Building Societies Act 1986 (Amendment) Bill

Baroness Vere of Norbiton Excerpts

2nd reading
Friday 10th May 2024 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I congratulate the noble Lord, Lord Kennedy, on introducing this important Bill to your Lordships’ House. It will help to support the future growth and success of the mutual sector. The Bill has been warmly welcomed by the building societies sector and has cross-party support. It was a veritable highlight in the day of my noble friend Lord Naseby, and he is of course right.

My remarks will be relatively brief, covering two main elements. First, I will look at the detail of the Bill, although many noble Lords have already set it out very clearly. Secondly, I will set out further insight on the Government’s support for the mutual sector. It has been a widespread message from across all Benches in your Lordships’ House today that the mutual sector plays an important role in the UK economy.

Building societies are one of the best-known types of mutual organisations. There are 42 building societies providing mortgage and savings products to around 26 million members. When considering the future of these important institutions, it is right that we reflect on their uniquely British origins.

As the noble Lord, Lord Kennedy, noted, the global building society movement began nearly 250 years ago, in Birmingham, when Richard Ketley established Ketley’s Building Society. It had a very clear purpose: to combine resources from its members, and build a shared fund from those resources that members could draw from to purchase land and construct a home. Like all effective movements, it was much greater than the sum of its parts. As a result of its success, throughout the 19th and 20th centuries more building societies formed across the nations and regions of the United Kingdom. Today, the 42 UK building societies hold total assets of over £500 billion.

The mutual ownership model improves the financial resilience and inclusion of individuals by rooting these businesses in their local communities. The Bill will help to support the prosperity of the building society sector so that it can continue to anchor those roots and to grow.

On the substance of the Bill, the Government support the vision set out by the noble Lord, Lord Kennedy. We agree that the Bill will enable building societies to compete more effectively with retail banks and to better support their members. There are three key measures. First, the Bill will exclude three key sources of funding from counting towards the building society wholesale funding limits; I am grateful to the noble Baroness, Lady Kramer, for providing a little more insight into what exactly the funds are. Under the Building Societies Act 1986, building societies are required to obtain at least 50% of their funding from individual retail deposits, and that will continue. All that is happening is that some of the funds will be excluded from the calculation, meaning that the ownership model will not be diluted. This will enable building societies to raise additional wholesale funds.

The second element, as highlighted particularly well by the noble Lord, Lord Livermore, is that building societies will be able to continue to develop their use of technology. The second part speaks to enabling real-time virtual participation at building societies’ meetings. It will make meetings more accessible to members and might therefore encourage greater support and participation from the membership. It also brings building societies more in line with retail banks.

Thirdly, the Bill will provide building societies with greater flexibilities regarding their funding and corporate governance requirements in relation to common seals and the execution of documents, aligning them with changes made to company law. It will support them in their work serving their members, as well as providing diversity to the UK’s financial services industry.

It is important to note that the changes are supported by industry. As my noble friend Lord Naseby stated, it has been quite a long journey, though not too long as the consultation for the changes occurred from December 2021 to February 2022. There were five responses, with most building societies responding through a single response from the Building Societies Association. All responses welcomed the amendments that will be delivered through the Bill. There are other amendments that were consulted on and are not included in the Bill; the Government are currently progressing these through secondary legislation.

My noble friend Lord Holmes of Richmond asked when the secondary legislation set out in the Bill will be brought before Parliament. I am afraid I can go no further than to say that it will be following the Bill’s Royal Assent and when parliamentary time allows.

To reassure my noble friend Lord Holmes, I will now say a few words on the wider mutuals sector and confirm that the Government are absolutely behind the mutuals sector. There are 9,000 mutuals operating across many sectors in the UK. They are rooted in their local communities and they want to serve their members and work towards a better society. However, despite their social mission, mutuals are not charities. They are thriving businesses with a combined revenue of £88 billion in 2022, employing over 433,000 people. So it is indeed not a minority matter, as my noble friend Lord Holmes noted.

It is due to their economic and social significance that the Government have been and continue to be fully committed to providing an array of support for the whole of the mutuals sector. For example, we are funding the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992. These pieces of legislation underpin the co-operative movement and friendly societies sector respectively in the UK. These reviews will set us up for the most comprehensive modernisation of the sector for a generation.

Last year, the Government supported the Co-Operatives, Mutuals and Friendly Societies Act, which achieved Royal Assent in June 2023. This enables the Treasury to provide co-operatives, mutual insurers and friendly societies with greater flexibility in deciding what to do with their surplus capital. The Government will consider the regulatory options to enact this legislation. However, in the first instance we are directing resources to the Law Commission review, to examine existing legislation. Finally, through changes that the Government have made via the Financial Services and Markets Act 2023, credit unions in Great Britain can now offer a greater range of products and services. This includes hire purchase agreements, conditional sale agreements and insurance distribution services.

My noble friend Lord Holmes asked whether the Post Office might be mutualised. I am aware that the trade body Co-operatives UK recently met with postmasters, postmistresses and the Department for Business and Trade to discuss what potential there is for mutualisation of the Post Office. So I welcome the views of my noble friend Lord Holmes and note that discussions are taking place. One does not know where they will end, but it is certainly an option that is on the table. The Government continue to seek opportunities to support the mutuals sector and those who might wish to join the mutuals sector in this country.

In conclusion, I have today outlined both the Government’s support for the mutuals sector and how this Bill will support the future success of UK building societies. I note again the support for the Bill from across your Lordships’ House and reiterate the point made by the noble Baroness, Lady Kramer, that any amendments to the Bill would probably cause the Bill to fail, which is not in the interests of the sector and not I think the will of your Lordships’ House. This is a worthwhile and necessary Bill. It updates the law in relation to building societies’ funding and corporate governance. Again, I thank the noble Lord, Lord Kennedy, for introducing this Bill to your Lordships’ House and hope that Members across the House will recognise its merits.

Bank of England (Economic Affairs Committee Report)

Baroness Vere of Norbiton Excerpts

Thursday 2nd May 2024 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, what an outstanding debate. I particularly thank my noble friend Lord Bridges for so skilfully opening it, and the Economic Affairs Committee. So many of its members have spoken today, and I thank them for their contributions, for the thoughtful and detailed way in which they carried out the inquiry and the report on the Bank of England, and for the breadth of witnesses they chose to interview. I am delighted that my noble friend Lord Moynihan of Chelsea chose a Treasury debate in which to make his maiden speech—of course, I am not surprised. He will make a great contribution to your Lordships’ House for many years to come, and we look forward to it.

Price stability is essential for a strong economy and, consequently, strong public finances. It is widely recognised that an operationally independent central bank is the best way to achieve price stability. That is why the UK enshrines the Bank of England’s operational independence in law, with price stability as the primary objective of the Bank’s Monetary Policy Committee. The Treasury and the Government remain committed to not only independence but the objective of price stability, and I am delighted that I therefore agree wholeheartedly with the noble Baroness, Lady Kramer, and the noble Lord, Lord Livermore—not a frequent occurrence in my life—with both Front Benches also wishing to retain the independence of the Bank of England.

My right honourable friend the Chancellor wrote to the chair of the EAC in January this year. It is worth briefly summarising some of the commitments that he made in his letter. At the outset he noted the operationally independent monetary policy, which is so important within the broader macroeconomic framework, and indeed the importance of the separation of fiscal and monetary policy in the effective delivery of monetary policy. The Chancellor noted the negative impacts of inflation on so many elements of society and our economy when it is greater or lower than 2%, and he again resolved not to change the definition of price stability. This aligns with the view of the EAC, but it should also be noted that the Federal Reserve and the European Central Bank have the same inflation targets. The Chancellor also noted the Government’s previous review of the monetary policy framework in 2013, which drew the same conclusions.

The Chancellor went on to note the Government’s commitment to ensuring that fiscal and monetary policy remain aligned to support the Bank’s efforts to return inflation sustainably to 2%. This is in agreement with the conclusions of the committee. This has meant reducing the level of government borrowing in a way that gradually withdraws support from the economy, as demonstrated by the declining path for the cyclically adjusted primary deficit.

