Pension Funds: Use of UK-listed Investment Companies

Baroness Neville-Rolfe Excerpts

Tuesday 9th September 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness and pay tribute to her for her expertise in this matter and her continued campaigning. As I have said before, the Mansion House accord is an industry-led agreement. The Government are not participants in it. The proposed backstop powers in the legislation that she refers to are not intended to be open-ended but are designed to be capable of being a backstop to the commitments that pension companies themselves have made through the Mansion House accord. It makes sense for those powers to align with the commitments that have been included by the companies and the industry itself. Nevertheless, as I have said already, I am grateful for constructive engagement on this issue. As we take the Bill through Parliament, representations like the ones the noble Baroness has just made, and those of the wider sector, will be considered alongside our broader policy objectives.

[Baroness Neville-Rolfe (Con)]

My Lords, we the Official Opposition understand the attraction of strengthening the economy and strengthening pension funds by investment in infrastructure. However, the Pensions Management Institute said last week that it believes the reserve—that is the mandation power in the Pension Schemes Bill—sets a “dangerous precedent” for political interference with trustees’ fiduciary duties. It warned that the Government’s proposals would deliver poor outcomes for savers. Does this not concern the Minister?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question and her broad support for the Government’s agenda. This is an area where, aside from the specific issue that she raises in her question, we are in agreement that we want to see greater investment in UK infrastructure in this way. I do not agree with the specific point about savers. The measures contained within the Bill will see far greater returns for savers. That is incredibly important and lies behind a lot of the measures that we are taking.

On the specific reserve power, obviously we are very encouraged by the Mansion House accord. It builds on the existing Mansion House compact, set up by the previous Chancellor in the previous Government. In the light of this progress, the pensions review concluded it was not necessary currently to mandate investment. Instead, the Bill includes a reserve power, which will, only if necessary, enable the Government to set quantitative baseline targets for pension schemes to invest in a broader range of assets, including in the UK, for the benefit of savers and for the benefit of the economy. The Government do not anticipate exercising the power unless they consider that the industry has not delivered the necessary change on its own.

Gilt Yields

Baroness Neville-Rolfe Excerpts

Tuesday 2nd September 2025 Lords Chamber

Asked by

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what assessment they have made of the recent rise in gilt yields, and what contingency plans they have in place to manage any further rise.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, as is long-standing convention, the Government do not comment on specific financial market movements. Gilt yields are determined by a wide range of international and domestic factors. The Government are committed to economic stability and sound public finances. The fiscal rules are non-negotiable and economic growth is our number one priority.

[Baroness Neville-Rolfe (Con)]

The noble Lord is generally dismissive of criticism of economic policy, but the bond markets do not lie and their current verdict is crushing, with borrowing rates at a 27-year high. Sterling also slid this morning. Will the Government even now change course, adopt measures that really support growth and drop policies that destroy growth, such as the Employment Rights Bill and the destruction of the North Sea oil and gas industries?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. As she will know, recent gilt yield movements have risen in line with global peers, mainly driven by global factors. The recent gilt market moves have also been orderly. As she knows, our commitment to the fiscal rules is non-negotiable and we have a clear plan in place to put the public finances on a sustainable path and prioritise investment to support long-term growth. She talks about the position of the UK economy; she knows that this is an uncertain and volatile global economy, but even so the UK remains resilient and is outperforming our peers. The UK was the fastest-growing economy in the G7 in the first half of this year and our commitment to stability is paying off, creating space for the Bank of England to cut interest rates five times since the election, with business confidence now at its highest level for 12 months.

Financial Services Reform

Baroness Neville-Rolfe Excerpts

Wednesday 23rd July 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the proposed changes outlined by the Government in what they are calling their Leeds reforms are broadly to be welcomed. It is essential to get the balance right between protection and risk. Like the Government, we accept the analysis that while financial prudence is important, we have moved too far towards protection and away from delivering economic growth and competitiveness. It is right that we take steps to facilitate our financial services sector, which contributes 9% of economic output. However, I have to take some issue with the tone that the Government have adopted when introducing these proposals. The Government have spoken of our country “thriving” and of our nation “benefiting”. The statistics tell a different story.

