Postal Packets (Miscellaneous Amendments) Regulations 2023

Baroness Penn Excerpts

Thursday 20th July 2023 Lords Chamber

Moved by

[Baroness Penn]

That the draft Regulations laid before the House on 29 June be approved.

Relevant document: 46th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument). Debated in Grand Committee on 19 July.

Motion agreed.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations

Baroness Penn Excerpts

Thursday 20th July 2023 Lords Chamber

Moved by

[Baroness Penn]

That the Regulations laid before the House on 26 June be approved. Considered in Grand Committee on 19 July.

Motion agreed.

Postal Packets (Miscellaneous Amendments) Regulations 2023

Baroness Penn Excerpts

Wednesday 19th July 2023 Grand Committee

Moved by

[Baroness Penn]

That the Grand Committee do consider the Postal Packets (Miscellaneous Amendments) Regulations 2023.

Relevant document: 46th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)

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

My Lords, this statutory instrument will provide United Kingdom authorities with powers in relation to postal packets—parcels—moving from Great Britain to Northern Ireland. It does nothing more or less than that. It does not itself put in place the wider Windsor Framework arrangements.

These powers are part of delivering what we promised for consumers and businesses in Northern Ireland. They are necessary to ensure that we can implement the Windsor Framework and remove the burdensome regime that the old Northern Ireland protocol would ultimately have required. I am aware of some misunderstanding about what the Windsor Framework requires in respect of parcel movements, so I will attempt to address that also in my opening remarks.

Had it been fully implemented, the Northern Ireland protocol would have required international customs processes for all parcel movements from Great Britain to Northern Ireland. On the new arrangements, it is worth dealing up front with some of the issues where there has perhaps been a misunderstanding about what will be required in future under the Windsor Framework. In short, I would like to provide some reassurances to noble Lords in that regard.

First, someone in Great Britain sending a parcel to their friends and family in Northern Ireland will not need to engage with any customs processes under the Windsor Framework. Nothing will change for those movements, compared with today. Similarly, Northern Ireland recipients of parcels sent by their friends and family in Great Britain will not need to engage with any customs processes. For example, a grandson in Liverpool sending a package to his grandmother in Belfast will not need to do anything new to send the package and his grandmother will not need to do anything new to receive it.

British businesses in Great Britain selling to Northern Ireland consumers will not need to complete customs declarations, international or otherwise, and Northern Ireland consumers buying from sellers in Great Britain, including via online shopping, will not need to engage with any customs processes. They will buy from the seller in Great Britain and receive their goods without doing anything new.

I emphasise that this means the Windsor Framework explicitly removes one of the most onerous requirements on goods being sold to Northern Ireland consumers and, of course, on goods being sent to friends and families. There will be no routine checks or controls applied to parcels, with interventions only on the basis of a risk-based, intelligence-led approach. This means that the overwhelming majority of parcels will not be subject to checks.

I turn to parcels sent from a business in Great Britain to a Northern Ireland business. These will be treated the same as equivalent freight movements: they can be moved through the new green lane where eligible when it is introduced from October 2024. As with freight movements, the green lane will ensure that eligible goods will no longer require international customs processes. They will instead require only the provision of routine commercial information. Movements via the red lane, including goods destined for the EU, will be subject to the customs processes required by the EU, as noble Lords would expect.

The Prime Minister negotiated the Windsor Framework to ensure that consumers and businesses in Northern Ireland—and, indeed, British businesses selling into Northern Ireland—could benefit by protecting internal trade within the UK. The Government need to ensure that the powers of HMRC and Border Force are sufficient to allow them to monitor the rules for movements of parcels and that, where certain requirements are in place, they can be enforced.

The Secondary Legislation Scrutiny Committee’s report suggested that we clarify the rationale for bringing the instrument into force on 31 August. There is a limited range of prohibited or restricted goods that the UK Government accept are required to comply with EU customs rules today—for example, certain drug precursor chemicals or products derived from or associated with endangered species covered by CITES. HMRC and Border Force cannot currently enforce these requirements, which is why this statutory instrument is needed now rather than in a year. The same powers will be used in respect of the new parcels arrangements that will come into force through the Windsor Framework arrangements for parcels from 30 September 2024. This is so that we are able to determine that parcels destined for the EU can be detected and ensure that they follow the requirements of the red lane.

The committee’s report also noted that arguments had been submitted to it that these regulations would contravene the principle of unfettered access within the UK by introducing a customs border. A submission by the Democratic Unionist Party argues that they would be contrary to the Good Friday agreement.

The Government recognise that there are a range of views on the Windsor Framework. Our view as the Government—as the Prime Minister and the Secretary of State for Northern Ireland have made clear—is that the arrangements support and protect the Good Friday or Belfast agreement in all its parts. They protect the integrity of the European Union’s single market and Northern Ireland’s place in the United Kingdom’s internal market. These regulations are discrete and relate solely to powers available to HMRC and Border Force. That said, I hope I have provided some reassurance about what the Windsor Framework does and does not require, and therefore what the powers granted by the regulations will be used to monitor and enforce.

The report also notes the absence of a public consultation. It is the Government’s view that a public consultation on an SI of such limited scope is unnecessary. The instrument implements requirements under the Windsor Framework that have been discussed extensively. The Treasury and HMRC continue to engage with a wide range of businesses and sectors, and indeed with fast parcel operators, on both this SI and the wider Windsor Framework.

In summary, the parcel arrangements set out under the Windsor Framework are a significant improvement when compared with the requirements under the old Northern Ireland protocol. But as well as comparing them with what the protocol would have required, it is vital to understand how little will change compared with the status quo for the vast majority of Northern Ireland parcel recipients and those in Great Britain sending goods to them. This statutory instrument is not a barrier but an enabler to the agreement that we have negotiated. I therefore beg to move.

[Lord Dodds of Duncairn (DUP)]

My Lords, I thank the Minister for outlining the purposes of the regulations before us. As noble Lords probably know, just the other day this was a matter of some heated debate in a Delegated Legislation Committee in the other place, and was subject to a vote in that House yesterday evening. Some consternation was expressed in the other place about the manner in which the Government had removed Members from that committee and replaced them with those who would vote these regulations through, but that is a matter for another day and it can be followed by reading Hansard on those committee proceedings.

The Minister said probably the most significant thing at the very end of her speech: these regulations facilitate the Windsor Framework. A lot of the debate is about the benefits of the Windsor Framework compared with the protocol as originally agreed, but the regulations before us are not about implementing the Windsor Framework; they are purely about creating the border for parcels between Great Britain and Northern Ireland. After that, we come on to the Windsor Framework, which is all about the EU law in which it decided, after discussions, to reduce the requirements that would normally be in place to move parcels into the EU for Northern Ireland.

But that is not what is before this Committee. Before this Committee is purely the creation of the parcels border. Whatever the EU then decides to do, whether by agreement or unilaterally, is facilitated by that border. It is our job as parliamentarians to examine the actual regulations before us, not necessarily today, although we can comment on them. The Windsor Framework proposals, which are in EU legislation, are separate, but I will reference them and no doubt they will be referenced by other speakers in this Committee.

The regulations treat Northern Ireland as if it is a foreign country for the purposes of moving parcels. They put in place another piece of the jigsaw of the Irish Sea border. They do not ameliorate or remove it; this is a new creation that is not here at present. Their effect is to separate Northern Ireland from the rest of the United Kingdom in the sense of placing it outside the same single market as Great Britain for postal purposes.

They amend the Postal Services Act 2000 and the Postal Packets (Revenue and Customs) Regulations 2011, so that movements from Great Britain to Northern Ireland cease to be unfettered within the same single market and become fettered by a customs barrier that effectively divides them into two single markets. As a consequence of the legislation before the Committee, postal packages destined for Northern Ireland from Great Britain have to be placed in the same group as packages destined for foreign countries. The definition of “export” is changed to include movements from Great Britain to Northern Ireland. Reference to the United Kingdom has to be removed so that the only references in play are Great Britain and Northern Ireland, with the UK single postal market terminated.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I agree with the noble Baroness, Lady Chapman, on the approach that this Government should, and want to, take to implementing the provisions in the Windsor Framework. The noble Baroness described it as the least worst option for Northern Ireland; the Government describe it as the best option. In reality, there is not a gap between them, because it does restore the smooth flow of trade and protect Northern Ireland’s place in the union. It also delivers a robust framework for solving future issues, as we know they will come up.