On the relationship between the Bank and the Debt Management Office—the DMO, which many noble Lords have mentioned today—the Chancellor noted that monetary policy and debt management are distinct areas with separate mandates and decision-making processes. Given the institutional separation of monetary and debt management policy, in addition to existing public documents clarifying the relevant governance structure, the Government do not consider that an additional memorandum of understanding between the two organisations is necessary to clarify their relationship further.

On the committee’s call—and indeed that of many noble Lords, including the noble Baroness, Lady Liddell, and the noble Viscount, Lord Chandos—for the Government to publish the deed of indemnity, the Chancellor reiterated in his response that the Government would not. The deed contains operationally sensitive information relating to government cash management practices. It is not government practice to release information of this kind, and nor is it in the public interest. However, crucially, the Government are confident that this does not undermine the transparency of these arrangements, given the publication of other relevant reports and accounts, in addition to public comment and costings from the Office for Budget Responsibility, or OBR, on this topic.

[Lord Bridges of Headley (Con)]

Can my noble friend explain why, then, the Governor of the Bank of England told our committee that the publication of the deed of indemnity would not excite people?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I cannot comment on what the Governor of the Bank of England thinks other people will think about a document that has not been published. If I can get any more information, or encourage the Bank of England to provide more clarity on that, I will—but it remains the position of the Government, and indeed the Chancellor in his response to the committee, that the document will not be published.

I turn to the remits of the Monetary and Financial Policy Committees, which also attracted an enormous amount of attention during the debate. I will come on to them further after this opening section on the Chancellor’s views in response to the committee. The secondary objectives are clearly framed as being subject to the delivery of their primary objectives of price and financial stability. However, the Government have taken steps to simplify and clarify the FPC’s remit to make sure that its role in supporting the Government’s economic policy is absolutely clear.

I heard what the noble Lord, Lord Livermore, said about his party wanting to expand the remit letters once again. I believe that would be unhelpful. I will go on to state exactly why climate remains within the remit letters and the rationale for that. I believe that greater clarity is essential and is something that the Government will continue to focus on in future remit letters.

The report recommends that the Bank’s management structure be streamlined; however, the Chancellor affirmed that the current structure is appropriate. Finally, on the committee report’s recommendation that the Treasury and the Bank commission an independent review of appointments to the Bank, the Chancellor noted that the Government have no plans to commission such a review. However, he did highlight the Treasury’s interventions in relation to ensuring diversity, in its broadest sense, in public appointments.

As part of our support for the principle of the Bank’s independence, the Government do not comment on the conduct or effectiveness of monetary policy, but I reassure all noble Lords that I welcome the many insights I have heard today with regard to monetary policy and the Bank’s performance relating to it. I am sure that those who are responsible for monetary policy and the operation of the Bank of England will reflect on them, too—but I will go no further in my response.

It is the case that we have been living through a period of high inflation. It is too high. In the 20 years prior to independence, inflation averaged over 6%: in the 20 years subsequent to independence, inflation averaged closer to 2% and certainly volatility also declined. But, since May 2021, we have seen a period of particularly high inflation and I am very pleased that, due to the actions of the Bank of England, supported by the Government, it was at 3.2% in March.

I will now elaborate on a few key areas that I believe almost all contributors to the debate focused on: the MPC/FPC remit letters; appointments to the Bank of England; the accountability of the Bank of England; and forecasting. On other matters, I will probably write, because time is always the enemy of the Minister at the Dispatch Box.

Returning to the issue of the FPC and MPC remit letters, which was mentioned at the outset by my noble friend Lord Bridges, but also by my noble friend Lord Moynihan, both the MPC and FPC have complex roles—that is clear—and it is right that their remits reflect this complexity. But that does not necessarily mean that the remits therefore have to be complex in themselves. It is important that the committees’ secondary objectives, on supporting this Government’s economic strategy, are clearly defined, so that they are achievable. Clearly defining secondary objectives does not detract from the hierarchy of objectives for either committee, where the secondary objectives are framed as being subject to the primary objectives of price or financial stability. Moreover, the remit letters provide guidance on how the committees should consider instances where there are trade-offs between their objectives and how their assessment of any trade-offs should be publicly communicated so that they can be scrutinised.

The changes introduced in the 2023 FPC remit letter have improved its clarity and focus, with clearer relevance to the FPC’s specific responsibilities and toolkit. It is more streamlined. I accept that it is not as streamlined as many noble Lords would like, but it is 20% shorter compared with that in 2022. There is, of course, a balance to be struck. For example, it is important that home ownership is listed as a priority, so that the FPC is mindful of wider public policy aims when it is considering policy relating to the mortgage market. A further example is climate change, mentioned of course by the noble Baroness, Lady Bennett, but also by many other noble Lords. It is widely accepted that climate change poses systemic risks to the financial system. As such, the remit continues to emphasise the relevance of climate change to the primary financial stability objective. Delivering net zero is also referenced as a key component of the Government’s economic policy, which the committee has a secondary objective to support.

It is also important to consider the changes to the remit letter in the context of the Government’s wider work to ensure that the regulators are considering the impacts of climate change. For example, through the Financial Services and Markets Act 2023, both the Financial Conduct Authority and the Prudential Regulation Authority are required to have regard to the need to contribute, where relevant, to the Government’s progress towards complying with the Climate Change Act 2008 and the Environment Act 2021.

The climate and environmental components of this apply from August 2023 and January 2025 respectively. So it is not the case that, somehow, climate has been downgraded. The wording has changed but the legal obligation to get to our net-zero targets remains, and we must ensure that the financial system gets there—and that includes the Bank of England. However, the primary objectives of the two committees are very well set out in the remit letter.

In the MPC remit letter, the primary objective, set out in law, is maintaining price stability, defined as a 2% inflation target. The MPC’s remit includes the goal of increasing long-term energy security and delivering net zero. If that is not clear, I am not sure what would be. Specifying the Government’s economic strategy gives the Bank’s policy committees important information on the broader economic policy landscape, given their role in the UK’s macroeconomic framework.

Turning to appointments to the Bank of England and then to accountability, the Government recognise that, to be effective, public bodies need to have the broadest possible mix of skills, experience and backgrounds: diversity in its broadest sense. All appointments are made on merit and follow a fair and open competition process.

The Treasury has taken steps to ensure that a diverse range of candidates are considered for appointments to the Bank of England. To do this, the Treasury promotes vacancies to a wide group of people and, to improve the reach of an advert or opportunity, sometimes uses recruitment consultants.

The Government believe that there is a diversity of thought on the MPC and FPC, although the skill of hindsight remains elusive. The Governor of the Bank of England recently said that, in the last two years, about 25% of the MPC’s meetings have had a split vote among the executive members. I suggest that this demonstrates the intellectual and analytical diversity requested by my noble friends Lord Frost and of course Lord Effingham. The Governor noted that there is a larger proportion of external members of the Bank of England than in other central banks around the world. While the FPC makes decisions by consensus, the diversity of views expressed in the committee’s meetings is captured in published records.

As I have noted, the Bank of England has a unique arrangement compared with other central banks, as it has internal members and a greater proportion of external members on its policy committees. The external members are appointed by the Chancellor, and internal members who are on the Court of the Bank of England are Crown appointments.

Focusing on the MPC, each member has expertise in the field of economics and monetary policy. Members are independent and do not represent particular groups or interests. The MPC’s decisions are made on the basis of one person, one vote, and each member of the committee votes in a way that he or she believes is consistent with the MPC’s remit. A non-voting representative from the Treasury also attends the committee’s policy meetings.

The Chancellor is assisted in his decision-making on appointments by advisory assessment panels, which include internal members from the Treasury and the Bank, but also an independent external panel member. It is for the Chancellor to choose the person they wish to appoint and make a recommendation to the Prime Minister. The Treasury is committed to enabling proper parliamentary scrutiny of the appointments that it makes to public bodies, which is a valuable and important part of the process. The Treasury Select Committee conducts pre-commencement hearings before a successful candidate is appointed to the Bank to start their role.

All noble Lords—far too many to namecheck—have spoken about the accountability of the Bank of England. It is worth discussing this in further detail now, and I am sure there will be opportunities to do so again in the future. I am particularly grateful for the forensic opening remarks of my noble friend Lord Bridges, and of course for the reflections of the noble Lord, Lord Gadhia, who sits on the Court although speaks today in a personal capacity.