The ONS reported last week that the rate of UK unemployment increased to 4.7% in the three months to May, up from 4.6%, and, meanwhile, average earnings growth has slowed to 5% in the period to May, its lowest level for almost three years. GDP contracted 0.1% in May and 0.3% in April. Inflation has risen beyond all expectations to 3.6%. Industry experts have said that the UK’s economic situation is simply staggering. They have said that the Government’s management of economy has been dire and that the Chancellor has to seriously rethink her policies. Perhaps most worrying of all, yesterday we saw the second-highest June borrowing figures since records began, with spending exceeding income by over £20 billion and debt interest now at 96% of GDP.

I turn to the reforms. The hard-hitting recent report by the Financial Services Regulation Committee, chaired by my noble friend Lord Forsyth of Drumlean, outlined how the Government could support the FCA and the PRA in meeting their vital secondary objective of supporting the UK’s international competitiveness and medium to long-term growth. I am pleased that the Government have bowed to the spirit of this cross-party report and implemented several important ideas, such as reform of the Financial Ombudsman Service, improvements in product authorisation rates—including those for high-growth fintechs—and in the senior managers and certification regime.

These approvals are all too slow in my experience as a non-executive director. Moreover, as the report makes clear, the truth is that firms are inundated with information requests from the FCA and the PRA and the burden of compliance in the UK is perceived to be disproportionately high. So these are welcome steps, and we agree that things must change. However, the Minister will not be surprised to know that my first question is: how quickly will these changes take place?

I cannot hope to cover all that was announced last week in the other place and at Mansion House. We need a proper debate for that. However, I would like to tease out some detail. First, we were told that the Government were considering reforming the individual savings account system. They have already said that they will allow long-term asset funds to be held in stocks and shares ISAs next year. Is this only one of the changes under review? How will the Government support funds to invest in such projects? How will the relevant information be communicated to retail investors? Can the Minister confirm what the Government’s plans are for cash ISAs? Without clarity on this question, the Government risk undermining their own efforts to promote home ownership and hitting customers who rely on cash ISAs for their investments.

Secondly, on financial education, both the Government and the Opposition are clear that we need to stimulate investment and support our financial services sector. These reforms take us some way, but there remains the question of how we can create a culture of investment in our country. We have seen an uptick in the rates of retail investment, stimulated in part by online trading platforms. But for many people, the idea of investing their money is concerning and the language technical, dense and confusing. We need a society in which people understand the possibilities and risks better and actively invest their money across a wider range of products, not letting it sit largely dormant.

Education needs to start in schools, where children can be taught about markets, savings, investment, even pensions, and how to make best use of their money. The report for the Financial Services Regulation Committee, which I mentioned earlier, highlights the poor financial literacy that is prevalent in the UK. Can the Minister outline the steps that the Government are taking to support people across the UK to become retail investors and how they are educating our citizens so that they are willing and able to take responsible investment decisions? Above all, does the Minister agree that this education has to start in school lives? What steps will he take with colleagues in the Department for Education to do this more effectively?

Thirdly and finally, we need more clarity from the Government on pensions. Since last week a revival of the Pensions Commission has been announced; it will involve the noble Baroness, Lady Drake, whose expertise on pensions is so much appreciated here. However, I have a concern that this further review risks delaying action and creating uncertainty for businesses and savers. There are serious and urgent questions around pensions adequacy, as the OBR forcibly reminded us on 8 July. What will the Government do, and do soon, to capture those who do not benefit from auto-enrolment and/or save too little for their retirement? What is the timing of the Government’s plans to encourage pension funds to use more of their capital to support growth and infrastructure at home? The clock is ticking.

To sum up, the financial services reforms are in the right direction, but the UK’s financial position is troubling and may be deteriorating. I am sure that we will return to these concerns all too soon.

Tackling Unsustainable Debt

Baroness Neville-Rolfe Excerpts

Thursday 17th July 2025 Lords Chamber

[Lord Livermore (Lab)]

I do not know the specific answer to the noble Lord’s question, I am afraid. I am very happy to write to him to fill that in. As I have said, the action we are taking at a multilateral level is proven to be the most effective route that we can take to tackle these issues.

[Baroness Neville-Rolfe (Con)]

My Lords, does the Minister agree that many countries themselves now need to focus on tackling their debt, which can so easily become unsustainable? That obviously includes countries in the global South and, indeed, much closer to home, where a tick back up in inflation risks increasing debt servicing costs. We have a debt problem on a wide scale.