The framework delivers by enabling smooth trade between Great Britain and Northern Ireland, resolving the problems that were undermining Northern Ireland’s place in our union and fixing the democratic deficit which has seen Northern Ireland have no say in its laws. It is worth responding at the outset that while we may disagree on the Windsor Framework in this Committee, it is important to be clear that with regard to the approach taken by the Government in the framework and the accusation that it reflects the fact that the Government do not care about Northern Ireland, the opposite is true. The effort put into negotiating for Northern Ireland by my right honourable friend the Prime Minister, and many others across government, is because we care deeply about Northern Ireland and its place in our union.

To provide an answer and reassurance to the noble Lord, Lord McCrea, Northern Ireland is a full part of the United Kingdom in every sense, and we negotiated the Windsor Framework to protect the UK’s internal market and trade between Great Britain and Northern Ireland. We are confident that the framework does this. We reject the claim that the Windsor Framework changes Northern Ireland’s status within the UK.

Nevertheless, while I acknowledge the range of views on the framework in this debate, I encourage noble Lords to recognise the nature of what this statutory instrument provides. It is solely about the powers available to HMRC and Border Force to ensure the improvements in respect of parcels that we have secured through the Windsor Framework are delivered. Focusing on what this SI does provides, in part, some of the answers to the questions put forward to the Committee today. Noble Lords are right that the provisions relating to parcels will come into force at the end of September 2024 and that there is more work to be done in implementing those provisions. That work will be taken forward by the Government, HMRC and the Treasury, working with businesses in Great Britain and Northern Ireland and having discussions with them.

[Baroness Ritchie of Downpatrick (Lab)]

The Minister was describing the work and who would actually be involved in it. Can she provide the Committee with a little more detail about the type of work? Maybe she could elucidate that.

[Baroness Penn (Con)]

I was going to come later to ongoing co-operation with businesses in Northern Ireland and Great Britain, in terms of implementing the provisions when it comes to parcels. For example, we are working through in detail with the couriers and the people who take a lot of this traffic on how we can make it as seamless as possible. If I have anything further to add in my speech, I will do so later.

In respect of the point from the noble Lord, Lord Dodds, on this statutory instrument being about creating a border between Great Britain and Northern Ireland, as I said just now and in my opening speech, this instrument does not put in place the Windsor Framework arrangements. The noble Lord is right that that has already happened, but we disagree that the Windsor Framework or these regulations separate Northern Ireland from Great Britain in the way that he describes. The regulations do not treat movements from Great Britain to Northern Ireland as exports or movements from one country to another; they make some powers that are available in respect of international movements available in respect of movements from GB to NI. However, it is not the case that they treat them the same as parcel movements that are international or exports.

As the noble Baroness, Lady Chapman, said, these arrangements are unique. The Windsor Framework is a bespoke set of arrangements. If you move a parcel internationally, such as to your grandmother in France rather than in Northern Ireland, you and she would need to make customs declarations and possibly pay tariffs; that is not the case for the arrangements for GB to NI. Similarly, if you buy from an international retailer, the package goes through customs when it enters the UK; as I set out, that is not the case for GB to NI orders from internet sellers to individuals.

[Lord Dodds of Duncairn (DUP)]

Does the Minister accept, however, that the reason for what she has set out is in EU law, and that nobody in Northern Ireland is elected and nobody in the EU is accountable to anyone in Northern Ireland—indeed, in the United Kingdom—for those laws? If those laws change—for example, if the EU changes, tweaks or modifies them—that is what will apply. So the Minister cannot give any guarantee or assurance that the position she is outlining will continue to pertain and apply because no Government, nor this Parliament, will have any power in that respect.

[Baroness Penn (Con)]

The Windsor Framework is a bilateral agreement. To the noble Lord’s point, there are detailed governance arrangements around the Windsor Framework. Either side can raise issues through those mechanisms. It is not the case that the EU could just impose new requirements without consultation. Of course, the Stormont brake will be available to the Northern Ireland Assembly, when it is sitting.

With regards to the lack of an impact assessment, that point takes me back to what this statutory instrument itself does. It does not impose any requirements on businesses; it is solely about the powers for HMRC and Border Force. The Government are dealing with the resources available to those agencies in the normal way. I cannot remember who asked about this—it was the noble Baroness, Lady Ritchie of Downpatrick, I think—but we will of course ensure that resources are available, in particular to HMRC, to ensure that these agencies can engage with businesses in order to ensure that the process is as smooth as possible.

[Lord Purvis of Tweed (LD)]

I understand the Minister’s point with regards to the powers for HMRC under these regulations, but it assumes that HMRC will not then use those powers to ask businesses to carry out certain procedures. If that is the case, there will be an impact on businesses. Secondly, my reading of Regulation 3 is that, for the first time, a postal packet going from GB to Northern Ireland will now be categorised alongside a foreign postal packet. That is what the regulation says.

[Baroness Penn (Con)]

Again, that takes me back to what these regulations do versus the wider process around how parcels will move under the Windsor Framework. These powers do not and cannot do anything to impose anything on businesses.

I come to a few of the points made by the noble Lord, Lord Purvis, about understanding and beginning to quantify how the new process will work. It is not possible to give precise numbers on volumes of parcels and how they will fall into the different lanes, because volumes are not consistent year on year. However, based on estimates and commercial information provided by the parcel industry, we understand that about 5% of parcels are sent from business to business, with 90% moving from businesses to consumers and 5% from individuals to individuals. Based on those figures, for 95% of movements no difference will be felt in how customs operate now, under the easement that we have to the protocol. Compared to the protocol itself, they will face significantly fewer burdens.

There will be no routine checks or controls applied to consignments, with interventions made only on a risk-based, intelligence-led approach. This is decided by HMRC and Border Force. We expect a very small proportion of parcels to be checked or opened, only when there is reason to suspect circumvention of the rules.

The 5% of business-to-business goods will be treated the same, as if they were moving in freight. They can access the UK internal market scheme and the green lane, and they will benefit from radically reduced checks and data requirements compared to those under the protocol. Businesses can apply to HMRC to become a trusted trader and access the green lane. It is a simple process. Tens of thousands of traders are already in the scheme, and the Windsor Framework extends eligibility to it further. New arrangements under the framework are being phased in over nearly two and a half years. We will continue to use that time to undertake extensive engagement with stakeholders, including businesses in Northern Ireland and Great Britain, trader support services and parcel operators, to provide support and ensure that everyone is ready.

[Baroness Hoey (Non-Afl)]

As part of that work, will the Government look at the extra cost to business? There will definitely be an extra cost to businesses in GB that want to send to Northern Ireland, whether they go through the green or the red lane. Those costs will eventually end up with consumers in Northern Ireland. Do the Government agree?

[Baroness Penn (Con)]

The whole purpose of the Windsor Framework is to reduce any extra costs and burdens from moving from business to business in Northern Ireland. We need to put this in the context of the figures that I gave earlier about personal packages and business-to-consumer packages which, on some estimates, account for around 95% of parcel movements from GB to NI. The aim of our ongoing engagement with parcel operators, in both GB and NI, is to make sure that this process is as easy and seamless as possible for those that rely on existing information and data, where that is possible.

Several noble Lords also raised the question of timing. As I said, provisions under the Windsor Framework are being brought in over two and a half years and will come into effect on 30 September 2024. As I said in opening, although the majority of Northern Ireland protocol requirements on parcels were not implemented as the Government sought to renegotiate arrangements, we accepted that certain categories of goods moved in parcels, as in freight, should require customs declarations to ensure that both their entry to Northern Ireland and possible onward movement to the EU were notified to HMRC.

These requirements related only to a specific list of prohibited and restricted goods that includes, for example, certain drug precursor chemicals, endangered animals, et cetera, covered under CITES. The powers we are taking now will allow those requirements to be monitored and enforced from now, and those same powers will be used in respect of the new parcels arrangements that come into effect on 30 September 2024.

Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023

Baroness Penn Excerpts

Wednesday 19th July 2023 Lords Chamber

Moved by

[Baroness Penn]

That the draft Order laid before the House on 12 June be approved.

Considered in Grand Committee on 12 July.