The Bank is held to account both by Parliament and by the Treasury. A key role of the Treasury and elected Treasury Ministers is to legislate for and maintain the overall regulatory architecture in a way that allows the Bank to meet its objectives. There are many ways in which Parliament, stakeholders and the public can scrutinise the performance of the Bank of England. Key publications include the Bank’s Financial Stability Reports, which are published biannually, and the Monetary Policy Reports, which are published quarterly. Indeed, a Monetary Policy Report is due to be published this time next week. Executive and external members of both the MPC and FPC typically appear before the Treasury Select Committee following the publication of those reports. The governor also appears in front of the EAC, as he did in February this year.

The Government implemented reforms through the Bank of England and Financial Services Act 2016 to increase the accountability of the Bank and to improve the scrutiny of the Bank in terms of financial stability. Those reforms were made once the expansions in the Bank’s remit had time to bed in properly after the financial crisis. Measures introduced in the 2016 Act included making the FPC a full policy committee of the Bank and creating a clear accountability line to the Bank’s Court of Directors. It also implemented the recommendations of the Warsh review, published in 2014, including to increase the transparency of the MPC’s decision-making by publishing a detailed policy statement as soon as practicable after each policy meeting.

The Bank’s remit letters were commented on frequently in today’s debate. They are published online and laid before Parliament, typically as part of a fiscal event. After a fiscal event, parliamentarians have the opportunity to debate it—it happens in your Lordships’ House and in the House of Commons. Parliamentarians can and do raise concerns about the remit letters during those debates. The issues are then considered as part of the process to update the remit letter the following year. Parliamentary committees offer further scrutiny of the remits by calling bank executives, committee members and government Ministers to appear before them—the EAC’s inquiry is an excellent example of parliamentary scrutiny in action. Given the frequency with which the remits are updated and that there is the opportunity to provide input, the Government do not intend to publish draft letters. However, on many of the report’s other recommendations on accountability, it is for Parliament to decide whether to conduct a review of the remit, and indeed the operations of the Bank outside of existing processes, or to create a standing committee.

The Treasury meets with the Bank of England regularly to discuss its assessment of the economy and financial services. That includes regular meetings between the Chancellor and the Governor of the Bank of England. The Chancellor and governor are also legally required to discuss the FPC’s Financial Stability Report.

Finally on accountability, the Court of Directors is a key element for keeping the Bank’s performance under review and for looking at the way that the Bank exercises its statutory functions.

I note that many noble Lords have made requests for the Government to intervene in the operation of the Bank, particularly on the allocation of resources. Obviously, the Government will not do that to an independent Bank of England, but I am confident that the suggestions and points raised in today’s debate may well be heard by those who are responsible.

I have been given a one-minute warning, so I will try to speak on forecasting and Bernanke within the time limit, because many noble Lords raised this incredibly important issue. All of us who have ever worked in finance—including me—know that forecasting is sometimes a mug’s game, but sometimes it can be incredibly helpful. The review led by Dr Ben Bernanke is incredibly helpful to highlight the areas in which the Bank needs to improve. I think that the Bank is welcoming it, and I note that I will do a full report on its response to the Bernanke review by the end of the year.

As ever, I will write on many of the remaining points that I have not been able to cover. I am again enormously grateful to my noble friend Lord Bridges and his committee for all their contributions, not only to the report but to today’s debate. The Government will continue to support the independence of the Bank of England and will ensure that its remit and the framework in which it operates, including through fiscal policy, create an environment in which it can carry out its duties efficiently.

Start-up Companies: Tax Incentives

Baroness Vere of Norbiton Excerpts

Monday 29th April 2024 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and draw your Lordships’ attention to my entry in the register of interests.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, HMRC is currently exceeding its published customer services aim to process R&D claims and EIS applications within 40 working days. In some cases, this will involve contact with a company to undertake further checks, rather than immediate approval or payment. This is necessary to ensure that relief is claimed only by those who are eligible.

[Lord Leigh of Hurley (Con)]

My Lords, I understand the need to check claims in certain areas. I am chair of the Finance Bill Sub-Committee of the Economic Affairs Committee, and we have reported on extensive R&D fraud, but there is no history or evidence of fraud in respect of EIS. However, there is evidence of heavy-handedness by HMRC in restricting claims, so will my noble friend agree to set up a working party that includes EIS fund managers to consider best practice and to reduce costs and unnecessary delay in granting EIS relief?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I am grateful to my noble friend. I know that HMRC regularly engages with industry and endeavours to work collaboratively with industry to improve guidance such that EIS applications can get through as quickly as possible. I hear his plea to set up a working group. I am not entirely sure whether a formal working group will be possible, but I will very happily take back his request that perhaps he and some of his colleagues can meet officials from HMRC to outline their concerns.

[Lord Fox (LD)]

My Lords, there appears to be a dissonance between the Minister’s answer and the experience that industry is reporting to us. I spoke to Tech UK this morning and it said it had recently made representations to the Treasury, with worked examples of real-life situations that absolutely uphold the issue the noble Lord has raised today. This is not just about payment; it is about retrospective payments and it really puts businesses in danger when their cash flow dries up in these situations. So I ask the Minister to harness her natural curiosity, go back to her department and dig a little deeper, because it may be publishing results, but the experience on the ground does not match that.

[Baroness Vere of Norbiton (Con)]

I hear what the noble Lord is saying and I will very happily look at the evidence that he has provided to officials in the Treasury. Perhaps he would like to join the meeting with my noble friend Lord Leigh.

[Lord Sikka (Lab)]

My Lords, in January the National Audit Office reported that error and fraud in SME research and development tax credits had increased to 24.4% or £1.04 billion. It added:

“There are too many examples where these reliefs either do not achieve their economic objectives or are subject to significant error and fraud costing the Exchequer billions of pounds”.


Can the Minister explain why the Government have failed to monitor benefits of tax reliefs?

[Baroness Vere of Norbiton (Con)]

The Government have actually monitored the benefits of the tax reliefs and indeed published independent reports at the 2023 Autumn Statement into EIS and SEIS. We have also published annual reports into R&D on whether the schemes are appropriately designed. However, the noble Lord raises a really important point. He is right that there has been an enormous amount of error and fraud, so HMRC has taken action and has boosted the number of people working in fraud from 100 to 500 people who are very much focused on those things. It was also the case that much of the fraud or error was happening using nominated bank accounts. HMRC has now closed the ability for companies to use nominated bank accounts, which will have an impact.

[Lord Londesborough (CB)]

My Lords, further to the previous question, I ask the Minister: when will the Government conduct an impact assessment on both the EIS and SEIS investment schemes, specifically on the sustainability of businesses funded through these tax incentives? I ask because start-ups have a failure rate of around 90% and we should be clear about the costs/benefits when some £30 billion—so far—of taxpayers’ money has been involved.

[Baroness Vere of Norbiton (Con)]

As I said in answer to the previous question, an independent report has been published fairly recently on the design of the two schemes. It is the case that start-up companies sometimes fail and we need to make sure that we get the best value for money for the taxpayer. The Treasury is very focused on that.

[The Earl of Effingham (Con)]

My Lords, when these start-up companies grow, they may need additional funding. However, one of the main sources of capital for them in the past—the UK’s Small Cap stock index—is shrinking as firms list overseas or go with private equity. So I ask my noble friend the Minister: what are the Government doing to reinvigorate the Small Cap index, help our start-ups and keep them here?

[Baroness Vere of Norbiton (Con)]

London remains one of the leading financial centres in the world. The Government are incredibly focused on our domestic equity markets to ensure that they meet our ambitions of ensuring we have capital available to small companies. My noble friend will know that the noble Lord, Lord Hill, did a review into UK listings and we are taking forward his recommendations.

My noble friend will also know that the Government are proceeding through looking at all our regulation to ensure that it is fit for purpose for the UK and UK listings under the smarter regulatory framework. He will also have seen the reforms announced by the Chancellor in Edinburgh and at Mansion House. We are seized of the opportunity we have with domestic equity markets, whether they be for large cap or small cap companies. However, we recognise that there are things we can do to make them better.

