Financial Services and Markets Bill [HL]

Debate between Baroness Noakes and Lord Altrincham

Committee stage
Wednesday 1st July 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, I have Amendment 118 in this group. As the noble Baroness, Lady Bowles, noted, it is aimed at the same target as her Amendment 117. Both of us are focusing on the regulators needing to have some specific and serious concerns about regulatory breaches before triggering a Section 166 review. I have had some experience of being on the receiving end of Section 166 notices from my time on the board of a major bank. They are genuinely very burdensome: they cost a lot of money, and they divert a huge amount of staff resources and, more importantly, senior management time. They are not something to be undertaken lightly.

The consulting firms absolutely love them. The fees are set by the regulator, so they do not have to do anything awful, such as negotiating with a client around the fees. They often have some perverse incentives, and quite often are structured as phase 1 and phase 2. Phase 1 is where you see whether there is a bit of a problem, then you move on to phase 2. Phase 2 is where the real money usually is, so the consultants leave no stone unturned in their efforts to trigger phase 2, and they can end up creating more work than might perhaps have been needed. Like the noble Baroness, Lady Bowles, I am not saying that Section 166 reviews should not exist, but the use of them should probably revert to the use that existed before. That is why it is important to put a higher hurdle than is currently in the statute for the use of Section 166, so that the burdens are imposed only when there is genuine cause.

[Lord Altrincham (Con)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, and my noble friend Lady Noakes for bringing forward these amendments. I declare my interest as a director of South Molton Street Capital, which is regulated by the FCA.

The amendments in this group focus principally on Sections 165 and 166 of FSMA. It is worth recalling that the very expression “Section 166” has become part of the language of financial regulation. When the history of financial regulation is written, it will be the most famous item of regulation for this period. It is part of the common language, because there are dozens and dozens of these regulatory interventions.

Section 166 gives the regulators the power to require a firm to appoint or to pay for a skilled person—often a very expensive law firm—to produce a report on specified matters. These reviews can be burdensome, expensive and disruptive for the firms concerned. The concern we have heard from industry is that Section 166 notices have become more and more common in recent years. They were, as the noble Baroness, Lady Bowles, pointed out, initially quite scarce and quite important—and quite quiet, incidentally. Now, they are talked about all the time, because they are as common as anything. The serious issue is that they can, in effect, be used by the regulator as a demonstration of the exercise of its supervisory function.

These notices are supposedly for an inquiry, but they look quite threatening: they can be written in bold and in caps and in different sized fonts. They arrive at the firm with a variety of different names—often the firm has not actually heard of the regulator—and the tone of the notices can be unintentionally discourteous. This, of course, touches on other amendments which reference the right profile for the UK in regulating international firms that may operate in this country.

A Section 166 review is not cost-free regulation; it can require substantial external expenditure, internal management time, legal advice, data gathering, citizens’ work and follow-on remediation. The direct cost of the skilled person report may be only one part of the total burden. This means that there is inevitably a presumption of guilt in these inquiries, without a balanced challenge to which the firm can fully respond. We must bear in mind that firms often do not even know what the inquiry is looking for, so the ability to seek legal protection or a balance in the inquiry is made impossible by this approach to regulation.

In the general insurance and protection sector, an FOI-based report suggested that firms paid around £2.7 million for FCA-mandated Section 166 reviews in the year to 31 March 2024. It noted that internal costs and remediation costs can exceed the external review cost itself. That illustrates the point clearly that the financial and operational impact on firms can be significant. There is also the problem that some firms are not clear on why they are being subject to Section 166 in the first place. The regulator may go on a “fishing trip”, as described by the noble Baroness, Lady Bowles, which really is a good expression for how these inquiries proceed—to find fault without disclosing precisely what they are looking for.

That is why these powers need guardrails. As my noble Friend Lady Noakes has argued, Section 166 notices should be reserved for serious circumstances. They should not become a routine supervisory practice; they should not be used where the same information could reasonably be obtained through less burdensome means; and they should not be imposed without proper consideration of proportionality.