Motion agreed.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023

Baroness Penn Excerpts

Wednesday 19th July 2023 Grand Committee

Moved by

[Baroness Penn]

That the Grand Committee do consider the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023.

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

My Lords, this Government recognise the threat that economic crime poses to the UK and our international partners, and are committed to combating money laundering and terrorist financing. To help respond to these threats, and building on the recently enacted Economic Crime (Transparency and Enforcement) Act, the Government are currently taking through a second Bill, the Economic Crime and Corporate Transparency Bill, which will bear down on kleptocrats, criminals and terrorists who abuse the UK’s financial and services sectors.

The money laundering regulations provide the legislative framework for tackling money laundering and terrorist financing, and set out various measures that businesses must take to protect the UK from illicit financial flows. Under these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. These are countries identified as having strategic deficiencies in their anti-money laundering and counterterrorist financing regimes that could pose a significant threat to the UK’s financial system.

This statutory instrument amends the money laundering regulations to update the UK’s list of high-risk third countries. It removes Cambodia and Morocco from the list to reflect changes agreed by the Financial Action Task Force, the global standard setter for anti-money laundering and counterterrorist financing. The FATF found that both Cambodia and Morocco have made the necessary domestic reforms to improve their compliance with FATF standards, which have been confirmed through on-site visits to both countries.

The Government will pass further changes in due course to add to the UK’s list of high-risk third countries those that the FATF added to its own list in February and June 2023. The reason for passing these changes separately is to give time to complete a full impact assessment for these additions.

This is the seventh SI amending the UK’s list of high-risk third countries to respond to the evolving risks from third countries. This update ensures that the UK remains at the forefront of global standards on anti-money laundering and counterterrorist financing. In 2018, the Financial Action Task Force assessed that the UK has one of the toughest anti-money laundering regimes in the world. The UK was a founding member of this international body, and we continue to work closely and align with international partners, such as the G7, to drive improvements in anti-money laundering and counterterrorist financing systems globally.

Lastly, this list of high-risk third countries is one of many mechanisms that the Government have to clamp down on illicit financial flows from overseas threats. We will continue to use other available mechanisms to respond to wider threats from other jurisdictions, including applying financial sanctions as necessary. This amendment will enable the money laundering regulations to continue to work as effectively as possible to protect the integrity of the UK financial system. It is crucial for protecting UK businesses and the financial system from money launderers and terrorist financiers. I therefore beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank the Minister for introducing and explaining the regulations. I realise that all they do is follow the recommendations of the Financial Action Task Force, FATF, to change the list of countries designated as high risk and therefore subject to enhanced due diligence requirements in relation to anti-money laundering, counterterrorism financing and counterproliferation financing. In that respect, so far so uncontroversial.

It has to be said, however, that the list is somewhat surprising—both for those on it and, in particular, those not on it. The changes made by these regulations are also somewhat surprising: they remove Morocco and Cambodia from the high-risk list. It seems rather odd that Cambodia, which is generally regarded as among the most corrupt countries in Asia, is no longer treated as high risk. I am very fond of Cambodia and have spent a lot of time in that country, but that does not change the fact that it is extremely corrupt.

According to Transparency International’s Corruption Perceptions Index, Cambodia is ranked 150 out of 180 countries on the index. This is a slight improvement on previous years, but still considerably lower than many countries that remain on the high-risk list, such as Albania at 101, Panama at 101, the Philippines at 116, Barbados at 65, Burkina Faso at 77, Iran—which is on the blacklist—at 147, Jamaica at 69, Jordan at 61 and Mali at 137. I could go on. In fact, Cambodia has a worse corruption score than all but seven of the 27 countries that remain on the FATF high-risk list. It is not only Transparency International that ranks Cambodia badly. With perhaps more relevance to this regulation, the Basel AML Index ranks Cambodia as having globally the seventh worst money laundering and terrorism financing score. Despite that, we are reducing the level of due diligence that the regulated sector will have to apply to it. Seriously, is there anybody in this Room who believes that Cambodia should be treated better than, say, Gibraltar, Barbados or even the Philippines? I should like the Minister to look me in the eye and state that she really believes Cambodia is not a high-risk country for corruption.

This starts to beg the question about the value and legitimacy of the FATF high-risk assessment process, known as the mutual evaluation assessment. That value is called into even greater question when we look at the countries not included in the high-risk designation. I will give a high-profile example: until February of this year, Russia was a member of the FATF. In February, the FATF suspended its membership because of the war against Ukraine—somewhat belatedly, one could say. I emphasise “suspended”; Russia has not been expelled. It is evidently a paragon of virtue when it comes to money laundering and terrorism financing because, unlike the British territory of Gibraltar, Russia is not designated as high risk and therefore not subject to enhanced due diligence. It is odd, then, that we have spent so much time passing Bills in this House specifically to deal with the stolen laundered money coming from Russia. Almost unbelievably, in its last review of Russia in 2019, the FATF praised Russia’s efforts to prosecute terrorist financiers and suggested that AML/CFT is afforded the highest priority by the Russian Government. This is a country that finances and supports organisations such as the Wagner Group, while Putin’s Government is generally regarded as a kleptocracy. Other countries not on the list, and therefore not subject to enhanced due diligence, include such famously uncorrupt ones such as Somalia, Venezuela, Libya, Turkmenistan, Nicaragua and Zimbabwe, to name but a few. All score worse than Cambodia in the corruption index; all are apparently low risk, according to the FATF. The Explanatory Memorandum refers to the FATF’s “robust assessment processes”; frankly, those do not stand up terribly well to scrutiny, if this list is anything to go by.

It is worth quoting the recently departed FATF CEO, David Lewis, who was very highly regarded. He said the agency structure of “mid-level bureaucrats” means that it does not have the scale to take on the big global financial crime issues. He said that they are

“very comfortable dealing with the finest minutiae of technical detail, but aren’t comfortable or able to have big picture discussions and are often only in their jobs for one of two years”.

He stated that genuine reform of the FATF is difficult to achieve, with typically two to four countries blocking consensus, meaning it is rare that you can get any meaningful change, which probably explains the list we are looking at.

Concerns are often raised about the FATF’s lack of transparency. The minutes of plenary sessions that make these risk designations are not published and it is clear that political horse-trading plays a significant role in the decision-making process. To be fair, there is no doubt that the FATF has had a positive impact on global financial crime since its inception in 1989, but there are growing doubts about its ability to cope with the challenging global situation we currently face. In an article for RUSI, Tom Keatinge of the Centre for Financial Crime and Security Studies makes some helpful suggestions about how the FATF could be improved. He suggests, first, greater transparency: it should provide greater assurance of independence and oversight. Its activities should be overseen by an independent board and its evaluation should be independently reviewed, not subject to the evidently politicised horse-trading that occurs currently. The minutes of the plenaries should be published, or the plenaries themselves could be livestreamed. Secondly, it needs to create a dedicated technical-assistance capability to ensure that unintended negative consequences, such as financial exclusion and the use of the FATF recommendations by autocratic regimes against civil society organisations, are addressed.

Thirdly, he suggests that the FATF needs to show greater ambition. Ultimately, the question is whether it is addressing financial crime effectively. It currently evaluates how effectively its recommendations are implemented, but not the extent to which financial crime is addressed as a result. He suggests an independent review of the FATF’s effectiveness, which seems a simple and sensible suggestion 45 years after it was founded.

Fatima Alsancak, also of the Centre for Financial Crime and Security Studies, suggests that Russia is a good

“case study in the deficiencies of the … FATF mutual evaluation process, which allows countries with high levels of institutionalised corruption to complete their evaluations despite the lack of integrity in their AML systems”.

She goes on to say:

“It is essential for the watchdog to revisit its standards”,


and again highlights the need for greater transparency in the decision-making and listing process.

I was going to ask why South Africa, Nigeria, Croatia, Cameroon and Vietnam are not the list, but the Minister answered that in her opening statement. I mentioned earlier that Gibraltar, a British Overseas Territory, is on the high-risk list. Will she please comment on that, too?

There are important questions to answer about the value of the FATF evaluation process. We should not rely passively on what are, frankly, flawed recommendations. Do the Government agree that FATF’s procedures and the high-risk list itself appear to have important deficiencies and, if so, what are they doing about it? Do they agree with the recommendations that I referred to earlier?

