Financial Services and Markets Bill

Baroness Penn Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, the most important thing to have come out of this debate, which is now in its fifth or sixth day—frankly, I have lost count—is that the regulatory environment lacks sufficient parliamentary scrutiny; there is enormous consensus about that idea. We have heard several solutions. At least three groups have touched on this issue, and I hope this is the last group to do so. I will go as far as saying that it is an interesting idea. I say that in the sense that I am representing His Majesty’s loyal Opposition, and at the moment we have some concerns about resource consumption, et cetera.

However, if we take all the ideas together, I am convinced that they can be moulded into an important step forward in involving Parliament, and involving sufficient resource to make that involvement effective. We should set about trying to do that. The noble Lord, Lord Turnbull, said this more elegantly than I will, but if you toss a bunch of amendments together and hope that they are internally consistent and capable of execution, you are kidding yourself. I fear that that is where we are at the moment. If we were to vote on all the amendments we have had over the last five days or so, that would not work.

What should happen now—it will be interesting to see whether it does, and I shall do all I can to encourage it—is that cross-party discussions take place, focused on taking the best ideas and putting them together in a way that will work and will have support. This has to be a coalition that is irresistible in the parliamentary process, and that is possible. When you look at that lot over there, this lot here and us, that is a hell of a force for the Government to try to ignore, so I hope we can find ways of bringing us together. I hope the Minister will want to join in that process at some point and will want to see whether we can achieve a consensus with the Government. I strongly advise her today not to close off options. Options have to be open to try to move into this area.

There seems to be a secondary area, which I will loosely call the Lilley area, about legal involvement. I clearly do not understand enough of what this is about; I suspect a lot of people do not. There is confusion and, from what I have heard experts say, it is a dangerous confusion. We should stick to that central issue of parliamentary scrutiny, properly supported to be effective—and the time has come.

Some of us slogged through a Bill, about a year and a half or two years ago—I am losing track of time—where we worked quite hard on this and made very little progress, as we got rid of all the EU rules and then put all the stuff in the hands of the regulators. Many of us felt uncomfortable that there was not more scrutiny, but we did not really come up with a solution. Clearly, we are in a solution-rich environment now; the trick is to bring it together into a solution that will work, and it must be done now. This is the last legislative opportunity, in my view, that we will see for some time, so I hope that cross-party discussions take place and that we can take a real step forward for the industry and for democracy.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I thank my noble friends Lord Bridges of Headley and Lord Lilley for tabling these amendments, and for their contributions to this discussion.

I will speak first to Amendments 160 to 166, tabled by my noble friend Lord Bridges. The Government agree, and have been clear, that more responsibility for the regulators should be balanced with clear accountability, appropriate democratic input and transparent oversight. The proposed creation of a new regulatory body to oversee the regulators—a so-called regulator of the regulators, although I know that my noble friend set out why he thought that term did not apply—raises further questions about how the accountability structures for the various regulatory bodies would operate. The Government would need to carefully consider how to ensure clear accountability to both government and Parliament under such a model.

The noble Lord, Lord Hunt, talked—it feels a long time ago—about the need for greater clarity on where accountability lies in this system. I am not sure whether it is clear that the addition of a further body to the system would provide greater clarity on where accountability lies.

[Lord Bridges of Headley (Con)]

How does the OBR undermine accountability? Surely it just provides independent analysis and assessment, and I see no problem there.

[Baroness Penn (Con)]

I believe that is sometimes subject to debate. What I was saying to noble Lords is that it raises questions in this area that we need to consider. If I look back to the creation of the OBR, it was in the Conservative manifesto at the 2010 election; indeed, it was set up in shadow form in 2009. It was first established not in statute and operated without statute after 2010. The provisions for its establishment in statute were then brought forward in a Bill, where there was sufficient time to consider those questions.