[Lord Livermore (Lab)]

My Lords, speak to any SME owner or business network and you will hear concerns about HMRC: contact wait times of over an hour, backlogs to review tax credit applications, delays of eight months to claim tax reliefs and phone lines closed for an entire summer. Tax incentives are a lifeline for many young companies. With nearly 50,000 SMEs reported to be in financial distress, does the Minister believe the problems at HMRC are now hindering economic activity?

[Baroness Vere of Norbiton (Con)]

I think the noble Lord has conflated a number of issues there into one thing. HMRC is an enormous organisation that deals with many types of individuals and corporates. Companies can contact HMRC via the corporation tax helpline—that phone line has not been closed at all—where they can get general advice on R&D or on EIS.

HMRC has also set up non-statutory advance assurance services for both elements under debate today. It means that companies can get in touch with HMRC before they make an application to make sure that, when they do make an application, it gets through first time—and, as I said in my opening answer, HMRC is working to its aims.

[Lord Cromwell (CB)]

The noble Baroness told us earlier that small businesses occasionally go out of business—which I think is something of an understatement. In the last 25 years of these tax-supported schemes such as EIS, can she tell us what percentage of those businesses are still in business? If she does not have the data to hand, could she write to me?

[Baroness Vere of Norbiton (Con)]

I would very happily write to the noble Lord with that data; I do not have it to hand at the moment.

Road Pricing

Baroness Vere of Norbiton Excerpts

Monday 29th April 2024 Lords Chamber

[Lord Young of Cookham]

To ask His Majesty’s Government what consideration they have given to replacing excise duty on fuel with road pricing.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, the Government have no plans to consider road pricing. As set out in the letter to the Transport Select Committee in January 2023, the Government are focusing on delivering their core priorities.

[Lord Young of Cookham (Con)]

My Lords, road pricing clearly touches a raw nerve in the body politic. The OBR has recently said of the Government’s policy on electric vehicles that it is

“rapidly eroding the £39 billion”

a year

“revenues from petrol and diesel”

taxes. That will leave a large hole in the Budget. The Transport Select Committee in the other place, with a government majority, said that work on road pricing should start straightaway. When I was Transport Secretary 30 years ago, I floated the idea, which is now much more feasible because of technological progress. If taxes made through the fuel duty are not replaced with something else, public transport will become much more expensive, undermining a sustainable transport policy. Should the Treasury be quite so hostile?

[Baroness Vere of Norbiton (Con)]

The Treasury sees that there are many options going forward for the fuel duty and many broader motoring taxes—and indeed for all taxes. As we transition to net zero, the Government will need to ensure that the tax system encourages more EV uptake and that revenue from motoring taxes keeps pace while remaining affordable.

[Lord Carlile of Berriew (CB)]

Does the Minister agree that the introduction of road pricing with modern technology would mean that vehicles could be priced on the basis of their consumption of fuels and that differentiation could be made between goods vehicles and passenger vehicles, so that it would be a much fairer system? Does she also agree that road pricing would enable the police very much more easily to detect vehicle crime, particularly on motorways, which has raised car insurance premiums so much recently?

[Baroness Vere of Norbiton (Con)]

I recognise what the noble Lord says. Many think tanks and other groups have done a lot of work on road pricing. Jurisdictions around the world are looking at it; however, as yet, very few have managed to introduce it successfully. From the Treasury’s perspective, we welcome work from external stakeholders on road pricing and all other taxes.

[Lord Oates (LD)]

My Lords, the Minister has done good job of telling us what the Government are against but a less good job of telling us what they are in favour of. In light of the reduction in fuel duty revenues that will arise from the UK’s ambitions to shift to electric vehicles, can she tell us what concrete plans the Treasury has to replace those losses in a way that is positive for the environment and fair to rural communities?

[Baroness Vere of Norbiton (Con)]

At the moment, fuel duty raises around £25 billion annually. That is forecast to increase in nominal terms to £30.5 billion over the scorecard period to 2029. The change in fuel duty is a medium-term to long-term problem which will allow everybody who has an interest in this to have their say—including taking into account the shift to electric vehicles—and an appropriate solution will be found.

[Lord Kirkhope of Harrogate (Con)]

My Lords, many of our motorists feel badly done by, with the extra cost of motoring all the time and the extra cost of insurance for motorists. If the Government have any idea of road pricing, would it not be fairer to look at all those who use our roads apart from those who merely pay the vehicle excise duty?

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[Baroness Vere of Norbiton (Con)]

My noble friend raises an important point about the cost of motoring. That really is top of mind for the Government. It is why we have frozen fuel duty since 2011 and had a 5p cut on fuel duty since March 2022. We recognise that for many people—particularly those in rural communities—using their car is essential, and it can be quite costly.

[Baroness McIntosh of Pickering (Con)]

My Lords, will the Minister assure the House that, were the Government ever minded to introduce road pricing, rural communities and those who drive on rural roads—particularly in North Yorkshire, where we have the longest transit routes for people on their way to work or pleasure—would be protected?

[Baroness Vere of Norbiton (Con)]

As I said at the outset, the Government have no plans to consider road pricing. Therefore, I cannot give my noble friend that assurance, because it would be purely hypothetical.

[Lord Livermore (Lab)]

My Lords, the state of Britain’s roads has been described as being at breaking point. A recent survey suggests that local roads are in their worst condition for more than 30 years, and the backlog for repairs has risen to a record high. The AA estimates that pothole damage is costing Britain’s drivers nearly £500 million every year. Is the Minister aware of figures compiled by the LGA that show that Labour councils invest 83% more per head on road maintenance than Conservative councils?

[Baroness Vere of Norbiton (Con)]

What I can say is that this Government have invested significantly in local highway networks. For example, since 2015, we have invested £11 billion and, as part of Network North, £8.3 billion has been earmarked for local road maintenance over the next 11 years.

[Lord Kamall (Con)]

My Lords, I refer noble Lords to my interests as set out in the register. Many economists like road pricing because it relies on the principle of “polluter pays”. As we shift from polluting vehicles to EVs, hydrogen, et cetera—more environmentally friendly vehicles—we might move from “polluter pays” to the principle that those who contribute to the wear and tear of our national infrastructure have to pay as drivers. I know that the Government have ruled it out at this stage, but in the longer term, have they done any planning on how we pay for upkeep of the roads? Perhaps those who contribute to wear and tear could make a contribution.

[Baroness Vere of Norbiton (Con)]

I am not aware of any work in that area, but, of course, my noble friend raises a very important point. There is the issue of wear and tear on the roads, which all vehicles contribute to, but what is sometimes overlooked is the impact of particulates that come from tyres. That might be from an internal combustion engine vehicle or from an electric vehicle—it is another source of pollution.

[Lord Dubs (Lab)]

My Lords, over the years, Ministers frequently say that they have no plans to do anything, and then, within a short period, they change their minds. This may well be one of those instances. Does the Minister agree that road pricing would have another benefit, in that it could be used to ease congestion on motorways? There would be different charges for peak times and for off-peak times. Would that not be helpful?

[Baroness Vere of Norbiton (Con)]

As I said in my opening remarks, the Government have no plans to consider road pricing. I really cannot say more than that.

[Baroness Goldie (Con)]

My Lords, I find it difficult to fault the analysis of my noble friend Lord Young of Cookham, because he points to an inescapable gap in revenue receipts for the Treasury from fuel duty receipts. I have a difficulty in understanding the Treasury’s opaqueness in responding to this analysis, for which I do not blame my noble friend the Minister. Is that opaqueness attributable to fiscal timidity or dogmatic blindness?

[Baroness Vere of Norbiton (Con)]

My Lords, it is not opacity. What is going on here is simply that a number of options can be taken forward as taxes shift and change over time. All taxes shift and change over time with regard to the amount of money they bring into the Exchequer. The Government have forecasts as to what will happen to fuel duty and are considering all sorts of ideas as to how that would be plugged. For example, noble Lords will have seen that electric vehicles will start to pay VED from April 2025. It will not be at the same level as for an ICE vehicle, but it is right that EVs start to pay their way.

[Baroness Blackwood of North Oxford (Con)]

My Lords, putting aside road pricing for a second, average car insurance costs in the UK have neared £1,000 after prices rose by 58% this year. Does the Treasury intend to look into whether these increases are justifiable?

