternative Fund Managers Investment Directive, a multi-volume assessment, from a legal perspective particularly, published by Kluwer Law in the Netherlands in 2012. The co-authors of the chapter “Challenges from the Supervisor’s Perspective” were concerned about finding the right balance between rules and freedom.

Here in the UK, that balance has traditionally been struck by domestic law and regulation, which has accommodated innovation, competition and regulated risk in a diverse range of businesses. My noble friend Lord Trenchard spoke about those: hedge funds, private equity and, indeed, property. It has not been under a rule of law with a “one size fits all” approach, such as that of the EU, which reflected a different approach—a precautionary and code-based system of the law—that is ill equipped for our diverse sector.

My noble friend mentioned the differences between the UK and EU sectors. I would just add that, overall, when we look at the context, the UK sector is different in proportion, in size and in composition. Our financial services sector accounts for 8% of the UK economy—the same proportion as that of Canada and the US. By contrast, in the European states—in Germany and France—as well as in Japan, it accounts for just 4%, so half of ours.

Within the sector, the UK AIFs have a particular profile. According to the figures from ESMA collected for 2019—the last year when they were collected—before leaving the EU, the UK’s AIFs accounted for a net asset value of €1,338 billion, compared with €5,468 billion for the EEA 30, so about 20% of the net asset value. As my noble friend Lord Trenchard said, he puts the percentage of UK AIFs as a proportion of the EU at 85%. Other figures suggest slightly less, such as 75%, but it is not worth fiddling over the percentage—it is very significant.

That brings me to my third point. My noble friend mentioned many concerns at the time. I would just raise the concerns of the House of Lords EU Committee in February 2010. Commenting on the alleged or apparent aims to increase the stability of the financial sector and facilitate the single market in alternative investment funds, it noted that the discussions about hedge funds and private equity funds regulation had taken place at the EU level in 2008, with reports by MEPs in the EU Parliament, and before the G20 summit. The committee’s balanced report broadly welcomed and acknowledged the potential for risk and welcomed the co-ordination and supervision of fund managers, which would benefit the single market and the UK economy, as well as the co-ordination and supervision of arrangements. It also welcomed the introduction of passports for the sector.

None the less, it had serious concerns about a number of rather major points. It said that this was a directive designed to cover all non-UCIT funds. It said that there was a failure to acknowledge the differences in how AIFs are structured and operate, as well as a failure of proposed disclosure by managers to supervisors to take account of the different types of AIFs and the fact that the requirements should be proportionate and relevant. Above all, the committee was concerned that the directive should be

“in line with, and complement, global arrangements”.

It added:

“Coordination with the US regulatory regime … is essential to avoid a situation in which the EU alternative investment fund industry loses competitiveness at a global level as a result of regulatory arbitrage.”


To conclude, the AIFMD was designed for a different economic and legal system and is not suitable for the UK’s approach. It was seen at the outset to be unsuitable for our sector—one that is different in proportionate size and composition. It is ill suited to the supervision of individual firms and the diverse composition of the sector. It is also ill equipped for a market system under UK law; rather, UK arrangements should be in line with and complement global arrangements. As was explained by the House of Lords EU Committee in 2010, co-ordination with the US regime is essential.

[Baroness Penn (Con)]

My Lords, through this Bill, the Government are seeking gradually to repeal all retained EU law in financial services so that the UK can move to a comprehensive FSMA model of regulation. Under this model, the independent regulators make rules in line with their statutory objectives as set by Parliament and in accordance with the procedures that Parliament has put in place.

It is not the Government’s intention to commence the repeal of retained EU law without ensuring appropriate replacement through UK law when a replacement is needed. The Government set out their approach to the repeal of retained EU law in the document that I referred to earlier, Building a Smarter Financial Services Framework for the UK, which was published in December last year as part of the Edinburgh reforms. It makes it clear that the Government will carefully sequence the repeal to avoid unnecessary disruption and ensure that there are no gaps in regulation.