Amendment 117, in the name of the noble Baroness, Lady Bowles, would require the regulator to be satisfied that there is a material risk of serious detriment to regulatory outcomes, and that using a skilled person report is a proportionate response. It would require the regulator to consider the scale and nature of the suspected issue, the burden on the firm and whether the matter could reasonably be addressed through existing supervisory tools.

That seems to be a sensible framework, as does that set out in Amendment 118, in the name of my noble friend Lady Noakes. It would restrict Section 166 reports to circumstances where the regulator considers that there is likely to have been a significant contravention of a relevant requirement, and where the information or documents could not reasonably be obtained without the report. These amendments speak to the same underlying principle: Section 166 should be an exceptional tool for serious cases, not a default mechanism.

I welcome Amendment 123, in the names of the noble Baronesses, Lady Bowles and Lady Altmann, which deals with Section 165 information-gathering powers and seeks to set sensible thresholds on access to information. If a regulator asks a firm for information or documents, it should be able to explain why that material is reasonably necessary, why the request is proportionate and why the information cannot be obtained from another source. Requests should not be duplicative and they should not be broader than necessary. Firms should not be left trying to satisfy vague or excessive demands without a clear understanding of the purpose behind them. That is a basic principle of good regulation, and it particularly matters for smaller firms.

The broader issue here is one we have returned to throughout the Committee: regulatory power must be matched by accountability and proportionality. The FCA and the PRA have significant supervisory tools at their disposal. Where those tools impose real costs on firms, there must be proper discipline in their use. These amendments raise important questions about the balance between effective supervision and regulatory burden. We will listen carefully to what the Minister has to say in response.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baronesses for these amendments, and I have listened carefully to the points made today. The principle of ensuring that the regulators take a proportionate approach to their work—in the case of these amendments, to skilled person reviews and regulatory information collecting—is one that the Government strongly agree with. We have previously debated that principle and how it applies more broadly to the work of the financial services regulators.

Amendments 117 and 118 relate to skilled person reviews under Section 166 of FSMA. It is an important supervisory tool, and the Government agree that it should be deployed proportionately. However, the Government are not persuaded that there is an issue here that requires us to further constrain the regulators’ ability to require these reviews when they consider it appropriate to effectively safeguard the markets and consumers. The regulators have existing procedures to ensure proportionality when considering whether to initiate a skilled person review. The FCA handbook sets out that it will first consider the circumstances of the firm, the costs involved and the availability of other supervisory tools to tackle the issue. The PRA has similar processes in place.

Layering additional statutory requirements on top of this risks creating burdensome delays over supervisory decisions. Skilled person reviews are often used precisely in circumstances where the regulator needs independent expert analysis. For example, requiring the regulator to satisfy a threshold test before commissioning a review could limit the regulator’s ability to direct a skilled person to investigate a potential consumer harm and implement a mitigation strategy.

The data does not suggest that the use of skilled person reviews has grown over time. I reassure noble Lords that the FCA’s use of them has been broadly consistent over the past 10 years, with an average of 48.5 commissioned a year. However, in 2025-26, only 31 were commissioned, down from a high of 83 in 2023-24. This increase reflected the FCA’s strengthened oversight in key areas, including financial crime and appointed representatives and, despite the increase in volume, overall costs to firms remained flat.

Amendment 117 would create statutory disclosure requirements relating to Section 166 skilled person reviews. The FCA and the PRA already provide transparency by publishing data on the reviews they have commissioned in their annual reports.

Amendment 123 seeks to raise the bar for regulators requesting information for the firms they oversee. The Government recognise the impact that regulation and supervision can have on firms, and agree that regulators’ supervisory activities, including information requests, must not create disproportionate burdens on firms. That is why the Government have committed to cutting the administrative burden of regulation by 25% by the end of this Parliament. The financial services regulators are activity contributing to this agenda. For example, the PRA is deleting redundant and duplicative data collections—its future banking data programme has reduced costs to firms by around £26 million annually so far—and the FCA has stripped out data requests for 36,000 firms. All this has been done without detracting from consumer protections or systemwide resilience.