[Baroness Vere of Norbiton (Con)]

It is concerning to see such large rises in insurance. Officials are monitoring it. The Treasury is unlikely to intervene in what is a private market. However, I will write to my noble friend, because there are various helplines and advisers who can sometimes help people to find cheaper car insurance.

[Lord Harris of Haringey (Lab)]

My Lords, the Minister is impressive in her attempts to explain away the huge fiscal holes that this Government are digging for themselves and for future Governments. Can she comment on the rather strange leaflet that many residents of London have received, apparently from the Conservative mayoral candidate, purporting to be a penalty notice for a road pricing scheme that does not exist and is not planned by the current Mayor of London? Given that the Government are so opposed to this, does the Conservative mayoral candidate in London not know what Conservative policy is, or is it that she has enormous faith in the ability of the London government to deliver something that the Minister has said is incredibly complicated?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I am seeking out the question in all that, but I think that all noble Lords will be aware that transport in London is devolved. Whether the current mayor will introduce road pricing within the Greater London area has been a matter of speculation for some time. If there was a Conservative mayor, the current candidate would certainly rule it out and ensure that the extension to ULEZ was rolled back, because that is causing significant hardship towards the outer boroughs of London.

Credit Card Invoices

Baroness Vere of Norbiton Excerpts

Tuesday 26th March 2024 Lords Chamber

[Lord Hodgson of Astley Abbotts]

To ask His Majesty’s Government what plans they have, if any, to require credit card issuers to provide a full description of goods or services provided on their customer invoices.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, while issuers are not obliged to provide full a description of goods or services, there is existing legislation governing customer transactions. This requires customers to be given a statement of their transactions at least monthly. Under the rules, providers must include a reference to help the customer to identify the transaction, and, where appropriate, information relating to the payee.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I am very grateful to my noble friend for that Answer, and also for allowing me to brief her on what I felt was the problem, but I am afraid her Answer does not satisfy me at all. How many Members of your Lordships’ House when they receive their credit card slip find transactions which they simply cannot recognise at all, for £5, £10 or maybe £15? How many times do noble Lords go on the fraud line and find, after quarter of an hour sitting there, that they have to put the phone down because they can go no further? Would the Government not agree this must be an incitement of low-level but quite extensive fraud, which is likely to get worse as we do more tap-and-go transactions and less in cash? Would it not be a good idea if it was a requirement to put on the credit card entry the name of the customer, the postcode that they operate from and a two or three-word description of the product or service provided?

[Baroness Vere of Norbiton (Con)]

My Lords, payments are governed by the Payment Services Regulations. The Government published a call for evidence in January 2023 to test whether the regulations are meeting their aims. The Government did not receive any evidence that would imply that more specificity would be helpful, either for customers or in terms of tackling fraud. However, I say to my noble friend—and I appreciate him raising this issue—that, as part of the smarter regulatory framework, firm-facing requirements will be repealed and replaced by rules from the FCA. Of course, this may be something that we can take forward in the future.

[Lord Livermore (Lab)]

My Lords, we discussed last week concerns that the new generation of touch-screen card readers lack essential accessibility features needed by blind and partially sighted people. Looking into this further, it seems that these readers can also come with other issues, whereby if they are not correctly configured, the only description of transactions that appears on statements is the name of the machine manufacturer rather than the retailer you shopped with. Can the Minister see a case for steps to ensure payment devices are correctly configured, so that transactions can be more easily traced?

[Baroness Vere of Norbiton (Con)]

I agree with the noble Lord that those payment machines should be correctly configured. When customers realise that there is a problem, they must raise it with the bank, which will then be able to take further action. It is the case that if there is any suspicion of fraud—whether using a credit card or a debit card—the customer can get their funds back.

[Lord Fox (LD)]

My Lords, we are rightly discussing regulations for credit cards and consumer credit, but an increasing amount of consumer credit is coming from the buy now, pay later app sector, which is unregulated. Does the Minister understand how lopsided that is? It is time that the Government looked into regulating buy now, pay later, so that people have equal safety on both sides of the consumer credit barrier.

[Baroness Vere of Norbiton (Con)]

The Government are considering responses to a recent consultation on draft legislation for buy now, pay later. The Government believe that any regulation of this area must be proportionate, because buy now, pay later can be very useful to a large number of people. There are existing protections in the Consumer Rights Act, and the FCA has powers over the terms and conditions of the buy now, pay later contracts.

[Lord Holmes of Richmond (Con)]

My Lords, I declare my financial services interests as set out in the register. Does my noble friend agree that, whether paying with a credit card or a debit card, one should be able to do so in an accessible manner? That will happen only if all financial services products and card payment machines are designed with inclusion in mind right from the outset.

[Baroness Vere of Norbiton (Con)]

I am grateful to my noble friend for raising this issue again. As I mentioned last time, there is now a consumer duty, which is a very important underpinning for financial services providers, which have a duty of care for their customers. That came into effect on 31 July 2023, and the Government and the FCA will monitor the effectiveness of the consumer duty as it beds in.

[Lord Dobbs (Con)]

Does my noble friend agree that the Government have a lot more to do, in the spirt of full disclosure, in explaining the cost of Covid and the lockdown? The latest estimate is that it has already cost over £400 billion. With all the excess deaths and, in particular, mental health issues we are now experiencing, that cost will grow. Would it not be sensible to explain far more fully to everybody in this country the costs to them? That means that there would be no more magic money tree and that the Treasury’s pre-Budget leaks would be much more realistic. Furthermore, we would be much better placed to decide, if there were to be another epidemic, what we should be doing.

[Baroness Vere of Norbiton (Con)]

My noble friend is quite right. He may have heard some of the explanation I gave in the debate on the Spring Budget on why we had to take the decisions that we did. Noble Lords will all recall that the Government stepped in to provide furlough for nearly 11 million people to save their jobs and protected nearly 500,000 businesses. It was essential that we did that at the time, but it came at a cost to our economy and society, which must be repaid at some stage.

[Lord Blunkett (Lab)]

My Lords, last week I invited the noble Baroness to dinner, if we could find a restaurant with an accessible payment device. That evening, I went to a restaurant that had purchased a cover that made the device accessible. I have been in correspondence with the Minister since and am very grateful for her interest. Could we not simply make all providers offer that service, rather than restaurants having to buy it in?

[Baroness Vere of Norbiton (Con)]

I am interested to know if that is the restaurant that the noble Lord intends to take me to. I have been in correspondence with him since last week. We will work very closely with UK Finance as its finishes off its accessibility forums to understand what more can be done to ensure that payment devices are accessible.

HMRC Self-assessment Helpline

Baroness Vere of Norbiton Excerpts

Tuesday 26th March 2024 Lords Chamber

[Lord Livermore (Lab)]

My Lords, on Tuesday 19 March, HMRC announced that it would close its self-assessment helpline for half the year. The very next day, following a U-turn by the Chancellor, HMRC announced that this closure would not go ahead. When was any Treasury Minister first informed by HMRC of its decision to close the helpline? Reports of the Chancellor’s U-turn referred to a “pause”—what criteria will be used to decide whether, and when, HMRC will proceed with its planned closure of the helpline?

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I do not have the details of who was told at what stage, but even though HMRC is a non-ministerial department and has a close relationship with the Ministers with oversight of HMRC, operational decisions are taken by HMRC’s management. The decision on the helpline followed two trials last year, the evaluations for which were published, showing that closing access to those helplines for certain people had no adverse effects at all. A commitment has been made that the helplines will remain open over the year ahead, but we are focused on listening to feedback and ensuring that as many people as possible can make the transition to online services, which have a far higher customer satisfaction rate than the phone lines.

[Baroness Kramer (LD)]

My Lords, it is not just this particular shambles: HMRC’s own surveys, which you can read in its annual reports, show that customer service has pretty much collapsed within that departmental agency. Its leadership has failed to recognise that the huge shift to self-employment, contract work and gig work has pushed swathes of ordinary people into a tax minefield. I ask that the Government provide HMRC with more resources to deal with this issue, but will they also tackle the culture at HMRC, which, at the top, remains focused on compliance through aggressive enforcement rather than through proper customer service and support? Most people want to pay the right tax; they just do not know what it is or how to do it.