The Government are prioritising those areas that offer the greatest potential benefits of reform. They have already conducted a number of reviews into parts of retained EU law, including the Solvency II review, the wholesale markets review and my noble friend Lord Hill’s UK listing review. By setting out these priorities, the Government are enabling industry and the regulators to focus their work on the areas that will be reformed first.

My noble friend Lord Trenchard’s Amendment 246 relates to legislation implementing the Alternative Investment Fund Managers Directive in the UK. As has been noted, the UK is the second-largest global asset management hub, with £11.6 trillion of assets under management; this represents a 27% growth in the past five years. The sector also supports 122,000 jobs across the UK and represents around 1% of GDP. These statistics demonstrate the huge value of this industry to the UK and, while the Government would never be complacent, also suggest that the sector is in good health.

The health of the sector is underpinned by proportionate and effective regulation. The Government believe that this must include an appropriate regulatory regime for Alternative Investment Fund managers. These funds are major participants in wholesale markets; they take influential decisions about how capital is allocated, and it is vital that they are held to standards that protect and enhance the integrity of the UK financial system. Moving simply to repeal the legislation that currently regulates this sector without consideration of replacement could open the UK up to unknown competitiveness and financial stability risks. It could undermine the UK’s reputation as a responsible global financial centre committed to high standards of regulation, which could have significant ramifications for the UK’s relationships with other jurisdictions.

I understand that my noble friend Lord Trenchard has some concerns that the legislation deriving from the Alternative Investment Fund Managers Directive creates unnecessary burdens on innovative UK firms serving professional investors. The Government have not to date seen evidence that the reform of that directive is a widely shared priority across the sector.

[Baroness Lawlor (Con)]

Does my noble friend the Minister agree that UK law would be a better arrangement for supervising the sector than inherited EU law?

[Baroness Penn (Con)]

As I said at the start of my contribution, it is the Government’s intention to move all retained EU law when it comes to financial services into the FSMA model of regulation. That will apply to this area, too, but it is a question of sequencing and priorities. As I referenced before, we have set out our first wave of priorities and are seeking to look at those areas where the greatest potential benefits of reform lie. I am happy to confirm for my noble friend that it is our intention to move all areas of retained EU law on to a UK law basis.

[Baroness Lawlor (Con)]

Just for clarification, will that involve moving away from the precautionary, code-based approach of the EU, which very much influenced the sector post the 1990s and the thinking of our regulators? Will my noble friend confirm that, when the Government review the corpus of retained EU law for this sector, in line with their objects as has been stated, they will pay special attention to the need to rethink the framework of approach rather than simply adopting it? These are different ways of thinking.

[Baroness Penn (Con)]

My Lords, I would not want to pre-empt the approach for any specific area of regulation, but the principles on which we are seeking take forward this work are about looking at regulation and ensuring that we use the opportunities outside the EU to take the right approach to that regulation for the UK. My noble friend talked about the different perspectives taken by regulators in the different jurisdictions. That is right. The aim of moving from retained EU law is not simply to transcribe it into UK law but to ensure that it is well adapted to our own circumstances, too. However, I do not think that I can helpfully pre-empt the approach in each area in this debate, but only talk about some of those wider principles.

I was talking about the intention to move all retained EU law into the FSMA model. We have set out our priorities for the first areas in which we are seeking to do this. The Government have not to date seen evidence that the reform of the Alternative Investment Fund Managers Directive is a widely shared priority across the sector. However, the Treasury would of course welcome representations on this point. We are keen to engage further with industry and understand the sector’s priorities as we work to repeal retained EU law associated with alternative investment fund managers over the medium term.

The FCA also recently issued a discussion paper to consider whether wider changes to the asset management regime should be undertaken in future to boost UK competitiveness using the Brexit freedoms introduced by this Bill. This will allow the Government and the regulators to consider what replacement is appropriate for the legislation before commencing its repeal. For these reasons, I ask my noble friend to withdraw his amendment.