Through the Bill, the Government are taking action to reduce the burden of regulation on businesses. This includes reforms to the senior managers and certification regime, which will enable the regulators to reduce the regulatory burden of the regime by 50% while maintaining its strong and effective framework for individual accountability. Imposing prescriptive statutory requirements on how the regulators gather information risks undermining effective supervision, which might bring serious risks. Regulators must be able to respond quickly to emerging risks, and sometimes that means requesting information in ways that cannot be neatly anticipated by legislation.

The Government agree that proportionality is hugely important, that unnecessary burdens should be avoided and that the regulators must be held properly to account for how they exercise the significant powers given to them by Parliament. But there is no evidence that these amendments are needed to ensure proportionality. They would risk constraining the regulators’ ability to do their jobs effectively, which would introduce risks into our financial system. I therefore ask the noble Baroness to withdraw her amendment.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Noakes and Lord Altrincham

Report stage
Tuesday 25th February 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, we come to an exciting part of this Report stage, having had several debates on this Bill.

The Bill will have significant impacts on: some types of employers; some business sectors and sizes of business; some types of employees; and some types of the provision of public services by bodies which are not themselves in the public sector. More broadly, we have heard that businesses will face the double whammy of the minimum wage increases and the national insurance increases together in just a few weeks’ time, and they are likely to respond by taking actions to reduce their workforce and the hours that their workforce can work and reduce wages where they are not constrained by the national minimum wage. Prices are likely to go up, and profits are likely to go down. All this will have negative impacts on the economy. It is difficult to avoid opening a newspaper nowadays without seeing one or more campaign groups, industry representatives and charity representatives making their case for the harmful impacts of this Bill, but to date the Government have been completely deaf to all these entreaties. All this is bearing down on the economy, which is already flatlining.

I can understand why the Government do not want to make any changes to a centrepiece of their growth-destroying Budget last October. We know there is almost no room left in their fiscal rules for any changes. There are lots of downside risks to the economy, and there are precious few upsides. These are all the results of choices that the Government have made in the last seven months, so I understand why the Minister’s response to every issue presented to him in Committee, and indeed again today, was that the Government reject the cases being made.

My Amendment 39 provides for a very simple power for the Treasury to issue regulations that exempt categories of employer from the national insurance changes that this Bill introduces. There is not even a parliamentary process attached to the regulations. My amendment would therefore allow the Treasury to act quickly, once it faces up to the fact that it really has created some problems. There are no downsides to the Government accepting this amendment, as they need never use it, but it would be a useful backstop if things turn out as badly as many of us believe they will.

It is not often that the Opposition Benches offer an unrestricted power to a Government to do things, but I and others are so alarmed by the potential impacts of this Bill that I think it is the right thing for the Government to take this kind of power in the interests of the country.

We have passed some amendments today that have taken some of the roughest edges off this Bill, and I hope they will survive their passage through the Commons, but this has not made the Bill completely harm free. My sincere hope is that the Government will support this amendment, if not in its current form then in a reworded form to their own taste at Third Reading. I beg to move.

[Lord Altrincham (Con)]

My Lords, I support Amendment 39 in the name of my noble friend Lady Noakes. I thank all noble Lords for their courage and grace in staying all the way through to group 7.

Amendment 39 would give the Treasury the power to exempt sectors that would suffer significantly under the Government’s national insurance rise. The amendment introduces a degree of flexibility that Ministers can use to protect the most vulnerable of British businesses; by allowing the Treasury to introducing specific exemptions when required, we can exempt them from the additional financial burden of the national insurance increase.

I am grateful to my noble friend for bringing forward Amendment 39. It is clear that we share many of the same concerns. The amendment in her name is closely aligned with those in the name of my noble friend Lady Neville-Rolfe that seek to exempt specific sectors, such as the social care or charity sectors. So many sectors need exemption from this policy, and we hope the Government will give the arguments thoughtful consideration.