[Baroness Vere of Norbiton (Con)]

I do not fully recognise the picture that the noble Baroness paints. Over the course of this Parliament, the amount of funding provided to HMRC has increased from £4.3 billion in 2019-20 to £5.2 billion in 2024-25, and the overall customer satisfaction across phone, web chat and online is 79.2% versus a target of 80%. However, I recognise that there are certain elements within the HMRC offer where taxpayers need to get a better service. That includes answering correspondence for some of the more complex and hard-to-reach people: the vulnerable and the digitally excluded. That is exactly why, quite frankly, we need to move resources from taxpayers who can and should use online and ensure that those resources can be targeted at those areas where customer service is not as good as it should be. That is what we intend to do.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend accept that the large reduction in the number of people in this country who are self-employed is a direct consequence of the Government’s introduction of IR35 legislation, which has led to huge confusion among the self-employed? Many people are giving up—just ask any taxi driver in London. Does she really think that the Inland Revenue, or HMRC as it is now, can provide a proper service with so many of its people working from home?

[Baroness Vere of Norbiton (Con)]

Obviously, it is up to the individual to ensure that they pay the right tax at the right time. HMRC intends to make that as easy as possible, but for some more complex situations it is right that individuals get tax advice. People working for HMRC can work from home two days a week. They use the same systems as they do in the office, and they are held to the same standard that they would experience when they are in the office.

[Baroness Ritchie of Downpatrick (Lab)]

My Lords, the media reports yesterday said that people who are unable to get online will still get assistance from staff during office hours, although it is not immediately clear how that will work. Given that more than 12 million people are required to complete self-assessment forms every year, maybe the Minister could advise your Lordships’ House about the discussions that have taken place with HMRC to facilitate all the people requiring self-assessment, particularly those who do not have online access and who need, by law, to complete such forms.

[Baroness Vere of Norbiton (Con)]

I am incredibly happy to do that. Of the self-assessment tax returns that were submitted on time, 97% were done online, so just 3% were not. HMRC has an entire focus on the 120,000 people who are vulnerable or digitally excluded. It is those people whom HMRC wishes to target its resources on. Some 3 million calls were received last year, which took 500 full-time equivalents an entire year to answer. Those calls were people phoning up to ask how to change their password, how to get their tax code, or what their national insurance number was. That can be done online. Those who can access the online services really must do.

[Lord Brownlow of Shurlock Row (Con)]

My Lords, I pay tribute to my noble friend Lord Cormack. What a privilege it was, along with others from your Lordships’ House and the other place, to be at his funeral yesterday in Lincoln Cathedral.

Is my noble friend the Minister satisfied and content with the advice given by the current board of HMRC? I declare my interest of having worked on a private sector board with a current member of the HMRC board.

[Baroness Vere of Norbiton (Con)]

The HMRC board as currently constituted is advisory. I know that my colleague the Financial Secretary to the Treasury is taking a keen interest in the strategy and its operationalisation within the HMRC. I expect that we will see some improvement shortly.

[The Earl of Clancarty (CB)]

My Lords, I thank the Minister very much for helping to facilitate the meeting on A1 forms that parliamentarians had with the Financial Secretary to the Treasury, but a specific concern of users was very much the lack of a helpline, so what I am hearing at the moment is concerning.

[Baroness Vere of Norbiton (Con)]

The helplines that would have closed relate to VAT and PAYE and self-assessment. HMRC is putting in various digital solutions to ensure that people can access A1 forms as quickly as possible and, as with all other forms of tax, accessing online is quicker, can be more convenient and certainly offers the best value for money for the taxpayer.

[Lord Watts (Lab)]

My Lords, is it not the case that the people who carried out this assessment are the same people who have been failing the public for many years? Who carried that assessment out? Does the Minister understand that many people who try to contact the tax office do so after they have failed to get through or get any answers from the online service?

[Baroness Vere of Norbiton (Con)]

I accept that that can be the case. There is a digital assistant in the first instance, which is like a chatbot which can help with very simple inquiries; then it goes on to web chat; and then if the person on the other end of the web chat says that they cannot help, of course one is then able to phone HMRC. HMRC monitors all its channels for levels of confidence, levels of access, emotional state, mental health capability, comprehension and disability, and those people are referred to the extra support service team.

[Baroness Altmann (Con)]

My Lords, will my noble friend consider the increasing number of pensioners being dragged into the tax net as the tax threshold is frozen and the state pension has increased significantly? Many more will go into the tax zone and many will have never filled out a tax return in their life and have no idea that they are in line to pay tax. Yet, when they get a demand and a potential penalty, they will have nobody to phone; many of them will be unable to get online, and increasingly all it takes is a state pension plus a small extra income for them to come over the limit. Will the department consider some special measures to help those pensioners who are never going to get online? I would be grateful if the Minister would take that back to the department.

[Baroness Vere of Norbiton (Con)]

I accept that some pensioners will not be online but the vast majority are and will be able to access HMRC’s services. As I said previously, HMRC is trying to focus its resources on precisely the people that the noble Baroness is concerned about—those who are digitally excluded, whether they be pensioners or not, and those who are more vulnerable, again whether they be pensioners or not.

Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024

Baroness Vere of Norbiton Excerpts

Tuesday 26th March 2024 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these draft regulations make use of a provision in the Financial Services and Markets Act 2000 to enable the Prudential Regulation Authority to disapply or modify its rules for individual firms.

The ability of a regulator to flex the application of its rules for individual firms has been a long-standing feature of our approach to regulating financial services. This is a useful regulatory tool that can enable a regulator to take account of a firm’s specific circumstances in order to ensure that rules are applied in ways that achieve the best regulatory outcome. This flexibility has long been supported by regulators and the financial services industry.

Since it was introduced more than 20 years ago, the Financial Services and Markets Act 2000, known as FSMA, has included such a tool. Section 138A of FSMA enables either the Prudential Regulation Authority or the Financial Conduct Authority to disapply or modify its rules for an individual firm. Under Section 138A, the PRA or the FCA can disapply or modify a rule if a firm requests it or if the regulator has the consent of the firm.

As part of the work to adapt our regulatory regime for the UK’s new position outside the EU, this tool was reviewed. It was concluded that, while useful, Section 138A was not as effective as it could be. This is because it contains the test, which must be met before a regulator can permit a firm to disapply or modify rules, that the rules in question must be

“unduly burdensome or would not achieve the purpose for which the rules were made”.

This requirement does not always allow for rules to be flexed, even where appropriate disapplication or modification of rules would provide a better regulatory outcome.

The Government addressed this by introducing a new ability for regulators to flex their rules in a wider range of circumstances. This was legislated for through the Financial Services and Markets Act 2023 and is now set out in Section 138BA of FSMA. Under Section 138BA, the Treasury may specify regulator rules made under FSMA, which the relevant regulator can then permit a firm to disapply or modify. As with the existing rule-flexing tool in FSMA, a regulator can permit a firm to disapply or modify rules under Section 138BA only if the firm requests this or consents.

These regulations exercise, for the first time, the power approved by Parliament at Section 138BA of FSMA. The regulations do two things. First, they enable the PRA to permit a firm to disapply or modify any PRA rule in accordance with Section 138BA except for conduct rules and threshold conditions rules, which FSMA excludes from the scope of Section 138BA. After careful consideration, the Government have concluded that the PRA should have the ability to permit a firm to disapply or modify any PRA rule. This is because flexibility in the application of rules is particularly important for banks, large investment firms and insurers that are regulated by the PRA. These complex institutions, with highly specialised business models, often require a highly tailored approach to ensure that they are appropriately regulated.

Secondly, these regulations apply certain procedural safeguards to the PRA’s decisions under Section 138BA. When the PRA refuses a firm’s application or imposes conditions on a firm’s permission to disapply or modify rules, the PRA must issue a notice explaining its decision. When a permission to disapply or modify rules is given, the PRA must publish a decision notice so that it is public knowledge that a particular firm is subject to a tailored regulatory requirement. The regulations provide for an exception where the PRA is satisfied that publication is unnecessary or inappropriate, taking into account certain specified matters, for example whether publication would be detrimental to the stability of the UK financial system. If an affected firm is aggrieved by a PRA decision, it may appeal by referring the decision to the Upper Tribunal, which is the part of the Courts & Tribunals Service responsible for hearing appeals against decisions made by various public sector bodies, including the PRA and the FCA.