[Lord Livermore (Lab)]

The noble Baroness is correct in saying that debt sustainability is the primary responsibility of borrowing countries, but I think lending countries such as the UK also have an important role to play in supporting these efforts through providing capacity-building support, following best practice in sustainable lending and pressing for reform of internationally agreed frameworks on assessing debt sustainability. In line with the UK’s commitment to the OECD sustainable lending practices, the UK considers debt sustainability when providing financing, particularly in cases of lending to countries deemed at high risk of debt distress.

Taxes

Baroness Neville-Rolfe Excerpts

Tuesday 15th July 2025 Lords Chamber

[Lord Livermore (Lab)]

We listen carefully to all Budget representations, but as I say, I will not speculate on the next Budget now.

[Baroness Neville-Rolfe (Con)]

My Lords, the fact is that we are all too close to a fiscal and economic crisis, much of which this Government have created. Debt interest is now a substantial proportion of departmental expenditure, productivity is flatlining and by 2028-29 the tax burden will be at its highest level in the country’s peacetime history. Does the Minister recognise that further tax rises are not the path to sustainable recovery? Will he affirm that he recognises that taxing people and taxing businesses ever more heavily will only undermine our productive capacity and further reduce the growth we all want?

[Lord Livermore (Lab)]

The noble Baroness has a rather selective memory: she seems to have forgotten about the last 14 years. But she is quite right that the most sustainable way to repair the public finances is through growing the economy. At the last fiscal event, the OBR scored our planning reforms as the biggest increase in growth of any non-fiscal measure, and we hope very much that it will continue to score our growth measures. As she says, that is the most sustainable way of repairing the public finances.

Tourism Levy

Baroness Neville-Rolfe Excerpts

Monday 14th July 2025 Lords Chamber

[Lord Livermore (Lab)]

My noble friend rightly points to different cities that have different systems in place. I think I said that different places in different countries choose to raise revenue from overnight visitors in different ways, depending on whether they are seeking to attract them, to accommodate the results of their visits or to deter them from coming. As I have said a number of times, we have no present plans to introduce visitor levy powers in England.

[Baroness Neville-Rolfe (Con)]

My Lords, I do not believe that it is desirable to impose further costs on visitors to our seaside and coastal towns; nor will it incentivise them to come in greater numbers. We need to encourage visitors to these areas, not to discourage or tax them—as, happily, the Minister seems to be saying. A far better incentive for our seaside towns would be for the Government to reverse the devastating tax increases that they imposed recently on the hospitality industry, particularly with regard to national insurance. Given the hit to employment in that sector, do the Government have any revised plans to help with this difficult situation?

[Lord Livermore (Lab)]

The noble Baroness rightly talks about the importance of the visitor economy. The Tourism Minister has set a goal to grow inbound tourism to 50 million visitors annually by 2030. To help achieve this, DCMS has established a new visitor economy advisory council, which is currently helping to co-create a visitor economy growth strategy, due to be published in the autumn. The strategy endeavours to share the benefits of tourism across every nation and region, including coastal and seaside areas.

The noble Baroness speaks about national insurance increases; it is only a few weeks since we stood here and she supported all the spending in the spending review that that national insurance is funding, so she probably needs to make up her mind whether she supports the spending or does not support the tax that pays for it. As I have already said, we introduced a number of the policies in the Budget to help this sector, including freezing the business rates small business multiplier, together with the small business rates relief. This will exempt over a third of properties from business rates.

Tax on Imports under £135

Baroness Neville-Rolfe Excerpts

Monday 14th July 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, to go back to the Question, foreign firms exporting to the UK are making increasing use of the current arrangements. As a result, domestic producers are disadvantaged and the Treasury is forgoing what could be a substantial amount of tax revenue. Given the concerns expressed across the House, does the Minister agree that the time has arrived to deal with this anomaly, and to do so as a matter of urgency? Has the Minister discussed options with the businesses affected in the UK, and when will the review that he talked about conclude? We would all like to see the conclusion of this debate so that our retailers are not adversely affected.

[Lord Livermore (Lab)]

I agree with almost everything that the noble Baroness said, but she failed to point out that it was her Government that established the existing system and it is this Government who are reviewing it with the intention of changing it. I agree with all the criticisms that she puts forward, but they are criticisms of her own Government. As I say, we have set out a review, and officials are currently engaging with stakeholders to understand the impact of any reforms and have so far held multiple round tables covering some 70 businesses. All available options will be considered, and we will come forward when we have concluded the review.