--- Later in debate ---

[Baroness Chapman of Darlington (Lab)]

My Lords, I am aware that we always follow the FATF’s recommendations but, given what we have just heard, it is just as well that we have this procedure as an opportunity to ask the Minister about some issues of concern that arise from the recommendations we are considering. I will not repeat everything that has already been said, because immediately following this we have another SI that took three and a half hours to consider in the Commons and, looking around the Room, I anticipate that it may take a little while this afternoon as well.

This instrument is perhaps relatively straightforward, but I will highlight a couple of the points that have been made in which we are especially interested. On the issue of reputation and our overseas territories, the fact is that Gibraltar and the Cayman Islands are on this list. Do the Government think that this has any reputational impact on the UK? What is the Government’s assessment of that? When this issue was considered in the Commons, providing some kind of support or input from the UK to Gibraltar to move things along was discussed. I do not think that the Minister there gave a particularly expansive response at that point so it might be helpful, if there is an opportunity, to hear from the Minister here today whether a request has been made by Gibraltar and whether any input has been forthcoming from the UK.

I will leave it there for today, given the next SI that we will consider and the fulsome contributions that have already been made by others, which I know the Minister will answer fully.

[Baroness Penn (Con)]

My Lords, I thank noble Lords for their contributions to this debate. I know that we have also touched on this issue in other Bills progressing through the House.

I will start with the FATF process. As I think I said in my opening speech, the UK is an active member of the FATF. We participate in mutual country evaluations, looking at its processes and rules, which we are fully supportive of. Indeed, we were a founding member of the FATF. The processes are agreed internationally and based on rigorous, detailed and robust technical assessment. The FATF also regularly co-ordinates with other major international organisations.

It is worth saying two further things on the FATF. First, as a member of the FATF, we will always look to improve its work and processes and we will always reflect on those. Secondly, it is an important piece of the picture on setting standards for international action on anti-money laundering and counterterrorist financing, but it is only one piece of the picture when it comes to the UK’s overall approach towards tackling economic crime more broadly and some of the issues raised in today’s debate.

Cambodia being delisted is within the scope of the SI. Cambodia has addressed key deficiencies relating to the legal framework for international co-operation and preventive measures, risk-based supervision, financial intelligence, investigation and prosecution of money laundering, asset confiscation and targeted financial sanctions for proliferation financing. By addressing those deficiencies, Cambodia met the criteria to be removed from the list.

The noble Lord, Lord Vaux, also raised Russia’s membership of the FATF. As he noted, in February 2023 the FATF suspended Russia from the organisation. It continues to call on all jurisdictions to remain vigilant to threats to integrity, safety and security of the international financial system arising from the Russian Federation’s aggression in Ukraine. We are absolutely clear that Russia’s actions run counter to the principles on which the FATF is based and we fully support the ongoing suspension of Russia’s membership of the FATF. We have taken a wide range of measures against Russia, including the most extensive sanctions regime that we have ever put in place. We will continue to bear down on the Russian state in that way.

The noble Lord, Lord Wallace, and the noble Baroness, Lady Chapman, asked about the overseas territories and Crown dependencies. The UK has engaged with both on this issue to share best practice, improve understanding of risks and increase compliance with the FATF standards. I went to the ministerial meeting of MONEYVAL, which is a regional organisation that feeds into the FATF process. Some of the Crown dependencies are members and I met the Ministers responsible for FATF compliance as part of that forum. We will continue doing that, as several of the Crown dependencies have assessments that are either ongoing or upcoming this year.

Gibraltar and the Cayman Islands were mentioned. Gibraltar continues to make good progress against its action plan with only one action remaining—for it to show that it can pursue more final asset confiscation judgments commensurate with its high-risk profile. When it comes to that action, judgments coming through can take time and that timing is not all within Gibraltar’s control.

I met representatives from the Cayman Islands this year and we touched on this area. They have made significant progress in addressing deficiencies since the Cayman Islands were listed in February 2021. In June 2023—just last month—the FATF made the initial determination that the Cayman Islands have substantially completed their action plan. On this basis, it plans to conduct an on-site visit in September to verify this, which is the final stage before delisting. We have a positive story to tell in both those areas.

--- Later in debate ---

[Lord Purvis of Tweed (LD)]

I look forward to the Minister writing to me, because I was a little alarmed to hear her say—if I heard her correctly—that the UK would work with Sudan on this. There is no one to work with in Sudan at the moment and, if a case cannot be made for the UK not to act on Sudan, which has a civil war, with two warring partners and with considerable financial interests on each side—SAF and RSF—then I cannot see a case that would be stronger.

[Baroness Penn (Con)]

I will write on Sudan to the noble Lord, Lord Purvis, as I committed to do, and I will copy in the Members in this debate.

The UAE is making swift progress on its FATF action plan. It has several actions still to complete, focused on money laundering investigations, transparency of beneficial ownership and the investigation of money laundering cases. We hope to see further progress on those areas, as it looks to deliver on its action plan.

I have not managed to cover in detail all the points raised by noble Lords. They have gone slightly wider than the countries in question on the listing today, but I understand noble Lords’ interest in the process that we use to update these lists, adhering to international standards. I will read Hansard and ensure that I write to noble Lords if I have not addressed any questions.

Motion agreed.

Bank Accounts

Baroness Penn Excerpts

Wednesday 19th July 2023 Lords Chamber

[Lord Lamont of Lerwick (Con)]

My Lords, I beg leave to ask a Question of which I have given private notice. In asking this Question, I declare that I have a bank account with NatWest.

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

My Lords, the Government unequivocally support the right to lawful free speech and consider it unacceptable for banks or other payment service providers to terminate contracts on these grounds. Earlier this year, the Government launched a call for evidence which included questions on the issue of payment account terminations and freedom of expression. We will soon set out plans for enhanced requirements applying to the termination of payment accounts.

[Lord Lamont of Lerwick (Con)]

My Lords, I am grateful to my noble friend for confirming that it is the Government’s view that no bank account should be closed for political reasons. Does she therefore agree that it is not for a bank to judge whether someone’s personal or political views accord with the so-called “values” of the bank and that that is not a reason for closing an account? Equally, does she agree that it is not for a bank to judge whether someone’s views are out of tone with wider society and then use that as the pretext for closing an account? Is this not a fundamental issue which ought to concern everyone of every party—left, right, centre or flat earth—who might all be the next person to suffer under what is happening? Will my noble friend ensure that the number of cases that have been reported recently, which, prima facie, seem to indicate that accounts may have been closed for political reasons, are referred to the regulator and investigated? Will she confirm that this a fundamental right of free speech in a free society?

[Baroness Penn (Con)]

I absolutely agree with my noble friend and reiterate once again that the Government unequivocally support the right to lawful free speech and consider it completely unacceptable for banks or other payment service providers to terminate contracts on these grounds. We issued a call for evidence that covered these issues and will consider all evidence as part of that. As my noble friend noted, I am sure that the regulator will also want to consider these matters.

[Lord Hunt of Kings Heath (Lab)]

My Lords, does the noble Baroness agree that part of the problem is that her department and the FCA were very slow to take action against the banks for the unwarranted interference in parliamentarians’ lives because they failed to operate the guidelines on PEPs appropriately and proportionately? Can we expect to see the FCA take disciplinary action against the banks that are doing this?

[Baroness Penn (Con)]

My Lords, it is important to distinguish between any action that may have been taken on freedom of speech grounds, or on the grounds of people’s political views, and the PEP regulations, which are to do with people’s status as politically exposed persons. However, the noble Lord is right, and we have discussed this issue in the House many times: the banks have not always applied those regulations and guidance as they should. That is why we had two amendments to the Financial Services and Markets Act to take action in this area, both to amend the regulations and for the FCA to review its guidance and the banks’ adherence to it. My right honourable friend the Economic Secretary has written to the FCA again recently to reiterate the importance of that review and to say that, if any action can be taken during the conduct of that review, we will expect that to happen also.

[Lord Forsyth of Drumlean (Con)]

My Lords, I declare an interest as the chairman of a bank. I also have an account with Coutts Bank—although, by the way, I have nothing like the wealth that has been mentioned. I point out to my noble friend that Coutts Bank is owned by NatWest, and the largest shareholder in NatWest by a long way is the Government. Should the Government, as a shareholder, not say to NatWest that this kind of conduct is unacceptable? Also, what is the FCA doing? On the basis of what we read in the newspapers, Coutts Bank has been in breach of rule 4, which requires it to treat customers fairly.