These regulations make use of an important regulatory tool recently approved by Parliament in FSMA 2023. They provide the PRA with a level of flexibility needed to ensure that the application of prudential rules to banks, large investment firms and insurers can be flexed, where appropriate, to ensure that regulation of these large and complex firms remains effective. They also ensure that the PRA, when taking these decisions, is appropriately accountable and transparent. I beg to move.

[Lord Sharkey (LD)]

My Lords, the Explanatory Memorandum and de minimis impact assessment for this SI contain a number of vague assertions. Nowhere is there to be found a plain English statement of the benefit brought about this SI, except in the vaguest and most general terms. In essence, as the Minister has explained, this SI does one important thing: it removes the two conditions, of which one must be fulfilled, for the PRA to allow modification or disapplication of the rules for individual firms.

This power to allow the modification or disapplication is, as the Minister has said, contained in Section 138A of FSMA. The two conditions to be granted a waiver are that the rule or rules in question are “unduly burdensome” and/or

“would not achieve the purpose for which the rules were made”.

The PRA appears to be the sole judge of whether either or both of these conditions may apply. There is no definition of “unduly burdensome” and no specified mechanism for deciding whether the rules are fit for purpose or not. The Explanatory Memorandum seems to suggest that such rulings may be challenged in the Upper Tribunal. Is there a body of case law from Upper Tribunal hearings that helps with the definition of “unduly burdensome” and how “fit for purpose” may be established?

Currently, waivers may be granted only if either of the two conditions applies, and the PRA appears to have discretion over whether they do or do not. This SI changes that; it inserts an additional and unconditional waiver mechanism which allows the PRA, as the Minister has said, practically unfettered discretion to modify or disapply rules for individual firms as it sees fit. What justification is there for allowing this unfettered discretion? What is really wrong with the current arrangements?

The EM and the IA both have a go at answering those questions. In paragraph 5.4, the EM states that

“section 138A of FSMA … does not, by itself, provide sufficient flexibility for a truly agile regulatory regime … This requirement”—

by which it means the two conditions—

“does not always allow for rules to be flexed, even where appropriate disapplication or modification of rules would provide a better regulatory outcome”.

The EM does not give any examples to show how dropping the two conditions may help in practice, and nor does it explain how a better regulatory outcome may be defined or by whom—I guess that that is the PRA again, at its absolute discretion.

The impact assessment tries to give a concrete example in the matching adjustment regime, widely criticised as being not fit for purpose and, therefore, a fairly obvious candidate for disapplication or, more likely, modification under the existing rules. This shows the weakness in the impact assessment’s case, which says rather limply:

“Without this SI, the PRA would find it much more difficult to allow firms to continue to use beneficial provisions like the Matching Adjustment”.


So it is clearly not impossible—it is simply saying that it is really difficult. Why is it much more difficult? Could the Minister explain the point about a possible difficulty in dealing with the matching adjustment using Section 138A rather than this new SI? Can she give perhaps more concrete examples of the dangers avoided in or the benefits arising from dropping the two existing FSMA conditions?

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing this SI, which delivers on one of the aims of the smarter regulatory framework, in that it will allow the Prudential Regulation Authority to disapply or modify the rules in the Financial Services and Markets Act in response to changing market conditions or emerging risks, and to facilitate innovation. We supported the principle behind this SI during the passage of the Act last year; as such, I have just a few questions.

First, can the Minister confirm how many times the existing power under Section 138A of FSMA has been used by the regulator in each of the past three years? Is there a forecast for how many times the new procedure is expected to be used in each of the next three years?

Secondly, the Explanatory Memorandum accompanying the SI notes that PRA decisions under this new mechanism will be challengeable in the Upper Tribunal, as the Minister noted. Is there any estimate of the potential caseload that may result from this new system? Can she confirm how long the Upper Tribunal is likely to take to determine challenges, and at what cost to applicants?

Thirdly, can the Minister confirm that, in considering an application to flex the rules, the regulator will remain bound by its objectives around financial and market stability? Finally, the impact assessment accompanying the SI talks of familiarisation costs for businesses. Are there any similar resourcing implications for the PRA? Are any additional positions needed at the regulator to deal with potential additional workload?

I am grateful to the Minister in advance for her answers. I take this opportunity to wish her and the noble Lord, Lord Sharkey, a happy Easter.

[Baroness Vere of Norbiton (Con)]

My Lords, I too wish all noble Lords a very happy Easter—there is one more day to go, I believe. I am grateful to both noble Lords for their contributions to this short debate. I have the answers to nearly but not quite all of their questions. I am disappointed in myself, but never mind; we will keep going.

I would like to go back to first principles. This was raised by the noble Lord, Lord Livermore, and to a certain extent by the noble Lord, Lord Sharkey. The PRA is governed by its core objectives, which are set out in law. There are two primary statutory objectives for the PRA: a general objective to promote the safety and soundness of PRA-authorised firms and an insurance objective to contribute to securing an appropriate degree of protection for those who are, or may become, insurance policyholders. Underlying that, FSMA also sets out two secondary statutory objectives for the PRA on effective competition, aligning to international standards and promoting growth in competitiveness. That is our starting point; that is the PRA’s job, per se. In taking a decision to disapply and modify rules, it must do so in that context.

The noble Lord, Lord Livermore, asked how many times Section 138A has been used in the last three years. I do not know, but I will write on that and explain what has happened to date. I will also write about the caseload and what we expect for the timeline in court. I do not anticipate that it will be enormous. With much of this regulatory behaviour, where there are disputes regulators will try to mediate wherever possible.

Turning to why the PRA would decide to disapply or modify rules, it is about getting greater flexibility to allow the system to work more effectively within the statutory objectives set out in FSMA. The provision does not direct a regulator as to how it should decide, because these are independent regulators. When this part of FSMA 2023 was debated, it attracted no debate at all, so I had therefore expected that noble Lords were very much onside with the powers we had given to the PRA, or potentially to the PRA, via this statutory instrument. It will be for the relevant regulator, in this case the PRA, to set out its policy for the disapplication or modification of rules. Noble Lords may have seen that it has already started to do this.

This goes back to the issue of transparency and ensuring that the public, and of course the industry too, are aware of what is going on. A whole series of industry consultations takes place whenever the use of 138BA is anticipated. Not only was the Section 138BA issue subject to consultations in 2020 and 2021, when we were developing and finalising our approach to the smarter regulatory framework, but, more recently, and more specifically, the PRA issued consultations on statements of policy. What happens is that the PRA says, “Okay, this is what we’re going to do. We’re going to put out a statement of policy”—for example, it has done it on Solvency II matching adjustments. The industry will then contribute to that, and it will go on to use whatever rules and regulations it now feels the industry agrees is appropriate.

So far, I think there have been two specific consultations and also a more general consultation by the PRA, basically saying, “Every time we do this, we will put out a statement of policy. Industry, do you think this is the right approach and the right thing to do?” So, I believe there is quite a lot of information being published around this. Obviously, it is not only for the industry to scrutinise that; it will be for others to scrutinise it as well, to ensure that we are not exposing our economy to detriment or, indeed, impacting our financial stability. That all seems fairly appropriate, straightforward and transparent.

The noble Lord, Lord Sharkey, asked about the Solvency II matching adjustment. It is our view, and I believe the view of the PRA, that it would not have been possible under 138A, because one of those two conditions would have had to have been met, and one could potentially say that it has not been. Is it unduly burdensome? I am not sure that it is, because it is more of an adjustment that annuity providers can use to secure more proportionate capital requirements. That is not a burdensome or non-burdensome issue; it is just that there is an opportunity to release capital by taking a sensible regulatory decision around matching.

The same goes for models as well. For example, in certain circumstances it may be the case that an institution’s model is better than the standard model that one tries to apply to the whole industry. If it can reassure the regulator that the model is robust, then, again, those might be the sorts of elements that one can put in to firm-specific changes to regulation. However, I fear that this will be returned to by the PRA over the coming years as we deal with assimilated law.