I am not saying definitively one way or another, but it raises questions that we would need to consider more carefully about who this body is accountable to and the interactions with parliamentary accountability that we have discussed today; the need for clarity on accountability, raised by the noble Lord, Lord Hunt; and, for example, the remarks by the noble Baroness, Lady Bowles, on the role that the body could have in filling the space that allows industry to make private submissions to the new body, rather than public submissions as happened through Select Committees, and how that marries with the provisions in the amendments on the need for this body to operate transparently.

These are questions that are raised in considering how such a body would operate in this landscape. There is the potential that it could duplicate or dilute the roles within the regulatory framework of government and Parliament to scrutinise and hold the regulators to account.

[Lord Hunt of Kings Heath (Lab)]

There is a problem in the approach that the Minister is taking. She is suggesting that the body proposed by the noble Lord, Lord Bridges, will add to the accountability structure. I have added my name to the amendment and, as I see it, the body is there to support those who wish to hold the two regulators to account. It is not there to add to the architecture of accountability but to aid Parliament and others to hold them properly to account. There is a distinction.

[Baroness Penn (Con)]

Whether it is there to aid others in the accountability structure or is an accountability body itself is a further question, but its proposed role raises questions about, for example, how transparently it operates, as the noble Baroness, Lady Bowles, touched on, and other such considerations. I merely said to my noble friend who raised this point that the establishment of the OBR happened in a Bill of its own after a manifesto commitment, and that it had been up and running for some time before it was put into statute. It is not unreasonable to say that considerations need to be made when we think about this issue.

[Lord Deben (Con)]

There are certainly considerations, but surely one of them is that we have an opportunity to make the change in this Bill, and we will not have another opportunity for a very long time. The Minister is proposing that we do not do it, frankly. Therefore, let us do it in this Bill, because it is the one opportunity that we have.

[Baroness Penn (Con)]

My Lords, I would never want to speculate as to future parliamentary timetables. My noble friend Lord Naseby talked about the importance of listening to those who are impacted by the provisions of the Bill. He spoke about the City, and we have heard various points of view in that respect. I would add consumers into that mix, too. I say to noble Lords that the Government have consulted extensively on the approach we are taking in the Bill, and we have received a number of responses on this specific issue in both future regulatory framework review consultations that took place. Although I absolutely recognise that a small number of respondents were supportive of further consideration of such a body, the vast majority were focused on how existing mechanisms for accountability to Parliament and government and engagement with stakeholders could be strengthened. The Government therefore decided, in response to those consultations, against creating a new body, and focused on ensuring that the mechanisms for Parliament and government to scrutinise the regulators are effective.

[Baroness Bowles of Berkhamsted (LD)]

Will the Minister clarify what the questions were in the consultation? My recollection was that it was relatively open. Obviously, at that stage, industry was focused on its very important relationship with government—one cannot overestimate the importance of that—and it answered questions saying that it was happy with parliamentary scrutiny, but I have no recollection of there being a suggestion as to whether there should be another body that enabled any kind of regular review. Since that time, industry bodies have said that it would be a good idea, so it seems a bit inconsistent to claim that the consultation cleared the way to say that none was required.

[Baroness Penn (Con)]

My Lords, I was simply pointing out that this Bill is the result of two rounds of consultation. The Government are criticised for bringing forward proposals without sufficient consultation. I note the noble Baroness’s points but, even in the context of those questions, there were bodies that put forward the kinds of ideas that we are discussing today. However, in the balance of responses to that consultation, they were not the dominant voice or viewpoint from the range of different people who responded to us.

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[Lord Forsyth of Drumlean (Con)]

My Lords, in my day, although it may have changed, when the Government issued a consultation document, it was basically to get agreement to what they wanted to do. In the case of the OBR, I remember the then Chancellor, George Osborne, arguing that the OBR was necessary in order that people could see that the Government were being honest and were subject to some kind of scrutiny, and that it would provide independent information that would enable Parliament and others to take a view.