Primary Stock Exchange Listings

Baroness Neville-Rolfe Excerpts

Thursday 10th July 2025 Lords Chamber

Asked by

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what assessment they have made of the implications of the decision by a number of companies, such as Wise, to shift primary stock exchange listings from London to New York.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Government want to see high-growth companies start, scale, list and stay in the UK. Current market sentiment is challenging, but the UK remains the top destination for equity capital raising in Europe. The Government are focused on further boosting the competitiveness of UK capital markets. In her Mansion House speech, the Chancellor will set out a 10-year vision for financial services.

[Baroness Neville-Rolfe (Con)]

Since tabling this Question, AstraZeneca, the biggest company on the London Stock Exchange, has discussed shifting its stock market listing to the US. This would be a real blow to our stock market of £160 billion. It is also increasingly feared that AstraZeneca could be redomiciled to the US, risking losses for London as a hub, hundreds of jobs and tax losses for the Chancellor. What changes will the Minister make to the UK’s investment environment to stop the troubling and damaging exodus of high-value firms from our market? We would love some detail.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. The Government recognise, as she did, that the UK’s equity markets have faced challenges in recent years, but that is not a new phenomenon; there has been a net decline in investment in UK funds for nine consecutive years. That is a matter for concern, of course, though it reflects global trends and the outflow in 2024 was £2.3 billion less than in 2023.

Firms may choose to list in other countries for a variety of reasons. The noble Baroness mentioned some specific companies. It would not be appropriate for me to comment on individual companies or on speculation, but, of course, the Government should do everything that they can, as she said, to improve the competitiveness of our market and the attractiveness of the UK as a place to list. We are taking forward reforms to boost competitiveness, including overhauling the prospectus regime and legislating for PISCES. This will complement the FCA’s rewrite of the UK’s listing rules, providing more flexibility to raise capital on UK markets. As I have said, next week at Mansion House, the Chancellor will publish our 10-year strategy for financial services, which will include capital markets.

Government Performance against Fiscal Rules

Baroness Neville-Rolfe Excerpts

Tuesday 8th July 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, we on these Benches accept that fiscal rules are important, and we have noted the Government’s attachment to the current version and the widespread concern as to where they will turn for spending cuts or tax rises, as it is apparent that the rules are not going to be met. Today’s OBR Fiscal Risks and Sustainability report concludes:

“The UK’s public finances have emerged from a series of major global economic shocks in a relatively vulnerable position”.


We have heard from the OBR that the UK Government have the sixth-highest debt, the fifth-highest deficit and the third-highest borrowing costs among 36 advanced economies. In November, the Chancellor wrote to the Economic Affairs Committee in response to its robust and convincing report on the UK’s national debt. She said:

“The Budget took the necessary difficult decisions to put the public finances on a sustainable path—setting realistic plans for public spending while raising revenue—to create the conditions for growth”.


In the light of the dismal and depressing OBR report, does the Minister agree that this Statement and the Government’s entire economic strategy are in tatters and that the Chancellor needs to write another, more realistic letter?

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

The noble Baroness mentions many things. She mentions debt. Of course, the last Government doubled the national debt. There is one reason why we are where we are. It is because of the last Government losing control of the economy—something that this Government will not do. We will meet our fiscal rules at all times. I am not going to give a running commentary on those fiscal rules. Following the usual process, the Chancellor will ask the OBR to produce a new forecast in the autumn for the annual Budget, which will include an updated assessment of the Government’s performance against the fiscal rules. At that time, we will set out our fiscal plans in the usual way.

Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025

Baroness Neville-Rolfe Excerpts

Monday 7th July 2025 Grand Committee

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I begin by extending my thanks to the Secondary Legislation Scrutiny Committee for the detailed and thoughtful consideration of this draft order in its report published last month; I will respond fully to the points raised by the committee. I also take this opportunity to welcome the support for these reforms from consumer groups, from firms offering buy now, pay later products, and from the Official Opposition, who first initiated the process which has led to this order.

The purpose of the legislation before your Lordships’ Committee today is to protect consumers and provide certainty and stability for business. I will begin by providing a brief overview of the issue which this order seeks to address before outlining the steps the Government are taking to mitigate these harms.