[Baroness Penn (Con)]

My Lords, as my noble friend has noted, the Government have a shareholding in NatWest Group, but it is managed at arm’s length and on a commercial basis by UK Government Investments and I do think that is the right approach. My noble friend also noted the role of the FCA. He is right that it is for the FCA and other relevant independent bodies to determine whether any breach of regulatory requirements has taken place—so I will not comment on that, but I would expect them to do so.

[Baroness Kramer (LD)]

My Lords, I gently suggest to the Minister that the issue of PEPs and the issue of people expressing their political views and then being treated badly are in fact entangled one with the other. I am just outraged that Nigel Farage was denied a bank account, but I was also denied a bank account at Chase UK this year because I could not produce physical payslips for my husband, who died 17 years ago. That had to be a specious reason, and I suspect that the real reason is that I am a Liberal Democrat who speaks out on issues in a way that the bank does not particularly like.

So I will just say that the PEP regime has got completely out of hand. It has been outsourced to consultants who make their money from dire and irrational interpretations. Will the Government please press the FCA not just to renew sensible guidance but to make sure that it is followed? Could she please tell it to focus its energies on the real abusers and the real money launderers?

[Baroness Penn (Con)]

Well, I can reassure the noble Baroness that that is exactly what the amendment to the Financial Services and Markets Act requires the FCA to do. It should look not just at the appropriateness of the guidance but at firms’ adherence to that guidance. We have asked it to get feedback from those who are affected by this guidance and take particular account of the impact on family members, which is an issue that many noble Lords have raised with me. We expect the FCA to follow that rigorously. The FCA is required to provide an update to this House on the progress of that work within a few months of it starting, and I am sure noble Lords will pay close attention to that.

[Baroness Deech (CB)]

My Lords, I know it is customary for children to blame their parents for everything, but will the Minister extend her concern to credit cards? My daughter, who is a very modest earner and has had the same credit card provider for 20 years, is being investigated in depth, with every piece of financial information needing to be produced, and we can think of no reason other than that I am her mother.

--- Later in debate ---

[Baroness Penn (Con)]

The changes to the regulations that the Government are committed to and the review by the FCA do not just cover banks; they cover the provision of credit cards and all other services that are covered by the anti-money laundering regulations relating to politically exposed persons.

[Earl Attlee (Con)]

My Lords, on at least two occasions Lords Ministers have indicated that the complete integrity of the money-laundering regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine, even under export licence. In the light of what has happened recently, will the Minister agree either that this matter will be reviewed or to have a further meeting with me?

[Baroness Penn (Con)]

My Lords, I am not sure that events recently pertain to the particular case raised by the noble Lord. I was pleased to meet with him and as I committed to then and commit to on an ongoing basis, we will continue to engage with the Ministry of Defence to ensure that we have an understanding of the issue and that people do not face a wider systemic barrier.

[Lord Macpherson of Earl’s Court (CB)]

My Lords, I declare my interest as chairman of C Hoare & Co. Does the Minister agree that customer confidentiality should lie at the heart of banking, and that a bank apparently commenting on the income and wealth of a customer is completely unacceptable?

[Baroness Penn (Con)]

I agree with the noble Lord on both points. When it comes to assessing whether that has taken place, that is a question for the regulator.

[Lord Davies of Brixton (Lab)]

My Lords, I have to express a bit of concern about what I take to be the mood of the House. Will the Minister confirm that a PEP regime is essential, albeit one that is properly operated, and secondly, that if people cannot account properly for their income, it is right and proper for banks to refuse to continue an account?

[Baroness Penn (Con)]

My Lords, that is why it is important to distinguish between the PEP regime, which has caused problems for people, and questions about banks’ actions in relation to freedom of speech or political views. It is important, though, in both circumstances, whether you are a PEP or you have expressed any view that is lawfully held, that you have access to bank accounts. In taking forward our work on PEPs in particular, we are mindful of always maintaining our commitment to international standards in this area, and our amendments to the Financial Services and Markets Act do just that.

[Lord Swire (Con)]

Has my noble friend had any discussions with her colleagues in the Foreign, Commonwealth and Development Office about the fact that some overseas missions find it impossible to open bank accounts in the UK? This happens the entire time, and it seems rather invidious to ask these people to come here to open embassies and then say they cannot bank when they are here.

--- Later in debate ---

[Baroness Penn (Con)]

FCDO colleagues have not raised this with me but if there is an issue, I will be more than happy to sit down with other departments and discuss what we can do about it.

[Lord Livermore (Lab)]

My Lords, access to financial services should of course never be determined by a person’s political views, but just as those with assets of £1 million should not unduly be denied a bank account with Coutts & Co., so those with substantially less should not be denied access to basic banking services. Yet the Financial Conduct Authority estimates that more than 1 million people in the UK have no bank account and one in four people will experience financial exclusion at least once in their lives. The Government recently overturned Labour’s amendment to the Financial Services and Markets Act to require the FCA to have regard to financial inclusion. Do the Government now regret that decision?

[Baroness Penn (Con)]

My Lords, I absolutely agree about the importance of financial inclusion, and we have seen significant progress on that issue in recent years, including through establishing provision of basic bank accounts. That means that anyone in society, whatever their means, has the right to access banking, and we will continue to promote access through our work on financial inclusion.

[Lord Cormack (Con)]

My Lords, in answer to my noble friend Lord Forsyth, my noble friend the Minister said that the Government had their shareholding handled at arm’s length, or words to that effect. I completely accept that, but the moral fact is that the Government are the largest shareholder, so should they not take a particular interest in this political issue?

[Baroness Penn (Con)]

My Lords, the Government have taken an interest in this issue, which is why we issued a call for evidence earlier this year that covered freedom of speech and bank account closure. That is the right avenue through which the Government should seek to address this issue, rather than through their shareholding in a particular bank.

[Lord Blunkett (Lab)]

My Lords, I am fully in favour of the Government protecting the rights of the “Coutts one”, as they should be protecting the rights of the 1 million who cannot get a bank account. But is it not perverse, on the day that the Prime Minister has rightly apologised for the egregious treatment of LGBT people in the Armed Forces, for the Home Secretary to widen this debate into a full-frontal attack on equality, diversity and inclusion? Is that not totally unacceptable as well?

[Baroness Penn (Con)]

My Lords, I think the point we can all agree on is that the right to lawful freedom of speech is fundamental. Where that has been seen to be brought into question through the provision of services, we have cause to worry.

[Lord Fox (LD)]

The Minister rightly upheld the need for access. One of the ways people access banks is through bricks and mortar branches in our towns and cities. These continue to be closed; every week banks are closing. What conversations has her department had with banks about their closures and what was the content of those discussions?

[Baroness Penn (Con)]

This is an issue we have discussed, including during the passage of the Financial Services and Markets Act. The Government legislated in that Act to protect access to cash for consumers and business depositors, which will help people continue to access banking. Banking hubs are also being rolled out in areas that may be seeing closures, and those signed up to banking hubs have given a commitment that, where a hub is due to be opened in an area, the last bank will not shut until it is open.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, as the Minister will remember, I tabled an amendment to the financial services Bill on this very question—as distinct from PEPs—of political values closing down accounts, and I was told that evidence was being sought. Is the Minister concerned that the only reason we now know this is happening is not because of anything the Government have done, but because a high-profile figure is pursuing the issue and getting a lot of attention? Secondly, can the Minister comment more broadly on the danger of the corporate power of financial services being used to bully customers into accepting certain values of equality, diversity and inclusion that have nothing to do with equality or diversity in any real sense, but with imposing their views on customers, for fear they will get their accounts cut off?

[Baroness Penn (Con)]

I reassure the noble Baroness that the Government’s commitment to issuing a call for evidence included issues of payment account terminations and freedom of expression. I believe the call for evidence closed before the issue that prompted this Question came to light. The Government are delivering on their commitment.

I close by stating once again that the Government unequivocally support the right to lawful free speech and consider it unacceptable for banks or other payment service providers to terminate contracts on these grounds.