I am trying to put this delicately, but my noble friend’s argument seems to be that the Treasury set out a consultation and reached an agreement so it is in the Bill. But the view that is coming out very clearly is that, for Parliament or anyone else to effectively hold the Treasury and the regulators to account, it is necessary to have an independent source of information. My noble friend is just reading out what we already know is in the Bill, but there is pretty well universal acceptance that that does not actually provide for sufficient accountability. Could she deal with that point? Why on earth would she be against something that would enable more transparency and more effective scrutiny?

[Baroness Penn (Con)]

I am afraid I am going to have to disagree with my noble friend’s point about consultation. I have spent too long in this Chamber, even in a limited time, being on the receiving end of scrutiny from noble Lords about the lack of consultation. The proposals in the Bill have gone through two rounds of public consultation. My noble friend may not see the value in public consultation, but that is not something that has been fed back to me in my dealings in other policy areas.

[Lord Forsyth of Drumlean (Con)]

Forgive me, but I did not say anything of the sort. Of course I can see the value in consultation. What I do not see the value in is consultation that then concludes that the Government should do what they wanted to do in the first place.

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[Baroness Penn (Con)]

That is not what I am saying. One of the things that I was referring to with regard to the powers in the Bill was an amendment tabled in the Commons stages to try to respond to further questions about how we can facilitate accountability. I think I have been clear to all noble Lords in this Committee that that is a question that the Government will continue to consider and to engage with noble Lords on, whether it is about strengthening parliamentary accountability or other measures that help to provide the information and resources that people need to do that work. The Government will continue to reflect on those points.

[Baroness Bowles of Berkhamsted (LD)]

I am sorry to interrupt, but I find it slightly strange that the Minister is saying the Government will continue to interact with us. All that that interaction has been so far is “No”.

[Baroness Penn (Con)]

In Committee, we are discussing the different proposals that have come from noble Lords to solve these problems. I am trying to set out where the Government have previously considered these questions and the thinking behind our approach in the Bill, demonstrating that where we have been able to, for example in the introduction of Clause 37, we have made amendments to the Bill further to take into account some of these issues. When it comes to the specific proposals we are talking about, it is right that I set out that this has been considered by the Government, including through public consultation.

[Baroness Noakes (Con)]

I was not going to speak on this group in order to have a speedier debate, but I completely failed in that aim, so I think I am allowed to say something now. Can my noble friend explain to what extent these two consultations actually address the issues that have been raised by the amendments of my noble friend Lord Bridges? From memory, neither of the consultations examined the idea of having some kind of independent scrutiny of the regulators; they merely proceeded on the basis of what the Government wanted to do and did not seek to analyse the benefits of an alternative solution.

[Baroness Penn (Con)]

That is a similar question to that of the noble Baroness, Lady Bowles, and it is probably because I did not answer it satisfactorily that it has come up again. Noble Lords are right that there was not a question on those specific proposals in those consultations. I endeavour to point out, however, that does not prevent the respondents to those consultations, where they believe it to be a good idea, to use them to put forward their support for such an approach. Perhaps I could write to noble Lords specifically on the areas within both those consultations that touched on accountability measures.

[Lord Bridges of Headley (Con)]

To be absolutely clear and just to put it on the record, therefore, the proposal in my amendment has not been consulted on? Is that correct?

[Baroness Penn (Con)]

It would be best to set out in writing for noble Lords the specific areas of the consultation that sought to address the issues we are discussing today. As I have said, in response to those consultations, certain respondents put forward proposals in this area, so it is not right to say that it was not a topic for consultation. However, as my noble friend wants clarity on the record, I think that would be best delivered in writing.