More than 10 million people in the UK now use buy now, pay later products, which allow consumers to pay for goods and services through interest-free instalments over a period of 12 months or less. Fintechs such as Klarna, PayPal and Clearpay typically partner with merchants, predominantly online retailers, which offer their buy now, pay later options to customers at checkout. When used responsibly, these products can help users manage their finances and make purchases more affordable, compared with using traditional, interest-bearing forms of credit such as credit cards and personal loans.

However, unlike these traditional forms of credit, interest-free buy now, pay later products are not currently regulated by the Financial Conduct Authority. This is because they fall under an exemption which was originally designed to help small businesses offer instalment payment plans to their customers: for example, a gym offering a 12-month payment plan.

The 2021 Woolard review, which investigated recent innovations in the consumer credit market, highlighted several potential risks facing people who use unregulated buy now, pay later products.

First, there are no rules on what information firms must give their customers. Too many people are left unclear about what they owe and when they need to repay it—and some do not even realise they have taken out credit at all. The Financial Conduct Authority previously found that nearly a fifth of buy now, pay later users were not aware they would be charged a late fee for missed payments from fee-charging providers.

Secondly, buy now, pay later firms are not required to check whether people can afford these products. This means that credit is being given to those who may not be able to pay it back.

Finally, firms are not required to check what an individual already owes. As a result, debt can quickly mount up when people take out several buy now, pay later products at once. For example, research from Citizens Advice found that almost a third of buy now, pay later users it surveyed had borrowed from elsewhere to pay off their buy now, pay later debts.

The Government believe that action must be taken to address these issues and protect consumers. That is why, under this draft order, buy now, pay later products offered by third-party lenders such as Klarna, PayPal, and Clearpay will be brought into regulation under the Financial Conduct Authority.

Under the new regulatory regime, firms will have to carry out robust affordability checks before lending to make sure that consumers are protected from taking on debt they cannot afford. Consumers will receive clear and transparent information about buy now, pay later products, including what support is available if they face financial difficulty.

In addition, for the first time, consumers will have the right to take their complaints about buy now, pay later firms to the Financial Ombudsman Service, guaranteeing access to fair and independent resolution if problems arise. These are rights and protections that users of other regulated credit products enjoy already; it is only right that users of buy now, pay later products receive them too.

The Government acknowledge concerns raised in the Secondary Legislation Scrutiny Committee’s report that buy now, pay later products offered directly by merchants will not fall under the new regulatory regime. We examined this issue carefully before publishing the order before your Lordships’ Committee. Protecting small businesses from regulatory overreach was central to our approach. Regulating buy now, pay later products offered directly by merchants threatens to capture simple, interest-free instalment plans, such as the gym membership example that I referenced earlier. Regulating these arrangements, which small businesses routinely offer to their customers, would create unjustified disruption for countless small businesses and their customers, imposing regulatory burden without sufficient evidence of consumer harm to support it. The Government are also confident that there are robust existing protections in place to safeguard consumers using merchant-offered buy now, pay later products; current consumer protection laws covering advertising, financial promotions and unfair trading practices apply to these products already.

Finally, our assessment is that it is inherently unlikely that many merchants will offer their own products because of the associated credit risk and the accrual of new liabilities on their balance sheet. Instead, we believe that many would be minded to create a subsidiary to supply the credit or to partner with separate credit providers—both of which arrangements would fall under the scope of these changes. We will, however, continue to monitor this market closely with the Financial Conduct Authority and through our regular industry engagement, and, if we see evidence of potential consumer harm, we will not hesitate to act.

The second key aspect of this order relates to the Consumer Credit Act 1974. The Secondary Legislation Scrutiny Committee’s report questions whether the Government should consider whether definitions in that Act can be amended to distinguish between low-risk buy now, pay later products offered by small businesses, such as private gym memberships, and buy now, pay later products offered by large-scale merchants. The Government agree that this is an important issue, which is why the forthcoming consultation on Consumer Credit Act reform will seek input from stakeholders to ensure that any potential changes we make to these definitions are appropriate.

I want also to touch briefly on the other provisions in the order as they relate to this Act. The order before us will ensure that users of buy now, pay later products will have protection under Section 75 of the Consumer Credit Act, making it easier to receive a refund if a supplier breaks a contract or misleads the customer. Under the current laws of contract, customers can seek compensation for defective goods or services only from the supplier for breach of contract. Our changes will strengthen consumer rights by making buy now, pay later lenders equally responsible for problems with purchases when they have provided the credit. This will give consumers a key statutory right enjoyed by users of currently regulated credit products.