Bank of England: Interest Rate Policy

Baroness Penn Excerpts

Wednesday 12th July 2023 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, I declare my interest, as in the register, as chairman of a bank.

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

My Lords, we constantly monitor the UK economy’s performance and outlook, and we acknowledge the pain that rising interest rates are causing for many households. However, setting interest rates is the responsibility of the independent Monetary Policy Committee of the Bank of England. The Government do not comment on the conduct or effectiveness of monetary policy. We will continue to support the MPC as it takes action and focuses on making the tough decisions necessary to tackle inflation.

[Lord Forsyth of Drumlean (Con)]

My Lords, I fully understand the need to respect the independence of the Bank of England, but that it is not the same as denying it being subject to proper accountability. The Bank of England was responsible for a huge increase in the money supply through quantitative easing—which resulted in part in the inflation that we are now experiencing—despite warnings from Andy Haldane, its chief economist at that time, that that would result in inflation. Andy Haldane is now suggesting that there may be an overreaction and overcorrection in putting interest rates up to the extent that they are being. This will cause misery to millions of people. The Bank of England should surely be accountable for this.

[Baroness Penn (Con)]

My Lords, I agree with my noble friend that the Bank of England should be and, indeed, is accountable for the decisions that it makes, but it is not for government to comment on the conduct or effectiveness of monetary policy. He is right that high levels of inflation and, therefore, high interest rates, are causing pain. That is why the Government are taking action to support people at this difficult time, including the mortgage charter, agreed by my right honourable friend the Chancellor, that covers around 90% of the market and gives people options when they are facing higher mortgage rates to make sure that their payments continue to be affordable.

[Baroness Kramer (LD)]

My Lords, I have great sympathy with the Question from the noble Lord, Lord Forsyth. I would like to hear from the Minister that there will be no attempt to compromise the independence of the Bank of England, but that that does not mean that improvements cannot be made; for example, to counter what many of us think is an underlying flaw of groupthink and lack of diversity that leads the Bank to decisions that could be made more optimal with a different set of parameters.

Does the Minister also recognise that the Government themselves could influence inflation far more effectively if they focused on doing so? For example—to name just three actions—they could have dealt with the staff shortages that have so driven inflation; they could have done a great deal more, much earlier, to deal with price gouging by many of our major supermarkets; and they could have kept in place the energy price support scheme, which helped SMEs hold down their prices. Will the Government then take responsibility for their share in not taking those steps to stem inflation?

[Baroness Penn (Con)]

On the noble Baroness’s first point, my initial Answer set out that the Government continue to be committed to the independence of the Bank of England. She is right that government policy can also affect inflation. The OBR said that the energy price guarantee brought inflation down by around two points. Our labour market supply measures, including expanding access to childcare, were the biggest supply side impact in a Budget that the OBR has ever measured. If we were to provide direct subsidies to mortgages, as the Liberal Democrats propose, that would have an inflationary effect, meaning that interest rates would be higher for longer.

[Baroness Meacher (CB)]

My Lords, if the Government feel unable to comment on Bank of England policy, to whom is the Bank of England accountable?

[Baroness Penn (Con)]

The Bank of England is accountable to both the Government and Parliament. The noble Baroness referred to a report being done by the Economic Affairs Committee in this House. I am sure we will pay close attention to the outcomes of that.

[Lord Howell of Guildford (Con)]

Has it occurred to my noble friend’s Treasury colleagues that the stream of increases in Bank of England interest rates is both deflationary, obviously, and inflationary, in that every 1% increase in the interest rate adds between £15 billion and £20 billion to government debt servicing? Also, since the Government have up to £30 billion or £50 billion per increase in the RPI level, any impact of these interest rate increases on RPI further increases government spending. We really are looking at a double-edged sword. Other, more direct measures are obviously needed to reduce RPI, the pressure for pay demands and all sorts of other inflationary effects.

[Baroness Penn (Con)]

While I will not be tempted by my noble friend to comment on the conduct of monetary policy, I agree that, in the context of high inflation, fiscal responsibility and keeping government borrowing under control are absolutely essential. That is why the Government are committed to that.

[Baroness Chapman of Darlington (Lab)]

My Lords, what is it about the Government’s handling of the economy that means that, with near 0% growth, inflation is still high, despite the Prime Minister promising to halve it, and higher for longer in the UK than in many similar economies? How does the Minister think that 1 million households facing a £500 a month increase to their mortgage payments by the end of 2026 will cope? How concerned should we be at the Government’s voluntary agreement with the banks, which means that over 1 million households will miss out on the support that Labour’s mandatory scheme would have brought?

[Baroness Penn (Con)]

My Lords, growth is better this year than predicted and expected by some. The UK is not alone in facing high inflation. Core inflation in the UK is lower than in more than half of Europe, but we face particular underlying factors that interact with the global challenges causing inflation. The energy shock has been felt more keenly in the UK because of our historical dependence on gas, and we have labour market tightness, due in part to a rise in activity during the pandemic. That is why we are focused on measures to tackle these problems. I talked about the energy price guarantee, which brought down inflation by around two points, and our measures to address childcare. I say to the noble Baroness, reflecting the point from my noble friend, that fiscal responsibility and government borrowing have a part to play in this. That is why Labour’s plans to spend £28 billion a year of additional borrowing would be inflationary and make the problem worse.

[Lord Desai (CB)]

My Lords, would the Minister not agree that, although independence of the Bank of England is all right, what we need is competence? The Bank of England was more competent when it was not independent than it is now when it is.

[Baroness Penn (Con)]

Much as noble Lords continue to ask me to comment on the conduct of monetary policy by the Bank of England, as I said, the Government do not comment on the conduct or effectiveness of monetary policy. We continue to support the MPC as it takes action, and we focus on making the tough decisions necessary to tackle inflation.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, does the Minister not realise that this mortgage rate misery comes on top of the huge increase in the cost of energy and the continued increase in food prices and other costs? How do the multi-millionaires who run this Government find out how ordinary people are affected?

[Baroness Penn (Con)]

The noble Lord does not reflect on the action that has been taken by this Government that has supported those who struggle most to meet the rising cost of living, with more than £90 billion of support last year and this year focused on those who need it the most, including the energy price guarantee, direct support with energy bills and cost of living payments worth hundreds of pounds to millions of families across the country.

[Lord Rooker (Lab)]

Is the Minister aware that the Select Committee has received abundant evidence that central bankers talk too much?

[Baroness Penn (Con)]

I am not aware of all the evidence that the Select Committee that the noble Lord refers to has received, but I am sure that once the Select Committee produces its report the Government will read it with interest.

[Lord Kamall (Con)]

My Lords, many people recognise that we have an independent Bank of England, but we also have a Bank of England that is supposed to meet a target of 2% inflation. Given that the Bank has continuously failed to meet that target—I understand also that government can contribute to this—one would expect the Bank either to comment on government policy which it saw as inflationary or, at the same time, to be accountable for not holding to its target. Given what the Minister says about tempting her or otherwise to talk about the Bank of England and its policy, it is important that people understand that when the Bank fails to meet its target it has to be held accountable to someone, and many noble Lords have not seen that accountability.

[Baroness Penn (Con)]

My Lords, when the steps were taken to make the Bank of England independent, measures were also put in place to ensure that it is accountable to the Government and to Parliament for its decisions.

[Baroness Bennett of Manor Castle (GP)]

My Lords, the Minister has referred to the drivers of inflation, but she did not mention greedflation—the fact that, as the OECD figures which came out this week show, British company profits were boosted by almost one-quarter between the end of 2019 and early 2023, faster than nearly any other state’s. In the last Question, we referred to the fact that we have a huge lack of competition across our economy. Four, five or six big companies dominate all the sectors, often cross-owned by hedge funds. Are the Government going to do something about greedflation?

[Baroness Penn (Con)]

While the Government do not recognise the picture that the noble Baroness has painted, we are looking carefully at the data and ensuring that competition is working properly. That is why my right honourable friend the Chancellor met the major regulators last week or the week before, I believe, and agreed a plan of action in each of those areas to ensure that consumers are getting a fair deal.

[Lord Londesborough (CB)]

My Lords, on the subject of talking too much, as the noble Lord, Lord Rooker, has just raised, how helpful was it when the Prime Minister at the beginning of this year set a personal pledge to halve inflation from 10% to 5% when the Bank of England was forecasting 3.9% and holding a target of 2%? What does that do for the credibility and independence of the central bank?