[Lord Livermore (Lab)]

My Lords, Amendment 39, tabled by the noble Baroness, Lady Noakes, seeks to include powers as part of this Bill to exempt certain groups in future. As I have already set out, the revenues raised from the measures in this Bill play a critical role in repairing the public finances and rebuilding our public services. Clearly, any future changes that exempt certain groups from paying national insurance would have cost implications, necessitating either higher borrowing, lower spending or alternative revenue-raising measures. I would therefore respectfully ask the noble Baroness to withdraw her amendment.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Noakes and Lord Altrincham

Committee stage
Tuesday 21st January 2025 Grand Committee

[Baroness Noakes (Con)]

My Lords, the whole Committee has, I know, great respect for the immense knowledge and expertise in economics of both the noble Lord, Lord Eatwell, and his colleague, the noble Lord, Lord Layard. Laying out a theoretical argument about what happens to employment and demand in the economy is entirely valid, but it ignores what actually happens at the level of the individual enterprise, employer or employee.

In her amendment, the noble Baroness, Lady Smith, talks about the impact on a specific group of employees. There is nothing in what the noble Lord had to say about the overall macroeconomic impact, which will affect the attractiveness of continuing to employ veterans if the cost of employing them is going to go up. In debating the previous group, we talked about whether community pharmacies could stay in business, given the additional costs that would arise for those businesses. We have to remember that this is not a highly theoretical exercise: the imposition of these massive national insurance changes is going to have a huge impact at the micro level. That is what we are trying to explore in many of the amendments we will look at in Committee, today and next week. They are not answered by theoretical answers at a macro level.

[Lord Altrincham (Con)]

My Lords, I rise to speak to this group of amendments surrounding the exemption of veterans’ salaries from this NI jobs tax; the lead amendment was moved by the noble Baroness, Lady Smith of Newnham. This is a helpful group of amendments to remind us—just as my noble friend Lady Noakes has reminded us—that the social costs of this taxation initiative will fall on individuals. Although we talk about economics in an aggregate manner and debate it in the aggregate, there are social costs, and they are very real.

In the aggregate, the Treasury may do quite well from this rise because of wage inflation. Wage inflation is a tremendous friend to the Treasury and will more than make up for the gap that the noble Lord mentioned at the start, which is that we need to find other sources of revenue. Wage inflation is going to support the Government quite nicely through this, but that cuts both ways: obviously, it has an aggregate and fiscal benefit, but it hits hard because the cost of employment goes up a lot. There is a double effect and we are probably seeing that right now.

Putting aside the theory about whether we lose jobs in one place and offset them somewhere else, we know that we were down 50,000 jobs in December; the OBR number is an aggregate loss of 50,000 through this initiative. That is a tremendous estimate, of course—who is to say that it has any better insight than anybody else?—but it is already down by 50,000 in December. It is probably a combination of wage inflation and expected tax rises, but that is 50,000 people who are out of a job. As we look through these amendments, we might pause and reflect. Who are these vulnerable employees? Who is actually going to bear the social cost of this change?

These amendments perfectly encapsulate the problem, which is that these changes will fall on people who are, and have already been identified as, vulnerable in one form or another. Observations about tax complexity may have been well made by the noble Lord, Lord Eatwell and, by the way, it is not just tax avoidance that is a burden to the economy. Tax compliance is a burden to the economy, as all forms of taxation in this country have become very complex and are a tremendous drag on the economy as things stand. However, that is how we manage our affairs.

While we look at this issue, we might pause and think about where the costs fall on individuals—in this case, on veterans. The previous Conservative Government ensured that veterans were a priority. They guaranteed that the funding was sufficient to support veterans in securing highly paid and skilled employment in key sectors across our economy, utilising the skills that they developed in the military.

In April 2024, veteran employment was at an all-time high of 89% owing to various initiatives, including the 12-month national insurance relief for employers hiring a veteran into their first role out of military service. This tax incentive was highly beneficial for veterans and business. Following its introduction in 2022, this relief was extended in 2023 and again in the following year, 2024. Following the Government’s decision to impact business through this tax decision, will the Minister at least confirm that they intend to continue this business relief to ensure that our veterans are able to find employment after their service and that businesses are able to benefit from their unique skills and experience?

Our military deserve the utmost respect for the service they provide to our country and, as such, the veterans deserve that same level of respect. This tax will be harmful to these people, and if the Government are unwilling to exempt them, at the very least they must explain how they have arrived at the conclusion that it will not be exceptionally detrimental to the employment rate of veterans.