[Baroness Bowles of Berkhamsted (LD)]

Perhaps I could intervene on this important point. In the first consultation, there were some respondents—I confess, I was one of them—who put forward notions of there being independent scrutiny. There were possibly some other organisations, I do not know, of the kind that come forward with policy ideas. But I suggest that the majority of respondents tended to be from the industry, and it is not usual for industry to invent new ideas in their responses to consultations. I asked some of the industry bodies about this at the time, and that was the response I got. They said that they thought that, as I had led the way, they might want to pick it up in later consultation—but by the time you get to round two, it is much more concentrated on what will be in the Bill and “Do you agree with this?” It does not say “And, by the way, what have we left out that might have been a good idea?” Industry does not spend its time and risk putting in responses about that kind of thing.

I should be very interested to hear the analysis of the type and numbers of people who responded. Frankly, we have to rely on what we are told. Once upon a time, you used to know who had responded and could judge, and if the weight of the responses came from industry, I am not surprised that there was nothing in there. If the weight of the responses from the non-industry part had some good ideas, perhaps the Minister could tell us.

[Baroness Penn (Con)]

As I have said, I will set out further detail on the consultation process in writing. It is worth just noting that this question was also considered by Parliament through the Treasury Select Committee in its report The Future Framework for Regulation of Financial Services, which said that

“The creation of a new independent body to assess whether regulators were fulfilling their statutory objectives would not remove the responsibility of this Committee to hold the regulators to account, and it would also add a further body to the financial services regulatory regime which we would need to scrutinise.”

[Lord Tyrie (Non-Afl)]

Can the Minister explain whether that constitutes opposition? I had a cup of tea with the chairman of the Treasury Select Committee only the day before yesterday to try to establish exactly that. She is fully supportive of the idea—we ought to get that on the record—although I should also say that she had not specifically consulted her committee on it.

The Minister must see that the Government are probably going to lose a vote on this at Report. Would she be prepared to sit down with a group of us to see whether we can work up some sort of proposal that she might be prepared to accept? To make that meeting effective, in the meantime, would she be prepared to ask her officials, on a contingency basis and without any commitment at all on her part, to write down on the back of an envelope—a long envelope, I admit—what it is that might conceivably, in certain circumstances, be acceptable to the Government?

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[Baroness Penn (Con)]

My Lords, I believe that I have already made the offer to noble Lords to meet to discuss the issue of accountability, both parliamentary accountability and the proposals such as those put forward in the amendments today. That still stands. I am afraid that I cannot—

[Lord Vaux of Harrowden (CB)]

I apologise for interrupting. The Minister is quite right that she has made that offer. We were grateful for it, but it is of fairly limited use if there is no recognition on the part of the Government that there is a gap here in terms of parliamentary accountability and scrutiny. She has not actually said yet that she recognises that there is a gap. I have to say that she should look around her: it is pretty clear that it is there.

[Baroness Penn (Con)]

What I have tried to say to noble Lords is that, in bringing forward the proposals in this Bill, we absolutely recognise that, with the increased responsibilities that go to the regulator, we need to ensure that there is proper accountability and scrutiny. We have put forward the proposals in the Bill to attempt to do that.

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[Baroness Penn (Con)]

I did not finish the note I was writing to myself to try to draw the debate on my noble friend’s group of amendments to a close for now. In response to the noble Lord, Lord Vaux, I was setting out that the Government believe there needs to be clear and greater accountability for the regulators, given the greater powers they are taking on. We have set out our approach to this in the Bill. When it went through the House of Commons, we demonstrated our openness to finding new and improved ways to strengthen our approach.

Where the Government have considered and consulted on some of the options the Committee is discussing today—or bodies such as the existing Select Committees of this or the other House have considered those options—it is right to draw this Committee’s attention to the feedback we have had in those consultations or through those Select Committee processes. As I have said to noble Lords on numerous occasions, we will listen carefully to the various debates we have had, reflect on what has been discussed and meet and engage with noble Lords, who have clearly expressed their concerns on this matter, to see what further progress can be made.

I turn to my noble friend Lord Lilley’s Amendments 169 to 174. On Amendment 169, I believe I set out the Government’s position on a predictability and consistency objective in earlier debates. While the Government agree that predictability and consistency are important components of an effective regulatory regime, we do not think they are appropriate objectives for the regulators. Similarly, the Government consider that such objectives do not need to be applied to the Upper Tribunal’s decision-making.