[Baroness Penn (Con)]

My Lords, the Government have always been clear that we want to halve inflation by the end of this year on the path to delivering the 2% target to which the noble Lord referred. The primary driver for that is action by the MPC, which the Government support, but it is also important that the Government make sure that fiscal policy acts in support of monetary policy and that we take action in the short term to bring down inflation; for example, through the energy price guarantee. It is important too that we take action on some of the longer-term drivers of inflation; for example, through improving energy security and supply and tackling things, such as labour supply, which are part of the drivers of where we are today.

Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023

Baroness Penn Excerpts

Wednesday 12th July 2023 Grand Committee

Moved by

[Baroness Penn]

That the Grand Committee do consider the Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023.

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

My Lords, the order will enable trading standards to fully exercise its investigative powers to check compliance with the Tobacco Products (Traceability and Security Features) Regulations 2019. Smoking is the single leading cause of preventable death and disease in the UK, accounting for approximately 76,000 deaths a year. The Government are committed to addressing the harms of tobacco and have announced an ambition for England to become smoke-free by 2030, supported by a package of measures to cut smoking rates.

Alongside that approach, HMRC has a role to play in charging duty on tobacco products to deter smoking, as well as raising revenue to cover the cost to the NHS. HMRC has another key role in tackling the illicit market. One of the main challenges in tackling smoking prevalence, aside from the addictive nature of nicotine, is the illegal trade in tobacco products. That increases both the affordability and health risks for smokers.

The UK’s tobacco track and trace system, introduced in 2019, helps to prevent the illegal trade in tobacco products by making it more difficult for smugglers and counterfeiters to operate. The system provides a way to verify the authenticity of tobacco products and ensures that they have been legally procured and distributed. Tobacco products are tracked from point of manufacture through to point of retail, and at all stages in between.

To supply tobacco for sale in the UK, an entity must be registered for tobacco track and trace and must obtain an economic operator ID. Over 50,000 businesses are already registered, but there are inevitably those who deliberately choose to operate within the illicit supply chain, and we need to tackle such activity.

At Budget 2020, the Government announced plans for tougher, more effective sanctions to tackle the sale of illicit tobacco. An HMRC consultation which ran from December 2020 to February 2021 proposed that the sanctions be linked to the tobacco track and trace system and available for use by both HMRC and trading standards. HMRC and trading standards already work closely together to tackle the illicit tobacco market—for example, through their joint initiative of Operation CeCe. Under that initiative, illegal tobacco products are seized from retail and residential premises, disrupting the market, and preventing fraud.

Respondents to HMRC’s consultation supported the introduction of tougher penalties for illegal products found in retail and residential premises. They also supported extending powers to trading standards to better tackle non-compliance.

Primary legislation providing the powers to make regulations to introduce the new sanctions was introduced in the Finance Act 2022. Its provisions include powers to make regulations to issue penalties of up to £10,000, seize product involved in a contravention, and exclude retailers from the tobacco track and trace system, thereby restricting their ability to buy duty-paid tobacco for retail purposes.

The consequent regulations required for these sanctions to take effect will be achieved by the making and laying of two statutory instruments. The first is the Tobacco Products (Traceability and Security Features) (Amendment) Regulations, which was laid on 12 June. It sets out the detail of the new sanctions and how they will be implemented. It confers investigation functions on trading standards specifically related to track and trace. The second SI is the Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023, which we are debating. This will make a small amendment to the Consumer Rights Act 2015 to allow trading standards to exercise its existing powers under the Act in relation to the investigative function conferred under the Tobacco Products (Traceability and Security Features) (Amendment) Regulations 2023.

That function will see trading standards investigating breaches of tobacco track and trace and referring them to HMRC, which will administer the sanctions. This approach will play to both organisations’ strengths. Trading standards will have an additional tool to deal with what it finds during its compliance visits. It will then be able to refer information to HMRC, which will administer the penalties and ensure that the most appropriate sanction is applied and enforced. These sanctions will serve as a strong deterrent against businesses involved in street-level distribution of illicit tobacco, helping to protect the public and our economy. I therefore beg to move.

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[Lord Livermore (Lab)]

My Lords, we support this measure. I shall reiterate a couple of facts mentioned by the Minister. Smoking is the biggest cause of preventable death in the UK. It accounts for some 76,000 deaths each year, with half of all smokers dying of a smoking-related illness. It is estimated that smoking costs NHS England over £2.5 billion every year. Alongside high-level policy, such as the smoking ban introduced by the last Labour Government in the Health Act 2006, evidence suggests that high duty rates have had a positive impact by reducing the number of people who start smoking and increasing the numbers seeking to cut down and quit.

With 21% of cigarettes sold in the UK currently illicit, clearly the illegal trade in tobacco products undermines these important contributions to public health. It deprives the Exchequer of vital revenue and reduces the deterrent effect of high duty rates. We therefore support harsher penalties for those who seek to avoid paying such duties and commensurate powers for trading standards to tackle those who procure, supply and distribute illegal tobacco and profit from the illegal trade.

I would like to ask the Minister three questions. First, she mentioned that the combined application of fines, powers to seize illicit products and the new sanctions is designed to have a deterrent effect on retail outlets and street-level distributors. This point was also made by the noble Baroness, Lady Kramer. Are there any plans to communicate these powers to potential offenders so that the deterrent effect might be enhanced? Secondly, where illicit product is sold through retail outlets, what data exists on whether the owner of a retail outlet is aware of such sales versus illicit sales carried out surreptitiously by an employee, and therefore whether enforcement measures are always correctly targeted? Finally, what communication, co-operation and co-ordination exists between HMRC and the Border Force to tackle the supply of illicit product at source?

[Baroness Penn (Con)]

My Lords, I thank both noble Lords for their contribution to this short debate. I am afraid that the speed of our debate might mean that I will need to write to them regarding some of their questions. I will address the ones I can.

The noble Baroness, Lady Kramer, asked whether the cost of living pressures have caused an increase in the illicit market. My understanding is that there has been a negligible increase in it. Some smokers are switching, for example, to hand-rolling tobacco from ready-made cigarettes to save money. That is the kind of behaviour shift we are seeing.

As for when we will be implementing the provisions provided for in the two statutory instruments, trading standards will start work on 20 July when the tobacco tracking and security SI commences.

Regarding the types of tobacco that will be covered, I can say that the tobacco track and trace system applies to only cigarettes and hand-rolling tobacco, but this makes up approximately 97% of the tobacco market. The system and the penalties are intended to be extended to other tobacco products, such as cigars, cigarillos and shisha, but that will be from May 2024. There is a plan to extend over the remaining market.

Both the noble Baroness, Lady Kramer, and the noble Lord, Lord Livermore, asked about the deterrent effect. We should see a decrease in the current tax gap for tobacco duty. We anticipate that we will see an increase in compliance activities undertaken by trading standards. The visibility of businesses selling illicit products being penalised will have the deterrent effect that both noble Lords asked about.

Tackling this issue at the smaller scale, where trading standards visits premises—the noble Baroness, Lady Kramer, also talked about links to more organised crime—will continue to be a focus. Activity in that area is driven by HMRC, which is the delivery partner, rather than trading standards.

The noble Baroness asked whether outlets engaged in underage sales will be targeted under this measure. My understanding is that, in each local area, trading standards looks at the priorities for targeting enforcement activity. It has powers when it comes to underage sales. The effect of this SI is to ensure that trading standards can make use of the enforcement mechanisms under track and trace, in addition to its powers on underage sales, plain packaging and other consumer issues. The priorities for trading standards visits are set locally, rather than nationally.

The noble Baroness, Lady Kramer, asked about e-cigarettes and vapes. Track and trace does not apply to them but, as she may be aware, we have a call for evidence open at the moment that focuses particularly on the use of vapes among underage consumers or children, which will look at that issue more closely.

On the question of the public health benefits of this measure versus revenue protection, they are mutually reinforcing. Illicit tobacco can have health implications, because it is not subject to the same health and safety regulations as legitimate products. It has been found to contain arsenic, mould and rat droppings, for example, so that issue is at play. The availability and affordability of tobacco products also impacts on smoking rates, which is why the duty that we have in place helps to reinforce our strategy to stop smoking. Making sure that people do not engage in the illicit market also reinforces that strategy.