During the passage of FSMA 2023, we did say that we wanted agile regulators that are able to regulate and to change things according to risk. In this case, that will be by an individual organisation. But, as we go through and look at all the assimilated law that we dealt with under FSMA, some of it will then be able to fall away, because provision is available under 138BA that will be able to fill the regulatory gap that was previously occupied by that specific piece of regulation, but was then switched over to PRA rules and the way that it then chooses to put those into place. Again, this was the approach that was agreed during the passage of FSMA.

Sadly, I do not have anything on the PRA’s resources. I suspect that it has been gearing up for this for quite a long time; as I said, it has already started getting to work on consulting. Obviously, without the powers, it is unable to issue any firm-specific disapplications or modifications, but I will certainly write to the noble Lord if I get anything further on this matter. I have a few things to write on.

[Lord Sharkey (LD)]

I thank the Minister for her explanations. I have two or three points to make.

First, I am still rather puzzled about the matching adjustment, for two reasons. As the Minister will know, there is quite a lot of criticism of the matching adjustment. There is a sense in which it would be, I would have thought, relatively easy to categorise it as not quite fit for purpose; that is why I am puzzled that Section 138A had not been, or would not be used in the case of matching adjustments. Also, the de minimis assessment says that

“the PRA would find it much more difficult”;

it does not actually say that it would be impossible using Section 138A. If the Minister is going to write to us, perhaps she might expand on this point a little.

Secondly, I am curious about the body of case law from the Upper Tribunal. It would be interesting to know whether there is such a body and whether we can learn anything from it.

My third point is to do with publication. As I understand it, the current waivers issued by the PRA and the FCA are published in some detail. I was asking for some kind of commitment. Under new Section 138BA, the waivers will be published, I assume, but will they be published saying what the problem is, why this course of action has been chosen, what benefits are expected to arise, why the powers in Section 138A of FSMA were not seen as appropriate and why new Section 138BA was necessary? When the Minister writes, perhaps she might say something about this.

[Baroness Vere of Norbiton (Con)]

I can feel officials sending me things but I will write, because the noble Lord has asked some very good questions. We will write him a nice letter with some good explanations.

[Lord Sharkey (LD)]

I end by wishing the Minister a happy Easter.

[Baroness Vere of Norbiton (Con)]

Happy Easter.

Motion agreed.

Supply and Appropriation (Anticipation and Adjustments) Bill

Baroness Vere of Norbiton Excerpts

2nd reading & 3rd reading & Committee negatived
Tuesday 19th March 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

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.

Electronic Payment Devices

Baroness Vere of Norbiton Excerpts

Tuesday 19th March 2024 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, the Government are unequivocally supportive of all efforts by the financial services industry, the card machine operators and charities such as the Royal National Institute for the Blind to make card machines fully accessible for those with visual impairments. In November 2023, UK Finance published a list of vendors which produce approved devices, to assist merchants with purchasing a device that is sufficiently accessible.

[Lord Blunkett (Lab)]

My Lords, someone with low or no vision can access a smartphone because there is a Siri or voice-over function, and you can have several goes if you hit the wrong buttons the first time. If you are spending over £100 in hospitality and you are faced with a flat screen and you get it wrong, you lose access to your card. The providers are pretending that there is accessibility when there are markings down the left-hand side of a flatscreen. It is a major challenge for those without sight. It is, in my view, in complete breach of the Equality Act 2010. The providers do not provide the necessary covers that can be available to make at least a stab—I mean literally a stab—at hitting the right buttons, and it is time we acted.

[Baroness Vere of Norbiton (Con)]

I recognise the issues raised by the noble Lord, and the financial services industry also recognises these challenges. As I have already said, UK Finance publishes a list of vendors, recognising that it is not just financial services companies that use these machines; it may be the merchants themselves. This builds on work by UK Finance and the RNIB in publishing accessibility guidance, which only happened in 2022. Today, the third in a series of three forums is happening involving UK financial services groups and charities, and each of the three forums is focusing on specific interventions—whether it be technology or training to help improve the accessibility of all sorts of banking services.

[Lord Holmes of Richmond (Con)]

My Lords, I declare my financial services interest as set out in the register, and I congratulate my friend, the noble Lord, Lord Blunkett, on his timely Question. There are two issues involved here: access to, and the accessibility of, financial services and products. Both have serious impacts, if not got right, not just for the blind and visually impaired but for all people in our communities. For example, bank notes have never been more accessible, and yet have never been more difficult to access. What further conversations will the Government have with UK Finance and with all financial services organisations to ensure that there is both access to and accessibility of all financial services and products? Without this work, the Government cannot really stand up any claims to financial inclusion.

[Baroness Vere of Norbiton (Con)]

My noble friend raises a wide suite of issues. Underpinning all the work the financial services industry is doing is the Financial Conduct Authority, which is responsible for regulating the sector. Principle 6 of its principles for business says that the sector must take particular care in the treatment of vulnerable customers. The FCA is reviewing the needs of vulnerable customers and may update its guidance shortly.

[Baroness Kramer (LD)]

My Lords, the Minister and other noble Lords have mentioned the FCA, and I would like to continue that conversation. When we left the EU, the credit card companies seized the opportunity of the loss of regulation to increase credit card interchange fees in the UK fivefold—a Brexit dividend for the card companies of some £200 million a year, the cost of which effectively falls on the consumer. Why have neither the Government nor the FCA as regulator acted to reverse what could be called the Brexit penalty?

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble Baroness for her question. Unfortunately, it goes slightly beyond my briefing today, but I will write.

[Lord Livermore (Lab)]

My Lords, I pay tribute to my noble friend Lord Blunkett and the noble Lord, Lord Holmes of Richmond, for their work to improve accessibility in financial services for blind and partially sighted people. As ever more transactions become cashless, every customer must have confidence in the payment systems used. Can the Minister outline what, if any, regulations assist for the manufacturers and providers of touch-screen payment devices? Why does regulation not seem to have kept pace with this move towards touch-screen technology?

[Baroness Vere of Norbiton (Con)]

Regulations that were introduced at any particular point in time have become out of date very quickly. Underpinning the work we are doing is the Equality Act 2010. The whole point about having an independent regulator in the FCA is that its rules can change quickly. The FCA issues guidance which sets out how financial services organisations need to ensure that people with disabilities, who may be more vulnerable, get the support they need. That is better than regulation: having the FCA as an independent regulator is more agile than having straight government regulation.

[Lord Watts (Lab)]

My Lords, the Government’s regulators fail to protect the public. Virtually every regulator is failing to do its duty, while the Government stand by and do nothing. We need a regulator for the regulators.

[Baroness Vere of Norbiton (Con)]

My Lords, I am not entirely sure that I am here to speak for all regulators. However, the consumer duty was introduced, whereby the FCA must ensure that the financial services sector is delivering good outcomes to prevent harm. That was introduced only in July 2023 and will take a little while to bed in. We will monitor the outcomes of that consumer duty to ensure that it is having the impact on disabled and other vulnerable customers that we need to see.

[Lord Blunkett (Lab)]

My Lords, I would like to invite the Minister out to dinner, and I promise to pay if there is a flat screen that I can access.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

Now that is a first at the Dispatch Box—I have been invited on to buses and trains but never out to dinner. I do not know what to say to that, but I will try to find a restaurant that has an appropriate touch screen and I would be happy to continue the conversation.

[Lord Holmes of Richmond (Con)]

My Lords, does my noble friend agree that, if the concept of “inclusive by design” was thoroughly understood, we would never have had these inaccessible touch-screen devices? Will she go back to the department and ensure that HM Treasury works to ensure that all financial services and products are inclusive designed at every stage?

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend. That is something that the FCA should take from this, and it needs to feed back into the work that we know that EY, in conjunction with UK Finance, is doing on accessibility at the moment. If they are not talking about “inclusive by design”, then I think they are going wrong.

[Lord Mackenzie of Framwellgate (Non-Afl)]

My Lords, is the Minister aware that, on one of her rare visits to London, my wife had her credit card stolen? I monitored the use of the card and did not report it to the police because the thief was spending less than she was.

[Baroness Vere of Norbiton (Con)]

One should always report these matters to the police.

National Insurance Contributions (Reduction in Rates) (No. 2) Bill

Baroness Vere of Norbiton Excerpts

2nd reading
Monday 18th March 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the Bill be now read a second time.

Bill read a second time and committed to a Committee of the Whole House.