Amendment 171 seeks to enable the Upper Tribunal to quash all rules made by the regulators. The Government consider that the regulatory framework, including through enhancements in the Bill, provides multiple opportunities and avenues for challenge and review of the rules, both before and after they are made. For example, Clause 27 introduces a new power for the Treasury to require the regulators to review their rules when it is in the public interest. I also note that the courts already have a role within the existing framework, where necessary, as decisions of the regulators are subject to judicial review.

Amendments 170 and 172 both concern the routes of redress available to consumers. The Financial Ombudsman Service already plays a valuable role in providing consumers with a swift and effective means of resolving disputes with financial services firms.

Amendment 170 would enable those currently eligible to bring claims to the FOS—consumers and most SMEs—to bring actions against firms for breaches of regulator rules in a new financial services chamber within the First-tier Tribunal. These actions could be brought even where the FOS had made a final decision. The FOS and the Business Banking Resolution Service already provide a cost-free alternative to the courts for consumers and 99% of SMEs. Going to court can be expensive for the parties involved and delay redress. It would likely be more expensive for consumers and SMEs to bring civil actions in the First-tier Tribunal than through the existing redress process.

I turn to Amendment 172. Establishing a new body with a different remit would take up resource from industry, government and the regulators and slow down redress for consumers without a clear need for this change. The key difference between the proposed new body and the FOS is that the new body would not be able to consider what was fair and reasonable in all the circumstances of a case when taking a decision. This consideration enables the FOS to take into account wider factors relevant to the case, such as regulator guidance and industry codes of practice at the time. This is in addition to the requirement in FSMA for the FOS to consider relevant law and regulator rules, and it enables it to tailor its decision to the particular circumstances of a case and ensure a fair and reasonable outcome for all parties.

The FOS’s ability to consider issues of fairness and reasonableness beyond a strict application of the law and regulator rules is consistent with its role as an informal alternative to the courts. FOS decisions can be, and have been, judicially reviewed by parties who are not satisfied with the reasons provided by the FOS for the decision.

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[Baroness Bowles of Berkhamsted (LD)]

I think the Minister has just said that she will engage but that the answer is still “no”.

[Baroness Penn (Con)]

I have set out why the Government have concerns and that we should have further conversations to explore the issues that have been raised. I believe that is neither a “yes” nor a “no”.

[Lord Bridges of Headley (Con)]

My Lords, I will conclude this two and a half hour debate on just the first group and my amendment. I am delighted and thankful to noble Lords on all sides of the House who have supported it. The amendment is mine; the concept belongs to others. I am extremely grateful to my noble friend the Minister for offering to engage. However, I question the word “further”; I have not had any engagement and, so far, all I have heard is three things.

The first is that the Government believe that the measures in the Bill are sufficient. I think there is unanimous support, on both sides of the Committee, that, as far as accountability and scrutiny go, the measures are insufficient and need to be improved. The second is that the Minister is actually against the measures in my amendment today and the third is that they have been consulted on, whereas we have established from the earlier interventions that the specific amendment I propose, with this concept, has not been consulted on and that it was up to others to come up with that. In my view, that is not a consultation.

The Committee has stressed just how important this issue is, not just by the fact that we have been debating it for two and a half hours but because of what my noble friend Lord Hill and others said about the importance of ensuring that our regulators are truly accountable. The noble Lord, Lord Eatwell, made this point extremely well, as does my noble friend Lord Hill in an article in the Financial Times which was published just this afternoon. My noble friend says that

“what regulators decide directly affects our ability to compete and grow”

and that it follows that getting a regulatory framework right

“is central to our national wellbeing”.

He then says that we risk creating

“a new system of unaccountable British regulation”.