I will not pretend that protecting the duty owed to the UK Government is not an important objective for HMRC; it is one that we continue to support. However, it mutually reinforces the wider ambition for England to become smoke-free by 2030. As I said, the Department of Health and Social Care announced a package of measures to cut smoking rates, acknowledging that we need to go further in this space. They include expanding access to new treatments, rolling out a national incentive scheme to help pregnant women quit, and using a new approach to health warnings.

I am conscious that I have not answered all noble Lords’ questions, but I undertake to follow up in writing. There is broad support for the SI, but I am sure that the answers to those additional points will help your Lordships to understand how it will have the impact that we all hope it will have. I therefore commend this instrument to the Committee.

Motion agreed.

Supply and Appropriation (Main Estimates) (No.2) Bill

Baroness Penn Excerpts

Committee stage & 2nd reading & Committee negatived & 3rd reading
Monday 10th July 2023 Lords Chamber

Moved by

[Baroness Penn]

That the Bill be now read a second time.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.

Gross Domestic Product: Wales and the UK

Baroness Penn Excerpts

Thursday 6th July 2023 Lords Chamber

[Lord Wigley]

To ask His Majesty’s Government what are their latest figures for the gross domestic product per head of population for (1) Wales, and (2) the United Kingdom.

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

My Lords, the latest Office for National Statistics data show that in 2021 gross domestic product—GDP—per head, at current prices, was £25,665 for Wales and £33,745 for the UK. The UK Government have made significant interventions aimed at boosting GDP in Wales and across the UK, including the £4.8 billion levelling-up fund, the £2.6 billion UK shared prosperity fund and delivering on investment zones and freeports.

[Lord Wigley (PC)]

My Lords, do these figures not speak volumes? They underline the failure of successive Governments to close the gap between Wales and England. With the relevant economic levers being shared between Whitehall and Senedd Cymru, is it not essential that the two co-operate on these economic matters? Does the Minister appreciate how much this is undermined by the refusal of the Chief Secretary of the Treasury to attend the Senedd’s finance committee? Is she aware that her colleague, the noble Lord, Lord Bourne, told that committee in Cardiff last week that a duty should be placed on the Chief Secretary to attend such committees when required? He said that

“if it needs putting on a statutory basis … that needs to happen”.

Does she agree?

[Baroness Penn (Con)]

My Lords, perhaps I can provide a little reassurance to the noble Lord. Yes, the gap between GDP per head in Wales and the rest of the UK is too large, but Wales has had the highest growth in GDP per head since 2010 of all regions and nations across the UK, increasing by 15.7% compared with 6.9% across the UK. He talked about the Welsh Government and the UK Government working together. That is something that we have done successfully on city and growth deals across Wales that were developed jointly by the UK Government and the Welsh Government. This included £500 million for the Cardiff capital region and over £100 million in north Wales and Swansea. On his point about the Chief Secretary to the Treasury, he works hard and closely with the devolved Administrations—I know that is something he is very committed to—but I will take the noble Lord’s specific point away.

[Lord Anderson of Swansea (Lab)]

My Lords—

--- Later in debate ---

[Lord Anderson of Swansea (Lab)]

May I invite the Minister to examine all the relevant indices of poverty and deprivation? She will find that Wales is mostly at the bottom, with 75% of the average, whereas the Government in levelling up concentrates simply on north-south. Should not the Government by contrast look also at the east-west divide?

[Baroness Penn (Con)]

I reassure the noble Lord that levelling up is not viewed through the prism that he says it is. When it comes to the looking at the needs in Wales and the funding to be matched to them, that is what we do through the Welsh fiscal framework. In the 2021 spending review, the largest annual block grant in real terms was assigned to Wales since the devolution Acts were passed.

[Baroness Humphreys (LD)]

My Lords, for around 20 years, west Wales and the valleys qualified for EU Objective 1 funding, precisely because our GDP was among the lowest in the EU. With the figures for Wales published in May showing a decrease of 2.1% in GDP over the longer term in Wales, compared with the figures for the rest of the UK showing an increase of 2%, are we in Wales, in the Minister’s opinion, facing a short-term blip, or are we heading for a gradual return to our pre-Objective 1 status, as a result of the loss of EU funding?

[Baroness Penn (Con)]

The statistics that the noble Baroness refers to are more experimental than the ones that I used in my Answer, but they are being refined all the time and they can be subject to greater volatility due to the smaller size that they represent. However, the Government are delivering on their commitment to replace European funding in Wales. As I set out in my earlier Answer, that is just one of the UK Government’s investments in Wales that recognise its great potential to grow even further.

[Lord Browne of Ladyton (Lab)]

My Lords, talking of figures speaking volumes, the Minister will be aware that last month the annual fraud indicator for the United Kingdom, which of course includes Scotland and Wales as well as England and Northern Ireland, assessed it at £219 billion. Are those fraudulent transactions, the muling of that money and the transfer of it from shell company to shell company, and the export of it in crypto assets, counted as economic activity and therefore aggregated into GDP? When the money comes back into the country to buy houses and land, works of art and other things, is it counted as inward investment?

[Baroness Penn (Con)]

The classification of these matters is for the ONS, and I shall get the ONS to write to the noble Lord.

[Lord Livermore (Lab)]

My Lords, the Government’s approach to levelling-up funding has forced local authorities throughout the UK to compete in a process that lacks any published criteria. In the second round of allocations earlier this year, local communities across each of the four nations of the UK, including Wrexham, Moray, Bolsover and Belfast, each had bids rejected without any public explanation. Ahead of the third round of levelling-up funding, will the Minister work with ministerial colleagues, the devolved Governments and local authorities to improve the transparency of the bidding process so that cities, towns and villages across the UK can have access to funding that is both fair and seen to be fair?

[Baroness Penn (Con)]

Just to reassure the noble Lord with regard to Wales, in the first two rounds of the levelling-up fund, £330 million has been invested so far. That exceeds the commitment that 5% of those funds would be invested in Wales, but we always seek to improve our processes around those issues, and I shall happily commit to working with colleagues in the Department for Levelling Up to make sure that we build on the success that we have had so far with this fund.

[Lord Berkeley (Lab)]

My Lords, will the Minister take forward with much more vigour the idea of Celtic Sea offshore wind, which can only really be built in places such as Port Talbot, where there is deep water and lots of land? That might help redress some of the economic disasters that other noble Lords have spoken about.

[Baroness Penn (Con)]

My Lords, the UK has an excellent track record in delivering offshore wind, and I am sure that that will continue. As I have said, we are investing across Wales, and that includes two freeports in Wales—the Celtic Freeport and the Anglesey Freeport, which will both be backed by policy and planning permissions, as well as up to £26 million in funding in each area.

[Lord Bird (CB)]

My Lords, as long as there is a situation in government where most of the money spent is on emergency situations and coping with poverty and very little is spent on prevention of poverty and skilling people away from poverty, we will continue arguing about GDP and whether it is high or low in Wales or England. We do not spend money on dismantling poverty—we spend it on making the poor as comfortable as possible.

[Baroness Penn (Con)]

My Lords, I agree with the noble Lord about the importance of investing in prevention. That is why we have invested in our education system, and we have seen our educational outputs improve under this Government. It is why we are investing in prevention in our NHS. We also need to capture the importance of other aspects that contribute to our country when we look at these matters. That is why we are looking at incorporating measures when it comes to well-being, for example, and not just looking at the narrow measures of GDP.

[Lord Hain (Lab)]

My Lords, if the positive economic figures that the Minister cited for Wales are correct, is that because we have a Welsh Labour Government?

[Baroness Penn (Con)]

It is hard to tell from the other side whether there is a success story or not when it comes to Wales. I think that the best success comes when the UK and Welsh Governments work together in the interests of the people of Wales, and the record that we can see is testament to that.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, can I ask a question where I think, for once, the noble Baroness, who is an excellent Minister, might be able to give me a positive answer? The Advocate-General for Scotland has agreed, at my request, to instruct his officials to investigate ultra vires expenditure by the Scottish Government. That is a great step forward. Can the Minister give an assurance that her officials in the Treasury will work co-operatively with the Advocate-General’s officials?

[Baroness Penn (Con)]

I can give the noble Lord that assurance.