Separately, consumers will also now receive clear and relevant information about buy now, pay later products, including details about what they owe and when payments are due. The new requirements will be set by Financial Conduct Authority rules, rather than the Consumer Credit Act. This change reflects feedback from both industry and consumer groups that current provisions on information disclosure do not suit interest-free, short-term buy now, pay later products. Although these changes will apply only to buy now, pay later products, the Government have also launched a consultation on reform of the Consumer Credit Act itself, which we are committed to doing at pace; the consultation includes proposals that would see the wider consumer credit industry benefit from modernised information disclosure requirements, too.

I turn finally to the impact of these changes on firms offering buy now, pay later products. The Government’s intention is that, while the changes outlined today will help protect consumers, they will also benefit providers. For years, buy now, pay later firms have faced regulatory uncertainty, stalling their growth and investment in the UK. This order ends that uncertainty and allows firms to innovate and invest in the UK. To ensure a smooth transition to the new regime, firms will also be able to continue lending under a temporary permissions regime while their Financial Conduct Authority authorisation is under review.

Twelve months after this order is made, the new regulatory regime for these products will come into force. In that time, the Financial Conduct Authority will consult on and finalise the rules that will govern buy now, pay later lending. The changes laid out in the draft order are fair, responsible and proportionate, and we are determined to deliver them promptly to protect consumers and to provide certainty for businesses. I beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for introducing this order and for his thorough summary. It is an important measure, and the Committee is surprisingly thin today.

Borrowing with a defined repayment period is a long-standing practice, with many well-established advantages that most of us have benefited from: for example, in respect of mortgages on our homes. It is a good thing that innovation—buy now, pay later—has developed the lending market but, as always, we need to have an eye on the potential downsides. In this case, that refers above all to the possibility of unsophisticated borrowers getting into financial trouble, probably because of an inaccurate assessment by lenders of the likelihood of any loan being repaid. I accept that in such cases a degree of protection may be justified. That is the philosophical and economic background.

However, there is a need for balance so that regulation does not simply close down the borrowing arrangements, which will make life harder for hard-pressed consumers and will risk pushing them into the hands of loan sharks. Another concern is the impact on small businesses, whether in financial services or retail, which we need to protect from overburdensome regulation. The spark of enterprise risks being snuffed out by this Government if they are not very careful about how they treat the smaller operators. Excessive red tape will simply reduce the services available to consumers and increase costs and prices.

Over the past few years, consumer spending habits in the UK have undergone a significant change. There has been a surge in the use of buy now, pay later schemes, with 14 million consumers recorded as using the agreements in the six months leading to January 2023. This is, however, still a much smaller market than credit cards. We recognise that there are growing concerns about consumer harm in the sector, with 44% of frequent users of such schemes overindebted in 2022, according to an FCA survey. Misleading promotions, lack of affordability assessments and the possibility of accumulating high debts are examples of the potential harms identified for consumers.

Under the previous Government, the 2021 Woolard review proposed the urgent regulation of buy now, pay later payments, but we did not have time to carry this through to completion, so I welcome today’s statutory instrument, which builds on this legacy and addresses lending practices that could harm consumers if they remain unchecked. The proposed order will require buy now, pay later product lenders to be authorised by the FCA, which will give consumers a wider range of protections, including access to the Financial Ombudsman Service for redress.

The instrument also requires firms to carry out affordability checks on borrowers and offer clear product information to consumers to prevent unaffordable borrowing. The proposed order rightly offers more protection for consumers, but we must also be sensitive to business voices operating in the buy now, pay later market. We must be conscious that being subject to FCA rules is not a walk in the park. I speak as a former non-executive director of a challenger bank. So I would like the Minister to explain how the FCA plans to develop and implement the buy now, pay later rules over the next 12 months and who they will affect. For example, would Klarna or Clearpay do all the consumer checks, or would they also pose a burden on the retailer—Boots, for example, or a specialist online retailer of the kind the Minister mentioned?

I also need an assurance that the regulator will have the capacity, and indeed the will, to approve the three significant suppliers and the others that are caught by the new regulations, and to do so comfortably within the 12-month timeframe. It will take time to develop the rules on creditworthiness and affordability, and a year is not long. In my experience, the FCA is much more concerned about its consumer duties than keeping business running and innovating. In the helpful impact assessment on this order, the compliance costs are assessed at some £19 million to £32 million over 10 years. This estimate seems far too low to me, from my experience of dealing with FCA regulation in three different entities. Of course we need to do the right thing, but the regulatory and legal costs in financial services such as these continue to mount, and that then hits innovation and growth.