I repeat: unaccountable British regulation, and that is despite the measures that my noble friend says are in the Bill to increase accountability and scrutiny. I think we agree that they are completely insufficient.

As the noble Lords, Lord Eatwell and Lord Tyrie, said, this is not a question of just one or another of the little things that we have debated over the last few weeks on the Bill. A package needs to be brought together and it should address three points. One is improving the data that the regulators themselves provide. The second is arming Parliament with independent analysis, and I do not buy for a moment what my noble friend says about it undermining the independence of regulators. It is about arming Parliament and others with independent analysis of what the regulators are up to. The third is improving parliamentary accountability and scrutiny; my noble friend Lord Trenchard and others have made this point, as my noble friend Lady Noakes did in a previous session. These three things hang together.

I am delighted that my noble friend the Minister is willing to meet us, but I very much hope that she comes there with an open mind and a constructive attitude, not just a sense of no. I will obviously not press this amendment to a vote now but I can absolutely assure her that if the outcome of those conversations is not one that meets the challenge at hand, I will have absolutely no hesitation in pressing this to a vote at Report.

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I am hearing noises off. Should I stop or continue?

[Baroness Penn (Con)]

You should finish.

[Baroness Sheehan (LD)]

Thank you. I come to Amendment 232 in my name on green savings bonds. My reason for tabling this amendment is to draw attention to the success of the National Savings and Investments green savings bonds, which are an important part of the green finance landscape. Really it is a pat on the back for the Government—much-needed, maybe —so the Minister should view this as an opportunity for the Government to congratulate themselves. For me, it is an opportunity to ask them what more they can do to raise awareness of these bonds and promote them more aggressively. After all, the Climate Change Committee identified public engagement and behaviour change as major elements in the success of measures to keep the planet in a fit state for future generations, but many people complain that knowing what to do for the best is confusing. These bonds represent a safe way of putting their money to work for the benefit of all our futures.

Here is the background. The NS&I’s new green savings bonds became available from 22 October 2021, introduced by the then Chancellor, Rishi Sunak. They pay a fixed rate of interest over a three-year fixed term, and the current rate is 4.2%. The minimum deposit is £100 and the maximum is £100,000 per person. NS&I’s savings accounts are long-standing, recognisable and safe. They are hugely popular with UK savers, not least because investments are totally safe, being 100% backed by the Treasury. There is not the usual limit of £85,000 that there is with providers covered by the Financial Services Compensation Scheme. Many savers want to make green and ethical investment choices. Work by the Cambridge Institute for Sustainability Leadership found that the median saver would prefer a sustainable fund, even if they have to sacrifice up to 2.5% returns.

Money saved with NS&I’s green savings bonds is used to fund six types of green projects: making transport cleaner; switching to renewable energy; improving energy efficiency; pollution prevention and control; protecting living and natural resources; and adapting to climate change. These projects are publicised and clearly audited for climate and nature benefits. Another benefit is that raising funds through NS&I can actually give greater financial stability than raising funds on the financial markets. During the meltdown in borrowing costs following the botched “fiscal event” in September last year, investors in NS&I did not dump their bonds because they could not do so; there was no panic in NS&I’s offices in Blackpool, Glasgow, Birkenhead and Durham—please note, none in the south-east—because the bonds are not transferable. Further, when a larger amount of a Government’s debt is held by their citizens, it is less prone to volatility. There is lots to like about the products. There are few cash-based green savings products in the market, especially ones with such a high level of transparency about their use of proceeds.

My amendment is intended to put in the public domain at regular intervals the contribution made by the NS&I’s green bonds and the like towards UK green financing and the consequent reduction in targeted greenhouse gas emissions. It is worded in such a way as not to make proposals over the amount of government borrowing or how they should raise taxes, only to seek information on how the Government are raising funds for green investment. It would be helpful if the Minister could say how much has been raised through the Government’s green bonds to date, how much is forecast to be raised annually in future and what the Government’s ambition is for their future, including in relation to the promotion of these products.