So I would welcome some reassurance from the Minister on this score and an undertaking that there will be continued engagement between the industry and the Financial Ombudsman Service, because that can also be a vehicle for delay and inconsistency. To put the change in perspective, I would also appreciate an update on the current level of over-indebtedness by frequent users—the worrying figure of 44% that I quoted from 2022—and an indication of the proportion of the total number and value of buy now, pay later borrowers that they represent. I am interested in how many indebted purchasers there are and how significant in number they are in the big scheme of things.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, I am very grateful to the noble Baroness for her comments and questions and for her support for these measures which, as she says, build on what the previous Government began. She rightly set out the importance of buy now, pay later products and pointed out the potential downsides, which we absolutely agree on, regarding borrowers getting into trouble and the need to prevent that. She also talked about the need for balance. She is right that the action that we take should not in any way close down an important route for consumers.

As I said in my opening remarks, these measures have been welcomed by consumer groups. Although these products can help people manage their finances by spreading the cost of purchases, they can put consumers at risk, particularly from unaffordable lending. The FCA will be able to apply appropriate, proportionate rules on assessing creditworthiness and affordability for buy now, pay later lending, so I am confident that it will not unduly close down these routes. It has been welcomed by the providers and consumer groups. The Government are committed to proportionate regulation.

On that point, the noble Baroness went on to talk about the impact on small businesses. Again, they have welcomed this measure to avoid the overly burdensome approach and the regulatory creep she spoke about. That is exactly why protecting small businesses from regulatory overreach was central to our approach. Regulating these products, offered directly by merchants, threatens to capture the simple gym membership example that we talked about. I am happy to give her those assurances on the approach and the way the FCA will approach that.

The noble Baroness asked a number of questions about the FCA and the next steps on regulation. Regulation will commence 12 months after this legislation is made. The FCA will consult after the legislation is finalised. The consultation will include the FCA’s proposed conduct rules for regulating buy now, pay later. The FCA will then consider stakeholder feedback and decide whether it needs to amend its proposed approach before making its final rules. Firms will need a period in which to digest and prepare for the final rules before they come into force. The FCA is keen to give industry as much opportunity as possible to prepare its systems and processes before the final rules come into effect. The FCA intends to publish its policy statement and final rules in early 2026.

The noble Baroness asked about capacity and my confidence in the FCA. Obviously, that is complete. The FCA is an independent, non-governmental organisation. Its independence is vital to its role. However, it is fully accountable to the Government and Parliament for how it exercises its functions. This accountability is critical to ensuring it advances the objectives given to it by Parliament and is performing optimally. Ministers in the Treasury have a very close working relationship with the FCA. We work together very effectively to solve problems and are able to exchange views frankly.

The noble Baroness asked about the second consultation process. Although the consultation is split into two phases, the Government intend to implement the reforms via one legislative vehicle when parliamentary time allows. Once the legislation is in place, the FCA will consult on a policy approach and draft rules for a reformed regime.

The noble Baroness also asked about exemptions, which I think I touched on. As I said in my opening remarks, we absolutely have the intention to keep these under review and if further action is required, we will not hesitate to act. I think I have covered all the points that she raised.

[Baroness Neville-Rolfe (Con)]

The one point the noble Lord has not really touched on is growth and innovation, but I take it from the points he normally makes that he sees this sitting within that context. I think the Chancellor sent a letter to the FCA some months ago encouraging an approach to growth in the way it regulates. So he is right that it is independent and does its own thing but, equally, it is important that it minimises bureaucracy and tries to be efficient and helpful, because it plays such an important part in the economy and with business, but also in protecting consumers.

[Lord Livermore (Lab)]

I completely take what the noble Baroness says; my apologies for not covering that in my initial response. The intention with these specific measures is to be proportionate. That is why we responded in the way that we did to the scrutiny committee, for example. These measures should boost growth and investment. There has been uncertainty in the sector for too long and we are now correcting that.

The noble Baroness is absolutely right about the wider response to the regulation. In her first Mansion House speech, the Chancellor set out very clearly that she wanted to see us regulating for growth rather than risk, and for the pendulum to swing slightly further back the other way. The Chancellor has her second Mansion House speech next week; I am sure she will have more to say on that point then.